Customer Loyalty as a Key Support Strategy John Hamilton President Service Strategies Corporation......

Customer Loyalty as a Key Support StrategyJohn Hamilton

President

Service Strategies Corporation

. . . evolving customers from highly . . . evolving customers from highly satisfied to intensely loyal.satisfied to intensely loyal.

Customer Loyalty as a Key Support Strategy

What makes customers really happy?

1. Customer service experience

2. Ease of doing business

3. Price versus value

4. Company reputation


Whether surveying for Customer Satisfaction, Loyalty or both . . .

Customer Survey ProcessCustomer Survey Process


• Whenever we survey a segment of our customer population about satisfaction or loyalty we are using statistics, or more specifically, Inferential Statistics.

• That is, we are inferring something

about the entire population by looking at a sample of that population.

Beginning with a solid foundationBeginning with a solid foundation

Ben Stephens

Second bullet


• Population (Universe)– All Items of Interest

• Parameter– Summary Measure about Population

• Sample– Portion of Population

• Statistic– Summary Measure about Sample

PP in PPopulation & PParameter

SS in SSample & SStatistic

But first . . . Some key Inferential Statistics termsBut first . . . Some key Inferential Statistics terms


• Most Service Vendors have a survey process to measure customer satisfaction– Periodic surveys - Perceptions

– Event/Transactional surveys – Actual experience

• Establish required sample size, target response rates and confidence level

• Quantitative results and verbatim feedback gathered

• Results are analyzed and communicated


Common Errors in Customer SurveysCommon Errors in Customer Surveys

Since the usability of any customer survey depends upon the accuracy of the results, error control plays a critical role in the research process. •Sampling Errors Sampling Errors

The inaccuracy of the results of a survey when a non-random sample of a population is used to infer the satisfaction of the total population.–Only Closes cases–Exclusion period


Respondent Influencing Errors – Respondent Influencing Errors –

•Leading the respondent• Leading question by telephone survey

interviewer.• Survey wording bias.

“We value our highly satisfied customers etc..

• Support representative pleading… “My job depends on your rating”


Questionnaire Structure Errors –Questionnaire Structure Errors –

•Question Ordering bias .–Overall question

•Questionnaire Language error–Ambiguous - Are you satisfied or very satisfied with the

support you received?

•When respondents purposefully or mistakenly give

incorrect answers to survey questions

Respondent ErrorRespondent Error


• Customer survey rating scales have “Satisfaction” set at the mid-point or just above

Example from seven point scaleExtremely

DissatisfiedVery

DissatisfiedVery

SatisfiedExtremelySatisfiedSatisfied


“TOP BOX” IS SIMPLY A TERM USED TO DESCRIBE THE HIGHEST RATING ON A CUSTOMER SURVEY SCALE

• Definition from the “Support Center Practices” Certification program

• Highest rated measurement to better understand customer loyalty and retention– Question:Question:“Overall, how satisfied are you

with the support provided by your vendor ?”


11

22

11

22

33

44

55

66

11

22

33

44

77

4-Point4-PointRating ScaleRating Scale



33

44

55

66

77

88

99

1010

Satisfaction

Top Box

Extremely Satisfied

Extremely Dissatisfied


Now let’s look at the evolution Now let’s look at the evolution from highly satisfied customers to from highly satisfied customers to

intensely loyal customers. But, intensely loyal customers. But, first we must consider . . .? first we must consider . . .?


SatisfactionSatisfaction = Meeting minimum expectation (32% chances of losing customer)

Loyalty Loyalty = Exceeding customers expectation and securing future commitment (0 to 3% chance of losing customers)


It costs five to ten times more money to get a new customer than it does to keep the customers you already have John Tschohl, founder and president, Service Quality Institute.

5% increase in customer loyalty can increase profits by 25 to 85%

Harvard Business Review

Loyalty


• Satisfaction scores for the automotive industry have ballooned up to 90%, while repurchase rates have remained mired below 50% .

• Bain & Company’s research has shown that in business after business, 60% to 80% of customers who defect to a competitor said they were satisfied on the survey just prior to their defection.

Loyalty

Customer Satisfaction

Repurchase Rates


Loyalty

Average investor churn now exceeds 50% per year.

. . . and how about employee and investor loyalty?. . . and how about employee and investor loyalty?

Employee turnover rates of 15-25% are common.Cost of losing a service employee can be as high as $250K


Employee Sources of Job-Related MeaningRelated to Management’s Options to Influence That Source

Sources of MeaningWhat Management Can Do to Increase

Meaning, Thereby Increasing Inner Fulfillment

Stock options. Make the stock grow and split. (Very difficult.)

Career growth and promotion.

Provide for the company’s continued growth so that there are many slots to which one can be promoted. (Very difficult.)

The daily satisfaction of providing a valued service to customers.

Give employees all of the necessary tools and authority to provide a valued service to their customers.

The daily satisfaction of being a valued member of their organization.

Help employees align their daily actions to provide value to the organization and recognize them for doing so.

The daily satisfaction of fulfilling their own personal work-related needs.

Help employees see how daily satisfaction of organizational and customer needs is satisfying their own needs as well.

This concept was supplied by John Wright of Computer Associates.


In 2005, Walker Information conducted a U.S. and European study on customer loyalty in the software and hardware industry.


Of all the major software and hardware companies evaluated as part of this Walker Loyalty Report, just 12 were designated as Loyalty Leaders. Earning high percentages of truly loyal customers, these companies also have relatively low percentages of customers in the high-risk category.

The 12 Loyalty Leaders are:

• Adobe

• Apple

• Cisco Systems

• Dell

• EMC²

• Hewlett-Packard

• IBM

• Microsoft

• Oracle

• SAP

• Sun Microsystems

• Symantec


Walker Loyalty Walker Loyalty Reports Reports

categorize categorize Loyalty in four Loyalty in four

quadrantsquadrants

* Walker Information @ www.walkerinfo.com


Walker Loyalty Walker Loyalty Reports Reports

categorize categorize Loyalty in four Loyalty in four

quadrantsquadrants

* Walker Information @ www.walkerinfo.com

High RiskHigh Risk. . . customers are . . . customers are

dissatisfied and are dissatisfied and are actively looking for actively looking for

alternatives.alternatives.

TrappedTrapped. . . customers feel . . . customers feel

forced to do business forced to do business with you now but will with you now but will

leave if they can.leave if they can.

AccessibleAccessible. . . customers are . . . customers are willing to give you willing to give you

opportunities to earn opportunities to earn their loyalty.their loyalty.

Truly LoyalTruly Loyal. . . customers like . . . customers like your company and your company and choose to associate choose to associate themselves with it.themselves with it.

High RiskHigh Risk. . . customers are . . . customers are

dissatisfied and are dissatisfied and are actively looking for actively looking for

alternatives.alternatives.

TrappedTrapped. . . customers feel . . . customers feel

forced to do business forced to do business with you now but will with you now but will

leave if they can.leave if they can.

AccessibleAccessible. . . customers are . . . customers are willing to give you willing to give you

opportunities to earn opportunities to earn their loyalty.their loyalty.

Truly LoyalTruly Loyal. . . customers like . . . customers like your company and your company and choose to associate choose to associate themselves with it.themselves with it.


Hardware Customers / U.S. Hardware Customers / U.S.

High RiskHigh RiskServers/ Workstations 16% Servers/ Workstations 16%

Network Storage 18%Network Storage 18%

Net Equipment 21%Net Equipment 21%

Mass Storage 25%Mass Storage 25%

TrappedTrappedNetwork Storage 24%Network Storage 24%

Servers/ Workstations 25% Servers/ Workstations 25%

Net Equipment 27% Net Equipment 27%


AccessibleAccessibleServers/ Workstations 4% Servers/ Workstations 4%




Truly LoyalTruly LoyalServers/ Workstations 55% Servers/ Workstations 55%




High RiskHigh RiskServers/ Workstations 16% Servers/ Workstations 16%




TrappedTrappedNetwork Storage 24%Network Storage 24%

Servers/ Workstations 25% Servers/ Workstations 25%

Net Equipment 27% Net Equipment 27%


AccessibleAccessibleServers/ Workstations 4% Servers/ Workstations 4%




Truly LoyalTruly LoyalServers/ Workstations 55% Servers/ Workstations 55%




The U.S. Hardware industry generates less customer loyalty than the Software industry, despite Hardware's higher scores in customer experience areas. This suggests Hardware companies have fewer barriers to switching, more competition, and/or less differentiation. Hardware products are more commodity-like than Software, which is why vendors seek to wrap the products into more consultative solutions for customers.


Software Customers / U.S. Software Customers / U.S.

Software as a total sector in the U.S. maintains more truly loyal customers than does the U.S. Hardware industry. Europe's Software customers are less truly loyal than the U.S. customers and score similarly to Hardware in Europe.

Despite having more loyal customers, Software scores fall slightly below Hardware on company images, and even lower on customer experiences.

Within Software, CRM loyalty is slightly below the norm in the U.S., driven by concerns with total cost of ownership and product quality.

High RiskHigh RiskEnterprise 15% Enterprise 15%

Desktop 16%Desktop 16%

I nfrastructure 18%I nfrastructure 18%

CRM 22%CRM 22%

TrappedTrappedCRM 21% CRM 21%

Enterprise 21%Enterprise 21%



AccessibleAccessibleCRM 5% CRM 5%




Truly LoyalTruly LoyalEnterprise 59% Enterprise 59%



CRM 52%CRM 52%

High RiskHigh RiskEnterprise 15% Enterprise 15%



CRM 22%CRM 22%

TrappedTrappedCRM 21% CRM 21%




AccessibleAccessibleCRM 5% CRM 5%




Truly LoyalTruly LoyalEnterprise 59% Enterprise 59%



CRM 52%CRM 52%


How focusing on Customer Loyalty improved results at How focusing on Customer Loyalty improved results at

Cisco Systems*Cisco Systems* over the past few years. over the past few years.

* Wim Elfrink, Senior Vice President of Customer Advocacy, Cisco Systems

Keynote Speaker at AFSMI Conference – October 2005

Truly LoyalTruly Loyal2003 – 58%2003 – 58%

2004 – 67%2004 – 67%

2005 – 70%2005 – 70%

AccessibleAccessible2003 – 10%2003 – 10%

2004 – 12%2004 – 12%

2005 – 10%2005 – 10%

TrappedTrapped2003 – 15%2003 – 15%

2004 – 7%2004 – 7%

2005 – 7%2005 – 7%

High RiskHigh Risk2003 – 17%2003 – 17%

2004 – 14%2004 – 14%

2005 – 13%2005 – 13%


A useful Customer

Loyalty Index is the percent of

surveys with top box selected on all three of these

questions.

Overall Satisfaction Very Dissatisfied

Dissatisfied Neither

Satisfied or Dissatisfied

Satisfied Very

satisfied

Please rate your overall satisfaction with the support center response to your recent support request.

1 2 3 4

Likelihood of Recommending

Very Unlikely

Unlikely Neither

Likely or Unlikely

Likely Very

Likely

How likely are you to recommend QuickSoft to a friend?

1 2 3 4

Likelihood of additional purchases

Very Unlikely

Unlikely Neither

Likely or Unlikely

Likely Very

Likely

How likely are to buy software products from QuickSoft in the future?

1 2 3 4

5

5

5

ReferenceReferenceWorkbookWorkbookPage 5-68Page 5-68

Measuring Customer LoyaltyMeasuring Customer Loyalty

SCP Support Manager Certification course


The road to Customer Loyalty at Hewlett-Packard.The road to Customer Loyalty at Hewlett-Packard.

* ML Krakauer, Vice President & General Manager, Technology Services, Hewlett-Packard


First time fix rate

Hold time

Quality (monitoring)

Time to resolution

Highly Satisfied

Each of these case attributes were

found to be highly correlated with high levels of

customer satisfaction.


The road to Customer Loyalty at Hewlett-Packard.The road to Customer Loyalty at Hewlett-Packard.

* ML Krakauer, Vice President & General Manager, Technology Services, Hewlett-Packard


Highly Satisfied

Highly Likely to Recommend

Highly Likely to Repurchase

Loyalty Index

The percent of customers that

scored a five on all three of these

survey questions make up the HP

loyalty index.


• McKesson is a client of SatMetrix and uses a variation of the SatMetrix Customer Loyalty Index analysis. The CLI is based typically based on the answers to four questions:

1. How satisfied are you with this provider’s overall performance?

2. How likely is it that you would recommend this provider to a friend or colleague?

3. How likely is it that you will continue to purchase products/services from this provider?

4. If you were selecting a similar provider for the first time, how likely is it that you would use them?

• McKesson only uses the first three questions which are the same as the three questions used at Hewlett Packard and recommended in the SSC Certified Support Managers course.


The SatMetrix CLI analysis separates customers into four categories.

• Promoter– High scores on each of the loyalty questions. They are committed

customers and are very likely to provide recommendations• Content

– Medium to high scores on each of the loyalty questions. Although they are likely to remain loyal, your company should develop action plans so that “Content” customers become “Promoters.”

• Disappointed– Average scores on each of the loyalty questions. They are

dissatisfied with one component of loyalty, and could be easily lost to competitors if your company does not address their needs.

• Lost– Low scores on each of the loyalty questions. They exhibit a high

level of dissatisfaction on the loyalty questions. At this point, it is better to concentrate your efforts on customers in the Disappointed or Content categories.


• Customer driven, recognizing that our customers determine the definition of value Relentless pursuit of excellence, setting aggressive goals and measuring against progress Innovation, open-minded, willing to embrace new ideas and challenge our current way of doing businessSpeed, acting with a sense of urgency, a bias for action and a passion to win People, sharing respect for one another and a common sense of integrity in our work


The Idea in Brief

You only have to ask your customers one question: "How likely is it that you would recommend our company to a friend or colleague?" The more "promoters" your company has, the bigger its growth.


Calculating your Net Promoter Score

Group your customers into "promoters" (extremely likely to recommend), "passively satisfied", and "detractors" (extremely unlikely to recommend). Then subtract the percent-age of detractors from the percentage of promoters.

Promoter Passive Detractor

10 9 8 7 6 5 4 3 2 1 0

Extremely likely

ExtremelyunlikelyNeutral


Comparing Net Promoter Scores and Financial ResultsA more sophisticated approach is to use profitability-based segmentation to align customer experience with corporate goals and objectives.

-20

-10

0

10

20%

0 20 40 60%

IBMGateway

Compaq

HP

Dell

3 year revenue growth

Net Promoters

Wintel PC’s US only

0

5

10

15

20%

10 20 30 40%

Dollar/Thrifty

Budget

Avis

Alamo/National

Hertz

Enterprise

5-year revenue growth

Net Promoters

Rental Cars

-5

0

5

10

15%

-20 0 20 40 60 80%

America West

Alaska

TWA

Southwest

Continental

Northwest

USAir

United

American

Delta

5 year revenue growth

Net Promoters

Airlines US only

0

2

4

6

8

10%

40 50 60 70%

Airborne Express

FedEx

UPS

USPS

5-year revenue growth

Net Promoters

Package Delivery


Market research on lost customers by major companies shows that 14% leave for better product, 9% for cheaper product, 68% because of poor service and/or service provider’s attitude, which can be easily avoided by designing, measuring and monitoring effective customer service process.

Why businesses loose customers!Why businesses loose customers!

New slide

Poor Service / Attitude

68%

Product Quality14%

Price9%

Needs Change5%

Other4%


Re-purchase

Re-purchase

Decision to re-

purchase

Decision to re-

purchase

Post purchase evaluation

Post purchase evaluation

AwarenessAwarenessInitial

PurchaseInitial

Purchase

Re-purchase Loop

Each time a customer buys, he or she progresses through the buying cycle. The first-time buyer goes through five steps. The sequence of purchase, post purchase evaluation, and decision to re-purchase then form a re-purchase loop that is repeated multiple times, during a customer’s relationship with a company and its products and services.

Loyalty and the Purchase CycleLoyalty and the Purchase Cycle


• Immunity– Inoculated against competitive threats

• The big “R’s”– Relationship and revenue– Reference-ability– Repeat business


Loyalty is the commitment you Loyalty is the commitment you

must EARN from your customers must EARN from your customers

in order to maintain an ongoing in order to maintain an ongoing

profitable relationshipprofitable relationship

Customer Loyalty as a Key Support Strategy John Hamilton President Service Strategies Corporation......

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