Six issues that will cause your customer feedback process to fail long term

May 1, 2011 By Leave a Comment

You’re all fired up to implement a new customer feedback process, secure in the knowledge that it will be the best your company has ever seen.

However, it you want it to succeed long term you need to make sure that you overcome cover all six of these reasons that customer feedback processes fail long term.

Lack of Senior Management buy-in

Without senior management buy-in to the customer feedback process, not just the collection of data but the whole process, adoption will be limited and eventually fail.

When starting out on the customer feedback journey it’s okay to rely on a little faith based support from senior  management.  However, that support must actually exist.  If senior management are not sure or give the process lip service support then you will fail to gain long term traction.

Because hard ROI figures are so difficult to find in the early days of the program you should be ready with case studies of the impact that a good customer feedback process has had for other companies.

Not thinking through the organisational change

When implementing a customer feedback process, adoption and impact can be substantially improved through the implementation of best practice organisation structures.

Elements such as a well thought out Governance process, the existence of Steering committees, properly documented service recovery processes, etc. will increase the impact of implementing the process and generate a much better overall business benefit.

Not linking feedback to business success

Explicitly linking customer feedback process to business success demonstrates to senior management how the investment in data collection and action is driving up overall company value.  If this linkage is not created early in the process then budget for the implementation can quickly come under pressure.

Of course one of the better ways to create this linkage is to use Net Promoter Score as one of the core metrics for the process.  NPS has been shown to link to long term revenue growth.  What’s more there are some clear ways to link NPS to business value.  These become invaluable when you need to demonstrate the return on investment for your program.

Not aligning KPI Targets

As the old saying goes “what gets measured gets done”.  As you roll-out your new process you need to ensure that it is included in staff KPIs, as and where appropriate.

That is not to say that you just add the customer feedback KPI willy nilly to everyone’s objectives.  The roll-out needs to be done carefully to ensure that people trust the numbers and understand how to change them.

Siloed approach to implementation

Customer feedback action is not the responsibility of one department.  The best practice approach to customer feedback implementation is a cross functional management team where the roll of the customer feedback team is to facilitate and support the other departments.

The customer feedback team are the enablers of process within the organisation but they are not soley responsible for success.

Operational teams then use the data and analysis provided by the NPS team to drive change in their part of the organisation.

Thinking of it as a project not a process

Customer feedback is not a project to be completed but a due date; it is instead an approach to doing business.  Once the data collection systems have been created the organisation needs to utilise the customer feedback gathered long term to improve the business.

Want to learn more about how to implement an effective customer feedback system?  Download our free report.

Net Promoter, Net Promoter Score and NPS are registered trademarks of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld.

By Adam Ramshaw

Filed Under: Customer Feedback Process, Customer Feedback Surveys Tagged With: ,

How to calculate customer retention rate

January 9, 2011 By 2 Comments

Recently a client asked me for a tool to help them calculate their customer retention rate. Along with the request came some questions about what they should include in their retention rate calculation:

  • Do we only include monthly retainer clients and not one time clients?
  • What about clients that sign on midyear?
  • Do we just take the total clients at the beginning of the year and then at the end of the year and calculate it that way?

While we have an excellent customer lifetime value calculator, the issue is that there is no such thing as a standard “retention rate” calculator.  What’s more the answer to each of these questions is not absolute and will depend on what your organisation is trying to achieve.  Companies need to make decisions on what to include in the retention rate based on their own circumstances.

At a high level Retention Rate = (1 – Attrition rate).

Attrition rate is the percentage of customers that leave in any given time period. Normally retention rates are given in annual rates but some industries, e.g. telecommunication companies, often use monthly rates.

Do we only include monthly retainer clients and not one time clients?

This depends on whether your strategy is to grow retainer or project based business.

If you are strategically focused on retainer clients and see the project work as bluebirds (good to get but not something that you are chasing) then maybe you want to leave project work out.

On the other hand if you are focused on project business you will need to determine how to tell a retained customer from a lost customer.  Maybe you can make an assumption that if you get one or more projects from a company in any 24 month period then they are a current customer.  That way you can tell which customers have been retained and which have left.

Do we just take the total clients at the beginning of the year and then at the end of the year and calculate it that way?

This is certainly a good option but an improvement to the process would be to look at rolling 12 month periods; January-December, February-January, etc.  That way you can generate an annual retention rate and report it each month. It also means that you can reduce any annual seasonality in your reporting.

This approach also answers the “What about clients that sign on midyear?” question.

As you can see there is no right way to calculate retention rate – only the right way in the context of your business.

More Information

Free Download: Customer Lifetime Value Estimation Tool

In addition to calculating the lifetime customer value the Genroe Return on Retention Estimator also calculates impact of changes in customer attrition rates.

By Adam Ramshaw

Filed Under: Customer Retention Tagged With: ,

How do you determine the value of Net Promoter Score?

December 5, 2010 By Leave a Comment

Recently, the CFO of one of my customer’s asked “How to we determine the value of Net Promoter Score?” and wanted a “two sentence response”. The question was asked in the context of investing in NPS data collection.

It is a very good question and one that took a while for me to answer succinctly.  Not because the value of NPS is low, it is high, but because there are a few links in the logic chain that need to be made explicit before you can provide that answer.

Link 1: Increasing customer loyalty increases business value.

Customer loyalty is the propensity for a customer to re-buy, buy more or buy different things from a company over an extended period.  It is generally acknowledged that it is cheaper and more efficient to sell again to an existing customer than find a new customer.

On this basis; higher levels of customer loyalty increase business value.  If you doubt this assertion you can try out a few scenarios on this customer lifetime value calculation tool.   You can change the different variables in the model to see how it affects customer and business value.

You will see that increasing the customer retention (or loyalty) statistic invariably leads to increased company value.

Link 2: Net Promoter Score processes tell you what influences customer loyalty

The next critical link is that the Net Promoter Score approach can help you to understand what service and product attributes influence customer loyalty.  Many organisations have tested the Net Promoter Score approach and, those that have implemented it correctly, have tapped into a very effective way to listen to and understand what customers want.

This is important because in order to lift customer loyalty you first need to understand what customers care about, what is important to them and how you are performing in their eyes.  Only with this understanding can you make the correct changes in the business.

Link 3: Make changes in your business to efficiently deliver what customers want.

The link to action is the last critical step.  Measuring and understanding are a waste of resources without making changes in the organisation to deliver what customers want.  You have to make changes in your business to deliver value from the NPS process.

The value of Net Promoter Score

So to come back to our first question: “How do you determine the value of Net Promoter Score?”

Think of it this way, the only reason that you have a speedometer in your car is so you know how fast you are going.  If you were to ignore this information it can come at a heavy penalty: death, injury or at the very least a speeding fine.  Instead you use the information it provides to constantly adjust your speed up and down to optimise your progress to your destination.  Fast enough to be efficient, legal, and not slow down those around you.  Slow enough to not be a danger to yourself or those around you.

Net Promoter Score feedback is no different.  It enables you to constantly adjust your business to meet what customers want without over-delivering in one area or under-delivering in another.  It helps you to be the most efficient and effective business possible.

So what was my two sentence response?

“The value of the Net Promoter Score process is the lift in business value derived from driving up customer loyalty and driving down organisational costs.  NPS enables the company to constantly adjust product and service attributes to meet customer needs in the most efficient and effective way; without over-delivering or under-delivering in any area.”

More Information

For more information on Net Promoter Score and how/why it works download our free Introduction to Net Promoter Score (NPS).

If you are thinking about implementing Net Promoter Score (NPS) in your organisation give us a call. We can help you to implement an effective Net Promoter Score customer needs survey program for your business.

Net Promoter, Net Promoter Score and NPS are registered trademarks of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld.

By Adam Ramshaw

Filed Under: Customer Experience Management, Customer Feedback Process, Net Promoter Score Tagged With: , , ,

When does the Service Recovery Paradox work and when does it fail?

November 14, 2010 By 1 Comment

One of the reasons that I like the Transactional Net Promoter Score approach is that it allows for proactive service recovery.

Transactional NPS focuses on each service moment of truth and asks the customer about their experience at that exact time.  This allows you to drill down into each customer touch point and quantify its ability to generate or destroy customer loyalty.  As a bonus, if you run the process in the right way, you can generate a service recovery notification for sub-standard customer experiences.

This allows you to run a service recovery process and, hopefully, become the proud recipient of increased customer loyalty though the service recovery paradox.

But is the service recovery paradox real?  Do customers who have had an issue resolved really generate more loyalty than those that have never had an issue?

Luckily we have the help of academia to answer that question: yes indeed the service recovery paradox is real but it does not work equally well in every situation.

Magnini et. al. in their paper “The service recovery paradox: justifiable theory or smoldering myth?” set out to determine if, when and how the service recovery paradox operates.  Their findings are instructive not just on how to leverage this idea but also in reminding us that it is not a saviour for bad service.

What is most interesting about their research is that the service recovery effect is moderated by several attributes of the failure.  Their key findings in this area include:

  • It doesn’t work as well for customers who have prior failures:  This is logical, if the organisation has repeated service failures then the customer will not be satisfied with repeated service recoveries.  The implications of this are clear.  Service recovery processes are special event responses and should not be relied upon to deliver good service.
  • It doesn’t work as well for big failures: If a customer misses a major personal event due to a delayed flight no amount of discounted flight coupons is going to raise their level of satisfaction.
  • If works just as well for old customers as new customers: Long term customers who experience a service recovery will have their loyalty improved about the same amount as new customers.
  • It works better if the customer believes it was beyond your control: Where a customer can see, or you can show them, that the issue was beyond your control, a service recovery process has a better chance of improving customer loyalty.  So if you can provide a third party explanation of the failure you may be better off.  Take for example delayed flights by airlines.Saying, as airlines seem to do all the time these days, “this flight is late because it was late departing” is less likely to invoke the service recovery paradox than saying “this flight is late because of bad weather”.   The implication here is that staff should be taught to manage customer expectations when the service issue is truly beyond company control.
  • If works better if customers perceive the issue was not reasonably foreseeable: If your local supermarket doesn’t have enough aisles open late Sunday afternoon, when everyone does their last minute shopping for the week ahead, customers are less likely to be wowed by your service recovery.

It seems to me that all of these findings are consistent and lead to a clear view of service recovery.  Service recovery is like your favourite donut: it is a sometimes event, not an every day event.

Long term you need to work on your customer experience management processes to ensure that you deliver consistent and reliable service to your customers.  If occasionally you do make a mistake, customers will forgive you, subject to the areas noted above, and proactive service recovery will lift customer loyalty.  However, do not rely on service recovery processes as your service processes.

If you’d like to learn more about Customer Experience Management download our 4 Steps to Customer Experience Management whitepaper.  It examines the process of determining the value, designing and executing Customer Experience Management programmes.

By Adam Ramshaw

Filed Under: Customer Loyalty Management, Customer Retention, Net Promoter Score Tagged With: ,

3 Practical Customer Retention approaches you can start today

November 7, 2010 By Leave a Comment

Competition is tougher than ever before and many companies are out prospecting like mad for new customers.  However, most don’t realise that the fastest, cheapest and lowest risk way of protecting their business is not finding new customers but nurturing existing customers.  I know you’ve heard the old adage that it’s easier to sell to an existing customer than a new one; well it’s true and now is the time to take it to heart.

Right up front though there is one founding approach to customer retention management that will dramatically increase your effectiveness: have a bias towards action.

Planning is always important but it is better to start with an initiative that is 80% right and improve it over time than wait until it’s 100% right.  While you plan, your competitor is making inroads into your customer base.

But remember that because not everything is perfect when you start and you need to fine tune as you go. Test different approaches, try different ideas, keep the ones that work and discard the others. This also helps you to adapt to the changing market and business requirements.

Which are your valuable customers?

Before you start on any customer retention initiatives you first need to determine which customers are more valuable and which are less valuable.  This is important to ensure that you really look after the most valuable customers.

This can be as easy as ranking your customers by annual revenue, gross margin or profit.  Then you can split them into three equally sized groups: A, B and C.  “A”: customers are the most valuable.

Measure your customer retention

As the old saying goes “What gets measured gets done”.  Make sure that you measure your current customer retention in a meaningful way so that you know when you are having a positive impact.

Often, effective customer retention strategies are stopped because no-one thought to measure the baseline and success rate.  Without measures to demonstrate success, management and staff lose interest and the initiatives are often discontinued or fall by the wayside.

Retention Strategy 1: Onboarding

You can set yourself up for good customer retention at the very start of the customer relationship though effective customer on-boarding.  This is the process of introducing new customers to your company in an organised and effective manner. It generally commences at the time of order placement and may continue for up to three months, depending on the complexity of the product or service.

Done properly, customers that are on-boarded have a substantially higher retention rate, lower cost to serve and higher cross sell rate than customers that are not.

To apply on-boarding to your company think about the very start of the relationship when customers are not familiar dealing with you.  How could you make the experience easier?

For example you could have a staff member call each new customer, outlining the order and delivery process, contact names and details, etc, with a follow-up email that includes a reinforcement of the benefits of your product or services.  Not only will it make the customer feel more comfortable with your organisation but they will also probably buy more long term.  Also, you may find you have fewer order entry problems and delays which means fewer opportunities for customer dissatisfaction.

Retention Strategy 2: Pro-active complaint management

Organisations often give little thought to their complaint management process; it’s just another cost of running the business.  However, managed properly this process can be an excellent way to build strong customer relationships; it’s a little known fact that if you help a dissatisfied customer and resolve their issue they are often more loyal than customers who were never dissatisfied in the first place. Strange but true.

So you must get your complaint management process right and it’s not that hard.  There are just a few key elements:

  • Make sure that you actively seek, manage and resolve complaints don’t hide them. Let staff know that you want to hear about complaints.  If have to, change the organisation’s culture.
  • Remember that just recording a complaint is not enough: you actually have to do something about it.  Give staff the accountability and responsibility to act on complaints immediately.  This sounds risky but in practice the vast majority of employees want to do the right thing by the company and the customer.  So long as you have a few sensible controls in place, the risks are quite low.
  • Make it easy to complain by using a range of processes and tools: web forms, paper forms, etc.
  • Train staff in how to respond to complaints.  Receiving and managing a customer complaint is a skill just like any other and you need to provide staff with those skills.

There are training courses available but in summary when managing a complaint staff need to; listen carefully, agree that the issue exists (denial is never a useful option in this case) and then ask the customer what they want done to resolve the issue.  Then they need to fix the issue, thank the customer for their feedback and follow up a few days later to ensure that everything was resolved to their satisfaction.  This sounds simple but poorly managed  complaints can escalate customer dissatisfaction to anger and a customer to ex-customer status.

Retention Strategy 3: Understand what customers want and give it to them

This sounds like the easiest thing in the world and most organisations think that they are doing exactly that but often they don’t really know what customers care about.

For instance one IT company Genroe helped had a great technical support desk.  When a customer had an issue they jumped on it and solved it quick smart.  They weren’t however, as consistent with calling or emailing customers to close the loop when the problem was solved.  After some customer interviews, surveys and data analysis it turned out that having the support person close the loop with the customer was a bigger driver of customer loyalty that getting the problem solved in the first place.  It then took some explanation and training of the technical support staff so that they understood what customers really wanted and how to deliver it consistently.

Another client was about to embark on a major technical training program for their on-site staff believing that customers wanted more highly trained on-site support personnel.  Again, some research and analysis demonstrated that customers valued support staff that were responsive and “did what they said they would” more than pure technical training.  So the training was changed to target interpersonal skills and customer satisfaction improved.

So if you aren’t sure what your customers care about, and even if you think you do, take the time to do some good customer research and then act on it.  Knowing what your customers really want pays excellent retention dividends.

Building a great customer feedback process is not too difficult and you’ll find that it pays dividends over and over again.

Remember that improving customer retention will add substantially to your business bottom line, even if it is just in having to spend less to acquire new customers.  Implementing a few customer retention strategies like these is not difficult and will help you to keep your customers coming back year after year.

By Adam Ramshaw

Filed Under: Customer Loyalty Management, Customer Retention, General Tagged With: ,
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