The Benefits of Making Customer Advocacy Job #1:Happy Customers

Feb 28, 2006 9:04 PM  By

The manager of a multichannel contact center has one of the most difficult jobs on the planet. The manager knows that the critical juncture between a happy customer and one who’s headed for the door, even virtually, is determined by the company’s customer philosophy. And recent studies by Gartner show that with price and products no longer the key to winning and keeping customers, the last competitive advantage is the experience customers have at each and every touch point.

To have chaos or not? Herein lies the heart of every customer relationship management (CRM) strategy quandary. The chaos in a multichannel contact center comes from not having the resources to deliver a fantastic customer experience. If a company sincerely advocates for its customers, then the choices it makes should align the whole business around the customer. By being customer-centric, all the people, process, and technology decisions are structured around one guiding customer strategy that focuses on the value they bring to customers. When there is alignment on all fronts, the chaos that can result from having so many customer channels becomes quiet, deliberate focus.

But not all companies have truly adopted a customer-centric focus and instead are more traditionally focused on the value the customers bring to them. What is fundamentally the difference, and how does this fundamental difference affect the bottom line?

Why it takes money to make money
With a clear objective of putting the customers and their experience at the top of the list, a company’s priorities become really simple. And the financial reward? Crystal clear. Research by Roland T. Rust, the University of Maryland’s director of the Center for E-Service, has shown that customer-relationship-based companies are more focused on building revenue than on cost-cutting initiatives. This is because companies adopting a revenue perspective earn better profits, both in terms of return on assets and stock appreciation, than companies that emphasize cost reductions or cost-cutting while building revenue at the same time. This is because there is a limit to how much organizations can reduce costs before they start hurting the business. With great leadership, however, there isn’t any upper limit of revenue.

University of Michigan professor Claes Fornell, who developed the American Customer Satisfaction Index (ACSI), has shown that a company’s market value added (MVA) and stock price are highly related to ACSI. “Market capitalization,” says Fornell, “is the same as the net present value of the expected cash flow. With few exceptions, these cash flows come from two sources, current customers and new customers.”

Fornell has shown that companies that maintain a steady state of improvement in customer satisfaction over a period of years gain an increasing rate of improvement in their profitability. This is because the customer satisfaction over the long haul has turned into customer loyalty and repurchase probability. A company that improves customer satisfaction by 1% a year during five successive years will on average accumulate an increase of 11.5% return on investment over the same period.

To become customer-centric, most companies will probably have to change something, if not a lot of things. Change almost always means spending money–but in the end, the money spent to focus on the customer will yield exponential results. With the customer experience fast becoming a company’s most important competitive advantage, if you do right by your customers, they’ll return throughout 2006 and beyond. And repeat customers are the key to profitability because it results in increased customer lifetime value (LTV). LTV measures the amount a customer spends over time as well as the increases in the amount they spend. Simply put, the better the customer experience, the larger the LTV.

Walk in your customer’s shoes: the merging of sales and service
The research shows that one of the critical success criteria for increasing LTV and enhancing the customer experience is found in combing sales and service strategies. This means that the role of customer service is emerging into a dual role of service and sales. Studies by Walker Information showed that while 90% of customers reported being satisfied, only 50% reported buying from the company again. They found customers buy because of their experience during the sales process, yet the propensity to repurchase or remain loyal is determined many times by the experience customers have in the after-sales/service experience. In other words, the customer experience doesn’t stop at the sale.

In fact, the repurchase probability is dependent on the after-sale service. This means that companies need to look at the whole customer experience, including service, as part of their revenue model. The Walker study also showed that it could be misleading to measure only customer satisfaction, as satisfied customers don’t always buy again. Customer loyalty and retention are also important metrics.

Each time a customer interacts with a company, that touch point experience can turn into a “torch point” or one in a series of great experiences that enhances the brand image and the likelihood of customer satisfaction as well as loyalty. If you are not providing a fanatical customer experience each and every time a customer interacts with your company, whether on the Web, in a store, or at the contact center, you’ll want to consider making changes. To truly see each touch point from the customer’s point of view may require using business process mapping techniques so that you can see where the gaps are and how best to correct them. You’ll want to ask, “What are the people, process, and technology gaps that are causing the derailment of a great experience?” Then you’ll have a clearer understanding of what you need to do to change those things.

By creating affinity groups–groups of customers who provide a company with feedback so that you can improve the customer experience—you can approach the onslaught of questions, complaints, and returns with new vigor and excitement. The once-dreaded complaint pile is now transformed into a proactive synergy between company and customer. Affinity groups bring customers together to share experiences learn from each other, and teach the company “what would be better if…” In exchange for the wisdom, the customers are granted special access to products, sales, or other benefits.

Part of Amazon.com’s success is attributed to its use of affinity groups. The company has very consistently improved its customer experience each year. In 2003, Amazon received an ACSI score of 84. It was, at that time, the highest score ever recorded–not just online, not just in retailing, but in any service industry. In Professor Fornell’s Quarterly ASCI Report (February 21, 2006), Amazon.com’s ASCI score was 87. No retailer or service provider in ACSI reports has higher customer satisfaction than Amazon. Paralleling its high ACSI scores is Amazon’s overall continuously increasing stock value. While there have been a few dips, from 2001 to 2006 Amazon’s stock price has nearly doubled. This is a testament to the company’s dedication to the customer experience.

To accomplish the customer-centric business model, quintessential customer advocate leaders are using an integrated project management approach that combines people, process, technology, and change management to make the improvement necessary to provide fanatical customer advocates (employees) with the resources to serve customers and help the company become more profitable.

When you change how you do business, leaders must manage those changes before the changes create chaos and manage them. At the forefront of this innovative thinking is looking at how the changes to the business will affect the jobs of those who deliver the customer experience, whether they are directly customer-facing or not. When a business changes how they do things, leaders must manage those changes carefully of the change will manage them. In a study done by McKinsey, companies that used change management as part of project implementation were measured against companies that did not. McKinsey found that for companies with a change management program, the project ROI was 143%. When there was no or a poor change management program, the ROI was 35%.To provide some perspective, 143% ROI means that for every dollar you spend on the project, you get $1.43 back. On the other hand, 35% ROI means that for every dollar you get $0.35 back.

Studies show that the greatest impediment to making changes to a business is resistance to change. The primary reason for this resistance is the lack of a change management methodology that is integrated into the various stages of the project life cycle. At each stage of a project there should be specific tasks, tools, and deliverables that ensure the adoption to the changes as well as the project’s return on investment.

What’s more, many studies show that the failure rate of CRM, ERP, and contact center projects is fairly high, in the 40%-75% range. The number -one reason for the project failure stems from employees not understanding why the change is important, not feeling confident that the changes won’t cost them their jobs, and most important, not seeing how the changes will allow them to become more customer-centric and able to provide a great customer experience. Change management is clearly becoming the insurance policy all managers want when implementing change.

The bottom line for multichannel contact centers in 2006? Do unto your customers as you would want to be done unto, and your bottom line will increase.

Dr. Natalie Petouhoff is CRM consultant with Dallas-based Hitachi Consulting and is the author of Integrating People, Process and Technology