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4 Ways to Understand & Monitor Moments of Truth

Moment of TruthEvery time a customer interacts with a provider, they learn something either positive or negative, and adjust their behavior accordingly based on what they learn.

The customer value equation is an on-going process by which the customer keeps a running total of all the benefits of a product or service (both tangible and intangible) and subtracts the sum of all the costs associated with the product or service (tangible and intangible). If the product of this equation is positive they will start or maintain a relationship with the provider.

But is this a continuous process? Or do many customers travel through the customer journey in a state of inertia until they reach critical points in the customer journey where they feed knowledge gained, at these critical points, into the customer value equation?

The fact of the matter is not all points along the customer journey are equal. In every customer journey there are specific of “moments of truth” where customers form or change their opinion of the provider, either positively or negatively, based on their experience. Moments of truth can be quite varied and occur in a skilled sales presentation, when a shop owner stays open late help dad buy the perfect gift, or when a hold time is particularly long.

In designing tools to monitor the customer experience, managers must be aware of potential moments of truth and design tools to monitor these critical points in the customer journey. Some of these tools include:

Mystery Shopping: Mystery shopping allows managers to test their service experience in a controlled manner. Do you have a concern about how your employees respond to specific customer complaints or problems? – Send in a mystery shopper with that specific problem and evaluate the response. Are you concerned about cross-sell skills? – Send in a mystery shopper with an obvious cross-sell need and evaluate how it is handled. With mystery shoppers managers can design controlled tests to evaluate how employees react when presented with specific moments of truth.

Customer Comments: Historically, comment tools have taken the form of cards; however, increasingly these tools are migrating onto online and mobile platforms. The self-administered nature of comment tools make them very poor solutions for a customer survey, as we tend to hear from an unrepresentative sample of customers who are either extremely happy or extremely unhappy.

However, this highly self-administered nature of comment tools makes them perfect to monitor moments of truth. Customers on the extreme end of either scale probably are at a moment of truth in the journey. In designing comment tools, be sure to limit the amount of categorized questions and rating scales; rather give the customer plenty of “white space” to tell you exactly what is on their mind. Over time, an analysis of these comments will give you insight into the nature and causes of moments of truth.

Social Media: Similar to collecting comments from customers, social media can be an excellent tool for identifying common causes of moments of truth. Customers who take to social media to mention a product or service are likely to be highly motivated – again, at the extreme ends of the satisfaction spectrum.

Survey Tracking: Finally, ongoing satisfaction tracking of all customers can be a source of intelligence regarding moments of truth. To turn a satisfaction tracking study into a moment of truth monitor, focus your attention on the bottom of the satisfaction curve. If a customer assigns a satisfaction rating of “1” or “2” on a 5-point scale, drill into these customers’ responses on a case by case basis to determine what caused the low rating – this will most likely reveal a moment of truth.

Here are four ideas to identify and monitor moments of truth.

How do you monitor your moments of truth?


Clink Here for Mystery Shopping Best Practices


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Opposite Sides of the Same Coin: One Word Descriptions of the Customer Experience In Experiences with Both Positive and Negative Purchase Intent

What one word would a customer use to describe the experience at your bank?

Would your customer experience be described as professional, knowledgeable or informative, or would it be described as frustrating, disappointing, inexperienced or rushed?

One simple and elegant tool to get a picture of your customer experience is to ask customers what one word they would use to describe the customer experience.

Kinesis recently mystery shopped six major North American banks to evaluate the state of the sales and service process at these institutions and identify potential drivers of purchase intent in the customer experience. Shoppers were asked a mixture of closed-ended questions to evaluate the presence or frequency of specific behaviors, and open-ended questions to gather the qualitative impressions of these behaviors on the shoppers – in short the how and why behind what the shopper felt. Part of this research plan was to ask shopper to describe their experience with one word. Finally, to provide a basis to evaluate the effectiveness of each of these brand attributes, shoppers were asked to rate their purchase intent as a result of the visit. This purchase intent rating was then used as a means of evaluating which attributes tend to be used to describe experiences with positive purchase intent compared to those with negative purchase intent.

The descriptions we received from mystery shoppers ranged from professional, knowledgeable, and informative to disappointing, frustrating and rushed. This list of adjectives alone was interesting; however, the purpose of this research was to identify drivers of purchase intent, in part to differentiate experiences with positive purchase intent compared to those with negative purchase intent.

So…how did the customer experience in mystery shops that reported positive purchase intent differ from those that reported negative purchase intent? –OR- Specifically, what adjectives did shoppers use to describe the experience that created positive purchase intent compared to those that created negative purchase intent?

Shoppers who reported purchase intent used the following adjectives to describe the experience.

Adjective Pos PI

From this word cloud the drivers of positive purchase intent can be deduced.  Potential bank customers respond to bankers who are professional, informative, knowledgeable, friendly, pleasant, helpful and attentive.  What customers want is a banker who cares about their needs and has the ability to meet those needs.

Conversely, shoppers who reported negative purchase intent as a result of the customer experience used the following adjectives to describe the customer experience.

Adjective Neg PI

In comparison to the shops with positive purchase intent, the list of adjectives that describe shops with negative purchase intent is a little more nuanced.  Adjectives like frustrating and disappointing are illuminative but not necessarily actionable; while adjectives such as rushed, inexperienced, indifferent, and pushy provide clear direction with respect to elements of the customer experience that undercut purchase intent.

Bottom line: Customers want to do business with bankers who care about their needs and have the ability to satisfy those needs, and reject bankers who are inexperienced, indifferent, pushy or rush the customer through the transaction.

Two Sides of The Same Coin
Positive Purchase Intent Negative Purchase Intent
Professional

Informative/ Knowledgeable

Friendly

Pleasant

Helpful

Attentive

Rushed

Inexperienced

Indifferent

Pushy

When you look at these adjectives side by side, aren’t these opposite sides of the same coin?


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A Picture is Worth a Thousand Words: A Simple and Elegant Tool Determines How Customers Perceive Your Brand

The way to gain a good reputation is to endeavor to be what you desire to appear.
– Socrates

Brands have personality. Brand personality is a set of characteristics associated with the positioning, products, price and service mix offered by a company.

How would you describe your brand?

I’m often surprised how often clients are unable to answer this simple question. Even those who have a defined set of brand characteristics don’t know to what extent customers’ perceptions of the brand match the bank’s defined brand. Often what is needed is a cold hard look in the mirror to determine how they are perceived by their customers. What brand personality does our customer experience create in our customer’s minds?

As often in life, the best solutions to a given problem are in fact very simple. One simple and elegant tool is to ask customers to describe your customer experience with just one word.

A picture is worth a thousand words. When we asked a bank’s customers to describe the customer experience with one word the results produced the following word cloud:

Adjectives

With one simple question, we produced a simple and elegant depiction of how customers perceive the brand as a result of a recent experience.

This cold hard look in mirror can be painful; certainly it is tough to hear, as in the case above, that some of your customers might consider you disappointing, indifferent or pushy.  But once you determine how you are perceived, you can figure out how you want to be perceived, and begin addressing any gaps between the two.


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Not All Service Attributes Are Equal: Retail Bank Transaction Drivers of Loyalty

Research has determined the business attribute with the highest correlation to profitability is customer loyalty.  Customer loyalty lowers sales and acquisition costs per customer by amortizing these costs across a longer lifetime – leading to some extraordinary financial results.  In one study of the retail banking industry, a 5% increase in customer loyalty translated into an 85% increase in profits.[1]

Customer loyalty is driven by the entire relationship with bank.  Image, positioning, products, price and service all mix together in the customer’s’ value equation as customers make a continual decision to remain loyal.

What customer service attributes drive customer loyalty?

This article summarizes research into specific transaction service attributes with the intent of identifying which transaction attributes drive customer loyalty, and provides an analytical tool to help managers determine which attributes will yield the highest potential for ROI in terms of improving customer loyalty.

In order to determine transaction attributes which drive customer loyalty, Kinesis surveyed bank customers who had recently conducted a transaction at a branch.

With respect to the transaction, customers were asked to rate the following service attributes:

  • Professional dress
  • Branch cleanliness
  • Prompt greeting
  • Greeting made customer feel welcome
  • Dependable and accurate
  • Prompt service
  • Willingness to help
  • Job knowledge
  • Interest in helping
  • Best interests in mind
  • Actively listened to needs
  • Ability of bank personnel to help achieve financial needs
  • Desire of bank personnel to help customers achieve financial goals
  • Commitment to community

The next step in the research is to capture a measurement of loyalty against which to compare these attributes.

Measuring customer loyalty in the context of a survey is difficult.   Surveys best measure attitudes and perceptions. Loyalty is a behavior based on rational decisions customers make continually through the lifecycle of their relationship with the bank.  Survey researchers therefore need to find a proxy measurement to determine customer loyalty.  A researcher might measure customer tenure under the assumption that length of relationship predicts loyalty.  However, customer tenure is a poor proxy.  A customer with a long tenure may leave the bank, or a new customer may be very satisfied and highly loyal.

Measuring customer loyalty in the context of a survey is difficult.   Surveys best measure attitudes and perceptions. Loyalty is a behavior based on rational decisions customers make continually through the lifecycle of their relationship with the bank.  Survey researchers therefore need to find a proxy measurement to determine customer loyalty.  A researcher might measure customer tenure under the assumption that length of relationship predicts loyalty.  However, customer tenure is a poor proxy.  A customer with a long tenure may leave the bank, or a new customer may be very satisfied and highly loyal.

Kinesis proposes a model for estimating customer loyalty based on two measurements: likelihood of referral and customer advocacy.  Likelihood of referral captures a measurement of the customer’s likelihood to refer the bank to friend, relative or colleague.  It stands to reason, if one is going to refer others to the bank, they will remain loyal as well.  Because customers who are promoters of the bank are putting their reputational risk on the line, this willingness to put their reputational risk on the line is founded on a feeling of loyalty and trust.  This concept of trust is perhaps more evident in the second measurement,: customer advocacy.  Customer advocacy is captured by measuring agreement with the following statement: “My bank cares about me, not just the bottom line.”  Customers who agree with this statement trust the bank to do right by them, and not subjugate their best interests to profits.  Customers who trust their bank to do the right thing are more likely to remain loyal.

Kinesis uses likelihood of referral, hereafter labeled “Promoter,” and customer advocacy, hereafter labeled “Trust,” to calculate an estimate of the customer’s loyalty.  Imagine a plot where each customer’s Promoter score is plotted along one axis and the Trust score plotted along the other.  Using this plot we can calculate the linear distance between the perfect state of the highest possible Trust and Promoter ratings.  This distance yields a loyalty estimate for each customer, where the lower the value, the higher the estimate of loyalty – low values are good.[i]

Trust Promoter Plot

See Using Promoter and Trust Measurements to Calculate a Customer Loyalty Index for a complete description of this methodology.

Calculating a loyalty index has value, but limited utility.  A loyalty index alone does not give management much direction upon which to take action.  One strategy to increase the actionably of the research is to use this index as a means to identify the service attributes that drive customer loyalty.  Not all service attributes are equal; some play a larger role than others in driving customer loyalty.

So…how does the research determine an attribute’s role or relationship to customer loyalty?  One tool is to capture satisfaction ratings of specific service attributes and determine their correlation to the loyalty statistic.  The Pearson correlation coefficient is a measure of the strength of a linear association between two variables.

Comparing the correlation of the above service attributes to this loyalty estimate yields the following Pearson Correlation for each attribute:

Pearson Coefficient

Want to help me achieve financial goals

-0.69

Commitment to community

-0.66

Ability to help achieve financial goals

-0.64

Best interests in mind

-0.60

Greeting made customer feel welcome

-0.56

Interested in helping

-0.56

Willing to help

-0.55

Prompt service

-0.51

Actively listened to needs

-0.50

Prompt greeting

-0.49

Dependable and accurate

-0.45

Professional dress

-0.42

Knew job Job knowledge

-0.41

Branch attractive

-0.39

Branch clean

-0.37

Note the Pearson values are negative; the loyalty estimate is an inverse, where lower values indicate a stronger estimate of loyalty.  As a result the stronger negative correlation translates into a correlation to our estimate of loyalty.

The four attributes with the highest correlation to loyalty are:

  1. Want to help me achieve financial goals,
  2. Commitment to community,
  3. Ability to help achieve financial goals, and
  4. Having my best interests in mind.

Two common themes in the top-four attributes are empathy and competence.  Bank customers value relationships with banks that care about their needs and have the ability to satisfy those needs.  Again, customer loyalty is driven by the entire relationship with bank.  However, in terms of transactional service, customers clearly value empathy and competency and will reward banks who deliver on these two attributes with loyalty.


[i] The mathematical equation for this distance is as follows:

Loyalty Index Equation

Where:

T = Trust rating

P = Promoter rating

ST = Number of points on the Trust scale

SP = Number of points on the Promoter scale

 


[1] Heskett, Sasser, and Schlesinger The Service Profit Chain, 1997, New York: The Free Press, p 21


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It’s Personal: Drivers of Positive Impressions of the Branch Experience

What impresses customers positively as a result of a visit to your branch?

To answer this and other questions, Kinesis conducted research into the efficacy of the branch sales process and identified several service and sales attributes that drive purchase intent.  (See the insert below of a description of the methodology).

In our observational research of 100 retail banking presentations, mystery shoppers were asked to describe what impressed them positively as a result of the visit to the branch.   Excluding the branch atmosphere, the five most common themes contained in these open-ended comments were:

  • Attentive to Needs/ Interest in Helping/ Personalized Service,
  • Professional/ Courteous/ Not Pushy, Positive Greeting,
  • Friendly Employees, and
  • Rep. Product Knowledge/ Informative/ Confidence in Rep.

In an effort to understand the relative importance of these behaviors in driving purchase intent, shoppers were asked to rate their purchase intent, as a result of the presentation, as if they had been an actual customer.  Shops were then grouped into those with positive and negative purchase intent and compared to each other.

Of these drivers of a positive impression, three have positive relationships to purchase intent – they tend to be present with greater frequency in shops with positive purchase intent compared to those with negative purchase intent.

 

Reason for Positive Purchase Intent

Relative Frequency Positive to Negative Purchase Intent

Rep. Product Knowledge/ Informative/ Confidence in Rep.

2.7

Attentive to Needs/ Interest in Helping/ Personalized Service

2.5

Friendly Employee

2.3

The banker’s product knowledge was present 2.7 times more frequent in shops with positive purchase intent relative to shops with negative purchase intent.  Similarly, attention to needs and personalized service was present 2.5 times more in shops with positive purchase intent compared to those with negative purchase intent.  Finally, shoppers were 2.3 times more likely to cite the friendliness of the bankers in shops with positive purchase intent relative to negative.

The observations contained within this research are not rocket science.  What customers want, what drives purchase intent, is personal: attention to needs, interest in helping, personalized service, professional, courteous and friendly encounters.

Methodology

To evaluate the state of the in-branch sales process, Kinesis mystery shopped 100 branches among five banks with significant North American footprints.  Among the objectives of the study were to:

1) Define the sales process among different institutions.

2) Evaluate the effectiveness of specific sales behaviors.

Shoppers were asked a mixture of closed-ended questions to evaluate the presence or frequency of specific behaviors, and open-ended questions to gather the qualitative impressions of these behaviors on the shoppers – in short the how and why behind how the shopper felt.  Finally, to provide a basis to evaluate the effectiveness of each sales behavior, shoppers were asked to rate their purchase intent as a result of the visit. This purchase intent rating was then used as a means of evaluating what behaviors tend to be present when positive purchase intent is reported as opposed to negative purchase intent.


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Return On Investment: Quantify the return when forming a service strategy. Is good service a good thing?

Author: Peter Gurney

Reprinted from the Puget Sound Business Journal

October 5, 2001

Most business people would say it is. It keeps customers coming back, they will claim. And it could lead to more frequent purchases, fewer complaints, positive word-of-mouth and other activities that affect profitability. But if you ask how much they should invest in good service and how much return they can expect from their investment, the answers start to get fuzzy.

Most business people don’t know what their return on investment, or ROI, in customer service is, even what it should be. Nevertheless, they spend money – sometimes an astonishing amount – on employee training, customer satisfaction research, mystery shopping and manager incentives with the belief that it will pay off in the end.

This is a good time to evaluate customer service expenditures and determine how to maximize investments.

So often business professionals give little scrutiny to customer service expenditures, which tend to be based not on calculated benefit, but on blind faith.

This approach begins with the unchallenged belief that good service always leads to higher profits. Companies launch service crusades, making grand promises to their customers as they whip their staff into a frenzy of friendly service activity. They intone ritual phrases, like, “We’re dedicated to excellence,” and “The customer is No. 1.” They proclaim they will become the Nordstrom of their industry. And they contribute a substantial amount of money to the effort, confident it is going to a good cause.

In the end, the miracle they had hoped for seldom appears. Customers may be more satisfied, but the desired rise in profitability rarely occurs. There may be profit changes, up or down, but it is devilishly difficult to figure out how much effect service quality had on the change.

At this point many companies experience a crisis in faith and revert to their old practices: cost cutting, reductions in staff and new ad campaigns. Poorer but wiser, they look back at their crusade and wonder how they could have been so naive.

Despite efforts of so many companies to improve service, customer satisfaction levels have been dropping nationwide for years. In fact, the American Customer Satisfaction Index, a cross-industry national economic indicator of customer satisfaction, reports that 38 industries polled show a steady decline since 1994.

Perhaps it is time to take a different approach, beginning by redefining what makes service good or bad.

Here is a suggestion. Good service should begin and end with profit. If there is no predictable, measurable ROI, it isn’t good for anybody in the long run. Investors get a suboptimal return, employees suffer through service crusades doomed to failure, and customers are set up with unrealistic expectations that companies cannot meet.

The newest approach to customer service is a holistic one – Customer Experience Management – better known as CEM. It’s a profit-based approach to service beginning with companies asking the question, “What do we want our customers to do more of or less of?”

Do we want them to spend more with each purchase? To complain less frequently? To recruit new customers through word-of-mouth? In making this list, attitudes (such as satisfaction) and feelings (such as delight) are not included – only measurable, observable customer behaviors that can plausibly be influenced through service interactions.

The next step in this exercise is to calculate the financial effect of an incremental change in each customer behavior. What would be the effect on revenue of increasing the average customer purchase by one dollar, or reducing the volume of complaints to call centers by five percentage points? It quickly becomes clear even a small change in some customer behaviors can have a substantial financial impact.

This process next moves to the subject of employee training. What specific knowledge and skills are needed to influence desired customer behaviors? Then, you need to ask what rewards will be most effective at reinforcing the use of those skills? What metrics need to be gathered to trigger rewards?

With this process, there is always a clear path to making money. All of those fuzzy, feel-good terms that so many businesses base their service initiatives on, like “customer loyalty” and “customer delight,” are left to the public relations companies. This doesn’t mean there is no benefit to customers. On the contrary, the types of behaviors desired of customers will only come about if they are satisfied, loyal and occasionally delighted. But companies cannot make the world a better place for customers unless they show a profit. By defining good service in terms of its effect on the bottom line, everybody wins.


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Closing the Gap: Prioritizing Investments in Customer Service

Probably the most common problem facing the customer experience researcher is the actionability or usefulness of the research.  All too often, while there may be lots of data available, managers lack methodologies to transition research into action, and identify clear paths to maximize return on investments in the customer experience.

This is particularly true with mystery shopping.  When done correctly, mystery shopping can be a valuable tool.  However, often managers collect data about the service behaviors of their employees, but lack a clear means of identifying which behaviors to focus improvement efforts on, or identifying service attributes have the most potential for ROI.

What managers need is a tool to help them prioritize the service behaviors on which to focus improvement efforts.  One such tool is an analytical technique called Gap Analysis.

Gap Analysis compares performance of individual service attributes relative to their importance, providing a frame of reference for prioritizing which areas require attention and resources.

To perform Gap Analysis, each service attribute measured is plotted across two axes.  The first axis is the performance axis.   On this axis the performance of each attribute is plotted.  The second axis is the importance axis.  Each attribute is assigned an importance rating based on its correlation to purchase intent.  Service attributes with strong correlations to purchase intent are deemed more important and service attributes with low correlations to purchase intent are deemed less important.

This two-axis plot creates four quadrants:

  1. Quadrant 1: Areas of high importance and low performance (where there is high potential of realizing return on investments in improving performance).
  2. Quadrant 2: Areas of high importance and high performance.  These are service attributes to maintain.
  3. Quadrant 3: Areas of low importance and low performance.  These are service attributes to address if resources are available.
  4. Quadrant 4: Areas of low importance and high performance, these are service attributes which requ
    ire no real attention as their performance exceeds their importance.

To illustrate this concept, consider the following example quadrant chart where seven service quality attributes are plotted according to their performance and importance.  The “cross-hairs” defining the quadrants are the mid-point (or average) of both the importance and performance measures.  In this case the mid-point of the performance measures is 74%, and the mid-point of the importance axis is 2.9.

According to this example, two service attributes reside in the first quadrant (high importance and low performance).  These attributes are introduce product or service by using targeted question and mention any other product or service.  These two attributes, therefore, are the two that should be focused on first, as improvements in these should yield the most ROI in terms of improving purchase intent.

Gap Analysis Quadrants

No attributes are in the second quadrant (high importance and high performance), and one attribute, offer further assistance, resides in quadrant three (an area to address if resources are available).  The remaining four attributes reside in the fourth quadrant, where performance exceeds importance, and therefore do not require any immediate attention.

In this example, the manager now has a valuable indicator regarding which service attributes they should focus their improvement efforts.  Directing attention to the attributes in Quadrant 1 should have the highest likelihood realizing ROI in terms of the customer experience improving purchase intent.


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A More Complete View of Corporate Performance

When the history of the financial scandals and subsequent bankruptcies of firms such as Enron and WorldCom is finally written, it will no doubt be a story of greed, fraud, corruption, and the “irrational exuberance” of the stock market.  However, there is one theme that probably will not get very much attention, which, in many ways, contributed to an environment that allowed investors, employees, and other stakeholders in these businesses to be taken advantage of.  This theme … an incomplete view of corporate performance – an over reliance on financial measures.

Now, I’m sure many of you are thinking “wait a minute, if the financial measures had been correct, rather than fraudulent, none of this would have happened.”  This may be correct, but consider the following thought experiment involving two pharmaceutical companies:  The first company, in an effort to impress investors, quietly cuts back on R&D and marketing in order to show a profit, inflate the stock price, and allow senior managers to execute options thereby enriching themselves; while the second firm reduced short-term earnings and continued to invest in R&D and marketing in an effort to ensure the long-term success of the firm.  Now I ask you … for what firm would you want to be an investor – or for that matter – an employee?

Financial measures alone are incomplete.  They simply don’t give us enough information to make judgments about the long-term potential of a business, and in the case of firms such as Enron and WorldCom give corrupt managers too much room to maneuver in falsifying their books.  Certainly almost anyone who was a customer of MCI/WorldCom in the last five years would have questioned the hype surrounding how well they were integrating their acquisitions.

From a management prospective, managing by financial measures alone is like trying to coach a football team by solely looking at the scoreboard.

Now, don’t get me wrong, financial measures – like the score of a game – are important, and arguably supremely important…but clearly a more comprehensive view of corporate performance is needed to manage a modern business.

So what are the managers of a firm to do?

A couple of business researchers pose an answer: The Balanced Score Card.  In a number of articles published in the Harvard Business Review in the last decade Robert Kaplan and David Norton propose managing a business with not only financial measures, but also with metrics which yield information from the customer, internal business, and innovation perspectives.  These four metrics constitute the basis of the Balanced Score Card concept.

Financial Metrics: Like the score of a game, financial measures (Revenue, Cash Flow, ROE) are very important, but they only tell the result of action already taken. They look backwards, rather than predicting the future, as the disclaimer on mutual funds says: “past performance does not predict future returns.” A Balanced Score Card compliments financial statements with measures of customer satisfaction, internal process and the organization’s ability to learn and improve.

Customer Metrics:  The customer is the primary building block to profitability. Without customers there can be no revenue:  as a result, it is important to look at a business from a customer’s perspective.   Measurements of customer satisfaction, customer expectations and service quality are typically included as customer metrics on a company’s Balanced Score Card.

Internal Business Metrics: Once the customer has delivered the top-line revenue, businesses need to deliver on their value proposition.  Internal business metrics such as, cycle time, productivity, employee satisfaction, and cost of goods sold, provide insight into internal business processes, which effect the business’ ability to perform and the bottom line.

Innovation and Learning Metrics:  No company will survive in the long-term without innovation.  The fourth set of metrics in a Balanced Score Card measures innovation.  These metrics vary greatly from company-to-company, but generally they measure: technology leadership, manufacturing learning, product focus and time to market.

Within these four broad categories of measurement, Kaplan and Norton recommend managers select the specific metrics (such as ROI, customer satisfaction and cycle time), which will best measure performance relative to company goals.  Management is free to select the individual metrics which will be most meaningful to the organization.  Discipline should be used, however, in selecting metrics.  Too many can be difficult to absorb. Rather, a few metrics of key significance to the organization should be collected and tracked.

Moreover, the Balanced Score Card concept not only provides a clearer picture of corporate performance, it can also serve as a catalyst for strategy definition, translating what you measure into corporate strategy.  Not only do you tend to become what you measure, but the concept of looking at a business from financial, customer, internal and learning/development perspectives gives a context from which to define business strategy.  To develop such a balanced strategy, ask yourself the questions below:

Translating Metrics into Strategy

Financial:  “To succeed financially, how should we appear to our shareholders?”

Customer: “To achieve our vision, how should we appear to our customers?”
Internal: “To satisfy our shareholders and customers, in what business process must we excel?
Innovation and Learning: “To achieve our vision, how will we sustain our ability to change and improve?”

At times, it seems our understanding of corporate measurement seems incomplete – particularly if we over focus on the financial measures.  The Balanced Score Card is an excellent tool to provide a more complete picture of corporate performance and strategy.


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A Guide to ROI in Customer Service

Introduction

Most business people would agree that there is value in good service. An abundance of literature exists supporting the notion that service can affect retention, spending, word-of-mouth endorsements and other customer activities that make a company more profitable. However, there are also many examples of companies with excellent service that chronically suffer from poor financial performance.

Good service is expensive. It requires research, training, measurement and the payout of incentives to managers and employees. Because it costs so much, companies struggle with the question of what their return on investment should be. Some even ask whether the investment is worth making at all. Could the money dedicated to improving service be more profitably spent in some other way?

The question is a fair one. Simply assuming that good service is a good investment is not very businesslike. Investment opportunities should be weighed against each other, with expected risks and returns assessed to determine the best choices. Unfortunately, few companies have had success calculating the ROI of customer service, making it difficult for them to determine whether their money will be, or has been, well spent.

Approaches to calculating service ROI appear to fall into two major camps: “Blind Faith” and “Rube Goldberg”.  Rube Goldberg was a Pulitzer Prize winning cartoonist, famous for his outrageous “inventions”, which performed simple tasks in complicated ways.  He produced cartoons similar to this:


Faith in Service

The Blind Faith approach begins with the unchallenged belief that good service always leads to higher profits. Companies launch service crusades, making grand promises to their customers as they whip their staff into a frenzy of friendly service activity. They intone ritual phrases, like, “We’re dedicated to excellence,” and “The customer is number one.” And they contribute a substantial amount of money to the effort, confident that it is all going to a good cause.

In the end, the miracle they had hoped for seldom appears. Customers may be more satisfied, but the expected rise in profitability rarely occurs. There may be profit changes, up or down, but it is devilishly difficult to figure out how much effect service quality had on the change.

At this point many companies experience a crisis in faith and revert to their old practices: cost-cutting, reductions in staff, new ad campaigns. Poorer but wiser, they look back at their crusade and wonder how they could have been so naive.

The Service Machine

The Rube Goldberg camp takes a more mechanistic approach. These folks don their white lab coats and attempt to build predictive models that explain the links between service attributes, customer satisfaction and profitability. They use statistical techniques to uncover correlations and coefficients and co-variation, revealing that a twelve-second reduction in average wait times will result in a one-point rise in customer satisfaction, which will turn into a half-cent increase in per-transaction revenue at a cost of a quarter of a penny, etc., etc.

Such models can, in fact, be valuable as a means for understanding the associations among different service and profit factors. They can also provide insight into how service attributes interact with each other to influence customer perceptions. A major drawback, however, is that these models tend to have too many moving parts to function as a practical, day-to-day business tool. In addition, they tend to give the appearance of being far more precise than they actually are. Many companies have spent considerable effort and money constructing such models, only to find that their applicability is marginal and their useful lifespan limited.

The Third Way

There is another approach  –  a third way that is simple, practical and intuitive. It does not purport to be as precise as the Rube Goldberg predictive models, nor does it treat service as sacrosanct, as with the Blind Faith followers. Rather, the Third Way takes the view that service isn’t profitable because it’s good, it’s good because it’s profitable.

The Third Way begins with the company making a list of customer behaviors that directly affect revenues or costs. The company asks itself, “What, specifically, do we want customers to do more of or less of?” Attitudes (such as satisfaction) and feelings (such as delight) aren’t included  –  only measurable, observable behaviors, such as, “use our service more often,” “call our support line less often,” “purchase more items on an average visit to the store,” and “return merchandise less frequently.”

The next step is to reduce the list by eliminating any items that cannot plausibly be influenced through service interactions. (Note that service interactions do not necessarily involve employees. ATMs, web sites and unmanned kiosks are all, from a customer’s point of view, service providers.) Working backwards, the company next makes a second list composed of specific, measurable service activities that are likely to affect desired customer behaviors. This list should only include items for which a realistic, cause-and-effect scenario between service behavior and customer behavior can be articulated. Again, attitudes and feelings are not included. The company asks itself, “What can employees (or machines or web sites) do more of or less of, or do differently, to influence how customers act?” If it can’t be measured, if it can’t be trained (or programmed) or if it has no likely effect on measurable customer behaviors that effect profit, it is removed it from the list.

This process of deconstruction next moves to the subject of training: What specific knowledge and skills are needed to provide the service that will affect desired customer behaviors? Then, incentives and measurement: What rewards will be most effective at reinforcing the use of those skills? What metrics need to be gathered to trigger rewards?

Each list is winnowed to ensure that it applies only to the items on the previous list. In this way, the picture is never cluttered with irrelevant or ambiguous elements. Because every item on every list is concrete and measurable, the people who are accountable for delivering service and making it pay will know precisely what is expected of them.

The next step is to link the first list (customer behaviors) to costs and revenues. To do this the company calculates the financial effect of an incremental change in each item. For example, what would be the effect on revenue of increasing the average customer purchase by one dollar? What would be effect on costs if the volume of complaints to call centers were reduced by five percentage points? It quickly becomes clear that even a small change in some customer behaviors can have a substantial financial impact. It also becomes clear which service changes will have the biggest effect.

The company has thus far identified the customer behaviors it wants to change, the general effect of each behavior on revenue or cost, and the dollar value of an incremental change in each behavior. In addition, it has identified the service activities that are likely to influence changes in customer behaviors, and a strategy for promoting those activities through training, measurement and rewards. All of these steps can be accomplished in a day with a few managers and pot of strong coffee. But from this point on, the process gets a bit trickier.

The major element missing from the formula is magnitude. How much change can the company expect to create? Can complaints be reduced by 1%, 5%, 10%? Will average purchase amounts increase by 50 cents? Ten dollars?

Also missing is the interaction among different variables. For example, aggressive up-selling may lead to a 10% increase in the average transaction amount, but it could also lead to a 2% increase in customer turnover, which might counteract the benefit.

The only way to answer these questions is to experiment. The company must identify the most promising service investments and test them on a small scale. Service units (stores, call centers, etc.) should be compared, using test and control groups. The groups should be small enough to keep the experiment manageable, but large enough to wash out the influence of temporary, outside factors, such as bad weather or a blow-out sale by a competing store.

The experimentation does not stop with one test. The process is iterative, allowing the company to fine-tune its tactics and find the optimal mix of service activities that result in the highest return on investment. With patience, a reliable formula for ROI will emerge and the company can decide which service improvements it should invest in  –  or whether it should invest in service improvements at all.

To return to an earlier statement: The Third Way takes the view that service isn’t profitable because it’s good, it’s good because it’s profitable. This doesn’t mean there is no benefit to customers. On the contrary, the types of behaviors desired of customers will only come about if they are satisfied, loyal and occasionally delighted. The point is, companies cannot make the world a better place for customers unless they show a profit. By defining good service in terms of its effect on the bottom line, everybody wins.


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