Tag Archive | Customer Loyalty

Changes in Purchase Behavior Based on the Customer Experience – Part 1

Every time a company and a customer interact, the customer learns something about the company, and adjusts their behavior based on what they learn.

To explore this proposition, Kinesis conducted a survey of 500 consumers asking them to recall an experience with any provider that they found to be particularly positive or negative, and determined how these customer experiences influenced customer behavior.

When asked to characterize the cause of the positive or negative experience, these customers’ descriptions were grouped into four common themes that mirrored each other regardless of whether the experience was positive or negative.  The most common themes for both experiences were: speed of service, pleasantness of personnel, efficiency of service, and the success of the outcome.

Causes of Positive & Negative Experiences

Positive Experiences Negative Experiences
Speed of Service/ Problem Resolution 72% 69%
Pleasantness of Personnel 70% 63%
Efficiency of Service/ Not Passed Around to Multiple People 60% 71%
Outcome Successful/ Problem Resolved/ Expectations Met 55% 49%

The speed of service was cited with about the same frequency (7 out of 10 cases) as a cause of the experience being positive or negative.  Pleasantness of personnel was mentioned 70% of the time as a driver of positive experiences compared to 63% for negative.  Efficiency of service (or lack thereof) was more commonly cited as a reason for the experience being negative (71%) compared to positive (60%).  The fourth most common theme mentioned as a reason for the success or failure of the customer experience is the successful outcome of the experience itself (55% for positive experience, 49% for negative).

Again, every time a company and a customer interact, the customer learns something about the company, and adjusts their behavior based on what they learn.  So…how did these experiences (positive or negative) influence customer behavior?

Here is how respondents told us they changed their behavior based on the experience:

Changes in Customer Behavior Based on Experience

Positive Experiences Negative Experiences
Change in purchase behavior (Buy more or less) 54% 57%
Told others (Positive or negative) 36% 43%
Considered change in purchase behavior 32% 38%
No change 14% 5%

Over half of the respondents said they changed their purchase behavior as a result of the experience, 54% of the customers recalling a positive experience told us they purchased more from the provider as a result of the positive experience, while 57% told us they purchased less as a result of the negative experience.

Furthermore, about a third of the respondents told us they considered a change in purchase behavior as a result of the experience; 32% considered purchasing more as a result of the positive experience, and 38% considered purchasing less as a result of a negative experience.

Finally, roughly four out of ten told others of the experience.  Thirty-six percent of participants told us they gave positive word of mouth as a result of the positive experience, while 43% gave negative word of mouth as a result of the negative experience.

Again, every time a company and a customer interact, the customer learns something about the company, and changes their behavior based on what they learn.  The two primary ways customers change their behaviors based on the customer experience is both their own purchase behavior and sharing the experience with others.

The next post in this series explores how customers share the experience with others and the ultimate influence this word of mouth advertising has on others.


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It’s the People: Keys to Customer Loyalty in the Grocery Customer Experience

77294463The 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.  However, the question remains, what service attributes drive customer loyalty?

To answer this question, Kinesis conducted surveys of customers who had recently visited a grocery store, collecting impressions of a variety of service attributes.

In order to determine the relationship of these attributes to customer loyalty, we identified each customer as a promoter or detractor as a result of the experience, according to the Net Promoter methodology.  Net Promoter is generally accepted as a strong proxy measurement for loyalty, and serves as the basis for evaluating the relationship of these attributes to customer loyalty.

The 12 service attributes with the largest gaps between promoters and detractors are:

  1. No wait for service
  2. Employee made eye contact
  3. Employee offered friendly verbal greeting
  4. Employees attentive to customers
  5. Employees look presentable
  6. Name badges worn
  7. All items have shelf tags and price labels
  8. Employees offer further assistance or offer friendly parting comment
  9. Product knowledge of employees
  10. Quality and variety of products meets expectations
  11. Samples offered
  12. Walk customer to item or area (if asked for assistance)

It’s the People

The performance of the individual employees weighs heavily on customer loyalty.  Eight of the 12 attributes are directly related to employee behaviors: eye contact, friendly greeting, attentive to customers, name badge worn, offer further assistance or friendly parting comment, product knowledge, and walking customers to the item or area.

Every time a company and a customer interact, the customer learns something about the company, and adjusts their behavior based on what they learn.  When customers encounter an employee who cares about their needs, they learn that the company, through the employee, cares about their needs as well.  Customers respond to this information with an increased desire to positively spread word of mouth, a behavior strongly correlated to customer loyalty.

What are some of the ways your employees care about the customer’s needs?


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Own the Call: A Key to Customer Loyalty

What service attributes from your agents drive customer loyalty?

To answer this question, Kinesis conducted surveys of people who had recently called a contact center. Impressions of the customer experience with particular attention to the performance of the agent were collected across a variety of attributes. In order to determine the relationship of these attributes to customer loyalty, we identified each customer as a promoter or detractor as a result of the call, according to the Net Promoter methodology. Net Promoter is generally accepted as a strong proxy measurement for loyalty, and serves as the basis for evaluating the relationship of these attributes to customer loyalty.

It’s the People

Not surprisingly, the performance of the individual agent weighs heavily on customer loyalty. The average overall impression rating (on a 5-point scale) of the agent is 1.4 times higher in calls where the customer was identified as a promoter (4.9) compared to those identified as detractors (3.5).

Further evidence of the importance of the agent can be found in a comparison of the specific attributes ratings for promoters compared to detractors.

Promoter

As Result of Call

Detractor

As Result of Call

Took Ownership of Call 4.9 3.2
Confidence in Agent 4.9 3.3
Value as a Customer 4.8 3.6
Interest in Helping 4.9 3.8
Use of Understandable Terms 5.0 3.7
Job Knowledge 5.0 3.8
Professionalism 5.0 4.0
Friendliness/Courtesy 5.0 4.3

The agent taking ownership of the call and the confidence the customer had in the agent are both 1.5 times stronger in calls where the customer is a promoter as a result of the call, compared to calls where they are a detractor.

Own the Call

What does ownership of the call mean?

Ownership of the call was defined in this survey as the extent to which the agent appeared to be the voice of the company, took responsibility for the customer’s concerns, showed a desire to be of assistance, and advised of possible solutions and assured resolution.

Every time a company and a customer interact, the customer learns something about the company, and adjusts their behavior based on what they learn. When customers encounter a contact center agent who owns the call, they learn that the company, through the agent, cares about their needs, wants to help resolve the need, and will stay engaged until the need is met. Customers respond to this information with an increased desire to positively spread word of mouth, a behavior strongly correlated to customer loyalty.

What are some of the ways you take ownership of the call?


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Shareholder Return and the Customer Experience: A Case for Investment in the Customer Experience

I recently came across a very intriguing bit of research that suggests the benefits of investments in the customer experience in terms of shareholder return.

Great customer service processes and people are not built overnight. They take years of investment to cultivate. Unfortunately, for some publically traded companies, the short-term demands of Wall Street make such investment difficult. The demands of investors to meet earnings estimates for the next quarter can make it difficult for managers to invest in the customer experience – the payback is too slow and uncertain.

Stockholders have little patience nowadays with investments that do not show a clear and quick return. To ensure that managers are acting in the owners’ interests, management incentives are more frequently tied to quarterly financial performance than to difficult-to-measure variables like customer loyalty.

Given great customer experiences are not built overnight, they are constantly at risk of budget cuts by managers who would boost short term earning at their expense. Service initiatives have a tendency to come and go in large companies before they have a chance to prove their worth, resulting in customer frustration, employee cynicism and widespread service mediocrity.

Service gurus talk about the need for “investor loyalty” as a counterbalance to customer loyalty, but that requires a visionary, motivated and stable management team who can convince investors to look farther ahead.

Easier said than done, right? How does one make the case for investments in the customer experience in an environment that demands making the next quarters numbers?

Jim Picoult, founder of Watermark Consulting, has an answer. Jim has created a stock index based on Forester’s annual Customer Experience Index (CXI). Jim calculated the returns of two hypothetical portfolios consisting of the top and bottom 10 publicly traded companies in Forester’s CXI for a six year period ending in 2012. Each year he rebalanced the two portfolios based on Forester’s new rankings. The portfolio comprised of companies ranked in Forester’s top 10 yielded a cumulative return of 43%, compared to 14.5% for the S&P 500. The portfolio containing the bottom 10, yielded a cumulative return of negative 33.9% – it lost a third of its value.

Customer Experience Leaders Outperform the Market

Now, correlation is not causation, and there are a lot of factors at play here. But clearly the managers of firms in the portfolio of Forester’s top 10 were able to both deliver shareholder value and invest in the customer experience.

It all comes down to thinking of the customer as an asset in which to invest and realize a return.


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Turning Customer Advocacy on Its Head

The dominate notion of customer advocacy is not very customer centric. Its focus is on what the customer can do for the bank by referring friends, relatives, and colleagues for their banking needs. A more customer centric notion, with perhaps a stronger relationship to customer loyalty, turns this dominate notion on its head – making the bank an advocate on behalf of the customer. Customers who trust their bank to do the right thing are more likely to remain loyal.

My bank cares about me not just bottom line

Measuring customer advocacy is both simple and useful; just ask your customers if they agree with the following statement: “My bank cares about me, not just the bottom line.” I call this the customer advocacy statement. Research has demonstrated a positive relationship between agreement with this statement and loyalty to a financial institution. This makes intuitive sense; customers who agree trust the bank to do right by them and will remain loyal.

Here is how we ask the question. As part of a broader survey, we ask our clients’ customers to rate, on an agreement scale, to what extent they agree with the above statement.

Research without clear call to action elements may be interesting, but not very useful. How can a manager put this question to use?

The answer to this is two fold:

First, the response to this question can be correlated to a battery of service attributes. This will yield a means of judging the relative importance of each attribute in terms of the strength of their relationship to loyalty. Mangers now have a basis to make informed decisions as to which investments will yield the most ROI in terms of improving customer loyalty.

Second, investigate all cases where agreement to this question is low. These are customers at risk. A researcher can drill into the survey responses of these customers to determine what caused the low rating. Tracking the causes will inform management of potential causes of runoff that require attention.


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Customer Loyalty Is an Illusion

A colleague of mine is fond of saying there is no such thing as customer loyalty. He argues loyalty…true loyalty…loyalty through thick and thin – requires an irrational customer, one who will stay with you regardless of the outcome.

The fact of the matter is customers are rational. What we perceive as loyalty is an illusion, rather it is actually the product of an ongoing calculation each customer makes to either initiate or maintain a relationship with a provider. This is the customer value equation.

Customer Value Equation

The customer value equation is simply the ratio of the benefits of a product or service over the costs of the product or service. If this ratio is greater than 1, the customer will act as if they are loyal. If this ratio is less than 1, the customer will behave as if they are disloyal.

The numerator in this equation contains all the possible benefits associated with the product or service. These include the obvious, such as the quality of the results and the process quality. However, they also include less obvious intangible benefits. The owner of a luxury car, for example, may perceive an intangible benefit of status associated with this luxury vehicle.

The denominator contains the sum of all the costs associated with the product or service. Again, the obvious costs are price. However, there may be other acquisition costs, such as installation or maintenance. Additionally, this should include intangible costs such as potential risk of switching.

As customer experience researchers, we are constantly considering the customer value equation to provide context from which to interpret our research.

Furthermore, understanding the customer value equation gives managers a rational framework to make investments in product, positioning, price and place to best match their offering with their customers’ value equation.

How might a manager use the concept of the customer value equation to manage the customer experience?


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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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