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Customer Relationship Management
August 2003

How Well Do Your Customers Treat You?

By John Wookey, Oracle Corp.

A new idea has emerged to predict customer retention. Instead of measuring how well businesses are treating their customers, businesses are starting to measure how well customers are treating them.

When it comes to understanding and servicing their customers, many businesses could be sitting on a gold mine. While investing in costly surveys and focus groups to measure customer satisfaction, they ignore a wealth of customer information, streaming in daily from multiple channels. Companies strive to answer every e-mail, phone call and online query from clients, but never actually examine the wealth of collective customer feedback right in front of them about emerging market trends, often-cited problems or product preferences. If these raw information was understood as useable intelligence and shared across the enterprise, it would be worth its weight in gold.

For businesses that want to achieve or increase profitability, gaining a deeper understanding of customer needs, interests and concerns makes good business sense. We all know the oft-cited statistic that it is five to seven times more expensive to acquire a new customer than to retain an old one. In terms of strategic value, the installed customer base is a repository of knowledge, which is of immeasurable service to product development, marketing and sales, financial planners and support organizations. Moreover, in today's business climate, as new business opportunities grow scarcer and harder to land, many firms recognize that their survival depends on keeping existing customers satisfied and identifying cross-sell and upsell opportunities. In fact, many companies are rolling out services designed specifically to upsell and cross-sell to their install base.

One mistake these companies do make, however, is to presume they know what their customers expect and want based on unreliable surveys and intuition. How can an organization measure customer wants, needs and satisfaction more reliably?

Traditional methods, such as customer satisfaction surveys, rarely produce the hard data or insights companies need to pinpoint problem areas and affect change. Surveys are broad-based, multiple-choice questionnaires that can be completed quickly. Unless extremely dissatisfied with the service, most customers will answer positively.

The chief flaw of the survey is the emphasis on high scores. When surveys are the barometer of customer satisfaction and are scrutinized at the highest management levels, they become like self-fulfilling prophecies -- companies obtain the answers they want. An extreme example of this is tasking a field sales force to audit its own accounts, and then tying the results to an incentive. With both their livelihood and reputations at stake, sales representatives seek out friendly sources, while avoiding those with legitimate complaints. This is not an egregious practice - it's human nature. As the seventeenth-century French writer Fran'ois, Duc De La Rochefoucauld noted, "Few people have the wisdom to prefer the criticism that would do them good, to the praise that deceives them."

For companies that put stock in surveys, the findings can be confusing or even misleading. High marks do not necessarily translate into future sales or customer retention. According to research by Bain & Company's Loyalty/Retention practice, 60 to 80 percent of customers who defected to a competitor gave "satisfied" to "very satisfied" ratings to the previous vendor. In national dealership surveys, it is not uncommon for a car manufacturer to receive high approval ratings from nine out of 10 customers, while the repurchase rate remains below 50%.1

Owing to this reality gap, a new idea has emerged to predict customer retention. Instead of measuring how well businesses are treating their customers, businesses are starting to measure how well customers are treating them. The rationale is that if a customer is responsive to a company, it is a far more accurate gauge of customer satisfaction than a potentially misleading focus group or a survey.

This new paradigm requires a change in thinking. Organizations must think about ways to measure how customers are treating them, not vice-versa. To accomplish that, companies must be able to analyze customer data and feedback in their myriad forms and locations throughout the organization. Learning from customers also requires a change in business processes and systems. While customer relationship management (CRM) historically is limited to "front-office" operations such as marketing, sales and service, the new feedback model requires a unified view of the customer across the enterprise, including "back-office" functions such as financial services, manufacturing, supply chain management, enterprise resource management and logistics.

How To Identify A Satisfied Customer: Low-Tech Solutions
Monitoring customer loyalty and retention is like assembling a jigsaw puzzle: relevant information must be collected from across the organization. To build a customer profile, think in terms of what data exist where, and how best to organize and process these data.

What does a customer who is treating a company well look like? Ask people in any department, they can tell you. The sales force will have no trouble identifying satisfied customers. They refer new business. Typically, the major accounts are prestige accounts, such as Fortune 500 companies, federal and state agencies and industry influencers. In addition to their marquee value, these customers become strategic partners and enter into multiyear, multiphase licensing and sales contracts. These long-term relationships are built on collaboration and mutually beneficial goals.

Ask marketing executives which customers treat them well and they will use a different metric. Customer satisfaction is a willingness to "go on record." Satisfied customers issue joint press announcements, are the subjects of customer case studies and furnish product/service endorsements (i.e., posted on the company Web site or used in marketing and sales collateral material). As a further demonstration of loyalty, these customers speak to the media on the company's behalf and appear at its side at industry events and press conferences. Some may even agree to appear in advertising as "a satisfied customer."

On the frontline (or firing line) of service and support issues, customer support representatives have yet a different perspective. Satisfied customers are those that rarely contact the support and service teams. If they do, the caller's tone is friendly, and might be, "Hey, we've encountered a glitch, I was hoping you could help us solve it," in contrast to, "Your - expletive deleted - product is worthless!"

Even the finance department has a view into which customers are satisfied. To them, it's the ones who pay their invoices on time.

Never overlook the personal touch. Strong working relationships, built on good chemistry and trust, are another good predicator of customer loyalty and retention.

As the above examples illustrate, companies actually know a great deal about their customers. The question is how to analyze and use the information to plan and forecast demand. The new paradigm shifts the emphasis from what customers say (i.e., surveys, focus groups) to what they do (i.e., repurchase products and pay on time).

The Economics Approach
Customer satisfaction surveys should be termed "lagging economic indicators," as they measure what happened in the past. Notice how many of the questions are phrased in the past tense: Did you receive the information you needed? Was the product what you expected? In contrast, "leading economic indicators" look to the future by tracking customer loyalty and retention. Do you plan to repurchase this product or service in the future? How can the offering be improved for future sales?

Customers vote with their wallets. Therefore, to benchmark their satisfaction, study their purchasing behavior. Has the spending level increased, decreased or stayed the same? Are new items appearing on invoices? If so, are the ancillary products and services all related to the original purchase, or are they branching into new company brands and service areas? The latter is a surefire indication of customer loyalty and retention.

How To Identify A Satisfied Customer: High-Tech Solutions
In many organizations, this mission-critical customer information is fragmented across the enterprise. Each department has a customized IT solution and maintains its own customer files. With data stored in different silos, companies operate with huge information blind spots. Moreover, it can take days, even weeks, to collect and analyze data from multiple sources ' a competitive disadvantage in a 24/7 global market.

Some companies address this problem by hiring outside systems integrators to build a data warehouse and consolidate customer data from disparate systems. While a step in the right direction, this is far from an ideal solution. Lacking a common structure, the merged data tries to look and act the same, but incompatibility issues keep arising. Analytical queries then can be inaccurate. For example, if the marketing department uses a customer's middle initial and the service group omits it, the system might not recognize "John J. Smith" and "John Smith" as the same person. As a result, global synchronizations cannot be performed reliably. Not only will duplicate files exist on Mr. Smith, one may have his change of address while the other retains his former location.

The optimal solution is to employ a single customer model across the enterprise. E-business software solutions can leverage the Internet to provide a platform to standardize, automate and streamline business processes. With a central database, all parties can access, share and use the same customer, supplier and partner information.

Today's collaborative CRM solutions can collect and synchronize data from multiple knowledge sources: self-service, voice technologies (voice over IP), Web sites, e-mail, video conferencing and face-to-face interactions. Mirroring this change, traditional call centers have evolved into multichannel customer interaction centers (CICs). The customer service agent now has all the facts on screen: "Yes, I see that you wrote a letter on May 12th disputing an item on your bill, and that you followed up by phone on the 14th. Our finance department sent you a form to fill out this week. If you'd like to speak to someone in that department, I can transfer you now."

An integrated, single-data model also supports systemwide analytics. With data mining, business intelligence and online analytical processing (OLAP) built into the data architecture, companies can run any number and combination of queries. The reports can be as simple as determining the percentage of recipients who responded to an e-mail promotional offer, or as complex as modeling a customer's lifetime value.

Using customer segmentation and profiling tools, service managers can also create multiple levels of service. Not all customers are equal: some accounts are highly profitable, others are money-losers. Therefore, when measuring customer loyalty and retention, a company must factor in the customer's relative value to the organization. Financial metrics should not be the sole consideration. A single person account, such as an industry guru or influential editor, can have a big impact on public opinion and market reception.

A collaborative CRM system also improves customer service and support. Let's look at how far-reaching the changes can be. With an automated mobile service system, field visits can be intelligently scheduled based on distances and real-time traffic conditions. As result, service people show up on time. After the service call, the field agent can remotely provide the office with real-time updates. The field report is accessible instantly to CIC representatives, who may receive a call from the customer in the wake of the visit. The data are entered automatically into the sales and service contract management systems. Based on this report and others like it, the product development team is alerted to the problem and can take remedial action. With a more responsive, intelligent and synchronized organization, customer satisfaction becomes a "team effort."

How To Get Started
For companies interested in instituting the changes outlined above, we recommend the following steps:

  • Conduct a "customer information" audit. Map your entire organization to determine which customer data reside where. Look at what channels customers use to communicate. Understand how different types of information are routed and answered. Understand the distribution and frequency of all customer reports. How are they analyzed and stored?
  • Conduct a technical audit. In coordination with your IT group, look at the deployment of customer databases. Discuss ways to centralize and standardize customer information and how to integrate CRM with front- and back-office functions. Find out if your IT vendors have automated systems to help you mine your customer data.
  • Create a customer-focused business model. Using the findings from the dual audits, develop a customer-centric model that employs both high-tech and low-tech strategies. Begin to measure customer value more broadly, in terms of profitability, industry influence, public relations support, technical feedback and future potential. Analyze customer transactions and feedback to understand customer needs and wants. Finally, shift the focus from customer satisfaction to the true predicators of future growth and success: customer loyalty and retention.

Beginning with these three steps, your company will benefit from the paradigm shift in customer retention and increase profits as a result. Instead of hoping to measure how you are treating your customers, you may find improved insight into your business by understanding first how well customers are treating you.

John Wookey is senior vice president, applications development, for Oracle Corp.

1"The Loyalty Effect - The Relationship Between Loyalty and Profits," Frederick F. Reichheld, Robert G. Markey Jr. and Christopher Hopton, European Business Journal, Autumn 2000 v12 i3, pp. 134.

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