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The Impact of the Chief Customer Officer, Part I

Tuesday, June 17, 2014
Today's customers require access to a company's offerings through many forms of media in order to meet their preferences and lifestyles. Furthermore, they also require a consistent customer experience across these channels since they can easily choose to change vendors if they do not receive support that meets their expectations. So multi-channel accessibility and consistency of experience across those channels have become essential components to winning the competition for customers. More and more, companies are recognizing the financial benefits of customer satisfaction and its proportionate relationships with loyalty and profitability.

With accessibility and the consistency of customer experience in mind, many companies have turned to creating a chief customer officer (CCO) position in the C-Suite. This still-emerging and evolving role can be defined as: the executive responsible for the total relationship with an organization's customers. The challenge has been to tie this position to financial gains and losses to clearly justify the investment. A recent study conducted by the Chief Customer Officer Council has shed some light on the effectiveness of CCO's over a two year period and the numbers are compelling.

This research shows that 67% of evaluated companies saw positive fiscal effects during the tenure of the CCO, with an average growth excess of industry of 5.98%. Given the minimum threshold of $1B annual revenue, this represents a difference of hundreds of millions of dollars. On the flip side, 33% of companies experienced an average of 5.2% decrease in growth excess of industry. Clearly, not all positive or negative results can be attributed to the CCO. It is equally clear however that the influence of the CCO is positively correlated with improved company fiscal performance.

In an effort to identify the impact a chief customer officer has on company financials, the Chief Customer Officer Council researchers narrowed a population of more than 300 companies to a sample of 51 CCOs at 46 separate companies with a CCO in place for at least two years and with nominal revenues of one billion dollars (US) in 2010. For each of these companies, sales revenue, operating margin, and industry sales data were gathered. Where possible, data were gathered from five years prior to the CCO's appointment up to the current time or end of the CCO's employment, whichever was shorter. To eliminate overall industry effects from altering the analysis of the companies' effectiveness over a period of time, company growth excess of industry was computed by subtracting industry from company growth for each year evaluated. 

Here are four key findings from this research:
1. Customer Centricity is a two-year investment
2. The CCO must show contribution to long-term revenue and profitability improvements
3. In absence of growth, the CCO may help prevent a slide
4. Every company says it is customer centric but few truly are

Stay tuned for part two of this two-part series, wherein I'll elaborate on the findings above and offer recommendations for managing them.

*This article is the first in a two-part series excerpted from The Impact of the CCO, available for free download from the CCO Council website here.

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Categories: Chief Customer Officer | Customer Centricity

WHEN Do You Need a Chief Customer Officer?

Wednesday, June 11, 2014

I am often approached by senior level executives and asked whether their company really needs a chief customer officer. Their idea seems to be that some companies need a CCO and some don't. My answer is often in the form of a correction. Hiring a chief customer officer is not an issue of if, but of when. Every company needs a CCO. However, timing is essential if the role is to be successful. Here are six key criteria to help answer the question, "When?"

Does top leadership have an appetite for developing customer centricity?
I have seen CCOs hired for all kinds of good reasons. Yet most of them failed miserably. Why? Because they were out of alignment with company strategy and didn't have explicit support from the CEO. This criterion trumps all the rest.

Is there a recognized strategic business imperative for the CCO?
Customer centricity is often viewed as a "nice to have" rather than a strategic business imperative. What is your burning platform that will galvanize people to action? The CCO is going to be tasked with making huge changes in the organization, and entrenched cultures resist such change unless faced by a greater threat of upset.

Can strategy be driven across the highest levels to systematize change?
An army of one does not win the war, nor does it bring about customer centricity. Executives and employees cannot abdicate their shared responsibility for customers to the CCO. The successful CCO will cultivate strategic allies across every function, driving process change across the company that enhances the profitability of the broadest customer segments.

Is there a willingness to create, capture, and act upon customer data?
Companies need hard customer data to move from the realm of "touchy feely" to solid business decisions with quantifiable results. The organization needs to be willing to initiate customer data collection activities (surveys, transactions, behavior), turn these data into actionable insights, and ensure people are held accountable for taking action.

Can metrics be created that tie customer activities to revenue?
Revenue, profitability, ROI-these are all hard metrics by which priority decisions are made within the C-suite. Without the ability to correlate customer-centric activities to tangible business results, the CCO will be hamstrung.

Does the individual culture desire to serve customers?
Implementing change is challenging for most organizations and resistance to change is human nature. CCOs find this resistance to be their greatest challenge, requiring a significant amount of time and effort. Do your front line employees truly desire to serve customers? Can they be convinced to do so?

Buzzwords like Customer Centricity and Customer Experience can be entrancing and many companies are starting to jump on the chief customer officer bandwagon. The problem is that too many just as easily fall off the bandwagon if they hire a CCO at the wrong time. To ensure success, you need to make sure your company is prepared to make the CCO a core strategic imperative rather than a figurehead. Do your homework, decide on the right time to hire your CCO, and put him or her in the optimal position for success. Your customers will quickly reward you for your due diligence instead of punishing you for a knee jerk reaction.

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Categories: Chief Customer Officer | Customer Centricity | Customer Engagement

The Six Components to Customer Engagement Strategy

Tuesday, June 03, 2014

Customer engagement needs to be a disciplined strategy with ownership, accountability, broad reach, goals, accountability, measures, and a marketing plan of its own to communicate with employees, customers, and other stakeholders. Here are six essential components to a successful customer engagement strategy:

In order to devise an effective strategy, you must first identify what you want engaged customers to do for you. Do you want them to help resolve problems, inspire innovation, co-develop new products or services, generate market insights, improve operational efficiency, enable greater sales velocity, or something else? You need a purpose to give your strategy focus.

Engagement Opportunities
What are the most important collaboration activities that support the engagement strategy? What are the most important advocacy activities that support the engagement strategy? How do you determine each activity’s importance and priority? Once identified, what resources do you have to support these activities?

Customer selection and enticement
How do you identify the ideal customers to participate in an activity that achieves your business goals? What opportunities are best suited to the customers and the pursuit of your goals? How do you entice customers to participate? For some, it’s simply a matter of asking. But others may need incentives or a clearly articulated mutual benefit that makes participation worth their discretionary time.

Measurement and impact on business metrics
You need to find a correlation between the measure of engagement by activity and its impact on the business. How do you measure engagement and how do you demonstrate that correlation? Without it, investment in your strategy is not defensible or sustainable.

Organizational alignment to customer direction
While it’s great if you have customers collaborating and advocating, if the organization is not aligned around delivering improvements or outcomes from these activities, engagement will be short lived. Customers will realize, “Oh, they’re asking me for help but they’re not really doing anything about it, therefore, it’s not worth the investment of my time and energy.” 

Employee engagement
Similar to the process of selecting customers, how do you identify the ideal employees to participate in an activity that achieves your business goals? What opportunities are best suited to the employees and the pursuit of your goals? How do you entice employees to participate? Rewards and incentives, both intrinsic and extrinsic, may be appropriate and necessary to successfully engage employees in the business of engaging customers.

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Categories: Chief Customer Officer | Customer Engagement | Customer Insight | Customer Loyalty | Customer Retention

Measuring ROI of Customer Centricity-Changes in Customer Value

Tuesday, May 13, 2014

Customer executives are regularly challenged to prove the value of their initiatives. To demonstrate value, executives must speak the language of business so as to allow business leaders to make comparisons and tradeoffs. Executives are primarily interested in increasing revenue, decreasing costs, and mitigating risk. To effectively demonstrate value, customer executives need to show how their customer initiatives impact one or more of these key factors. In my previous post I described the historical retrospective approach whereby incremental per-customer or per–segment revenue gains are correlated with increasing loyalty and engagement. Expected change in customer value is another valuable means of demonstrating ROI.

Many companies use lifetime customer value to justify marketing and customer acquisition efforts. Similarly, positive changes in lifetime value are a result of increased preference, decreased price sensitivity, increased consumption, and greater advocacy. Conversely, lifetime value plummets in response to negative experiences as consumption drops and referrals cease.

A number of years ago, JetBlue analyzed NPS results correlated with passenger behavior and found that each detractor converted to promoter is worth $40 additional profit and each 1-point overall NPS gain yields a $5-8M increase in annual revenue. Highly satisfied customers increase their use of ancillary services such as seat upgrades, box food purchases, etc. Converting a detractor to a promoter yields an additional $100-140 per customer annually, or the equivalent of another flight traveled each year plus ancillary service purchases. Conversely, negative word of mouth costs the company $104 per detractor per year in missed revenue: $72 in lost referrals and $32 in unpurchased ancillary services. 

Put another way, every 25 customers actively promoting JetBlue to friends, family, associates, and on social media equates to one new customer flying JetBlue, whereas only 16 detractors would dissuade an existing customer from flying.  By the same math, it might take 36,000 promoters to increase revenue by $1M, but only 14,000 detractors to realize a revenue loss of $1M.  Every customer value quantification effort must begin with a tangible understanding for each key segment of the length of average customer relationships, costs of new customer acquisition, average customer value, and retention rates. 

Enrich these data by examining how your most loyal and engaged customers within critical segments behave differently than your least engaged. Examine factors such as overall profitability, repeat purchase frequency and volume, longevity, share of wallet, breadth of product portfolio purchased (i.e. the ancillary services mentioned above), the number and value of new customers acquired through references and referrals provided each year. For many companies the annual value of these computations are significant and become even more so when extrapolated over the average lifetime of a customer. 

Similarly, the cost of dissatisfied customers can be computed to measure the cost of status quo.  What is the cost of each call into the call center? How many callbacks are required to address the same issue as a result of an inappropriate focus on average call handle time? What are the most common customer dissatisfiers and what does it cost to address them?  How many credits are being offered to correct billing mistakes?

Armed with tangible proof of the ROI of investments in customer centricity, customer executives can have meaningful conversations with top leadership, enabling them to compare such investments against other priorities and make the best decisions for the company. Without these measures, “doing the right thing” will only happen in the best of times and most certainly not in the worst of times when it is most needed.

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Categories: Chief Customer Officer | Consumer Spending | Customer Centricity | Customer Engagement | Customer Loyalty | Customer Retention

Measuring ROI of Customer Centricity-Historical Correlations

Tuesday, May 06, 2014

A common challenge of chief customer officers and other customer executives is the need to prove the ROI of customer centricity. For better or for worse, business executives are primarily interested in increasing revenue, decreasing costs, and mitigating risk. To effectively demonstrate value, customer executives need to show how their customer initiatives impact one or more of these key factors.

One of the easiest and most powerful ways for customer executives to demonstrate value is to examine historical trends of loyalty and revenue/profits, especially for key customers. Assuming that you have a history of loyalty survey data (or even satisfaction survey data), correlate the incremental revenue (or better yet, if you have it, the incremental profit) of a customer with improving loyalty measures over time. Some local improvements may be due to a change in customer leadership or an improved sales relationship, making it necessary to examine multiple customers in aggregate and by segment. Start with the key accounts, as these accounts are supposedly enjoying the greatest attention and perhaps unwittingly becoming the most loyal.

It may also be helpful to examine the opposite; what is the incremental loss as loyalty erodes? If you plot for each of your customers their revenue (or profits) and their loyalty score over time and notice a downward trend, the negative proves the loyalty-profit correlation in reverse, and elevates the opportunity for increasing investment to stop the bleeding.

There may not be perfect correlations. Satisfaction and loyalty are subjective measures of an emotional state and although loyalty correlates well with increased revenue it isn’t as strong as customer engagement, which measures actual customer behavior. As well, without concerted efforts across the board, some of your employees or processes may be destroying the loyalty you are working so hard to create and measure. 

Are there holes in the customer or loyalty data? Do you have loyalty information from end users but not decision-makers? Or poor loyalty survey participation? How about poor participation by certain key accounts? Or worse, an inability to measure revenue/profit of an individual customer or segment? Spend some time filling these holes in your data and analytics capability so you can conduct this analysis again in the following quarter. 

In examining historical correlations in this fashion, JetBlue found that a one-point improvement in their overall NPS score equates to between five and seven million dollars in additional revenue. The goal isn’t necessarily to prove that a specific customer initiative will raise revenue by 30 basis points. Instead, the goal is to show an upward trend correlating increasing loyalty with increasing revenue/profits. Demonstrating this trend and correlation is a significant step for CCOs in proving the ROI of customer centricity, which validates the need for additional investment in activities to drive loyalty and customer engagement.

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Categories: Chief Customer Officer | Customer Centricity | Customer Loyalty

How to Shape Customer Behavior?

Tuesday, April 29, 2014

Google and Microsoft took what initially appeared to be an innovative path to decrease residential energy consumption. Believing that customer's decisions to conserve electricity were impeded solely by the lack of easily-understood, real-time consumption information unobtainable via paper utility bills, both created web-based analytics platforms, displaying consumption costs in real-time to help make conservation decisions. And both companies canceled the projects. Their tools had absolutely no effect on behavior. 

According to a recent article in the Wall Street Journal, oPower programs yielded $234 million in energy savings last year, removing 1900 gWh from the electrical energy grid, enough energy to power 190,000 homes for a year. How did oPower succeed when goliaths failed?

The overall goal is to decrease energy usage. Google & Microsoft solved a data problem with their belief that people naturally want to conserve energy but are prevented from doing so by a lack of insight.  Their failure disproves their hypothesis.  oPower solved both a context and motivation problem using both descriptive and injunctive norms. oPower partnered with public utility companies to present via monthly bills a comparison of recent historical energy consumption with nearest two or three neighbors. Because individuals measure their own behavior against their perception of peer norms, consumption data in context with neighbors or peers can change behaviors. This is an example of a descriptive social norm.  Those consuming greater energy than their neighbors began to conserve energy.  But as is common with descriptive norms, it had a boomerang effect on those consuming less energy that subsequently relaxed conservation efforts and quickly climbed to the average.  oPower added an injunctive norm wherein they added a smiley (☺) or frowney (☹) face to the descriptive comparisons, representing approval or disapproval of their positioning relative to their neighbors.  The addition of this judgment is a form of operant conditioning, which is a powerful driver of behavior.

Google, Microsoft, and oPower all provided insight into energy consumption. Their assumptions were vastly different. Google and Microsoft incorrectly believed that people inherently desired to conserve energy and insight would enable behavior change. oPower correctly assumed that social pressure was a far more effective means of shaping customer behavior.   Research has shown repeatedly that people desire to conform to social norms. Other research has shown they overestimate the prevalence of undesirable behavior and use these perceptions as standards for comparison. Energy customers overestimate their neighbor’s energy consumption and conserve when faced with descriptive norms showing otherwise coupled with assessments of desirability of behavior.

How can you use descriptive norms to change behaviors?  One chief customer officer (CCO) showed a B2B customer how often they were calling customer support in comparison with other customers and as a result were decidedly unprofitable. The number of support requests tapered dramatically thereafter. Another company uses peer mediation in their customer communities to assess behavior in comparison with other players and assess penalties in an effort to root out toxic behavior. 

What other applications of these principles have you found?

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Categories: Consumer Spending | Customer Insight