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Loyalty is Dead. Long Live Engagement

Tuesday, July 23, 2013

Customer loyalty is dead. Long live customer engagement. Loyalty is an emotion notoriously difficult to measure, typically only by proxy, such as via surveys that capture the stated intention to recommend or repurchase. But it is tricky at best to overlay stated intent on actual behavior, which can be very different. Consequently, loyalty as a business metric is often misleading and worse: difficult to correlate with other business management metrics used by executives to assess strategic decisions. This, in turn, makes loyalty problematic for justifying increased resources and credibility among customer executives. 

Long live customer engagement. Customer engagement is an effective leading indicator of loyalty and profitability. It is easier to measure, easier to influence, and more strongly correlated with revenue and profits than loyalty measures such as Net Promoter (NPS), Customer Loyalty Index (CLI), or others that are poor proxies for revenue. Effective engagement activities create emotional attachments that draw customers closer to protect them from competitors, encourage repurchase while lowering price sensitivity, gather insight to refine strategy, and ultimately promote evangelism. 

Customer engagement is the sum of activities that build positive connections between a company and its customers and result in greater involvement that positively impacts revenue.

Jeb Dasteel, CCO of Oracle, found that Oracle’s most engaged customers are 7% more satisfied, and 33% more profitable than similarly-sized, non-engaged customers in the same industry. A 2008 study by PeopleMetrics on the impact of customer engagement on financial performance showed that companies with high customer engagement enjoyed 13% higher revenue growth, as compared to 36% revenue losses as customers disengaged.

It is easy to identify engaged customers because they participate in discrete customer programs. Their transactional behaviors are easily observed and their relative profitability is easily calculated. Validated by such clear correlations with profit, customer engagement activities then clearly warrant greater priority, with a commensurate increase in funding. 

Customer engagement activities might include mail or email notifications, post-purchase follow-up calls, participation in online communities, executive or industry advisory board participation, etc. 

The CCO Council recently undertook an effort to characterize customer engagement and create a framework for its members to follow in adopting this new metric. Some of the key recommendations from this effort include:

1. Investments in customer engagement activities should be made according to their impact. The ROI of customer engagement activities can be plotted along an increasing trajectory with the least valuable (but likely necessary) activities being tactical and impersonal and the most valuable activities being those that are both strategic and personal. Personal activities increase engagement, and strategic activities drive longer-term business value. 

2. Engage customers selectively. The most impactful customer engagement activities are typically the most resource-intense. Programs should therefore be carefully matched with those customers most likely to engage further.

3. Simple measurement approaches are sufficient to realize the strategic intent. Participation in select high-value activities and the crossing of thresholds to levels of involvement are two simple measures that can demonstrate engagement. 

Engagement coupled with strategic business opportunity can provide a powerful guide to customers with greater business/revenue potential. Coupled with transactional satisfaction measures, engagement can further highlight those in need of rescue.

Customer engagement is a more easily measured and more accurate metric than the outmoded customer loyalty. It is also a powerful leading indicator that enables executive decision-making to drive increased revenue and profitability. Long live customer engagement. 

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

Has social media grown up enough to prove its own value?

Tuesday, July 16, 2013

This past March was published one of the very first quantitative analyses that I'm aware of that correlated the effect of customer engagement via social media with the firm's bottom line. In the article entitled, “The Effect of Customers' Social Media Participation on Customer Visit Frequency and Profitability: An Empirical Investigation", academics examined the effect of customers' participation in a firm's social media efforts and found that social media engagement resulted in not only a stronger bond between the brand and the customers, but also discovered that engaged customers visited the store 5.2% more often and generated 5.6% greater revenue than the control group with similar shopping history, identified before the social media effort began. As well, engaged customers as measured by frequency of posting had a stronger preference for premium products and lower price sensitivity, making them more profitable than their non-engaged counterparts.

The researchers examined a large retail wine seller and gathered information on customers' demographics and spending habits including wine purchased from other outlets. They created a control group consisting of customers with similar purchase habits and who are not participating in social media. One of the challenges that could easily get lost in a company's social media experiments is whether the relationship is actually growing or the firm has actually provided greater accessibility to promotional coupons. In this study, the researchers weeded out "price buyers" who were using social media solely for the purpose of obtaining coupons. The social media customers and the control group did not have significant differences in their purchase behavior prior to the firm's social media experiment. Thus, they effectively isolated the effect of social media on a material segment of their customers.

However, these results are sometimes masked by the law of averages. To duplicate these results in your company you should carefully segment customers, observe their behavior, and compare such behavior with an appropriate control group. Even more importantly, it appears that done properly, social media can be an effective tool for engaging customers.

As we see in this study, engaged customers spend more and more often, may have a higher predilection for premium products, and are therefore more profitable.

What can you do to engage customers in your business? How can you go beyond preaching at them or pushing coupons to engaging them in a dialogue, and truly understanding what they need?

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

How CCOs Survive to Thrive

Friday, May 03, 2013

The CCO role – today still relatively new and underrepresented – is a lonely place. Yet the impact CCOs have on a company’s bottom line can be profound. They address customer centricity in its primary forms – customer satisfaction, customer retention, and customer loyalty – and they help develop profitable customer strategies that work for your company because they work for your customers.

CCOs have mastered the following three key elements of corporate survival:

Driving profitable customer behavior

Boosting customer satisfaction, retention and loyalty are terrific as goals of your customer-centric culture. But just achieving these goals won’t ensure success. You need to encourage customers to behave in a way that maximizes profits. That requires repeat purchases as well as upselling and cross selling within your product/service portfolio. CCOs have proven adept at establishing loyalty programs that reward purchases of the most profitable products/services based on incentives such as “membership points” that can be redeemed for merchandise, gift cards, etc. This approach builds add-on sales and provides a sense of identity as a “member,” which strengthens a feeling of customer loyalty due to entitlement.

Create a customer-centric culture

The commitment to customer satisfaction, retention and loyalty should be part of the identity – the DNA – of an organization. But adding customer centricity to a company’s mission statement is the easy part. Implementing it throughout the organization entails some heavy lifting. CCOs are developing performance metrics to verify that customer-centric processes are in fact being followed. They are creating incentives for employees at all levels to comply with best practices for their positions that promote customer satisfaction, retention and loyalty. Some even review hiring practices to ensure that qualities associated with customer service orientation are part of the screening process for new hires.

Demonstrate your value 

All CCOs worth their salt have developed a methodology for verifying their contribution to revenue and cost savings. For the former, they can point to increasing sales year over year among existing customers, the increased rate of newly acquired accounts, and reduced churn among the overall customer base. For cost containment, all CCOs can point to fewer calls from unhappy customers, fewer poorly handled onsite customer visits, etc. The more skilled CCOs also provide data from customer surveys that show high levels of satisfaction and loyalty, which serve to increase brand equity and lifetime customer value.

Armed with these strategies and tactics, CCOs not only survive, most are thriving…and getting their fair share of compensation increases by recognizing that keeping customers happy is always a good business decision.

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Categories: Chief Customer Officer