Chapter 8

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How to use measures to drive and deliver your experience

This chapter will look at some of the key metrics being used today and will consider the right mix. We will also look at how to repurpose existing measures so that they are seen as customer measures. The real challenge is not to add in new measures to companies that are, very likely, already measured to death. We will look at how to focus on the handful of measures that really count and which drive actions. This is linked to the need to have flexibility and fluidity in the view of key measures over a trading year:

• What customer measures exist?
• How do you make customer measures relevant deep into your business?
• How can you repurpose existing measures?

Customer experience and the balanced scorecard

The good news is the customer is already most likely a key part in your company measurement framework in the balanced scorecard. For those unfamiliar with this term, according to Investopedia it is ‘a performance metric used in strategic management to identify and improve various internal functions and their resulting external outcomes. The balanced scorecard attempts to measure and provide feedback to organisations in order to assist in implementing strategies and objectives.’ There are usually four components of a balanced scorecard: Financial (Financial Performance); Process (Efficiency); Organisational Capacity (Knowledge and Innovation); and Customer (Satisfaction).

Adapted from Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review (January-February 1996): 76.

The bad news is that companies tend to focus on three out of the four elements of the balanced scorecard and emphasis is skewed away from the customer component, which is the least understood and believed by many to be the least quantifiable.

All too often the thing missing from your business strategies is input from the customer and a clear link to meeting needs and delivering noticeable benefits to them.

Instead the focus is on what such a strategy will do to benefit the business, usually in terms of sales or business efficiency – while these may be entirely appropriate measures, they need to be part of a set within a balanced scorecard.

For example, the way in which companies measure the success of their customer service teams, which is typically on the speed with which they answer a call, implicit in this choice is the assumption that this is of primary importance to the customer. In reality it is rarely the most important to the customer but is a convenient measure for companies in terms of internal efficiencies, time management, incentives and a range of others – it is much harder to measure first time resolution to the microsecond. These measures are driven by a mix of accounting rigour and ‘internal intuition’, which assumes that customers think the same as those working inside the business – again this is rarely true and means the need to really understand your customers by talking to them is neatly circumvented by staff becoming a cheap and ‘effective’ proxy for real life.

Evidence is freely available which demonstrates a gap between what the company thinks is important to customers and what customers actually deem to be the most important when it comes to making their choices. The failure to understand what is really important leads to customers receiving a sub-optimal experience and the company sub-optimising its commercial position.

Measuring up: where do you start?

The area of customer measures has been the focus of much corporate attention over recent years as businesses grapple with the problem of how to measure their new-found enthusiasm for all things customer.

Start with a review of what your company measures today both quantitative and qualitative, initially focus on those that are badged as or seen as customer measures inside the company. Make a simple list and then find out who manages the measure and who acts on the information provided. Compare the number of measures that are customer versus those that are ‘other’ to get a feel for the relative importance.

Remember what you will probably find is that this task is not as easy as it sounds and you may struggle to identify specific customer measures. That is a finding in itself if your mini audit comes to that conclusion

How you measure customer experience success presents a challenge, especially to companies that have a long-established set of business measures. It is critical to provide measures that align with your required behaviours and focus at each level and functional unit of the business – measures drive behaviours.

This principle does not mean abandoning high-level measures for personal ones or hard measures in favour of a basket of soft qualitative customer measures – it can mean being inventive in terms of what is measured or the focus given.

In many cases no new measures are needed initially, but rather the flexibility to change the area of focus to reflect the business need. A particular measure may require focus for a few months before it is replaced with another as the objective is achieved; in other words, dialling up and down on a range of measures. It also requires the ability to translate the corporate measures through the business in a way that reinforces the end customer impact as a key metric for all.

In markets where the scope for growth through customer or competitor acquisition is limited, the retention and development of the existing customer base becomes a strategic imperative. In pursuit of delivering a competitive experience, most businesses routinely measure customer satisfaction. This can be very beneficial in identifying and targeting specific problems and enabling teams to be targeted and held responsible for change. Attaining high satisfaction is a competitive prerequisite. Satisfaction measures, however, are less useful in helping businesses to establish the change agenda required to drive growth as there is limited correlation between customer satisfaction, loyalty and business growth – typically a high percentage of defectors are satisfied or highly satisfied with their previous suppliers.

Customer loyalty is regarded as a key driver of performance. Studies show that companies with above average customer loyalty index scores have price–earnings (P/E) ratios that are more than double those of their competitors. Companies with loyal customers and employees enjoy higher margins and greater profits than those that fail to retain and satisfy their customers. Obtaining growth requires companies to go beyond customer satisfaction and create an experience that results in customers trusting the company for its consistent delivery of promises, products, services or solutions. Knowing what makes customers loyal and the degree of loyalty felt is essential if increased value is to be realised.

Remember that measuring customer satisfaction alone is not enough

Where customer satisfaction is important

Customer satisfaction measures a customer’s ‘rational’ perception of the company against their expectations of a specific product or service experience. It is a practical measure, ideal for identifying and targeting specific problems and enabling teams to be targeted and held responsible for change.

Most major companies measure customer satisfaction in some form and see it as a valuable way to assess a customer’s experience of the interactions between the customer and the different parts of the organisation.

Customer satisfaction measures provide valuable insight, particularly where assessments are carried out by segment or value group – however, you do need to ensure that the vital opinions of the most profitable customers are not lost in the ‘averaging’ of the whole base.

The customer satisfaction risks

Think about the following as you assess the reliability and value of your customer satisfaction measure:

• How current are your questions, or are they largely a fixed set of questions (to allow tracking), possibly not reflective of the current customer world?
• How has your relative performance moved over time?
• How timely is the information? Many of the studies are undertaken on an annual or biannual basis. The completion and analysis can take several weeks and in the case of large surveys even months before the results are communicated throughout a business.
• How actionable is the information?
• What has changed as a result of findings from your survey?
• What is your annual investment and what is the return on that investment?

Even the most satisfied customers can defect

Achieving customer satisfaction may be an essential requirement to compete but a satisfied or even very satisfied customer will often defect where they are not committed to the brand – ‘I’m happy with your product, but I’m just as happy buying another brand.’

Satisfaction results rarely predict or even correlate with repeat-purchase behaviour. In B2B markets, studies have shown that up to 65–85 per cent of defectors were satisfied or very satisfied with their former supplier.

Customers may be considered increasingly promiscuous, and attaining their loyalty can be a very difficult task, so the challenge is to provide a customer experience that successfully differentiates the organisation and drives brand loyalty.

Satisfaction measures are less useful in helping businesses to establish the change agenda required to drive growth due to the lack of correlation between satisfaction and growth. Actions taken to improve satisfaction may not feed through to be reflected in business growth.

To illustrate the point that customer satisfaction indexes (CSI) can be hugely misleading as a result of these factors, we need only review the impact of the comparison or competitive experience set via which we make value judgements. For example, when Virgin Atlantic launched its upper-class airline service and captured swathes of previously loyal and highly satisfied British Airways first-class passengers.

In effect what British Airways first-class passengers were satisfied with was what they knew about the service relative to other current competitive airline offerings, then Virgin changed the rules of the game – cars to the airport, quick check-in, bars, lounges, massages, etc. The CSI results were instantly rendered redundant as a customer measure, given it was viewed as a proxy for loyalty. The simple logic that had prevailed was that very satisfied customers are de facto loyal and unlikely to defect.

Another example would be the world of hotels where traditionally satisfaction surveys have been as much a part of the fixtures and fittings in a hotel room as the bed.

As every business traveller knows, they can expect to see a survey left on the bed and included as part of the checkout documentation and a quick survey reveals that the questions being asked are predictable too. This seems to match an enduring view about what is important to us as customers: how was check-in? was the bed comfortable? is checkout efficient?

In reality in three- to five-star hotels these have become hygiene factors – what is of real importance to the business traveller in particular tends not to be measured. For example, how easy it is to access the internet; how good technical help desk facilities are; or at a personal level it can be as simple as whether fresh milk is available for tea and coffee – given all rooms have a fridge it may be infinitely preferable to UHT sachets.

The point here is that beyond the hygiene factors there are a range of more detailed issues, which will actually be the ones that make the difference between a future booking being made or the recruitment of a loyal customer. These issues remain undetected because of the in-room presence of a standard CSI form, which is assumed to do the job when in reality it is a ‘hygiene’ check that relates to the minimum table stakes required to be competitive in today’s market. It may be that front of house managers should spend more time listening ‘naively’ to customers to hear what little things will crank up loyalty.

Remember that customer loyalty is a proven driver of business performance

Understanding what drives customer loyalty is an essential first step

Leading customer experience organisations regard the level of customer loyalty as a critical indicator of future success.

A customer’s loyalty is derived from a combination of functional and emotional experiences with the brand. To achieve high loyalty, as a minimum, the customer must be satisfied, see the product or service as important and perceive competitors as not providing the same or better.

To achieve loyalty, product and operations managers need to understand what it is that makes their customers committed to their product, service and brand. Understanding what drives loyalty is key as it has a clear and proven link with business performance.

Remember that loyal customers are more profitable – increasing the value of existing customers and reducing the acquisition cost of new customers

Companies with satisfied, loyal customers enjoy higher margins, greater profits – and consequently higher P/E multiples – than businesses that fail to retain and satisfy their customers.

As we have already noted, studies show that companies with above average customer loyalty index scores had P/E ratios that were more than double those of their competitors.

A customer’s value rises with increased loyalty as:

• acquisition costs are amortised over a longer period;
• there is a tendency to increase their purchases and percentage of spend;
• they cost less to administer;
• they refer others, act as evangelists, spreading good news across markets;
• they are willing to pay a premium;
• they tend to forgive mistakes or underperformance in the product.

Customer experience measures

Let’s take a moment to consider some of the commonly talked about customer experience related measures.

As outlined above, the premise underpinning the effective measurement of the customer experience outcome is often seen as an assessment of customer loyalty, how a customer feels about a brand, and the understanding that the strength of feeling expressed is a reliable indicator of future behaviour.

Different questions have been tested over time to assess which best predicts future growth. The question with the highest relationship to growth is ‘would you recommend us?’ Satisfaction has a weaker correlation with growth prospects.

The willingness of an individual to make a recommendation to a friend or colleague is recognised as the best indicator of loyalty as they put their own reputation on the line. It requires a strong emotional commitment.

Recommendation is a more ‘instinctive’ customer measure than satisfaction. It encompasses multiple experiences of a company, as well as more emotive issues. This appears to be why it is indicative of longer-term behaviour.

As the customer experience discipline has matured more work has been undertaken to create measures that help to connect the experience to the company business results. Over the past few years a number of bespoke customer-driven measures have emerged, including Net Promoter Score (NPS), customer/client effort and customer expectation.

Net Promoter Score

Of these measures the NPS has been the most widely adopted. The depth of the evidence to support the connection between an NPS score and business performance has been seen as compelling.

First introduced by Fred Reichheld in the 2003 Harvard Business Review article ‘The One Number You Need To Grow’, this distillation and ability to focus hard on a single data point is attractive to business leaders.

Net Promoter Score relies on a single question and work by Fred Reichheld, Bain & Company and Satmetrix has shown, with empirical evidence, the answer to which correlates to improvements in business performance – an attractive proposition indeed, and one whose siren call is increasingly answered by very substantial businesses.

Put simply, the measure asks customers to say ‘how likely they are to recommend your company to a friend or colleague’ using a scale of 1–10 where scores of 0–6 are labelled as detractors, responses of 7–8 are labelled as neutral and responses of 9–10 are promoters. By taking the percentage of the scores between detractors and subtracting that from the percentage of promoters you derive the Net Promoter Score or NPS.

The supporting research showed a strong correlation between propensity to recommend and future loyalty and impact on business performance over time. This measure now appears on senior managers’ and executives’ key performance indicators and personal KPIs with a note writ large to ‘improve this score at all costs’.

The question for you if you are deploying this measure and the business has a strategy to improve the direction of travel of that score is: ‘How do we operationalise this in order to effect the required improvement?’

In short the answer is to ask the qualitative free text supplementary question ‘why did you give this score?’ to give context and a quantitative overlay. This information provides the context for the customer response and reveals to you what to do more of, what you are doing well, and what to change – namely what you are doing badly. You then monitor the trend of your results over time.

Remember in Net Promoter it is more about the delta or direction of travel of your results than the actual number. That way you avoid issues of cultural bias, among others

Getting to the single reason why a customer gave a particular score will give some clear focus for the business to follow up; typically half a dozen themes will recur across a customer grouping if the question is posed at the same time as customers are being asked to give a score. This approach can apply equally to customers and staff – finding out what the staff issues are and how they link to customer issues is hugely revealing and work continues to confirm that employee advocacy driven through an inclusive approach has an impact on the end customer loyalty.

Customer or client effort

Back in July–August 2010, again in the Harvard Business Review, Matthew Dixon, Karen Freeman and Nicholas Toman introduced the Customer Effort Score (CES) as a metric. They focused on the need to move away from the obsession of trying to ‘delight’ customers that was turning into an epidemic of over-the-top service, to the detriment of both the company and the customer experience. They noted that customers defect from companies as a direct result of poor experiences and poor service. Their research addressed three key questions:

• How important is customer service to loyalty?
• Which customer service activities increase loyalty and which don’t?
• Can companies increase loyalty without raising their customer service operating costs?

The two key findings were that delighting customers does not build loyalty and that reducing effort does build loyalty. You reduce effort by removing barriers that the customer faces – so, for example, if a bank account offers 10 benefits like airline lounges, mobile device insurance, travel insurance, etc. how easy do you make it to access those benefits? How much does the bank do versus putting the onus on the customer to activate these benefits? Or even simpler, do you force your customers to repeat their issue every time they are handed off during a call? Do you make customers call back repeatedly to resolve an issue?

The measure asks customers: ‘How much effort did you have to put forth to handle your request?’ Customers rate their experience on a scale of 1–5, where 5 represents very high effort and 1 very low effort required. Their research showed the positive predictive power of the Customer Effort Score in determining customer loyalty – which they defined as customers’ intention to keep doing business with the company, increase the amount that they spend, or spread positive word of mouth. The CSI was the least predictive, NPS was good at the company level and CES outperformed both in service interactions.

This can be very powerful at an interaction level and can be used in conjunction with company-level NPS.

Customer expectation

Your Customer Effort Score can also be combined with a measure that I have used and which I consistently champion as a strong source of real customer feedback: the Customer Expectation Score – for which there is no acronym because Customer Effort Score has taken CES! The Customer Expectation Score is a three-point scale followed by a qualifying qualitative component. The question is:

Please select your answer from the following options. Did we:

1. ‘Fail to meet your expectations?’
2. ‘Meet your expectations?’
3. ‘Exceed your expectations?’

Clearly it is asked after the event and is then supported by the simple statement,

‘Please tell us why you gave that answer’.

What the customer expectation measure has is the advantage of asking the customer ‘what they expected’. This is important because it does not assume that we already know what was important to that specific customer. If, as I contend, the true owner of a brand is the end customer and they have interpreted the advertising, previous experiences, friends, ‘colleagues’ comments to synthesise what they are actually going to expect, why try and second guess that? By asking what they expected, you are getting first-hand interpretations of the actual not assumed expectations.

You are also going to get highly actionable and specific data points to work with real time as the questions should be asked sufficiently close to the interaction for the customer to be able to recall without any difficulty.

For example, if the hotel survey just asked the Customer Expectation Score questions, guests are more likely to offer their views as it is short, simple and direct – it would leave it open for individual customers to provide feedback specific to them. Rather than hoping they will answer a ‘is there anything else you would like to tell us?’ question at the end of a one- to three-page questionnaire.

In a world where customer expectations are changing daily, particularly as technology advances, the idea of annual surveys should be redundant. As an example, some airlines now ask their customers to rate their flight before they have even got off the plane. The crew can get a rating before they have even disembarked at the destination, including what went well and what could be improved.

All of these have the benefit of potentially being real time and potentially predictive measures, giving an early indication of both positive and negative impacts on the customer, and link directly to customer feedback with internal analysis to provide a customer-validated priority list of remedial actions.

Indeed when used together I believe these three measures provide a very strong internal and external set of high-level measures linked to the ability to diagnose the root cause of both the positive and negative impacts.

Most importantly, having identified the issues you can put the tools and measures directly into the hands of those people in the organisation that can do something about them and impact on results

Converting existing measures into customer measures

The high-level customer measures that we have just reviewed provide a good dashboard for the leadership to review the customer experience. The challenge, however, is to make the customer measures relevant across the company.

You will find that individuals quite reasonably question their ability to influence such an all-encompassing company measure. In the same way that we have approached the challenge of changing the culture through a hundred and then eventually thousands of tiny changes the same can apply to measures. Your challenge is to find measures that already exist at local and personal levels and to badge those as the customer measures for that team or individual.

This is not as difficult as it might sound. For example, in finance you could badge invoicing errors as a customer measure as it directly impacts on the customer experience, creating customer complaints and generating costs through the required handling and corrective actions. Or consider in the case of an educational book supplier the key customer measures that the board needed to focus their attention on changed across the year. In the early part of their year the focus was on commissioning new books so the editors were centre stage; in the middle phase it was about getting the books produced and printed so the production team and their measures were the focus; in the final stage it was the finance, warehouse and logistics team who needed to get books out to schools on time and with accurate invoices. The key in this case was to have the board vary the measures that they concentrated on during the year, ending up with existing measures that were thought of as purely operational being rebadged a customer measure – in this case accurate picking, packing and delivery as schools cannot teach without their textbooks.

This approach has the advantage of not being seen to add to the already usually overly burdensome measurement frameworks that exist and being relevant to a variety of individuals in a variety of roles – often ones that would not normally be seen as impacting on the customer experience.

Remember you do not need to invent new measures – just use the ones you have and recognise that even operational-based measures can in fact be critical customer measures too

Retention measures are not a true guide to loyalty

The best practitioners of customer measures focus on acquisition, customer development and retention behaviour as an integral part of their customer measurement. Retention measures are extremely valuable for tracking past and current performance, but are unhelpful in predicting future performance or to identify areas of improvement.

For some industries, where there is little competition (due to product superiority, state provision of services, or simply high exit barriers), what are perceived as loyal customers may be either ‘lazy’ customers, or in some cases ‘locked in’ customers, often described as hostages, with few alternatives.

In B2B markets, apparently loyal customers can be trapped in high-priced contracts. Financial services suppliers have traditionally enjoyed high customer retention results, but these were mainly due to the high switching costs (hassle) involved, until new providers made it easy for their existing customers to switch (and when alternatives do become available there is switching on a massive scale).

Pursuing customer loyalty as a strategic imperative

In markets where the scope for growth through customer or competitor acquisition is limited, companies place greater strategic focus on retaining and developing their existing customer base. The loyalty of customers therefore becomes a strategic imperative.

Capturing the additional profit potential of customers through enhancing loyalty requires companies to go beyond customer satisfaction and create an experience that results in customers becoming advocates for the company and for its products, services or solutions.

The best companies do not leave loyalty to chance – they design it in so that it is integral to their culture, performance, outlook and brand.

Remember it is critical that this is not about the numbers, it is about what happens as a result of those numbers – findings must drive actions and then further measurement to see what is working