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Tagged: metrics

The Dangers of Overlooking Low-Value Customers

March 23, 2017

One way to segment your customers is by their lifetime value. Compared to many other measurable customer attributes, lifetime value is the kind of big-picture description that can be difficult to observe or estimate at a glance. But it’s also one of the most valuable pieces of information you can have about your customers.

Customer lifetime value is a prediction of how profitable your relationship with a given customer will be over time. Lifetime value can be calculated a number of different ways, from simple formulas to complex equations. Some of the factors that go into this calculation include how long you expect the customer to stay a customer; how much money that customer tends to spend with you, and how often; what it costs to keep that customer loyal; and the average rate of churn throughout your customer base.

Essentially, a lifetime value measurement boils down your relationship with a customer to a dollar amount. But the benefit of is not just quantitative: it influences businesses to prioritize the long-term maintenance of customer loyalty, compared to more expensive efforts like customer acquisition.

Using Customer Lifetime Value for Segmentation

customer segmentation based on lifetime customer valueOnce you’ve predicted the lifetime value of each customer, you can then group them into tiers, from most to least valuable. The most valuable customers are those who shop with you frequently, generate the most profit, and are most likely to stay. The least valuable customers may be new or casual shoppers who split their attention and money between you and your competitors. In the middle are the rest: regular, if not devoted, customers who don’t have the most to offer you, but don’t cost you much to keep, either. These are customers who could possibly be influenced toward more value if tended correctly – and if not, may slip down to the bottom tier.

For the highest third, the ones you can’t ask much more of, the goal is to make sure they stay. For the middle third, you can try to grow their value by appealing to them with additional services or products, or offering loyalty rewards, like discounts.

But what about the lowest tier – the one that experiences the most churn? Do they have anything to offer? Would you be better off without them?

Don’t Write Off Your Low-Value Customers  

Once you’ve singled out your most valuable customers, it’s only natural to want to gravitate in their direction – to reward their loyalty with perks, to provide them the best service, and to otherwise do everything in your power to keep them around and keep them spending. All this effort is still less costly than investing the time, energy, and budget to convert lower-value customers up the ladder.

All of that would seem to justify prioritizing your top tier. But do so at your own peril. Every customer’s “lifetime” with your business has to start somewhere, and many of them start in that lowest tier. It’s rare to simply acquire a high-value customer out of the gate: they must be nurtured, and this tier is where that relationship-building has the most impact.

Converting an existing low-value customer into a higher-value one is still less expensive than acquiring a new one, with unknown value. Despite the investment they demand, it’s easier to see a customer move up the value ladder, while the ones at the top are not terribly at risk of slipping back down (unless you really mess up). Besides, if you don’t devote attention to the least committed customers, chances are that your competitors would be more than happy to take them off your hands.

The easiest way to make your low-value customers into VIPs is to treat them like VIPs.

No matter how many invisible dollar signs hang over their heads, every interaction with your business and brand should make them feel valued and respected. They can also be a valuable source of insights and intelligence. Don’t be afraid to ask them directly: What would make you shop here more? How can we best serve you? Voice of the Customer research is your friend, especially among this group. What applies to some can likely be used to woo others.

Of course, some customers will just never be converted and end up taking up more resources than they’ll ever be worth to you. Customer divestment was once practically an anomaly, but these days, some companies see it as a smarter move than keeping low-value customers on the books. (Read more: The Right Way to Manage Unprofitable Customers on HBR.org – though we at CSP don’t necessarily stand behind that headline.)

Bottom line: Give each customer the attentive and inviting customer experience they deserve, and watch the overall value of your customer relationships grow.


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Why You Need More Than One Metric to Describe Customer Loyalty

August 31, 2016

As a business leader, you know the importance of keeping your finger on the pulse of customer loyalty. A critical part of customer relationship management, customer loyalty goes well beyond a customer making a purchase. Loyalty is steeped in the relationship between the company and purchaser.

A loyal customer believes your organization offers the best option. Loyal customers will purchase a product or service from the same brand, over a long period of time, while turning down competitors, and spreading satisfaction through word of mouth. Loyal customers will stay with you even in trying times. 

Customer loyalty can’t be summed up in a single number.

customer loyalty can't be summed up in a single numberWhile loyalty may appear as a single topic on your priority list, it would be a mistake to try to measure it with just one indicator.

As an example, many businesses looking to improve customer satisfaction use a Net Promoter ScoreSM (NPS®). This system measures the likelihood that customers will recommend a product, service, or company to others, and is often touted as “the only number you need to know.” Likelihood to recommend is certainly worth measuring; CSP uses the NPS® system ourselves. However, this score alone does not tell you enough.

Think of it this way: You wouldn’t use your blood pressure as the sole indicator of your total health, right? It’s important, sure, and it would be convenient if that was all you needed to pay attention to, but it’s not the only vital statistic your doctor needs to track to assess your overall well-being. The same logic applies to customer loyalty.

Instead, what you should aim for is a customer loyalty index that reflects multiple measurement methods and tracks them over time. This allows you to break down the customer relationship into feedback, perceptions, and issue resolutions. Ultimately, you’ll be able to see what you need to do to maintain and increase your loyal customers.

Aim for a full picture of your organization’s brand loyalty.

Measuring customer loyalty in a variety of ways gives you a more comprehensive, multi-dimensional view of your customer loyalty situation. In addition to at-a-glance scores like NPS®, a customer loyalty index can include attitudes and behaviors such as overall satisfaction with customer service, and likelihood of a customer to make a future purchase.

Capturing this data will yield many benefits, among them:

  • Producing a good view of your current standings with the customer,
  • Predicting future retention, and
  • Providing the foundation for building a loyalty profile for your customer.
Closely examine your metrics at the outset.

According to IRI, 44% of Millennials claim to be brand loyal. With their impressive purchasing power, figures like that should motivate you to keep the company-customer relationship at the forefront of your strategic planning.

What do you want your measurements to tell you? Start with the results you want to see to help you decide how to prioritize the data you collect. You will likely find you need more indicators than you thought, but taken together, all these measurements complement one another.

Studying the results of your customer research will produce opportunities to compare your organization against industry standards and your direct competitors, identify your strengths and weaknesses, and zero in on customer preferences. CSP’s Customer Experience Management solutions are designed to provide exactly these opportunities, with the added benefit of guidance from seasoned experts to help you identify what to focus on and what steps to take.


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Net Promoter, NPS, and the NPS-related emoticons are registered trademarks, and Net Promoter Score and Net Promoter System are service marks, of Bain & Company, Inc., Satmetrix Systems, Inc. and Fred Reichheld.

4 Things a Net Promoter Score℠ (NPS®) Can Do for Your Business

May 31, 2016

Think about a brand you absolutely love. They’ve got a five-star product in your opinion, or you’ve fallen for their fantastic performance, or you’re super happy with how they manage their business. On a scale of 0-10, how likely would you be to recommend that brand’s products or services to a friend? If you answered 9 or 10, you can consider yourself a promoter.

This idea serves as the foundation of the Net Promoter Score℠ (NPS®).

A Net Promoter Score is a way to measure the loyalty between a company and its customers. The measurement comes from a score calculated based on the answer to this question:

On a scale of 0-10, how likely are you to recommend this product/service/company to a friend or colleague?

clipboard showing customer satisfaction scores similar to NPSBased on their answers, customers are categorized into one of the following three groups:

  • Score of 0-6: Detractors. Not likely to recommend. These customers are overall unhappy with your brand and can cause damage through negative word-of-mouth talk.
  • Score of 7-8: Passives. Somewhat likely to recommend. These people don’t hate your brand, but they’re not thrilled with it either. They might easily switch to a competitor; they lack brand loyalty.
  • Score of 9-10. Promoters. Extremely likely to recommend. These respondents love you. They are your repeat customers, and they’ll happily tell others how satisfied they are with you.

To calculate your NPS®, you take the percentage of customers who are promoters minus the percentage who are detractors. You end up with a score between -100 and 100. The higher the score, the more promoters you have, and the better you can infer your business is performing.

According to Bain & Company, which first introduced NPS®, “High scores on this question correlated strongly with repurchases, referrals and other actions that contribute to a company’s growth.” And their case studies show that the NPS® question is tops when it comes to predicting behavior. Therefore, the score is often seen as a good indicator of future growth.

When looking at your NPS®, here are four things your score can tell you:
  1. It can show what your company is doing well. Higher scores often reflect a healthy business. Results can reveal areas of strength that should be maintained or built up even further.
  2. It can uncover what needs to be fixed or improved. A lower score can indicate the need for probing into customer satisfaction or loyalty issues.
  3. It can initiate relationship building. The Net Promoter SystemSM encourages reaching out to customers to address their concerns, leading to one-on-one interactions that can be powerful.
  4. It can help motivate employees. Feedback related to your score can give your team members incentive for making improvements and providing a great customer experience.

Companies in all types of industries are using Net Promoter Score® – from financial to healthcare, tech to retail, and more. CSP is licensed to use the NPS®, as well as other metrics, to help businesses grow loyalty and customer satisfaction. To know more about how we incorporate these powerful analytics into a customer experience strategy, contact CSP with your questions.

 

Net Promoter, NPS, and the NPS-related emoticons are registered trademarks, and Net Promoter Score and Net Promoter System are service marks, of Bain & Company, Inc., Satmetrix Systems, Inc. and Fred Reichheld.

Sources:

http://www.medallia.com/
http://www.netpromotersystem.com/
https://www.netpromoter.com/

10 Examples of Employee Engagement in Action

March 9, 2016

The ongoing cycle of customer experience success is comprised of four main influencers: Employees, Customers, Management, and Data. In this series, CSP examines the Employee segment of that cycle and the benefits of focusing on internal culture to drive success.

One of the main advantages of measuring employee engagement is the ability to take something intangible – sense of purpose, satisfaction, and commitment – and turn it into solid data. With this knowledge, businesses can pave a way forward, continuing to rely on regularly updated data to evaluate progress and adjust as necessary.

The Psychology of Engagement

Abraham Maslow’s “Hierarchy of Needs” is a staple of human developmental psychology.

Maslow's Hierarchy of Needs

Maslow’s Hierarchy of Needs

This breakdown of basic, universal human needs provides a useful framework for understanding employee engagement. Let’s take a look at some examples of the key drivers of employee satisfaction, how they correlate with different needs, and what they look like in action (or absence).

Key Driver of Engagement Satisfies This Need Effect on Employee Performance
“My work space is comfortable, and I have the tools and resources I need.” Physiological
  • When this need is met, employees look forward to coming to work and can perform more productively.
  • When this need is not met, employees may dread their time at work and not accomplish as much each day.
“I am fairly compensated with salary and benefits.” Physiological
Esteem
  • When this need is met, employees are likely to remain committed to the company and don’t feel taken advantage of.
  • When this need is not met, employees may become suspicious of or competitive with each other, or begin looking for other employment.
“I feel confident in my job security with this company.” Safety
  • When this need is met, employees can relax and bring their best effort to their jobs, knowing they will still be there tomorrow.
  • When this need is not met, employees may be paranoid, insecure, and less devoted to doing their best.
“I can bring up concerns and ideas to my supervisors” Safety
Esteem
  • When this need is met, employees trust management to be open to their ideas, suggestions, and even criticism.
  • When this need is not met, employees may hesitate to be proactive, contribute solutions, or bring attention to problem areas for fear that it could backfire on them.
“I feel well-informed by what is going on at this company.” Belonging
Esteem
  • When this need is met, employees feel they are connected to the big picture and are motivated to work towards common goals.
  • When this need is not met, employees may become distrustful or disillusioned, and performance can suffer because they “don’t see the point” of their jobs.
“There is a strong sense of teamwork here.” Belonging
  • When this need is met, employees communicate well with each other and with management, and inter-office conflict is kept to a minimum and handled effectively.
  • When this need is not met, tensions can rise between team members or management, and productivity takes a backseat to conflict resolution.
“This company recognizes and rewards people who are doing their jobs well.” Esteem
Belonging
  • When this need is met, employees strive to earn the company’s recognition and are supportive of their team members who do the same.
  • When this need is not met – or if it is met unfairly, such as favoritism – employees may become less productive or unhealthily competitive with one another.
“This company is highly respected in the industry and/or by the public.” Esteem
  • When this need is met, employees take pride in their work and in their roles in supporting the company’s success.
  • When this need is not met, employees may feel ashamed or embarrassed to say that they work for this company, and possibly seek out positions with better-regarded employers.
“I feel empowered to make decisions on my own.” Self-actualization
  • When this need is met, problems and situations are handled effectively, swiftly, and with the least amount of drama.
  • When this need is not met, the employee feels – and acts – as though their hands are literally tied, and productivity suffers because they are always waiting for someone else to act first.
“There is a clear path for promotion or growth from my current position.” Self-actualization
Safety
  • When this need is met, employees draw extra motivation from the possibility of advancement and seek to impress management by proving their worth.
  • When this need is not met, employees may feel underappreciated or stifled, and are open to other opportunities with more promise.
These are just a handful of more than 40 attributes CSP considers when guiding our clients to improve employee engagement.

While no single area of need is more important than all of the others, all of these needs are interrelated and depend on each other to promote optimal employee engagement. The most influential drivers of engagement will vary from workplace to workplace, depending on factors like staff demographics, fluctuations in the economy, and change within the company. There is no one-size-fits-all approach to nurturing engagement. It must be measured and addressed on a case-by-case basis to produce results.


 

More posts on internal culture and employee engagement:

 

5 Compelling Reasons to Measure Employee Engagement

March 2, 2016

The ongoing cycle of customer experience success is comprised of four main influencers: Employees, Customers, Management, and Data. In this series, CSP examines the Employee segment of that cycle and the benefits of focusing on internal culture to drive success.

Understanding Employee Engagement

As defined by the Corporate Leadership Council, “Engagement is the extent to which employees commit to something or someone in their organization and how hard they work and how long they stay as a result of that commitment.”

Engagement is all about intentionally creating a motivating workplace environment, while simultaneously aligning individual employee talents with business strategy. Employees engaged in their work are likely to be motivated, to work with passion, to remain committed to their employer, and to stay focused on achieving business goals and driving the organization’s future.

Why It’s Important to Measure Employee Engagement

1 – Employee engagement directly correlates with performance and business results

No business can expect to grow and achieve sustainable success without an engaged workforce. This is especially true as it applies to customer service and satisfaction. Customer experience is nurtured from the inside out, and relies on competent, well-trained, and highly motivated employees. Sure, you may deliver annual performance reviews and objectives, but that’s only scratching the surface of the overall success of your team.

2 – Being a ‘Great Place to Work’ attracts top talent

A company’s reputation as an employer is one factor determining the quality of applicants for open positions, be they external or internal applicants. Being a great place to work is not just about bragging rights and publicity, it demonstrates to potential candidates (not to mention customers and the general public) that you are doing the all the right things to keep your employees feeling fulfilled. Any worthy candidate will see this as extra incentive to join your team. It may even attract them away from competitors with similar openings available.

3 – Engaged employees are emotionally invested

Your contract with your employees goes beyond tangible benefits like compensation and benefits. How employees feel about their jobs – their managers, their workload and hours, the company’s mission and the quality of the product or service – makes the difference between a job that looks good on paper and one that is satisfying in practice. Employees who are emotionally invested in the company’s success are among your greatest assets.   

CostofReplacing4 – High engagement reduces employee churn

The highest-engaged employees are the least likely to look for or take other employment opportunities that come their way. Naturally, it follows that those who are the least engaged are also the least committed to staying on the team. Not only is it costly to regularly lose employees and have to replace them, voluntary departures affect the morale of the rest of the team.

5 – Engagement can’t be ‘felt,’ it must be measured

While a manager may have a sense of who the most and least engaged members of the team are, many employees will fall somewhere in the invisible middle. These employees are susceptible to being swayed in either direction. Improving individual and overall engagement is only achievable if you know the baseline from which you’re working. Employee engagement metrics take many of the intangible motivators of performance success and make them tangible, visible, and trackable. That’s an essential step for setting goals and implementing internal initiatives to improve engagement.

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