Firms that top the Net Promoter customer-satisfaction rankings for three-plus years grow more than twice as fast as their competitors, and deliver shareholder returns two to five times higher over the next decade.
But despite the fact that winning and keeping customers is the bedrock of all businesses’ success, most firms continue to pursue short-termist strategies which, while they appease investors’ appetites for quick returns, harm the company in the long term.
Writing for Harvard Business Review, Bob Markey explains how to construct a new strategy that puts customer value at the core of everything you do.
A SUCCESS STORY
Former CEO of Australian telecommunications company Telstra, David Theody realised that the best way to achieve sustainable growth was to improve the customer experience. Here’s what he did:
1) Set out a clear vision: “Telstra would lead its industry in customer advocacy as gauged by Net Promoter Scores.”
2) Showed his commitment to the goal by beginning meetings with a discussion of progress towards it.
3) Insisted on buy in, asking execs to devote time in meetings to “knocking down barriers to delivering a great customer experience”.
4) Supported changes to policies and pricing aimed to improve the customer experience even at the expense of short-term profitability.
During Theody’s six years in post, Telstra gained 10% market share in mobile and grew its share price by 70%.
WHY FIRMS FAIL TO PUT THE CUSTOMER FIRST
- Failures in accounting – GAAPs – generally accepted accounting principles emphasise the value of physical and financial assets, but not the value of a firm’s present and potential customers, nor its performance in terms of customer satisfaction.
- Firms are organised around business function, rather than the goal of achieving excellence for the customer.
- Leaders don’t know how to sell investors on the concept that it’s in their interests to take a more customer-centric long-term view.
HOW TO MEASURE CUSTOMER VALUE FOR INVESTORS
To convince your leadership team and rank and file that improving customer satisfaction should be the firm’s guiding focus, you need to demonstrate what’s at stake – “the current total lifetime value of the customer base and the potential financial value that lies in increasing customer loyalty”.
There are currently no clear rules and standards governing the release of customer-value data to investors, and no obligation to do so. But while many firms judge the dissemination of such information to be far too sensitive for public view, reporting the value and growth of your customer base is the only way to begin to persuade investors that a “loyalty-based” strategy is the only one to pursue, and to back you when you take decisions that benefit long-term growth to the detriment of short-term profit.
To figure out the value your customers bring to the firm, the author suggests focusing on three basic measures:
1) Number of existing active customers – customers retained for a year or more or who have bought something in the past year.
2) Number of customers gained during the reporting period gross and net.
3) Average revenue for new and existing customers.
For a more nuanced measure, consider including: cost of acquiring and serving customers; breakdown of customer numbers and revenues by cohort; and comparing the retention rate for the top 20% of customers versus the rest.
Combine these quantitative measures with qualitative analyses gathered from independent third parties like Net Promoter, which publishes its methodology and which uses metrics that remain consistent over time. With these basic measures, “investors could readily estimate the changing value of a company’s assets”.
REORGANISE YOUR FIRM TO BENEFIT THE CUSTOMER
At USAA, instead of sales, finance, and insurance departments acting independently of each other, “employees from different product lines and functional groups [work] as a team to address an overarching customer need”. Instead of organising your firm by function – marketing, sales, finance, legal – create interdisciplinary teams which serve customer needs.
Not only does this promote a seamless service, but it also helps to eliminate internal divisions and unhelpful rivalry between departments. The more barriers you remove, the greater the potential for cooperation and collaboration, the better use you’ll be able to make of the available expertise and data, and the more satisfied your customers will be.
REDESIGN PROCESSES TO BENEFIT THE CUSTOMER
“The goal is not simply to induce customers to buy. It is to improve their lives so effectively that the company earns their trust and continued business.”
Put yourself in your customers’ shoes – learn from their experience and, using detailed customer feedback data, redesign or personalise your products and services to improve the customer experience and, by extension, the success of loyalty-driven marketing.
Make the most of data, analytics and AI to make your services more “human-centred”. Instead of attempting to ensure customers never get to speak to a human being, company phone systems should be reorientated to make sure customers get to speak to the right person:
“A customer calls… Before she even speaks to a rep, the AI-enhanced routing system predicts what her need is on the basis of her profile data, latest mobile and web interactions, and recent purchases. The system [routes] her to the agent whose interaction style and technical proficiency are best suited… Once the call is connected, an AI enabled coaching system analyses… tone of voice and rate of speech… and provides guidance to the agent in real time.”
MONITOR AND TWEAK THE CUSTOMER EXPERIENCE
Improve reporting on each new customer cohort so that you can compare performance as your strategy develops over time:
“How much did it cost to acquire new customers in each cohort? What percentage of customers in each cohort remains active? How frequent are their purchases? How much does it cost to serve them? What is the revenue per customer?”
Encourage managers to use metrics which track how customer satisfaction levels respond to changes they make. Leaders need to be able to see the results of initiatives like “service personalisation”. Operational measures like “the number of abandoned calls or first-time success rate in a digital self-service, can be combined with qualitative data, such as customer feedback scores and comments, to sharpen the picture”.
All stakeholders benefit from a customer-centric approach to doing business. Customers get a great overall experience and are nice to staff in return; staff realise customers value the great job they’re doing and become more open to trying new ways to further enhance the customer experience; management and investors see better profits – society itself benefits when it contains more firms which offer better services.
Isn’t it time you put your customers at the heart of everything you do?