It’s a question that seems to vex lots of business executives – many of whom publicly tout their commitment to the customer, but then are reluctant to invest in customer experience improvements.

As a result, companies continue to subject consumers to complicated sales processes, cluttered websites, dizzying 800-line menus, long wait times, incompetent customer service, unintelligible correspondence and products that are just plain difficult to use.

Admittedly, it can sometimes be difficult to quantify the return on customer experience improvements.  What’s the dollar value of a better trained front-line staff?  Or a streamlined sales process?  Or a voice-of-the-customer program?  The financials surrounding such initiatives are often less precise than those of hard-dollar initiatives, like the renegotiation of real estate leases or the consolidation of corporate functions.

Yet executives routinely make big investments in other types of initiatives that are notorious for their vague and questionable ROIs:  corporate re-brandings, advertising programs, “synergistic” mergers, and even the hiring of highly compensated, star CEOs.

It suggests a double-standard, perhaps reflecting executives’ deep-seated skepticism around the benefits associated with customer experience differentiation.

It was this dichotomy that drove Watermark Consulting to elevate the dialogue – getting executives, even for just a moment, to focus less on project-by-project justifications and more on the macro impact of customer experience excellence.

We’ve accomplished this over the years by studying the total returns for two model stock portfolios comprised of the Top 10 (“Leaders”) and Bottom 10 (“Laggards”) publicly traded companies in Forrester Research’s annual Customer Experience Index ranking.

The results of our latest analysis are in, and they are, in a word, striking:

For the 6-year period from 2007 to 2012, the Customer Experience Leaders in our study outperformed the broader market, generating a total return that was three times higher on average than the S&P 500 Index.

Furthermore, while the Customer Experience Leaders handily beat the S&P 500, the Laggards trailed it by a wide margin.

Keep in mind, this analysis reflects more than half a decade of performance results.  It spans an entire economic cycle, from the pre-recession market peak in 2007 to the post-recession recovery that continues today.

The Customer Experience Leaders in this study are clearly enjoying the many benefits that happy, loyal customers deliver:  better retention, greater wallet share, lower acquisition costs and more cost-efficient service.

And the Laggards?  They are being crushed under the weight of high customer turnover, escalating acquisition costs and an uncompetitive cost structure that is inflated by each customer complaint and avoidable inquiry.

In the pecking order of strategic business investments, customer experience often gets short shrift.  Perhaps it’s that executives view these projects as less glamorous than other initiatives.  Or maybe they just don’t intuitively believe that a better customer experience will drive business results.

Watermark’s analysis demonstrates that the ROI of a great customer experience isn’t soft and sketchy.  Companies that excel in this regard are rewarded, by consumers and investors alike.

And that’s a finding that even the most skeptical executives should find hard to ignore.

*     *     *

Jon Picoult is Founder of Watermark Consulting, a leading customer experience consultancy that helps businesses impress customers, inspire employees and improve brand loyalty.  Prior to establishing Watermark, Jon led service, technology, sales and marketing for Fortune 100 companies.  Learn more at www.watermarkconsult.net, or follow Jon on Twitter @JonPicoult.

Study Methodology

The 2013 Customer Experience ROI Study analyzed the cumulative total stock returns, from 2007-2012, for the Top 10 and Bottom 10 publicly traded companies in Forrester Research’s annual Customer Experience Index ranking (Watermark defines these two groups as the Leaders and Laggards, respectively).

We compare the total return from investing in an equally-weighted, annually readjusted portfolio of Customer Experience Leaders to that for Customer Experience Laggards and the broader market, as reflected by the S&P 500 index.  (The annual readjustment keeps these model portfolios in sync with the Top 10 and Bottom 10 companies identified by Forrester Research each year.)

For information on how Forrester Research calculates the Customer Experience Index for each surveyed company, please refer to Forrester’s Customer Experience Index report.

Even more surprising:  this glimmer of hope, in an industry consumers love to hate, came from United Airlines – not exactly a poster child for customer-centricity.

You might recall, a few years ago, United was at the center of one of the first viral social media rants that woke companies up to the power of “word of mouse.”  (For more on that debacle, read about how “United Breaks Guitars.”)

But we’ve got to give credit where credit is due, and even if United isn’t yet a shining beacon of customer experience, they did something really right this time around.  And, ironically, the story went viral and has given United the kind of PR boost that money can’t buy.

Read the full story at CNN.com – “United Airlines Delays Flight For Man To See Dying Mother.”  While the title may seem to give it all away, read it anyway, because the details matter here – and they reflect some key principles that any business should employ when trying to deliver a more positive, memorable customer experience:

• Take personal ownership.  When the pilot and flight attendants became aware of this passenger’s situation, they took personal ownership for shaping the outcome of the story.  Oftentimes, the difference between a really bad and a really good customer experience can be found in the level of personal accountability that front-line staff take for assisting customers.  It’s a decidedly low-tech lever, but a remarkably powerful one.

• Advocate for your customers.  Consumers are so accustomed to seeing companies look out for themselves that it’s actually pretty striking when a business behaves to the contrary.  In this extraordinary circumstance, United chose to put the customer’s interests (getting the man to his dying mother’s bedside) ahead of its own (on-time performance).

• Personalize the experience.  As the man was rushing to his connecting gate, the United agent spotted him 20 yards out and yelled, “Mr. Drake, we’ve been expecting you!”  Addressing a customer by name and giving a personal welcome – they’re small gestures, but they make people feel less like a generic revenue source and more like an individual, valued client.

• Pay attention to the details.  The pilot of the incoming plane radioed ahead to the connecting city, to make the United staff aware of the passenger’s situation so they would hold his connecting flight.  But someone in the ground crew had the sense to realize that it wasn’t just this man who needed to get on the connecting flight — but his bags, too.  Delivering a great customer experience means leaving nothing to chance.  The details matter, and this United ground crew was all over it.

• Socialize the right behaviors.  Even after the incident, United continued its string of good decisions, by highlighting this story in its employee newsletter.  Don’t assume that your staff knows exactly what it means to deliver a great customer experience.  Showcase behavior that they can model, by making heroes out of those who do it right.

Becoming an airline industry customer experience leader will be a long-haul flight for United.  But if they just study this particular, poignant interaction – they’ll know what direction to head.

Forbes recently reported that the software maker would spend an estimated $1.5-$1.8 billion on the marketing campaign for Windows 8, presumably to convince us all that Microsoft’s new operating system is indeed the best thing since… umm, Windows 7.

And so how’s that working for them?  According to ComputerWorld, not so good.  Windows 8 sales have been underwhelming, garnering far less market share than Windows 7 at the same point in its release cycle.

Granted, the Windows 8 user interface is a significant departure from prior versions, so one could argue that adoption will slower.  But let’s not kid ourselves, Windows 8 is no beacon of customer experience excellence.

The word many software reviewers seem to use when describing the program is “confusion.”  Software design guru Jakob Nielsen went a step further, declaring that Windows 8 “smothers usability.”  Probably not the kind of press coverage Microsoft was hoping for…

But this isn’t a story about the usability of a new software program.  It’s just a sobering reminder that great, loyalty-enhancing customer experiences – the kind that get people talking and buying – can’t be created with Super Bowl ads, stadium naming rights, public relations blitzes, or any type of marketing campaign.

No matter what you’re selling, be it a piece of software or an intangible service, consumers will ultimately judge your customer experience based not on what you say, but on what you do.

The real battle for consumers’ hearts and minds isn’t waged on billboards and airwaves.  Marketing campaigns may provide air cover, but it’s the hand-to-hand combat of each customer interaction where true loyalty is forged – the usability of your software, the clarity of your communication, the helpfulness of your staff, the ease of doing business, etc.

So before you hang your hat on an expensive marketing campaign to convince consumers how wonderful your product or service is, ask yourself… why do they need convincing at all?

What I love about this story is how it illustrates that the best customer experiences can’t be scripted.  So much depends on the people and personalities who are delivering the experience – and the leeway they’re given to make a positive, memorable impression.

As you read about this LEGO customer experience (see the link at the bottom of this post), think about your own business and ask yourself:

• Are you filling your front-line roles with people who have the right attitude and the intrinsic motivation for making customers feel special?  Are you trying to train new hires to be happy and personable, or are you hiring happy and personable people?

• Would your business’ approach to performance measurement have encouraged – or inhibited – the type of behavior demonstrated by this LEGO employee?  Do you gauge employee performance largely by how many widgets people produce, or do you also consider how many raving fans they create?

• Do you give your front-line staff some latitude to exercise judgment and make independent decisions, particularly when faced with unusual customer circumstances?  How rigid are the procedures and scripts that govern their role?  How do you respond when someone on the front-line makes a poor judgment?

Might LEGO products be more fun and creative than whatever you’re selling?  Perhaps, but that doesn’t mean the lessons from LEGO are any less pertinent to your company.

The fact of the matter is, LEGO has long understood the building blocks of customer loyalty, and we can all learn something from them.

Enjoy the full story at The Huffington Post.

We’d like to think we know a little something about creating raving fans – and our 2012 results suggest we might be on to something.

Forgive us as we partake in a brief moment of celebration and shameless self-promotion, but we’re thrilled to report that our 2012 Net Promoter Score (NPS) came in at +100%!

For those of you unfamiliar with NPS, it’s a widely used measure for gauging the quality of a company’s customer experience and the ensuing loyalty that it engenders.  NPS scores are calculated from customer surveys – specifically, a “likelihood to recommend” question.  Scores can range from -100% (poor) to +100% (excellent).

According to Fred Reichheld (co-developer of the NPS measure), the average company typically has an NPS score of +5% to +10% (which essentially means they have about as many customers who dislike them as those who love them).  Perennial leaders in customer experience and loyalty, such as Apple and Amazon, generally score in the 70’s and 80’s.

For the twelve months ending December 31, 2012, Watermark Consulting earned a Net Promoter Score of +100%, indicating an extremely high level of satisfaction and loyalty among our clients.

We’re grateful to have earned such high marks from our clients, and look forward to impressing them for years to come!

Net Promoter Score is a registered trademark of Fred Reichheld, Satmetrix, and Bain & Co.

That’s the message from Professors Maurice E. Schweitzer, Lisa D. Ordonez, Adam Galinsky and Max Bazerman – all of whom should surely win an award for the most creative titling of an academic research paper (“Goals Gone Wild” in the Academy of Management Perspectives journal).

In a recent New York Times article, the professors’ research was highlighted along with intriguing examples of the unintended consequences of goal setting.

Like this gem:  An NFL team, in an effort to improve the performance of an interception-prone quarterback, added a clause to his contract penalizing him for every pass thrown to the opposing team.  The result?  The QB threw fewer interceptions – but only because he stopped throwing the ball altogether, which wasn’t the desired outcome.

This goal-setting phenomenon is routinely on display in business circles, when companies focus so relentlessly on a metric that their people over rotate on it.  That ultimately drives undesirable, sometimes even awkward behavior.  Perhaps you’ll recognize some of these examples from your own experience, as a businessperson or as a consumer:

• Auto dealerships where franchise recognition is so closely tied to “top box” scores on a satisfaction survey, that staff practically beg customers for an “Excellent” rating.

• Call centers that set targets for call length, leading service representatives to be more interested in getting customers off the phone than they are in actually helping them.

• B2B firms that use Net Promoter^® Score (NPS) as their primary gauge of performance, leading company representatives to hand-deliver the NPS survey at the most auspicious occasions (like on a golf outing with a client).

• Companies with such laser-focus on market share targets that they acquire new business at all costs, even at the expense of profitability.

• Human resource recruiters who are held accountable for qualified candidate “yields” from their sourcing methods, leading them to pass less-than-ideal applicants through the recruiting pipeline.

To avoid making your organization’s goals its own worst enemy, keep these four tips in mind:

1.      Consider unintended consequences.  In the fervor to address a business issue and rally the troops around an effort, organizations leap to embrace a metric without carefully considering all of the downstream impacts.  Contemplating a new measure, or a renewed focus on an existing one?  Put on your contrarian hat for a moment.  Think of all the bad things that could happen if your staff focused, to a fault, on the line you’ve drawn in the sand.  Based on how detrimental and probable those unintended consequences are, tweak your approach accordingly.

2.      Strive for balance.  Guard against over rotation on any single metric by creating a balanced system of measures.  For example, if you want to encourage a sales-oriented culture, but wish to avoid staff making sales at any cost, then only reward those top salespeople who also meet some performance threshold for profitability or customer satisfaction.

3.      Set Goldilocks goals.  Setting goals is one management task where it’s dangerous to be cavalier.  Set the bar too high and you create unrealistic performance expectations that can disengage your staff or, worse, lead them to game the system.  Set the bar too low and you miss an opportunity to get people to stretch toward a higher level of performance.  If you want to set a goal, first track the metric for a period of time to get a sense of its variability as well as the current performance level.  That’ll help you set an informed goal that’s more likely to motivate rather than frustrate.

4.      Beware the tie to compensation.  Pay for performance – yes, I’m all for it.  But organizations can get into trouble when they move too swiftly to tie particular metrics (especially new, unproven ones) to individual compensation.  First, get some experience under your belt tracking the metric and providing individual feedback based on it.  Then structure the compensation linkage in a way that reinforces a balanced approach to measurement.

*          *          *

When it comes to performance measurement and goal setting, simple “carrot and stick” thinking won’t suffice.  Business leaders must invest some real time engineering this piece of their workplace puzzle.  It’s the best way to ensure that your organization’s goals are working for you, and not against you.

(Net Promoter® is a registered trademark of Satmetrix Systems, Inc., Bain & Company and Fred Reichheld.)

While formal employee orientation programs are but one component of onboarding, they do offer a helpful litmus test to better understand what signals your firm is sending to new staff.

For starters, look at the agenda of one of your company’s employee orientation meetings.  Who’s the first person these employees hear from?  What’s the first thing they hear about?  What topics get the most airtime during the meeting?

For one of my Fortune 100 clients, the answers to these questions were quite surprising – and disturbing.  They discovered that the first thing new employees heard about at orientation was…  the seventeen ways you could get fired for violating the company’s business ethics code.

Imagine what kind of signal that sends to new hires.  For one, it suggests that the organization they’ve joined is very rules-based and bureaucratic.  Some might even interpret it as a sign of distrust towards employees.  Whatever way you slice it, it doesn’t make for a good impression!

And it’s not that this information isn’t important to new hires.  They should know the seventeen ways you could get fired for violating the company’s business ethics code.  But it sure doesn’t have to be the lead-off item on the agenda.

This might be a particularly egregious example, but companies engage in these sorts of missteps all the time – viewing employee orientation as an administrative exercise where paperwork gets signed, HR policies are communicated and organizational charts get distributed.

Think instead about employee orientation as an opportunity to highlight for new staff what really matters to your company.

Hopefully, that’s not the seventeen ways people can get fired, but something slightly more inspiring – like your business’ purpose, your reason for being, the principles that set you apart from competitors, and how these new hires fit into that big picture.

Through new hire orientations, companies have the power to set the tone for employees’ entire workplace experience.  Don’t miss this opportunity to get new employee relationships started on the right foot.

Watermark Consulting Founder Jon Picoult was interviewed for this cover story in The Conference Board Review, where he explains how companies can guard against the bad decisions that trigger customer revolts.

That’s the takeaway from a new Corporate Executive Board study, which found that the vast majority of consumers (77%) had no interest in developing a “relationship” with the businesses they patronized.

Most people view relationships as being reserved for friends and loved ones.  (“It’s just a brand, not a member of my family” was how many of those surveyed described their feelings.)

Customers don’t want a relationship with your business.  All they want is for the products they purchase to work as promised, as expected.  All they want is for your front-line staff to do what they said they were going to do.  All they want is for your company to make their lives easier, not harder.

The irony is, if you deliver all those things consistently, customers will love you for it – because they rarely get that from most firms.  Though they may still claim to not have a “relationship” with your company, they will be drawn to do business with you again and again.

And the value of that loyalty is something any business can relate to.

]]> http://www.watermarkconsult.net/blog/2012/06/15/why-customer-relationships-are-overrated/feed/ 0 http://www.watermarkconsult.net/blog/2012/06/12/insurers-best-kept-secret/ http://www.watermarkconsult.net/blog/2012/06/12/insurers-best-kept-secret/#comments Tue, 12 Jun 2012 19:55:12 +0000 jpicoult http://www.watermarkconsult.net/blog/?p=796 For decades, diversified insurers have doggedly pursued the Holy Grail of their industry – getting customers to purchase multiple types of coverage.

Success has been elusive, and a recent study by LIMRA offers a surprising explanation why:  Many consumers don’t have a clue that their insurer even offers other products.

Insurers aren’t trying to keep those other offerings a secret, but that’s effectively what happens given how they communicate with consumers.

In the latest issue of LOMA Resource magazine, Watermark Founder Jon Picoult explains why insurers’ cross-sell messages fall on deaf ears, and what they can do differently to engage their policyowners in a more productive cross-sell dialogue.

Download PDF of whole story.

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