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The Strategic Value of Customer Feedback

Strategic Value of VOCMost companies solicit customer feedback on their products or services in various forms, even though it is hard to find evidence of any strategic benefits derived from its use. Most commonly used methods, surveys and focus groups, are tightly controlled by companies through the selection of the subjects of inquiry and carefully formulated questions that require a quantitative response. These efforts are focused on validation of hypotheses about a product or service’s adoption by target market segments. However, they do little to help the discovery of unmet customer needs or to support construction of alternative hypotheses.

Unsolicited customer feedback, found “in the wild” at online customer reviews sites and forums, is an excellent source of insights comparable to the ones discovered by ethnographic research (by observation).  Both methods share the focus on the customer’s outside-in perspective, but “in the wild” feedback provides more statistically representative samples at a much lower cost.

“The only truly unbiased voice-of-customer feedback, I believe, is the feedback you find “in the wild,” that is, by simply observing the comments made by your customers in social media.” Don Pepper

It is a common practice today for many companies to collect and/or monitor both types of customer feedback. The problem is what they do with it. Ultimately, the quality of business outcome trumps what types of customer feedback or methodologies were used to produce it. There is a growing body of evidence that puts a very high value on the use of “in the wild” customer feedback for strategic innovation efforts. Yet, most companies use social media comments to focus on the resolution of public complaints by responding to them at a micro level.

“An ounce of prevention is worth a pound of cure.” Ben Franklin

The goal should be discovery and elimination of systemic process/product failures that impact customer experience. However, companies are often skeptical to consider unsolicited customer feedback as a reliable and fertile ore for mining strategic insights. Their management seemingly prefers the comfort of familiar, if not effective, evaluations by the “house” customers at the expense of their brand’s degradation by “in the wild” social consumers. The use of Band-Aids is not effective to stop heavy bleeding.

Since most “tamed” customer feedback is used for validation, and most “in the wild” customer feedback is used for firefighting, the relative ROI should be examined closely. Perhaps a better model would be to start using unsolicited Voice of Customer for selection of subjects for validation.

Where are Customer Experience Success Stories?

Where are CX success stories.Companies cannot control how their customers perceive their experiences with their products and services. However, they can and they must optimize their processes to deliver the best experiences from their customers perspective, profitably. Some would argue that doing this is critical to a company’s longevity.

In developed markets the quality of customer experience quickly becomes the primary competitive differentiator. Recent studies found that 90% of executives say that customer experience is central to their strategies, and 80% want to use it as a form of differentiation. The problem is that 86% of these executives do not expect to see a significant uplift in business resulting from it. As long as this is the case, nothing will change, and the customer experience mantra will remain just empty words, while their companies continue to compete on price on the race to the bottom.

This will linger on as long as business leaders put the interests of short term share traders ahead of the interests of customers, employees and investors. The focus on quarterly growth of earnings per share benefits only day traders and corporate raiders. All the while the company’s longevity is being compromised. Companies exist to serve customers profitably. The executives, that cannot see “a significant uplift in business results” from customer experience investment, should closely examine what business results they pursue and a time frame they expect the results to occur.

The business results to be expected as a return on customer experience investment made skillfully include, but not limited to:

  • increase in revenue per customer
  • growth of customer lifetime value
  • increase in their market share
  • decline in marketing costs
  • decline in customer support/service costs

However, these gains typically start to make impact on the earnings per share (EPS) two or three years after the first round of the customer experience investment was executed successfully.

Customer Experience Management (CEM or CXM) is a relatively new discipline. A Google search of the term finds the first relevant reference on the second page as the very vague Gartner definition:

” the practice of designing and reacting to customer interactions to meet or exceed customer expectations and, thus, increase customer satisfaction, loyalty and advocacy.”

Given the association of Gartner with the software industry, and the most of subsequent search results point to technology companies, it is easy to assume that customer experience management investment means buying and implementing technology. Nothing can be further from the truth. In fact, technology is never the solution to your customer experience management challenge. The solution is an investment of effort and money into the rethinking of your business processes and practices from your customer perspective. Only after this is accomplished, modeled and tested, may you want to use a technology to speed the proliferation of the results throughout the company.

Specific methodologies and best practices for successful customer experience strategy implementations are very hard to find. Each success came after multiple failed attempts and is unique to the market in which the company operates. When a company considers customer experience to be a competitive differentiator, the last thing it wants to do is to share their hard earned customer competency with their competitors. Over 90% of our clients insist on strict non-disclose conditions before we start any work with them. This experience is not unique.

That is why successful implementations of marginal technology solutions will be publicized and imitated ad nauseum. The successful implementation of customer centricity strategy may see a lot of publicity, but its specifics would always be left for public guesswork and folklore.

Customer Experience – From Data to Action

Customer Experience-From Data to ActionToo many analytical efforts focus on a single stream/source of data and that makes them unproductive. The purpose of analysis is the development of actionable intelligence:

  • to lower the uncertainty of management action
  • and/or to help form ideas to bridge the gap between the existing and desired state of affairs.

Confining these efforts to the analysis of a single source of data does not provide enough intelligence to produce confident outcomes.

Google Analytics is a good example of an excellent tool that provides a great deal of transactional data that requires interpretation to suggest an action. When the interpreters have no data about the customers’ experience with the website, they would have to make assumptions about the motivations behind the transactional data. Every time an assumption substitutes for  data,  the confidence in a suggested action is diminished. I am not arguing for “paralysis thru analysis”, but there is a reason why GPS requires the minimum of three satellite signals, before it gives your position’s coordinates.

I used to look over Yelp reviews before selecting a new restaurant to check out, but 9 out of ten times my experience fell well below the expectations created by other customers’ perceptions. Since I have no access to data about the reviewers age, culinary experience, cultural background and priorities, the analysis of their perceptions cannot produce confident/meaningful recommendations to act. Hence, Yelp restaurant reviews are no longer a reference source for me.

Analysis of customer reviews of products published on Amazon and other sites like that can be very valuable to product and brand managers. They can find great insights for optimization of a product’s lifecycle, a brand’s product mix or advertising efficacy. However, the correlation between customer experience data and sales and returns’ data, will always produce much more confident calls to action.Customer Experience-From Data to Action 1 dashboard

The myth of “The One” has been propagated in our culture for a long time. That explains the popularity of books and movies that try to make us believe in a single source of wisdom, love and happiness, or whatever else they sell. Similarly, technology providers market their analytical tools for a single source of data as a “strategic” solution, but market intelligence is highly contextual and requires a multiplicity of sources to be meaningful.

Flashy dashboards, without blended data sources, cannot produce confident calls to action.  Blending different models to analyze the same data will likely increase the confidence even more. It is important to remember that the effectiveness of your efforts depends much more on the data sets you choose to analyze in concert, than on the tools you choose for analysis and visualization.

Customer Satisfaction Is Not Enough to Forge Loyalty

CSAT and LoyaltyMost companies, large and small, monitor satisfaction scores given by their customers. Regardless of the methodology or scale they employ, the utility of these measurements is somewhat questionable. Aggregate metrics like these offer very little actionable intelligence, but trending them over time may provide alarms, acting as the proverbial canary in the mine.

Presumably, companies that compete in the market have to satisfy their customers to stay in business.  Therefore, relatively high customer satisfaction scores signal the likelihood of the company’s longevity. Many hypothesize that high customer satisfaction leads to the creation of loyal customers, low customer churn, and subsequently high profit margins with increase in market share. While the correlations between increases in customer experience scores and wealth creation are relatively well documented, the cause and effect between the two are very hard to establish. There are many gaps in the logic of such inferences:

  1. Relativity of the score – most companies measure customer satisfaction of their customers without benchmarking these scores against the competition. Such an approach provides no more than a data point without reference to the realities of the marketplace.
  2. Satisfied customers do not automatically become loyal customers. Customer satisfaction is an absolutely necessary condition for forging customer loyalty, but it is not a sufficient one. Loyal is the customer who will continue to buy from your company regardless of the market pressures:

– even if the product or service can be purchased cheaper from someone else

– even if your competitor comes with a “better” product

– even if the delivery comes a day later than competition.

Rudy Vidal of Vidal Consulting Group shared with me the results of his research on the correlation between customer satisfaction and loyalty – only 13% of “extremely satisfied” customers identify themselves as being “loyal” as described in the definition above.

Make no mistake, raising your customer satisfaction scores above the scores of your competitors will likely have a positive impact on reducing your customer churn rates. The challenge is to produce “real” quantified evidence of such impact. It may be substantially easier to produce evidence of how loyalty (not declared intent, but observed behavior) impacts profitability and/or revenue growth. The methods for doing this have to be discussed in the context of specific product or company. The more relevant question for this post is – what turns satisfied customers into the loyal ones?

Many subject matter experts seem to think that loyalty is created by an emotional response of customers to certain elements or attributes of their experience with a product, brand or company. Moreover, the loyalty is only forged when the customer exposed to such experience on multiple occasions.

Most “loyalty” programs on the market today completely miss this point and act as “golden handcuffs” to incite repeat business rather than creating loyal customers. All the talk about “awing” or “delighting” customers is unlikely to produce any specific, measurable and lasting effect in creating customer loyalty. Without understanding what customers value on emotional level these programs will likely fail.

The ultimate challenge for a practitioner is to recognize which elements/attributes of their customers’ experience inspire emotional responses and optimize the processes to deliver them consistently.

Technology is not the solution for your customer experience problems

Techology is not the solutionIt appears too many companies, particularly startups, rely too much on the technology tools in attempts of scaling their business.  In markets, where most customers have at least 3-5 companies that promise to deliver similar solutions for their problems at similar prices, customer experience is the only true differentiator. The company that provides the simplest path from on boarding to desired customer outcome, will most likely own their market segment. Yet, most companies give much more thought to their marketing efforts to attract potential buyers than to prevent their paying customers from living.

For almost a year I was a customer of SocialOomph. In spite of their convoluted interface, I was able to schedule my content for publishing, until someone decided to change their billing process and the name they used to debit my credit card.  An unfamiliar name on my credit card statement prompted me to notify my bank and that caused SocialOomph to cancel my account. When I realized what happened I send them an email asking how my payments and service could be restored. I’ve never heard back from their customer support. The phone number is available on their website along with the message that discouraging its use. When I called, the voice message directed me back to the customer support’s email address.

Given the well publicized reputation of Canadians for their politeness, it is very unsettling to experience the “Soup Nazi” treatment from the company based in Canada – “No SocialOomph for you!”.

There are 4-5 companies that offer seemingly similar services at similar prices. Their websites are not particularly descriptive as to how they differentiate from each other and “free” test drive offers require credit card information. I could not find any customer reviews from those who have done business with any of them and was not in the mood for risky experiments.

All of these companies sell technology based service to social customers, but none of them seem to have a grasp of a social customer’s perspective.

That brings me to the point of this article – commerce, whether it is conducted online or at brick-and-mortar, is inherently a human activity and no technology can replace empathy and understanding of your customers’ journey. The transactional website analytics, that tracks clicks and time visitors spent on specific pages, does not help to gain that human perspective. Technologists often think that unique attributes of their offerings are more critical to success than fuzzy customer experience. They are wrong. No technology is good enough to make your customers forgive you for not caring for them. Many of them will abandon your business as soon as they find a provider replicating your service’s functions and offering a better experience. “They don’t care how much you know, until they know how much you care”.

An outside-in view of your business is by far more critical to your growth than any technology you can deploy to promote or automate it.

Not all social media channels are created equal

Not all social media channels are equalThe value of a company, brand or product’s reputation in the socially connected marketplace has started to eclipse the value of their paid advertisement and marketing efforts. If you need proof that the previous statement is true, please explore the bibliography list at the bottom.  In this post I would like to explore the state of the reputation ecosystem and hierarchy of its content from the perspective of the customers and the businesses involved.

The contemporary wisdom of social media marketing and customer support pundits, suggests that companies have to monitor any channel their customers are using at all times. In practical terms such an approach may result in ineffective use of monetary and talent resources. The extensive and growing selection of channels available to customers makes it improbable to monitor and mine content for producing meaningful action.  The same dilemma faces customers and businesses alike:

Which social media channel is the best to publish my customer experience to make a desirable impact?

Which social media channel is most likely to serve trustworthy content, to help me make the best purchase choice?

Which social media channel(s) are most likely to yield the most valuable insights at a reasonable cost?

If your idea of reputation management is chasing every negative mention of your brand anywhere on the Internet and trying to erase or neutralize it, you will spend a lot of time and money playing this “whack-a-mole” game without any financial gain. Your brand/reputation, is what your customers say about their experience doing business with your company. The best you can do is learn from what they say publically to improve their personal experience every step of their journey. In the age of social customers, manipulation and puffery do not work as well as they used to, yet authenticity and competence became the currency of choice.

From that perspective different social media channels, where customers can share their experiences, offer very different value for both consumers and the brands based on these criteria:

  1. Is there a sufficient volume of customer feedback on this channel? A small number of a product/brand customers, who share their experience on a given channel, makes this channel superfluous for assessing this product/brand reputation. It also makes it improbable for the brand to learn how to improve customers’ experience cross market.
  2. What is the business model behind the social media channel? Who pays for the channel to be in existence, and what is the primary reason for this channel’s existence? Based on the answers you can expect certain biases to influence the content published in the specific social media channels, regardless of their assurances. Facebook’s brand/product page is paid for by the brand to advertise its products, therefore the probability of finding negative customer comments published there is relatively low. The Amazon reviews site is published (paid for) by retailers to increase page visit to the purchase conversion ratio – not of the specific product page, but of any product page available on the Amazon website. Therefore the authenticity of content on a site like Amazon is more trustworthy than on a site like Facebook. The trustworthiness of many social media channels, like Yelp, Trustpilot, TravelAdvisor and others, has been challenged by both consumers and companies in the past. No allegations were actually proven, but their business model’s dependence on brand’s support/advertising leads to the suspicions of conflict of interest.
  3. What is the desired outcome? An enthusiastic Twitter message from somebody you barely know is not likely to help in selecting your next washing machine purchase. A reasonable number of BestBuy.com customer reviews, describing their experience in reasonable detail, may well assure you that this machine would treat your laundry they way you would expect it. It is not about positive and negative sentiments, it is about the relevance of published opinions to the desired outcome of the reader. The detailed description of an experience with a specific product helps consumers understand how the customers’ experience relates to their own expectations. From the perspective of a brand/product manager, the analysis of a Twitter stream can provide the knowledge that your customers in the West region love your brand, but the customers in South hate it, but it is not likely to help you measurably improve your brand reputation.

Every day and every technology bring new choices. The wise choices are the result of careful consideration of desired outcomes and prudent analysis of potential for unintended consequences.

 

Bibliography

  1. Absolute Value: What Really Influences Customers in the Age of (Nearly) Perfect Information
  2. http://www.eweek.com/small-business/social-media-seo-investment-rises-as-paid-advertising-falls.html
  3. http://blogs.sap.com/innovation/sales-marketing/loyalty-or-reputation-which-sells-your-product-better-01248327
  4. http://customerthink.com/customer-experience-is-more-important-than-advertising-infographic/
  5. http://www.mckinsey.com/insights/marketing_sales/a_new_way_to_measure_word-of-mouth_marketing

Is it Wise to Ignore Correlations Between Customer Experience and Creation of Wealth?

Is it wise to ignoreMany academic studies were published over the last two decades that examined the correlations between improvements in customer satisfaction/advocacy/experience and increase in sales, profits, market share or share value. Below are some examples

 

Advocacy Drives Growth Across Industries

 

Customer Satisfaction Heterogeneity and Shareholder Value

 

Customer Satisfaction, Market Share and Profitability

 

 

If there was a debate, by now it is over. Yet, customer experience management practitioners often fail to convince their bosses and clients to take decisive actions that can measurably improve the experience of their customers.

 

I think the primary reason for this frustrating situation is the cultural divide:

 

  • CXM practitioners are often focused too much on the complexities of methodologies for measuring, and statistics. Our clients and bosses are often too focused on quarterly financial results.
  •  CXM practitioners often lack the business domain knowledge required for the translation of market research findings into specific recommendations that our bosses and clients can embed into their strategy and process.
  • When we do amass the knowledge and courage to make the recommendations, our bosses and clients want us to predict their outcomes. Since they do not appreciate differences between correlations and causations they are frustrated with our lack of confidence in our own recommendations.

 

These cultural differences drive many CXM professionals into endless selection of “better” methodologies for measuring customer experience and pursuit of poorly defined accuracies of vanity metrics. In other words they retreat into their comfort zone and relinquish their ambitions of contributing to improve their employer’s ability to win in the market place. I can confidently predict that such surrender will not enhance their value to their employer.

Here are a few tips for bridging this cultural divide:

1. Start to think more as an economist than a statistician. Focus more on problems and processes that impact customer experience, and less on data, metrics and technologies.

2. Stop debating which methodology is better (CSAT/NPS/CES, etc). Your customers do not care how you measure their experience. They only care if your product, service, brand or company delivers a better experience to them than your competition.

3. Stop asking your customers the “on the scale from A to Z…” questions and pretending that to be the Voice of Customer. These scores rarely tell you WHY your customers chose a competing offer. The research is about discovery of new knowledge, not about tabulating survey scores into neat piles.

4. Model your recommendations extensively before you present them to your boss or client. They know how to assess and manage uncertainties in their own fields (sales forecasting, etc.). You need to frame your predictions similarly so your boss or client can assess risk/reward ratios and start acting.

“Be the change you want to see in the world” and if you don’t like the change, you will like irrelevancy even less.

Why Your Investment in Analytics is Likely to be a Complete Waste of Money

Big Data DashboardPresumably, analysis of data holds the promise of increase in growth and profitability of any business. This presumption leads to wide adoption of any technology that has “big data” or “analytics” in its name, as well as massive venture capital investment in the sector.

The number of companies that sell services and tools to aggregate, store and process very large volumes of data is astonishing. In addition, there is a dazzling number of companies  offering “free” analytics and data visualization tools. Yet, there are very few companies that can claim success of achieving growth and profitability goals after investing a lot of money, efforts and political capital.

Let me make it clear – I sell customer experience analytics services and I am not in a position to throw stones at technology providers or data scientists. My beef is with the upside-down approach taken by many organizations in attempts to leverage data analysis into the production of profitable decisions.

Those who believe that bigger data possesses unreasonable effectiveness will invariably be disappointed. Many believe the more data you have, the more unexpected insights will rise from it, and the more previously unseen patterns will emerge. This is the religion of big data that promises to defy the gravity of management science. While I do believe in miracles, I am very skeptical about being able to buy them from third parties.

Miracle in step two

 “Big data is like counting grains of rice in front of a hungry man. He doesn’t care about the number of grains. He just wants a bowl of cooked rice.”  Stephen Yu, Willow Data Strategy

One is not likely to make sound management decisions without knowledge of the specific domain of business.  When the domain knowledge meets data analytics many good things start to happen:

  1. Cultural biases and beliefs, that often act as barnacles impeding your progress, will be challenged;
  2. Departmental impacts on a business process, that are often overlooked, will get exposed;
  3. New hypothesis (model) for better business decisions can be created. More data can be identified to test these hypothesis. Better testing produces better, more accurate, models and better models support better decisions: the decisions that make your business grow faster and more profitable.

The role of analytics is to provide support for building predictive models. Predictive modeling is about knowledge of domain and scientific method. Big data can provide and store a lot of additional content for mining, but not much more.

“As for the modeling… it’s like any other science. You learn the domain, then you make the model, then you learn some more. There’s no magic. It does help to learn plain old ordinary statistics, and if you want to do it like Nate Silver you learn a lot of statistics.”

Analytics without domain knowledge, is as likely to provide you with actionable decisions, as a pile of bricks without blueprints is to help you construct a house.

3 Critical Shortfalls of Surveying Customers

Stupid surveyI am not a big fan of using survey methodology for research into customer experience. I think it is a great tool for hypothesis validation, which is a part of customer experience research, but it is a very poor tool for learning about customers’ perceptions of dealing with a product or a company. You can never learn anything fundamentally new by asking closed ended questions. Surely, this point of view is not shared by most companies that pretend they want to know the opinions of their customers because they don’t want to learn anything that does not support their established beliefs.

However, if your tool’s box is limited to basics, at the very least you should learn how to use them well. I would argue it is better not to send out a poorly executed survey at all than to aggravate your customers with poorly timed and executed ones.

Here are the most common shortfalls of using surveys

  1. Timing – Practitioners often complain about the challenges of engaging customers to share their experiences. That is because 9 out of 10 attempts to engage (in a form of survey) are viewed by customers to be disruptive or poorly timed*. In other words, customers were asked to share their experience before they had an opportunity to sufficiently experience a product/service in question. The time and channel of engagement was determined by a company without considering the perspective or convenience of the customers. Advertising the self-centered nature of your company in the world of socially connected consumers, will not likely improve your brand equity, market share or whatever else you measure to get bonuses.
  2. Asking to quantify an experience a customer may not have experienced – The other day I got a survey from a company I like to do business with. This survey contains 30 questions, which is abusive in my opinion. 28 of them start with “On the scale from X to Y….”, while only 2 questions start with “Why…” and “How…”. About 40% of the questions asked me to quantify my experience with parts of the company’s service which I never had a reason or an opportunity to experience yet, but no provision is made in the survey to indicate this fact. So, such survey design leaves a customer with two options – to provide intentionally wrong answers or to ignore the request of participation in the survey. Which of these two outcomes would suit your survey design goals? This customer now does not feel as good about doing business with the company as he did before receiving the survey.
  3. Limit the number of words a customer can use for commentary – I do appreciate that an enterprise cannot “digest” unstructured data and you need to tabulate all responses into metrics. However, if you really want to authentically engage your customers you need to understand that the enterprise “digestion” issues are not very high on your customers’ pyramid of emotional needs. Humans share their experiences with stories, not numbers. If you limit their ability to tell their stories, you may never learn a critical insight that would lead to a dramatic business improvement. There are methods, techniques and technologies that can help to mine customer comments and quantify their sentiments without “outsourcing” your operational challenges to your customers.

The common theme of this post is simple – If you want to improve your customer engagement rate, be mindful and respectful of how your customers experience your attempts to engage with them.

* the results of a client sponsored research conducted by mining opinions of 12,783 customer comments.

Two major threats to superior customer experience

  1. ROI becomes IOYInadequacy of connection between customer experience investment and financial benefits.

 

It is very hard to provide direct, causal, linear connections between investment into customer experience management and growth of revenue, reduction in operating cost or improvement of profit margins. To be fair, there is plenty of evidence that uses correlations to illustrate the impact of customer experience improvements on:

However, none of the evidence demonstrates an indisputable cause and effect relationship that could be attributed by non-believers to other variables like successful marketing campaign or state of economy. The certainty of money outflow to fund customer experience improvements is hard to overcome by uncertainty of outcome and time horizon.

 

  1. The practice of estimating operational ROI without evaluation of impact on customer experience.

 

Utilization of this methodology is too common and often constitutes the triumph of efficiency over effectiveness. While it simplifies estimation and measurement of isolated results for a specific business unit, it completely ignores the effects of the proposed investment on the overall goal of any business:

“The purpose of business is to create and keep a customer” Peter F. Drucker

Applications of this methodology are responsible for:

  • cutting costs of customer support labor at the expense of an increase in customer churn rate. While it could be profit margin positive for the next few quarters, this investment threatens the long term viability of the entire business.
  • cutting costs of market research at the expense of increasing the product return rate and poor market adoption.
  • paying minimum wage plus commission on the retail floor to the detriment of customer experience and destruction of loyalty.

Customer experience management is a holistic discipline which means that a variety of factors, internal and external, can influence the perception of your customers at any given period of time. Top level customer experience metrics cannot deliver definitive proof that cx investment into specific improvement generates factual return within a specific period of time. Detailed analysis that identifies and measures components or attributes that influence the top level customer experience metric, can enable direct association with specific operational KPIs. The correlations between a department KPI and the associated CX attribute trends should be monitored monthly or quarterly for possible diversions that serve as alerts. Most importantly, no operational investment ROI should be estimated without thorough examination of its potential impact on customer experience.