Customer Measurement Problem 7

STOPPING SHORT AT THE OUTCOME OF RETENTION

Jump To Page – Intro, 1, 2, 3, 4, 5, 6, 8, 9, 10, 11, 12, Conclusion

As mentioned earlier, one of the now-worn-out mantras of customer satisfaction measurement has been the notion that it costs more to get a new customer than it does to keep one you already have. This makes it sound as if the main goal is simply to maintain the existing customer base. Sometimes, customers are retained, but that maintenance really is not good for business. Consider the example of credit card owners who never use the card. They are retained, but for all practical purposes, inactive. Certainly retention in general is a vital focus for companies (qualified of course by Problem Two as described earlier). However, most companies don’t merely want to avoid having to replace their customer base. Most companies are striving for something much more challenging and forwardlooking – growth. This calls for an expanded view of the behavioral outcomes we study – specifically ones surrounding certain mechanisms of growth.

There are several means by which existing customers/accounts can grow. In multi-source situations, they can assign more of their business to a given supplier. Leveraging of customer-based competitive intelligence and the strategic management of satisfaction, product quality, service quality, quality of total experience, value for the money, loyalty etc., all can and should lead to greater shares of wallet.

In sole source situations and multi-source situations, growth also might involve simple increases in volume of a given customer’s/account’s purchasing. Here, a few other mechanisms come into play. First is the notion of “cross-selling.” Many companies offer a portfolio of products and services. It makes sense that customers’ current satisfaction, loyalty, perceived quality and value, etc., can contribute to a customer’s willingness to use the given supplier/vendor for additional products and services. For example, if I’m pleased about the total experience I have with my car insurance company, it may cause me to use them for my home and life insurance as well.

A second growth dynamic is the notion of “up selling.” Say for example I have a “gold” level credit card for a fifty dollar per year fee. I’ve been a good customer and have used many of the benefits that come with the card. Now the company offers to upgrade me to a “platinum” card, with more benefits, more prestige, and of course, a higher yearly fee. No doubt there are other considerations in deciding to accept the offer or not, but again, the quality of experiences I’ve had with the company is likely to influence the probability of me accepting the upgrade.

A third growth dynamic is a pure volume effect. Perhaps the connection here is less direct, yet in concept it certainly is plausible, particularly in certain B2B situations. For example, if I provide a product or service to a company, and do so in a way that helps to make their business more successful, it may lead to higher volumes of purchase for me. Say I manufacture and supply computer chips to PC OEMs, who rate me highly on quality, service, value, satisfaction, and loyalty. Now, I invent a computer chip that is far superior to chips that exist today. OEMs that buy and use this chip sell more computers and thus continue to increase their orders with me. The loyalty I’ve earned preserves the increased volume I’m enjoying based on increased derived demand ultimately tracing back to my R&D innovation.

Note that none of the growth dynamics discussed so far has dealt with new customer acquisition. I will get to that in the section on problem nine. For now I’ve been talking about things to consider beyond mere retention in the typical, and limited, satisfaction-retention mindset still so prevalent in many companies today. Growth dynamics are a vital area of additional study.

Note too that a set of related topics emerge from this focus on within-customer/account growth. For example, segmentation of the customer base can be especially powerful here. Are there certain customers with a greater propensity to grow their business? What do those customers look like? How can they be reached? What offers will capitalize on their propensities to expand? Are there pockets of the customer base having certain unmet wants or needs? Perhaps existing or new products and services would be lucrative pursuits with those segments. Also relevant is the notion of product/service “affinities.” Perhaps by analysis of our customer data, we discover that customers who purchase product A are highly likely also to purchase service K. We might therefore target the subset of “A only” purchasers with similar characteristics and attitudes as those currently buying A and K together. We might strategically market K to that subgroup.

In summary, too many companies are content to believe that they should measure satisfaction because it will help them keep their customer base. As important as that piece may be, clearly there is so much more that should be considered. Too many companies are missing opportunities to study the kinds of growth processes I’ve outlined. Movement in that direction could be accomplished easily as a natural extension of their current customer measurement efforts. For example, a simple step could be to add a handful of questions to assess customer propensities toward the different kinds of growth described here. Steps like that should be taken to move past the “retention only” mindset.