By Nigel Hill, Founder of TLF Research and Editor of Customer Insight
Wednesday March 12th saw nearly 200 senior managers and customer insight professionals sampling some excellent chocolate chip cookies prior to the start of TLF’s 15th annual Customer Satisfaction and Loyalty Conference at The Institution of Civil Engineers’ head office in Westminster. One Great George St is a magnificent Grade II listed, four-domed, Edwardian building. In its splendid interior guests are constantly reminded about a host of famous engineers with rooms dedicated to Smeaton, (John Smeaton, 1724-1792, was the first to label himself as a Civil Engineer), Stephenson, Brunel, Telford, Rennie and many others. On a lighter note it was also used as a venue for filming Gandhi, Reds, Bridget Jones and even Mr Bean!
Does customer satisfaction pay?
In his introduction, Greg Roche, a Director at TLF, reviewed some of the evidence underlining the financial benefits of customer satisfaction. Based on UK Customer Satisfaction Index (UKCSI) data (which TLF produces for the Institute of Customer Service), there is a very strong link between customer satisfaction and recommendation, as shown in Figure 1. And, unlike NPS, this isn’t based on a weak outcome like willingness to recommend but hard behavioural ‘have actually recommended’ outcomes.
Customer satisfaction also has a strong relationship with hard financial outcomes such as sales and market share. Figure 2 shows how customer satisfaction and sales growth have gone hand in hand in the non-food segment of the retail market.
Figure 3 shows how the positive relationship between customer satisfaction and sales also drives market share changes in food retailing.
When organisations consider customer satisfaction is profitable they tend to under-estimate or even ignore the cost side of the equation. Every time a customer interacts with a company there is a cost and this can be quantified. Dissatisfied customers always cost more to service. At its most extreme, this is reflected in the cost of handling problems and complaints. Figure 4 shows a very strong relationship between customer dissatisfaction and problems/complaints in the telecoms sector.
Of course, all companies are interested in their bottom line. If customer satisfaction pays it has to make them more profitable. For publicly quoted companies there is a very visible indicator of this. Over the long term their share price is driven by their profitability. So do PLCs that are more successful at satisfying their customers perform better on the stock market than those with less satisfied customers? Based on five years of UKCSI and London Stock Market data the answer is shown very clearly in Figure 5.
As Greg pointed out at the conference, if you’re still not convinced by this evidence there is another way of looking at it. If you don’t believe that customer satisfaction pays, why not reduce your investment in it? Why not drastically reduce the headcount in your contact centres, or sub-contract it to the lowest quote you can get from India? If it doesn’t pay it surely wouldn’t matter if customers had to wait much longer to be connected, if advisors were on strict limits on time spent per call, if customers couldn’t understand what your overseas advisors were saying or if customers weren’t kept informed when promised. If customer satisfaction doesn’t pay, why not save money by lowering all service levels? Increase the time window for delivery, carrying out repairs, making home visits or handling claims. Make it more difficult for customers to complain and if they do successfully navigate the system give yourself longer to respond to complaints. If you’re lucky some of them will give up so you won’t need as many staff to handle them. Run staff workshops to brainstorm ideas for saving money on customer satisfaction with prizes for the best suggestions. For anyone who doesn’t believe that customer satisfaction pays, all of the above would be implemented immediately. Unless, of course, you think that customer dissatisfaction might cost.
Customer satisfaction to shareholder satisfaction
This was the title of the talk given by Jon Tobell, the Sales and Marketing Director of Northgate plc, the market leader in light van hire in the UK. It was only in 2012 that the company consolidated 31 local vehicle hire names (acquisitions over the years) into the Northgate brand. As part of its new strategy the company commissioned TLF Research to measure customer satisfaction across its three segments – national accounts, regional SME accounts and B2C cash customers. According to Jon, it was only after the survey that “we really understood our customers for the first time”.
The research delivered the four customer insights on which Northgate’s whole business strategy is now based.
• Financial flexibility. Reduced balance sheet exposure and greater flexibility for allocating cash is still an important reason for commercial vehicle hire but had previously been seen by Northgate as the overwhelming driver for corporate accounts.
• Hassle free. What Northgate hadn’t previously understood was how much value companies placed on hassle free fleet management. For companies with large fleets the ownership model carries a significant amount of organisational, legal and administrative hassle – all of which costs money and carries risk.
• Uptime. This was the most important new insight and has now become the guiding principle for the whole company. Customers make money from their vehicles always being on the road and lose money when they’re not. This led to the development of Northgate’s mission statement which is now the rallying cry for the whole company.
”We provide mission critical vehicles for our customers.”
Mission critical is defined as 100% availability, 0% disruption.
• Commoditised. Light commercial vehicle hire was seen by customers as a commoditised market with little differentiation between competitors. Northgate therefore resolved to use its new customer insights to differentiate itself through service and, in particular, position itself as the supplier that customers can trust.
This led to the development of Northgate’s service-focused vision as shown in Figure 6.
It’s one thing having a vision it’s another implementing it. For this the ‘mission critical’ rallying cry was the starting point. Staff motivation was further strengthened by introducing a customer satisfaction bonus for all staff right down to branch level. With a good sample size, results were available at branch level so everyone throughout the company could see the effects of their own actions and behaviours. Each layer of management explained to their reports how the surveys worked and how to interpret the results. This culminated in Branch Managers explaining this to their staff and holding weekly meetings on how to improve customer satisfaction, with their own customer comments, priorities for improvement and scores stuck on the kitchen wall. All of this galvanised employees and made them 100% focused on earning that bonus.
And it worked. Since the first customer satisfaction survey, Northgate’s customer satisfaction and NPS have increased significantly. And so have returns to shareholders. From 5% year on year declining sales previously, sales growth is now running at 10% per annum. And the acid test – from £1.60 in June 2012, Northgate’s share price is £5.50 at the time of writing this article.
Things you can learn from a customer survey
British Gymnastics is the National Governing Body for the sport in the UK. Its members are 1,200 clubs and 230,000 individuals. You might have thought that basking in the Olympic legacy of the most gymnastics medals in living memory nothing needed changing. However, in 2012 British Gymnastics undertook a re-branding exercise, the new “more than a sport” tagline encapsulating the transition from an organisation focused mainly on elite athletes and winning medals to one that places much greater emphasis on participation. The next step was appointing to conduct a customer survey to understand how the organisation could retain customers for longer, increase their involvement in the sport, boost recommendation and continue to build the British Gymnastics’ brand.
According to Mark Gannon Executive Director of Business Development for British Gymnastics the insights delivered by the survey had a huge impact on the organisation, overturning many of its previously held assumptions about what was important to its members and how they perceived their governing body. In particular it made them realise that it wasn’t enough to help elite gymnasts win medals. With activities such as GymFit, dance and aerobic gymnastics driving membership growth the survey highlighted the fact that British Gymnastics needed to listen more to clubs and understand their unique needs. Most participants will never be an elite athlete and only a tiny proportion of the 1,200 clubs have medal winners amongst their members. In reality, clubs have differing priorities, and this has resulted in British Gymnastics segmenting its clubs to reflect this. Above all the survey highlighted the importance of service and, especially customer effort. British Gymnastics had simply been too difficult to deal with so is now re-assessing the whole mission of the organisation to have less emphasis on ‘more medals more members’ and much more emphasis on customer service. According to Mark Gannon, “it made us realise that we need to have the customer at the heart of our business”.
Questionnaires should reflect how customers think
The purpose of investing in customer surveys is to better understand customers’ perceptions of your company so that you can implement actions that will stimulate the kind of customer behaviours you want – whether that’s buying more, recommending you, using less costly channels for service etc. Consequently, you want the output from the survey to reflect as accurately as possible exactly how customers think and feel. To achieve that you need to think about how people make judgements. Very broadly speaking there are two types of decision making – satisficing and optimising. In simple terms you can think of satisficing as the lazy person’s approach. Don’t waste too much time and effort thinking about it, just make a quick gut feel decision. By contrast, optimisers spend ages agonising over each decision. Whether it’s deciding in a restaurant what to order from the always too many choices on the menu or what satisfaction score to give when answering a survey question, they take into account all the variables as well as the consequences of different decisions. Whilst most people innately tend towards one type or the other, most people utilise both approaches in different circumstances. The more important a decision or the more interested they are in the subject, the more they are likely to adopt optimising behaviour.
So what does this mean for questionnaires? Since answering survey questions is not usually the most important or most interesting activity for most people there is a tendency for them to adopt a satisficing approach to answering the questions. If the aim is to replicate the customer’s thought process when they make that decision in the real world, it is good if some answers are immediate, gut feel, satisficing responses. For example, most people don’t spend too long in the real world deciding which supermarket they will use today for their weekly shop, an answer to a survey question about the respondent’s preferred supermarket is fine. However, some survey questions like some real world decisions benefit from a little more thought and you don’t want respondents to be too satisficing – saying anything just to get the survey finished. The most obvious mistake here is to make questionnaires too long. Ten minutes is ideal for a maximum with fifteen as the absolute maximum. Any longer and respondents will start to give any answer as long as it’s quick just to get the survey over with.
The best approach to questionnaire design is to be very clear about the purpose of the survey. For some surveys, such as a general, strategic survey or brand surveys, broad brush, satisficing answers are exactly what you want. These surveys can be a little longer and can accommodate more attitudinal and open questions. For specific, recent, transactional surveys you want the answers to be very factual as they will often be used to give specific feedback to customer facing teams and perhaps make operational changes. Such questionnaires need precise, mainly closed questions and should be short, with ten minutes an absolute maximum.
Are you a risk taker?
The afternoon session at the conference involved a very thought provoking talk and workshop by Casper Berry, film maker turned professional poker player, about people’s approach to risk. It transpires that for those who live and work on the tables in Las Vegas rather than visit for one evening on holiday, poker is not a risky activity. It all boils down to fairly simple probabilities. As do most decisions. But, like the poker table, people don’t see it like that. As shown in Figure 7, most decisions can be distilled to a fairly straight forward risk-reward equation.
To help people decide where on the risk curve a particular decision might lie, Casper explained the three categories of risk shown in Figure 8. Hits and misses what most of us call a number game. Like poker, if you look at the wins and losses over a period of time, the success rate becomes predictable. If the probabilities are favourable, you have to ignore short term setbacks, however disappointing or costly because you know the long term odds are in your favour. Game changers are towards the top left of the chart. If you can afford to, it is sensible to pursue a game changing goal even if the chances of success are quite low. J curves require some initial investment, which could be cash, time or emotion, but will have a reasonably predictable return if you persevere.