Stakeholder Magazine - Jun. 2009

Creating value for customers, employees and shareholders

B2B SPECIAL Leighs Paints Re-engineering the British Manufacturing Company

CONFERENCES TRAINING EXERCISE LATEST THINKING BOOK REVIEW

June 2009 £4.50

COMPANIES IN THIS ISSUE Leighs Paints James Walker CEMEX VW Richmond Housing O2 Virgin

T

he main purpose of all organisations is meeting their customers’ requirements. In a democracy it’s the only reason for public sector organisations to exist. For private sector companies the rationale is pure business logic. They must maintain revenues just to survive and most are aiming much higher, so to achieve their objectives companies must constantly manage and optimise present and future cash flows from customers. In most markets customers are not locked in. They have choices. As Adam Smith told us over 200 years ago, people seek pleasure and avoid pain, so they move towards companies that give them a good experience and away from those subjecting them to poor ones. So nothing is more important to companies’ future profits than understanding how customers feel about their experience and how this will affect their future behaviour.

‘Customer Satisfaction: the customer experience through the customer’s eyes’ provides the first fully referenced and comprehensive guide to this vital subject.

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Training courses and Conferences from the UK and America.

June 2009 26 Research Interviewing hard to reach customers. Rob Hogan shares his experience on reaching the unreachable.

8 Case Study Leighs Paints: re-engineering the British manufacturing company. A great transformation story.

30 Case Study James Walker puts itself in the customer’s shoes. Heather Grisedale and Rachel Allen describe a great service culture training exercise.

13 Conference UK Customer Satisfaction and Loyalty Conference. Learn how ‘the dog muck theory’ and Bananarama affect customer satisfaction.

19 Latest thinking

34 Conference

Satisfied defectors or hostage customers. Stephen Hampshire challenges the conventional wisdom that customer defection is bad.

UK Customer Management Conference, Edinburgh. Sarah Stainthorpe considers lessons from 02, Lego and Virgin.

In this issue...

VOLUME 6 ISSUE 2

37 Fast Guide B2B Sampling Jim Alexander

38 Book Review Predictably Irrational: The Hidden Forces That Shape Our Decisions

by Dan Ariely.

23 Latest thinking Commodity Products: is there an alternative to selling on price? www.stakeholdermagazine.com

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Surveys and Training for B2B Markets B2B Research Surveys in B2B markets are very different to surveys of consumers. There are critical differences in design, implementation, analysis and reporting. Here’s just a few examples: · Sampling, analysis and reporting must reflect the realities of the customer base. Many B2B companies get a big percentage of their profit from a small number of key accounts. Survey design and analysis must reflect this Pareto effect. In B2B customer satisfaction surveys we have quite often discovered that key accounts are less satisfied than medium and low value customers. How dangerous is that? But a badly designed B2B survey won’t discover it. · B2B respondents are typically high level, educated and articulate, but extremely busy. It’s all too easy to get responses from a lot of low level contacts, missing out the decision makers. To secure responses from the people that really matter, the customer survey has to be part of the ongoing customer relationship process and become an integral part of how the supplier understands and responds to its customers’ needs. · Once you engage the key decision makers they’ll have a lot to say. In B2B customer surveys the comments can be even more enlightening than the data but to draw them out you need the right questions and specialist B2B ‘executive’ interviewers. · Since account management is so personal, you really need to know who said what, but customer surveys work better if they’re anonymous! You can solve this dilemma if you use an independent third party who can offer anonymity, but, provided the correct approach is used, will typically get the vast majority of respondents to agree to be attributed. · The Leadership Factor is the UK’s leading specialist provider of customer satisfaction and loyalty research. We have conducted hundreds of B2B customer satisfaction surveys for manufacturers, construction companies, B2B support services and financial services, commodity suppliers, distributors and many more. Our B2B clients include, ABB, British Gypsum, Farnell, Hilti, ITW, Lombard, Reliance, Remploy, Rolls Royce, St. Gobain, Sulzer, Tarmac, Xerox etc.

B2B Customer Surveys £325 +VAT 1 DAY TRAINING COURSE 9:30 - 17:00 This course is a step-by-step guide to creating a survey of B2B customers that recognises all the special characteristics of B2B markets.

You will learn to: Avoid the common mistakes that often affect B2B surveys such as: · Getting the sampling wrong. Many surveys fail to take account of the strong Pareto effect in most B2B customer bases. · Getting the data collection wrong. B2B surveys need responses from busy people.

Whether self-completion or interviewing, you need to use the right approach. · Getting the questions wrong. Many companies fail to use ‘the lens of the customer’ when designing the questionnaire. · Getting the analysis wrong. Producing data that accurately reflects how satisfied customers feel and how loyal they will be in future is not easy. We show you how. · Getting the PR wrong. A customer satisfaction survey is a great way to demonstrate to customers that you are listening and are committed to making improvements for customers. We show you how to use the survey to improve customers’ perceptions of your company.

Dates June 24th November 25th

For more information about research or training courses: Call 01484 517575 or visit: www.leadershipfactor.com

London Manchester

Nigel Hill editor

Why customer satisfaction pays in B2B markets The focus of the market research world is on consumer markets not B2B. Not surprising because that’s where most of the budgets are. But when you think about customer management, it’s rather ironic, because it’s often B2B companies who are naturally best at listening to customers, building customer relationships and responding to customer needs. So we thought we’d try and redress the balance in this edition of Stakeholder Satisfaction by putting the spotlight on the B2B sector.

Although most of the spend on customer satisfaction surveys is found in consumer markets (and the public sector these days), B2B companies often have more to gain, for several reasons: Average spend per customer is far higher in B2B markets than in consumer markets. The customer base is often counted in hundreds rather than millions, so losing even one customer is massively more serious for most B2B suppliers.

The reason we want to make customers highly satisfied is to keep them loyal, keep those cash flows rolling into the future and maximise customer lifetime value. In B2B markets customer lifetime values are typically much higher than in consumer markets.

There’s a lot of talk at the moment about customers’ decision making being emotional (see our book review on page 38). In consumer markets maybe, but in B2B the decision making process is usually more lengthy, involves more people and is much more likely to be based on clearly articulated and rational criteria. Consequently, the link between customer satisfaction and customer loyalty is even stronger in B2B than it is in B2C markets.

There are some fantastic examples in this edition of Stakeholder Satisfaction of companies that have used customer focus to great effect – even with commodity products. Check out Leigh’s Paints on page 8 and CEMEX on page 23. There’s also a great example on page 30 of how James Walker used an apparently consumer-related training game to enhance the customer-focus of its employees.

After the contributors’ football allegiances in the last issue, we thought that we ought to be a bit more high-brow this time, (to fit in with our B2B readers obviously!) so it’s everyone’s favourite wine, but, as you’ll see, being high-brow was a struggle for some of them!

Best wishes Nigel Hill

Stakeholder Satisfaction is the magazine for people who want their organisation to deliver results to employees, customers and any other stakeholders as part of a coherent strategy to create value for shareholders. We publish serious articles designed to inform, stimulate debate and sometimes to provoke. We aim to be thought leaders in the field of managing relationships with all stakeholder groups.

Our people and their favourite wines:

Editor:

Nigel Hill (Amarone and Pol Roger) Production Editor: Chris Newbold (Côtes de Rhône) Rob Ward Designer: (Whatever his girlfriend’s drinking) Creative Director: Rob Egan (Beer) Charlotte Ratcliffe Advertising: (Pinot Grigio)

Printers of Stakeholder Satisfaction www.stakeholdermagazine.com info@stakeholdermagazine.com Stakeholder Satisfaction PO BOX 1426 Huddersfield HD1 9AW Tel: 0845 293 9480 NB: Stakeholder Satisfaction does not accept responsibility for omissions or errors. The points of view expressed in the articles by contributing writers and/or in advertisements included in this magazine do not necessarily represent those of the publisher.

Whilst every effort is made to ensure the accuracy of the information contained within this magazine, no legal responsibility will be accepted by the publishers for loss arising from use of information published. All rights reserved. No part of this publication may be reproduced or stored in a retrievable system or transmitted in any form or by any means without prior written consent of the publisher.

Copyright © STAKEHOLDER SATISFACTION 2009

ISSN 1749-088X www.stakeholdermagazine.com

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B2B Customer Surveys. 1 day training course £325 June 24th London November 25th Manchester There are some important differences between customer surveys in consumer markets and an accurate and useful survey of B2B customers. An obvious difference is the much higher value of B2B customers as well as the much bigger range from high to low value accounts. Unless survey analysis factors in account values, very misleading results can be produced. This and other problems (such as actionable outcomes) will all be addressed in this practical 1 day training course. The day will take delegates step by step through the whole process from asking the right questions through to using the results to improve customer satisfaction and loyalty. For more information call Ruth on 0845 293 9480 or go to: www.leadershipfactor.co.uk/products/details/7393.html

Stakeholder Showcase Half day briefing £79 23rd June Manchester 2nd July London This short dynamic event is designed as an inexpensive way to give you access to lots of customer management ideas and latest thinking. Delivered by two presenters, the event uses real examples of what UK companies are doing to make a difference to customers. There are examples from B2B and B2C markets as well as the public and private sectors. Topics include separating dissatisfaction and defection, managing the defection process, managing expectations, embedding a customer culture, helping employees to feel they can make a difference, getting buy-in and making surveys actionable. The half-day is and will include group discussion as well as a mix of presentations and you’ll take away proven ways of improving your customers’ experience. The Manchester venue is the Princess on Portland in the centre of Manchester and within easy reach of Piccadilly and Central stations. The London event is held at Harrington Hall, 2 minutes from Gloucester Road tube station. For more details go to: www.stakeholdermagazine.com

Complaints Management 1 day training course £325 June 23rd, August 25th London June 30th Birmingham August 11th Manchester Maximise your chances of transforming complainers into your best

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loyalists. Some companies do achieve this, but only with excellent complaint handling processes. This course explores best practice in managing the complaints system and is suitable for people implementing a complaints management system or improving an existing one. For more information call Ruth on 0845 293 9480 or go to: ww.leadershipfactor.co.uk/products/details/2932.html

Customer Surveys 1 day training course £325 July 1st Birmingham August 12th Manchester August 26th, November 10th London A one day training course suitable for B2C companies and organisations in the public and not-for-profit sectors. The course covers the whole process of designing, conducting and analysing a professional customer survey for monitoring and improving customers’ level of satisfaction with the customer experience delivered by your organisation. For more details contact Ruth on 0845 293 9480 or go to www.leadershipfactor.co.uk/products/details/7235.html

Improving Customer Satisfaction 1 day training course £325 1st July Manchester 19th November London Full of practical ideas for making customers more satisfied and increasing customer lifetime value. The course includes case studies and tips from successful customer-focused companies and is suitable for anyone in a customer management, customer service or customer insight role. For more information call Ruth on 0845 293 9480 or go to: www.leadershipfactor.co.uk/products/details/19.html

Annual CCF Customer Strategy Conference 22nd - 23rd September NEC, Birmingham A multi-speaker two-day conference covering many core issues of customer management such as customer satisfaction and loyalty, emotional engagement, employee behaviour, defining your contact centre strategy, workplace culture and change management. It is run in conjunction with Service Management Expo, which offers over 100 exhibitors across service management software, call handling, enterprise planning, workforce scheduling, fleet

Diary Dates

management, tracking, mobile communications, handheld devices, rugged computers, inventory management, parts distribution etc. For more information go to: www.callcentre-expo.co.uk

serious amounts of time! For details call Ruth on 0845 293 9480 or go to: www.leadershipfactor.co.uk/products/details/39.html

Loyalty World 2009 Advancing the Service Culture 10th November London 1 day training course £325 Without the right mindset, organisations will never deliver a consistently flawless customer experience. This is a highly motivational 1 day training course to help organisations build a genuinely customer-focused culture. Delegates leave full of ideas to build a service culture where staff automatically put themselves in the customer’s shoes and ‘turn customers into advocates’. For details call Ruth on 0845 293 9480 or go to: www.leadershipfactor.co.uk/products/details/7201.html

National Customer Service Week 2009 5th – 11th October Organised by the Institute of Customer Service, National Customer Service Week is a celebration of customer service professionalism.

Supported by a huge volume of PR and events around the country it provides a great opportunity to raise the profile of customer service in your organisation. The ICS encourages companies to use the week to celebrate customer service achievements and to recognise and reward customer service staff. The ICS can provide ideas for initiatives and activities, posters and a large range of promotional merchandise to raise awareness of customer service in your organisation. For more information go to: www.instituteofcustomerservice.com

Analysing and Reporting 1 day training course £325 17th June, 4th November London 8th July Manchester This course is packed with practical advice and ideas for analysing customer surveys and presenting results in the clearest possible way. Delegates work on laptops and take away macros and formulae for all common survey analysis procedures. If your job involves analysing survey data this course could save you

2nd - 5th November London The 7th annual Loyalty World conference offers insight into the most effective loyalty strategies across the world, providing tools to increase retention and reduce customer churn. Use a multipronged approach to build ‘customers for life’. For more information go to: www.terrapinn.com/2009/lw/conf.stm

Questionnaire Design 16th June London 7th July Manchester This course provides a complete guide to designing questionnaires that work. Presented by professional researchers, the course covers all aspects including question types, wording, graphics, sequencing, routing, response options and response rates. For details call Ruth on 0845 293 9480 or go to: www.leadershipfactor.co.uk/products/details/41.html

Employee Engagement Half day briefing £175 16th June London This half day intensive briefing will cover leading edge thinking on how to develop, implement and action an effective employee engagement survey. The briefing will explain how to collect information on ‘emotional engagement’, ‘cognitive engagement’, ‘physical engagement’ and ‘vocal engagement’ as well as calculating and benchmarking a net engagement index and identifying specific priorities for improvement. The findings of original research into employee engagement in the UK will also be shared. With only 33% of UK employees engaged, this is a must attend event. For more information call Ruth on 0845 293 9480 or go to: www.leadershipfactor.co.uk/products/details/7391.html

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Case Study

A common theme in the media is the difficulty of manufacturing in the UK. If you believe what you read and hear you’d think there were no factories left in the UK because it’s just not possible for manufacturers to be competitive here. Well there are and it is, and Leighs Paints in Bolton is a living example. A thriving one in fact.

And they’ve succeeded against all the odds in a commodity market – industrial paints. Some companies transform the business by moving out of unattractive markets into more profitable ones.

Associated Dairies became a supermarket. General Electric became one of the world’s leading financing companies.

Leighs Paints didn’t do that. They stayed in paint. They simply changed themselves into a better, more specialist paint maker.

But it wasn’t all that simple as the rest of this article illustrates.

Family business In 1860, W & J Leigh was founded by brothers William and Joshua. They focused mainly on building, with paint making as a sideline until second generation Herbert Leigh took advantage of the booming marine industry to concentrate

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on ‘ready to use’ coatings for ships. It was third generation Philip Leigh-Bramwell, who entered the business in 1929, and was really responsible for accelerating its growth. Fourth generation Brian Leigh Bramwell is the current Chairman, which means that next year the company (since re-named Leighs Paints), will celebrate its 150th anniversary. What percentage of family owned and run businesses have ever achieved that milestone? To reach it, the company has had to seriously reinvent itself in recent years.

Applications If you know what you’re looking for you can’t travel far without seeing Leighs Paints’ products in action. If you support Manchester United or Arsenal you’ll see it in the stadium, as you will if you’re lucky enough to get a ticket for London 2012.

Leighs Paints protects oil platforms in the North Sea, the Gulf, the Indian Ocean and in North America. They’re still protecting the navy, including HMS Ark Royal, Illustrious and Invincible. The coatings on the Diamond Synchrotron, the biggest new scientific facility built in the UK for over 30 years, provide 60 minutes fire pro-

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tection, and for extreme corrosion protection, what about one of the largest wind farms in the world – Arklow Wind Farm in Dublin Bay? If you’re travelling through Heathrow Terminal 5 or Stanstead, it’s there on the steelwork but for a really awesome sight, you should admire the replica roof at the new St Pancras International rail terminal, or the Forth Rail Bridge, which, needless to say, is protected by Leighs’ coatings. But painting the Forth Bridge isn’t what it used to be. The latest coating system will last 25 years, allowing the painters a well earned rest before starting again!

Beginning the journey Ten years ago Leighs’ products were not so ubiquitous. The company was losing money. Its main market, the marine industry was in decline. Its biggest account, JCB, was in an industry notorious for demanding year-on-year price reductions, eroding already wafer-thin margins.

Primers for steel were commodity products. Suppliers were committing gradual suicide by competing on price and offering customers little or no product differentiation. Then CEO, Brian Leigh-

Case Study

Bramwell knew that drastic change was needed, but what? Rather than bring in an outsider, Brian took the brave decision to try home grown talent, appointing his Sales and Marketing Director, Dick Frost as CEO. Dick had been consulting with the Leadership Factor on how some manufacturers had transformed their companies by moving from a product-led to a market-led culture and structure.

Market-led What exactly does market-led mean? In many ways the term ‘marketing-led’ would be more appropriate, since the concept really has two elements. The first, and most important, is customer-focus.

None of the clever strategic plans will make any difference in the long run if customers aren’t at the heart of your business, and to be blunt, they weren’t.

When The Leadership Factor was invited to run a one day workshop with the Board at the beginning of 1996, facilitator Nigel Hill started with an obvious question: “What’s the most important thing for this business?” At the time, not one Director said customers! (They all would now.) The

first task was therefore to convince senior management that unless the everyday behaviours of everyone in the company make customers so satisfied that they keep coming back, increase their spend over time and recommend you to others, you never maximise the financial performance of the company. Nearing the end of the first decade of the 21st century this seems an obvious message but it wasn’t in the mid-nineties, especially in traditional manufacturing industry.

Build a better mousetrap A century earlier Ralph Waldo Emerson had uttered his immortal:

If a man build a better mousetrap, even though he live in a wood, the world will beat a path to his door. www.stakeholdermagazine.com

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Case Study

Nearly a hundred years later that’s what most manufacturers still believed. They were product-led. If you had the best product you would lead your industry.

Many companies therefore had armies of people beavering away in R&D coming up with better mousetraps. At least the people in R&D thought they were better mousetraps. But did the customers? In an effort to compensate for the fact that customers often didn’t have enough vision to buy the better mousetraps, American business developed the sales concept.

What you needed was people out there telling customers about your better mousetrap and convincing them it was just what they needed. This spawned a whole industry of sales managers, territory managers, books on selling techniques and sales trainers – often effective in the short term but a massive additional cost layer.

MARKET-LED

TEAM ENTERPRISE

VISION & LEADERSHIP

The birth of marketing As early as the 1950s, some enlightened individuals, most notably Peter Drucker, were starting to question what all this effort was achieving. He suggested that the most profitable and sustainable business model was not based on excellence in selling the products the company made but on making products that customers wanted to buy. He advised companies to focus on understanding their markets.

Really understanding them. When Peter Drucker was consulting to a tool company in the late 1950s, he was told that the quality of the firm’s drill bits was going up and the price was going down but their sales were still declining. After exploring the market, Drucker came back to his client with his renowned statement:

Customers don’t buy 1/4 inch drill bits, they buy 1/4 inch holes.

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Figure 1: Drivers of change at Leighs Paints This thinking has transformed the business world, although half a century later, many manufacturers still haven’t got the message. In the UK, Leighs Paints was one of the early adopters.

Choosing the right markets This is the second element of being market led. Companies have to base their business strategy on targeting attractive markets. Since it’s extremely difficult to build a business, however good its products and management, if it serves declining, price sensitive or over-competitive markets, it’s essential to identify and target the most attractive markets and to continually update that intelligence. To drive the transformation from product- to market-led, Leighs’ salesforce was restructured from the traditional territory-based organisation to a market-focused structure, where each market segment had its own Market Manager. This enabled each Market Manager to really understand the industries they now specialised in and, importantly, to bring that knowledge back into the company to drive its strategy.

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New product development became customer and market driven rather than R&D-focused and the bi-annual Marketing Audit ensured first that company strategy was focused on the most attractive markets and second that all departmental managers understood the strategy and were operationally and mentally aligned with it.

People One of Leighs Paints’ next challenges was that a long established traditional company can’t suddenly become market led and customer focused without the right culture. One of the many benefits of family owned companies is that they tend to be very protective of their people, but a downside of low staff turnover can be a failure to embrace new thinking. In 1999 Leighs Paints employed 366 people - too many of them managers and too few of them willing to embrace change. To make the first element of his strategy work, Frost had to move onto the second, and he took inspiration from another great transformation story in a Lancashire company.

Case Study

their first ever employee According to Dick Frost,

survey.

The results were a huge shock.

While the vast majority of employees were supportive of the company, and 80% replied, there was brutal criticism of our management style and culture.

It provided a massive catalyst for change.

Team Enterprise Now made CEO by Brian Leigh-Bramwell, Frost resolved to tackle all the issues raised by the employee survey head on.

One of the grumbles was lack of communication from senior management. The approach was changed from

‘tell them nothing’ to ‘tell them everything’ In the 1990s, John Oliver had transformed Leyland Trucks from a traditional command and control manufacturer to an efficient, fast moving company with a flat structure and self-managed teams.

Key to Leyland’s success was the belief that everyone has in them more potential than they know.

Oliver took Leyland through a profound culture change journey, driven by team working, where the individual could make a difference. This was baptised “Team Enterprise”, and it is a people driven approach to Continuous Improvement.

With Oliver’s help, Leighs decided to adopt the Leyland model, starting with

introducing a company newspaper, team briefings and much more accessible senior management. The first step was to eliminate anything perceived as unfair. So the shop floor – management divide was removed from the canteen, the toilets and the car park, but all of that was easy compared with tackling the pay and management structures. To help him meet this challenge, Frost brought in Mike Green from Leyland as HR Director and moved quickly. In 2000 all the factory supervisors were removed and replaced by a totally flat structure based on selfdirected teams, with everyone paid the same salary across the whole of production. Like Ricardo Semler (see Stakeholder Satisfaction December 2003 at: www.stakeholdermagazine.com/articles.)

Looking back now, Dick Frost wonders if

they moved too quickly, as he feels people need more help to suddenly start taking responsibility and making decisions but by this time he was moving onto the third circle, which proved to be the final piece in the jigsaw.

Vision John Oliver was much influenced by Steven Covey’s book “The 7 Habits of Highly Effective People,” where Covey explains that real leaders have to be teachers promoting timeless core values and explaining vision. To succeed the best leaders have to be the ultimate role models – always positive, always consistent, principled and always having a clear vision for the future. For more ideas Dick Frost went to the Albert Hall to listen to Steven Covey, who challenged the audience about their companies’ vision, making Dick realise that Leighs didn’t really have one. Back in Bolton he set up the Corporate Strategy Team, which spent the next 3 years hammering out a detailed vision, strategy and goals “tablets of stone” document and a vision statement that everyone could buy into. On the website: www.leighspaints.co.uk/vision it looks simple: “To be our customers’ first choice”, but there’s a lot involved in making that work and in aligning everyone’s day to day behaviours behind it. Making the vision really happen involved three main areas of focus.

1. Changing the Culture Achieving the Vision couldn’t just be an initiative. It had to be a fundamental and permanent part of the culture that everyone bought into. Team Enterprise was the key here. According to Frost it was still a roller coaster ride but he and his team persisted, teaching people, individually if necessary, exactly how they should behave to deliver the vision and demonstrating that everyone would benefit from success. Crucial here was the new bonus scheme, which was based on a percentage of profit but accelerated with exceptional performance. The difference was that everyone receives the same payout, as responsibility is recognised in the salary at Leighs. Gradually the culture

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Case Study

changed. The positive people slowly gained ascendancy over the negative and the next employee survey scores improved. But it hadn’t been pain-free. By 2005 one third of the 360 employees had gone, a lot of them supervisors, managers and directors whose years of service were often measured in decades rather than years.

2. Getting back to Profit

B

R

E

A

K

TH

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O

U

G

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B U I L D U P. . .

Vision, culture, Team Enterprise, leaders as teachers; it’s all very well, but companies have to make money and deliver returns to shareholders. This is completely acknowledged in the Leighs vision document. The company now has specific, measurable objectives for a range of key indicators such as sales growth, ROS, ROCE, percentage of sales from new products, percentage of sales from overseas etc. There was significant investment in training the new Market Managers, and Sales Teams in professional selling techniques, as well as plant and equipment for production and research. In today’s fiercely competitive industrial markets, reducing the headcount was actually a key factor in helping Leighs to meet customers’ ever more stringent cost demands and drive up margins as well as sales.

3. The Good to Great Journey As well as focusing individual sales staff on markets and on customers’ needs rather than products and selling, the Corporate Strategy Team was totally motivated to implement the market-led philosophy, especially the transition from commodity markets to the most attractive market segments. The Marketing Audit graded markets from red to green and only the most attractive green segments (with acceptable growth rates and margins) made it into the strategic plan. But it’s not enough to target attractive market segments, you have to compete in them too, and for this, Dick Frost’s final mentor came along at exactly the right time.

When we reviewed Jim Collins’ ‘Good to Great’ in the December 2004 edition of Stakeholder Satisfaction, we explained the ‘Hedgehog Concept’ as follows:

LEVEL 5 LEADERSHIP

FIRST WHO...

THEN WHAT

DISCIPLINED PEOPLE

F

CONFRONT THE BRUTAL FACTS

DISCIPLINED THOUGHT

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E

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DISCIPLINED ACTION

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Figure 2: The Good to Great Flywheel

The good to great companies were guided by a clear, almost simple strategy based on a passionate determination to be the best in their chosen field combined with a clear view of the key principles that would make their activities profitable.

It was right at the beginning of the breakthrough part of Collins’ Flywheel.

Dick didn’t just read Good to Great, he lived it. He consults with Jim Collins and visited him in America and credits Good to Great with driving the next step change in the company’s transition. The Corporate Strategy Team worked on Leighs’ Hedgehog concept for 3 years before it was finalised.

If you want to know what it is, you will

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CULTURE OF TECHNOLOGY DISCIPLINE ACCELERATORS

HEDGEHOG CONCEPT

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have to join Leighs Paints, but Dick says having a Hedgehog clears the fog in management thinking and accelerates the pace of growth and improvement across the organisation.

Of course, the transformation of Leighs Paints is a never ending journey not a destination, but a lot of miles have been covered since the late nineties. The workforce was cut by a third, and recruitment is only allowed if it is justified by growth in sales and performance. Team Enterprise and Market Led are thriving along with the Hedgehog to drive the company forward.

They still do regular employee and customer satisfaction surveys to prevent them becoming complacent because one thing you can be sure of, neither of these stakeholders will pull any punches when asked for their feedback.

If you ask Dick what was the most important lessons, he’ll say understanding the importance of customers, people and vision, and getting the right people on Jim Collins’ bus, as you can’t do it without a great team to help you make it happen. S

Conference

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Conference

Why customer satisfaction?

Driving change through customer feedback Linda Wallace, Executive Director of Customer Service, Richmond Housing Partnership

First up was Linda Wallace from Richmond Housing Partnership (RHP), a major London social landlord, owning and managing more than 8,500 homes in Richmond & Hounslow. The company has 220 staff and an annual turnover of £33m.

Housing associations are ‘not for profit’ businesses with a remit to provide affordable quality homes to less advantaged members of society. The average rent charged for a RHP home is £85 per week compared with a weekly market rate of around £220 for comparable properties.

RHP is a Times Top 100 employer and has won awards for ‘Public Servant of the Year’ and London Excellence Awards for Partnership and Leadership.

80% of RHP customers are tenants and 20% of customers are leaseholders who own their home (e.g. apartments typically bought by Council tenants under the ‘right to buy’ in blocks now managed and serviced by RHP). It’s a challenging customer base with around two thirds of tenants receiving housing benefit and even the home owners may be on low incomes.

RHP has a high proportion of older customers, high levels of long term illness and disability and about 18% come from minority communities.

Other challenges flagged up by Linda include the fact that customers will say they are not customers, that the company’s income is fixed (set by government formula), there are limits on how much they can diversify the business and limits on the options they can offer to customers. There is also considerable uncertainty in the sector about where customer service fits in compared with other organisational objectives such as social purpose.

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Well RHP has decided that customer service really does matter and that there are benefits from improving customer satisfaction. Although they can’t increase their income from improved customer loyalty, they can reduce losses from customer churn and reduce the general cost of servicing customers if dissatisfaction falls. Improving customer satisfaction is often free, because it’s usually about staff consistently engaging in the behaviours that customers expect. For example, they do keep customers informed, they do call back when they promised, they do sort the problem first time by the agreed deadline. These behaviours don’t require more staff, just consistency from existing staff and if they happen, the cost of customer service will fall because staff are not having to deal with customers chasing up promises that were made but not kept.

Social landlords can also use customer feedback to improve the efficiency of services such as repairs and maintenance, especially where they are contracted out to service partners. Tasking contractors with improving customer satisfaction as well as controlling costs is becoming increasingly widespread across many industries and can be monitored through tracking surveys.

Figure 1:RHP’s shopping trolley principle

Deliver Service & Measure Outcomes

Ask Customers how it was for them

Tell Customers You’ve changed

Shopping Trolleys have wonky wheels

Change Trolleys

Linda has developed the ‘shopping trolley’ principle to measuring and improving customer satisfaction (see Figure 1). Basic but spot on. We all know we should do this, but how many companies really do it properly? Very few – but RHP is one of the exceptions. They have a very clear customer feedback process based on quarterly customer satisfaction surveys

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conducted by The Leadership Factor and known internally as the RHP Wheel (see Figure 2).

Figure 2:The RHP Wheel

Deliver Service & Measure Outcomes

Set Service Priorities

Cascade Results & Focus to staff

Quarterly survey Feedback

Review Top 3 Targets

The Dog Muck Theory To ensure that the shopping trolley principle happens in practice, Linda has developed the dog muck theory! RHP have understood that the best way to improve customer satisfaction is not to try to address too many issues. Their policy is to tackle a few things, to implement them across the whole organisation and to do them well. This fits in completely with The Leadership Factor’s advice to focus on a small number of PFIs (priorities for improvement) from customer satisfaction surveys, usually based on the biggest gaps between importance and satisfaction scores. One of the things that RHP focused on was dissatisfaction with the amount of dog mess. Based on the number of customer contact staff and the typical frequency of interactions, Linda calculated that RHP could tell customers 48,000 times in three months about what they’re doing to reduce dog mess on their estates! This means that customers can see that RHP cares how they feel and can notice a link between providing feedback and improvements taking place, plus also ensuring that staff are plugged into how customers are feeling.

Successes include improved customer satisfaction results through focusing on the complaints and enquiries processes, immediate feedback through the survey on changes RHP has made in contracting for grounds maintenance and improved customer perception of RHP’s anti social behaviour service after just 3 months.

How has it all happened? Basically it’s all

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down to Linda’s Bananarama principle.

For those of you too young (or old!) to remember the 1980s,

Loyalists Happy to buy again but not happy enough to spread the word Viral loyalists Happy enough to spread the word and are prepared to pay extra for the relationship

It ain’t what you do it’s the way that you do it...... that’s what gets results.

Apostles So happy they don’t even look elsewhere, and use their influence to persuade others.

In addition they will suggest improvements and behave more like owners.

Jim pointed out that to segment their own customer base into the loyalty categories, companies could overlay their customer satisfaction scores on top of The Leadership Factor’s customer satisfaction benchmarking league table as shown in Figure 3.

Figure 3: Defining your own loyalty segments Apostles Viral Loyalists

Are some customers worth 139 times more than others?

Jim Alexander: The Leadership Factor

In the 2003 in “The Value-Profit Chain”, Harvard professors Heskett, Sasser and Schlesinger1 came up with the rather incredible assertion that on average, a company’s most loyal customers are worth 139 times as much as its least loyal ones. In appendix C at the back of the book, they outlined the complicated maths involved in reaching this conclusion. To save everyone a lot of time and even more grief in figuring out how this works, Jim Alexander explained it all.

First, Harvard classified customers into 6 loyalty levels, as follows: Antagonists Actively seeking alternatives and telling others not to buy Hostages Dissatisfied but have no alternative, would leave if they could and won’t recommend Mercenaries OK but uncommitted and tend to be highly price-sensitive and buy low margin products

Loyalists Retention, Related Sales, Referrals and ‘Good’ Profit start here and get better as you go higher

Mercenaries

Hostages

Antagonists

Harvard used their results from studying customer behaviours over many years and made the following assumptions to calculate the Customer Lifetime (10 year) Value (CLV) of each customer type for the fictional but representative Acme Home Products company: - Taking first year sales value as x the CLV is calculated as units of x.

- Acquisition cost is taken as 0.25x for all first time customers, but customers acquired through referrals have no acquisition cost.

- Antagonists stop buying after the first year, during which they provide a 30% margin. They discourage others at a rate of two customers per year for three

years so the value lost to Acme is a weighted average of the CLV of all others apart from hostages.

- Hostages buy at a constant rate of 6x (6 times that of a Mercenary) and at 30% margin over 10 years. They attract no new customers.

- Mercenaries buy at a constant rate of x at 25% margin for 5 years - Loyalists buy at a rate of 6x in the first year and grow by 10% per year. Margin starts at 30% and increases 2% per year in years 2 to 5.

- Viral loyalists are the same but also bring in three extra customers per year in years 2 to 5 of their 10 year life (1 out of three being a new loyalist).

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Figure 4:Calculating Customer Lifetime Value Category

% of customers

CLV over 10 years

CLV per customer

Apostles

3%

307.86

102.62

Viral Loyalists

5%

245.70

49.14

12%

264.84

22.07

Loyalists

818.40

Opportunity Mercenaries

53.28

72%

0.74

Each Apostle is worth 139 times as much as each Mercenary!

Fire these?

Hostages

4%

47.28

11.82

Antagonists

4%

-180.72

-45.18

Total 738.24 - Apostles exhibit the purchase, loyalty, viral and persuasive characteristics for all 10 years.

To relieve us of the mental challenge of doing the calculations, Jim then explained exactly how Harvard arrived at their 139x conclusion. The steps are shown in Figure 4.

At the end of all the mental exertion, Jim drew the following conclusions: - There is an enormous difference in value between Apostles and other types.

- The top three groups might only represent 20% of customers but produce more than 100% of the value.

- Value from Mercenaries doesn’t compensate for the loss incurred from antagonists.

- Significant amounts of money should be invested in identifying and attracting Loyalists, in inducing them to become viral, and in developing Apostles by giving them information to make them more credible.

- It should also be possible to identify what might encourage the higher scoring Mercenaries to become more committed.

- Be sure that everyone in your organisation understands this.

Jim finally left us with a very relevant question – Why do many companies spend vast amounts attracting and encouraging Mercenaries (price comparison websites and ‘new customer only offers’ especially) and almost nothing on retaining their Apostles?

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A strategy for sustainable customer satisfaction Graham Parker-Gore: Head of Customer Contact Strategy, VW Group

Achieving the win-win of reduced costs and higher customer satisfaction was quite a theme of the 2009 conference.

Graham Parker-Gore pointed out the lunacy of the opposite approach, incurring costs and giving customers a bad experience either because employees are not doing what they are supposed to do (e.g. get back to customers by the agreed deadline) or because management won’t empower them (e.g. to make decisions and resolve customers’ problems straight away). By contrast, getting it right first time and responding quickly makes customers happy and reduces business costs due to fewer contacts and fewer touchpoints.

Graham pointed out that real leaders don’t control people – they challenge them and set them free. They invest in recruiting talent and developing their knowledge then empowering them to do what’s best for the customer. Admittedly there is some risk attached to this, but according to Graham

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you can embrace risk or run from it.

Avoiding risk is usually based on ‘lobotomy processes’ whose objective is that decisions are controlled by management not front line staff, who don’t need to think, just do what it says on the screen. Of course, when the words on the screen don’t seem to fit the situation (quite often), that’s when the system runs into trouble, triggering escalation. Ironically this involvement of layers of higher management incurs more cost thus achieving the exact opposite of the cost saving objectives that most command and control systems are designed to achieve. True, trusting and empowering people does sometimes mean that the wrong choices will be made, but very rarely.

And experience demonstrates that employees who are empowered to make decisions tend to be more focused on not giving away the company’s money than the managers to whom problems are escalated!

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differentiators………. Everything hinges on giving customers what matters most to them, even if that proposition seems less exciting than focusing on novelty, uniqueness or the latest management or technology fad.”

Graham’s approach at VW is based firmly on ‘the lens of the customer’, focusing not on what the company wants, and its own internal processes, but on understanding how the customer perceives things and on delivering what they want. A key fact about the lens of the customer concept is that the customer’s lens is broader than the organisation’s, as shown in Graham’s diagram above.

In following this broader vision of achieving the customer’s objective, VW’s approach is to move the problem and the solution closer together, which often means getting the relevant expert to solve the problem, first time, probably out in the dealer network not the call centre. They also take the long term view of ‘Sustainable Customer Satisfaction’ based on investing in the right service culture, nurturing knowledge and making it accessible to customers, empowering people and accepting the risk and trusting that meeting customers’ needs will bring the long term benefits of customer loyalty and advocacy.

Ed – It’s interesting isn’t it that we have to be told these basic fundamentals over and over again? The harsh reality is that improving customer satisfaction is not difficult. It’s not very difficult. It’s extremely difficult.

In reality, few managers would claim that

it’s easy, but organisations’ behaviour demonstrates that they don’t fully appreciate the difficulty or importance of the task.

Yes, they want to improve customer satisfaction, but they also want to minimise costs. Few get this balance right.

Responsibility for customer satisfaction is often vested in just one of the organisation’s departments, often called Customer Service. In some businesses its head isn’t even a main board member and, due to many organisations’ predominant focus on controlling or reducing costs, ‘quick wins’ to improve customer satisfaction become highly attractive, if not the only option for the ‘head of customer service’.

So desperate are many managers to make a difference at no, or virtually no cost, they become real suckers for the latest quick fix hype that they’ve heard at a conference or read in a book.

Many organisations place considerable emphasis and hope on short term strategies. But if the organisation is not consistently meeting customers’ basic requirements these can make only a very marginal difference to the satisfaction and loyalty of the total customer base. To quote Barwise and Meehan2, organisations “must focus on what matters most to customers, usually the generic category benefits that all competing brands provide, more or less, and not unique brand

The key point is that customer satisfaction is not improved by low cost gimmicks and quick fixes. It takes real investment in the basic essentials of meeting customers’ most important requirements.

Also at the conference, Visa explained how they had used their customer satisfaction surveys to deliver great service to internal customers in conjunction with an outside contractor of IT services; and Shop Direct outlined how they had used their surveys to improve operational performance as well as customer satisfaction. Stephen Hampshire challenged the audience to consider whether customer defections are a lesser evil than retaining dissatisfied customers. An article based on Stephen’s presentation is included in this edition of Stakeholder Satisfaction and we will publish an article on Visa’s work with internal customers in the next edition. S References 1.Heskett, Sasser and Schlesinger (2003) “The ValueProfit Chain”, The Free Press.

2.Barwise and Meehan (2004) “Simply Better: Winning and keeping customers by delivering what matters most”, Harvard Business School Press.

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At the moment, the business and marketing media are full of the value of customer retention.

Companies need to hang on to all the customers they’ve got, especially in a recession. Every time you lose a customer, you’re not just missing out on that one sale but on all the future cash flows from that customer – their lifetime value. But it might be worth thinking about the relative costs of dissatisfying versus losing customers? Defection might not be as bad as we sometimes imagine.

Dissatisfying customers might be worse. www.stakeholdermagazine.com

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Seth Godin said: “I think the actions of almost all marketers say, “we'd rather you were happy, but if you can't be happy, please go away.” What he means is that we often end up treating customers badly at the worst possible time – when they have a problem or when they want to leave. How often do sales or customer service staff deliberately ignore an unhappy customer because they don’t want to deal with the hassle? It’s human nature, but it’s also immensely destructive.

At a higher level, companies often claim to want to listen to customers…but they make it tremendously hard for customers to actually speak to them. Where’s the number I can call? Where’s an email address? How exactly do I make a complaint, and will it make any difference?

seminal article “Why satisfied customers defect.” They included evidence of the extent to which satisfied customers do switch in different industries. The superficial conclusion (drawn presumably by people who hadn’t actually read the article) was that measuring and improving customer satisfaction was pointless since Harvard has now told us that satisfied customers defect. What they had actually told us was that satisfied customers do defect but dissatisfied ones defect more and very satisfied ones defect much, much less, as shown in the chart below.

The real conclusion of the article was that it is possible to make customers very loyal if you make them satisfied enough. The point is that customers are people, and individual people are unpredictable, but if you look at them en masse their behaviour becomes much more predictable, which is why we know that companies with more satisfied customers also have more loyal customers.

Of course, we can use business logic to rationalise this behaviour. We know dissatisfied customers are expensive to deal with, and secondly, we tend to assume it’s too late – a dissatisfied customer is bound to defect. The next step in that logic is that a defecting customer is a write off. All those future cash flows have gone and are never coming back. But are these assumptions really justified?

Dissatisfaction and defection are not the same The crucial point that Harvard made was that we need to disentangle dissatisfaction and defection. The costs of dissatisfying customers often get lumped in with the cost of losing them, mainly because we tend to assume the two

Satisfied customers defect As long ago as 1995, Harvard Business 1 Review published Jones and Sasser’s

things go hand in hand. But if that’s not always true, it has important consequences for the way we think about and deal with both.

What does a lost customer actually cost?

If we restrict it to the actual process of defection then we need to look at two things – the actual cost of the defection process itself (e.g. the staff time involved in cancelling the contract) and, much more importantly, the opportunity cost of the business they place elsewhere which they would otherwise have placed with you. And that’s the end of it for a defecting customer who’s satisfied.

But what about a defecting customer who is dissatisfied? If a customer is dissatisfied, the servicing cost at the point of defection will be higher on average, and the defecting customer’s lifetime value has disappeared. Much more importantly, however, the dissatisfied defector will cost you extra business in future from crosssales and referrals.

And there are two further twists in this tale.

The satisfied defector can sometimes be won back. Their lifetime value hasn’t necessarily gone forever. And what about the dissatisfied customers who don’t leave?

Perhaps because it’s not worth the hassle of switching to a different supplier, or maybe they see all suppliers as being equally bad. This prompts two questions:

Satisfaction - Loyalty relationship

Apostle

100% Zone of affection

Loyalty

80%

One of the main factors influencing the answer to both questions is the effect of word of mouth, especially when it’s negative.

Zone of indifference 60%

Recommendation 40% Zone of defection 20%

Satisfaction Saboteur

20

- Is there a cost to keeping a dissatisfied customer?

- Is the loss from all defectors the same?

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We all know that recommendation is a really important element of customer lifetime value. What is increasingly obvious is that, though marketing and advertising are undoubtedly important in building awareness, recommendation is a more powerful force in driving actual purchase. Let’s look at some evidence.

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brain helps us avoid unpleasant experiences. From a customer satisfaction point of view that manifests itself in “asymmetric impact” – in other words bad experiences have more impact than good ones, which explains why 1 star reviews on Amazon have more impact than 5 star reviews, and why most stories about customer service are bad.

Mortgage Purchase

Expert/Specialist advice Comparing product details in branch or online Recommendation from friends/family Reputation of supplier

The customer lifetime

Customer reviews in the press or online Reviews in the press or online Advice from staff Advertising or other marketing 0

5

10

15

20

25

30

35

40

Camera Purchase

Recommendation from friends/family Comparing product details in shops or online Expert/Specialist advice

Let’s think about what a typical customer’s lifetime might look like. From acquisition, the company and customer have a series of encounters which might be perceived as good or bad by the customer. We know that the customer’s cumulative experience of these events plays a big role in determining their satisfaction, but also that some of the interactions have more impact than others. At some stage customers will leave, perhaps because they were dissatisfied, but maybe because they wanted to try a competitor, or because they’ve moved house and the company is no longer convenient. Often, this leaving process is one of the salient events that makes a lasting impact, but we also know that it’s one of the experiences where things so often go wrong.

Reputation

The leaving experience Reviews in the press or online Customer reviews in the press or online Advice from staff Advertising or other marketing 0

A March 2009 survey of 1000 consumers

by YourSayPays showed the power of personal recommendation for two very different purchases – mortgages and cameras. As shown in the charts, 23% of mortgage buyers use recommendation from friends and family as their main decision-making influence, and for cameras it’s the single most important factor at 27%. As a much more expensive and high risk purchase, it’s not surprising that expert advice ranks highest for mortgages, but supplier advertising has virtually no influence on either.

5

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25

30

35

40

A study in 2003 by the Yale School of 2 Management examined the effect of consumer reviews on relative sales of books on Amazon.com and BarnesandNoble.com.

They found that an improvement in a book's reviews leads to an increase in sales at the site, but that the impact of 1star reviews is greater than the impact of 5-star reviews. So negative reviews deter us from purchasing more than positive reviews encourage us.

The subconscious emotional wiring in our

The key thing to remember here is that defection isn’t for good, unless you make it so. A defecting customer can be perfectly satisfied, telling other people good things about you, willing to return at some stage in the future – unless you make them dissatisfied by the way you handle their defection. Another interesting statistic generated by the YourSayPays survey referred to earlier, is that 48% of positive word of mouth is based on product, whilst 49% of negative WoM is based on bad service.

This fits in with Seth Godin’s theory that there are two types of company. The first type (e.g. Apple) does things that really engage customers, to the extent that they fall in love with the brand. These lucky few, the Apples of this world, can get away with being annoying because people love them and will often forgive them their quirks.

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box. What makes customers really dissatisfied? We’ve seen that dissatisfaction has a potentially bigger impact on future actions than satisfaction. It might not be fair, but it’s true. Find out what the drivers of dissatisfaction are by examining survey scores of customers with the lowest overall satisfaction and using correlation techniques to identify the factors that have the strongest relationship with their low overall satisfaction. These are the dissatisfaction drivers. You can use any of the three Rs, (retention, referrals and related sales) as outcome variables for your correlation if you want to identify what’s driving defection, negative word of mouth or declining sales.

You can’t do both, you must have one _ Seth Godin Most companies, however, will never make customers fall in love with them, so they need to focus on getting the basics right, not being annoying, not giving the customers any bad experiences. Problem handling and defection (often linked) are two vital moments of truth where companies need to be less annoying. As we know, peak negative (as well as positive) experiences have an exaggerated effect and this is doubly true for the last event customers encounter. The point when customers leave is a crucial moment of truth and a great opportunity for companies – provided they embrace it. It’s the last encounter in the customer journey….for now. Part on the right terms and maybe they’ll come back. Make their last experience a bad one and they definitely won’t.

Conclusions There are three important ways to address these issues: · Understand satisfaction and loyalty · Encourage complaints and measure your handling of them · Focus on the defection process and build bridges

1. Customer satisfaction As well as focusing on what drives customer satisfaction and loyalty, make sure you understand what drives the bottom

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2. Complaints According to Godin, “Angry phone calls are your friend. They’re your friend because the alternative is angry tweets and angry blog posts.” Angry customers are going to talk to someone – better you than their friends, thousands of twitter followers or the world. To improve how your customers feel when they have a problem with your organisation you should: Really encourage complaints (remember Darren Cornish of Norwich Union in the last edition of Stakeholder Satisfaction?

See the Customer Management Conference article on page 27).

Be proactive in looking for problems, using tools such as twitter, web tools for reputation management, etc. (I tweeted about no WiFi on Virgin trains and Richard Baker, the General Manager, sent me a message to say it was coming). But don’t ignore basic customer service skills, like getting your staff to look out for people who are not happy and deal with it, or at least point them towards someone who can.

Include problem handling (not just complaint handling) in your customer surveys.

Find out what percentage of customers have had a problem, what percentage make a complaint and identify what proportion of complaints you’re capturing. Is it just the tip of the iceberg? If so you need to understand why some customers are not complaining. Is it because you make it too difficult, because they don’t think it’s worth

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it or because they are reporting the problem (i.e. they think they’re making a complaint) but your system is not capturing them?

For customers who do make it as far as the complaints process it’s essential to survey them when the complaint has been resolved to really understand how they feel afterwards. Some companies succeed in turning complainants into advocates, others speed up their defection and encourage them to tell all their friends and fellow bloggers about their experience.

3. Managing the defection process Finally, you really need to focus on your handling of the defection process itself. If you treat defectors as if they are still valued customers, then maybe they will be again. Don’t erect barriers as a means to keep them hostage, try to build bridges instead. You want them to leave wondering if they’ve made the right decision, not feeling relieved to have escaped. Consider measuring the defection process by interviewing departing customers. It also gives you a valuable insight into the reasons people are leaving. S

References: 1. Jones and Sasser (1995) 1. “Why satisfied customers defect” 1. Harvard Business Review 73 1. November-December.

2. Chevalier and Mayzlin (2003) 2. “The Effect of Word of Mouth on Sales: 2.Online Book Reviews” 2. NBER Working Paper No. W10148.

2. Available at SSRN: 2. http://ssrn.com/abstract=476105

Stephen Hampshire Client Manager The Leadership Factor Stephen has been analysing customer data and adding insight to it for ten years. He writes extensively on the subject and presents many of The Leadership Factor’s training courses. As well as analysing the UKCSI for the Institute of Customer Service, Stephen works with Visa, RBS, Pace Electronics, Norwich & Peterborough Building Society, Rochdale Borough Council and others. Being a discerning type, his favourite wine is Chateau Margaux, preferably 1990! You can email Stephen at:

stephenhampshire@leadershipfactor.com

Latest thinking

How do companies compete in markets for basic, undifferentiated, commodity products? Traditionally, competitive advantage has been based on Porter’s1 assertion that market leaders are either the best on cost or the best on differentiation. Which strategy is most appropriate depends on the nature of the market. For Apple it’s differentiation through innovation but conventional wisdom is that in commodity markets the most efficient, low cost producers will win the day.

Alternatively, in the ground-breaking words of Theodore Levitt2 back in 1980,

the way a company manages its marketing can become the most powerful form of differentiation. Indeed, that may be how some companies in the same industry differ most from one another

Of course, Levitt wasn’t talking about marketing in terms of superficial activities such as advertising and branding but was referring to the real function of marketing, which is to meet customers’ needs. However, even the marketing literature often capitulates when it comes to undifferentiated products, referring to transactions as ‘straight rebuys’ with buyers exhibiting ‘routinised response behaviour’. Buyers are said to see competing products as the same in terms of quality and performance, to feel that they need little or no information to make a good choice and therefore to be very comfortable buying solely on price. A cursory look around world markets would often support this view, not just for out and out commodities such as steel but for many higher added value manufactured goods such as textiles or even computer chips. Many people claim this to be the reason why British manufacturers can’t compete – high wage rates making it impossible to be the lowest cost produc-

er. But it’s contradicted by the Leigh Paints story (see page 8).

Marketing academics such as Mathur3 have suggested alternatives to pricebased industrial strategies as shown in Figure 1. If buyers are offered absolutely no differentiation on the product or the service, it really is a ‘commodity’ and it would be irrational to base purchase decisions on anything other than price.

‘Products’ are goods that can be differentiated in some way, perhaps through innovation, quality or durability. But if they really can’t, differentiating the support or the customer service can effectively turn them into ‘services’, and the best strategy is to communicate differentiation on the product and its support, and selling a ‘system’.

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Latest thinking

COMMODITY

Undifferentiated

Differentiated

Undifferentiated

Service/Support

However, even Mathur was pessimistic about industrial companies’ ability to stick around in the top left box, identifying a ‘transaction life cycle’ where products automatically move from system to commodity. This was defined even more starkly by the Boston Consulting Group4 with its term ‘stalemate industries’ to classify markets that are simply devoid of competitive advantage opportunities, as illustrated in Figure 2.

Figure 4: The total product Application support Product performance Technical support

Product performance Applications support Price

Technical support Service Price

Adequate quality Price Availability Experinced specialists

Customer life cycle

Figure 2: BCG competitive systems High

Differentiation sources

STALEMATE

VOLUME

Low

High

Size of potential competitive advantage

DeBruicker and Summe5 looked at this issue from the customer perspective, identifying a customer life cycle. As products become more mature and less differentiated, customers become more experienced and, consequently, more discerning buyers of the product. Illustrated in Figure 3, the concept is best understood by imagining the customer life cycle for a specific product such as a computer.

The starting point is a first time computer buyer – an inexperienced generalist, who is likely to take a long time to reach a decision, placing great value on supplier information, advice and support. Due to the high perceived risk of the purchase, senior management are likely to feature more prominently than normal in the DMU (decision making unit). The closer the product type is to the beginning of its life

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Augmented product Potential product

Low

SPECIALISED

Generic product Expected product

Inexperienced generalists

FRAGMENTED

that is necessary at the outset to give the producer a chance to play the game.”

Levitt maintains that what matters is how you play the game because customers will always require more than just the generic product at the best price. Illustrated in Figure 4, Levitt defines the ‘expected product’ as the customer’s minimal purchase conditions, which will include various quality and delivery requirements and may extend to before- or after-sales support. These conditions are the industry norm and will therefore be met by the large majority of suppliers in the market.

Figure 3: Strategies for customer life cycles High

SERVICE

Product differentiation

PRODUCT

cycle, the greater the uncertainty will be since the early adopter customer is unlikely to know other users so is more dependent on the supplier. As customers gain familiarity with a product over time, their confidence as users and buyers grows so the perceived value of suppliers’ support programmes begins to decline. They will be less likely to look for a comprehensive bundle of benefits since “the bundle’s components can be analysed, sorted and valued” by the increasingly experienced and confident customer.

Low

SYSTEM

Product

Differentiated

Figure 1: Generic competitive strategies

The strategies DeBruicker and Summe recommend for the early stages of the customer life cycle focus on account management, adding value, emphasising service and support and keeping the debate away from price. Ultimately, however, they fall in line with the previous theories, maintaining that the combination of customer and competitor forces produces a mature market where buyers become experienced specialists who are concerned only with adequate quality, availability and price. Even so, the customer life cycle does offer sellers of undifferentiated products more hope for adding value because an individual customer could be a late adopter of a mature product and therefore an inexperienced generalist. It is always worth devoting a lot of time and effort to identifying organisations or individual DMU members who might be in this position even if your product and market are well into maturity.

Theodore Levitt2, however, says that “there is no such thing as a commodity.” It is true that to be a steel stockholder, you must have steel to sell but “the generic thing is not itself the product; it is merely, as in poker, table stakes; the minimum

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To differentiate itself from competitors, a supplier may offer the customer more than he expects – ‘an augmented product’.

This could be innovation, product variants, flexibility to tailor products or service to exact customer needs, financing, consultancy services to improve the performance of the customer’s organisation, and many other enhanced benefits.

There are two problems with the augmented product. First, today’s augmented product can soon become tomorrow’s expected product. For example, 20 years ago just-in-time delivery was a great added value benefit. Now, many large manufacturers have transferred stock holding costs almost completely to their component suppliers and it’s no more than ‘table stakes’. The second issue is that the added value perceived by the customer must exceed the added cost incurred by the supplier and this can be quite a challenge in markets for undifferentiated products with a very narrow price band.

But Levitt argues that unless suppliers of undifferentiated products are prepared to

Latest thinking

rely on price competition alone, they simply have to find ways of augmenting their offering. The problem is identifying the best way to do so. It’s here that Levitt moves into the realms of the ‘potential product’, which, basically is anything that could be offered to customers. It’s the role of management to identify the best way to add value in customers’ eyes. It may be enhancements to the product itself or value added services that bear little direct relationship to the core product or service.

The essence is that it’s superior customer insight that enables management to succeed in this task. Ironically, customer insight has often been embraced more extensively by suppliers of high added value items such as cars, but in reality, it’s suppliers of undifferentiated products that need it most.

Adding value to cement You can’t get much more undifferentiated than cement. This is a message that wasn’t lost on Lorenzo Zambrano, CEO of CEMEX, based in Mexico and the third largest cement producer in the world.

Quoted in the Value-Profit Chain6, Zambrano says:

Who wants a sack of cement? You want a home or a bridge or a runway.

Zambrano encourages customers to help him continually challenge CEMEX employees to come up with new ways of delivering results to customers, enabling Cemex to improve the performance of its customers’ businesses. An example was the pledge to always deliver ready-mix within a 20 minute time window even in the congested streets of Mexico City and Monterrey. Not bad for a product that can be delivered in 8,000 different combinations with a shelf life of only 90 minutes on the back of the lorry. Going a step further, the company’s new web-based inventory management system manages customers’ stock levels for them, enabling customers to focus on their construction projects, without worrying whether there's sufficient cement in their silos. In other words, CEMEX is selling its customers building capability rather than cement.

Customer relationships and rewarding loyalty are also crucial to adding value. Cemex believes that loyalty happens by design, not by chance so it is constantly communicating with customers to identify effective ways to build lasting customer relationships. Its local training programs, for example, help customers to improve their construction skills and better manage their businesses. Also, frequent-buyer programmes enable customers to accumulate points for computers and capital goods such as forklifts and light trucks. All of these value added enhancements move the focus away from the commodity, away from the price and onto the total product. S

Nigel Hill Founder of The Leadership Factor and editor of Stakeholder Satisfaction. info@stakeholdermagazine.com

References: 1. Porter, M E (2004) “Competitive Strategy”, The Free Press.

2. Levitt, T (1980) “Marketing success through differentiation – of anything”. Harvard Business Review, 59(1).

3. Mathur, S. S. (1988) “How firms compete: a new classification of generic strategies”, Journal of General Management, 3(2).

4. Boston Consulting Group (1988), quoted in Calori and Ardisson “Differentiation strategies in Stalemate Industries”, Strategic Management Journal, vol 9.

5. De Bruicker and Summe (1985) “Make sure your customers keep coming back”, Harvard Business Review, 64(1).

6. Heskett, Sasser and Schlesinger (2003) “The ValueProfit Chain”, The Free Press.

He has implemented the total product concept, focusing CEMEX on delivering results to customers to add value to an undifferentiated product. To implement the strategy a paradigm shift in management behaviours was essential, moving from command and control to “consulting and cheerleading.” Empowering employees enabled the company to remove layers of management reducing cost and improving performance at the same time.

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Reasearch

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Research

ONE OF THE MAIN ASPECTS OF B2B RESEARCH THAT DISTINGUISHES IT FROM B2C IS THE GREATER DIFFICULTY OF SECURING A RESPONSE, WHETHER THE SURVEY IS SELF-COMPLETION OR INTERVIEWS. THE MOST CHALLENGING TASK FOR RESEARCHERS, HOWEVER, IS TO INTERVIEW CERTAIN HARD TO REACH B2B AUDIENCES ON THE TELEPHONE. THIS IS THE MAIN REASON WHY B2B SURVEYS COST MORE THAN B2C, BUT OFTEN RESEARCH BUDGETS STILL DON’T ALLOW FOR THE MANY HUNDREDS OF MAN-HOURS THAT IT CAN TAKE EVEN TO IDENTIFY THE RIGHT PEOPLE TO INTERVIEW LET ALONE ACTUALLY PERSUADING THEM TO TAKE PART. We can therefore define 2 types of hard to reach audiences: · The hard to identify · The hard to interview · This can be anyone where a first line of defence needs to be breached, such as doctors behind surgery receptionists, CEOs behind PAs, IT Managers behind ‘company policy’.

The hard to identify The needle in the haystack, is relatively easy to deal with; start by looking in the right place! For example, when we recently had to research ethnic minorities with high disposable income on behalf of the Islamic Bank of Britain, looking in the right place was essential. To this end, purchasing the right database is critical and gives you the head start that’ll really pay off in the long run. For example, if you need to speak to organisations that use certain vehicles in their fleets then there’s no point just opening the phone directory. Narrow down your search by selecting relevant sectors, then companies that are likely to have sufficient employees to warrant a fleet. You can also profile some databases on job titles so whilst you won’t be able to find out what cars they use without speaking to them, you will be able to call and ask for Mr Smith the company’s Fleet Manager! For some job roles you’ll find databases to identify suitable organisations, but not individual managers. In this situation it always pays to call the company first to identify the correct

individual. Asking for the relevant person, by name (and knowing their proper job title) is a huge step towards getting the interview. The chances are, some of these people won’t be inundated with requests to take part in interviews because they’re so hard to identify in the first place.

The hard to interview With these people you often know the right person but you just can’t get to them. This is where the skills and techniques of an experienced researcher can be the deciding factor between failure or success. Step 1, often the hardest part, is to get past the gatekeepers. As a Market Research Society fully accredited interviewer trainer, Teamsearch executive interviewers have over 5 years B2B interviewing experience as well as having gone through 2 years of training on many topics such as persuasion techniques and how to build a successful rapport with the respondent. This experience became paramount when we recently had to speak to FTSE 250 CEOs based in the capital - a project we completed exactly to brief and ahead of the 3-week schedule.

All of it was down to the experience and techniques of the researchers to ensure the PAs had specifically set time aside in the CEOs’ diaries. No mean feat by any standards. Build this in with a thorough project briefing and you’ve got a researcher who knows in detail about the topic they’re calling about as well as the words and techniques that are likely to secure them the holy grail of a direct line!

Warming up the audience The way the survey is introduced to customers will make the biggest single difference to how they perceive the exercise, improving both the response rate and the quality of response. It is really helpful therefore if all customers in the sample receive prior notification of the survey in the form of an introductory letter or email. The notification works much better if it is prior to, rather than simultaneous with the survey. If the introductory letter is read out when customers are telephoned for an interview, it will be much less costly, but also less effective. To fully

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Research

“OFTEN PEOPLE WILL DECLINE TO TAKE PART PURELY ON GROUNDS OF INCONVENIENCE WITH VERY LITTLE THOUGHT ABOUT THE NATURE OF THE SURVEY.” appreciate this, think about people’s typical decision making process when invited to take part in a survey. It’s usually instantaneous and based on whether the individual is busy and whether it’s convenient at the time. Often people will decline to take part purely on grounds of inconvenience with very little thought about the nature of the survey. People are far more likely to respond if they are interested in the aims and outcomes of the research and see it as useful. They are far less likely to take part if they perceive the exercise as a general information gathering exercise of no benefit to themselves, and especially if they associate it with selling. This is why an introductory letter is more effective as a stand alone mailing or email before the customer is telephoned.

People will open a personalised letter and read it, especially if it is from an organisation they deal with. This enables a supplier to make customers think about the purpose and benefits of the survey at a time when they are not being asked to take part. Moreover, most people think it is very positive when an organisation asks for feedback on its performance.

Consequently, if they receive the introductory letter beforehand, with more time to think about the purpose of the survey, they are much more likely to take part when the questionnaire arrives or they are contacted by telephone.

The introductory letter For companies in business markets with a small customer base it may be productive to explain the process personally to each one through well briefed customer contact staff. For most organisations a personalised introductory letter is the most cost-effective option.

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The letter should start by explaining the purpose of the survey, and it’s worth emphasising the high priority the company places on customers’ views. Next, respondents clearly need to know brief details about the interview itself, emphasising that the time commitment will not be burdensome – ten to fifteen minutes to complete the interview. (If the interview will take longer, this will depress the participation rate but don’t be tempted to fib about the duration as this will backfire, with quite a few respondents pulling out before the end of the interview when you’ve broken your promise!) Assuming the organisation is adhering to the good practice of not asking any individual to take part in a survey more than once a year, the letter can emphasise that customers are only being asked for 10-15 minutes per annum to provide feedback. Evidence shows that promising feedback is the single most effective element of the introductory letter for increasing response rates. You must therefore inform customers that they will receive feedback on the results and on the key issues that have been identified by the survey. It should also promise that, if relevant, the organisation will share with customers the actions that it plans to take to address any issues. This helps enormously in convincing customers that taking part in the survey will be a worthwhile exercise.

Securing the interview If there are gatekeepers, the introductory letter will be a big help in breaching this defence. Once past the gatekeeper you’ve really got to capitalise on all that effort by making sure you don’t lose the fish now it’s on the hook! This is where the rapport building comes into play and also having a detailed knowledge of the topic being discussed. Added benefits of incentives can also play a part, but you have to be careful that it doesn’t become all about the cash. Often in B2B markets respondents will have a genuine interest in the industry report or summary results. This can also increase the quality of response dramatically and reduce the number of ‘don’t know’ answers.

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As more and more companies are employing company policies not to conduct research of any kind, especially where the audience is over researched such as IT Managers, having an experienced and skilful researcher becomes paramount and in the end this all amounts to achieving the required number of interviews in the least amount of time to deliver good value research.

The company policy rule was a constant obstacle when we spoke to Senior IT decision makers on behalf of BT last month. All needed to have responsibility for a £5million IT budget, which further added to the challenge, but the option of summary results and the experience of an executive researcher proved vital to finishing the project on time.

When it comes to ‘hard to reach’ audiences I have one rule. If they exist they can be reached. The one difference is that with the help of an experienced researcher you’ll also know whether you can reach enough of them, within the required deadlines and at the right cost. S

Rob Hogan Managing Director Teamsearch

Rob is Managing Director at Teamsearch Market Research and is very experienced in a wide variety of research including attitude and opinion surveys with a wide range of B2B stakeholders and consumers, product development research and testing, international research, brand surveys and much more. As a rugby player, Rob’s happy with any Australian wine as long as there’s enough of it. He can be contacted on 01422 360371 or bob@teamsearchmr.co.uk

Call us on 01422 360371

Welcome to Teamsearch

Teamsearch has over 15 years of market research experience with large blue chip corporations, SMEs, and the public and not-for-profit sectors with a particular specialism in surveying hard-to-reach audiences. These could be senior managers in the private or public sectors, politicians, IT managers, doctors etc.

Teamsearch is one of only a handful of market research agencies that is accredited to the Market Research Society’s AITS – Accredited Interviewer Training Scheme. This ensures that all our interviewers are trained to the highest possible industry standards, ensuring a totally professional interview that creates a good impression with your customers or stakeholders.

With a team of 10 full time staff and a pool of over 200 interviewers we are able to produce up to 16,000 interviews a month. It’s our philosophy to meet the needs of our clients with a flexible and professional approach whilst maintaining that all-important personal touch.

For more details contact: Rob Hogan Managing Director

We promise clients: · Director involvement on every project

bob@teamsearchmr.co.uk

· Dedication to building long-term relationships

Tel: 01422 360371

· Rigorous standards to ensure total quality throughout

Case Study

James Walker Group is a dynamic global manufacturing organisation that supplies a vast range of products and services to virtually every sector of industry. State-ofthe-art skills in materials technology are central to the Group’s success with the main business areas encompassing High Performance fluid sealing products and Railway products and services. James Walker Group comprises a worldwide family of companies with 11 production, engineering, distribution and customer support sites in the UK, and a further 40 spread across Continental Europe, Australia, New Zealand, SE Asia, South Africa and the USA. James Walker Group has been working with The Leadership Factor for over three years talking to customers around the world. With a consistent focus on improving customer satisfaction ‘In Customers’ Shoes’ is an exercise used inside the business to highlight the importance of the customer experience.

In Customers’ Shoes This training exercise that was successfully implemented by James Walker is all about getting employees to see the customer experience through the customers’ eyes.

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They need to appreciate how suppliers and customers often view things in different ways. As a supplier you are likely to be thinking about your business in terms of products, processes and systems (‘the lens of the organisation’). However, your customer will be thinking about the results or benefits they are hoping to receive (‘the lens of the customer’). With targets and Service Level Agreements (SLAs) increasingly playing key roles in the daily work ritual it can be easy to lose sight of what really matters to customers, and how the way they are treated and the service they receive can have a massive effect on how they feel and consequently whether they stay, repurchase and recommend you.

In Customers’ Shoes is an exercise that reminds staff exactly how it feels to be at the receiving end of good, bad or indifferent customer service and then relates this back to their everyday role. A key component of the exercise is staff sharing real experiences. Following this they discuss what they have learned and work together to formulate plans for improving their own customers’ experience. The exercise will work well with groups of any size although 9-12 participants (giving 3 teams of 3-4 people for the tasks) is ideal. A full day should be allowed to do it justice.

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According to John Bowers, Product Stream Manager at James Walker,

the concept of In Customers’ Shoes is to create values for the team that they can live and work with. We know as customers what is good service but when the roles are turned & we’re the supplier, do we deliver the same values we would expect as a customer?

Introduction For this training exercise you need a facilitator, flip charts, post-it notes, pre-prepared task lists (see right) plus projector and PowerPoint slides for the Customer Journey. The facilitator will start by asking staff to consider: We all know what good customer service is when we are not at work – how can we apply these standards at work?

Case Study

Setting tasks

Team 1 Task 1

Split staff into teams. Each team will be asked to complete three tasks (see right).

The tasks can be varied depending on whether staff are able to leave the building/have access to nearby shops. Prepare an envelope for each team. Each envelope will contain three tasks and a £10 note. Ahead of the task you will need to approach the restaurant/hotel owner to enlist their help. Ask them to provide a different experience/attitude for each team, e.g. extremely helpful, ‘it’s not my job’ and extremely unhelpful.

Alternative approach If staff are unable to leave the building or there is no access to nearby shops, you may opt for a telephone/role play approach. Again, you may need to enlist outside help from another organisation. It is possible that one of your suppliers or customers (e.g. business travel, stationery providers etc.) might be willing to help.

This could be particularly useful for a B2B focussed exercise.

De-brief

9.10am – Go to Chosen Hotel and ask for Primed Contact Your task here is to reserve the restaurant for a large family gathering you are having in November.

Your key requirements are: Date – Saturday 14th November 45-50 guests Wheelchair access may be required for one of the group Task 2 Go to a butcher of your choice and make a purchase of ëyour be st sausages’, spending no more than £5.

You will later be explaining to the group why these sausages were sold to you as the ‘best’.

Task 3 Buy a jar of Nescafe coffee

Team 2 Task 1 Buy a postcard up to the value of £1 – it needs to show local scenery Task 2 Hotel exercise as Team 1 Task 3 Go to a florist (not a supermarket) of your choice and with the remaining money buy some flowers. They must meet the following criteria – bright, not strongly scented, more than one type of flower.

Team 3 Task 1 Buy a packet of Ibuprofen up to the value of £3 Task 2 Go to a pet shop and purchase a remedy for your dog that is suffering from overheating.

You need to find out how to administer the remedy.

Task 3 Hotel exercise as Team 1.

Example tasks:

Once the teams have returned, group their experiences into 3 levels of customer service and record on flip chart. Spend time discussing experiences and feelings.

POOR

GOOD

EXCELLENT

Newsagent Hotel Chemist

Florist

Hotel Pet shop Butcher

Follow this up with key learning points from the exercise. For example, customers do not always remember ‘good’ service, often only poor and excellent service is memorable.

(1) Make a telephone call to a Chosen Travel Agent to book your holiday of a lifetime. You have an unlimited budget but still expect to get value for money from the agent.

(2) Make a telephone call to your Printer. Enquire about printing headed paper. You need 24 boxes, printed and delivered in 48 hours to two different addresses. You need a written quotation.

the other end of the scale Walt Disney identified 1200 ‘moments of truth’ in their customer journey.

Prepare a flipchart with two columns headed Givens and Differentiators, or Moments of Misery (Tragics) and Moments of Magic (Magics). As staff iden-

tify ‘moments of truth’ for your customers, write each one on a Post-It note. There may be up to 20 Post-It notes. Ask the group to go through the Post-It notes and place them under the relevant Tragics or Magics heading. There is no right or wrong but staff must discuss the reasons for their positioning.

Jan Carlzon (former President of Scandinavian Airlines) defined a moment of truth: ìAnytime a customer comes into contact with any aspect of a business, however remote, is an opportunity to form an impression." Every business, by its actions, determines whether a moment of truth is a positive (moment of magic) or negative experience (moment of misery) for the customer.

Each step in the journey below is a moment of truth.

Customer Journey (Optional) Customer has query and calls

At this stage, you will find it useful to talk staff through ‘customer journey’ and ‘moments of truth’ theory and then, together, create the journey of your own customers. The journey can be as detailed as required. The illustration right is a general example only showing a few steps. At

Customer receives quote

Customer rings in Call is answered

Customer asks for quote

Quote is sent to customer

BDT liaises with Tech to put together quotation Request for quote goes to Business Development Team

Advisor takes all details Advisor ends call

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Case Study

Moving forward

According to Product Stream Manager, John Bowers:

You now need to use all this to develop real plans to improve customer service.

Explore in detail the strengths and weaknesses of your interactions with customers at each stage of the customer journey, or for each PFI (priority for improvement) identified by your customer satisfaction survey. Discuss the current customer experience and what the ideal experience would be like. Then consider what action needs to be taken within the business to ensure that customers’ experience is always the ideal. This can be approached by the group as a whole or conducted as a team/department activity.

The discussion needs to focus on specific actions that can be taken to address the issues that have been identified. For example:

Customer asks for quote

Rachel Allen The Leadership Factor Client Manager

Since the values are represented in the words of the team, you get real buy-in into improving the levels of Customer Satisfaction. This methodology allows the team the opportunity to challenge each other if they believe that one of their colleagues is not promoting the chosen values.

Positive

Negative

What action?

Staff are friendly

Staff don’t have enough understanding to ask the right questions (so quote can be wrong)

Improve staff training (product knowledge). Involve BDT and Tech Dept.

Staff can’t tell customer when they will receive final quote (as they don’t know)

Advisors to work more closely with BDT to understand how long quote takes. Or consider direct line to BDT team for customers who are asking for a quote Online quotation facility?

Values Finally the group must decide on the values that fit into their own work before preparing feedback for Managers on company-wide service values and how they can be promoted within the business.

This training exercise is based on an approach employed by James Walker Group Ltd. It can obviously be tailored to fit any special circumstances in your own organisation. S

Values developed by the Custom Mouldings Team at James Walker were: To be polite, friendly and treat others as you would like to be treated yourself.

To listen and pay attention.

Take ownership until the problem has been resolved.

Work as a team.

Keep internal and external customers informed.

Delight the customer by going the extra mile.

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Rachel is Client Manager at The Leadership Factor and co-author of ‘Customer Satisfaction: the customer experience through the customer’s eyes’. As well as James Walker, she works with organisations such as the Forensic Science Service, the YHA, Littlewoods Shop Direct and Northern Gas Networks. Her wine of choice is a Chablis Grand Cru and if you want to send her a case you can organise it via rachelallen@leadershipfactor.com

Heather Grisedale Customer Satisfaction Facilitator James Walker

Heather is Customer Satisfaction Facilitator at James Walker and Co Ltd. Amongst many other things she is responsible for using the PFIs generated by the company’s customer satisfaction surveys to improve the customer experience. Heather’s favourite wine is South African First Cape: Limited Release Merlot 2007. Nothing vague about that one! She can be contacted at heather.grisedale@jameswalker.biz

Conference

In the last issue of Stakeholder Satisfaction we covered the employee engagement aspects of the UK Customer Management Conference. In this issue we will examine the other topics raised; the current economic climate and the importance of defining the experience you want customers to have, in B2B as well as B2C markets.

Recession implications

focusing on customers is even more crucial than usual in these times 34

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You can’t escape the current economic climate; the news is constantly telling us about struggling banks, the weak housing market, companies going bust, redundancies and rising unemployment. Does this climate mean that customer experience delivery will be at the bottom of companies’ priority list? How can companies justify spending resource on the customer experience in these hard times? Rather than forgetting about customers in this climate however, the clear message from all the speakers at the conference was that focusing on customers is even more crucial in these times.

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Bob Downie (Founder, UK Customer Management Conference and Chief Executive, The Royal Yacht Britannia) opened the conference, reminding us that in this climate customers are a scarce resource. To demonstrate this, he told us that it costs five times as much to get a new customer meaning that it makes economic sense to look after existing customers. Therefore, we need to get long term value from them, but to do this we need to give them value first.

He emphasised that in this climate companies need to demonstrate why customers should spend their time and money with

Conference

them. In order to do this, companies need to differentiate themselves from their competitors, by marketing their competitive edge. He warned that if companies don’t have a competitive advantage or don’t market it then they’ll be judged on price only. When thinking about a competitive advantage, companies should concentrate on the things that have the most impact on customers’ perception of their organisation.

Downie also reminded us that not all customers are equal; some are worth more than others, so companies need to compete for customers that are the most important ones to their business. If you try to satisfy everyone, failure is likely. To quote from Harvard Strategy Professor, Michael Porter: “In a time of economic downturn, you have to be clearer about your strategy than in normal times. When things are growing, lots of companies can be successful. In difficult times, the companies that win are the ones who are very clear about who they are and how they are trying to deliver value.”

When companies are clear about how they differentiate from others it gives guidance on where to concentrate resources.

For example, think about the specific touch points where you want to excel as you can’t be great everywhere.

Designing the customer experience at O2 Cheryl Black (Customer Service Director of O2) emphasised the importance of value for money right now. She gave the example that for their business customers they are focusing on improving mobile working solutions as this becomes more important when resources are limited.

The ‘customer promise’ underpins their company strategy and they have defined seven specific promises they want to deliver for their customers, including having the best range of devices, easy to use products and services and people who care. Black was clear that you can’t deliver a great experience to customers if you haven’t already defined what that looks like. Designing the customer experience makes it more tangible internally, it’s one thing to tell staff to ensure customers are satisfied, but it becomes much more meaningful and easier to deliver when the customer journey is outlined, with specific desired outcomes.

A seamless experience at Lego Conny Kalcher (Vice President of Consumer Services at Lego) linked into this by highlighting the importance of delivering one coherent, seamless experience for customers, regardless of the channel they used. The need for this was driven by a bad experience suffered by a high value B2B customer, who had called into one of their call centres to cancel a large order. The person in the call centre didn’t know this customer and responded to the cancellation by thanking him for letting them know, but didn’t ask why and from the customer’s point of view, didn’t seem to care he had cancelled his order.

Therefore, instead of allowing customers to have a random experience, Lego is working to ensure customers have a predictable experience, one that is branded and ideally, co-created. Co-creation of

the customer experience (where the service is delivered with the customer present, such as hairdressers) tends to link into higher customer satisfaction, as found by the Breakthrough Research conducted by The Leadership Factor for the Institute of Customer Service. For details see: www.instituteofcustomerservice.com/ Publications.aspx “Customer priorities: what customers really want”.

First Class Business Travel Another example is Virgin, who designed their first class business travel service by thinking about the whole experience customers have when travelling, rather than just the parameters of normal service defined by the organisation. For example, they plotted the end-to-end customer journey, from getting to the airport and check-in, to arrival and getting to the destination, rather than just the flight itself.

They recognised the problems that their customers have throughout the experience, such as the stress of getting to the airport and finding somewhere to park and the queues at check-in. The design of their service provision therefore was built on ensuring the customer had a great experience throughout their journey, not just the flight itself. In fact, the experience on the flight itself is not that different to that offered by competitors. Instead Virgin has chosen to differentiate itself in other areas, such as providing transport to and from the airport, having their own security staff who are customer focussed and providing facilities on arrival such as showers and breakfast. S

Sarah Stainthorpe Research Manager: The Leadership Factor

Sarah specialises in using data mining to provide customer insight to Direct Line, Churchill and RBS amongst others. Her favourite wine is Hardy’s sparkling rosé.

She says it’s not very posh, but in the light of some of the other contributors’ extravagancies that’s probably a good thing. email: sarahstainthorpe@leadershipfactor.com

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Fast Guide

Sampling in business-to-business markets

In a B2B market, sampling is a two-step process. First a randomly selected and representative sample of organisational customers must be generated. Of course, only individuals can be surveyed, not organisations, so the second step involves sampling the individual contacts.

They must also be representative and randomly selected.

Sampling the organisations For many companies in B2B markets a strong Pareto Effect in their customer base means that a large proportion of their business comes from a small number of high value customers and a much smaller percentage from a very large number of relatively low value customers. If so, any random sampling process will inevitably capture many small customers and few big ones, as shown in Figure 1 (below).

This would clearly not be representative, so to achieve a sample that is representative as well as unbiased in most B2B markets, stratified random sampling has to be used.

Producing a stratified random sample involves dividing the customers into value segments first and then sampling randomly within each segment. Illustrated in Figure 2 (top of next page), the sample will be representative according to the value contributed to the business by each segment of customers. In the example shown, the company derives 70% of its turnover from high value customers. The fundamental principle of sampling in a B2B market is that if a value segment accounts for 70% of turnover (or profit, or however you decide to define it), it should also make up 70% of the sample. If the company has decided to survey a sample of 200 customers, 140 respondents (70% of the sample) would be required from the high value customers. In this example, there are 35 high value customers so that necessitates a sampling fraction of 4:1, meaning 4 contacts from each customer in the high value segment. In business markets it is common practice to survey several individuals from the largest customers. Since there will often be quite a large number of people in the DMU

FIGURE 1 Random Sampling and the Pareto Effect 25% Random sampling would generate too many small and not enough large customers perceptions

% of revenue

20%

15% Systematic random sampling has the same effect

10%

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95%

85%

75%

65%

55%

45%

35%

25%

15%

5%

% of customers

36

In the example, the medium value customers account for 20% of turnover so they must make up 20% of the sample.

That means the company needs 40 respondents from its medium value customers. Since there are 120 customers in that value segment the sampling fraction would be 1:3, necessitating a random sample of 1 in every 3 medium value customers. This would be produced by selecting a random starting point on the list of 120 medium value customers by generating a random number between 1 and 120. If the random number came out as 71, the 71st medium value customer on the list would be sampled, followed by the 74th, the 77th and so on until the sampling process came back round to the 68th medium value customer.

Finally, 10% of the company’s business comes from low value customers so they must make up 10% of the sample, requiring 20 respondents in this example. There are 300 low value customers, which would mean a sampling fraction of 1:15, again produced using ‘systematic random sampling’ from a random starting point within the low value customer segment as described above. By the end of the process the company will have produced a stratified random sample of customers that is representative of its business and, due to its random selection is also without bias.

Sampling the contacts

5%

0%

(Decision Making Unit) of a large customer, having enough contacts to survey is rarely a problem.

The procedure described above has produced a random and representative sample of B2B customers but the individual respondents who will take part in the survey

Fast Guide

FIGURE 2 A stratified random sample Value segment

% of turnover

% of sample

No of customers

Sampling fraction

High

70%

70%

35

4:1

Medium

20%

20%

120

1:3

Low

10%

10%

300

1:15

must also be selected. Organisations often choose the individuals on the basis of convenience – the people with whom they have most contact, whose names are readily to hand. If the individuals are selected on this basis, an element of systematic error is introduced. It would mean that however carefully a stratified random sample of companies had been drawn, at the 11th hour it has degenerated into a convenience sample of individuals that somebody knows. To avoid that major injection of bias the individuals must also be randomly sampled as follows. Firstly, for each customer sampled to take part in the survey, compile a list of individuals who are part of the organisation’s customer experience. In other words, they are part of the decision making process or are affected in some way by the provision of the product / service. Secondly, select the individuals randomly from that list.

Illustrated in Figure 3, the process works as follows. First list your DMU roles in a random order. In our hypothetical example, the DMU roles are Sales (S), Purchasing (P), Quality (Q) and Senior Management (M). It is important to be clear that these are roles not job titles, as titles vary considerably across organisations. For the high value customers in this example, a census of contacts as well as a census of companies is required. To sample the medium value customers a random number of 71 was generated, so the 71st medium value customer on the list would be sampled with a contact from Sales to be surveyed. Taking every third medium value customer, the 74th on the list would need someone with responsibility for Quality, the 77th a Purchasing contact and the 80th someone in a Senior Management role. As shown in Figure 3 (below), the same procedure is then followed for the low value segment.

In business-to-business markets, following the stratified random sampling approach oulined earlier is essential for an accurate and credible survey result. It provides a random and representative sample of organisations and individuals, so it will be an accurate result whose statistical reliability can be justified. At least as important in B2B markets, colleagues not versed in the technical aspects of surveys will see it as ‘reliable’ and credible because it accurately reflects the realities of the business, covering all the key accounts and only a sample of smaller ones. S

FOR A COMPETITIVE B2B SURVEY QUOTE contact Jim Alexander on: 01484 467025 or jimalexander@leadershipfactor.com

Jim Alexander Client Manager: The Leadership Factor

Medium

Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 Etc.

S 1 1 1 1 1

Customer 71 1 Customer 72 73 74 75 76 77 Etc.

P 1 1 1 1 1

Q M 1 1 1 1 1 1 1 1 1 1

1 1

Small

Large

FIGURE 3 Randomly sampling the individuals S Customer 191 Customer 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 Etc

P

Q

1

1

M

Jim has over 30 years’ experience of creating, interpreting and using many kinds of research information from customer satisfaction and loyalty to forecasting and strategy development. Jim is author of ‘The Handbook of Customer Satisfaction and Loyalty Measurement’ (Gower) and has spoken widely at events on customer satisfaction and loyalty in the UK and overseas. His clients include Rolls Royce, Farnells, Rockwool, Sulzer, Reliance Security, RWE npower and many more.

Easy to please on the wine front, Jim will happily settle for a nice Chilean Merlot.

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Book Review

Predictably Irrational: The Hidden Forces That Shape Our Decisions

HarperCollins Publishers Ltd

Dan Ariely

This book dissects customers’ decisionmaking processes particularly their buying behaviour. It provides fascinating insights into the subconscious mechanisms that we’re often unaware of, but which tend to exert a big influence on our decision-making. More importantly, the author, through his research, suggests why most of our decision-making appears to be not just irrational, but predictably irrational. This hypothesis flies in the face of the conventional thinking that we are mostly rational decision makers, a view supported by classic economic theory, whose origins go back to Adam Smith’s ‘Wealth of Nations’, published in 1776.

In fairness, most of the time, we are rational decision makers. However what may start to make readers of the book uneasy, is the extent to which our decision making is considerably influenced by a number of these ‘hidden forces’ and chapter by chapter the book uncovers each hidden force, substantiated by social research conducted by the author and his team (using consistently intelligent participants) to try and prove or disprove the existence and influences of these forces.

Forces, which Marketers and Neuroscientists (sometimes in partnership) have understood about consumers for a long time.

SOCIAL AND MARKET NORMS RELATE TO THE TWO SIMULTANEOUS WORLDS WE LIVE IN WITH DIFFERENT RULES 38

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Some of the key forces outlined in the book, which shape our decision-making, are;

Relativity –how our decisions are not absolute and how much we are influenced by relative prices, relative experiences and our relative environment. For example, the second most expensive item on a restaurant menu is frequently chosen.

Anchoring –the powerful and long term imprinting of first impressions. These could involve experiences or information.

An example would be how manufacturer recommended retail prices affect how much consumers are willing to pay – though most of us would refute that influence on our own behaviour.

Social and market norms relate to the two simultaneous worlds we live in with different rules – the former dominated by wanting to please people and the latter by more selfish financial criteria. The effect of when the two collide can be disastrous, e.g. when a high relationship business such as a restaurant imposes a market norm decision such as retaining a loyal customer’s deposit following a late cancellation.

The effect of expectation and price, such as the power of placebo and why expensive medicine makes us feel better.

The power of zero cost or free. –one of the most irrational hot buttons, FREE and its widespread effect on us. An obvious example would be supermarket BOGOFs that often tempt consumers to buy an item at a higher price than a similar alternative to get the ‘free’ one. On the face of it this could be labelled rational until one considers whether the average family real-

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ly needs, or wants, 16 hot cross buns at Easter even if 8 of them were ‘free’!

This book can be used by anyone or any organisation that wants to learn more about customers and their decision-making processes. It contains useful insights for improving customer relationships, launching new products, managing customer expectations and more. If you want to make yourself feel less guilty about your next ‘impulse’ purchase or the kitchen cupboard full of BOGOFs, or just to realise that fundamentally we’re all wired up the same, ‘Predictably Irrational’ is an enlightening read. S

Richard Kimber Richard is Client Manager at The Leadership Factor, working with companies such as VW / Audi, Co-op Business Banking, Xerox, Hilti, Principality Building Society and Lombard Vehicle Management. His favourite wine is a nice fruity Cahors with a long tannin finish. Richard can be contacted on 01484 517575 or email: richardkimber@leadershipfactor.com

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