January 21, 2009 The Economic Necessity Of Customer Service

Transcription

1 January 21, 2009 The Economic Necessity Of Customer Service by Natalie L. Petouhoff, Ph.D., Sharyn Leaver, and Andrew Magarie for Business Process & Applications Professionals Making Leaders Successful Every Day

2 January 21, 2009 The Economic Necessity Of Customer Service Five Recession-Busting Strategies To Cut Service Costs And Increase Sales by Natalie L. Petouhoff, Ph.D., Sharyn Leaver, and Andrew Magarie Executive Summary In this economic climate, no one can afford to lose a customer. Rather than halting spending, smart customer service executives will use this economic downturn as an opportunity to regroup and reprioritize. What should they focus on? Top customer service recession-busting strategies that cut costs and generate more revenue include: proactive chat, agent-customer co-browsing, online customer communities, unified communications, and multichannel knowledge management. table of Contents 2 Customer Service Experiences Either Generate Or Diminish Company Revenue 4 Recession-Busting Strategies To Save Money, Cut Costs, And Increase Sales recommendations 7 How To Capitalize On What Customer Service Can Offer In A Poor Economy 9 Supplemental Material NOTES & RESOURCES Forrester interviewed 15 vendor and end user companies, including egain Communications, KANA, Lithium Technologies, and Salesforce.com. Related Research Documents Forrester s Customer Service Innovation Framework And Self-Assessment January 13, 2009 The ROI Of Interactive Chat February 4, 2008 The ROI Of Web Redesigns Made Simple March 17, , Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. To purchase reprints of this document, please clientsupport@forrester.com. For additional information, go to

3 2 The Economic Necessity Of Customer Service Customer service experiences EITHER generate or diminish company revenue Customer service has a profound effect on a corporation s bottom line. Here s why: Good customer service experiences boost repurchase probability and long-term loyalty. To show how customer service affects the bottom line, Forrester asked customers to rate their interaction experiences based on whether they were: 1) useful could they get what they needed to do done; 2) easy or did they run into all kinds of hassles in the interaction process; or 3) enjoyable or did they feel frustrated and disappointed in the interaction. The results show that the higher the customer experience index, regardless of the industry, the more customers buy and the more loyal they are (see Figure 1). 1 Poor customer service experiences lead to defects. For example, if a company has 4 million customers and each spends $100 per year, the total projected revenue for a year would be $400 million. Industry standards show that approximately 30% of a company s customers (or more) have poor experiences. 2 That represents 1,200,000 customers, and typically only about 2% of them complain to the contact center. That leaves 98% who don t complain, or a total of 1,176,000 customers that are at risk to defect. At a $100 a piece, this represents a whopping $117,600,000 loss in revenue annually. Poor customer experiences result in lost opportunities. While customers don t necessarily voice their disappointment to a company as they ve learned not to bother because nothing changes they do voice their sentiments to anyone else who will listen. Research shows that disappointed informers will impart their disparaging opinions about your company at double the rate that satisfied advocates will spread good word of mouth. And with the unlimited reach that the Internet provides, most companies are unprepared to monitor negative word of mouth or lack a systematic process to turn a situation around before they lose thousands of customers. Poor customer service experiences result in hidden costs. Obviously, poor experiences increase contact center call volume. If the issue is not resolved on first contact, service costs double due to callbacks alone. But a corporation s increased operational costs don t stop with the contact center. That one detrimental experience is easily amplified. Customers, so frustrated from years of poor service, retaliate by broadcasting their cynicism to friends, family, or anyone who has an Internet connection. The effect? Escalating marketing and sales costs because it s more expensive to promote products to dissatisfied customers and/or those customers who ve been exposed to negative word of mouth. January 21, , Forrester Research, Inc. Reproduction Prohibited

4 The Economic Necessity Of Customer Service 3 Figure 1 Better Customer Experiences Mean Customers Buy More And Are More Loyal 1-1 Consumers with good experiences consider purchasing more Correlation between high customer experience index and willingness to buy another purchase from provider Banks Cell phone service providers TV service providers Internet service providers Insurance firms Credit card providers Retailers Investment firms Medical insurance providers Degree of correlation: Low Medium High 1-2 Consumers with good experiences don t switch providers Correlation between high customer experience index and reluctance to switch business away from provider Banks Credit card providers Cell phone service providers Insurance firms TV service providers Internet service providers Retailers 0.41 Investment firms Medical insurance providers Degree of correlation: Low Medium High Source: North American Technographics Customer Experience Online Survey, Q Source: Forrester Research, Inc. 2009, Forrester Research, Inc. Reproduction Prohibited January 21, 2009

5 4 The Economic Necessity Of Customer Service Recession-busting strategies to save money, cut costs, and increase sales Because of the direct effect of customer service on both the top and bottom lines, customer service professionals need to innovate. But the reality of the economic recession means that they must be smart about which innovations to tackle and when. What can they do to create value without breaking the bank? Here s a start: Be proactive about chat. While companies spend billions annually for their Internet presence and to attract customers to their site, they are wasting their investment as customers abandon shopping carts mid-order, click away from partially filled forms, or become frustrated when they can t find answers. Why does interactive/proactive chat have a large return on investment and provide millions of dollars in positive word of mouth (see Figure 2)? 3 Proactive chat can be configured to automatically initiate a chat session to instantly serve your customers in that moment of truth and stop them from leaving. This service reduces online shopping revenue loss as well as reduces the need to call the contact center, reducing operational costs. Customer chat sessions can be customized based on a slew of inputs including customer clickthrough rates or paths, time spent on various parts of the Web site, prior average order size, and demographics. Solutions options include: text chat, phone callback, screen push, escorting, and form collaboration. And if capital expenditures are not within your means, chat can be deployed as a third-party, SaaS solution via vendors with deep experience, knowledge, and wisdom in this pioneering interaction channel. Whether you choose an on-demand or on-premise solution, partnering with a vendor that is immersed in the emerging world of chat will increase your initiative s success and provide a faster, positive return on investment. Empower sales agents with co-browse tools. Forrester s research shows that 50% of Web transactions are completed with the help of a customer service agent. And while chat offers many benefits, what chat alone can t offer is the type of guided Web site assistance that only co-browsing can. How does co-browsing work? Let s say a customer is online, filling out an application for a new account or placing an order. In the process, they get stuck. Traditionally they would call the contact center or abandon the interaction. With co-browsing, the system takes note of the abandoned process and reaches out to the customer. By viewing the same Web site page together in real-time, the agent can discern why a customer is stuck and in the moment of need guide the customer to form or order completion. Without co-browsing, Web site guidance is limited and frustrating. Beware of simple URL-based co-browsing products, which frequently encounter issues such as double posting, frame breaking, cookie synchronization, and failure on Web pages with complex layouts or forms. Business rules can hide sensitive information, like credit card numbers, mother s maiden names, or passwords, protecting the customer s data to prevent identity theft. Agents can also demonstrate the site s self-service features, increasing the likelihood of customer adoption. January 21, , Forrester Research, Inc. Reproduction Prohibited

6 The Economic Necessity Of Customer Service 5 With robust proxy-based co-browsing tools, co-browsing delivers real-time assistance, minimizes customer frustration, and converts site visitors into profitable, long-term customers all especially critical to capitalizing on increasing sales revenue and realizing the benefits of self-service. Explore unified communication. Unified communication (UC) is the successful blending of all communication channels and communication devices (smartphones) into one interconnected entity, breaking down any barriers to communication with a company. 4 An example of how a company might benefit from using UC is if a customer calls about an order and the agent does not have access to the order management database. Rather than asking the customer to hold or transferring them to another department, the agent can contact an expert in another department. How does UC work? It provides presence via chat and collaboration, meaning that an agent is able to see who in the order department is present and considered the expert. The agent can instant message the order rep and/or pull them into the call. UC combines the resources of the contact center with informal experts to create a better customer experience and improve employee productivity and first-call resolution, which can lead to reduced operational costs. Invest in online social networking communities. Online communities have evolved from the bulletin boards of yester year to posts in the form of forums, blogs, and chat. Updated posts sent via or RSS syndication subscriptions instantly distribute new information to users, and posted solutions are often added to the company s knowledge management (KM) database. What is the value of an online community? First, customers can solve each other s problems with much less or no interaction from a company. How? Customers get answers by reading posts made by other customers that have had solved similar issues rather than calling customer service, and agents, using the community-enhanced KM database, can reduce their call time and provide more satisfying answers. Second, when bad word of mouth happens, online moderators can alert executives and quickly post a resolution to the community, avoiding brand damage and increased call volume. And with a built-in system to recognize, rank, and reward users, even informants can be turned into advocates by acknowledging their suggestions that helped millions of customers. Lastly, new ideas coming from communities can save product development millions, not to mention marketing and sales, which would then be promoting a product that was designed with customer input. Make self-service work in all channels. The ROI of self-service is highly dependent on customer adoption. Customers only use self-service if they can reliably and consistently get what they need done. Call center deflection occurs when customers who want specific information can find it quickly and easily online instead of having to make a call (see Figure 3). 5 With all of the various interaction channels, customers expect interactions to be seamless and the information to be consistent across channels , Forrester Research, Inc. Reproduction Prohibited January 21, 2009

7 6 The Economic Necessity Of Customer Service Determine if the access to your knowledge management databases and search capabilities is the same across all interaction channels, especially for self-service. Information inconsistencies or distrust of a self-service channel will invariably prompt a call to a customer service agent, resulting in higher operating costs and loss in the savings expected from self-service. If the Web site is not run by customer service, contact center and customer service managers need to tell eservice managers what customers are calling about to get at the root causes of calls in order to reduce them. Figure 2 Proactive Chat Cuts Cost And Increases Revenue Dimension Interactive chat helps by... Shorten the sales process Creating additional positive impressions that move a prospect through the sales cycle. Resolving customer issues and objections immediately. Reduce call center costs Close sales Increase transaction size Reducing the average interaction cost. Showing customers where to find information and potentially avoiding future calls. Recovering customers before they abandon a transaction. Assisting in the order and form completion. Creating upsell/cross-sell opportunities. Enabling persuasive selling Source: Forrester Research, Inc. January 21, , Forrester Research, Inc. Reproduction Prohibited

8 The Economic Necessity Of Customer Service 7 Figure 3 Well-Deployed Sites Result In Lower Cost Of Service, Sales, More Leads, And Higher Sales Drivers of ROI Comments Site traffic Number of site visitors Search Engine Optimization (SEO) drives new visitors from natural search. Increased satisfaction boosts repeat visits. Higher sales Conversion rate Average order size Improved user experience means more directed shoppers are able to find what they want and get the information needed to make a purchase decision. Fewer buyers abandon improved shopping carts. New information architecture exposes shoppers to upsell and cross-sell opportunities. More leads Conversion rate Improved content means prospects get the information they need to make a decision. Fewer buyers abandon improved forms. More forms are completed with full, accurate info. Lower cost of sales Call center orders Improved user experience on Web site means fewer buyers abandon their online orders and switch to the call center to complete their purchase. The upgraded site becomes the ordering channel of choice for more buyers. Lower cost of service Call center service calls Declines as sites add new functionality, such as order tracking, and new content, such as FAQs. Builds over time as the upgraded site becomes the self-service channel of choice for more users. Source: Forrester Research, Inc. ReCOMMENDATIONS How to Capitalize on What Customer Service Can Offer in a Poor Economy The paradigm of contact centers as cost centers doesn t hold water. It only applies to contact centers that offer poor experiences. Those centers do cost the organization not only in higher operating costs, but also in reduced revenue, brand equity, and market longevity. With the evidence so clear on what companies must do, and do immediately, quickly, and smartly, where should customer service executives start? Forrester recommends: 2009, Forrester Research, Inc. Reproduction Prohibited January 21, 2009

9 8 The Economic Necessity Of Customer Service Step 1: Reject the old paradigms that a contact center is a cost center. Don t focus on the downturn, look beyond it. Customer service and contact centers have the most direct contact with customers, thus make the largest impression. Executives must immediately stop under-funding contact centers, because doing that is culpable in the destruction of the customer experience, reducing revenue and increasing costs. Step 2: Demand ownership of the customer experience. Clearly, with the bottom-line value of customer experiences, someone in the organization needs to own the customer experience. The CEO needs to give that new CCO positional power to spend, hire, and transform. The CEO and the CCO must be fiscally responsible for the outcomes, including shareholders holding them accountable for customer-related metrics to earn their bonuses without bonus relevancy customer experience becomes yet another management initiative du jour. If you don t demand ownership, someone else will. Step 3: Listen to your customers to create your customer strategy. Forrester surveyed nearly 5,000 consumers about their customer experiences and found that while the phone is still the most preferred method of receiving service, more than half of the respondents were unhappy with the experience. Forrester also asked, When thinking about customer care, how satisfied are you with self-service? The satisfaction ratings were low, ranging between 30% and 40%. Companies must deploy voice-of-the-customer (VoC) programs to understand why customer interactions are lacking, and use that as part of their innovation analysis. 7 Step 4: Conduct a customer service gap analysis and implement best practices. Often it s unclear what, within customer service, must be changed or how to prioritize initiatives. When Forrester asked companies if they were implementing best practices only 30% to 40 percent said yes. Use Forrester s Customer Service Innovation Framework as a tool to conduct a gap analysis, enrolling all stakeholders into the analysis, including IT, CxOs, sales, marketing, etc. 8 As a collective, pinpoint the best opportunities for quick wins and build a prioritization plan to close gaps. Step 5: Evaluate software with customer experience as the top goal for a business case. Use Forrester s Customer Service Solution Wave spreadsheets with your multidisciplinary team to compare software capabilities and make a shortlist of vendors. 9 Having all stakeholders rate the organization s customer service capabilities is critical to gaining solid support both financially and organizationally. Stakeholder alignment saves money by reducing project scope creep, timeline, and budget slips. And with solid buy-in, building a business case (with the help of IT, finance, sales and marketing) customer service executives can show why they ve got a mission-critical initiative. January 21, , Forrester Research, Inc. Reproduction Prohibited

10 The Economic Necessity Of Customer Service 9 Supplemental Material Companies Interviewed For This Document egain Communications KANA Lithium Technologies Salesforce.com Endnotes 1 Executives know that customer experience is important, but they can t always tie it directly to business results. Our analysis shows that good customer experience correlates highly to loyalty especially when it comes to consumers plans for making additional purchases. See the March 24, 2008, The Business Impact Of Customer Experience report. 2 To make the business case about customer experiences, executives need to be educated on the impact of problems on customer loyalty, the failure of most customers to complain, the potential impact of service on loyalty, and the impact of service on word of mouth. Source: John Goodman, Turning CFOs Into Quality Champions, Quality Progress, June Too many companies sit passively by while prospects on the verge of buying abandon their online shopping carts or applications, potentially never to return. Smart organizations are evaluating the merits of adding chat and other interactive functions to their Web sites to better engage the customer and potentially increase sales. See the February 4, 2008, The ROI Of Interactive Chat report. 4 Unified communications (UC) solutions are gaining momentum in enterprises today due to their ability to improve business processes and employee communications. Forrester s 2008 survey of enterprise unified communications decision-makers indicates that they understand the value of UC solutions overall and find most UC features critically important in their purchase decisions. See the June 30, 2008, Unified Communications Adoption Plans report. 5 Users require specific content about products and services in order to achieve their online goals. Building greater brand loyalty and improving customer service are critical to Web site designs that provide high ROI. See the March 17, 2006, The ROI Of Web Redesigns Made Simple report. 6 To get answers and to resolve service issues, 45% of consumers prefer to speak with a customer service agent, but most walk away from customer service agent interactions disillusioned, disappointed, and disgruntled. Self-service channels don t always get the job done, and poor channel integration leads to customer frustration. Companies need a process to evaluate their best practices and create an innovation plan to consistently provide extraordinary self-service and agent-assisted customer service experiences. See the August 29, 2008, Why Talking to Your Customers Is Ruining Your Business report. 7 Many companies say that they don t have a good connection with customers. That s why firms should consider developing a systematic approach for incorporating the needs of customers into the design 2009, Forrester Research, Inc. Reproduction Prohibited January 21, 2009

11 10 The Economic Necessity Of Customer Service of customer experiences, what Forrester calls a voice of the customer (VoC) program. Successful VoC programs will incorporate listening, interpreting, responding, and monitoring. See the February 8, 2007, Building Your Voice Of The Customer Program report. 8 Customer service disappointments are often a result of poor strategy. Forrester s Customer Service Innovation Framework provides you with 150 best practice capabilities organized into six categories that drive customer retention, loyalty, reduced costs, and increased revenue. The self-assessment tool allows you to compare your company against best practices and identify which initiatives are mission critical. Both this document and the self-assessment tool will help you to gain executive buy-in, build stakeholder consensus, hire better agents, and select the right technologies for loyalty creating customer experiences. See the January 13, 2009, Forrester s Customer Service Innovation Framework And Self-Assessment report. 9 As product and price differentiation erodes, businesses are turning to customer experience to gain market share over their competitors. This move toward experience-based differentiation (EBD) raises the stakes for customer service professionals to make the right technology decisions. See the October 21, 2008, The Forrester Wave : Customer Service Software Solutions, Q report. January 21, , Forrester Research, Inc. Reproduction Prohibited

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