Ac#onable Customer Experience Measurement: Linking Analy#cs, Customer Behavior and Brand Percep#on with Strategic Business Outcomes

Ac#onable Customer Experience Measurement: Linking Analy#cs, Customer Behavior and Brand Percep#on with Strategic Business Outcomes Presented by Michael Lowenstein, Ph.D., CMC Thought Leadership Principal Beyond Philosophy

About the Presenter Thought Leadership Principal at Beyond Philosophy Formerly EVP at Market Probe, SVP at Harris InteracEve (Nielsen), SVP at GfK/NOP World Over 35 years management and consuleng experience; passionate about stakeholder behavior and brand measurement M.B.A. in markeeng, organizaeonal management B.S. degree in economics and markeeng Ph.D. in strategy, program development, and program management Author of 200+ arecles and white papers, and several customer- centric markeeng books, including Customer Reten#on (1995); The Customer Loyalty Pyramid (1997); Customer WinBack (2001), One Customer, Divisible (2005), and The Customer Advocate and the Customer Saboteur: Linking Social Word- of- Mouth, Brand Impression, and Stakeholder Behavior (2011) New ebook/so^ cover book on customer- centric research, culture and analyecs - Customers Inside, Customers Outside (2014) Advisor/#1 Content Contributor CustomerThink portal

Becoming a More Customer- Centric Enterprise: Moving from Naïve to Natural Customer Awareness customers known, but in aggregate; the organizaeon believes it understands customer needs; measurement of stakeholder behavior is rudimentary, if it exists at all; hierarchical management model; chimneyed communicaeon, with liale teaming Customer Sensi3vity customers known, but sell mostly in aggregate; service more in evidence (focus on problem/complaint management); measurement is largely abtudinal and funceonal, with liale emphasis on emoeonal and/or relaeonship- drivers; tradieonal management hierarchy Customer Focus customers both known and valued, down to individual level; customers recognized as having varied needs; service and value provisions are enterprise prioriees; more proaceve communicaeon and collaboraeon with customers; more horizontal management structure Customer Obsession customer needs and expectaeons are well understood throughout the enterprise; everyone provides value; loyalty behavior is paramount, and opemal relaeonships are a key priority, with service a vital and profitable element of delivery; management structure is extremely horizontal, with emphasis on customer inclusion and teaming

Customer- Centric Enterprise Examples

Seven S Customer- Centric Direc#on Structure Systems Strategy Shared Values Style Skills Staff

Any Actionable Metric Has Value: The Current Customer Experience Measurement Landscape Evolution: Comparing Satisfaction, Loyalty Indices, NPS, CES, and Advocacy/Bonding

Customer Sa#sfac#on Measurement American Customer SaEsfacEon Index (ACSI), Survey Research Center, University of Michigan, 1994 Core tracking covers several hundred companies 100 point scale of saesfaceon level Largely measures funceonality and tangibility (Eme, cost, accuracy, completeness, durability, etc.) Strong tacecal and transaceonal orientaeon Abtudinal response; passive and benign Proven to be minimally connected to/driving future aceon, such as loyalty behavior, industry to industry

Loyalty/Secure Customer Indices Typically composed of three elements: saesfaceon, future purchase intent, and recommendaeon likelihood With some queseon variaeon, very acevely used core approach by many b2b and b2c companies; in use for decades SaEsfacEon, because it is fairly transaceonal, rather than relaeonship- based, tends to have limited correlaeon with actual loyalty behavior RecommendaEon has muleple analyecal challenges: aggregate score, non- granular, etc. SaEsfacEon and recommendaeon tend to dampen CLI and SCI aceonability

Net Promoter Score (NPS) Fred Reichheld (Bain) and Satmetrix, 2003 Net recommendaeon (subtraceng Detractors from Promoters) represents method for C- suite to address macro loyalty drivers; easy to understand Found to be challenging to apply on a universal basis (cannot be used in all industries/purchase situaeons); may not help an organizaeon be more customer focused or customer- centric Range of aceonability/analyecal issues - QuesEonable because of hypotheecal nature, scale, calculaeon method, and actual meaning/value of recommendaeon, muleple ways of arriving at score - Low correlaeon between NPS score and customer aceon - Non- granular applicaeon: difference, and group aggregated, score rather than individual customer classificaeon score - Non- discriminaeng (same customer can recommend muleple brands)

Customer Effort Score (CES) Developed by Corporate ExecuEve Board, 2008 Measures customer percepeon of how easy/difficult it is to do business with a firm, such as frequency of complaint resolueon contact TransacEonally- based, rather than relaeonship- based Only addresses aspects of service, not overall experience More relevant with fairly generic, uelitarian products and services Needs accompanying granularity, re. technologies, business processes, and employee behavior contribueon to customer ease/difficulty of doing business

A Conceptual Framework for Research Action: Customer Advocacy Develop Insights Measure Customer ATtudes, Emo#ons and Behavior Brand Staff Business Outcomes Customer Experiences Customer Rela#onship with Supplier/Brand Retention Rate Share of Wallet New Client Acquisition Value Touchpoints What is the right construct to measure rela#onship?

Customers who have - Strong and bonded emoeonal conneceons with your brand or business Customers who are - AND Strong supporters, i.e. bonded advocates, of your brand in their online and offline communicaeons How does marketing help achieve this?

They are your best customers They are loyal (and ouen bonded), buy more products from you or exclusively use your brand They can be your unpaid, virtual sales force They are the strongest amplifiers of/advocates for your brand; posi#ve and frequent WOM They respond, ouen proac#vely, to your channel approaches and marke#ng efforts

What is Customer Advocacy? - Advocacy is the highest form of customer (client) involvement in a brand (business). It is strong emoeonal conneceon with the brand and enthusiasec support of the brand. - More specifically, customer advocacy can be defined as the degree of kinship with a brand or company and the favorability and trust of brands as a direct result of personal experience. It is measurable at the individual customer level. - Principally, advocacy idenefies both the sources of brand affinity and the moneezing downstream customer behavioral impact of offline and online informal communicaeon, by individuals on a peer- to- peer basis (and as it influences their own downstream behavior, i.e. the self- percepeon effect as a result of personal experiences).

The Roles and Values of Customer Advocacy In marke#ng, branding, and services decision- making guidance and how- to ac#on, including Marke#ng and Communica#ons Planning and Engagement Media Effec#veness Customer Service/Touchpoint/Process Experience Upgrade Leveraging Employee Behavior Through Ambassadorship Company Brand Image and Reputa#on Impact Product and Service Development Customer Rela#onship Building Brand Messaging and Posi#oning Assessment Loyalty Program Development/Refinement Customer Life Cycle Op#miza#on Customer- Centric Enterprise Culture Enhancement

The Impact of Customer Influence has Pushed the Strategic Relevance of Advocacy Grow Revenue Posi#on Brand Increase Share Decrease Risk 80s: Quality 90s: Sa#sfac#on Late 90s: Loyalty Current: Advocacy Advocacy captures the influence the customer and partner base have, in addi#on to measures below. Embrace customer reten#on to the framework, but it does not capture the influence customers have on other customers and partners. Sa#sfac#on gets to some of the intangible dimensions of the rela#onship, but is a passive measure and does not explain nor predict reten#on. Assessing customer rela#onship has its genesis in quality assessment. Realiza#on that quality alone does not generate a sa#sfied customer.

How Is Customer Advocacy Measured? This unique, globally tested and verified framework (in both b2b and b2c verecals operaeonalizes advocacy behavior in customer experience and brand research. MulEple queseons are asked in a customer feedback survey and customer responses to these scaled items are used to classify them into four Advocacy groups and set the basis for in- depth analyecal insights. A full scale Advocacy baaery includes: l Customer favorability of brand l Future considera#on l Intensity of brand support l Use of online and offline social networks l Posi#ve and nega#ve brand buzz l Distribu#on of most recent purchases

Posi#ve and Nega#ve Things Said About Brand Past Six Months An advoca3ng customer speaks frequently and posi3vely about their experience and percep3on of the brand. Total Popula#on Total SoUware PosiEve Said 5.7 6.4 5.2 4.4 NegaEve Said 4.3 4.5 2.9 3.2 Advocates Total SoUware PosiEve Said 8.2 10.6 6.7 8.7 NegaEve Said 0 0 0 0

Customer Advocacy as a Segmentation Device, a Key Performance Metric, and Organizational Management Model

60% 45% 30% 15% 25% 13% à Alienated 12% 27% à Advocate 10% 37% 0% 60% 45% 30% 15% Bank A Bank B Bank C 59% 50% 46% 40% 35% 33% 5.4% 3.7% 2.5% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0% à Share of Wallet à Customer Retention à New Client Growth 0.0% Most sa#sfac#on research deals with customer reten#on and ignores effect of brand percep#on and word of mouth and resultant customer share of wallet, risk, and new client acquisi#on in their linkage research. Advocacy impacts all of these.

Impact of Advocacy Improvement Through Service Quality: Case Study of a B2B Client Share of Wallet/Retention 70% 60% 50% 40% Current ABC Bank Performance (22%) Achievable Target Over Next 3 yrs (28%) Retention Share of Wallet 30% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Percentage of Advocates

Rela#onship Afributes for B2B Services Company Swing Up (to Advocate)/ Swing Down (to Alienated)

Advocacy Segmenta#on: Profile of ATtudes (Top Two Box Ra#ngs) (Scale: 1 10; 9 and 10 Are Top Boxes) Critical Attribute Advocate Allegiant Ambivalent Alienated Brand Has earned my trust and confidence 81 28 6 2 It is a pleasure to do business with them 78 22 5 1 The bank is definitely for people like me 79 26 7 2 Staff Staff makes me feel like a valued customer 75 22 8 2 Staff are trained to offer reliable services 71 20 7 3 Staff follows up with information as needed 71 18 5 2 Value Proposition Breadth of checking and savings accounts offered 62 13 4 1 Variety of cards with different features suitable to you 53 11 4 1 Communication of different products and their features 60 13 3 1

Advocacy Applied to Customer Life Cycle Evaluation: Defected B2B Customer Advocacy-Based Research Example

Reasons for Defec#on Price is the most frequently stated reason for defec#on. Changes in business focus also fuel discon#nua#on. Though content is also men#oned, a closer look at the verba#m comments indicate that most ouen a business focus change rendered the content less meaningful, rather than a dissa#sfac#on with the content itself.

Building Customer Advocacy and Reducing Aliena#on Customer service 3% 3% Timeliness of information 1% 10% Usefulness of product delivery method 18% 5% Product quality 2% 6% Information content s relevance to your needs 2% 3% Competitiveness of pricing 2% 36% Billing accuracy 19% 2% Timeliness of problem resolution 2% 1% Licensing requirements 1% 4% Ease of doing business 4% 6% Reputation 23% 2% Market Leadership 2% 1% Understanding of your data/information needs 18% 6% Customer focus 2% 15%

Concluding Advocacy Value Message The benefits of building advocacy can t be ignored. Sa;sfac;on and loyalty are important, but they re old news. It s a new dawn in customer experience strategy, where the customer controls over 50 percent of the brand message. Forward thinking companies will be the ones that iden;fy and work with their customer advocates to genuinely build trust in the brand, the customer base, and the boeom line. Cul3va3ng Customer Advocates: More Than Sa3sfac3on and Loyalty 2011 Peppers & Rogers Group White Paper

Brand Passion Basic Premises

Passion is Not Just a Consumer or Regional Phenomenon Passion (Emo3on, Harmony, AQachment) is created by brands In all industries, geographies and buying sectors. B2B isn't as ra;onal as you'd think. Research in eight European countries found that B2B customer needs were both func;onal and emo;onal. Michael Dent, General Manager, Marke#ng DHL Express (UK) 29

Drivers of Passion for HP 30

Brand Passion and Customer Advocacy Linkage

What happens when Customer Advocacy and Brand Passion come together in the same person?

Conjoined Brand Passion and Customer Advocacy: Brand Bonding (Excited Advocates to Full Rejection)

Retail Bank Customer Research Monitor - Retention By Advocacy and Passion/Bonding (Green) and Rejection (Red) Brand Experience Segments Customer Experience Segments 79% 77% 31% 86% 24% 5% 68% 59% 5% 34% 24% 45% 7% 12% 3%

Retail Bank Customer Research Monitor Retention Market Probe 2012 Bank Monitor

Retail Study Across 23 Brands (Multiple Retail Categories)

Grocery Example Single Market, Cross Brands

Brands that Activate Bonded Customers.. Understand the human element of their business, are not afraid to tap into emoeons and relaeonships, and reflect the self Don t follow trends, but create them; decommodieze value Are hyper- responsive and anecipate market needs Empower their employees to take aceon in the best interests of the customer, and acevely interrelate with them Don't compete solely on commodity- based factors, such as price, but focus on a customer- centric culture to build and maintain trust

Customer-Related Publications and Contact Information Michael Lowenstein, Ph.D., CMC Thought Leadership Principal Beyond Philosophy www.beyondphilosophy.com Michael.Lowenstein@beyondphilosophy.com 856-283- 1182

Upcoming Beyond Philosophy Professional Training Courses Founda3on Customer Experience Management hfp://beyondphilosophy.com/training- courses/founda#on- customer- experience- management- cer#fica#on- program/ Advanced Customer Experience Management hfp://beyondphilosophy.com/training- courses/advanced- customer- experience- management/