Moving beyond satisfaction
Editor's note: Douglas Malcom is the chief analyst at Market Directions, a Kansas City, Mo., research firm. Susan Spaulding is founder and president of Market Directions.
Jones and Sasser (1995, Harvard Business Review) teach that satisfaction is only one component of a sound, holistic assessment of a company's relationship with its customers. There are satisfied customers who in fact defect. At the same time, there are dissatisfied customers who stay with a company. So, while tracking satisfaction levels definitely has a role in developing customer loyalty, these measures alone cannot help companies create long-term, profitable relationships with their customers.
For companies to be successful in the Information Age, they must move toward an integrated customer development approach that combines customer lifecycle marketing and comprehensive customer development processes. Identifying the myriad factors influencing loyalty, utilizing the appropriate tools to evaluate those factors and knowing how to implement research results are essential to developing satisfied, loyal - and most importantly - profitable customers.
Beyond satisfaction: customer lifecycle marketing
Understanding the customer relationship lifecycle is a critical first step in unlocking the profit potential of a company's customer base. It is a well-established fact that a majority of a company's profits come from a minority of its total customer base. Given shrinking marketing dollars and a tight economy, it is imperative that companies move customers along the relationship lifecycle more effectively (see Figure 1) by carefully examining the evolution of their customer base as well as targeting areas for customer development improvement.
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Customer relationship marketing is based on the premise that customers move through a consistent pattern of development from information seekers to users and finally to loyalists. During the early stages of the lifecycle, companies have to focus on awareness and customer attraction, while during the latter stages, customer retention and increasing share of wallet are key. Assessing the company/customer relationship at each lifecycle stage can provide fundamental insights for the creation and maintenance of strategic customer development processes.
- Brand promise. The behavior of information seekers is one the best ways companies can gauge their level of brand awareness and consideration. At this stage, marketing communications efforts need to be evaluated for their ability to effectively inform and attract new customers, as well as deliver new brand positioning messages. In short, companies need to know if a clear value proposition has been communicated and whether it has made a connection with customers' needs.
- Brand experience. Many important barriers have been overcome when a consumer tries a company's product or service. However, moving a first-time buyer further along the relationship lifecycle hinges upon the company's ability to minimize flight at any number of defection points. During these retention and growth stages, it is vital that companies identify whether their brand promise is in alignment with what the customer experiences. Therefore, brand equity and brand value measures must be evaluated along with satisfaction and advocacy diagnostics. These measures combined give companies a multi-dimensional view of how seekers, users and advocates progress through the relationship lifecycle, and can help identify issues associated with the company's brand promise and/or brand experience.
- Ongoing performance evaluation. Key brand, loyalty, and satisfaction metrics tracked over time give companies a competitive advantage and help them avoid the "reactionary" marketing trap. By contributing sound and thorough customer interaction information, these metrics also play a central role in the creation and enhancement of a company's customer development processes.
Customer development: customer relationship strategy and execution
Using customer lifecycle marketing as a road map, a company's customer development strategies can be evaluated within a defined context, and altered or enhanced accordingly. Customer development strategies should be oriented around a validated value proposition relevant to each target market. Strategy execution should then be customized for consumers according to their position in the relationship lifecycle.
- Strategy development. One of the first initiatives in strategy development needs to be the identification of target markets and the segments within each market. Companies should not only carefully examine their existing markets, but those where customers might be reached through brand alignment or cross communications efforts. Even though a company's target markets may seem obvious, different psychographic and demographic subgroups likely exist within each market structure and should not be ignored.
Another primary step in strategy development is setting marketing and sales objectives. While this is a common practice in most organizations today, its focus is often misguided. The prevailing approach has been to capture the most dollars from each transaction rather than the greatest share of wallet through the lifetime of each customer. Consequently, sales goals should be set with the idea of advancing customers toward greater lifetime spending and overall value.
Communications objectives are also an important component of developing a comprehensive customer development strategy. Because the vast majority of interactions with customers are communications rather than transactions, companies need to commit resources to every customer touch point and establish service goals and metrics.
- Communications planning. Integrated marketing principles hold that the execution of all types of advertising and promotion should support a common objective as well as the positioning of the company or brand. As Larry Percy notes in his 1996 book Strategies for Implementing Integrated Marketing Communications, advertising, public relations, purchasing, sales promotion, and employee communications must work in concert to effectively sway customers and important category influencers. In the Information Age, this means blending the use of traditional communications tactics with those available through the Internet. E-mail and direct mail should be used to maximize reach. Web site creative needs to be consistent with print, television and radio campaigns. Banner advertising should carry the same messages as billboards and bus signs.
At the same time communications tactics are being aligned, companies should focus equally on crafting and/or validating their value proposition. The composition and attractiveness of offers must also be carefully considered. Now more than ever, it is imperative that companies communicate a unique business rationale that connects with customers' values and needs.
- Strategy implementation. Effective execution of a customer development strategy requires a communications master plan designed to reach prospects, largely through indirect channels, and customers through direct channels. Print, Web site, electronic media, public relations and point-of-sale channels should create awareness and attract information seekers by delivering the brand promise. Sales force contacts, e-mail and e-newsletters, direct mail, retail store and customer service efforts need to center on retention and growth by building customer confidence and satisfaction.
The foundation for effective strategy implementation requires that a company's data and technology infrastructure be viewed as an investment and a valuable tool for marketing decision-making. Transaction data, contact data, campaign response data and third-party intelligence should be captured on an ongoing basis. These data must then be integrated and evaluated, and most importantly maintained in a multifaceted marketing database. Information extracted from this disciplined approach can help companies identify prospects' specific needs, the habits of their existing customers, as well as the communications channels and specific offers that achieve the best results. Furthermore, a properly designed system allows for a higher degree of marketing automation though consistent message management and content organization.
Deployment that delivers: making the relationship work
Lifecycle marketing combined with strategic, well-executed customer development systems still aren't enough to create long-term, profitable relationships with customers. Making the relationship work means companies have to reach out to customers in each market structure, listen closely to their feedback, and improve processes to meet their needs. Companies also need to recognize the critical role their workforce plays in achieving customer loyalty and profitability.
- Customer constituencies. The best firms know that their existing customer base offers a rich resource for communications and process improvement initiatives. However, a number of other important customer constituencies need to be considered.
One example would be customers who have chosen to take their business elsewhere. Getting to the bottom of why they defected can provide significant insight into company processes, but getting to the true causes for defection can often be difficult. Prospects offer a different set of insights. Their external views of a company or its brand render valuable information concerning areas of untapped growth potential. Customers of competitors offer yet another important point of view. Already category users, they have chosen to not do business with the company. Their feedback can provide key learnings about competitive positioning and market-share potential.
- Listening to customers. Paying attention to what the various customer constituencies are saying is not a novel concept. However, listening to the customer about sales and service as well as marketing and product issues is not quite as common, as David Stowell notes in his 1997 book Sales, Marketing and Continuous Improvement. Having a customer focus that moves beyond mere satisfaction requires an integrated approach to listening to customers. At every customer touch point, from sales to service to billing, companies must ensure their representatives are trained to assess customers' needs. Customers want to be heard and it is up to companies to listen.
- Expectations and requirements. Companies should listen just as closely to customer expectations and requirements. For example, customer satisfaction scores can appear flat over a period of time despite a company's process improvement efforts. One cause may be that the company is not attuned to rising service or product expectations. Identifying whether customer expectations are increasing, holding steady or falling in an industry or category can significantly affect the strategy of any number of customer loyalty efforts.
Requirements are generally information about the company's product or service that the customer needs in order to buy. However, customers can have different levels of requirements. A customer's so-called latent requirements are those unspoken assumptions about the nature of the product, service or company interaction. Therefore, it is up to a company's sales and marketing staff to listen carefully to what customers are saying so that stated and latent requirements are clearly understood and customers' needs are met.
- Feedback mechanisms. There are numerous methods companies can use to gain feedback from their existing customer base, prospects and other constituencies. One-on-one interviews, focus groups, telephone and Internet surveys, customer complaint systems, mystery shopping, and sales force questionnaires are among the many tools available. Companies that stand to learn the most utilize a combination of these feedback mechanisms to gain a holistic point of view from across their customer constituencies.
- Continuous process improvement. Companies cannot overlook how vital their employees are to advancing customer loyalty and profitability. Firms committed to best practices and continuous quality improvement recognize that their employees are the agents of change. As such, these companies foster a collaborative work environment with mechanisms in place that invite input from every job function and level. Quality improvement processes are also measured and outcomes evaluated so that results communicated to employees are actionable and lead to further problem solving.
- Management commitment. Management's top job in the customer-development equation is to set the tone and expectations for the company's customer focus. Management needs to continually emphasize the company's vision and its mission, and interact with employees in ways that reinforce core values. By the same token, management should have feedback mechanisms in place to recognize when employees become disconnected with the company's vision and mission. The same goes for employee satisfaction and loyalty. Management must remember there is a fundamental link between employee loyalty and customer loyalty. The relationship is mutually reinforcing; satisfied customers contribute to employee satisfaction and vice versa.
Complex interactions
Developing satisfied, loyal and profitable customers involves a myriad of complex interactions between a company, its target markets and its employees. Companies that hold a unique view of their customers and use information to interact with them across all channels in a personal, relevant and timely way have a big edge in advancing each customer to greater lifetime spending and overall value.
Companies wanting to move toward an integrated customer development perspective have to move beyond customer satisfaction metrics. These companies must embrace a multi-dimensional approach to understanding the evolution of their customers. They must also recognize that creating strategically sound communications and loyalty-development processes require a commitment to an ongoing research discipline. Finally, these companies have to invest in technology that supports all strategic decision making through data collection, integration and evaluation.
Additional reading
Davis, S., and Meyer, C. (1999). Blur: The Speed of Change in the Connected Economy. Reading, Mass.: Perseus Books.
Gale, B.T. (1994). Managing Customer Value: Creating Quality and Service that Customers Can See. New York: The Free Press.
Jones, T. and Sasser, W. E. (1995). "Why Satisfied Customers Defect," Harvard Business Review, vol. 2, 88-99.
Peppers, D., and Rogers, M. (1993). The One to One Future: Building Relationships One Customer at a Time. New York: Currency Doubleday.
Percy, L. (1996). Strategies for Implementing Integrated Marketing Communications. Lincolnwood, Ill.: NTC Business Books.
Riechheld, F. R. (1993). Loyalty-based Management. Harvard Business Review, vol. 2, 64-73.
Stowell, D. (1997). Sales, Marketing and Continuous Improvement: Six Best Practices to Achieve Revenue Growth and Increase Customer Loyalty. San Francisco: Jossey-Bass.