|Guided by feedback: Measuring customer engagement (August 2008)|
Customer engagement— loosely defined as measuring how much you customers adore you—grows as an indicator of success. Just how is it being measured?
Customer engagement is one of those seemingly squishy marketing concepts grown out of the social internet phenomena and Web 2.0, which has surprising precision and heft once you spend some time with it. In webland, the client who is engaged interacts with your site often and buys what you have to sell there; he or she may be opinionated and free to offer personal views, blog on the industry you serve, or otherwise spend quality personal time thinking about your company. In this sense, engagement is measured by metrics like click-through rate, duration of visit, and percentage of repeat visits.
In broader terms, the engaged customer is a pleased customer. (Although definitions differ on this, the engaged customer, according to Gallup, has an emotional attachment to the brand and generally incorporates it into his or her self concept.) He or she becomes a regular—and possibly an advocate.
Net promoter score examined
A loud and proud metric in this broader field of engagement analysis is the Net Promoter Score, which was developed by Fred Reichheld, founder of Bain’s Loyalty Practice and the NPS Loyalty Forum, a community of practitioners.
Reichheld, who spoke at the recent Forrester Financial Services Forum in New York, offered a simple explanation of the score. “What we found was that the Golden Rule applied to business,” he said. “‘Treat people the way you want to be treated’ is not only an ethical way to operate, it can yield a payoff.”
Customers who perceive that value in the product was enhanced by fair treatment and good service buy more. When a bank combines NPS information on loyalty with information on customer profitability and other segment data, according to Reichheld, the bank can glean insight about what’s working and what isn’t, supporting necessary strategic shifts. The score also lets a bank leverage its customer service and retail delivery spend to boost profits.
Important to banks
Having engaged and loyal customers is important to banks, which face a tough economy and, according to Forrester Research, have received the lowest Customer Advocacy Rankings in the five years that the firm began looking at it. “The subprime mortgage crisis and a sagging stock market has consumers feeling less confident about their financial position,” says Bill Doyle, vice-president and principal analyst at Forrester Research. Banks that continue with status quo operations and a product focus will remain on shaky ground.
But, as bankers realize, even when the grass was greener and accounts had more green, many consumers were said to view retail banks as typically interchangeable and serving up of commodity fare. Leaders in the field—Wells Fargo and Wachovia come to mind—have gradually reworked operations to better enable awareness of the customer’s perspective, in part, admittedly to make their cross-sales campaigns work. Yet, both have pushed to improve service issues via better channel integration, and generally, more consistent customer experiences across the channels.
In short, these and other leaders have tried to “be all they can be” for consumers, but loyalty isn’t easy to come by. And perhaps this is why there is more attention being paid to measuring non-financial feedback from customers: those who manage to get it right—the process and the loyalty—will have something.
“Measuring factors like loyalty, customer engagement, and customer satisfaction is becoming a popular idea,” says John McHugh, a New York-based managing partner, Financial Services CRM practice with Accenture. “You’re beginning to see more dashboards being developed to, in effect, link customer service insights to other measures,” he says. Banks, he explains have long known that happy customers are important to success, but only now is the industry in the first wave of formalizing how this intuitive truth translates into harder measures of success.
The space is still emerging, with multi-application “enterprise marketing vendors” such as Aprimo, Oracle, and Unica offering applications within their suites, and niche players such as CustomerSat, MountainView, Calif., People Metrics in Philadelphia, and Satmetrix, Foster City, Calif., offering score development. IBM, in recent years, has been working with a concept similar to NPS it calls a Customer Advocacy Framework, which helps bank customers refine behavior-based segments and steer strategy based on customer feedback. Gallup Consulting, with its HumanSigma methodology, is also seeking to render systematic the ways in which companies measure both employee performance and customer response to a given strategy.
Accenture recently released research based on work it did with Satmetrix, which bills itself as “the Net Promoter Company.” The two companies did an internet-based query of 3,500 customers representing 16 banks. Accenture looked at loyalty and value creation measures such as: 1. a willingness to continue doing business with the bank; 2. likelihood of recommending bank; 3. likelihood of choosing to do business again with the bank, as well as 4. plan to purchase additional services; and 5. overall bank satisfaction.
Out of these, Accenture found that net promoter most strongly correlated with loyalty. And yet, among the group surveyed, only half indicated that they would recommend their institution to others.
Accenture isn’t recommending that banks make indiscriminate improvements. “Of the highest performing banks on customer satisfaction scores, one quarter of that group indicated that what they spent on sales, service, and product delivery didn’t resonate with their customers,” McHugh explains. Said differently, of the total amount spent to make customers happy, 25% missed the mark and didn’t result in organic growth.
Accenture’s research suggests some customers aren’t worth investing in, either because they are unlikely to leave, will leave anyway, or are not aligned with a target segment. The consultancy advises banks to align brand messages, experiences, and capabilities to meet certain segment objectives and use measures like NPS to make adjustments to the program.
As to how to use scores, McHugh advises that bank marketing teams pick a few metrics, stick with them over time, and supplement them with focus group research and other forms of frank discussions with clients. That’s because scoring systems can be “gamed,” as was openly acknowledged among advocates of NPS.
“If you are coaching your customers to give a certain score by, for example, ‘guilting’ them into it, the way I saw an employee doing at one car rental agency, what you wind up with is meaningless,” Reichheld said good naturedly.
“There has to be integrity in the process.”
Sunny Banerjea, global solutions executive, IBM Banking Industry, based in Plano, Tex., says that top tier banks have been measuring general satisfaction for as long as a decade. He indicated when he worked at a money center bank years ago, it was common to outsource customer satisfaction scores. “What’s different now is a linking of satisfaction to other key metrics within the institution,” he says.
“In addition, banks are trying to build internal expertise and really understand how loyalty, profitability, and cross selling ratios interrelate.”
Using customer opinion as a guide
One NPS advocate is Walter Bettinger II, president and CEO, Charles Schwab & Co. who also spoke at the Forrester Conference in New York. He admitted that Chuck Schwab’s shareholder position gave senior management the leverage it needed to put a significant portion of revenue at risk by eliminating the “bad profits” that come from sources like nuisance fees or from the practice of attracting short-term only customers from giveaways and a seasonal campaign. It let management realign incentives and reward a different sort of behavior, one that embraced the customer. “We realized that we were sending the wrong message to loyal, existing customers by making special offers to the new ones,” said Bettinger.
Among the investment firm’s well-heeled customers, surprising feedback surfaced. “We had wealthy clients ask us about fees that they didn’t have to pay, but saw that they were bothered by what we charged less wealthy clients,” says Bettinger. “That’s when it became clear that we were being judged not only on our interactions with a given customer but our interactions with all customers.”
Bettinger explained that the firm began the gradual process of recalibrating product pricing and retail deliver about two years ago. It has relied on analysis and net promoter score to help guide its adjustments. “With strong top-down commitment, you can institutionalize practices that put you and the customer on the same side,” says Bettinger.“ You can do well by doing good.”
While a quick scan of marketing related blogs shows that not all the pros are equally enamored with the net promoter score (perhaps its fairer to say that several have pointed out that it is, after all, just one measure of several), the method definitely has a following. Reichheld himself mentioned the criticism. “I’ve read that NPS is too simple,” he said. “I’ve read NPS doesn’t paint an accurate enough picture of who the brand advocates or detractors are,” he said. “While vigorous measurement is required and root cause analysis needs to occur as part of the exercise, the information you get from a net promoter score is a good proxy into how that revenue is being generated,” he explained. BJ
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