Customer Satisfaction & Loyalty vs. Quarterly Numbers—The Conflict
As the Senior Manager of Customer Experience, I found myself amidst an executive leadership conflict that had been playing out for a few years and way above my pay grade. The issue at hand was the conflict that debated the company priority: Customer Satisfaction or quarterly numbers. The head of sales and marketing and the head of services aligned with all the reasons why Customer Satisfaction and Loyalty had to be the company’s number one operating pillar. The company President, and those who did not have direct day-to-day customer engagement, and whose responsibility was to fulfill shareholder expectations, insisted that the top priority were the quarterly financials. It is indeed hard to argue with the individual in charge, not to mention everything we all learned in business school, but it put those of us who were managing innovative CX programs to gain in-depth customer feedback and insights into a somewhat unsupported and somewhat helpless and potentially vulnerable position. Our stated business case that quarterly objectives were less likely to be achieved without taking care of customers drew nods but little change in perspective. The analogy of pushing wet spaghetti up a hill was often raised.
In 2004, D. Randall Brandt at Burke, Inc. wrote in his paper Burden of Proof, that, “conventional managerial wisdom holds that attending to customer satisfaction, value, and loyalty makes good business sense because it leads to repeat purchasing, increased share of wallet, positive word of mouth, and a number of other behaviors that enable companies to achieve desired business results.” But “…at some point, no matter what their stated beliefs or commitments, senior managers, employees, and shareholders will demand evidence of the bottom-line impact of customer satisfaction, value, and Loyalty.” Herein, illustrates the chicken-and-egg debate: what is more important? Or better asked, which comes first, the monthly numbers or customer satisfaction? And furthermore, how can a CX program be justified?
Compelling Arguments for Justifying CX Programs – the Dreaded ROI Question
Those of us who have experienced the dreaded question, “What’s the return on investment for your program?”, have searched for a compelling argument for justification. The investment in vendor and program management costs are often the first to be eyed when costs need to be trimmed during a business downturn or recessionary period because a return on investments is hard to quantify. And although few disagree that customer satisfaction, value, and loyalty are necessary for any successful business, there is an agreement that there are indeed ways to put an ROI value on a CX program.
How Behavioral and Attitudinal Swings Affect the Bottom Line
In every sales and or service annual forecast, potential or existing customers are labeled with a financial value, usually determined by past business and/or customers’ potential future activity. The opportunity for more business and, more importantly, the risk of losing this forecasted business can be easily disrupted by a change in three factors: customer’s attitude (Overall Satisfaction with the company), and/or their behavioral intentions (propensity to repurchase and to recommend the brand to others). The volatility of dollars gained by or lost to these behavioral or attitudinal swings hits the bottom line, but an early-warning system that monitors the security of these factors and the overall customer relationship, and that highlights the financial impact (gain or risk) of a change to customers’ attitude and behavior, is certainly worth the investment. When the three factors are indexed on a scale of 0.0 – 1.0, there are four segments that indicate the security of the relationship—Secure, Favorable, Vulnerable, and At-Risk. The graph below shows the indexed scores of the three factors and the corresponding levels of security.
For example, a customer who has been a loyal advocate, and who has expressed positive intentions for future business may be termed Secure, in an index (0.9 – 1.0) of the three factors. Another customer, who may once have had a financially positive relationship with the company, but who may have recently experienced negative product or service issues that resulted in reduced spending and an unwillingness to commit to future business, would be termed At-Risk. If each of these customers represents $1M in annual revenue, and the potential loss of the At-Risk customer could have been avoided by a prudent Customer Experience management approach, then the return on the investment in a CX program here is the preservation of $1M. In the case of a Secure customer where a robust CX program monitors the three factors, and it helps to guide the best and current business relationship practices, the $1M customer value may be confidently preserved and potentially grown over the customer lifecycle resulting in far greater ROI.
The Secure Customer Index (SCI) Model Provides Financial Linkage
With any theoretical models like this, there are caveats, skeptics, and arguments. Some may say that customer behavior is not always completely accurate, or that this model could not predict every dollar gained or lost. But while these doubts may be valid, this Secure Customer Index approach does present a logical and reasonably accurate ROI model using the linkage between Assumptive (forecasted) financial data, and the premise that a loyal customer’s satisfaction, intent to repurchase, and likelihood to recommend the brand will yield positive results. All things being equal, and excluding extraordinary events that preclude customers’ buying intentions, the relatively small investment in a Customer Experience program to effectively monitor the linkage between a customer’s attitude and intentions, and their financial expectations, will pay off exponentially by mitigating loss, identifying opportunities, and strengthening customer relationships.
Peter Swaim – V.P. Marketing – HorizonCX, LLC. | March 2021