The alchemy of business durability and profits

LBS alumnus Sikander Shaukat shares fresh techniques for the ultimate customer experience. Good customer experience improves profits, reduces costs and the reputation it accumulates over time ensures the long-term survival of a business. 

Business designers often make a fatal error. They assume they understand the customer needs and design on the basis of economics, standardisation and rationality, adopting a process approach. They can also extrapolate the last few year’s data, from the current operating structure, processes and selected data capture points, to predict future customer behaviours. This is wholly misguided. 

Firstly, customers use services based on emotional needs, friends and relationships, dependencies and values. Secondly customers obtain services based on their current wants, and will use services based on their changing wants in the next few years. Therefore, the homogenous service design is already outdated when the service delivery is implemented. Customers also group themselves in-line with varying behaviours (behavioural segments) and values (psychographic segments). Without the services being designed based on good primary market research into customer missions, empathy, value and relationships, the service is likely to be sub-optimal. 

Measuring for integrity

I’ve identified six metrics that together, provide the indicators for the organisation’s customer centricity and service health-check. 

1. Contribution. Return on sales and marketing spend 

This should be increasing. A hallmark of a customer-friendly organisation is that it becomes easier to sell, and less marketing spend is required to generate leads. This is because your business understands the needs of the customers better through listening, and so designed products are more targeted. This is also combined with the free promotion from increased word of mouth due to loyalty and empathetic service. 

2. Quality. Profitability per customer

A key benefit of improved services is that customers are more willing to acquire more products from your business. They will be treated well by your business. Hence, profitability per customer should be increasing. For example, people keep returning to John Lewis. So in the longer timeframe sales hit rates and productivity increase, and the cost of sales reduces. The ensuing word of mouth also reduces marketing and advertising costs, attracting the sought after segment prospects and leads more cheaply. Therefore, in the end the marketing costs reduce.

3. Loyalty. From past, current and future customers 

The two key questions: were you happy with the service? Would you tell your friends about our business? Each must have an increasing number of answers in the affirmative, and so be trending upwards. Defection management reduces costly customer churn. Based on behaviours and analytics an organisation can predict whether the customer is about to leave. Interventions are then created to understand the dissatisfaction, make the customer happy, and win back their custom if possible to do so. This is also very effective. BT ran a very successful ‘win back’ campaign resulting in 50 per cent reduction in defections.

4. Happiness. Morale and retention of front-office staff

Front-line staff feel enriched and fulfilled when they believe they are doing the right thing by the customer, and are not facing the customer’s objections, refusals, and displeasure the majority of their working day. Their morale begins to climb and productivity improves, not least because of less firefighting time. 

5. Focus. Of time and action in governance 

Executives would be focussing more time discussing and acting on customer issues. This trend should be climbing as a percentage of time spent on risk management, shareholder mood, regulatory compliance, mergers and acquisitions, and competitor activity. This focus is measureable using automation.

6. Complaints. Need to be going up

That is because customers now care enough about your company to participate in its success and complain. The concept of service recovery is interventions post a complaint or service failure. It is very effective in improving customer satisfaction and getting ideas for improvement. US retail giant Nordstrom once refunded a car tyre for an irate but regular customer, and they never even sold car tyres. These complaints offer insights from customers on where to improve services. They also offer opportunities in responding to them in an empathetic manner, creating increased loyalty.

Durable service orientation starts at the top 

A service is only as good as the service culture and governance in the organisation. No company can rise above its leadership. Therefore, if the management reviews, actions, and objectives are not customer and service driven, it is unlikely that a company would be customer centric and service friendly. Opposing and conflicting objectives and measures pull staff in different directions, affecting productivity and morale. This can damage shareholder value.

Scrap ‘transaction-oriented’

Analytical techniques such as market basket analysis (product holding) and propensity analysis (prediction to buy or leave) can be used to predict behaviours. This can then be used to create triggers (nudges) and prompts (product scripts but not detailed). Usually these are tied to campaign systems that provide list management, screening and cleaning, prompts and scripts, product or service features, pricing and discount plans, champion and challenger campaigns, process, ROI, and collateral management. Contact management or relationship management systems keep a log of multi-touch-point customer contacts. However, they are only as good as the integrity with which the organisation updates information. Some unethical geographies and outsourced operations can fudge information capture for gain. 

Another limitation is that automation and internet services provide no emotional connection and feedback for a customer – this can make it difficult to sell or to build loyalty. This is why these services appeal to the young, as they have no time, nor wish, to want to build a connection with a service provider. To alleviate this problem designers spend a lot of time in creating connections via emotional messaging on web services. They do this through exploring empathy maps and advertising-like communication.

Gold-mining in the customer base

Customer loyalty can be discovered through their lifetime value with the service provider. Their post sales service usage, as well as their product holding and discounts determine profitability. In most organisations, 20 per cent of the customer base is profitable, 60 per cent is marginal, and 20 per cent are unprofitable. At one stage in IBM, some of their largest and most important clients were marginal or unprofitable. 

The levels of profitability are one mechanism to segment the customer base. We want to retain (retention) profitable customers, we want to up-sell/cross-sell to marginal customers. We also want to minimise and crowd out the unprofitable customers that may be price switchers. Evaluating the profitable customers and the promising customers provide clues to the sort of customers an organisation wants to attract. 

Are you ready to join the human centric movement in designing services?