Optimizing Customer Satisfaction: From Insights to Actions to Results

In a competitive environment, customer satisfaction is crucial to long-term profitability. Given the opportunity to choose, customers whose needs or desires are not met will simply seek to make purchases elsewhere. There is often disagreement, however, about how best to measure customer satisfaction and, more importantly, what specific actions to take to improve it. While most companies look hard and often at tangible assets, it is clear that to improve financial performance they also need to spend more time analyzing their most valuable, albeit intangible asset their customer base and to do so based on the proven methodology developed by CFI Group.

2006 CFI Group. All rights reserved.

The Battle for Hearts and Minds

Business success is largely determined by who wins the battle for the hearts and minds of customers. This has been proven in more than 12 years of customer satisfaction research studies performed by the National Quality Research Center (NQRC) at the University of Michigan using the methodology developed by CFI Group. It has also been consistently demonstrated in the quarterly publication of the American Customer Satisfaction Index (ACSI): those companies that systematically monitor and improve customer satisfaction levels consistently exhibit more stable cash flow and greater gains in shareholder value. Success: Beating competitors at meeting customers most valued needs Though some customers may simply choose the best price, or merely avoid the cost of switching despite being dissatisfied, most use a multi-dimensional approach when choosing products and services and consider a myriad of factors, including everything from past experiences to current perceptions. Even though a companys relationship with many of its customers is fragile and a single disappointing experience or violation of trust can destroy years of prior exceptional service examples of relationship destroying or diminishing practices are nonetheless rampant: Being placed endlessly on hold or becoming hopelessly lost in an interactive voice response system Having a sales associate who neither understands the product nor cares whether you buy it Getting charged overage minutes on a cell phone plan or punitive fees on a home equity loan The business justification for any customerfocused strategy should ultimately hinge on whether it creates or maintains a competitive advantage. Given the nature of modern competition, merely hoping to retain a competitive advantage is no longer an option; competitiveness is ultimately achieved only by continually monitoring the customer base and improving those aspects that have the highest rates of return. Companies fighting for a share of their customers wallets must strive to increase both their real and perceived value to them. Satisfied customers produce additional revenues because they are more frequent purchasers, less price sensitive, and more likely to recommend that company and its products to others. Satisfied customers also cut down on expenses: they return fewer products and reduce marginal sales, marketing, service, and warranty costs.

Measurement Fallacies
Many firms rely on traditional market research; that is, they simply ask customers what they consider to be important. Some even advocate using a single measure, such as a customers
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willingness to recommend the company to others. This simplistic approach is the equivalent of a school system providing a report card that contains one single grade. You know
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your childs C is better than a D and worse than a B but you wouldnt know if its in history, biology, or physical fitness and, worse yet, neither you nor your child would have any basis for determining how that performance (or performances) might be improved. Simplistic approaches dont provide significant value because they dont gather the detailed information necessary to taking relevant action:

how, specifically, to optimally invest in operational processes that improve customer satisfaction, not for the sake of improvement in general but rather in a manner that is tailored and known to maximize long-term profits. Every method of measuring and analyzing customer satisfaction must be evaluated based on how well that method suggests specific actions to improve the economic value of the customer relationship.

Optimize to Maximize
The age-old maxim, the customer is always right, isnt used so much any more not when customer loyalty can be sustained by merely reducing costs and over-servicing complaining customers. But this method of maintaining loyalty has its pitfalls, as perhaps best exemplified by the approach most recently used by American automotive companies. While struggling for years to keep pace with the satisfaction levels of their foreign competitors, they managed to buy loyalty with on-going discounts and rebates. But over time their methods caught up with them, resulting in dwindling market share and severe declines in profitability. The balancing act in any customer satisfaction decision involves satisfying customer expectations while also improving financial results. It would be fine to say, no dissatisfied customers, no matter how unreasonable the customer expectations, but at what cost? Optimized, not maximized, customer satisfaction, where diminishing returns and financial impacts are considered, is the key to any reasonable customer satisfaction solution.
2006 CFI Group. All rights reserved.

There is always a point beyond which the cost to increase satisfaction outweighs the additional revenue and profit it would produce. The 80/20 Rule It is well known that customers dont contribute equally to profitability yet profits earned from a companys best customers are still often spent on servicing and even over-servicing its least profitable, and sometimes unprofitable, customers. The impact of this misallocated investment cannot be fully understood or alleviated without identifying customer segments that can be profitably satisfied. Investments in customer satisfaction without regard for customer segmentation are not only unlikely to accomplish financial objectives but they also undermine the potential linkage between customer satisfaction and profitability. Aligning Operations with Customer Expectations There are many events in each customer support process from purchase, to service, to repurchase that are important to effectively meeting the ongoing needs and expectations

of customers. The customer experience is an amalgam of many things, some of which are more important to satisfaction than others. The crux is in knowing not only what is most important but also what specific actions will satisfy customers so that returns on investments are maximized. Consider the contact center experience as an example: Hearing the voice of a friendly and knowledgeable representative after only a three minute wait would most likely meet or exceed most customers expectations. If, however, it took 15 minutes to hear from that representative, any goodwill that may have existed at the time the call was made would likely have been totally destroyed during the wait. But each event has a cost-benefit trade off that says, waiting three minutes is fine, but

more than that So what about five minutes? Or ten? Or how about two? While customer expectations should be consistently met, they should not necessarily be exceeded. One might think that if customers are happy with a three minute wait they would be thrilled with a wait of two minutes but the benefit may not justify the cost: customers may be perfectly willing to wait for three minutes and attending to them more quickly is of no consequence whatsoever. So the company might waste time and money to exceed expectations and reduce average wait times, but customers simply wouldnt be any more satisfied and more importantly wouldnt spend any more money. Expectations would be exceeded, but unprofitably so.

Proven Methodology Delivers Results

Three major objectives are essential to an effective customer satisfaction methodology: 1. Insights. The methodology must provide insights into the situation; i.e., what do customers value, what are customer expectations, what alternatives do they consider, and how can they be compared? 2. Actions. Armed with these insights, it should be clear what actions need to be taken; i.e., where and how much to invest? Which investments provide maximum return? Or, if cost-cutting is necessary, where can cuts be made with minimal impact on customers? 3. Results. After improvement programs have been implemented, means of measuring and reporting the results should be assured. Were the expected results achieved? What was the actual impact and financial return? How is
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feedback utilized in a continuous improvement program? What new sets of investment priorities or adjustments should be made? To support these three objectives, CFI Group has perfected a methodology that contains each of these essential elements and has implemented it with great success on more than 7,000 client projects over the past 14 years. To ensure maximum reliability, validity, and comprehensiveness, CFI Group recommends a six-pronged approach involving: (1) business assessment; (2) customer research; (3) survey and model building; (4) action planning, (5) quantitative research and (6) managing customer value. This is a proven formula that has consistently delivered meaningful and reproducible results.

2006 CFI Group. All rights reserved.

1) Business Assessment CFI Group performs this preliminary step to refine the objectives and key deliverables for the client. Secondary research is used to build upon and synthesize prior research. Additional informational needs are developed including: Identifying current customer strategies and business issues Understanding a heterogeneous customer base and segmentation Developing a substantive knowledge of the competitive environment Designing the qualitative interview guidelines for in-depth interviews with customers Determining how performance measures will be represented in the analyses

2) Customer Research In its qualitative approach, CFI Group takes Voice of the Customer to a new level by using a combination of the latest social-psychological techniques to validate customer perceptions. CFI Groups methodology relies on a narrow lens approach that identifies and categorizes relevant factors and re-groups information into a subsequent model, thereby maximizing the information gained from interviews. CFI Group consultants are experts in the application of the following techniques: One-on-one interviews. This approach eliminates the strong voices bias effect of focus groups. Open ended, semi-structured interviews. CFI Group consuletants ask about issues mentioned in secondary research and management interviews while still leaving open the opportunity to discuss top-ofmind issues. This helps identify relevant factors that might otherwise go undetected. Metaphors and narrative accounts. CFI Group consultants give customers opportunities to tell stories, use metaphorical descrip-tions, and offer various other experiences. These innovative socialpsychological research techniques and conversational interviews enable customers to relax and converse as they might with a friend.

Insights
2 Customer Research 1 Business Assessment Mgt. objectives Customer strategies Competition Manage Customer Value Segment attractiveness/ competitive position Portfolio mapping Financial Resource Quantification 6 allocation

Segmentation Voice of the 3 Customer Survey and Preliminary cause Model Building and effect

Customer surveys Predictive modeling Analysis

Results

Action Planning Process mapping Alignment of processes Develop action plans 4

Customer cost drivers Baseline measures Segment-based ROI 5

Actions

2006 CFI Group. All rights reserved.

3) Survey and Model Building Customer surveys are designed and put in place to collect important aspects of the customer experience. CFI Group uses phone, email, IVR and web-based survey methods, in addition to paper-based surveys when appropriate. The survey data is used to build a predictive model of customer satisfaction and loyalty. This model is then used to establish the relative impact of drivers of customer satisfaction across the various customer segments to identify improvement targets. CFI Group is committed to minimizing data collection costs for its clients in two ways: a) our unique analytical models deliver accurate and precise results using smaller sample sizes than other alternatives, and b) data collection is often contracted to an outside company and billed to the client at cost. 4) Action Planning Insights alone are helpful only to a point; the company must also know how to turn them into a readily implemented action plan. CFI Group uses these advanced predictive models to provide a proven approach to determining cause and effect relationships. Each causal and predictive relationship is tested, validated and finalized prior to implementation. Without a predictive model that links business measures to business outcomes, there is no meaningful way to determine and apply the actions to be taken.

5) Financial Quantification The model portrays customer perceptions of service, product, and price driving satisfaction, which in turn drive retention, share of wallet, likelihood to purchase other products, and ultimately financial performance. Results are delivered in terms of scores and impacts. This process identifies not only those business process dimensions most valued by customers but also where improvements offer the greatest financial returns a key missing ingredient in many other customer satisfaction programs. This financial quantification is used to determine the impact of customer satisfaction on ROI using a customer life-time value basis for each customer segment. 6) Manage Customer Value Recommendations are developed based on the qualitative and quantitative findings. These blended recommendations are presented as a matrix according to their score and relative impact in driving satisfaction and behavior. This balancing of scores and impact by customer segment determine the priorities for focusing investments on areas with low scores and high impact based on the most reliable, quantifiable and action-oriented predictive model available. Maximizing the financial results requires establishing key performance indicators (KPIs) to provide guidance and performance measurement toward specific goals. The KPIs are linked to attributes in the survey and, over time, are used as early indicators of performance improvements or declines. These satisfaction drivers are monitored on an ongoing basis and continuously refined.

2006 CFI Group. All rights reserved.

Time for Action and Results

The precision with which information is gathered, analyzed, and modeled has significant impact on managements ability to gain insights, plan appropriate actions, and achieve and measure their results. Insights must precisely inform actions, with precise knowledge of their likely financial impact and return on investment. Since the CFI methodology is both more effective and more predictive of actual financial results, its clients are better able to comprehend the meaningful associations between their business processes and other factors affecting customer satisfaction, and can do so with greater accuracy and confidence than if they were using any alternative method of analysis.

For further information please contact: Lisa Renaud Director of North American Sales CFI Group 734.623.1355 (Direct) lrenaud@cfigroup.com www.cfigroup.com

2006 CFI Group. All rights reserved.