Trends in Customer Satisfaction, Loyalty, and Value

Bradley T. Gale
Trends in Customer Satisfaction, Loyalty, and Value
21st century
growth company
Customer Value Analysis and
Voice-of-the-Customer Initiatives
Customer
Value
- Meeting critical
needs of targeted
customers
Customer
Satisfaction
Conformance
Quality
- Providing what
customers want
- Delivering what
we promise
- Responding to
customer
complaints
Customer
Loyalty
- Outperforming
competitors
- Retaining our
customers
- Creating new,
unique benefits
- Getting them to
recommend us
- Meeting standards
© 2 0 0 0 Customer Value, Inc.
____________________________________________________
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Trends in Customer Satisfaction, Loyalty, and Value
by
Bradley T. Gale, President, Customer Value, Inc.
A major trend of marketing in the 80s and 90s has been increased emphasis on decisions
made with data, rather than from the "top of the head." Leading-edge companies increasingly seek
ways to measure customer satisfaction, loyalty, and value, as a means for setting strategy and
growing revenue and share. This trend has been accelerated since 1988 by the Baldrige National
Quality Award, which places considerable weight on customer focus and satisfaction.
There's an evolutionary shift in customer metrics that is moving way beyond the early
measures of satisfaction toward metrics that enable a business to compete more effectively in its
targeted market.
Getting started: Customer Satisfaction
Customer satisfaction measurement typically begins when a company realizes that their
customers are the people who provide the revenues that, hopefully, will cover expenses. Most
companies start by establishing a customer satisfaction baseline. Then they target year-by-year
improvement. Often they use a five-point scale and track the percentage of respondents in the “top
two boxes" -- the people who rate them at 4 or 5 ("Satisfied" or "Very satisfied").
Typically, the first two or three survey waves yield insights, action, and improvement in
customer satisfaction scores. But, soon the insights fade and customer satisfaction scores flatten
out.
Making some adjustments: Customer Loyalty and Retention
At this point, practitioners usually probe for better metrics. They examine how customer
satisfaction scores are related to loyalty intention scores like “willingness to repurchase” or
"willingness to recommend." Naturally they find that top-box respondents are more likely than
second-box respondents to say that they will probably repurchase or recommend.
Some companies switch to tracking top-box customer satisfaction scores. Others begin to
focus on loyalty intention measures. Still others begin to use indices that combine elements of
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customer satisfaction and loyalty. But what they all really want is to attract and retain targeted,
profitable-to-serve customers.
Some companies (like Cadillac and AT&T during the 1980s) observe that while their
customer satisfaction scores may be very high, market share is slipping. Other companies worry
about the difference between loyalty intentions and retention experience.
Some practitioners probe deeper. Will our “satisfied” customers be loyal if a competitor
provides better value? If the answer is “no,” they begin to focus on loyalty. Then they probe even
deeper. Will our “loyal” customers stick with us if a competitor provides better value? Again the
answer is "no" or "probably not." Why should a customer who intended to be loyal stay with us if
someone else provides better benefits (product, service, relationship, image) at the same or lower
cost than we do? How do we get at the drivers of actual retention, rather than measures of intended
loyalty?
Companies that have many branches or locations, like retail banks, have studied why some
branches have higher retention rates than others. They find that the units with higher retention rates
perform better on key criteria that customers value than do branches with low retention rates.
Branches that underperform lose more customers to competitors. Customer retention rates--and
attraction rates--are driven by the customer’s perception of the value of our offering relative to
competitors.
Moving toward the state-of-the-art: Customer Value
Many practitioners are bombarded by books and speakers using customer oriented phrases
like customer focus, customer satisfaction, customer service, customer delight, customer loyalty,
and customer value. In a broad sense, these books and speakers are all putting forth the same idea:
"you should focus on your customers." But, when we delve into the measurement-analysisunderstanding-acceptance-action-improvement sequence, we find there are two complementary
paradigms.
The customer satisfaction paradigm is older, has been widely adopted in North America,
and is beginning to take hold in Europe. The customer value paradigm is newer, includes many of
the elements of the customer satisfaction paradigm plus many additional features, and is being
more widely adopted and deployed by leading-edge companies (for example, AlliedSignal, Dow,
Chase, Chemical, FedEx, Honeywell, HP, Lever, Nortel, US West, Wisconsin Energy) as we
head toward the next millennium. While these paradigms are complementary, the differing
emphases of each are highlighted in Exhibit 1.
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Exhibit 1
Contrasting the Customer Satisfaction and
Customer Value paradigms
Customer Satisfaction Customer Value
1 Who we ask
Our own customers,
end users
Our customers and competitors’ customers,
end users and decision makers
2 What we ask
Rate our performance
Rate us and our key competitors
3 Respondent perspective Experiential,
am I satisfied,
backward looking
Perception of differences,
which supplier will I choose,
current and forward looking
4 Who takes action
Customer service
Competitive marketing strategy
5 Type of action
Tactical
Continuously improve
customer service,
correct defects & errors
Strategic
Clarify and evolve our CV proposition,
create a differentiated, superior offering
6 Data changes
Static, reflects mainly
our initiatives
Dynamic, reflects all competitive initiatives
Source: Dr. Brad Gale, “Satisfaction is not enough,” Marketing News, 27 October 1997
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The customer satisfaction approach focuses on how to satisfy people who are using your
products or services. Most customer loyalty measures fall within the customer satisfaction
paradigm. They are based on a sample of our customers and are typically not measured relative to
competition.
The customer value approach focuses on how people choose among competing suppliers
(attraction, retention, and customer- and market-share gains). This approach leads companies to
search for the answers to three customer value questions:
- What are the key buying factors that customers value when they choose among our
business and our toughest competitors?
- How do customers rate our performance versus competitors on each key buying factor?
- What is the percentage importance of each of these components of customer value?
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By highlighting the best performer on each key buying factor, marketers obtain a market
derived, empirical collage of each supplier’s customer value proposition. Often the view from the
marketplace differs from the organization’s internally developed customer value proposition.
Keeping an eye on the future, these companies also ask or anticipate how the key buying
factors, percentage importance weights, and relative performance scores are changing or can be
changed by a market-driving organization. Often the sample size is large enough to permit market
segmentation analysis based on what each segment values most. In concentrated business-tobusiness markets with few customers, Delphi panels are substituted for surveys as a means of
listening to the voice of the customer and marketplace.
How do companies fund customer value research? As Gloria Farler, a US West marketing
executive, pointed out at a recent Customer Value Network meeting hosted by US West,
“Sampling does work.” When companies evolve from customer satisfaction transaction surveys to
also conducting customer value analyses, they often find that they can cut back on the frequency
and number of respondents in their customer satisfaction surveys and use those savings to fund
customer value initiatives (Exhibit 2).
Exhibit 2
Linking Customer Satisfaction tactics
to Customer Value strategy
What we ask:
Rate our Rate us and key
performance
competitors
Who we
ask:
Our customers
& competitors’
customers
Market
satisfaction
Relative
perceived
Customer
Value
Our
customers
only
Customer
Satisfaction
tactics
[ Biased
view ]
Source: Dr. Brad Gale, “Trends in Customer Satisfaction, Loyalty, and Value,”
Customer Value, Inc. 1998
The goal is develop an integrated measurement and analysis process that links customer
satisfaction tactics to customer value strategy, value propositions, and delivery and communication
systems (Exhibits 3 and 4).
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Exhibit 3
Customer Value Analysis and Voice of the Customer Initiatives
Stage One
Stage Two
Stage Three
Stage Four
Minimum
requirements
Customer
focus
Customer
attitudes
Competitive focus
on targeted markets
Customer
Value
Customer
Loyalty
Customer
Satisfaction
Conformance
Quality
- Delivering what
we promise
- Meeting standards
- Meeting critical
needs of targeted
customers
- Outperforming
competitors
- Retaining our
customers
- Providing what
customers want
- Creating new,
unique benefits
- Getting them to
recommend us
- Responding to
customer
complaints
21st century
growth company
Source: Adapted from Managing Customer Value by
Bradley T. Gale, (New York, The Free Press, 1994)
Exhibit 4
Metrics from the Voice of the Customer and Market
Newer, Customer Value paradigm Relative Absolute
(Voice of all customers in our targeted market)
1
2
3
4
Market-perceived quality ratio
Price metrics
Customer value ratio
Slope of fair-value line
(Weight on quality versus price)
x
x
x
x
x
x
x
Older, Satisfaction/Loyalty paradigm
(Voice of our own customers)
5
6
7
8
9
Customer satisfaction, top box(es)
Repurchase intention
Willingness to recommend
Customer retention
Loyalty indices
6
x
x
x
x
x
Customer satisfaction transaction surveys focus on how to satisfy existing customers
better. Customer value analyses focus on how to improve your competitive position, attract and
retain targeted customers, and create shareholder value.
Thus, in the 90s, leading-edge companies are becoming extremely sophisticated at
measuring what customers value, and correlating these data with their behavior and their projected
future intentions. The results are pinpointed marketing strategies that win, and win big. Recent
empirical research shows that a business’s customer value position, relative to competitors, has a
dramatic impact on its market-share gain and profitability. Businesses that create superior customer
value achieve profit margins on sales three times greater than businesses that are pushed into an
inferior customer value position (Exhibit 5).
Exhibit 5
Customer Value Drives Profitability
40
30
31
x
ROI (%)
12
ROS (%)
x
x
20
Profitability
10
x
12
x
x
x
4
x
x
x
0
0.94
1.02
0.98
1.06
Customer Value Ratio
Source: Keith Roberts, MD PIMS Europe, presentation at Customer Value Network
meeting hosted by Lever, Kingston, UK, June 1997
Information: PIMS database
References
• The PIMS Principles: Linking Strategy to Performance, by Robert D. Buzzell and
Bradley T. Gale, (New York, The Free Press, 1987).
• Managing Customer Value: Creating Quality and Service That Customers Can See,
by Bradley T. Gale, (New York, The Free Press, 1994).
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Bradley Gale on: Creating Superior Value for Customers and Shareholders
Summary of Seminar, leading to Action Learning Workshops
In the past, companies have used customer satisfaction measurements to track their
performance as perceived by their own customers (percent “satisfied”). Today companies like
AlliedSignal, AT&T, Dow, FedEx, HP, Honeywell, Lever, Nortel, US West, and Wisconsin
Energy are learning that, to be competitive, they need to do a better job of measuring and
improving their performance versus competitors as seen by all the customers in their targeted
market. This is what drives your sales, market share, profit growth, and career opportunities.
In an interactive executive seminar you will learn how to use customer data to measure and
improve your business's market-perceived quality and customer value -- relative to competitors.
Dr. Gale will illustrate the approach using case examples from companies that have won awards in
North America, and Europe. You will also see empirical evidence, from a massive database of
business experience in the United States, Canada, and Europe, that achieving superior marketperceived quality and customer value pays off in market-share gain, revenue growth, higher
profitability, and shareholder value.
Dr. Gale will highlight some new concepts, tools and metrics that lie at the heart of
marketing strategy, total quality, and strategic management. In particular, you will find that his
"seven tools of customer value analysis" can link your continuous improvement and process
reengineering efforts directly to the voice of the marketplace. Finally, he designs a war room and
strategic navigation system that your organization can use to move more quickly along the path to
competitiveness by clarifying your customer value proposition and delivering better quality,
service, and customer value than your competitors.
The ideas in this session include Dr. Gale’s latest thinking as Customer Value Management
takes hold in leading edge companies. A more complete description of the approach can be found
in Dr. Gale’s book, Managing Customer Value -- Creating Quality and Service That Customers
Can See, (ISBN number 0-02-911045-9) published by the Free Press.
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Biographical Sketch
(2000)
Bradley T. Gale is an author, speaker, and coach skilled at guiding organizations to
measure and improve their customer value and shareholder value performance -- relative to their
competitors. He has consulted on marketing and competitive strategy for such companies as
AlliedSignal, AT&T, Deere, Honeywell, Lever, Mars, and Nortel. Dr. Gale is President of
Customer Value, Inc., a market strategy firm that he started in 1990. CVI and its consulting arm,
Gale consulting, help companies achieve market success by linking their people and key business
processes to the voice of the marketplace and delivering superior performance on key buying
factors that customers value when choosing among competing suppliers.
Before founding Customer Value, Inc., Dr. Gale spent five years as Managing Director and
CEO of The Strategic Planning Institute and President of its consulting subsidiary, PIMS (Profit
Impact of Market Strategy) Associates. PIMS, a multi-company activity, captures non-financial
metrics on competitive position, market attractiveness, and operating effectiveness in a businessunit database and links them to financial measures of business results. Earlier he served as
Research Director for PIMS when he co-authored The PIMS Principles: Linking Strategy to
Performance, which has been translated into German, Italian, Japanese, and Portuguese.
Dr. Gale served as a charter Overseer during the first three years of the USA’s Baldrige
National Quality Award and also serves on the Steering Committee for the Conference Board's
Global Center for Performance Excellence. To help move customer value, satisfaction, and loyalty
from slogans to a science, he has developed a network of corporate practitioners at the leading edge
of measuring and improving market-perceived quality, customer value, competitiveness, and
shareholder value. His book, Managing Customer Value: Creating Quality & Service that
Customers Can See, published by The Free Press, was reviewed by Publishers Weekly as
"Arguably the most useful marketing study since the formative works of Peter Drucker,
Philip Kotler, and Michael Porter . . . may shape business thinking for years to come."
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______________________________________________________________________________
Customer Value, Inc.
Customer Value, Inc. is a customer and market strategy consulting firm. CVI
helps clients achieve market success by aligning their people and processes to the
needs of customers in their targeted markets. This enables clients to clarify their
customer value proposition and deliver and communicate superior performance
on key buying factors that count when customers choose among competing
suppliers. CVI's action learning approach helps a general manager and his
business team to set their strategic direction and take action steps to improve
customer and shareholder value. Action learning:
•
•
•
•
•
Helps operating managers clearly understand markets, customers, and competitors
Assures interfunctional communication and cooperation
Builds commitment to improving customer value and executing the agreed strategy
Provides a strategic navigation system for tracking progress toward competitiveness
Develops operating mangers that think strategically and can anticipate or react quickly to
the shifting competitive environments of the next millennium
Bradley Gale, former Managing Director and CEO of the Strategic Planning
Institute and PIMS Associates, founded the company in 1990. Dr. Gale served as
an Overseer during the first three years of the Malcolm Baldrige National
Quality Award. Currently he serves on the Steering Committee for the
Conference Board’s Global Center for Performance Excellence. He appears
frequently as a keynote speaker on "Creating Superior Value for Customers and
Shareholders" and "Customer Value: Concepts, Strategy, and Metrics” which lay
the foundation for competitive strategy analysis and superior business results.
CVI carries out research, consulting, and executive education activities. In
addition, to help "move customer value from a slogan to a science”, CVI is
currently expanding membership in its Customer Value, Satisfaction, and Loyalty
Network of companies striving to be at the leading edge of measuring and
improving their organization's customer value position, cost competitiveness, and
shareholder value. Contact CVI for information.
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Customer Value, Inc.’s site on the World Wide Web,
Value-Net, is found at
www. cval .com
General Public
The site is designed to make available the proven resources of customer value analysis to
those who want to be marketplace winners. The site contains
*
*
*
*
*
A general introduction to Customer Value Analysis
News items about Relative Perceived Customer Value, and links to other CV-related web sites
Background information about Bradley T. Gale and Customer Value, Inc.
A Customer Value Bibliography
Information about the Customer Value Network formed to mutually advance the
state-of-the-art by some of the world’s most advanced corporations
Customer Value Network, Members’ Lobby
Customer Value, Inc. operates a learning network of member corporations striving to be at
the leading edge of measuring and improving their organization’s customer value proposition,
perceived relative quality performance, cost competitiveness, and shareholder value.
Delegates and participants from member companies can access recent papers and
presentations by network members, Dr. Gale, and his CVI affiliates. There is an interactive bulletin
board where network members can exchange questions, answers, and ideas. Notices of upcoming
network meetings in North America and Europe are posted when scheduled.
Access to the Customer Value Network Members’s Lobby requires a password.
Participants from member companies can obtain the current password from their company’s CV
Network delegate or alternate or from Kathy Famulari at Customer Value, Inc.
Webmaster
Carl Arendt designed the original site. Donald J. Swire took over as webmaster in July
1999. Value-Net is a leading-edge guide to “what’s new and exciting” in Customer Value
Analysis. It is updated frequently and is continuously being expanded; the site repays repeat visits.
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