Customer Relationship and Satisfaction Management

The New Era of Customer Relationships and Customer Satisfaction – Loyalty

In the past few decades, consumer choice has exploded in retailing, banking, telecommunications, broadcasting, and many other spheres of business. The world we live in has clearly become a much more complex environment. With these constantly changing circumstances has come the need to develop stronger, deeper relationships with customers, and the ability to monitor the strength of these relationships with increasing levels of sophistication. This has led to the advent of customer relationship management and customer satisfaction measurement, and now, to the point where CRM and CSM are coming together.

Reconceptualizing CRM

After a period of disillusionment, customer relationship management appears to be experiencing a renaissance. Some of the myths that plagued CRM in the early 1990's have been and continue to be debunked, with the recent practice being more customer-focused, people-driven, and pragmatic. The new era of customer relationships recognizes the power shift from the seller to the buyer. Successful marketing is no longer about helping sellers sell; the focus of the future is on helping buyers buy. This requires us to look at our marketing activity, our CRM processes, and our understanding of the nature of research with new eyes.

The fundamental principle behind customer satisfaction and its measurement is that business performance creates satisfaction, and satisfied customers are more likely to be loyal (and recommend the service to others), and loyal customers — with longer lifetimes and high lifetime values — mean greater market shares and profits. Yet study after study shows that customers who defect tend, if previously measured, to have rated their experience with the company as satisfactory. So what's wrong? It seems clear that 'satisfactory' is not good enough. Many businesses have assumed that the relationship between satisfaction and outcome is linear or hierarchical. That is to say, increase performance by a certain amount, and expect a proportional increase in the next stage. Our research has shown the link to be curvilinear.

The Delight Response Curve

Beyond the 'Satisfaction' Zone

Most firms' efforts to improve customer satisfaction move customers along what one might think of as the zone of mere satisfaction. This is a highly inelastic zone in which improvements in performance are rarely accompanied by proportionate increases in satisfaction.

On either side of this zone, satisfaction's response to changes in performance is much more dynamic, creating two very elastic regions. On the left side of the curve lies the zone of pain. In this region the business is performing sub-optimally, causing substantial dissatisfaction among its customers. Any improvement in performance – no matter how small – will likely raise satisfaction levels.

On the far right side of the curve lies the zone of delight. Here customers are in euphoria, their every need and wish seems anticipated and satisfied. In this region, increases in performance will also trigger larger than proportional increases in satisfaction.

It is critical that a business understand where it lies on the curve given its current level of performance or the business will be unable to anticipate the consequences of its improvement activities (and ROI will be difficult to achieve). The first step is to identify the three groups of customers — those in pain, those merely satisfied, and those who are delighted. Then, classify your business's performance attributes (or variables) into those that remove pain and those that can delight.

Driving Delight

For every business, there are different categories of performance attributes: must-be attributes, attributes that move customers out of pain or cause pain, and attributes that can delight customers. Satisfaction-maintenance performance attributes are critical; they allow a company to achieve mere satisfaction. Failure on these types of attributes puts any company at risk, but they won't help you delight customers or provide you with a competitive or differential advantage.

Once the business has achieved mere satisfaction by leveraging the satisfaction-maintaining attributes, the other set of attributes come into play. These are the delight-creating attributes. Identifying delight creators is more difficult, but the opportunity they offer is substantial. Delight-creating attributes are often leading indicators of customers' shifting requirements or evolving needs.

Businesses need to be clear that it is critical for customer satisfaction initiatives to derive two sets of key drivers rather than one overall measure. These sets of drivers are sometimes referred to as a penalty and reward analysis, where the penalties are causing pain and the other set reflect the issues that could drive delight.

Moving Vulnerable To Loyal

By focusing on the issues that place customers in pain, and those that delight customers, businesses can more readily identify the most critical priorities for action. A customer delight strategy helps businesses understand their customers' needs and tailor the offer to better meet those needs.

The Convergence of CSM and CRM

So where do CSM and CRM intersect? To best illustrate this point, one needs to consider the kinds of questions that are increasingly being asked. These questions will provide you with some insight as to why we would need both the information generated via survey-based CSM metrics and the data that is available via an integrated and institutionalized CRM program. Questions like:

  • How much is each customer worth to the corporation?
  • Which customers are preparing to churn/defect/attrite? What is the breakdown by product?
  • In what sequence should we sell products to each customer?
  • Which low-value customers of ours are highly valued customers of our competitors?
  • What are the characteristics of prospects that are likely to become high-value customers?
  • Can we identify when the status of each customer changes to determine what marketing action is required?

The answers relate to the allocation of marketing dollars. The expectations of many of our clients are that each customer should be assigned a score that reflects:

  • Current profitability
  • Probability of defecting for each product owned
  • Purchase probability for products not owned
  • Probability of owning products with competitors
  • Remaining total lifetime value

These are issues that require access to both attitudinal data (relating to needs, usage, values, and life stage) as well as internal data (relating to things such as product ownership, tenure, spend levels, and more), which has led an increasing number of service providers to build sophisticated segmentation models, forecasting models, risk models, and arbitration models. Many store huge data warehouses of both survey-based (CSM) and internal (CRM) data to simulate the impact of different kinds of marketing actions and strategies.

An integrated customer relationship management and customer satisfaction measurement system can help businesses develop marketing strategies that drive delight and grow customer loyalty — not just deliver satisfaction.