B2C Most Engaged Customers Study - PeopleMetrics

TABLE OF CONTENTS
Introduction ...................................................................................................3 State of the Union.........................................................................................4 The Winners ..................................................................................................5 Impact of Change in Customer Engagement on Business and Stock Performance ...........................................................7 Customer Engagement and Behaviors .......................................................8 Creating Customer Love - How Do They Do It? ........................................9 The Offer................................................................................................9 Care........................................................................................................11 Consistency............................................................................................12 Trust........................................................................................................13 Effort.......................................................................................................15 Genuine .................................................................................................16 What Can Companies Do to Create High Levels of Engagement and Love?......................................................19 About the 2010 Most Engaged Customers Study.....................................22 About PeopleMetrics....................................................................................22 Appendix: Ranking Customer Engagement...............................................23
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INTRODUCTION
There has been much written of late on the topic of the new normal. Evidence points to the fact that the current economic downturn differs from prior recessions and that consumer behavior has fundamentally shifted. In essence, we are thinking more about how we spend our money. Personal values, experiences that create lasting memories, and getting a bargain play a greater role in purchase decisions than they did in the past. Business-to-consumer brands have to work harder today to capture a share of consumers diminishing discretionary dollars. The 2010 Most Engaged Customers study was designed to define the building blocks of Customer Love. The output is a roadmap companies can follow to create higher levels of Customer Engagement and emotional attachment. In 2010, our third year of conducting the study, we decided to dig deeper into the hows, whys, and whats of Customer Love. Specifically, we answer the following questions: How do customers who love companies behave? Why do customers love some companies and hate others? What can companies do to get more customers to love them?
In the words of Peter Drucker, The purpose of a business is to create a customer. However, creating a new customer can cost on average five times more than satisfying, retaining, and growing an existing one. Companies that are able to create customers who love them are more likely to adapt and thrive in the new economic order.
We also wanted to check in on the state of Customer Engagement in 2010. As the financial crisis continues, recession talk turns to depression talk and unemployment rates persist at an all time high, we were curious about: The State of the Union: What has happened to the customer experience since last year- is it better, worse, or the same? Winning Sectors and Winning Brands: Which industries and brands are winning in this environment, and which are struggling? Impact of Change in Customer Engagement on Financial Performance: How do shifts in Customer Engagement impact financial performance? Does an increase in Engagement mean an increase in stock price and vice versa?
MEASURING CUSTOMER ENGAGEMENT (CUSTOMER LOVE)

Throughout this paper we use the terms Customer Engagement and Customer Love interchangeably. We are effectively getting at the emotional attachment that a customer has to a company or brand. It is assessed using a validated, comprehensive measure that links to financial performance. The calculation is based upon individual responses to four questions: Retention: Given the choice, I would do business with [Company] again Effort: I would go out of my way to do business with [Company] in the future Advocacy: I would recommend [Company] to a colleague, friend, or family member Passion: I love doing business with [Company] All questions are asked on a 5-point agree/disagree scale and a customer is engaged if they give a 4 (Agree) or 5 (Strongly Agree) rating to all four questions.
THE STATE OF THE UNION

We have measured Customer Engagement levels since 2008; we found that Engagement dipped along with the recession in 2009 and has remained at the same level in 2010. This years study included 26 brands that were also assessed in 2008 and 2009. On average, across these common brands, half (52%) of customers are engaged and the balance is ambivalent at best. This compares similarly to the 2009 level (51%). However, in 2008, Engagement was seven points higher (59%). Similar to the reset in the economy and stock market, it appears that Engagement levels have also been reset (Figure 1). This doesnt mean Customer Engagement is illusive or that it lacks value. Some companies are excelling at engaging customers and are financially
Figure 1. Shifts in Overall Customer Engagement OverTime
out-performing their industry peers. With three years worth of Customer Engagement data, we are able to investigate how Customer Engagement and financial performance vary over time.
THE WINNERS
SECTORS
Although Overall Customer Engagement has stayed the same from 2009 to 2010, individual sectors have seen shifts in Engagement in the last year (Figure 2).
Figure 2. Industry Trends in Engagement (2009 vs. 2010)
eRetailers, a group consisting of Amazon.com, Netflix, Newegg.com, and Zappos.com, have increased their Customer Engagement index by seven points to 61%. This sector, one that plays to convenience for the shopper, now holds a close second place position next to the Luxury sector which has always been a clear winner (64% Engagement). Netflix and Amazon.com, two brands contributing to this sectors Customer Engagement growth, represent success stories with regard to stock price performance between 2009 and 2010 (the former showing a 338% increase and the latter a 91% increase). At the other end of the spectrum, Cable & Satellite TV Providers, the lowest performing industry in 2009, retained this depressed position with an Engagement score five points below where it stood last year. Wireless Service Providers are also heading in the wrong direction with a three point move downwards since last year. While some sectors have improved overall with regard to Customer Engagement levels and others have dropped, the 2010 winning brands span sectors (see table next page).
THE WINNERS
BRANDS
Across the top ten, representation from Luxury, Insurance, Grocery, Specialty Retail, Restaurants and eRetailers is evident 1.
Because we really want to know about the brands consumers love and for what reasons, this year we added some new companies to the mix that have great reputations for creating exceptional experiences that customers love. Per our hypothesis, some of our new brands emerged as winners this year. USAA, Build-a-Bear Workshop, Trader Joes, Ruths Chris Steak House, and Whole Foods Market all make the 2010 Top Ten list.
A complete list of brands, ranked by Engagement within sector, can be found in Appendix II.
IMPACT OF CHANGE IN CUSTOMER ENGAGEMENT ON BUSINESS AND STOCK PERFORMANCE

In the 2008 MEC study, we set out to discover if passion pays in business and if so, how much? We found that companies whose customers love them had dramatically superior financial performance (growth, EPS, ROI, ROA) (Figure 3). While we were able in 2008 to demonstrate that companies with higher levels of Customer Engagement performed better, we werent at that point able to show how Customer Engagement and financial performance interact over time. In 2010, this analysis was possible. The chart below highlights what we found 2 (Figure 4).
Figure 3. Impact of Customer Engagement on Business Performance
Specifically: Retailers in our study for which Customer Engagement increased at least five points exhibit 56% cumulative share price appreciation since 2008. Correspondingly, retailers suffering drops in Customer Engagement of five or more points appreciated an average of just 22%, earning less than half the return for shareholders. Customers who love brands help them succeed.
Figure 4. Relationship between change in Customer Engagement and change in share price (2010 vs. 2008)
Some customers in our study went as far as to say that they have invested in the brands they love, recommended them to others, and written letters of compliment. Clearly, continuing to focus on the customer during an economic downturn is a smart business strategy.
Analysis of a sub-set of retailers in the Consumer Discretionary Fund (Ticker: XLY).
CUSTOMER ENGAGEMENT & BEHAVIORS

In addition to examining the link with financial performance, we were also interested in looking at how customers in each of the four separate Engagement segments behave 3. Our analysis revealed a strong positive correlation between high levels of Customer Engagement and website visits, purchases, and recommendations (Figure 5): More Visits to the Site: Fully Engaged customers visit a companys website twice as often in a six month period than customers who are On-the-Fence or Actively Disengaged More Purchases Online: They make three times as many purchases when they are at the site versus those who are ambivalent to the brand
Figure 5. Impact of Engagement on online purchases and recommendations
Higher Conversion from Visit to Purchase: They make a purchase close to once out of every two visits to the website compared to once out of every 4 visits for an On-the-Fence customer More Frequent Recommendations: They recommend an organization twice as often as those who are On-the-Fence Because customers who choose a company based on recommendation are more engaged and forgiving, increasing positive word-of-mouth and referrals should be a goal for any organization. Recommendations hold a lot of weight not only when acquiring new customers, but throughout the customers relationship with a brand as is evident by the graph. (Figure 6). Encouraging more positive word-of-mouth can provide a safety net to businesses even when service failures occur. Customers who have come to an organization via recommendation are more likely to forgive if someone they trust recommended the company in the first place.
Figure 6. Impact of Recommendation on Engagement
Consumers responding to the survey were grouped into one of four Engagement or Customer Love Segments defined according to their responses to the four Engagement questions (Retention, Effort, Advocacy and Passion). A Fully Engaged customer is one who gives all 5s (Strongly Agree) to all four questions; an Engaged Customer gives 4s and 5s; an Actively Disengaged customer gives at least one 1 or 2 and the On-the-Fence customer gives a mix of ratings indicating emotional ambivalence to the brand
CREATING CUSTOMER LOVE HOW DO THEY DO IT?

High levels of Customer Engagement and Love clearly translate into the behaviors that support achievement of financial goals. The question then becomes, is it possible to manufacture Customer Love? Can we control our customers emotional reactions? Can we make them love us? Our research across all consumer industries has revealed a hierarchy of needs that together create Customer Love and Engagement. There are six elements in the hierarchy (Figure 7). Customer Engagement requires all elements to be present. Specifically, these are: 1. The Offer: Products, services and/or experiences that customers want or need 2. Care: A company culture that cares for and values customers 3. Consistency: Excellent service at every touch point 4. Trust: If something goes wrong, the customer has faith the company will put it right 5. Effort: Employees who exert extra effort and go above and beyond 6. Genuine: Authentic service from real people
Figure 7. Customer Engagement Dimension
THE OFFER
The winning companies in our study all offer something that is special, unique, fun, extraordinarily convenient, or of exceptional quality or value. Consider the first-class experience you get at The Ritz-Carlton or the unusual product choices you get at Trader Joes or the one-of-a-kind experience BuildA-Bear Workshop offers its customers.
Customer Love begins here. While a great, compelling offer is a requirement for Customer Love, it is very rarely sufficient. To touch their hearts, consumers demand that an amazing offer be combined with softer elements of the experience. These softer elements begin to truly separate companies that are liked and those that are loved.
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CARE
Once a consumer feels theyre getting a great product/experience, their attention turns to how much the company cares. Customers who believe that, think that decisions are being made with their best interests in mind. Words & actions demonstrate that the customers are valued. These companies care about pricing fairly and dont quibble over refunds/returns. Customer care/centricity begins with senior leadership commitment; winning companies put the customer at the heart of their business ensuring that they, in turn, have a place in their customers hearts.
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CONSISTENCY
Beyond a great offer and evidence that a company cares about their business, consistency of the experience comes into focus. This speaks to the strength of a companys customer-centric culture and how well it executes against that promise. Excellent service at every touch helps to forge strong emotional bonds with customers. Companies that offer a dependable, even level of exceptional service regardless of who or where it is being delivered are winning. This, again, depends upon senior leaders instilling a culture of customer-centricity that includes the systems and processes to support it. Companies that do this can be counted on. It is no small feat, however, to ensure that all employees are trained and motivated to deliver against this promise. This is why the winning companies in our study invest heavily in selecting the right talent and training them to deliver an experience consistent with the promise. For Zappos.com, for instance, employees who arent able or willing to uphold the consistently excellent service experience promised to customers are offered $1,000 to resign. This is one example of an organization that is so committed to delivering consistently excellent customer service that theyll pay to avoid inconsistencies.
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TRUST
Customer Love is not easy. So far, we have discussed the importance of a great offer combined with a caring organization that delivers consistent service, and we are only half way to achieving true Customer Love (see Figure 8). Flawless service delivery creates trust. Many of our winning companies never give customers a reason to doubt them because service is perfect each and every time (see point three above). In addition, the companies in our study that recover well from service failures have higher levels of customer trust than those that fail to respond adequately. Thus customer trust is created in two main ways: First, flawless service delivery will create trust. As noted earlier, consistently excellent service delivery is an essential ingredient to create high levels of Customer Engagement. Second, if mistakes happen (and they inevitably do happen) the way that a company responds will either create or destroy customer trust. The graph to the right (Figure 9) demonstrates that perceptions of trust are often highest among customers who have had problems & experienced positive problem resolution. Conversely, fewer than half of customers who had poor problem resolution trust the organizaFigure 9. Impact of Problem Experience and Handling on Ratings of Trust (scores represent % agree/strongly agree with, I trust if something goes wrong, [COMPANY] will make it right)
tion will be able to fix it in the future. Trust is built when the organization is put to the test.
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Not surprisingly, a negative correlation exists between service failures and Customer Engagement (Figure 10). Customers experiencing problems are significantly less engaged than those who never experience a problem. However, there is a silver lining in that companies that take care of customers problems and strive to recover from failures experience an Engagement bounceback. Committing to a systematic service recovery and complaints handling process is one step in the right direction toward converting disgruntled customers into loyal advocates. This should include a proactive outreach to customers to learn of their issues and respond in real-time. One interesting element of Trust (or distrust) is that it can be built in a short time span but is long lived. Customers have long memories for those moments of truth created at points in the customers lifecycle with a company.
Figure 10. Impact of Service Failures and Recovery on Customer Engagement
Many customers in the study who explained why they trusted, or did not trust, a particular brand pulled examples and stories from years long past.
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EFFORT
So far, weve introduced a great offer, a caring organization, consistent customer service, and trust as being the building blocks of Customer Love and Engagement. There remain two additional dimensions of Customer Love, and these are the most difficult to achieve but can provide lasting competitive advantage for companies who are able to get there. Customer Engagement is impacted by the extent to which your employees go above and beyond for customers, demonstrating extra effort to meet their needs.
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Interestingly, some of these examples come from some of the lowest scoring brands in our study. The point is that every organization has its Brand Ambassadors, those people who really want to delight the customer and will go to all lengths to do so. The secret is in ensuring that every employee is a Brand Ambassador that the effort expended is consistent. This is what separates the companies with a majority of customers who love them from those where just a select few do.
GENUINE
Finally, Customer Love is gained and sustained through relationships. Companies that encourage people to be themselves, creating relationships with their customers, score better. These companies customers tell us that service is delivered with a real smile, relevant questions, active listening, and eye contact.
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The conundrum we face is that genuine, authentic service is more easily delivered in person than over the phone. In our study, we discovered that customers who deal with companies via the telephone are less engaged than those who have face-to-face interactions because the opportunity for genuine interactions and relationship building is lessened in these more remote service exchanges (Figure 11). The challenge for organizations delivering service via multiple channels is to ensure that the metrics used to manage our business personal way with customers.
Figure 11. Relationship between Mode of Interaction and Customer Engagement
(such as call volumes and service levels) dont interfere with employees ability to connect in a
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SPECIFICALLY
52% of Actively Disengaged customers had phone contact with the company versus just 18% of the Fully Engaged. This finding is in stark contrast to the 76% of Fully Engaged customers who have had in-person interactions versus 48% of the Actively Disengaged. We looked further into the data to see whether phone contact was more highly correlated with problem handling (do customers call to deal with problems more so than visit in person?) and found this not to be corroborated in the data set. In a face-to-face service interaction, the ability to make eye contact, read facial expressions, and assess the customers personality and mood is greater than over the phone. Adapting service delivery based upon these in-person cues is possible. Furthermore, the very nature of some of the metrics used to manage most call centers inhibits the ability for even the very best Customer Service Representatives to engage with customers, creating an impression of authenticity. Call volumes and service levels usually trump small talk and humor.
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WHAT CAN COMPANIES DO TO CREATE HIGH LEVELS OF ENGAGEMENT AND LOVE?

The 2010 Most Engaged Customers study has revealed that companies who embrace Customer Love and Engagement are winning and growing even in difficult economic times. Their customers are more likely to recommend them, visit and purchase from them online, and say they will return in the future. A corporate focus on Customer Engagement, therefore, is not just the job of marketing or customer service but of the c-suite. Customer Engagement is a strategy and not an event or study. This years study also revealed that there are six avenues by which companies can increase Customer Engagement. To achieve true Customer Love, all of these dimensions must be present. The following steps highlight actions that can be taken to increase positive scores for the six dimensions: (1) Define your Compelling Offer: The number one driver of Customer Engagement in the business-to-consumer space is The Offer: desirable products, services, and experiences that are offered by the company. This is the core of Customer Love. Our winning brands offers stand out for being all about one core promise such as luxury, fun, choice, one-of-a-kind experience, or convenience. Companies need to start by ensuring that they know what they stand for. Is your message clear? Are you trying to be too many things? And where is the customer in your promise at the heart or an afterthought? (2) Identify and Celebrate your Care Givers: It seems simple and yet many, many organizations arent able to act in ways that make the customer feel cared for. Is customer-centricity a true business strategy or just a buzz word in your organization? Customer care is the job of the csuite not just the call center. Start by identifying the employees in your organization who really care for customers find out what they do, how, and why. Clone them. A Brand Ambassador program is a good way to start. Using customer feedback you will be able to identify which of your employees are showing care. Recognize them, learn from them, and train and hire more of them. (3) Measure to Ensure Consistency: Our research has revealed that a consistently excellent experience across touch points and individuals is essential to creating Customer Love. One poor experience can alter a customers view for years into the future. Each and every customer-facing employee needs to deliver the same exceptional quality of service and care. How do you know if your organization is consistently delivering against the brand promise? One answer is in feedback and measurement. A real-time, enterprise-wide customer feedback program will ensure that you are keeping your finger on the pulse of the customer experience and are able
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to intervene with agility and impact if and when consistency falls short. Make sure the results from your feedback program are available to front-line managers and are not the exclusive domain of market research or strategy departments. (4) Manage Moments of Truth to build Trust: Customers trust organizations that are consistent, but they can also trust organizations that are consistently good at recovering from problems. You can build trust by systematically capturing, categorizing, and analyzing where service failures are occurring. An analysis of service breakdowns will allow your organization to prioritize required changes and improvements in people, process, and technology to minimize the failures. Next, you can ensure that your people have the latitude to respond to customer issues and make them right. A feedback program that is truly enterprise-wide will empower your front-line employees to take the necessary actions to recover from service problems. The Brand Ambassador programs we run for our clients have revealed that extraordinary people are doing extraordinary things every day to turn unhappy customers into those who will trust their organizations for the long haul. They can only do this, though, if they have adequate span of control. You have to trust employees so that they can build trust in turn with your customers. (5) Engage your People so they Give Extra Effort: Engaged employees go above and beyond for customers. Disengaged employees do the opposite. If you dont know how engaged your people are, or why they are or are not, you are managing in the dark. A formal Employee Engagement program will allow you to identify the areas in need of fixing. Before doing this, though, you must be prepared to make changes to increase Engagement, and by extension see more employees doing more for your customers on a regular basis. (6) Encourage your People to be Real with Customers Regardless of Role: Changes to the way you run your call center, if this is a piece of your business, may be required in order to allow employees who are engaging with customers in a remote fashion to let the customer experience them as real, genuine people. If you hire with emotional intelligence in mind, you should feel comfortable allowing employees to be themselves with your customers. The above steps can help companies across industries realize a stronger and more profitable relationship with their customers. Finally, a systematic approach to managing Customer Love and Engagement is essential for success. Winning companies are capturing and taking action on customer feedback through an ongoing Customer Engagement Management program. By so doing, they are able to engender a consistent culture of customer-centricity, build trust through responsive and exceptional service recovery, and empower employees across the enterprise to own the customer experience. We know that Customer Love doesnt just happen. And we know that it is rare that a great offer alone will generate consistent levels of Customer Love. You have to manage the process of Customer Engagement. Customer Engagement Management (CEM) is a consistent and
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systematic approach to measuring customer experiences. Here are some highlights of a successful CEM program: Enterprise-Wide Access: Everyone who is responsible for customers within the organization should have access to their feedback Accountability for Taking Action: Specific customer feedback should be assigned to individuals within the organization so follow-up actions are taken Real-Time Information: Customer feedback should be available in real-time, seconds after fee back has been provided Transactional Customer Feedback: Leading organizations obtain feedback from customers after specific transactions or experiences to help build consistency in the customers experience of the company Action Oriented questions: Feedback should drive specific actions that employees can take to strengthen emotional bonds with customers For more information on implementing a CEM program within your organization, please contact Frank Rowe at 215.979.8038.
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ABOUT THE 2010 MOST ENGAGED CUSTOMERS STUDY

In June 2010, PeopleMetrics conducted the third annual Most Engaged Customers (MEC) study among 5,000+ consumers and 1,200 Business-to-Business decision-makers and day-to-day contacts. The consumer feedback focused on 12 industry sectors: (1) Apparel, (2) Cable & Satellite TV Providers, (3) Department Stores, (4) Discount Retailers, (5) Electronics, (6) eRetailers, (7) Grocery Stores, (8) Insurance, (9) Luxury, (10) Restaurants, (11) Specialty & Household Furnishings, and (12) Wireless Service Providers. Partnering with Toluna Group, PeopleMetrics captured close to 15,000 ratings of both business-to-consumer and business-to-business service providers.
ABOUT PEOPLEMETRICS
PeopleMetrics is a leading research and technology firm that helps companies engage customers and employees to drive bottom line results. Our solutions support the success of managers by providing continuous feedback from stakeholders and guidance on the best actions to take in response to specific comments. Since our inception in 2000, PeopleMetrics thought leadership, exceptional client service, and easy-to-use technology has helped hundreds of clients generate remarkable results. For more information about PeopleMetrics services please contact info@peoplemetrics.com or frank.rowe@peoplemetrics.com.
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APPENDIX: RANKING OF ALL CONSUMER BRANDS IN THE 2010 MOST ENGAGED CUSTOMERS STUDY
The table below ranks the brands included in this years study within sub-sector based upon Customer Engagement score. For more detailed results from the 2010 study please contact Frank Rowe at 215.979.8038 or frank.rowe@peoplemetrics.com.
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TABLE OF CONTENTS

MEASURING CUSTOMER ENGAGEMENT (CUSTOMER LOVE)

THE STATE OF THE UNION

Figure 2. Industry Trends in Engagement (2009 vs. 2010)

IMPACT OF CHANGE IN CUSTOMER ENGAGEMENT ON BUSINESS AND STOCK PERFORMANCE

Analysis of a sub-set of retailers in the Consumer Discretionary Fund (Ticker: XLY).

CUSTOMER ENGAGEMENT & BEHAVIORS

Figure 6. Impact of Recommendation on Engagement

CREATING CUSTOMER LOVE HOW DO THEY DO IT?

WHAT CAN COMPANIES DO TO CREATE HIGH LEVELS OF ENGAGEMENT AND LOVE?

ABOUT THE 2010 MOST ENGAGED CUSTOMERS STUDY

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