Customer Insights

SESSION VI

Learning Outcome:

Understand the customer experience

 Assessment Criteria

At the end of this session you should be able to:

• Apply the concepts used to understand a customer’s experience
• Describe how digital technologies are influencing customers’ expectations
and behavior
• Explain how digital technologies are improving marketers’ abilities to
manage customer experience
 Customer Experience

Ladder of loyalty

Partner
Advocate
Supporter
Client
Customer
Prospect
 Customer Experience

Ladder of loyalty
Refers to a relationship marketing concept that sees customers gradually moving up
through relationship levels, starting at the bottom as prospects and ending up at the
top as advocates
The different relationship levels are:
• Prospect: those who have the intent to purchase but have not yet done so
• Customer: refers to a first time buyer
• Client: this is a repeat buyer
• Supporter: those who try new offerings from the organization
• Advocate: intensely loyal brand champions
• Partner: Pro-active brand champion actively contributing to development
 Customer Experience

Ladder of loyalty
From a marketer’s point of view, customers are to be assisted to climb as high up
the ladder as possible, and this can be achieved through consistently offering
quality exceeding customer expectations at each stage
Organizations build loyalty over time through consistently meeting and
exceeding customer expectations. Customers’ interest for an organization will
develop with every satisfying interaction until it reaches a peak level of support.
The customer then becomes a brand advocate (champion), and assists in the
organization’s growth through word-of-mouth
 Customer Experience

Customer Loyalty
Building a highly loyal customer base must be part of an organization’s business
strategy; it cannot be done as an add-on. Organizations that fail to build customer
loyalty may adopt programs and activities on an ad-hoc basis; they may copy
some best practices from industry leaders, but fail to attach these programs on
activities that enhance customer value and loyalty
When customer loyalty goes up, profits go up too. By understanding the economic
effects of retention on revenues and costs, organizations can intelligently reinvest
cash to acquire and retain high quality customers and employees. Designing and
managing this self-reinforcing system is vital for achieving outstanding customer
loyalty. Customer loyalty is earned by consistently delivering superior value
 Customer Experience

Customer Loyalty
Better economics means organizations can pay workers better, which sets off a
whole chain of events.
• Better pay boosts employee morale and commitment; employees stay
longer, and as they do so, their productivity increases and training costs fall.
• Employee job satisfaction, combined with their knowledge and experience,
leads to better customer service
• Customers are then, more inclined to remain loyal, and as the best
customers and employees become part of the loyalty-based system,
competitors are left to survive with less desirable customers and less
talented employees
 Customer Experience
Customer Loyalty
Reichheld’s Service Profit Cycle
 Customer Experience

Customer Loyalty
Reichheld’s ‘Service Profit Cycle’ (Reichheld, 1996):
The model makes linkages between the way organisations operate internally
and the service performance they offer externally to the paying customer. In
addition, it also links the deployment of financial and human resources to
creating high quality internal performance
According to Reichheld, each link in the sequence produces beneficial effects
on the next link, so the cycle operates as a self-reinforcing ‘circle of virtue’
(Reichheld, 1996)
 Customer Experience

Customer Loyalty
Reichheld’s ‘Service Profit Cycle’ (Reichheld, 1996):
Operation:
• If an organisation has a respectable level of profitability, it can more
easily afford to produce external service quality (profit and growth are
stimulated by customer loyalty)
• External service quality generates customer satisfaction
• If the customer is satisfied, they will display loyalty, leading to
favourable behavior e.g. purchasing more & more often
• Customer loyalty leads to further profitable growth (it is cheaper to keep
a customer than to recruit a new one)
 Customer Experience

Customer Loyalty
Reichheld’s ‘Service Profit Cycle’ (Reichheld, 1996):
Operation (continuation...):
• Profitable growth is likely to be correlated with internal service quality
because retained customers enable service providers to move more
rapidly up the experience curve
• If internal service quality is high, employee satisfaction increases
• Employee satisfaction would almost certainly mean that employee
retention improves; with consequent benefits as far as service standards
are concerned
 Customer Experience

Customer Loyalty
Learning to compete on the basis of loyalty requires an understanding of the
relationships between customer retention, and the rest of the business, and
having the ability to quantify the linkage between loyalty and profits.
This involves rethinking four important aspects of a business:
• Customers
• Offerings
• Employees
• Measurement systems
 Customer Experience

Customer Loyalty
Customer:
For a loyalty based system, success depends on customers staying with an
organization for a long time, but not all customers are equal. Organizations need
to target the right customer; those who are more likely to do business with the
organization over time. It’s important to note that this may not be the easiest or
the most profitable in the short term
Some customers never stay loyal to one organization, no matter what value they
receive; the challenge for organizations is to avoid as many of these customers as
possible in favour of customers whose loyalty can be developed
 Customer Experience

Customer Loyalty
Customer:
Finding loyal customers requires organizations to take a look at what kinds of
customers an organization can deliver superior value to. Organizations can use
historical data such as previous purchases, and attrition rates to analyse and
determine the most promising customers. Organizations can then direct
resources away from customers who are likely to defect and direct these towards
those who are more likely to stay
Special promotions and other forms of pricing strategies aimed at acquiring new
customers often don’t work. Organizations normally use pricing as a dull
instrument to bring customers in indiscriminately. Instead, they should use
pricing to filter out the customers unlikely to be loyal
 Customer Experience

Customer Loyalty
Offering:
Once organizations have identified the customers it should retain, it has to go
about the business of maintaining/keeping them
Organizations may be tempted to win new markets with new products, but it
almost always makes sense to stick with existing customer segments. Over time,
organizations develop intimate knowledge of these segments, and can then make
good, intuitive market judgements
It’s also easier to build sales volume with customers who already know the
organization than it is with new customers
 Customer Experience
Customer Loyalty
Employees:
Organizations may hurt their economic potential through human resource policies
that result in a high employee turnover; in part because they can’t identify the
relationship between employee retention and long-term profitability
Employee retention is vital to customer retention, and customer retention can
quickly offset higher salaries and other incentives designed to keep employees from
leaving
The longer employees stay with an organization:
• The more familiar they become with the organization
• The more they learn
• The more valuable they can be
 Customer Experience
Customer Loyalty
Employees:
Employees who have frequent contact with customers have a significant impact
on customer loyalty. Long-term employees can serve customers better than new
employees
It’s important to note that customers’ contact with an organization is through
employees and not the top executives. Customers build bonds of trust and
expectations with employees, when these employees leave, that bond is broken
Organizations need to find the right kind of employees before encouraging them
to stay. The hiring process shouldn’t merely aim to fill spaces, but also to identify
and hold onto employees who will continue to learn, become more productive,
and create trusting relationships with customers
 Customer Experience

Customer Loyalty
Employees:
Organizational learning develops and accumulates as employees remain on the job.
By becoming intelligent about an organization, understanding customers, and
providing the advantages that knowledge gives, long-time employees add value to
the organization
Organizations need to provide relevant incentives for employees to remain on the
job; organizations need to view their best employees as they do their best
customers. Once they have them, they need to do everything possible to retain
them and align employee self-interest with the interests of the organization
 Customer Experience

Customer Loyalty
Employees: Cross-functional working:
For an organisation of any type to function efficiently and effectively, the activities
of its various parts need to be integrated. It is important that each participant be
aware of the activities of their colleagues, in a marketing context, the impact each
has on the external customer
*The quality of relationships a company has with its customers is largely
determined by how they are made to feel by employees at the ‘frontline’*
As marketers, we need to first identify the many relationships that exist within
organizations and make sure these relationships function as they should if
excellent customer relations are to be built
 Customer Experience
Customer Loyalty
Employees: Cross-functional working:
Internally, most people in organisations rely on the support of other people to do
their jobs effectively since:
• Achieving good organisation performance externally requires the internal
organisation to be functioning the same high quality way with open
communications and trust
• An organisation’s final output, be it goods or services, is almost always the
result of a series of operations and processes performed by its employees
(Buttle, 1996)
• Employees must be motivated, involved, well trained, empowered, equipped
and incentivised to perform at a high level and in line with organisational
values if the customer experience is to be as the management wishes
 Customer Experience

Customer Loyalty
Employees: Cross-functional working:
Cross-functional working encourages:
• Organisational learning
• Efficiency (speed)
• Customer focus
• Solving of complex problems
 Customer Experience

Customer Loyalty
Measurement systems:
The market is consistently changing and unless an effective measurement system
is established and maintained, loyalty based systems will deteriorate, meaning
organizations cannot consistently deliver value. Measurement systems develop
the feedback loops that are the vital element in organization learning
Organizations need to first understand the cause and effect relationships when
building a loyalty-based system, of which success can be clearly measured by
resultant loyalty (best quantified by share of purchases, or retention rates, or
both)
 Customer Experience

Customer Loyalty
Measurement systems:
Customer loyalty has three second-order effects:
• Revenue growth as a result of repeat purchases and referrals
• Costs decline as a result of lower acquisition expenses and from the efficiencies
of serving experienced customers
• Employee retention increases because job pride and satisfaction increase. In
turn, this creates a loop that reinforces customer loyalty and further reduces
costs as hiring and training costs shrink and productivity rises
 Thank you!

Any Questions?