A few years ago, Thomas O. Jones, a lecturer and author at Harvard Business School collected his BMW after its regular service. Driving the car home he was delighted by the car’s purring engine as he speeded along. The car had been cleaned inside and out and celebrating it, he lit a cigarette.
A few years ago, a motor insurer invested heavily in making improvements for its customers by reducing the time it took to send customers their insurance cover notes. Executives were highly pleased when the time was reduced from 15 to fewer than 7 days.
Having finally had our proposal accepted by our client, a signature on the contract seemed like a mere formality. That’s when we were stung by the email from the clients purchasing department; to secure the Purchase Order, they would be looking for a 20% reduction in price.
The proliferation of survey platforms makes it seem that anyone can do customer research. It has never been easier to design, create and launch a research survey using today’s advanced research technology tools, but the question remains; is it really that easy to access great insights and should you be doing it yourself? Read More…
What CEO doesn’t want a sharper understanding of how his/her organisation is performing? Surviving and thriving in today’s competitive markets takes intelligence and the will to act. Read More…
The start of a new year is a natural reflection point for leaders who open to new paths to grow their businesses. Seeking out deeper insights into your customers always makes logical and, indeed, good business sense. As you do so, it’s important to have a comprehensive view on the extent to which you can rely on your data and performance metrics. Read More…
Our recent newsletter on “British Airways; how cost cutting increases costs” did something very unusual; it went viral.
At the time of writing, it has been read by over 301,000 people and attracted more than 1850 comments, 99.9% of which supported the newsletter’s themes. Thank you to all the readers who commented. The experience has been fascinating, and in several cases deeply moving, as people shared their hopes and frustrations. It shows how a company is run can have a deep and emotional impact on customers and employees alike.
About 10 clear themes emerged from the comments with one overarching theme: the article covered issues that applied to many airlines, companies and industries, and not just to British Airways.
To acknowledge those who took time to read and comment, we will follow up on repeating themes that emerged from the commentary. Looking broadly, and not just BA as a specific example, we may find learnings for us all to take away.
Let’s look at two major themes that were laced throughout the comments (we will save the rest for later editions):
- The connection between the customer experience and loyalty
- Reasons loyal customers defect
The customer experience equation
We know instinctively that there is a link between customer experience and customer loyalty. However, too often the focus is on engaging loyalty through the leverage of widgets, bells, whistles and ‘incentives’. It pays, though, to consider where loyalty arises within the customer’s psyche.
Buying any product or service entails a mixture of rational thinking and emotions. The questions we implicitly ask ourselves are: “Does this product or service fit my needs and meet my expectations?” and “Will I get value for the money I spend?”
Remember that ultimately, ‘value’ is always defined by the customer and not by the supplier. As Peter Drücker elegantly put it: “Quality in the service or product is not what you put into it, it is what the customer gets out of it.”
Value can be expressed as an equation as seen here.
The first purchase is mainly determined by product and price, but research shows that repeat purchase decisions are largely based on perceptions of service quality.
Value in the eyes of the customer depends on their assessment of the quality of products and the quality of sales and service. The combined judgment of those two factors is internally offset against the price and the effort (personal cost) involved in buying or using the product or service.
This equation plays out in daily life; if the price or the hassle increases, the customer thinks the overall value has decreased. See our video on this concept HERE.
Vast amounts of information on products and services is freely available today. Consequently, new products rapidly lose differentiation to copycats and become commodities. Six months after the launch of your super, new whizzy product, a competitor has launched one with similar features and you are left to compete on quality of sales and service, or price.
Using price to compete is a riskier strategy than competing on service. Many of those who commented on the BA article pointed out that price competition is a race to the bottom, only successful for those with deep pockets and other genuine differentiators.
Either way, price competitors’ customers always must make trade-offs to realise a low price. At IKEA, the trade-off is the lack of customer service and pre-built items. Lidl and Aldi offer a narrow product range and basic shop shelf experience. Low cost airlines fly to remote airports.
Whilst all goes well with the basic experience as it is sold, the trade-off may remain acceptable. However, it doesn’t take much to tip the balance; whilst the initial glow of a bargain may secure a first purchase, any consequential ‘hassle factor’ may suddenly shine the light on reasons why they should NOT purchase again.
As a vendor, how do you compete on sales and service? By providing an outstanding customer experience, which, once created, is much harder than price or product features for your competitors to copy.
The goal of all suppliers in all industries today should be to make buying and using products and services easy for their customers. Many of us are information-rich, and time poor. We want suppliers to eliminate hassle and to make our lives easier. If you manage a business, make a differentiated, customer-valuable experience consistently part of your offering and your customers will stay loyal.
In every interaction with customers you try to be different and better. This applies even when selling online. Jeff Bezos states that Amazon’s business goal is not to make huge profits but to provide the best customer experience in the world. Profits are a by-product of doing that. His shareholders are delighted; they get better results from a customer driven strategy than they would from a financially driven one.
The good news is that, even if you do have to compete on price, you don’t have to make your customer relationship improvements complicated. Understand what the key expectations of your customer really are, and focus on meeting and exceeding them. It often ends up being far simpler than you might imagine.
Why do loyal customers defect?
Keeping the Value Equation in mind, it is not surprising that research by the Forum Corporation has shown that when customers switch suppliers, about 70% of the time the defection was due to poor service quality.
In the case of BA, it was clear from the comments to our article that many people had already voted with their feet. Many comments were from customers still emotionally wedded to the original BA brand behaviours of customer service, so much so that they took the time to send in complaints and/or contribute feedback through forums.
Loyal customers have entered into a deeper relationship with their vendor, one that can be very forgiving on one hand and at the same time vitriolic upon exit if they sense that their loyalty has been misplaced with an unspoken emotional contract (full of values-based expectations) violated.
Broadly speaking, customers who complain tend to fall into two, not mutually exclusive, groups:
- Those who need something fixed and may request reparation or compensation
- Those who want the supplier to change behaviour.
The first kind can often be turned into your greatest advocates if handled correctly. Ironically, some past studies have suggested that up to 70% of complaints handled well can result in greater loyalty than if the complainant had never had an issue in the first place. Turning complainants into advocates entails truly listening, meeting their requests even if suspect, and offering sincere apologies.
The second kind are already your most valuable customers – the ones who are prepared to carve time out of their precious day to give you feedback because they want you to get better. If they didn’t care about your journey, they would simply leave and find someone else to service their needs. Listening to them, and acting on what they say really matters. Engaging them rather than ‘managing them’ creates a further bond that will not only help you focus on fixing things that are most important to the people who feed your revenue line, it engages them in your journey and emotionally attaches them to your success.
Of course, this doesn’t make the process of hearing complaints any more pleasant. Both groups almost always vent their frustrations in their complaint, and in some cases, they may not even be a customer that you would prefer to target going forward.
However, ignore them at your peril! Remember that complainers do more than vent; they tell their friends and neighbours about their terrible experience. And, behind every complainer lies an army of people suffering the same hassles and frustrations who don’t complain to the vendor but will willingly take their business elsewhere.
Are you willing to take that risk?
Next time…we will cover the concept of listening and acting on customer feedback.
By Rowan Jackson, Bill Fonvielle and Cathy Fennell
The rise in “customer power” over the last few years cannot have escaped many people’s attention. This exalted status for customers is no accident. Rather, it comes from a hard-headed financial view: namely, when all is said and done, the customer pays the bills.
We have also seen the rise of the destructive side of customer power. Social media can turn a disgruntled customer into an instant virtual terrorist, enlisting hundreds, thousands or even more bystanders in a crusade against a hapless supplier.
The question, then, is how can we make our customers evangelists instead of terrorists? The simple answer is that we have to offer exceptional value and a competitively superior customer experience.
The real question is how to do it.
This elusive goal is the holy grail of many companies today. Larger companies embark on market research, customer surveys, big data, collaborative forums; all in the hope that they can hit the right sweet spot before it moves again. For some, that level of complexity, workload and uncertain outcomes is just too cumbersome to deal with, so they rely upon educated guesswork, gut feel and some customer satisfaction feedback to guide their journey.
However, we have noticed that many organisations often step over the first fundamental starting point – that of knowing and understanding customers’ expectations. After all, how can you begin to meet and exceed customer expectations if you don’t know with some precision what they are?
The reason for this apparent oversight may simply be that gathering expectations is not as simple as it sounds. One must first understand what an expectation really is, and then understand the implications involved in gathering and utilising them to good effect.
What IS an “Expectation”?
“Customer Expectations” is commonplace term, and nearly everyone understands it in a rather visceral way. It is so commonplace that we tend to take its meaning for granted. However, of great significance to marketers and researchers is the rarely understood fact that “customer expectations” has two very different meanings. This matters because combining the two meanings leads to confusion and misinterpretation of data.
One type of expectation is a prediction. For example; If I have had consistently bad experiences with a provider, I might reasonably expect (predict) my next experience will also be bad.
The other type is an ideal expectation. In this sense of the word, an expectation is a desired state; it defines the ideal attribute of a product, service, transaction, relationship, or performance desired by a customer.
The ideal is where we, at Promising Outcomes, focus our attention. The heart of the theory of expectations is that customer judgments and, to a significant degree, customer motivations and actions are influenced by perceptions of how well the supplier has performed against their ideal expectations. By aspiring to reach the ideal as the target, companies can set meaningful goals for delivery and overall performance.
Although developed with external customers in mind, expectations theory works equally well within an internal customer framework, for employees of an organization or the citizens of a community. In fact, its applications in transactions or even social interactions are virtually limitless.
Insights about Gathering Expectations
Fortunately, years of research and testing has enabled us at Promising Outcomes to develop reliable processes and tools for making customer expectations explicit and clear. Here are some of the discoveries we have made.
The heart of the matter is to ask customers for their expectations. The art is in how the asking is conducted. Simply asking customers for their expectations of a company, product or service is likely to surface both types of expectations. Some customers may see it as an opportunity to vent and recount their grievances and bad experiences. Some may figure they can ask for the sky without taking into account organisational constraints. Yet others might confine their thinking to what they think is possible or available without giving guidance on what to aim for. These multiple responses can be a lot to unravel; It is possible, but not preferable. Consequently, our own methods of gathering expectations have been honed specifically to avoid these pitfalls.
The good news is that expectations tend to be widely shared by customers. Of course, every customer is unique and will have his or her own set. But once you have talked with more than a handful of customers, the landscape generally becomes clear. Normally, we identify between thirty and seventy distinct expectations of a supplier. Of these, perhaps fifteen to twenty-five will be widely shared and important to customers. The rest will be expectations for only a few customers.
Expectations are robust and relatively persistent. Obviously, disruptive innovation in an industry can massively affect expectations. But even in quieter industries, it pays to check expectations every few years.
Some customer expectations are nearly universal. For example, customers always want to be treated courteously by knowledgeable employees. (A no-brainer, right? Of course, we all have been “served” by companies that seemingly fail to understand even this basic requirement.) However, any industry will have expectations specific to it; expectations surfaced for one kind of business will not fit another.
How do Expectations work with Customer Surveys?
If you truly know your customers’ expectations, everything that follows in the value chain, from your product/service design through to performance and satisfaction assessment, becomes that much more on-target.
Without insight into expectations, most customer satisfaction surveys are either created internally with questions devised by management who are out of touch with customers, or are bland, off-the-shelf questionnaires that don’t speak to the uniqueness of the company and its customers. Such surveys inevitably miss the mark.
Many of us will testify to feeling bombarded by an increasing number of customer surveys that seem poorly constructed, or are just out of sync with what we as the customer think is most important.
It is easy to see how the disconnect between the customer and the supplier often starts its journey here. The customer is at risk of becoming increasingly disillusioned, whilst the supplier risks wasting energy and resources on initiatives started from customer feedback that is fundamentally misaligned.
At Promising Outcomes, we dispense altogether with the notion of customer satisfaction and use the customers’ expectations as the basis for customer research and performance measurement. Our surveys are designed to measure the gap between customer expectations and customer perception of actual performance. We also measure competitor performance in the same manner. In so doing, critical areas of opportunity and areas needing improvement are highlighted. With these insights, our clients are able to make product, service or strategy improvements and decisions which are most significant in driving customer loyalty and marketplace differentiation.
Making sense of expectations – The Customer Expectations Map
One of the tools developed by Bill Fonvielle, one of our founding partners, is something we call a Customer Expectations Map.
An expectations map is a formatted display of the expectations of a group of customers with respect to a provider or supplier. It is structured to be easy to understand and use.
The map is useful as a standalone tool for educating employees about what matters to customers, or for thinking through process, product or service design and development, or for making hiring decisions. But it can also be a springboard to deeper customer insights.
An expectations map also answers the question: “What should we ask in our customer survey?” The expectations map is inherently relevant because the content comes directly from customers. Thus, a good expectations map makes creating a good customer survey a straightforward proposition.
The Expectations Map organises the expectations into a meaningful hierarchical structure rooted in research and verified through experience. At the top of this structure are three domains – Service Quality, Product Quality, and Cost which together encompass the whole of the customer experience.
The domains also encompass the realm of customer expectations. In other words, customer expectations are all about the customer experience. The domains can be further defined as follows:
- what it is customers receive (product quality, which includes service when service is the product)
- how they receive it, that is, what their experience is like in receiving it (service quality)
- and cost, what they have to spend over time for the privilege of owning or using it.
Thus, the domains of Product Quality, Service Quality and Cost are the broadest categories of expectations displayed in the map.
The next level of detail is the dimensions of Product and Service Quality and Cost.
These dimensions are displayed in the partial example below.
Interestingly, the percentage of expectations that fall into Service Quality is almost always between 65% and 75%, a figure that corresponds nicely with an iconic research finding by the Forum Corporation that about 70% of the reasons given by both consumers and business purchasers for switching from one supplier to another are due to Service Quality issues. This already gives you a clue that purely product-focused companies are missing an essential part of the customers psyche.
The validity of this framework has been demonstrated over hundreds of cases, although some dimensions may not be relevant for the customers of a given industry.
While the dimensions of quality and cost are relatively generic and constant across industry and product/service lines, the content of the dimensions as well as the number of relevant dimensions varies from industry to industry and for each product or service category.
We have only talked about maps constructed for displaying the expectations of customers for a product or service. We also regularly produce maps for:
- expectations that employees have of an employer,
- expectations that customers have of sales representatives,
- expectations that various internal functions in an organization have of a given internal function,
- expectations that a customer project team has of the vendor project team, and so on.
In these cases, the domains, dimensions and specific expectations are distinct and different to the model above, but the principle of mapping expectations for clarity is still valid. .
Ultimately, a good customer expectations map captures the authentic voice of the customer. Expectations gathering and mapping is the first step in developing highly focused, customer-friendly survey and diagnostic instruments that provide clear and actionable data. The real payoff is a deeper understanding of customers – profound knowledge that can point the way to profitable growth for any company.
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If you want to know more about how Expectations Gathering and Mapping can help your organisation, please contact us here
Understanding what really matters to your people
A guest contribution from Hatty Richmond
The Psychological Contract is a term well known to organisational researchers and psychologists, but less recognised in the workplace.
An example of how the Psychological Contract can be spectacularly broken is the recent Volkswagen emissions scandal. Volkswagen has undergone reputational evisceration in the press and the full picture of the fallout has yet to emerge, but you can bet your bottom dollar that the human (employee) impact of this colossal breach of trust will be huge – never mind the immediate impact on share price and consumers.
Whilst contracts cover the tangible basics of the employer/employee relationship, the Psychological Contract is all the unwritten, intangible stuff – or ‘expectations’ – held by the employee. It covers the things that are implied in return for work and commitment.
A strong Psychological Contract is often the basis of extra effort made above and beyond the minimum. Examples include; an ‘understanding’ that delivering to a certain standard over time will bring promotion; everyone will be treated in a fair and balanced way; or that an organisation will fulfil its environmental and ethical commitment.
Every individual has a intuitive sense of what they intrinsically need in order to give their commitment.
It is up to the organisation to understand this and act accordingly. As a result, the early interaction between organisation and employee – starting with public image – is crucial, and well-meaning efforts to attract talent can lead to problems down the line.
The modern age of more flexible working, the move away from jobs for life, higher levels of education and the huge and immediate power of social media and instant communications all mean that the balance of power has tipped towards the employee. Work is no longer grounded solely in contractual obligation; instead it’s much more about commitment and choice. On this basis all organisations, especially those who want to attract and retain talent, ignore these changes at their peril.
The impact of a broken Psychological Contract is significant. Even more so, when it’s en masse, like in the case of Volkswagen.
Another example is the niche, owner-managed Executive Coaching consultancy bought out by a major accounting/consulting firm. The buyer liked the numbers, but failed to recognise the subtleties of the unwritten deal between organisation and people. The new culture and operational practices were alien and – to the acquired company – hostile. Every single consultant left within a year, taking the value of the acquired business with them.
Professional Services acquisitions, where human capital IS the product, are littered with examples like this.
Closer to home, a client of mine was suffering from problematic staff turnover – 50% of new employees were leaving within a year. The leadership was tolerating this as, incredibly, it was the norm for the sector. A programme of research showed that expectation set early on in the relationship – of the company, the job, the conditions of work – was wildly out of step with reality.
By making simple changes to align expectation with experience, this churn rate was cut in half, putting £2m on the bottom line of this medium-size enterprise.
A breach in the Psychological Contract is not synonymous with poor leadership, nor with ethical scandals, although these factors can certainly result in a breach. The consequences of such practice tend to snowball, which could then easily result in further reactive behaviour that then DOES breach the contract.
It is about whether the employees expectations are met with in reality. To that end, an organisation could be riddled with poor practice, but as long as its people don’t experience dissonance, the contract remains intact.
Clearly, though, we wouldn’t recommend it!
All this poses interesting questions for organisations and its leaders. Even if you are not in the fight for top talent (for whom simple remuneration and contractual benefits are only the basics) a more mobile workforce with greater choice can simply vote with its feet and the cost of churn – or even of the withdrawal of discretionary effort – can be devastating.
Equally, if like my former client you are taking this cost in your stride, removing it can be positively transformational.
The Psychological Contract can be helpful to provide a framework for discussion, and changes in practice and behaviour.
In the 1990s, Sir Colin – later Lord – Marshall, Chief Executive of British Airways was being interviewed by a journalist. The latter asked him, as leader of a famous brand, what he feared most. Sir Colin said something along these lines: “the pilots can be ill, the food can taste bad, the plane may be late and we lose the passengers’ baggage. I know I can fix these things and I will. But the thing I fear most is our Information Systems going down. We are critically dependent on our IT people for delivering our customer experience and for our survival.