Customer is king

Harry Gordon Selfridge, founder of the luxury store that bears his name, summed up the importance of flawless service when he reportedly coined the phrase “the customer is always right” at the start of the 20th century, but it has taken more than 100 years to make a link between customer experience and the bottom line.

Although a weight of evidence now exists to demonstrate the two are inseparable, it appears to have reached too few boardrooms. As Mike Ashton, former senior vice-president for international brand marketing at Hilton, puts it: “You have only to look at the companies that stand out for doing this to realise they are the exception, not the rule.”

With marketers largely in charge of managing consumer relationships, how can they convince corporate boards that improving customer experience will pay dividends?

Ashton spent 18 months gathering evidence from 250 hotels to show that investing in a positive experience for customers would boost Hilton’s bottom line. Part of this exercise involved demonstrating to the board how much money the company was losing through poor customer experience.

The resulting ’transformation programme’ eventually made Hilton number one in every market outside the US (see Case Study, below). And the hotel operator is not alone in putting resources into managing and measuring customer experience. Businesses such as Nationwide, More Than and TGI Friday’s are also looking at how the experience their customers have with them affects the bottom line, whether that be through a call centre, meeting staff or on a brand’s website.

Plenty of evidence exists to show that satisfaction with the customer experience is linked to profitability. For example, twice as many car dealerships with low satisfaction scores went out of business in the recession as those with high scores, according to figures from Maritz Research.

Its research also shows that 55% of people who are happy with a sales experience will pay for the same dealership to service their cars, but only 35% of dissatisfied customers would go back to a dealership they weren’t satisfied with.

Ashton, now managing director of consultancy ABCG, agrees that smart companies will want to create an experience that meets or exceeds the customer’s needs and expectations in a way that is “profitable, operationally deliverable and sustains a point of difference in the marketplace”.

Internal struggle

Nationwide introduced a tracker to measure how satisfied people are with its service in April 2010. Head of customer marketing Alex Bannister says there is still an internal struggle for businesses to get the boardroom to understand how important a customer’s experience of the brand is.

Marketers should be well placed to point out the business benefits of a high-quality customer experience, given they are the ones who most appreciate what customers want. Arguably, marketers should also be responsible for the promises brands make about their service and as such should be aware of the perils of failing to meet them.

Yet, despite it being cheaper to keep a customer than acquire a new one, Ashton says marketers often struggle to convince their organisations that the cost of ensuring a consistent experience is an investment in ongoing profitability.

“Few marketers are sufficiently influential within their respective businesses at board level to be able to create a robust business case and a workable operational model that will galvanise an organisation,” he argues.

The marketers that can persuade the board of the importance of customer experience are seeing undeniable results. Hilton has achieved year-on-year growth in membership of its HHonors loyalty scheme, which was relaunched this March to focus more on guests’ experiences rather than simply collecting points. Scheme members now contribute more than 45% of the hotel company’s overall revenues (see Case Study, below).

While loyalty schemes can help create happy customers, other brands have found they need to focus on making their core proposition match the service they offer.

Meeting expectations

For example, More Than uses its marketing to suggest it is ’more than’ just an insurance provider, but it found that only 52% of its car insurance customers were satisfied with the general service they got when it carried out a survey in August 2010.

It also found that only 44% of customers were satisfied when they renewed their car insurance and that only half said the company had fulfilled their needs first time (see Q&A, below).

This led the business to question whether its core proposition actually met the expectations it had created. A particular cause of frustration, More Than found, is “first-contact resolution”, or solving customers’ problems first time without them needing to call back.

More Than’s survey drew links between first-time resolution and satisfaction, and between satisfaction and insurance policy renewals.

According to RSA Group chief marketing officer Pete Markey, who oversees the More Than brand, there must be a balance between the experience someone has with a brand and what their expectations are.

Looking at the customer experience and delivering it consitently should be considered as sexy as the brand itself

He argues that the equation is not as simple as either promising what you can deliver or matching your delivery with what you have already promised. “It is somewhere in the middle. Do you wait to be perfect before you communicate? Obviously not. You have to be true and have integrity in what you are promising as a brand and consistently deliver that.”

More Than has seen first-contact resolution and satisfaction rates rise since devoting more attention to call centres.

Focusing on the customer experience is equally important for brands that offer a face-to-face service. Since being bought by a consortium of investors in 2007, restaurant chain TGI Friday’s began measuring how customers experienced its outlets. Overall satisfaction improved by two-thirds between 2006 and 2010, and the business claims it is now seeing compound sales growth ahead of the market (see Case Study, below).

That turnaround was prompted by the fact that satisfaction was at just 35% in 2006 and the business had to decide whether the American diner atmosphere at the heart of the brand was still relevant. It realised that to maintain its premium pricing and remain popular, it had to invest in training restaurant staff and revamping its venues.

Few marketers are sufficiently influential within their respective businesses at board level to be able to create a robust business case and a workable operational model that will galvanise an organisation

However, for some brands, not promising much can mean that customers feel more satisfied with an experience than they thought they would. For example, low-cost airlines might get fewer complaints than those brands whose image is more premium.

One such carrier, Ryanair, claims to have the lowest complaints rate of any European airline, with 0.57 complaints per 1,000 passengers in August and 99% of these “resolved within seven days”. But it could never be accused of setting expectations of the customer experience too high, given chief executive Michael O’Leary’s periodic threats to charge for ice cubes or for using the toilet on the plane.

Ryanair’s head of communications Stephen McNamara agrees that the brand is not shy of negative press stories, but says it focuses its marketing on “price and punctuality” as opposed to the quality of the experience on the plane and in the airport.

“We never miss an opportunity, and from time to time engage in ’guerrilla’ marketing to garner quick and easy publicity. But our customer surveys consistently show that over 50% of our passengers fly with us four or more times a year.”

Lowering expectations is not a sound marketing strategy for most businesses, however. The more likely task for a marketer is to justify the promise being made and to make the argument within the business for why this must be met. As Eurostar sales and marketing director Emma Harris summarises: “A business’s brand positioning should be built on competitive advantage, and to deliver on that competitive advantage the experience must be consistent with the brand.”

Eurostar began a review of its customer experience in 2008 to assess whether its “service personality” reflects the “pioneering spirit” that Harris says is at the centre of its branding.

Call centres were identified as an area with particular deficiencies, she adds, because the way staff were being rewarded and measured didn’t match the customer experience being communicated by the brand. Eurostar threw out all of its scripts and call centre staff are now measured on building rapport with customers, rather than on call length or how much they cross-sell or upsell.

Call centres

This might seem like a recipe for increasing costs without any measurable benefit. But a poor experience in a call centre is likely to cause a customer to take their business elsewhere, according to research into mobile phone operators by Maritz. Half of all bad experiences that cause a customer to leave a brand happen in call centres (see Make or Break Experiences, below), indicating that it would be foolish to skimp on delivering a consistently good customer experience in this area.

Marketers are probably well aware that cutting down on the customer experience is often a short-sighted strategy, especially since a company has nowhere to go once costs hit rock bottom. But without presenting hard evidence, they will not be equipped to demonstrate why it is important to invest.

Regulated industries such as water have a more formalised approach to gathering that evidence. Water regulator Ofwat’s Service Incentive Mechanism (SIM) determines how much the regional monopoly suppliers can charge. It contacts 200 customers every quarter for a qualitative study and also assesses complaints and repeat or abandoned calls by customers.

Veolia Water uses a text message system from customer insight company Rapide to get feedback from its customers, giving it a picture of its performance between surveys. Every customer who contacts the company is sent a text message asking whether they would subsequently recommend it on a scale of 0-10. Those scoring 0-6 are called back, since a low score means a customer is more likely to need to make a repeat call or complain.

According to Veolia Water marketing manager Morag Kent: “Most customers do respond, and we get really faithful results out of it; so much so that we are using it to predict our SIM scores.”

With Veolia Water, the customer experience is embedded in its operations, since it helps determine profitability. But where responsibility for customer experience lies varies between companies. In some, there is a dedicated customer experience department, in others marketing will take the lead and in others it could be operations.

The businesses that do invest in putting customer experience at the core of their profitability seem to have two things in common – consensus at board level that the experience must meet the expectation, and the ability to communicate this to all members of staff.

At Nationwide, for example, there is no specific customer experience function within the building society, even though it has set a target of beating all other high street banks on this measure and has begun publishing complaints and service tracking data on its website to prove it.

Instead, the goal is embedded throughout the business. It is a structure whose efficacy depends on one fundamental question, Nationwide’s Bannister says. “Is there a good line of sight between the strategic objectives at the top and the day-to-day operations and conversations with customers? It is quite easy for someone to have a vision at the top, and for it not to reflect what is going on on a wet Thursday morning in a branch or call centre.”

In many organisations, no department has greater incentive than marketing to ensure that this line of sight exists. Marketers are responsible for making the brand’s promises, so they must also take responsibility for keeping them. But to show the business the importance of doing so, they must use hard evidence to get the support of staff in every discipline and at every level, from the board downwards.