Voice of the Customer

Using Customer Loyalty to Drive Growth and Profitability

Studies show that acquiring a new customer can be anywhere from five to 25 times more expensive than retaining and building additional business with an existing customer. So it’s vital to develop strategies focused on

building customer loyalty. Fortunately, there are tried-and-true methods for building loyalty and improving customer retention. One of the most important techniques available to aid in understanding, building loyalty with, and retaining customers is a tool we will review called voice of the customer (VOC).

Most businesses have an ongoing dialogue with customers through their sales and customer service teams, but efforts tend to be reactionary. When a customer has a problem, they call their sales rep, who tries to swiftly rectify the situation. You may even send out customer surveys from time to time in order to gauge how satisfied your customer are with your brand, product, and/or service. But without proactively taking a deep dive into your customers’ needs, wants, and preferences, you are almost certainly missing critical insights that are going on beneath the surface that will better inform the VOC. However, if you make the investment to gather these customer loyalty insights and understand how to apply them to the business, you will improve customer loyalty and retention, reduce your cost of sales and increase your profits.

What is the voice of the customer?

A brief history on customer feedback

Back in the 90s, mail-order businesses were based on a numbers-driven model. These companies would calculate the customer lifetime value, buy a mailing list, send out a direct mailer to everyone on the list, and check conversions. If the conversion rate resulted in a return on investment that was favorable, the company would continue marketing to that list. If not, they would discard the list and buy a new one. This method was one of the earliest ways of using data to gauge customer interest and engagement. It was a loyalty check in its most basic form and was one of the early business models that placed an emphasis on customer lifetime value and customer retention.

From there, more and more companies started looking at buying behavior, asking customers two questions: 1) how likely are you to repurchase this product? and 2) how willing are you to recommend this product to a friend or colleague? By directly asking the customer these two questions, companies were able to better predict how customers would behave in the future.

Introduction of the NPS model

In 2003, the Net Promoter Score (NPS) was introduced in an attempt to simplify the predictive behavior model. It eliminated the repurchase question and asks customers to rate their willingness to recommend on a scale of zero to 10. Anyone who responds with a nine or 10 is a promoter, seven and eight are passives, and those who respond with zero to six are detractors. To calculate NPS, you subtract the percentage of customers who are detractors from the percentage of customers who are promoters, with scores ranging from -100 to 100.

The NPS metric is used by more than two-thirds of Fortune 1000 companies, but very often, single-question surveys can be easily manipulated and rarely provide the complete story. Salespeople are rewarded for getting high marks on these surveys. So if a customer responds with a low score, the salesperson follows up asking what they can do to raise the score. The customer then becomes incentivized to give the company or salesperson a higher score. And while this second outreach may temporarily appease a dissatisfied customer, it won’t do much to drive loyalty long-term.

Establishing the voice of the customer

In order to gain an in-depth understanding of your customer base and their loyalty, you need to take a multi-dimensional approach and establish the voice of the customer. The VOC is a deep understanding of your customers’ wants, needs, and preferences, and it is a valuable tool to inform many of your business decisions aimed at client targeting, cross selling and retention. The VOC is established by asking your customers a series of questions about their experience with your company and product, because no one question will truly predict customer behavior in the future.

For instance, a single question about satisfaction may paint an overly optimistic view. A customer may be satisfied with your service or product because they don’t have high expectations or because they don’t know of any other options. They may also feel satisfied until a competitor comes along and offers a product that raises their expectations.

Instead, you should be asking a series of questions about the entire customer experience. You’ll want to consider questions like: How are you making buying decisions and are we facilitating that well? Are you satisfied with service and delivery? Is invoicing understandable and timely? Do you hear from us enough or too much? How important is having a dedicated account rep?

By asking these questions—and follow-up questions, if possible—you’ll have a better understanding of the voice of the customer, meaning you’ll gain insights into what your customers want, what they need, and what their preferences are in relation to the services or products they receive from your business.

Why you need a deep understanding of the VOC

Understanding the VOC is important because loyal customers are your most profitable customers over time. There are a number of reasons for this, starting with the  expense of acquiring a new customer. Investments are required for marketing, advertising, and lead generation tools. Finding, converting, and onboarding new clients also requires time and expense with your sales, marketing, customer service, and accounting teams. You may even need to offer discounts or price premiums in order to close a sale. And, if you are a typical company, you will bear the costs associated with marketing to 100 prospects to acquire 1 or 2 new customers. And all of these costs are a drain on  profits. Often new customers are not profitable in year one if the acquisition costs are considered in the “true cost to serve” accounting.

Existing customers, on the other hand, are much easier—and less expensive—to manage. Every year that your client repurchases, their profitability increases.  There are no initial acquisition expenses, and customers learn to work with account reps and vice versa, so processes become more efficient and automated. Once you’ve built trust with your customers and they’re happy using your product or service, you no longer need to offer price incentives. You may also see additional profits driven by referrals from these happy customers.

Not only will your long term customers continue to make purchases and renew their contracts with you, they are more likely to purchase additional products or upgrade their subscription. Studies show that customers who buy three products are more likely to add another product than those who buy only one. So the more you can engage them, the easier it becomes to upsell.

Frederick Reichheld – “The Loyalty Effect”

 

How to gather information from your customer

What is the best method to gather information and establish the voice of the customer? There are several ways to do this, but they primarily fall into two categories: surveys and studies. Surveys are a great way to gather a small amount of information from  many customers, while studies provide the opportunity to do a deep dive with a select group of customers. There is value in each, and businesses should be using both methods to establish an accurate voice of the customer.

An Effective survey

For most businesses it is challenging, if not impossible, to meet with every client face-to-face, and  surveys can be distributed over the phone or via email;  Phone calls are expensive, but they give your sales team the ability to navigate more complex relationships—especially for B2B companies. You are able to follow-up and ask more probing questions while you have your client on the line, which allows you to get a deeper understand of customer needs, wants, and preferences. However, it can be difficult to track down the decision maker over the phone. Email, on the other hand, is much less expensive and invasive for customers, which can have a positive effect on response rates, and allow you to get feedback from a large sample of customers in a relatively short timeframe. Customers can answer the survey whenever it’s convenient and gather feedback from other team members if necessary. However, with email, you don’t have the opportunity to dig deeper and it requires that you have a very well-written survey to ensure you’re capturing all the information you need.

Rounding out the loyalty study with a second more tactical study

To supplement what is learned in the customer loyalty phone and email surveys, companies should host a second types of study: a defector study. Both should contain a representative sample size, but in most situations, the defector study would use a significantly smaller sample size. The loyalty study is conducted with a sampling of all of your customers and the defector study would only be done with customers who have stopped buying. The goal of the loyalty study is to better understand the three dimensions of loyalty—product satisfaction, repurchase intent, and likelihood to recommend—to uncover what the drivers of loyalty are for your organization. Which elements of the customer experience do your customers value? Which of those elements do they think you are good at…or not so good at? And how should your business model change to ensure that those elements are part of the customer experience?

Defector studies should be designed to address the following questions:

  • Do they know they are no longer a customer? (Sometimes, in B2B organizations that sell a yearly subscription, the customer may not even realize they’ve stopped ordering from you, which probably means your customer experience isn’t personal enough.)
  • If the customer did consciously stop buying from you, why?
  • You also want to find out why they became a customer in the first place.
  • If they still buy the product from someone, find out who they bought from and why they chose that competitor.
  • And it’s always a good idea to ask what, if anything, you can do to win them back.

By conducting phone and email surveys initially, and supplementing these with in depth studies with the above groups, you will understand, in detail, how your business needs to change to drive loyalty. This understanding will include the specific drivers of customer loyalty and which attributes make a difference to customers, whether it is the customer experience, the pricing, or the product.  Armed with the knowledge of what your customers want from your business, you can focus resources on those features to increase loyalty, and in some cases, retain or win back customers.

Putting data into action

 Using data to identify vulnerable customers

Using  data you have collected from your customer surveys and focus groups, you can start to predict both customer loyalty and the time when the relationship is most vulnerable. You will see patterns of when satisfied customers defect to competitors. Are there specific events that cause happy customers to become dissatisfied? Are happy customers persuaded to leave every time your competitor offers a discount? Every business experiences the loss of a once happy customer, and knowing why they defected is the first step to ensuring your remaining customers grow with you.

If your business is seasonal or subscription based, you will want to examine the customer lifecycle to determine when the relationship is most vulnerable (often right before their subscription is renewed). In industries like insurance, customer renewals happen at the same time for all providers, so your competitors will know exactly when to try to persuade your customers to jump ship. Any time your competitor releases a new product, your customers may be tempted switch over, so that should be on your radar as well.

By tracking this information for your customers, you can put systems in place that notify your account reps to reach out and make sure customer’s receive personal attention at the most vulnerable times.

Using data to determine loyalty’s effect on profits

Trust and loyalty have a direct impact on profit growth. And there are a few metrics that show the direct relationship between loyalty and your bottom line. The first is the customer loyalty index (CLI). This is a composite score of customer satisfaction, repurchase intent, and the willingness to recommend (NPS). Through a survey, ask the three questions below. Customers will answer the questions on a scale of one to six with one being “Definitely no” and six being “Definitely yes.” Note – the scale can vary – although not less than a 5-point scale and not more than a 10-point scale.

  • How likely are you to recommend us to your friends and family?
  • How likely are you to buy from us again in the future?
  • How likely are you to try our other products?

The scores one through six are then assigned a value.

  • 1 = 100
  • 2 = 80
  • 3 = 60
  • 4 = 40
  • 5 = 20
  • 6 = 0

The average point value of the three questions will give you the CLI (customer loyalty index), which can range from 0 to 300, and which predicts how the following metrics change over time.  A higher CLI directly correlates to higher scores in the important metrics below.

Share of wallet: This is used to describe the percentage of a customer’s available spend that you currently have. Imagine you sell 10 different products for $10 each. Customers have a budget of $100 but only buy five products from you. Your ‘share of wallet’ for that customer is 50 percent, so there is room to grow that relationship and cross-sell.

Price resilience: This measures how much of a price reduction it would take for your customer to switch gears and buy from a competitor. The steeper the discount, the higher the loyalty. This metric can also be very telling as to how well your products are priced.

Repurchase behavior: By asking about customer repurchase intent over time you can determine how likely that behavior is to change as loyalty increases.

Customer retention: This, of course, refers to your business’ ability to retain a customer over time. For many businesses, this means annually looking at how many customers continue to buy from one year to the next.

The charts below show that as CLI scores go up, so do all of these metrics—increased customer loyalty translates to increased profits.

 

courtesy of Apexx Group

 

Using VOC to make changes to drive loyalty

Once you’ve analyzed the data and feedback from the VOC studies and found patterns that establish your drivers for customer loyalty, you can use this information to allocate resources and focus on initiatives that will drive loyalty, customer retention and increased profits.  Here are a few areas where VOC studies will enable you to make informed decisions.

Differentiated business and sales strategy: Today, your  customers have ever increasing options in the buying process, and information about every seller can be easily found online. There is a reason your customers chose you over your competitor, and it is important to identify what that is so you can incorporate it into your sales strategy. Are you easy to do business with? Do they value strong relationships with an account rep? Is the ordering process easy and convenient? Is your product superior? Does your SEO strategy make you easy to find online? Do they like the timing of your sales outreach? Are the terms of your contract ideal for cash flow? The value proposition that resonates most with your customers is the one to emphasize in your messaging. The VOC can help you identify those resonating value proposition elements.

Product and brand rationalization: Your business likely sells a variety of products and (most likely) follows the 80/20 rule in which 80% of your sales come from 20% of your products. Customer feedback should help you determine which products people are most interested in, which are in need of improvement, and which aren’t serving you at all. This should provide a guide in terms of the product offering and your brand.

Design of the customer experience: Based on what your customers value, you may find that you need to make changes to the customer experience. For instance, if you previously thought having a dedicated account manager was important to customers, but survey responses say a better online experience would be more beneficial to them, you may need to shift your focus to improving your ecommerce platform. The same is true of your service and delivery models. If any part of the ordering process is falling short for customers, you should focus on making appropriate changes.

Sales and marketing efficiency: There are two major sales and marketing takeaways you should get from customer feedback. First, how frequently and through what channels do your customers want to be contacted? This information should be used to design marketing efforts moving forward. But you should also determine which characteristics your loyal customers share, so you can understand and target your ideal customer profile. What industries are they in? How large are their organizations? You can use this profile to 1) target and secure more of the customers who are most likely to value your competitive strengths and remain  with you long-term and 2) ensure you retain current customers who meet that profile.

Early warning system and account remediation: Finally, as you learn what the triggers are for customers that defect, you can build systems that will track those issues, so your sales teams are alerted when customers are most vulnerable, and can react swiftly.

 

FortéOne has spent the last 20 years helping middle market companies identify the major drivers of customer loyalty so they can focus their time and investment on initiatives that will drive increased sales and profits. If you would like to have a discussion about how VOC could help you adapt your business model to create a competitive advantage, optimize how you go to market, and drive incremental growth and profitability, contact the experts at FortéOne today.

 

Contributor: Mark Peck