thinking: relating- celebrating :-)

As often happens the last post on customer service prompted a flurry of emails. Thanks to Philip for the ideas in this extended sequence as quoted below. In effect a guest post…

“Churn is a well known issue in the telecommunications sector but I was piqued by your comment, “In fact many companies treat all customers the same and that is a fatally flawed strategy”

Yes, I think that’s right too. But equally that’s hard to do and the bigger the company, with systems then the harder to start making exceptions.

So how does a company, medium or larger scale figure out if there something to this idea of treating customers different so that they would be encouraged to translate that into a business action.

I mean it has to ultimately make them some money – somewhere right, even if that initially only comes out as good news stories and praise as decent company ?

How does a company design a loyalty program? or a pricing scale?

or a something that acknowledges and rewards their long term customers?  so that even if the customer service wasn’t great one night/day/weekend, or there is a hot special with someone else, the customer still feels OK to do business with their long term provider.

I don’t think it’s an easily answered but the more I thought about it . . .

How about I counter that while your statement  “In fact many companies treat all customers the same and that is a fatally flawed strategy” appears to be right
- it is fact incorrect.
(dum-a-dum- dummmmm)

Big spending customers get volume discounts, so they ARE treated differently. New customers can get introductory offers to join, so they ARE treated differently, Seniors get a deal ???

So it’s the people in the middle, you are talking about here.

Not big spends in corporate terms, nor people who churn as a way of life as they hunt out deals) but just business people or maybe better put, busy people,  who cannot be blowed, to getting on to new platform, or phone etc  and reprogramming their handsets with all those numbers (do I really have her phone number after this many years?)

So is your point is that there is a market, I mean a dollar in keeping them right?

Now if you could figure out the numbers for that – that would be a business”
Philip

Thanks Philip – what do the rest of you think about this? I’d say that I am in the neglected middle part of the customer group. In my view there is more than a dollar in reaching this group and that is one of the ideas I  was trying to reach.

I still maintain a view that segmenting customers and offering segment messages is the way to go but the temptation is just to go for velocity and hope customers stay for the ride.

Looks like you have visited before, you may want to subscribe to my RSS feed. Thanks again

When people ask “What business are you in?” I would say I’m in the business of leveraging customer capital.

The concept of customer capital includes goodwill and increasingly in these days of social media the ability to communicate widely about customer experiences far and wide.

Update: They might even twitter about it.

The old measurement used to be if I liked the company I might tell a few people but if I disliked the experience I would tell 9 people. Given the viral nature of websites and other media the multiple has to be more like hundreds and possibly thousands.

In the world of the internet market reach can also have a darker side and its your reputation that is up for grabs.

The thing is that not every company realises this and so there are no really useful measurements in place to find out what is happening to the customer vibe for the business.

When I worked as a management consultant we would look at ways to develop measurement criteria outside of the typical accounting numbers.

Sometimes managers would say we should know how many customer complaints there are.  The dirty secret with customer complaints is that staff manage those down to make it difficult for a formal complaint to actually show up in the systems.

According to the book “Customer Service From Hell” (by Phil Slater) only 5 percent of complaints actually show up as a formal measurement.

Another 10% of people tried to register a complaint and were blocked from the process. The other 85% just walked away and may have told everyone they know that they had a problem – but the company itself is blissfully unaware.

And worse they don’t realise that for every customer complaint that gets through the system they are missing the other 90+ percent. Each time this happens they miss an opportunity to win back a customer and buzz in the market and staff morale are effected like some kind of invisible virus.

Just imagine you have outsourced your front-line customer management (bad idea) how many complaints do you think you might hear about? This means the number of formal complaints might be less than 5%.

The answer is very few because outsourcers are expert at the fob-off and in the absence of explicit customer service policy a customer avoided might suffice when they are crunching the numbers.

Just like exit interviews for people leaving jobs – the person might actually say the truth about the company an exit interview for disappointed customers would be a great idea but most companies don’t want to think about it.

This is vital information on the health of the company and just like the canary in the mine – when the customers sing the management had better be listening.

If I was asked to develop a measurement on customer capital for a typical business I would want to have a look at customer lifetimes, churn rates and actual numbers lost each month. I would then annualize that up so that management teams have a more tangible idea of the power of customer buzz.

For instance if I pay company x $150 per month for a service then the annual revenue is multiplied by 12 times. If I stay for 3 years instead of 2 then as a customer I can be worth $1800 or by lifetimes $3600 or $5400 on a 3 year rolling cycle.

Straight away you can see why some companies want to “lock-in” customers on a fixed term.

The background reason for these calculations is that I recently changed suppliers after one customer service meltdown too many.

To put things in context – lets look at some real numbers. In the June quarter of 2008 Vodafone won 35,000 net new customers compared with a 57,000 gain in the March quarter. (Public numbers from NBR page 11, July 25th 2008.) On the website they have mentioned a customer numbers baseline of 2,024,000 for new Zealand.

What is not reported is how many existing customers left the company in the March and June quarters. Those numbers are even larger.

This is called a churn rate from Lock the Customer – Not the Phone (November 2007)

“This month KPMG completed a global study into customer loyalty in the telecoms sector. The findings show an industry rife with CRM failure – and it doesn’t look like things will improve any time soon…..”

“despite the advent of 3G services mobile telecoms companies were losing customers twice as fast as they were in 2003. Defection rates had more than doubled in those two years, from 15.5 percent to a crippling 33.4 percent.”

So if Vodafone churn rates are 15% then 300,000 customers each year are leaving. If it is closer to 30% then that number doubles and 35,000 net new customers for the quarter doesn’t look so good.

In fact 300,000 customers churning each year works out at 25,000 per month so in one quarter the numbers leaving can be anything between 75,000 and 150,000 (@30%)

To place it in a more bite sized context this is a range of between 1100 and 2200 people every day that have some kind of reason to leave Vodafone (based on 22 working days each month.)

This might be why there is /was all those 25min phone queues and outsourcing to Egypt.

In my case after 9+ years with Ihug and Vodafone I chose to leave as do many hundreds of others each day. I tried to make a complaint but was told there was no way to escalate as the team manager was on leave and couldn’t action any complaints till he got back.

He never did. I left and Vodafone is poorer and dumber as a result which doesn’t help anyone.

I’d say more but Vodafone has a monopoly position on GSM mobiles in NZ and until there is more competition I can’t really say exactly what I think – but you can guess my feelings.

In my case each time a customer like me leaves at $5400 per lifetime this equates to millions of dollars that the company has to replace in revenue and profit.

Even if we were to assume that only 10% of customers had a customer lifetime value of $5400 that is still at least 2,500 customers each month. This is still a very large number.

The real point is that for most companies the numbers are too scary to even calculate so they just don’t do it. Eventually this exodus can reach a “tipping point” at by then its all over red rover.

“The average number of businesses that will stop doing business with you each year is 20%. To achieve a 10% increase in sales you need to win 30% more customers.

On average each business spends 6 times more to win new business than it does on keeping existing customers.” From Six Marketing Mistakes off Marketing Best Practices

Who then goes on to recommend much better customer care of existing customers. In fact many companies treat all customers the same and that is a fatally flawed strategy.

For example – if the Ihug / Vodafone had kept various customer self service options for long standing customers then I might still be around – but forcing me to call a help-desk on numerous occasions for functions I had previously been able to do was the straw that broke the camels back.

How about this quote

“We can’t afford to have unhappy customers.  Just one mistreated customer can affect thousands of future sales.”

This comes from a list at on Measuring Customer Experience by Paul Holstein

We review our Product Reviews to see the problems or successes our customers experience.

We have a suggestion box on every single page of our website where customers can tell us if any page is confusing or needs additional information.

We monitor blogs with a tool from bloglines.

We use Google Alerts to monitor new web pages that reference us.

We look at new referrers to our site to see what they say about us.

We have a self serve testimonial page where our customers can share comments.

We monitor our e-mail to sales@ or orders@ or webmaster@ using help desk software.

We regularly perform usability studies in our own lab.

We regularly perform multivariate testing using Google’s website optimizer.

We use Alertsite to monitor our website performance.  Gomez is a more expensive competitor.

We monitor our 404 errors by studying our log files, not just our Omniture reports.

We poll our customer service reps. to get an idea of our customer’s thoughts.

We monitor high bounce rate pages.

We monitor zero site search results.

We use a newspaper clipping service from Cison (formerly Bacons). A competitor is Burrelles Luce.

We regularly crawl our own site looking for problems.

There are also a whole range of other  tactics businesses can use to leverage their customer capital. However will leave that till next time as this post is longer than I guessed it would be.

Is your business a customer circus or are you leveraging customer capital?

Circuses are fun but in my view it is much better to actively leverage customer capital.

Customer complaints are gold dust and should not be ignored or discouraged. Use them to do much better.

TED just released news (June 2008) that there have been more than 50 million downloads of their videos.

Ashley Highfield of the BBC mentions that iPlayer has now had more than 75m video downloads (as at May 2008) so clearly we are moving into a new era of accelerated video and this has major benefits right across the spectrum.

Keep reading for more about both stories.

The Johnny Lee short clip (at #10) is one that everyone should watch.  It highlights a surprising twist to a technology product which has much wider benefits and implications for product innovation. (5m40sec)

10. Johnny Lee demos Wii Remote hacks – from the top 10 list from TED

This is a brilliant example of a product taking a life of its’ own when someone else sees a new market for a new product and takes it there. I’d be guessing Nintendo wish they had though of this one.

Why is this Story Important and Significant?

The Johnny Lee story  demonstrates clear examples of what Kevin Kelly (in 1999 book New Rules for the New Economy and still worth reading.) Snips and comments on 4 of these rules follow.

• 1 – “Embracing the swarm, – competitive advantage belongs to those who embrace decentralized points of control” we can be anywhere on the network and still have an impact.
• 7 – “From places to spaces, – as place is replaced by multiple interactions with anything, anytime, anywhere (space) the opportunities for intermediaries, middlemen, and mid-sized niches expand greatly.” Think of the multiplier effect that YouTube played on this research project.
• 9 – “Relationship tech, enhance, amplify, extend, augment, distill, recall, expand and develop relationships of all types.”  With this amplification comes the opportunity for new people to tilt the paradigm of existing products and take them into new markets in new and exciting ways.I’d love to see a chart on how many controllers there were before Johnnies invention and now how many they are compared to the number of Nintendo consoles being sold.
• 10 -”Opportunities before efficiencies, – there is far greater wealth to be had by unleashing the inefficient discovery and creation of new opportunities.”

Sharing new ideas and researching new product innovations in a public way kind of like “research powered by video” goes counter to most of what we have understood about value creation and intellectual property management.

The web has changed everything and that is only going to accelerate if we understand what it is that we are looking at.  Best of all, many of these change cycles happen in real time and cross- pollinate at a furious and ever increasing rate.

So What Did Mr Lee Actually Do? (If you haven’t watched the video yet.)

Building sophisticated educational tools out of cheap parts, Johnny Lee demos his cool Wii Remote hacks, which turn the $40 video game controller into a digital whiteboard, a touchscreen and a head-mounted 3-D viewer. Researcher Johnny Lee became a YouTube star with his demo of Wii Remote hacks — which is almost more interesting than what he actually did – is the speed at which it has been picked up globally.

To understand Johnny Lee, just take a look at his personal Projects page. Aside from his Wii Remote hacks — voted the #1 tech demo of all time by Digg — you can see all the other places his mind has turned: typography, photography, urban renewal … to say nothing of his interesting sideline in Little Great Ideas, like the hypnotic “___ will ___ you.”

When he’s not hacking Wiimotes, Lee is a graduate student in the Human-Computer Interaction Institute at Carnegie Mellon University.

So the question is where else will video take us and what else is happening in the kind of television world that most people inhabit?

The Future of Online Video
A discussion panel [Ashley Highfield (first 11.5mins) , Christian Vollman (Germany), Antonio Campo, Dall'Orto] led by Matthew d’Ancona on the future of online video (35mins) Interesting that Ashley notes that BBC programmes are now available on the Nintendo Wii which is seen as a significant connected device now.

And check the numbers – BBC iPlayer has now had 75million downloads.  This really is the mainstreaming of quality video online when you factor in TED and the 4663 channels on Miro (Note: Miro includes much of the same content.)  YouTube is still a backbone but will be surpassed by other providers who have much better quality content very soon.

Now that broadband is more pervasive there is huge growth in the on-demand audience for quality video.

Ashley passes on some reports and stats that BBC can do as a public broadcaster and it is the trends that are significant on market share . This is great news for more specialist programming and offers a glimpse into the future trends that are shaping growth in other markets.

It will also ultimately have positive funding implications for programme makers looking at online broadcast platforms and potential audience numbers and revenue models.

Media7 in NZ looks to have a great future for example as it leverages outside experts and applies resources from a larger channel to get results way out of proportion to its actual current size. If you have taste-makers and media influencers in the same room anything can happen. When the audience amplifies that broadcast then you’re cooking with gas.

See also Zeitgeist Europe 08 video channel. Or here if you have a  login.

According to Youngblood the conference is now an:

“annual 2-day conference, which began in 2006, and is by invitation only for around 400 of Google’s strategic partners in the EMEA (Europe, the Middle East and Africa) region. This year’s Zeitgeist was held at The Grove in Hertfordshire, an impressive English estate about 40 km’s North-West of Central London.

Thankfully, it wasn’t a trade conference and Google products weren’t pushed down your throat as you might’ve expected, although there was some obvious tie-ins with certain products like YouTube and of course very strong branding throughout the event. The agenda was somewhat TED-like with a diverse mix of technologists, politicians, scientists and entrepreneurs as speakers.

from Youngbloods blog

Seems like Coin had a great time entertainment wise but glossed over  the really significant parts but since it was a closed set and I haven’t watched all the video it’s is hard to tell.

Regardless, we are a major online video explosion with video everywhere and getting better all the time.

Enjoy. Now go ahead and get enhancing, amplifying, extending, augmenting, distilling, recalling, expanding and developing all those relationships that will help us all create new value and true 21st century wealth.

As Kevin says “A network is a possibility factory”.

There was an extraordinary news item a few months ago in Sydney. An accounting firm there decided to cull some of the less profitable clients and came badly unstuck. When they sent out communications to those ‘unwanted’ clients some of their more valuable customers got caught in the crossfire.

This may relate to a poor understanding of the concept of customer lifetimes. In any business it would be useful to know which customers were the most profitable and then how to manage the client mix so that PR disasters like the example don’t happen.

For the record the firm was WHK Horwath and the full story is available under the title – “Quick Flick Reflects Badly” by Neil Shoebridge on page 49 of the Australian Financial Review on 13th of August 2007. Customer lifetime has been defined as:

“The net present value of the profit an organization expects to realize from a customer for the duration of their relationship. Customer lifetime value focuses on customers as assets rather than sources of revenue. The volume of purchases made, customer retention rates, and profit margins are factors taken into account…” from Bnet

In other words once you win a customer you should look closely at how that customers activities can be enhanced by your services over a longer period of time – and how they are looked after.

For many large projects the cost of winning new business is high and it is not until the 2nd or 3rd project that you might start making a profit out of the relationship.

Business life cycles are all different – however there is a general rule of thumb that it is 9 times easier to win business off an existing customer than to land a new customer. Regardless of the multiple – the point is look after your customers and they will look after you.

I suspect that the accounting firm looked at a short time period of time and not at a 5 or 10 year cycle which might be more valid. I wonder how many companies know where their business really comes from.

For example do some clients refer customers to their preferred suppliers? Sometimes this does happen – but it is unlikely to show up in a cashflow. If the business owner sees customers as an asset though - the results will show up on a balance sheet over the longer period.

For example many professional services firms work on sensitive projects for their clients. Sometimes they don’t want their competitors to know what they are up to and so a standard referral programme probably wouldn’t work.

However – If I am a potential client and I’m looking for a supplier – it would be helpful and indeed confidence building to know at least some of the names of customers who have been helped by that particular supplier.

Being able to supply a customer list adds credibility but it is hard to value in the context of simple financials.

In the case of the Sydney firm they accidentally sent an “unwanted client” letter to a valued client of 20 years standing. There had been a mix-up between the two lists. I suspect the admin person was not aware of the marketing implications – and in my experience this happens fairly often especially if ther task is seen as admin when it requires some sales insight.

Unfortunately for the Sydney firm their mistake was to send the wrong letter to Neil Shoebridge who is a high profile Marketing columnist at the AFR.

Here are some questions we should be asking Business Managers

1. What is a customer lifetime in our industry?
2. What is does the customer lifecycle look like?
3. Are their times in that lifecycle when profitability is impacted and does that improve later?
4. Do we have a way to value customers? (including referrals)
5. How do we measure customer profitability?
6. Can we increase our “share of wallet” – that is can we sell them more products and increase our revenue and / or profitability?
7. Can we service them is a different way – that improves profitability?

Perhaps you have some other questions – let us know?