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Customer Focus, Customer
Performance, and Profit Impact
Satisfied is not good enough. Completely satisfied—that’s a big deal. A completely satisfied customer is at least three times more likely to return than one who’s just satisfied.
―Andrew Taylor, CEO, Enterprise Rent-A-Car
Very Satisfied Customers Drive Profits
Chapter 1 Objectives
Building a customer focused organization
Measuring customer performance
Profit impact of customer retention and customer loyalty.
Chapter 1
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Customer Focus, Customer
Performance, and Profit Impact
Building a Customer-Focused Organization
Chapter 1
In this section we will look at how customer-focused organizations not only outperform their competition over the long term by consistently delivering higher levels of customer satisfaction, they also realize higher profits over the short run.
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Underwhelming Customers
Little or no customer focus translates into an unfocused competitive position and minimal customer satisfaction. The result is a vicious circle of poor performance.
Chapter 1
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Top Performers Produce Higher Investor Returns
Apple, Southwest Airlines, and Clorox would be a part of the top performers in the graph above. Their average stock price index started at 100 and 10 years later was 300. Poor performers started at 100 and 10 years later were still at 100.
Chapter 1
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Customer-Focused Organization
Senior Mgmt Leadership
Employee Customer Training
Customer Involvement
Customer Satisfaction
Customer Retention
Customer Loyalty
Customer Experiences
Customer Solutions
Customer Complaints
Chapter 1
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Customer Focus, Customer
Performance, and Profit Impact
Measuring Customer Performance
Chapter 1
In this section we will look at how companies that use customer performance metrics are able to identify their unprofitable customers.
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Benchmarking Customer Satisfaction
ACSI studies have shown that Customer Satisfaction is a leading indicator of company financial performance. The ACSI database reports all companies by industry.
American Customer Satisfaction Index - University of Michigan (www.theACSI.org)
Chapter 1
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Customer Satisfaction
A Key Performance Metric
Chapter 1
To determine the CSI for a sampling of customers, simply compute the average of the customers’ satisfaction ratings. Customer satisfaction is a forecast of future revenues and profits.
Very Dissatisfied
0
Dissatisfied
20
Somewhat
Dissatisfied
40
Somewhat
Satisfied
60
Satisfied
80
Very
Satisfied
100
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Customer Satisfaction – Wide-Angle View
Chapter 1
De-averaging CSI provides a wide-angle view of customer satisfaction and allows managers to see more completely the opportunities for improvement.
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Profit Impact of Very Satisfied Customers
“Very satisfied” customers not only buy more, they often buy higher-margin products and services, which results in a higher percent margin on total sales.
De-averaging CSI is critical to understanding customer profitability
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Complaint Behavior and Retention
Each year, the business above loses 22,400 customers who are dissatisfied, but do not complain.
Dissatisfied customers often do not complain, but they do walk away and they do talk.
Chapter 1
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Profitability of Satisfied Customers
Chapter 1
When we chart customer profitability against customer satisfaction, we see that the “very satisfied” customers are the ones who drive profitability.
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Managing the Customer
Experience with Twitter
Alaska Air uses twitter as a channel to promote new fares/routes and to field customer service issues. Their twitter page is a mix of responses to customers, promotions, and warnings of weather delays.
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Estimating Customer Retention
Chapter 1
To estimate retention rates, businesses can use a customer survey as outlined above.
How likely are you to buy this product or brand again on your next purchase?
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NetFlix Customer Retention
The Customer Life increases exponentially with increases in Customer Retention.
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Customer Lifetime Value
The lifetime value using a 10% discount rate is $111.70, the net present value of the customer cash flow over 5 years.
The average credit card customer for this company has a customer life of 5 years. It costs the company $51 to acquire a new customer and by year 5 they produce $55 in customer profit.
Chapter 1
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Customer Performance and Profit Impact
Profit impact of customer retention and customer loyalty.
Chapter 1
In this section we will look at how loyal customers have a longer customer history, are more committed to the company brand, buy more, and are more likely to recommend the brand to others.
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Assessing Customer Loyalty
Loyal customers have a long customer history, buy at an above-average purchase amount, have a high desire to repurchase, have strong product preferences for the company’s products and would recommend the company’s products to friends, relatives, and co-workers.
Chapter 1
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Managing Customer Loyalty
Loyal Customers – High performance in all five aspects of customer loyalty
Repeat Customers – Great customers that buy often but score lower on purchase amount, product preference, and customer recommendation.
Captive Customers – Have a long customer history and average purchase amount but would leave if they could, as they are dissatisfied captive customers.
New Customers – Score low on all aspects of customer loyalty as they do not yet have the customer history to assess their customer loyalty.
Unprofitable Customers – Score low on all aspects of customer loyalty.
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Customer Lifetime Value
and Customer Loyalty
Customer Loyalty Scores and Customer Lifetime Value are closely correlated.
Chapter 1
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Customer Lifetime Value
Of Win-Back Customers
The “second lifetime value” of a win-back customer has a net present value almost 3x higher than the average lifetime value of an entirely new customer.
Chapter 1
The return of a former customer is a lost opportunity that has reappeared— a second chance to develop a loyal customer.
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Customer Loyalty & Customer Profitability
Loyal customers play an important role in company profitability.
Chapter 1
