Customer in the Center
You want to focus your energy on pleasing your truly rewarding customers. If it’s not clear exactly who they are, make sure you’re spending enough time on your core points of distinction.
Customer lifetime value is the net profit earned over the course of a company’s relationship with the customer. To maximize customer lifetime value, a company must not only convince customers to buy its product or service once; it must also retain them.
According to research by Intelity, “The Link Between Hotel Technology and Establishing Hotel Guest Loyalty,” hotel and airline companies, invest heavily in loyalty programs designed to encourage their best customers to come back again and again.
About one-third of leisure guests and about one-half of business travelers say they are loyal to a hotel brand.
Subscription-based services such as Netflix and Amazon Prime frequently offer free trials to attract customers, hoping that they will recoup their investment when customers sign up and become paying subscribers.
Profits flow to video game app developers not when their apps are downloaded for free, but when users decide to keep playing and spend money to upgrade the app or make in-app purchases.
According to N. Lovato, “16 Things Game Developers Should Do to Improve Player Retention,” www.gamedonia.com, less than 40% of video game players return to a free-to-play game after the first session.
Another analysis by A. Meola, “Here’s a Breakdown of Which Apps Have the Best User Retention Rates,” Business Insider, found that, on average, three-quarters of people who download apps stop using those apps within 90 days.
According to Slaon Management Review: ‘Which Features Increase Customer Retention?’ given the importance of retaining customers, companies have an incentive to design goods and services with customer retention in mind.
Unfortunately, they often add expensive features to their offerings without knowing whether or how much the new features will increase retention.
And research has shown that adding too many features can actually decrease customer satisfaction with products after customers have used them.
But what that really means for a company is that your customers have a value to you today, and as of today, the rate of change of that value means the value will be different for tomorrow.
Of course, any company that strives to develop tighter relationships with its customers also needs to engage its employees and treat them just as they’d treat their customers.
Don Peppers, the founder of Peppers & Rogers Group shares a didactic story.
One day a few years ago, a top executive in the German headquarters of Siemens AG was on his way to an internal sales meeting at one of the division offices when he encountered sales manager carrying a folding chair with him into the meeting. Curiosity aroused, the exec asked what was going on, and the manager replied that whenever he brought this chair into a meeting, the whole character of the discussion was different. “Just watch,” the manager said, as they both entered the conference room. Several people, including sales reps, were already gathered in the room when the manager brought his chair in, unfolded it, and set it down empty next to his own seat.
“Who are you expecting to join us?” asked several of the sales reps already gathered for the meeting.
“Shouldn’t we just get some more chairs brought in here?” some others suggested.
“No,” the manager replied, “this is my customer’s chair.
I brought it into the meeting so my customer can sit right here and listen to our discussion.” Then, with a nod to the empty chair, he said the meeting could begin. But, as he had predicted, the character of the discussion was indeed quite different from the typical sales gathering.
Several times during the meeting, participants found themselves asking whether a particular point would be made in this particular way if the customer were actually sitting there and listening.
Would we say this in front of our customer?
What would our customer think of our plan for dealing with this issue?
How do we think our customer would interpret this new policy?
Would our customer agree with us that this is a good idea or not?
In the corridors of Siemens, based on this and other similar meetings, this sales manager became known as “the man with the folding chair.”
There’s a lesson in this story: We should be putting the customer’s perspective into every discussion we have and every decision we make. Nothing is more important to the long-term health of our business than the trust and confidence of our customers.
Yücel Ersöz reminds us that in order to satisfy customers and build the types of trusting relationships that will help companies maximize their revenue potential, organizations must first have properly motivated and engaged employees.
Employee engagement involves the steps that companies take to capture the hearts and minds of their employees, and motivate them to give their best effort to customers.
You can’t become a customer-centric organization until you’ve become employee centric. Your company is only as strong and effective as your customer-facing staff.
A highly-engaged employee typically feels more connected to the business and its performance.
In fact, according to a study by Hewitt Associates, the level of employee engagement at companies that have achieved compound annual profit growth of at least 10 percent for a five-year period is more than 20 percent higher than at single-digit growth companies.
In addition to connecting customers with the right employees, companies realize other meaningful business benefits from having engaged workers.
Employee turnover will be reduced, particularly in high-churn areas such as contact centers.
HR costs will drop as companies have to devote less time and capital to recruiting new employees.
That will also lead to lower training costs as companies retain longer-tenured, knowledgeable workers.
Nevertheless, the HR-related cost savings that stem from these actions pale in comparison to the impact that a highly engaged employee will have on cross-sell/upsell rates and other favorable business outcomes that result from happy, satisfied customers.
Employees are not equal
Just as companies need to treat different customers differently, they also must treat different employees differently.
Not just in terms of compensation, but also how each employee responds uniquely to different styles of communication.
They also have different needs and motivations; they each bring a different value proposition to the organization.
Because of their unique qualities and capabilities, individual employees also require different types of training, acknowledgment, project assignments, and career progression paths.
Some employees have a strong aptitude for assuaging customers who are upset. Other workers are adept at seizing opportunities for upselling customers at just the right time.
Decision-makers also need to recognize that there are roles within the organization where an employee’s impact is considerably greater than their rank or pay grade.
For instance, contact center agents don’t rank among the highest-paid employees in most companies, yet their impact on the organization’s business outcomes with customers is substantial. Such groups should be identified and handled with special care.
They can segment employees based on their skills or value to the organization and provide them with different types of incentives. These can include flex hours for working mothers or tuition support for workers attending night school.
Incentives can also be tailored to meet an employee’s particular motivation. For instance, some employees value public recognition of their efforts by senior executives in town hall-type meetings.
Another effective technique for motivating and engaging employees is by placing them through a variety of rotational job assignments. This will give high-potential employees a chance to learn more about different parts of the organization while strengthening their skills, as well as the company’s bench strength.
There are also techniques that can be applied to help motivate and incentivise employees based on compensation levers.
For example, companies can create special teams of contact center agents who are particularly adept at retaining high-risk customers. Agents who work in such groups can be compensated differently, including performance-based pay or bonuses that are tied to customer satisfaction and churn rates.
Applying the Golden Rule
When decision-makers take steps to motivate and incent their top-performing employees, they should be sure not to overlook their “B” team players whose contributions to the company are also critical.
The best way to do this is by setting transparent performance and rewards criteria for all employees, including the availability of training programs and the requirements for reaching different pay levels.
The criteria itself can be based on an employee’s performance grades and their direct and indirect influence on customer satisfaction scores.
Well-rewarded and engaged employees deliver higher levels of service, resulting in customer loyalty that enhances financial performance.
Highly engaged and motivated employees are more likely to go above and beyond the call of duty for your company’s customers.
Ultimately, that will lead to happier, more satisfied customers whose loyalty will be reflected in their business value to your company.
Don Peppers and Martha Rogers Ph.D. invented one-to-one business strategy over 15 years ago. Today, they are recognized gurus, acclaimed authors and globally sought-after speakers.