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Leading for Customer Engagement Position Paper Bruce N. Fern, President Performance Connections International, Inc.


Leading for Customer Engagement

Leading for Customer Engagement

Bruce N. Fern, President, Performance Connections International, Inc.

Introduction In the never-ending search for a competitive edge in the on-going battle for market share, companies seek better ways of bonding their customers to their business. In the B2B arena, enterprises work to differentiate themselves in the hope of retaining current accounts, creating barriers for the competition and acquiring new and profitable client relationships. In the consumer field, businesses hunt for ways to carve a path into their customers’ hearts and secure undying loyalty. In this position paper, our goal is define a better way of forging those bonds by creating customer engagement. To exemplify the universal applicability of customer engagement, we will explore how it applies to a variety of different industries, specifically technology, consumer banking, and retailing.

Assessing Future Customer Value Most companies realize that not all customers and client accounts are of equal value to their business. A superficial assessment might limit its focus to revenue per customer. A more sophisticated valuation would also assess profitability per account. A stronger assessment also includes future customer value – the forecast on the future revenue and profit potential of a business or consumer account. To define future value, we can look to the Performance Connections Loyalty Ladder®. The Loyalty Ladder® defines the different types of relationships a business or consumer might have with your company, as well as the different levels of future value. The Loyalty Ladder® Engaged Customers – Captured their minds and hearts Rationally Committed Customers – limited loyalty

Future Value

Contented Customers - Satisfied but no commitment Hostages - Doing business with you but feel trapped © 2007 Performance connections International, Inc. 914.244.0400 www.PerformanceConnections.com

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Leading for Customer Engagement At the lowest rung of the ladder are customers who feel like your business holds them hostage. These are customers who continue to do business with you not out of desire but instead because they believe they don’t have a choice. In banking for example, they make dislike your institution but they bank with you because you are the only bank that has a branch near their place of work. In technology, a company may do business with you because of your proprietary technology even though they wish they could do business with other providers instead and the switching costs might be too high. And in retail, they may shop with you because of the brands that you carry, but they really don’t like shopping with you otherwise. The future value of clients who feel like hostages is limited because they will bolt at the earliest opportunity to satisfy their buying needs elsewhere. The future value of clients who feel like hostages is limited because they will bolt at the earliest opportunity to satisfy their buying needs elsewhere.

At the next rung of the ladder are contented customers. These are customers who are moderately satisfied with your products and services. They feel no need to run away, but they have no strong reasons to stick with you either. As primarily price point customers, their future value is limited because they will defect when they find even a slightly better deal. And when they do buy, they represent low margin revenue. In technology for example, a competitor who can provide an equivalent product or service at a lower price can easily steal your business away from merely contented clients. In retail, contented customers will flock to the stores with the better specials without any second thoughts. And in banking, a better loan or interest rate will attract contented customers (along with the mandatory account balances required for those special rates). At the third rung of the ladder are rationally committed customers. These customers have some level of commitment to buying from your business. That commitment is based on rational reasoning – such as you offer better price, convenience, product availability, reps do a reliable job, comfort/habit doing business with you.. When asked why they do business with you, they have a logical explanation. In retail for example, they may like your brands, store hours or store design. In banking, they may feel like they know the staff in the branch. In technology, rationally committed customers will report that you have reliable technology and a quality product. There is a respectable amount

© 2007 Performance connections International, Inc. 914.244.0400 www.PerformanceConnections.com

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Leading for Customer Engagement of future value in these customers because they are likely to consider you when making their next buying decision. At the highest rung of the loyalty ladder are engaged customers. Engaged customers are quite different than rationally committed customers in that they have: ♦ An emotional commitment to doing business with you At the highest rung of the loyalty ladder are engaged customers.

♦ Ties to your business, products, services, and/or providers that feel personal ♦ An emotional connection to your brand and business

The Behavior of Engaged Customers The reason why engaged customers are at the top of the ladder is that they are the most loyal of customers. They exhibit different behaviors when compared to the other types of clients – behaviors that are highly desirable from a businesses perspective: Repurchase – Generate more repeat business – Produce a greater volume of sales – Buy your products and services more often – There is a 57% increased likelihood that they will repurchase when compared to those lower on the Loyalty Ladder Carlson Marketing research) In technology, client firms come back to your business more often for technology solutions, buy multiple solutions, make larger purchases, and place you on their preferred technology provider list. In retail, engaged customers come back to your stores and websites repeatedly. In banking, engaged customers have a greater number of accounts per household and use a greater number and diversity of your deposit, investment, and lending products. Retention – – – –

Demonstrate increased customer life span Associated with lower customer attrition rates Stay as active customers for longer periods of time Are 42% more likely to be a customer one year later (Carlson Marketing)

© 2007 Performance connections International, Inc. 914.244.0400 www.PerformanceConnections.com

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Leading for Customer Engagement In retail and banking, these consumers have and will be customers who shop/bank with you for longer periods of time, giving you an opportunity to retain a “customer for life.” In technology, engaged clients represent long-term partners who stick with you through changes in their own management and technology processes. And in all industries, the account lifetime value (the sales and profitability value of a client over the life of the account) is higher with engaged customers. Recommend – Make referrals more often – Motivate others to buy – Exhibit word of mouth “viral” endorsement marketing – Act as ambassadors and assist other customers in the buying process

Engaged customers are worth more because they repurchase more, stay longer, and recommend more people to your business more often.

Engaged banking clients refer their friends, neighbors and business colleagues to your bank for good financial advice and products at competitive rates. Engaged retail customers bring their friends to your store to shop together. And engaged technology clients refer you to other technology firms in their alliances and bring you along in large scale crosscompany enterprise ventures. Rationally committed clients are certainly of value to your business, but engaged customer are worth even more because they: ♦ Repurchase more and more often ♦ Stay longer as a customer ♦ Recommend to more people/businesses, more often, with more conviction and often even assist new customers with the buying process Because of this, engaged customers are the most valuable asset your organization can acquire and manage. Research supports this hypothesis with data that shows that businesses with higher levels of engaged customers: ♦ Outperform peers by 26% in gross margin and 85% in sales growth (Bain and Company) ♦ Have increased revenue per customer ♦ Experience reduced operating expenses and healthier margins ♦ Demonstrate stronger brand identity ♦ Enjoy reduced customer acquisition costs ♦ Grow twice as fast as their competitors © 2007 Performance connections International, Inc. 914.244.0400 www.PerformanceConnections.com

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Leading for Customer Engagement

Customer Engagement – The Strategic Advantage Businesses recognize that having more engaged customers is not only a desirable outcome; it also provides them with a keen strategic advantage. Executives realize this, as exemplified by the fact that customer loyalty was ranked first on the list of CEO management concerns in the 2007 Conference Board CEO Survey. And those businesses who can cook up the right customer engagement recipe will win in the marketplace, as evidenced by the research that reports: Customer engagement represents the new source of shareholder value.

– Only 22% of clients say the firms they do business with provide “superior service”, 17% negative and 50% neutral (CRM Guru) – 70% of customers switch to the competition due to service quality issues (E Satisfy) – In a large number of industries, in both business-to-business and business-to-consumer, 85% of business leaders report that differentiating solely on price, delivery and speed is no longer a sustainable business strategy (Shaw and Evans)

It’s clear that the value of a strong base of engaged customers serves as a buffer against fluctuating stock prices. In light of this, customer engagement represents the new source of shareholder value.

The Roots of Customer Engagement At the root of customer engagement are a number of customer beliefs, perceptions and attitudes that result in this desirable engaged state. The roots of customer engagement are integration, respect, trust, value, pride and passion. Integration – In technology, your business is seen as a valueadded technology partner involved in all major technology

decisions. In retail, your products are interwoven into the fabric of your customers’ lives. In banking, customers don’t make any significant financial decisions without consulting with your branch/investment staff. Respect – Customers perceive that they are treated with courtesy and respect, acknowledging their importance to your business. Trust – Banking customers believe you will act with integrity steering them in the best direction to the best rate and most

© 2007 Performance connections International, Inc. 914.244.0400 www.PerformanceConnections.com

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Leading for Customer Engagement appropriate product, and putting their needs before the bank’s sales needs. Technology clients can trust that you will provide them with a quality product/service, delivered on time, which performs as promised. And retail customers believe that they will be greeted and treated as valued customers and you have fair return policies. Value – In technology, clients perceive value in the advice they receive from you, the leading technology, or the price of your products. In banking, they believe they will get value from fairly priced bank products and quality financial advice. In retail, customers perceive value in the price they pay, the ease and convenience of purchasing, and/or the quality of the shopping experience itself. Pride – Consumers and business clients are proud of their affiliation with your business. Retail customers, for example, take pleasure in owning a Coach bag. Bank clients are proud that they are customers of a financial institution that actively supports the local community. And technology clients take pride in embedding your technology into their products or business. Passion – Business clients and consumers are passionate about your products and services. In technology, client engineers can be passionate about the new technology you provide to them. In banking, customers can be excited about the great rate they got on a loan or CD. And in retail, the best customers are fanatical about your products.

Experience Shapes Perception Clients cannot be tricked into becoming engaged with your business. No amount of marketing spin can substitute for reality. And for customers, reality takes form in the customer experience. Customer experience is defined by any element that influences the client’s perception of your business – positively or negatively. In a bank, the customer experience is characterized by such factors as their experience in the branch, the ease or difficulty of reading and understanding their statements, and the simplicity or complexity of banking on-line. In retail, the customer experience includes the look and feel of the store, how associates treat customers, the product selection, and even the parking experience. And, in technology, the customer experience is shaped by such factors as the quality and functionality of your products, ease and reliability of use, and access to supporting collateral. © 2007 Performance connections International, Inc. 914.244.0400 www.PerformanceConnections.com

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Leading for Customer Engagement Depending on your industry and company, the long list of factors that drive the customer experience is usually longer than you realize. The customer experience also: ♦ Defines where on the Loyalty Ladder your clients reside We must manage the customer experience to cultivate more engaged customers.

♦ Represents the opportunity to fulfill your brand promise ♦ Is a double edged sword: When it goes right you build customer engagement; when it goes wrong, you build your competitors business ♦ Most companies don't get it right consistently Consequently, we must manage the customer experience to cultivate more engaged customers. While multiple factors characterize the customer experience, the two that most influence it are: Your products and services Your customer facing employees who engage your customers through their people interactions About customer facing employees: ♦ They represent anyone who interacts with the customer; including sales staff, service reps, delivery personnel, help desk/tech support staff, admin staff, supply chain partners who represent your brand, and your senior management ♦ Mediums of Interaction: telephone, face-to-cafe, email and web chats ♦ Employees who know how to cultivate customer engagement are your secret weapon ♦ For every one neutral or negative interaction, your best customer facing employees have six positive engagement building customer interactions.

© 2007 Performance connections International, Inc. 914.244.0400 www.PerformanceConnections.com

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Leading for Customer Engagement ♦ For every three positive customer interactions, your worst customer facing employees have four negative interactions * –doing more harm than good ♦ Customer facing employees who know how to cultivate customer engagement are worth their weight in platinum And if you want your customer facing employees to create customer engagement, THEY THEMSELVES MUST BE ENGAGED! This is no small feat, given that there is an abundance of data supporting the fact that, on the average, over 70% of employees in most organizations are either actively disengaged or up for grabs – they can swing either way – with only 10-15% being fully engaged (Corporate If you want Leadership Council study on Employee Engagement) your customer facing All of the management meetings and customer service posters in the employees to world won’t change the levels of service if your employees are not create engaged in their work, your mission, and service delivery. customer engagement, And as the graphic below depicts, the degree to which you have they engaged or disengaged employees influences the makeup of your themselves customer portfolio. must be engaged!

Fully Engaged Employees

Engaged Customers

Up for Grabs Employees

Rationally Committed Customers Contented Customers

Disengaged Employees

Hostages

© 2007 Performance connections International, Inc. 914.244.0400 www.PerformanceConnections.com

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Leading for Customer Engagement

Building Customer Engagement In order to grow and harvest the benefits of customer engagement, customer facing employees must: ♦ Be engaged themselves! ♦ Interact with clients so they perceive they are being treated with courtesy, respect, fairness and honesty (This only builds rational commitment – not engagement – but is the foundation upon which to build engagement.) ♦ Avoid demonstrating customer dissatisfiers – those things that erode engagement ♦ Create excitement about your products and services ♦ Model and build passion about your brand and products ♦ Talk up the benefits of doing business with your company beyond the products and services you provide (without trying to sell something at the moment) ♦ Transcend customer expectations by providing added-value ♦ Cultivate pride of affiliation with your business by the stories they tell your customer Likewise, management must: ♦ Educate and empower employees to resolve customer problems at point of contact in a way that leads to engagement ♦ Provide employees with information and stories to create customer excitement and pride ♦ Develop engagement standards and translate them into behaviors for your business ♦ Distribute customer experience information

© 2007 Performance connections International, Inc. 914.244.0400 www.PerformanceConnections.com

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Leading for Customer Engagement ♌ Coach, reinforce, and reward those behaviors that lead to customer engagement ♌ Create a culture of customer engagement

Getting Started While each organization has a different baseline and therefore a different starting point, there are several actions to consider if you want to get started building customer engagement. 1. Conduct an analysis to identify where your business touches the customer and its impact on their experience and engagement levels 2. Gather data on how your customers really use your products and services, and their experiences with your business 3. Ensure your selection practices screen in for the right customerfacing employees 4. Educate leaders about the importance of customer engagement and why customer satisfaction is simply not good enough 5. Develop Standards of Engagement for all customer facing employees 6. Develop monitoring-systems to track actual customer-facing employee behavior and manage to engagement 7. Measure and manage employee engagement in order to realize customer engagement

Š 2007 Performance connections International, Inc. 914.244.0400 www.PerformanceConnections.com

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Leading for Customer Engagement

What Performance Connections International Does ♦ Work with all industries and specialize in financial services, technology, and retail ♦ Conduct Customer Engagement Assessments ♦ Develop Customer Experience Maps ♦ Help businesses develop customer values and engagement

standards and behaviors

♦ Build employee engagement in customer engagement through employee engagement training and consulting ♦ Conduct Customer Engagement Strategy Forums with senior managers ♦ Train managers to monitor and coach for customer engagement ♦ Provide training to customer facing employees on Customer Engagement Behaviors

For more information, contact: Bruce Fern 914.244.0400 ext 13, BFern@PerfCon.com, Herb Cohen, 914.244.0400 ext 20, HCohen@PerfCon.com www.PerformanceConnections.com

© 2007 Performance connections International, Inc. 914.244.0400 www.PerformanceConnections.com

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Leading for Customer Engagement Position Paper