Measuring and repairing customer relationships for commercial results

By October 20, 2015 Thinking No Comments

Measuring and repairing customer relationships for commercial results

A business lives or dies on the strength and longevity of the relationships it builds with its corporate clients.  If relationships are weak, customers leave, the costs incurred in replacing those customers in B2B (business to business) sectors is high, revenues become unpredictable and the business will lose market share.  So being able to measure, repair and extend customer relationships is vital to the commercial health of an organisation.  In this article we compare different ways of measuring and gaining a better understanding of the strength of these relationships.  And how, by using different approaches in combination, businesses are in a better position to devise strategic and tactical plans to further strengthen their long-term bonds with corporate customers, and as a direct result, build increased stability and resilience into their business and its revenues.

It’s a matter of behaviour

Much has been written about consumer behaviour and how to build long term and profitable relationships with them once they become customers.  A lot is talked about how to engage with them emotionally, about the value of rewards and recognition of their loyalty.  In comparison, relatively little has been written about the behaviour of business customers and how their loyalty can be maintained.  And when it may have cost a supplier many thousands or even millions of pounds in pitching, negotiation and legal fees just to get the customer’s signature on a contract, it is critical that the relationship be extended over as long a period as possible if the supplier is to achieve a return on their investment.

Pardon me

But before we get to these measures, let’s talk a little about forgiveness.  Because the ultimate test of a good business relationship is what happens when things go wrong?  Things like deliveries not meeting their schedules, errors in manufacture, failure to live up to agreed service standards, or poor performance from a member of the customer support team.  The list is endless, but every item on it has the potential to damage a customer relationship, cause the customer to investigate other providers, or potentially to end it.  The big test is how many times the customer will forgive its supplier, and how big the problem is that can be forgiven.  This is where companies and consumers behave in a remarkably similar way.

How many times have you been so annoyed by a shop or your favourite restaurant or the company that made your mobile phone that you say you’ll not visit or buy from them again?  With some brands it takes just two or three little problems and you will switch to an alternative, but other brands seem to be far more difficult to live without.

Apart from the inconvenience of switching provider, much of your forgiveness comes from your emotional attachment to the brand – the feeling that its reputation must have been built on solid customer relationships and sound products, the belief and trust you have in the business to sort things out, the generally positive feeling you have about its staff, or the cachet the brand confers on you and people like you who use it, wear it, shop at it or travel by it.

Businesses have emotions too

because businesses are made up of people!  And brands influence people at work as much as they do in their private lives.  Consider, for example, if you were Head of Procurement.  Regardless that a potential supplier might offer a better price, would you risk your reputation and potentially your company’s future on a business you hadn’t heard of and had not established a strong reputation with your industry?  Companies are looking for suppliers they believe they can trust to deliver a good service, fix problems whatever it costs, and to continue to invest in the solutions that will solve their clients’ problems.  And remember that a corporate relationship can involve tens or even hundreds of people within either organisation, meaning a corporate relationship is the sum of many individual relationships, each with its own set of emotional and functional requirements.

So brands and reputation are crucially important, as are a whole load of other ‘soft’ or intangible aspects that build up to become the emotional ties and trust between two organisations.

Let’s get measuring

So, what measures can a business use to reliably:

1.  Determine the strength of relationships with corporate customers?

2.  Spot those relationships that are weak or those customers no longer committed to commercial relationships with their supplier?

3.  Identify the strategies and tactical activities required to effect repairs?

The following examines three measures – Customer Satisfaction (CSat), Net promoter Score (NPS) and Customer Relationship Quality (CRQTM).

Satisfied?  Well I am at this moment…

We’ll return for a moment to the idea of forgiving a brand for its failures.  Almost all suppliers will be forgiven once or twice regardless of their weaknesses.  With every supply or service failure will come a degree of dissatisfaction amongst customers.  But fix the problem and lavish some tlc on the customer and that customer will probably express a fair degree of satisfaction if asked how the relationship is going.  But what happens on the third or fourth occasion?  Pretty much without warning the customer ceases to do business.

The consequence is that the supplier doing their regular measures of customer satisfaction (CSat) may well have seen a period of dissatisfaction which on the next survey appeared to be resolved – simply depending on the exact timing of the survey.  Various studies have shown this to be the problem with CSat – it is very poor as an indicator of long term customer loyalty.  This is not to say it is an unimportant measure, as constant dissatisfaction will destroy any relationship, but satisfaction is an expectation, and few customers are going to build an emotional bond just because their supplier has achieved a threshold level of expectation!

The beauty and the frustrations of NPS

Clearly, a new and more reliable measure was required.  NPS or Net Promoter Score was first introduced by Fred Reichheld in 2003 and has been embraced by some of the world’s largest companies – sufficient to benchmark its effectiveness as both a measure of relationship strength and an indicator of continuing commercial commitment to the supplier, i.e. their intention to repurchase over the long-term.  Furthermore, it measures how likely a business’ customers are to recommend it to others – a further source of potential growth.  Bain and Co have developed and commercialised the concept to be part of their advisory model and a whole philosophy of focusing an organisation on its Net Promoter Scores has been created.

The simplicity of NPS is that it links customer loyalty to the answer to a single question:

“How likely are you to recommend [company name] to a friend or colleague?”

The only issue is that the NPS is an outcome.  This singular score is the result of all of the interactions, personal relationships, quality of products and service, reputation, speed of problem resolution and so on.  The Net Promoter Score relating to a particular relationship may be reasonable and indicate no major signs of relationship problems, but maybe it could be better.  The question is, which of the performance levers to pull to convert a good relationship into one that will sustain long-term competitive attack?  When your available relationship resources are tight, it’s important those levers are identified precisely and performance investment made where it counts the most.  This is where this simple NPS measure falls short, as it doesn’t identify the root causes of relationship weakness or how to go about making the necessary repairs.

So in NPS we have a perfect measure but lack some of the insight required for targeted improvement.  And so onto our final measure, CRQTM.

Trust me

CRQTM or Customer Relationship Quality is a measure derived initially from the work of two American academics, Robert Morgan and Shelby Hunt who studied the drivers of long-term relationships between organisations, leading to their publication “The Commitment-Trust Theory of Relationship Marketing”. At the crux of their argument was that by looking at the relationship as a partnership, two bonding factors become evident – trust and commitment. Look at the number of companies that adopt mission statements and brand values that relate either directly or indirectly to trust and commitment to customers.  The strange thing is that few then measure their performance on either parameter by asking customers how well they are living up to them.

Benchmarking research carried out globally across more than 800 corporate relationships shows that companies with a high CRQ score have more loyal customers who generate positive Word of Mouth referrals (and a higher Net Promoter Score).

And CRQTM goes a little further than Morgan and Shelby as in addition to determining the strength and longevity of the relationship, it incorporates measures that indicate how both can be improved – remember those levers of performance discussed earlier?  It pinpoints the important areas in which the organisation needs to invest resources or change how it operates.  A CRQTM measured is derived from aggregating responses from the managers and staff of the customer organisation about their perception of service, its quality and its ability to meet their needs; their perceptions of the ‘uniqueness of the supplier’s brand’ in relation to its ability to deliver a true solution and about their overall experience of working with the supplier;  and about the level of satisfaction, trust and commitment existing within the relationship.

By placing a benchmark measure on the longevity of its commercial relationships, CRQTM provides evidence of one aspect of the future financial stability of an organisation.  And by segmenting clients by the strength and longevity of relationship, resourcing to improve performance can be allocated to gain the best potential returns.

Bringing it all together

For the first time, these important measures of corporate customer relationship strength have been brought together into a single survey and reporting suite:

Thus companies can continue to track their Net Promoter Score performance, whilst using CRQTM to both verify the longevity of relationships and to uncover how to enhance their NPS rating with each one of their corporate customers.

Gravity Global has worked with its research partner for a number of years to provide advice to clients using a range of insight and reporting tools, and is now demonstrating the commercial benefits of understanding and managing customer relationships on the basis of the quantitative measures provided by this new insight tool. The real value for our clients has been in applying the approach in different ways:

·  At the very highest level, they gain an accurate assessment of whether or not they have a relationship problem, and how ‘at risk’ or unstable their revenue streams might be.

·  By segmenting customers by the strength of relationship from Ambassadors to Detractors, they are able to evaluate and reward their sales and Account Management teams on the basis of the strength of relationships they are creating.

·  Those in the process of acquiring businesses or moving towards IPO are able to carry out due diligence on the goodwill they are supposedly acquiring, or conversely placing a quantitative ‘value’ on the goodwill of their own organisation.

·  Verify the competitive strength of the brand and level of emotional engagement it is achieving with corporate customers – in particular around the critical attribute of trust – is important in establishing the effectiveness of the brand and ROI from marketing spend.

By bringing together the various measures of corporate relationship strength and longevity, businesses are able to make the customer relationship a key element of their reported commercial strength.  These vital intangible assets of a business can be made tangible and benchmarked, and resources and activities refocused to build a business’ competitive robustness.

So when you next hear an Account Manager say that the relationship he or she builds with clients is simply down to the personal chemistry, ask them to benchmark that chemistry.

Tom Golland is the Director of Strategy and Insight at Gravity Global.

[www.gravityglobal.com]

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