A Step-by-Step Approach to Survey Design, Validation and Implementation

1. A Step-by-Step Approach to SurveyDesign, Validation and Implementation Ross Goodwin Business Customer Loyalty Consultant Hewlett-Packard

2. Introductions • Context for CSM is Business Success • Begin with the end in mind – reporting results • Survey design • Data analysis • Other issues A Step-by-Step Approach to Survey Design, Validation and Implementation agenda

3. Section 1The Context For Customer Satisfaction Measurement is Business Success

4. Section 1: The context for CSM is Business Success • Goal of this section (take-away): you will be able to articulate strategically and tactically how your program fits into the larger picture, today and in the future.

5. Section 1: The context for CSM is Business Success Topics • A. A short history of customer measurement • B. Creating the business case for measurement – modeling business success • C. Real-life examples • D. Ross’ models • E. Where is the industry heading? • F. Senior management sponsorship and objectives • G. Personal objectives

6. Summary: Evolution of the customer-centric view Total Customer Experience Management Total Integration of the Measurement and Management of Branding, Marketing/Sales, and Customer Experience Customer Loyalty Beliefs Attitudes Behavior Customer- Perceived Value What you get for what you give up Importance to Business Strategy Customer Satisfaction Meets or exceeds expectations Total Quality Management Minimum Requirements 1970 1975 1980 1985 1990 1995 2000+ Time

7. Section 1: The context for CSM is Business Success Topics • A. A short history of customer measurement • B. Creating the business case for measurement – modeling business success • C. Real-life examples • D. Ross’ models • E. Where is the industry heading? • F. Senior management’s business success model • G. Personal objectives

8. Market damage model Baseline Sales Lost from Customers with Problems: Customer Non-repurchase Source: John Goodman, CEO TARP

9. Total Quality Management (TQM) 1980s Quality Community • TQM is Total organization using Quality principles for the Management of its processes. A buzzword phrase in the 80’s, it has been killed and resurrected in a number of places, most notably ISO 9000 and Six Sigma. • TQM is a philosophy of perpetual improvement using principles proven to improve manufacturing operations, such as quality circles and statistical process control, are applied across all business activities (marketing, finance, design, production, customer service, etc.) for the purpose of exceeding customer needs and expectations and achieving organizational objectives • Lost favor in many organizations due to an excessive internal quality focus e.g. quality circles. • Modern TQM has evolved new tools and techniques • ISO9000/9001 (a quality system management standard) • Six sigma (a collection of processes and tools) • Notable failures e.g. Motorola (Iridium) “Defects don’t matter much if you’re making a product that no one wants to buy.” “Exactly what is an error or mistake at a customer touch point?”

10. CS/D Model of Expectancy Disconfirmation (Oliver, 1980) Market Research Community • well-developed theory of satisfaction-dissatisfaction • low correlation to business success Expectations CS/D Performance* *Quality ratings may serve as a proxy

11. Kano Model Exciting/ Delighting HIGH Desired Delight the customer LOW HIGH PERFORMANCE Expected Basic requirements LOW SATISFACTION

12. Malcolm Baldrige National Quality Award 1987 • Trailblazer and lightening rod for American business • Provided senior management with a comprehensive framework for assessing their progress toward the new paradigm of TQM • Legitimized the concept of customer satisfaction with senior management • Adopted expectations theory • ongoing controversy continues in the literature today • Low correlation between the award and business success

13. Organizational Profile: Environment, Relationships and Challenges 2 Strategic Planning 5 Human Resource Focus 7 Business Results 1 Leadership 3 Customer & Market Focus 6 Process Management 4 Information and Analysis Baldrige Criteria Framework

14. Fisbein Model (1963) Psychology, Sociology, Market Research Communities Beliefs Attitudes Behavior • Beliefs • e.g. attribute ratings • Attitudes • An evaluation e.g. likes/dislikes, preference, importance weights, satisfaction • Behavior

15. Fisbein Model (1963) Psychology, Sociology, Market Research Communities • What went wrong with quality? • What went wrong with customer satisfaction? Beliefs Attitudes Behavior • Beliefs • e.g. attribute ratings • Attitudes • An evaluation e.g. likes/dislikes, preference, importance weights, satisfaction • Behavior  One missing link is intent to behave

16. Volvo’s model of business success 1997 Internal Quality External “Quality” Improved Internal Quality Improved External Quality Quality, satisfaction and loyalty form a chain of cause and effect. They cannot be treated separately. They represent a system that must be measured and managed as a whole to maximize results. Improved Productivity Customer Satisfaction Cost Reductions Customer Loyalty Improved Profitability, Revenues, Share

17. Volvo’s model of business success 1997 Internal Quality External “Quality” Improved Internal Quality Improved External Quality • Internal Quality • expertise in “value delivery system(s)”, internal processes, cost • External “Quality” • expertise in customer perception of value that drives choice behavior borrowing from market research, psychology, sociology, anthropology • evolution from the “experiential” paradigm to the “perceptual” paradigm Improved Productivity Customer Satisfaction Cost Reductions Customer Loyalty Improved Profitability, Revenues, Share

18. Satisfaction Efficiency Effectiveness Process effectiveness measurement • Process effectiveness and efficiency can be assessed through internal or external review processes and be evaluated on a maturity scale. These scales typically range in degrees of maturity from “no formal system” to “best-in-class performance”.

19. SERVQUAL “gap” analysis 1985 • Developed by Parasuraman, Zeithaml & Berry over 15 years ago • Widely used in services industries like banking and utilities • Focuses on 5 key dimensions: Reliability, Responsiveness, Assurance, Empathy & Tangibles • Measures “Perceived Quality,” not satisfaction • Expectations • Performance • importance • More recent “zone of tolerance” variation (Parasuraman) • Desired performance • Minimum performance • Perceived performance • importance • expectations measurement theory controversy continues today • what does “expected” really mean? • too many “gaps” for senior management to get their arms around  3 ratings per attribute  4 ratings per attribute

20. SERVQUAL modelParasuraman, Zeithaml & Berry

21. Customer value managementBradley T. Gale 1994 Breakthrough concept: relative perceived value drives choice Brand Affinity Relationship Relative Benefits Customer Service Relative Customer- Perceived Value Product features & quality Other Costs Relative Costs Selling Price CV components Dimensions of choice criteria Source: Bradley Gale, CEO Customer Value, Inc.

22. Customer value managementBradley T. Gale 1994 Breakthrough concept: relative perceived value drives choice • RPV is a breakthrough concept • CVM is simple and appealing to senior management • Value model has been proven to be overly simplistic • e.g. placement of brand, etc. • ratio scores are improper use of data and do not reflect how people actually use scales • overall value does not appear to be better linked to business success than any other overall metric • value maps, although intuitively appealing, also do not appear to predict market leadership. Source: Bradley Gale, CEO Customer Value, Inc.

23. Inkjet Printers, February 2001(source: Brad Gale) Data source: Consumer Reports February 2001, Page 35 Customer value map “wither and die” zone “grow and prosper” zone Source: Bradley Gale, CEO Customer Value, Inc.

24. The Service Profit Chain Heskett, Sasser, Schlesinger 1994 EmployeeRetention RevenueGrowth EmployeeRetention RevenueGrowth InternalService Quality ExternalServiceValue InternalService Quality ExternalServiceValue EmployeeSatisfaction Customer Loyalty CustomerSatisfaction EmployeeSatisfaction Customer Loyalty CustomerSatisfaction EmployeeProductivity EmployeeProductivity Profitability Profitability Leadership underlies the chain’s success Adapted from“Putting the Service Profit Chain to Work,”Harvard Business Review (March-April 1994)

25. The Service Profit Chain 1994 • service businesses are inherently different than product businesses • in service businesses, the front-facing employee is the key to business success • as products increasingly become commodity-like, all businesses are becoming service businesses • nonetheless, there is an over emphasis on the employee touch – not all touch points involve people.

26. The loyalty effectFrederick Reichheld1996 Breakthrough concept: shifted focus away from customer acquisition to loyal customers, loyal employees, loyal shareholders • Retention rates go up • Referrals go up • Spending rates go up • The customers are less price sensitive • The costs of servicing them go down • Initial processing costs go down • Returns and losses are lower • Profits go up It cost 5 times as much to acquire a new customer as to retain an existing customer. a five percent increase in the retention rate can increase lifetime value by as much as 75% in such industries as insurance, banking, and auto service the average company loses half its customers in five years, half its employees in four years, and half its investors in less than a year

27. The loyalty effectFrederick Reichheld1996 Breakthrough concept: shifted focus away from customer acquisition to loyal customers, loyal employees, loyal shareholders • relative perceived value is the key strategy, loyalty is the key metric (business objective). • nonetheless, market leadership cannot be attained by focusing solely on loyalty. • data are from banking and finance industries and are probably not valid outside those industries • customer lifetime value is market damage with a twist • increasing loyalty increases value • but who is your customer? at 87% retention (incredibly high), you lose half your customers in 5 years (purchase cycle=1 year). • since everyone is focusing on high value customers, the big opportunity in business today is the next rung down.

28. The loyalty effectFrederick Reichheld1996 Impact of Loyalty on Market Share • In this market, if the market laggard attains the same loyalty as the market leader, market share will still be 2/3 that of the leader. Market share Laggard Current Brand Category Loyalty

29. Customer lifetime value Source: www.dbmarketing.com/articles/Art154.htm

30. Commentary? • Anything skipped that is important to you?

31. Section 1: The context for CSM is Business Success Topics • A. A short history of customer measurement • B. Creating the business case for measurement – modeling business success • C. Ross’ models • D. Real-life examples • E. Where is the industry heading? • F. Senior management’s business success model • G. Personal objectives

32. Internal Metrics Business Results A measurement & management system for improved business results HP’s new business focus The “usual” business focus Superior TCE TCE Delivery Processes Loyal Shareowners Adapted from Honeywell

33. Market Share Market Share Commitment Commitment Metric Acquisition Retention The tie to business results Profit Financial Models Revenue Costs Market Size Market Investment Models Perceived Value Perceived Value of US of Them of US of Them                     TOTAL CUSTOMER EXPERIENCE Original slide concept Dave Welch Agilent Technologies

34. Value Delivery System Brand & Category Value Communication System Delivering a competitively superior relative perceived value is the key strategy RPV  brand commitment  customer behaviors  sales and market share Influences on Customer Behaviors The value delivery system determines the Total Customer Experience (TCE). The TCE drives Direct Beliefs (experiential) about the current brand (supplier) which are the basis of Brand Loyalty of current customers. Brand and category value communication such as advertising, magazine articles, and word-of-mouth form Indirect beliefs (perceptual) which are the basis of brand consideration by potential customers. The interplay of Direct and Indirect beliefs form customer and non-customer RPV that drives Brand Commitment. The Total Customer Experience Brand Commitment customers Direct beliefs (Brand Loyalty) Indirect beliefs (Brand Consideration) non-customers Branding

35. Understanding customer relative perceived value is the key to strategy, loyalty is the key metric RPV  brand commitment  customer behaviors  sales and market share Customer Behavior Outcomes Brand commitment is the commitment to a brand over the entire market. It is based on customers’ relative perceived value that drives key customer behaviors. It is composed of two factors: The Brand Loyalty of current customers that is based on direct beliefs (TCE). The Brand Trial of non customers that is based on indirect beliefs. Neither brand loyalty or brand trial alone can adequately model the entire market and predict market share/revenues. The Market Model in this presentation is a model of brand commitment over the entire market. hp customers Loyal Favul Lost Brand Loyalty (customers) Brand Trial (non-customers) Lost Favul Loyal competitor customers

36. Is loyalty the right focus for you? A New/Early Markets Competitors win by a getting customers & then keeping them. Mature Markets Building customer loyalty is key to keeping customers and acquiring comp. customers. End of Life Customers leave to go to new, better technologies. New/Early Markets (acquisition - retention strategy) Maturing Markets (retention - acquisition strategy) End of Life (new product strategy) B A B C Potential Customers come from different markets/ technologies Lost Customers leave to go to new markets/ technologies Our Customers C Their Customers Adapted from Walker

37. Strategic Priorities Pyramid The relative importance of loyalty Mature Market bySegment acquisition Grow Market Share Customer acquisition strategy Decreasing priority Create customer advocates strategy Improve loyalty strategy Remove dissatisfaction strategy retention Customer Loyalty . Alignment with Brand Promise Consideration Set Minimum viable product and services Basic Requirements consideration

38. Strategy: a cause-effect model of business success You makesure thatrelationshipsare reinforcedwith everyaction. You delivercompellingvalue. You useyour strongreputation in othercategoriesto fuelyour sales. You takeadvantageof everybarrier to yourcompetitors. First and foremost,you take care of thethe customerthrough the entirecustomer lifecycle. 1. Becoming Aware 2. Choosing Price/value Overallperformance in category – Brand – Perceivedfocus oncustomers– Switchingbarriers– Integratedsolutionscapability Loyalty = Profitablegrowth 3. Ordering Indirectchannel Product 9. Upgrading 4. Delivering Direct sales rep Overall salesand support 8. Repairing 5. Installing Phone support Performance in other categories 7. Using 6. Learning Internet support

39. Section 1: The context for CSM is Business Success Topics • A. A short history of customer measurement • B. Creating the business case for measurement – modeling business success • C. Ross’ models • D. Real-life examples • E. Where is the industry heading? • F. Senior management’s business success model • G. Personal objectives

40. Real-life examples • from looking at these models, which ones have primarily a • quality feel (process) • customer research feel (attitudes and beliefs) • Which are a blend of the two?

41. Errors Real-life example(not in your handout) Drivers of Overall Life Satisfaction Source: Competitive Satisfaction Study SERVICE IMAGE PRODUCT PRICE COMMUNICATION Drivers of Service Satisfaction Source: Monthly Transaction Survey Goal: ?% Satisfaction withResolved, CSR handled Forms/Letters Ease of doing business Errors Sat with Primary Service Provider Cycle Time Internal Measures Source: Management Control Reporting Goal:Varies by type of measure Training/CallCoaching Cycle Time Call HandlingStatistics Quality Complaints(Verbal andWritten) % within Standard for Feedback End-to-End Service Level Operational Processes ASA Quality Score Once & Done Agent/FA

42. Real-life example(not in your handout)

43. Real-life example(not in your handout) Customer Satisfaction Index Wt. 0.25 Wt. 0.25 Wt. 0.50 Overall Product Overall Consumer Overall Service Quality Quality/ Satisfaction Performance Sales Rep Service & Support GCSS Customer Service & Support Order to Cash Service & Support Order Management Technical Services Delivery/ Fulfillment Maintenance & Repairs Types of Surveys: Billing & Credit Channel Partner Relationship Transaction Surveys Product Quality/Performance End-User Relationship Surveys Surveys - -Product/Service Specific --Channel Partners/Relationship Surveys -Commercialization Process Post-launch --End Users - Event Driven Periodic - Accumulation of Experiences - Repetitive Transactions - - Periodic - Customer Touch points - End User - Accumulation of Experiences - End-User/Channel Partner - Decision Maker - Channel Partner

44. Product Surveillance Customer Satisfaction and Loyalty Call Rate & Installation Quality Problem Management Improved Product Performance Increased Customer Satisfaction Increased Customer Loyalty Drive Improvement through Actionable Information Real-life example(not in your handout)

45. Product 4.71 Purchase Experience 4.50 Purchase Price 4.23 Service Manufacturer’s Warranty 3.60 4.29 Energy Usage4.53 Brand Image Delivery and Installation 4.68 4.51 Real-life example(not in your handout) Mean Scores (On 1 To 5 Scale, where 1 = Very Dissatisfied & 5 = Very Satisfied) Benefits Received 4.70 Worth What Paid For 4.55 Satisfaction with Overall Costs 4.40

46. The Wheel CVM Analyse Customer Value How Much Profit Generated From High Quality Measure Benefits • Define: • Standards • Service • Focus KPIs Service measures Mkt Share; Price realisatn Implement CSP Real-life example(not in your handout) • Measure service elements valued by the customer, set targeted service improvements, use performance measures to monitor progress, measure benefit

47. Customer Perception Comp Survey Decision Makers Attitudes Opinions Intentions Behaviors Report cards Metrics Process Users Decision Maker Surveys Transaction Surveys Customer Defined Metrics Process Metrics Company Performance Real-life example(not in your handout)

48. Section 1: The context for CSM is Business Success Topics • A. A short history of customer measurement • B. Creating the business case for measurement – modeling business success • C. Ross’ models • D. Real-life examples • E. Where is the industry heading? • F. Senior management’s business success model • G. Personal objectives

49. Where is the industry heading? • Increased emphasis on cost and accountability (ROI, linkage to business success) • Integration of Branding, Marketing, Sales and Customer Experience Management • Holistic, integrated modular measurement system • Integration with CRM infrastructure initiatives • Democratization of data • Real-time reporting of data

50. CEM Repeat P R C A Market Share/ Revenues Category Awareness Category Reputation Category Preference Category Loyalty Category Consideration Trial Where is the industry heading? Integration trends Integration of Branding, Marketing, Sales and Customer Experience Management Branding Marketing/Sales Mix Category Trial Drivers Awareness Reputation Consideration Preference Category Loyalty Drivers (non-customers) (customers)