The Value of Customers, part 1

Release Date: February 25, 2020 • Episode #105

Your customers are why you’re in business but are they loyal customers? How do you measure that customer’s loyalty and why do companies so often undervalue their customers? Host Steve Walker welcomes guest Rob Markey, an author, speaker, podcaster, and partner at Bain and Company. They discuss Rob’s work on helping develop the Net Promoter Score and how it helped simplify the close-the-loop process in customer feedback.

Transcript

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Steve:
I don't know how many times I've said it on this podcast, but the wisdom of Peter Drucker will always ring true: The purpose of business is to create and keep customers.

Rob:
A customer takes the time to give you feedback. You owe them. You have a responsibility to go back to them and say "thank you, I understood what you had to say. Is there anything more you want to say? And oh, by the way, would you mind if I share your words with the people who need to hear?"

Steve:
The value of loyal customers on this episode of… The CX Leader Podcast.

Announcer:
The CX Leader Podcast with Steve Walker is a production of Walker, an experience management firm that helps companies accelerate their CX success. Find out more at walkerinfo.com.

Steve:
Hello everyone. I'm Steve Walker, host of The CX Leader Podcast, and thank you for listening. On The CX Leader Podcast, we explore topics and themes to help leaders like you leverage all the benefits of your customer experience and help your customers and prospects want to do more business with you. In the first of a two-part episode, we're going to discuss the importance of customer loyalty and the systems and metrics used to get feedback you need. And my guest is going to help unpack some of these questions. Rob Markey is an author, speaker, fellow podcaster, and partner at Bain and Company, a global consultancy that helps leaders solve industry-defining challenges. And Rob was recently published in the Harvard Business Review with an article on the value of customers. Rob, congratulations on the HBR article and thanks for being on The CX Leader Podcast.

Rob:
Steve, it's such a pleasure and really thank you.

Steve:
Well, I've been a big admirer of your organization and the work that Bain and company has done in this space for many, many years. And again, the fact that you're willing to come join us on the podcast today is a… is a big event here for us today. And, you know, right out of the box, I… you're quoting my favorite business mogul of all time, Peter Drucker. I think you wrote those words in 1957, if I…

Rob:
You're probably right. Yeah.

Steve:
…Yeah. And so, you know, even though things change, some things are… are pretty pure about the business of CX, aren't they?

Rob:
They are. And I think what's so interesting is that as we've gone through since the 50s, we forget that lesson over and over again. Like, Peter Drucker was just revealing a very obvious insight that any business person knows. And yet, week after week, day after day, you know, you just see leaders and businesses lose track of that.

Steve:
And why do you think that is?

Rob:
Well, I think there's a whole bunch of reasons. And I don't… I don't actually blame the leaders of these companies for doing it. I think one is as a company gets bigger, it becomes harder and harder to stay close to customers because you're just more and more layers away from the front line. When you're a CEO or other C-level executive, so you get insulated from the day to day. You know, my grandfather was a small business owner. He sold meat to restaurants and he knew every one of his customers, every one of the restaurants that he sold to. And, because he did, he could make decisions about, you know, which restaurants should get the best cuts of meat, and which ones he might hold, you know, only fill the order if he had leftover, which ones he would give special pricing to if he could, or who he would allow to pay late instead of paying by cash on receipt. And that's because he understood each and every one of those guys. And he knew… he knew the value. Right? He knew which ones to invest in. And when you're running a business that has hundreds, thousands, tens of thousands, millions of customers, it's just not possible to do that. I also think that there's another issue, which is, not only are you insulated from the front line, but the lens that you have to view the business is generally the lens of accounting. And accounting doesn't even have a concept of customer as a core element of the accounting world. You've got revenues, you've got costs, you've got assets and liabilities. But there's no actual common concept of customer, and therefore, you can't see customers on normal accounting reports. You can't see lifetime value. You can't see aggregated profitability for an individual customer, whether that's a large business that you're… you're selling to or an individual human being. So it's… it's hard to stay close to customers.

Steve:
I really like your principles you've laid out here. But just to make sure that we get the context, can you just quickly review your history and how you came to CX as part of your career?

Rob:
You know, it's funny. My, um, my involvement in CX probably started with my grandfather and working in his company when I was a kid. But it really actually… it's it's, you know, like so many people, I had a one of these hourly service jobs. I was a bell person in a hotel. I carried people's bags and I learned through… I don't know, you know, lots of frustration and earning tips because that's the only way you made money in that business. I learned that there were some real keys to serving customers and getting them to feel good about allowing you to to carry their stuff up to the… to the room, because most customers can do it on their own. But also figuring out like which were the repeat guests and the ones that you wanted to do special favors for and who you could count on to… to really kind of be the bread and butter, your… your work. After I graduated from college, I ended up working in a company called LexisNexis. And they were you know, this is in the 80s before the Internet, we were delivering information online and it was a subscription business with a usage revenue base. And so you had two important characteristics of loyalty, economics, the subscription, which is a B2B thing, and then usage, which is an individual attorney or researcher. And in the early days, we were operating pretty much free of competition. But then a competitor came in. We stumbled with some technology stuff and watched our market share drop pretty precipitously. And yet during that period, because we were growing faster than the company that owned us, our executives were getting really big bonuses. So it's just, you know, absolute growth with underlying weakness in customer relationships. And that foundation kind of sent me off to business school with this belief that leaders in big companies didn't understand customer relationships, and that just happened to be the time when Fred Reichheld published an article in Harvard Business Review that was called, I think it was called "Zero Defections. Quality comes to services." And the topic was customer retention. When the idea that if you retained more of your customers, you would earn faster growth and more profitability, which seems obvious but wasn't measured regularly in the 80s.

Steve:
He was quantifying it.

Rob:
Yeah. So. So I actually decided I wanted to work with that guy. He had… he was focused on something that was just very clear to me as a missed opportunity in business. And luckily, I fooled the recruiters and got an opportunity to work at Bain with Fred. And I've been doing that ever since. I… I'm just thrilled by having had the opportunity to spend 30 years helping companies figure out how to focus on their customers and how to make more money doing it.

Steve:
Yeah. Quick connection. I actually did some work with Fred early on. He had a predecessor to the NPS score called the Acid Test.

Rob:
Yes…

Steve:
And…

Rob:
The Loyalty Acid test.

Steve:
Yeah. And it's in his second book. I think The Loyalty Effect is a great book. I think the second book… but I'm actually…

Rob:
The second book was called "Loyalty Rules…"

Steve:
…Loyalty Rules. And in the acknowledgments, he talks about us because we helped him do some of that early work on the acid test. And is Fred doing OK?

Rob:
Fred is doing great. Yeah. Is writing and consulting and just doing an amazing, amazing job, as always, as a thought leader and a mentor to me.

Steve:
Yeah, well, that must have been an awesome experience being around him throughout that journey.

Rob:
I mean, I learned so much, Steve. I just really have enjoyed that collaboration. And, you know, of course, little by little, Fred and I, you know, we went from my boss to a collaborator and that the Loyalty Acid Test is, as you well know, morphed from a multi-question survey to become a single question based measure that we now call NPS or Net Promoter Score. Based on the observation that you could get, you know, most of the… most of the predictive value that you were getting from multiple questions out of a single question.

Steve:
Well, it really revolutionized the business. And kudos to you guys for what you did. I mean, it's maybe one of the strongest management brands today.

Rob:
Well, thank you. I mean, I will tell you, Steve, that I was a… I was a doubter in the beginning. I actually was a skeptic about the… the wisdom of moving from a more precise multi-question, acid test or index to a less precise single question based survey. And Fred… Fred was insistent. He was like, look, the man who wears two watches never knows exactly what time it is. And, you know, I… I actually I came to value the simplicity and directness of the likelihood to recommend question as the basis for predicting customer lifetime value. When I watched it at one of my clients where, you know, the executive team was having an argument about what this loyalty score made by one of the research firms meant, you know, committed, devoted. And finally, in frustration, the head of market research said, you know, sort of pounded the table and said, look, stop. It's just like net promoter. And everybody is, "Oh, OK." And then they moved on. And that was the moment where I was like, okay. Fred actually as usual had had made something very simple and clear that was powerful for guiding decisions.

Steve:
Yeah, I actually, again, my roots are in the traditional market research space as well. And I watched a lot of people really do battle on the purity of the metric. But I think what it did is it made it so easy to understand and so easy to communicate. And then also, just based on my observation, the researchers tend to spend so much time fighting over metrics and talking about metrics, and what we really need to do is to be trying to drive action that…

Rob:
Hallelujah.

Steve:
…actually improves the customer's experience. And I think that that was a great tool that… that catapulted the whole space more towards, you know, this bias for action and quit goofing around with, you know, sample sizes.

Rob:
And well, I think what a lot of the market research focused for people missed, Steve, was the… the switch that we were driving from a survey that was tabulated and reported in the form of an average score to a feedback mechanism that's meant to guide day to day learning from individuals at the front line. And I blame ourselves for not being articulate enough about it beginning because we didn't… we didn't quite know how to do that. But the idea of what we originally were calling fast cycle closed loop feedback at the front line, which is what a good net promoter system allows you to do. You know it allows individual people to learn from the feedback they get from a individual customer in real time. And nobody learns from statistics about their own performance. Like, think about it this way. I don't know if you're an athlete at all, but I grew up playing soccer and I used to spend hours shooting penalty kicks in. What you're trying to do when you're you know, if you're not a soccer player, you're you're trying to do and you're shooting penalty kicks is you trying to get the ball in like the lower right corner or the upper right hand corner, you know, and you're trying to be reliable with it because you only get one shot. And I would, you know, kick the ball. Watch where it went. Kick the ball. Watch where it went. I do that for like an hour. Well, if you had obscured the goal and not allowed me to see exactly where the ball went, but then afterwards, given me very precise statistics on, you know, on average, 18 percent of the balls went into the lower right hand corner. 12 percent went just outside. I wouldn't learn anything. Yeah. And I think that's the same for a salesperson, a customer service rep, a web designer. That's how you learn.

Steve:
One thing you mentioned was it was very controversial, but I recall early on when we were focusing on customer experience research. But you know that the traditional researcher approach was to make all surveys anonymous. And pretty early on, you know, the direct marketers were teaching us that you could use this feedback and then kind of create an interaction. You call it closed loop or or rapid closed loop. But that was, again, a pushback from the kind of the purity of research is that it's all anonymous. And and, you know, you can only act on it sort of in a broad base as opposed to a micro approach. And really the best practices in customer feedback today are, you know, not only about systematic process changes, but, you know, if you can actually do something at the point of service that improves the experience, that's great.

Rob:
Well, I went so far, Steve, as to ban the word survey from any discussion of front… what we call the inner loop of the net promoter system by Bain people. Because it's not a survey, it's a feedback mechanism. A survey implies that – it doesn't necessarily mean this – but implies, you know, that an anonymity, it implies statistical accuracy, it implies reports and analytics. And all that's possible still with Net Promoter System that also in fact, it's important to do that. But the most important thing is to give people feedback and then do something with it. So if a customer especially true in B2B settings, I know you focus a lot on B2B. You know, a customer takes the time to give you feedback, whether it's positive, negative, constructive, whatever. They take the time to do that. And they they give you a lot of it, like they write a lot in their verbatim. You owe them, the… the responsibility, you know. You… You have a responsibility to go back to them and say, "thank you for that. I understood what you had to say. Is there anything more you want to say? And oh, by the way, would you mind if I… If I share your words with the people who need to hear it." Otherwise you can't expect them to give you feedback again.

Steve:
No, that's a that's a wonderful articulation of sort of the whole B2B world where you tend to have more of a ongoing relationship as opposed to a transactional thing than a consumer product setting. But you know, that… dialog that's going on should be the basis for a continual discussion. And to your earliest point about, you know, as you get bigger and more complex, it gets harder to stay focused on the customers. You know, I can't tell you how many times I've seen an organization, you know, just dropped the ball. It's literally like if you could document the discussions that you're having with your customer, refer to them on a regular basis and kind of give an ongoing status report. You know, it seems very simple. And yet big organizations dropped the ball on that stuff constantly because the priorities change or management changes or whatever.

Rob:
And I also think that people are afraid of calling up customers to… to get feedback. They… they don't really want to hear the tough messages sometimes because, you know, they're difficult to hear. And they're also afraid like, well, what if they say something that I don't know how to respond to? And yeah, I mean, customers will do that, and so you know what you say. "I'm not sure. But let me work on that." That's it. Just if you're genuine and honest that your customers actually reward you for working with them, collaborating with them to solve their problems.

Steve:
Yeah, absolutely. I think even more so today where we're in this sort of this age of transparency. And, you know, people really do they value the real conversations about what's really going on. And, you know, you know, everybody knows that nobody's gonna be perfect all the time, but that you really can establish this relationship of trust. And and where you really are looking out for each other's best interests.

Rob:
You know, I think another big challenge in this space, Steve, is that it can be hard to to prioritize taking the time to listen to feedback, follow up on it. It can be hard to to prioritize making the investments, to make improvements based on that feedback, in part because… back to where we started this conversation: it's really hard to see the financial impact when you're looking at this month's sales or this quarter's new customer acquisition, as you know by itself. And one of the things that Net Promoter was designed to do is to help you predict based on that response, based on the feedback, get a better sense of the likely trajectory of individual customer or individual accounts. Lifetime value. So is it… is it moving up or is it moving down? And how do you do that? Well, you do it based on an understanding of the impact on my life, more or less likely to hold onto this customer for longer. Am I more or less likely to be able to sell them more stuff? Am I more or less likely to be able to use them as a reference or a referral base?

Steve:
Hey, Rob, it's that time of the program where we ask our guests to provide the take home value. Do you want to do take home value part one?

Rob:
Steve, I would say that, you know, the best thing you can do if you're trying to design a feedback system for your customers is think come at it with a set of principles in mind that will help you make all the subsequent decisions. And I would suggest that principal one should be the very act of soliciting feedback, should enhance the relationship your company has with your customers. And principle two is… if and only if you've done that, then you should be focused on accelerating and enhancing the learning that happens at the individual level and at the organizational level, from that feedback. I think if you… if you think about it in that priority order is enhancing the relationship first you'll see all the implications for how to design a feedback system and how to operationalize it.

Steve:
Excellent. Rob Markey is an author, speaker, podcaster, and partner at Bain and Company. And his article in the Harvard Business Review is titled "Are You Undervaluing Your Customers?" He's also a heck of a podcast guest and I'm really glad that you were able to spend your time with us on the program, Rob. Thanks again.

Rob:
Steve, I love talking to you. I'd do it anytime.

Steve:
And if you want to talk about anything else you heard on the podcast or about our Walker can help your business customer experience, feel free to email me at steve.walker@walkerinformation.com or give us a call here in the U.S. at +1-317-843-8890. Remember to visit our website cxleaderpodcast.com to subscribe to the show and find all of our previous episodes, podcast series, and contact information so you can let us know how we're doing. The CX Leader Podcast is a production of Walker. We're an experience management firm that helps companies accelerate their CX success. You can read more about us at walkerinfo.com. Thanks for listening and we'll see you again next time.