The Customer Loyalty Compass: A Proven Process For Finding Customer Value

Identifying a customer's value drivers requires a very disciplined and stringent research process. We have developed a process that has worked well with our own clients. Called the Customer Loyalty Compass, it involves four key steps -- Prepare, Assemble, Comprehend, Employ (P.A.C.E). Here’s how it a research team applies the process.

Step 1: "Prepare" for the research process

Before conducting any customer research, it’s essential to first understand the organization’s culture and processes and how they function on behalf of customers. This information is gathered by interviewing a cross-section of company management and staff and reviewing prior research, sales reports, complaint data, etc. Two key questions require answers: (1) What does the company currently know about its customers and competitors and (2) what insights are missing. For example, in staff interviews the research team may probe issues regarding customer relationships, product/service quality, customer communication, etc. while validating what the company believes it already knows about customer perceptions in these performance areas. From this learning, a set of customer questions for Step 2 can be developed.

Step 2: "Assemble" customer needs and wants

Using the customer questions prepared from Step I, the research team employs one or more types of qualitative research to uncover customer needs, expectations, problems and complaints. In-depth customer interviews, focus groups and mini-groups are a few of the methods used to access this information. Key learning objectives include determining (1) what customer requirements are not being addressed, (2) what complaints are not being registered, (3) what areas of performance customers consider most and least important. The more classes of customers that can be debriefed---current, former, internal, and competitive—the more clear the insights. Outcomes from this research step are two-fold: to develop an in-depth understanding of the customer’s definition of value and to generate a survey questionnaire for use in Step 3.

Step 3: "Comprehend" customer priorities

Survey Questions. This is the survey (quantitative) phase of the research process. To effectively dimensionalize and prioritize performance factors driving customer loyalty, the survey should collect, at minimum, the following information: Attribute importance; Attribute performance, and reasons for low performance; Competitive attribute performance, if available; Best performed attribute, and attribute most needing improvement; Overall performance, and performance change experienced from period to period; Likelihood to repurchase, and reasons for low repurchase likelihood; Anticipated volume of future purchase activity; Likelihood to recommend; and Complaints, expressed and unexpressed. Other useful information, such as customer demographics and response to new or modified product/service concepts , can also be collected.

Surveying Staff. As with qualitative research, it is valuable to have information from as many customer groups as are applicable to the company's business. This, of course, also includes staff, or internal customers. While many companies feel that staff insights are best developed through traditional techniques such as "employee satisfaction studies," more is often learned about the level of customer focus within a company by having staff complete the same questionnaires as customers. The perceptual differences, or gaps, between customers and staff provide real insight into what companies are seen to deliver by customers versus what staff believes is being delivered.

Data Collection. Telephone surveying is the preferred method of data collection because of ease of probing, importance of customer voice inflection, ability to select customers that match quota requirements, etc.

One of the most important elements of customer information developed in this step is anecdotal or verbatim feedback regarding (1) areas of performance considered less than excellent, (2) reasons for low likelihood to continue purchasing or to recommend, and (3) specific areas of complaint, either those previously registered or otherwise unregistered. Many customer studies, especially those conducted by mail, either fail to generate this information or collect it in a scattered, voluntary, and non-directional manner. The importance of such feedback cannot be minimized, because it adds depth and clarity to performance issues which may be contributing to customer attrition or defection.

Data Modeling. Once this information has been collected, analysis and modeling of the data for impact on customer loyalty can be conducted. The best way to deliver findings is to use actionable, user-friendly loyalty graphics and models including Motivation Windows, Action Windows and Gap Profiles . It’s important that data analyses reveal both improvement needs and opportunity areas. For example, on a recent loyalty study conducted for a service vendor, customers rated the vendor very high in several areas of customer contact. Yet, our analysis found that this contact, though exemplary, was not perceived as important by clients and therefore was not leveraging customer loyalty. The result? The client used these findings to modify its messaging with customers, better defining for clients why this vendor’s contact was important.

Step 4: "Employ" your findings

With a clear understanding of what is driving customer value and loyalty, action plans can now be developed for improving loyalty. Depending on the research findings, these plans can address initiatives at the group level, department level or company-wide and may include such areas as:

- Product/service/operations quality improvement;
- Communication, marketing and/or promotion programs
- Staff customer loyalty/relationship training
- Staff customer loyalty reward/recognition programs
- Infrastructure modification/cross-functional team training
- Senior and middle management customer loyalty leadership training
- Customer Information Systems development

Developing a Customer Information System may be among the most important outcomes of the research process. We find that most companies do not have well-developed, current, fully-shared information on what drives customer value and loyalty, and making sure that a dynamic system is in place is especially critical. In addition, many companies do not debrief staff and customers on a regular basis, and this is also a key discipline in strategically creating customer and staff value.

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