Putting the Customer at the Helm - Alison Davidge

For many practitioners of the Net Promoter discipline, the current climate of worsening recession usually heralds a period of budget cuts or constraints that directly impact the possibilities of getting full value from their customer loyalty programs. It's often an area that people don't want to face, so it was refreshing that the opening presentation at the 2008 London Net Promoter Conference from Satmetrix CEO, Richard Owen, attacked this subject head on.

Initially focusing on the financial industry, Richard spoke about the sub-prime mortgage "scandal" and likened the impact of this to the way in which the credit card market tends to operate. By offering initial, fixed-term incentives to get this mortgage or have that card, companies can attract high volumes of subscribers who artificially inflate the Net Promoter Score in the early stages of the relationship. I use the word ‘relationship’ loosely at this point, as one incentive does not a relationship make. The initial high related to getting a bargain only lasts for the honeymoon period. Come the point where the circumstances change, the interest-free period comes to an end or interest rates increase, customer happiness takes a sharp nose dive - especially as they watch their home being repossessed.

Now that recession is upon us, surely it is clear that the way in which customers are treated by an organisation will directly impact on that organisation's ability to survive in the current economic climate. What really happens when recession hits?

Richard introduced us to two interesting and revealing concepts:
1. The Wisdom of Small Companies
2. The Wisdom of the Masses

Let's start with number one. In times of recession (and Richard referenced some interesting research from McKinsey around the 1990-92 recession in the UK), large companies focus on restructuring and cutting costs. Small companies tend to go in the opposite direction and focus on customers. Is one approach more likely to help a company through recession than the other?  Based on the available research, the answer has to be yes. And it appears that small companies have got it right. The winners in these periods of economic downturn are the companies who put their customers at the helm of their strategy. They spend larger percentages of revenue on positive customer initiatives, marketing and advertising and R&D. The losers are those who move to greater levels of cost management - reducing the budgets that directly impact the customers' experience of the company. This leads to a growing volume of negative experiences and an increased number of detractors.

So this is great news for loyalty program managers everywhere. Don't cut our budgets! Let us use this customer engagement vehicle to support our survival through recession.

And guess what? That's not the only good news that Richard had to share. Let's move on to that second concept, of the Wisdom of the Masses. Ongoing data is proving that larger groups of people are more accurate in estimating or predicting events, behaviours or future requirements. Richard's example of a village participating in "ox-weight-estimation" showed that the overall average estimate of the bull's weight was pretty near accurate; far more so than any one individual's estimate.

The larger the group of customers you embrace in soliciting feedback, the more likely that feedback is to be accurate. And the good news? In today's technological world, reaching a greater number of customers does not have to come at a substantially increased cost. Customer communities allow organisations to reach more customers at lower costs. No longer do we need to rely on high cost focus groups - that may not be indicative of the mass wisdom - when we can use a community environment to get feedback and help build relationships.

Will all companies adopt these good news concepts? Unlikely in a world where short term accounting standards are often king. But as Richard points out, if you want to see the results of adopting these concepts as strategies, keep your eye on Dell, Charles Schwab and Starbucks. They are all putting long term customer mechanics ahead of short term accounting standards. Time will tell if this strategy works for them but, based on historical research, it certainly should.