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August 1997 Volume 1.12

The Next Step Up From Customer Satisfaction:

An intensive two day program led by international experts, Ray Kordupleski (former Customer Satisfaction Director, AT&T) and Rodger Gallagher (former leader of many customer service & satisfaction projects at Telecom New Zealand). Early adopter companies are gaining a competitive advantage through a greatly accelerated ability to retain customers and attract new ones by using the Customer Value Management approach. Following the very successful Sydney seminar held earlier this year, people asked if a similar seminar could be held in New Zealand.

We are pleased to announce that a seminar will be held in Auckland on the 3rd and 4th of November.

The seminar is designed for:

• Executives wanting to put customer satisfaction data into a context that translates into real financial terms 

• Customer Service Managers who need to track and improve their performance relative to their competitors 

• Business Development, Marketing and Product Managers concerned with increasing profitability though growing customer loyalty and market share 

All enquires to:
Rodger Gallagher
Customer Value Management
Ph.+64 7 856 6898
Fax +64 7 856 6897
e-mailrwg@cvm.co.nz
P.O. Box 4292
Hamilton East
New Zealand

Good Is Not Good Enough

In 1989 Ray Kordupleski and West Vogel of AT&T Bell Laboratories published an AT&T internal white paper, The Right Choice ö What Does It Mean?â. This then proprietary study looked at the customer satisfaction needed to achieve loyalty from a totally new perspective. By looking at the customer satisfaction level needed to achieve loyalty, the researchers determined that there is no such thing as a satisfied customer. Instead they found that there are degrees of satisfaction, or Good Isn't Good Enough.

What does this mean for the Internet companies we have been looking at? Consider our Company X. We have been mainly looking at relative performance. i.e. Their performance relative to the competition. The relative performance (RTQ) for the Products and Services supplied by Company X was 103. This was being driven off an absolute performance of 7.4 (A mean of 7.4 out of 10). So rather than state what percentage are satisfied, we have a single metric which indicates the degree of satisfaction.

This average Product and Service or Customer Satisfaction performance of 7.4 comes from customer responses across a 10 point scale. There will have been a spread of responses in each category from 1 to 10. Is a result of 7.4 good or bad in terms of customer loyalty? To find out we need to relate data on loyalty with the customer satisfaction data.

The following chart looks at the ratings given by extremely loyal customers of Company X when asked to rate their satisfaction with Products & Services:

So we see that a result of 7.4 for Products & Services only ensures that 50% of your customers will be loyal. A goodlevel of service does not ensure customers will be loyal. Experience with this type of modelling indicates that predicted loss rates line up with actual loss rates. Given the high cost that Company X pays to sign up each customer, through expensive advertising and marketing, this is not a sustainable business model. As the cost to sign up each customer exceeds the first year profit, Company X will continue to lose money.

The steep slope of the graph on the chart above a performance level of 7.4 indicates that a small increase in satisfaction will yield a large increase in loyalty and a resulting decrease in costs Company X might even be able to make a profit if it improves its service level slightly

Fenny Compton

Our arrival in Fenny Compton was quite dramatic as the narrowboat hit the side of the canal becoming firmly wedged in the mud.

We had picked up our boat, the Stratford Swift, from the marina at Napton and decided to cruise south down the Oxford canal. After a short section on the flat we came to the Napton flight, our first encounter with canal locks. Virginia decided she would be the lock mistressand set off with the lock key to open the first gate while I steered the boat into the lock. We needed to clear the nine locks of the Napton flight by 5.00pm as the top lock is padlocked at night to conserve water. In the old days, coal fired steam engines pumped water up to the higher parts of the canal system. Now days small electric pumps do the same job. Well we successfully made it to the top lock just in time to get through before the padlock went on. After that we had to meander around the Warwickshire countryside on our way to Fenny Compton where we had planned to stop for the night. Well the countryside was gorgeous and the weather quite balmy. But as it was rather a long way we needed to make good time, so I opened the throttle a little. Well Fenny Compton came upon me before I knew it, and with boats lining the canal there wasn't much room to manoeuvre. So the boat being a bit too close to the canal side was the cause of us getting stuck.

Anyway several canal boat people suddenly appeared, and rescued us from our predicament. After tying the boat up for the night, we strolled up to the Wharf Inn for a pint of bitter followed by dinner. My selection of beef and ale pie with new potatoes was very welcome followed by home made apple pie. This is a way of life I could enjoy.

Regards,

Rodger Gallagher