using the voice of the customer to quantify the impact of sales and marketing projects in a manner...

Using the Voice of the Customer to Quantify the Impact of Sales and Marketing Projects

in a Manner the CFO Will Accept

WCBF Six Sigma in Sales & Marketing

by John Goodman, President

September 8, 2005

New Orleans, LA

1655 North Fort Myer Drive Suite 200 Arlington, Virginia 22209Phone: 703-524-1456 www.TARP.com Fax: 703-524-6374

2

AgendaAgenda

Key Questions:– How can VOC drive Six Sigma project selection?– How do you integrate data from multiple touch points?– How do you estimate revenue impact of quality improvement? – What is a broader range of solutions to Six Sigma problems?

Who is TARP? What are the Pitfalls of Many Six Sigma Programs Customer Behavior and Expectations Quantifying Revenue Impacts Creative Solutions to Sales and Marketing Problems

3

Who is TARP?The First Name in Customer CareWho is TARP?The First Name in Customer Care

Management consulting/customer research firm established 1971 at Harvard University

– White House complaint-handling/customer service study

Industry leader in customer experience measurement and management

– Word-of-mouth research

– Optimization of cross-channel experience

Offices in Washington, D.C., and London

Assisted hundreds of organizations, including 7 Baldrige Winners and 45 Fortune 100 companies

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Customers will:

Buy again

Buy more

Tell others to buy

Buy your other products and services

+ =DOING

THE RIGHT JOBRIGHT THE FIRST

TIME

MAXIMUM CUSTOMER

SATISFACTION AND LOYALTY

ImprovedProduct and Service

Quality

Respond toIndividual Customers

Identify Sourcesof Dissatisfaction

Conduct RootCause Analysis

Feedback onPrevention

EFFECTIVECUSTOMERCONTACT

MANAGEMENT

Formula for Maximizing Customer Satisfaction and Brand LoyaltyFormula for Maximizing Customer Satisfaction and Brand Loyalty

5

Measuring “Do It Right the First Time”Measuring “Do It Right the First Time”

6

Challenges In Measuring the Impact of Six SigmaChallenges In Measuring the Impact of Six Sigma

Management don’t recognize that service is different than manufacturing and requires variation

Cost is narrowly estimated and is emphasized instead of revenue impact

Revenue impact is discounted and estimates are not vetted with the CFO

Word of mouth, both positive and negative, is often not considered

Multiple data sources seem to contradict/don’t fit together

Causes of problems and solutions are too narrowly defined

7

Possible Sources of Data for Six Sigma Decision-MakingPossible Sources of Data for Six Sigma Decision-Making

Pre-sale

Inquiry

Sales

Account Startup

Service Delivery

Maintenance

Repurchase

Inspection, e.g. Call

Monitoring X X X X

Internal Metrics X X X X X X

Chargebacks and Credits X X X

Channel Input X X X X X X

Call

Center X X X X

Repeat Call Data X X X

Surveys X X X X

This chart illustrates an ideal system of feedback on quality and service for Six Sigma Voice of the Customer.

Customer Behaviors that Impact the Bottom Line

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Causes of Customer DissatisfactionCauses of Customer Dissatisfaction

Employee-Based: 20%– Failure to follow

policy/procedure

Company-Based: 50–60%– Products/services don’t meet

expectations– Marketing overpromises– Broken processes

Customer-Based: 20–30%– Incorrect expectations– Customer error/incompetence

* See TARP’s article in Quality Progress, “ It may not be your product!”

Customer

Company

Employee

10

Source: TARP Industry-Specific Data

Impact of Problems on Customer LoyaltyImpact of Problems on Customer Loyalty

50%

87%

45%

74%

53%

83%

53%

83%

68%

98%

78%

98%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AutomotiveServices

FinancialServices

PackagedGoods

High-TechEquipment

PrivateBanking

CommercialBanking

Problem

No Problem

% d

efin

itely

or

prob

ably

con

tinue

11

Economic Model of Service Impact Economic Model of Service Impact

Assume each customer is worth $1,000

Average Drop in Loyalty 20%

For Every 5 Customers With a Problem, 1 is Lost (5 x .2 = 1)

Can Now Link Handling and Preventing Problem to Revenue

5 Customers with Unresolved Problems

1 Lost Customer $1,000

5 Customers with Problems Solved/Prevented

1 Retained Customer $1,000$1,000

= = = =

12

=

=

=

=

x xx

=

x =

3,500

15,313

30,625

78,750

128,188Total Lost Customers

1,281,880128,188 Lost Customers10 Average Sales per Customer

During Period of Loyalty

350,000Customers

withProblems

25%Dissatisfied

70% NotRepurchasing

45% NotRepurchasing

40%Satisfied

5% NotRepurchasing

50% Do NotComplain

50%Complain

35%Mollified

25% NotRepurchasing

Calculating the Sales Lost from Customers Who Encounter ProblemsCalculating the Sales Lost from Customers Who Encounter Problems

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1 Based on multiple problem selection2 Based on will not repurchase only3 Based on will not repurchase and might/might not

Estimating Revenue Damage to Support Priority-Setting and Project SelectionEstimating Revenue Damage to Support Priority-Setting and Project Selection

Problem Experience

Problem Freq

% Who Will Repurchase

% of Customers Potentially Lost

(45%) (%)1 Will Not2

Likely to Not3

Minimum Maximum

Meeting Promised Delivery Dates 27 10.5 52.6 1.3 6.4

Product Availability within Desired Timeframe

23 0.0 7.7 0.0 0.8

Meeting Commitments/Follow Through

21 30.0 77.0 2.8 7.3

Equipment/System Fixed Right First Time

20 22.2 66.7 2.0 6.0

Adequacy of Post-Sale Communications

19 10.0 50.0 0.9 4.3

Returning Calls 16 33.3 100.0 2.4 7.2

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1%-5% Complain toManagement or HQ

45% Complain toAgent/Branch/Front-Line Rep(75% for Business)

50% Encounter aProblem But Don’tComplain(25% for Business)

The Tip-of-the-Iceberg PhenomenonThe Tip-of-the-Iceberg Phenomenon

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Impact of Delight on Loyalty and Positive Word of Mouth*Impact of Delight on Loyalty and Positive Word of Mouth*

Baseline Delighted Rise Insurance

Continue to Use 65% 91% 26%

Recommend 64% 93% 29%

Investments

Continue to Use 53% 69% 16%

Recommend 42% 56% 14%

*All top boxes on five-point scale

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Impact of Delightful Experience on Top-Box LoyaltyImpact of Delightful Experience on Top-Box Loyalty

Delight Experience Average Lift to Repurchase or Recommend (Top Box)

Service Beyond Expectation 12%

Assistance During Life Event 14%

No Unpleasant Surprises 22%

Friendly 90-Second Staff Interaction 25%

Personal Relationship Over Months 26%

Tell Me of New Product or Service I Can Really Use

30%

Consistently Good Service 32%

Proactively Provide Information on How to Avoid Problems or Get More out of Your Product

32%

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SATISFIED DISSATISFIED

Small Problems

5 10

Large Problems

8 16

Word of Mouse

4% go to a chat room

15% go to a chat room or

bulletin board

Word-of-Mouth Behavior(median persons told of experience)Word-of-Mouth Behavior(median persons told of experience)

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Personal Interaction Has 20 Times as Much Impact as Advertising and SponsorshipsPersonal Interaction Has 20 Times as Much Impact as Advertising and Sponsorships

Specific Positive Experience

% Having Positive

Experience

% With Greatest Impact

Avg. # Told About Pos. Experience

1. Great service transaction at the retail location 60% 29% 4.3 2. Great service interaction with customer service

representative 48% 21% 3.4

3. Did not feel pressured at the dealership 56% 18% 3.2 4. Dealership followed up to ensure that I was satisfied

with the vehicle/service 64% 16% 3.2

5. Monthly statements 18% 4% 1.4 6. Access to account information online 12% 4% 2.9 7. Online bill payment 7% 2% 1.5 8. Advertisement 13% 1% 3.4 9. Automated phone system 7% 1% 2.2 10. Representative rectified a problem I was unaware of 5% 1% 4.0 11. Representative told me about a new product offering 4% 0% 5.8 12. Sponsorship 3% 0% 5.4 13. Finance planning tools 2% 0% NA 14. Other 6% 4% 3.8

Retail Finance Customers

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Quantifying the Impact of Service and Positive Word of Mouth on SalesQuantifying the Impact of Service and Positive Word of Mouth on Sales

20%Delighted

80%Satisfied

x

Avg WOM3.0

Avg WOM1.0

x

=

=

6,000

8,000

14,000

10,000Customers

14,000 Referrals X1 Actions30 Referrals

= 467 New Customers

Example Calculation of Potential Impact

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Higher Quality Begets Higher MarginsHigher Quality Begets Higher Margins

7%12% 10% 10%

24%22% 20%

32%

46%50%

39%

74%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

No problems 1 problem 2 to 5 problems 6 problems ormore

Commercial PowerAirlineBanking

% n

ot v

ery

or

not

at a

ll sa

tisf ie

d

Problems vs. Dissatisfaction with Price

Quantifying the Revenue and Cost Implications of the Customer Experience

from Multiple Touch points

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Framework for Analysis of VOC: Eight Factors that Produce EffectivenessFramework for Analysis of VOC: Eight Factors that Produce Effectiveness

1. Clear ownership of the VOC process and issues identified by the VOC process

2. A unified feedback and quality data collection plan

3. Integration of multiple data sources provides a more powerful message

4. VOC reporting is visible, actionable, and timely

5. VOC issues have clear revenue and profit implications

6. Formal processes ensure that data are translated into goals and actions

7. VOC impact is formally tracked

8. The VOC process is supported by company-wide incentives

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Customers Complain to Different Touch PointsAirline ExampleCustomers Complain to Different Touch PointsAirline Example

** For these channels, the consumer may have first complained elsewhere and then escalated their complaint to this channel.

80% Don’t Complain

100 Customers

Encountering Rude Gate Agent

100 Customers

Encountering Rude Gate Agent

2% to flight attendant

0.8% to consumer affairs/ customers relations**

7% to supervisor on site**

0.5% to executive by letter**

0.2% to executive by email**

1% to frequent flyer 800#**

4% to reservations 800#

1% airline Web site

3.5% other

20% Complain

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Problems Occurring vs. Problems ArticulatedAirline ExampleProblems Occurring vs. Problems ArticulatedAirline Example

SourceProblemReports Multiplier

TotalEstimatedInstances

BestEstimate #Instances

Web Site 6 100 600

Employee Input System 20 20 400*

Reservations 14 25 350

Executive Complaint 2 500 1,000 555

Consumer Affairs 4 120 480

Survey 0.5% 100,000 500

*Given twice the weight of other data sources

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Revenue Impact of ProblemsAirline ExampleRevenue Impact of ProblemsAirline Example

# Customersin Month

Damage to Loyalty

Value of Customer

MonthlyRevenue Impact

555 x .25 x $1,000 = $138,750

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Market Opportunity Model Example Input Data

55%

88%

75%500,000 Customers

ProblemExperience

70%

No ProblemExperience

30%

50%Complained

50%Did Not

Complain

Dissatisfied25%

Satisfied40%

Mollified35%

95%

I

Problem Experience

II

Contact Behavior

III

Contact Handling

IV

Impact

Loyalty*

Word of Mouth**

2.0

3.0

1.0

30% 6.0

* Top two boxes on 5 point scale** Median business associates told

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Quantifying Revenue Impact of Better Quality and Service

Sales LostDue to

Problems(Over Periodof Loyalty)

Sales LostDue to

Problems(Over Periodof Loyalty)

Sales Lostfrom Customerswith Problems


Sales Lost EvenIf No Problems

(Due to Price andProduct Attributes)

Sales Lost EvenIf No Problems

(Due to Price andProduct Attributes)

CustomerNon-Repurchase


Non-Purchase Dueto Word of MouthNon-Purchase Dueto Word of Mouth

- =

28

=

=

=

=

x xx

=

x =

3,500

15,313

30,625

78,750

128,188Total Lost Customers

1,281,880128,188 Lost Customers10 Average Sales per Customer

During Period of Loyalty

350,000Customers

withProblems

25%Dissatisfied

70% NotRepurchasing

45% NotRepurchasing

40%Satisfied

5% NotRepurchasing

50% Do NotComplain

50%Complain

35%Mollified

25% NotRepurchasing

Sales Lost from Customers with Problems: Customer Non-RepurchaseSales Lost from Customers with Problems: Customer Non-Repurchase

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25%Dissatisfied

40%Satisfied

35%Mollified

350,000Customers

withProblems

50% Do Not Complain

50%Complain

70% NotRepurchasing

45% NotRepurchasing

5% NotRepurchasing

25% NotRepurchasing

Avg WOM6.0

Avg WOM2.0

Avg WOM1.0

Avg WOM3.0

2% Non-PurchaseDue to WOM




x xx

=

=

=

=

=

x =

x

Total Lost Customers

70

919

3,675

3,150

7,814

78,1407,814 Lost Customers10 Average Sales Per Customer During Period of Loyalty

Sales Lost from Customers with Problems: Non-Purchase Due to Word of MouthSales Lost from Customers with Problems: Non-Purchase Due to Word of Mouth

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Sales Lost Even if No Problems

x =350,000

Customers WithProblems

350,000Customers With

Problems

12% NotRepurchasing(no problems)

12% NotRepurchasing(no problems)

42,000Lost

Customers

42,000Lost

Customers

10 Avg Salesper CustomerDuring Period

of Loyalty

10 Avg Salesper CustomerDuring Period

of Loyalty

42,000Lost

Customers

42,000Lost

Customers

420,000LostSales

420,000LostSales

x =

31

- =Sales Lost

from Customerswith Problems


Sales Lost EvenIf No Problems(Due to Price and

Product Attributes)

Sales Lost EvenIf No Problems(Due to Price and

Product Attributes)



Non-Purchase Dueto Word of Mouth

Non-Purchase Dueto Word of Mouth

Sales LostDue to Problems

(Over Period of Loyalty)

Sales LostDue to Problems

(Over Period of Loyalty)

1,281,880 Sales1,281,880 Sales

78,140 Sales78,140 Sales

1,360,020 Sales1,360,020 Sales420,000 Sales420,000 Sales 940,020 Sales940,020 Sales

Overview of Baseline CalculationOverview of Baseline Calculation

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÷ =940,020SalesLost

940,020SalesLost

Five-YearPeriod ofLoyalty

Five-YearPeriod ofLoyalty

188,004Sales LostPer Year

188,004Sales LostPer Year

$20 ProfitPer

Sale

$20 ProfitPer

Sale

188,004Sales Lost

Per Year

188,004Sales Lost

Per Year

$3,760,080LostProfit

$3,760,080LostProfit

x =

Profit Lost per YearProfit Lost per Year

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Sensitivity Analysis Results

FORMULA TERMS BASELINE PROGRAM A PROGRAM B PROGRAM C

% Experiencing Problems 70% 65% 60% 70%

% Complaining 50% 50% 65% 50%

Complainant Satisfaction 40% 40% 60% 55%

Annual Sales Lost 188,004 174,574 99,795 149,250

Annual Sales Saved 13,430 88,209 38,484

Add’l Annual Profit Earned $268,600 $1,764,180 $769,680

Program Cost $85,000 $400,000 $77,500

Return on Investment (ROI) 316% 441% 993%

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Identification of Target Using Analysis of Loyalty by IssueIdentification of Target Using Analysis of Loyalty by Issue

* Transaction that represents biggest opportunity for improvement

Problem Reports % Loyal (Top 2 Box) # of Contacts

Routine Order 98 1.1

Shipment Status 91 1.2

Product Return 93 2.1

Shipping Charges 88 2.1

Backorder Status * 67 3.3

Call Center Overall Average 91 1.9

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21% 23%

56%

0%

20%

40%

60%

80%

One Contact Two Contacts Three + Contacts

56%46%

16%

0%

20%

40%

60%

80%


52%

20% 28%

0%

20%

40%

60%

80%


Before Targeted Service

Initiatives

% Completely Satisfied with Action Taken

After Targeted Service

Initiatives

Impact of Process Improvement on PerformanceInsurance Company Example

36

40% Cost Savings (~$70 Million)

+ 6% More Subscribers Retained

+ 1% New Subscribers from Positive Word of Mouth

Operational Costs

CustomerBase

Estimating the Bottom-Line Value of Improvements

Integrate Survey Results with Operational Metrics

Broadening the Range of SolutionsConsidered by Six Sigma

38

Ensure Appropriate ExpectationsEnsure Appropriate Expectations

Time of Sale– Confirm– Explain

Welcome Contact– Reconfirm

In Line/On Hold Interim Follow-up

– Explain and reconfirm

At Time of Service– Explain and accommodate

Most Preferable

Least Preferable

39

Impact of 90-Second Educational Intervention Retail Example Impact of 90-Second Educational Intervention Retail Example

Customers who received care and warranty information– Were much more loyal

– Had half as many problems (23%) vs. (41%)

Did receive info Did not receive info

Definitely would buy 60% 35%

Definitely/probably 90% 81%

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The PayoutThe Payout ProcessProcessThe PayoutThe PayoutThe PromiseThe Promise

• Proactive• Immediate• Easy to invoke • Empathetic

• Relevant• Easy to understand

• Unconditional

Consider Using a Performance GuaranteeConsider Using a Performance Guarantee

• Meaningful • Painful• Shocks

competitors

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32%32%

Benefits of a Performance GuaranteeHospitality Example

Percentage who say they will definitely

return

and did invoke guarantee

Guests Who Had a Problem ...

84%84%

CFO’s conclusion:

and did not invoke guarantee

Company makes $7 for every $1 of payout. Employees are urged to find dissatisfied guests and force them to accept the guarantee payout.

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Create Customer Commitment Via “Connection” and CommunityCreate Customer Commitment Via “Connection” and Community

High-quality product/customer experience is the starting point (minimum requirement) and has the greatest overall impact on customer commitment

Two-way “connection,” creating “community/social interactions,” and managing word of mouth have the second-greatest impact on customer commitment

Incentives (e.g., discounts, loyalty programs) have some impact

Service Interactions

*Source Study of 43 Leading Companies by TARP’s Center for Customer Experience Leadership, 2003

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Respondent CompaniesRespondent Companies

AARPAirborne ExpressAllstate Insurance CompanyAmerican ExpressAnheuser BuschBen & Jerry'sBGEBlue Cross & Blue Shield of FloridaBlue Cross Blue Shield of

MassachusettsBoyd Gaming CorporationBuild-A-Bear WorkshopBurger King CorporationChick-fil-A, Inc.CIBCCoachCoors BrewingDaimlerChrysler ServicesFedExForestersHighmark, Inc.

Hewlett-Packard

IBM

John Deere

Kellogg Company

Krispy Kreme

Levi Strauss

MetLife Auto & Home

Neiman Marcus

Nestle SA

O'Reilly & Associates

Principal Financial Group

Procter & Gamble

Saturn

Southwest Airlines

Taco Bell Corp.

The Ritz-Carlton Hotel Company

Timberland

Toyota Motor Sales USA

Verizon

Vision Service Plan

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SummarySummary

Include revenue implications and word of mouth

Vet assumptions with finance

Be conservative

Draw on multiple sources of data

Include proactive prevention of problem or transaction as possible solution

using the voice of the customer to quantify the impact of sales and marketing projects in a manner...

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