#5 Behavioral Economics, Customer Lifetime Value

Welcome to my fifth newsletter covering customer experience and customer-centric business strategy. The four topics this week are:

  1. Reactions to latest posts, other thoughts
  2. Highlights from my own blog.
  3. Notable customer experience items from other sites.
  4. Looking forward

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The post about employee and customer satisfaction is still popular

My post on the relationship between customer and employee satisfaction is heading towards 2,000 views. While I am pleased with that, and have received a number of direct emails on the subject, I am surprised that nobody has commented about it on the website. It is controversial. I think most people do not believe it is true. I would like to restate that a happy employee is not necessarily an engaged employee. A person who likes how close they live to work, the beautiful grounds around the office building, and the food they have in the company restaurant is not necessarily doing anything positive for customers. That is why there is such a weak relationship between employee and customer satisfaction.

Various people have suggested that my statement that Glassdoor does not accept requests from client companies to remove negative comments my not be true. Glassdoor’s position on the subject is here, and more can be found in their website section called ‘Legal FAQ’. For the sake of balance, a discussion that seems to suggest the opposite in some cases is here. Clearly, any gaming that happens could only be in the upwards direction.

Why behavioral economics matters

Over my career I have sometimes been told that I am annoyingly logical. My evidence-based approach to strategy and customer experience work has sometimes crossed the fine line between being persistent and being irritating. Of course, I used to dismiss the irritated people as simply being wrong. That was before I started to read behavioral economics books, notably those by Daniel Kahneman and Dan Ariely. I learned that intelligence is of far less practical use than I once thought. People, including customers, behave far less rationally than we like to think. Emotion rules. Rational thought comes a distant second. I wish I had learned how to ‘lead with emotion’ much earlier in my career. That is why I have started a new series of blog posts that share some of what I have now learned.

Our latest blog posts

Older posts are of course still available on the blog page.

image ‘Gaming’ survey results is common – Here is how to do it When your first-line managers and employees are measured individually on the results of surveys, ‘gaming the results’ is common and easy. What follows may seem a bit cynical, but has its basis in reality. I have seen all of these done in practice.
image Behavioral economics and customer experience – Part 1 Behavioral economics is a relatively new field. It combines economic and psychological theory and reaches new conclusions. Economic theory holds that people always behave rationally, optimizing their financial and other outcomes. Behavioral economists have proved something very different…
image Survey design considerations A set of things to consider as you decide whether and how to conduct customer research. There are too many surveys in the world. This post will help you concentrate on research that makes a difference for customers
Notable customer experience items from other sites

Harvard Business Review: Customer Loyalty is Overrated

Provocative article by A.G. Lafley and Roger L. Martin. The essential point they make is that customers are people of habit, and will keep on doing what they have been doing unless there is a really good reason to change. They say that customers are not rational, and use arguments from behavioral psychology to support their views. The web page includes articles that disagree with what they say. Well worth reading for anyone interested in business strategy. You can find the article here. Note that you get free access to 8 articles a year just by registering.

Customer Lifetime Value: Net Promoter System podcast

How much is one of your customers worth to you over the entire time they have done and will do business with you? This should be one of the most important standards of financial reporting, in my opinion, and it is not. There are standards for banks to report on the value of loans, which is quite similar, but nothing for customers. Some outsourcing and consulting companies have their own methods and provide internal-only financial reporting that way. Rob Markey invited Peter Fader of Wharton school of the University of Pennsylvania to join him on the Net Promoter System podcast last week to discuss how to do it. I learned a lot, and have to re-write a chapter of my NPS implementation book after listening to it.

How to complain effectively in three easy steps

A short and entertaining read by the mysteriously anonymous ‘Matthew’. He tells the story of how he helped his friend ‘John’ to complain to United after a missed connection at Newark airport. John tried hard, but did not get what he wanted. Matthew shows us how to do it correctly here.

Looking forward

It will be Valentine’s Day next Tuesday, and you can look forward to a post on how to stay married… to your customers of course. Apologies in advance to readers in Australia and New Zealand, who may only be able to see the post when the day itself is over. I will do my best to post early.

Thank you for the many kind words received about Peter’s drawings. Peter’s profile is here. In addition to being an artist, he creates beautiful websites for artists, galleries, lawyers / solicitors and other businesses. His website is here.

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You can also email me, Maurice FitzGerald, at mfg@customerstrategy.net.

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