#52 – Economics of loyalty, non-relationship between employee and customer satisfaction, AI for airline customer feedback, more

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Welcome to the 52nd edition of my customer strategy newsletter. The five topics this week are:

  1. Short answer to a question about the economics of loyalty 
  2. Reactions to articles on the non-relationship between employee and customer satisfaction
  3. Latest blog posts
  4. Notable items from other sites – AI analysis of airline satisfaction
  5. Looking forward
Short answer to question about the economics of loyalty

A reader asked ‘I wonder if you can assist me in understanding the concept of “The Economics of Loyalty” with examples’. You will see that I do not pretend my answer is 100% complete. I just feel these are the most important points. Please let me know if you disagree. Here is what I replied:

… Good timing for the question as I have been trying to work out how to express the concept concisely. I am sure you have found long descriptions like the one at http://www.bain.com/publications/articles/calculating-the-economics-of-loyalty-forbes.aspx. You may also have read what I have written on the subject in my NPS book Net Promoter – Implement the System.

Reducing it all to something simple is tricky, and I am not sure that what I will write here works for all types of businesses. Anyway, here are the two points I feel may be the most important:

  1. Cost of acquiring a new customer compared to cost of keeping an existing one. In an ideal situation, your sales people bring in new customers, while the sales process for renewing existing contracts is mainly administrative and costs a lot less. Divide the total revenue from new customers by the total sales and marketing budget, and you have the cost proportion for the first part. A similar calculation can be used for renewals. The two are often difficult to separate, and you may need to estimate the proportion of sales people’s time selling to existing customers.
  2. The profit margins from existing customers, versus new customers: This probably matters as much as the first point. Happy existing customers tend to pay close to full price. Unhappy customers tend to get price reductions. New customers tend to pay less than existing customers, at least for B2B.

Reactions to my messages on customer / employee satisfaction

Thank you for the many comments whether received directly, via LinkedIn or on Twitter. I wrote four articles in all. Newsletter subscribers received a long one, with details of the methodology. Note that I had to update it slightly due to an error I found in an Excel formula. The updated article is in the blog list below. The second article gave the lists of companies who were in the top 10% for both cusotmer and employee satisfaction, and those in the bottom 10%. The third article provided the counter-intuitive lists, meaning companies in the top 10% for one factor and the bottom 10% for the other. LinkedIn and Facebook are two of the four companies whose employees love them while their customers hate them. I doubt Facebook’s latest tribulations will change that. You will also see a short summary of the new information on the blog list below.

Most people who gave feedback were positive and appreciated that employee happiness and employee engagement are two different concepts. Employees can be happy about many things that have nothing to do with customers.  Two reactions I received were in the ‘my anecdotes trump your data’ category, meaning they just did not want to believe the data. And one, unfortunately was just “My data says the opposite” without any indication of what that data is or where it comes from. I would love to have been able to see it. I really don’t want to believe that employee satisfaction counts for nothing in most businesses. However, that’s what the data suggests.

As always, feel free to disagree…

 

Our latest blog posts

Here are the latest posts. Older posts are still available on the blog page.

image Yet more reflections on why corporate cost benchmarking is often evil and destructive

Regular readers will know that I am not a fan of cost benchmarking. The reason is simple. I think it is almost always misused, sometimes producing disastrous results. The primary reason is that the cost cutting takes place in the absence of clear statements and actions to spend more on the areas where companies want to invest and grow.
image Employees love these companies, and customers hate them… and vice-versa

My research this month and a year ago (see below) has established that there is little or no relationship between employee and customer satisfaction. This post simply gives the lists that should not exist: the companies employees hate but customers love, and vice-versa. If the conventional wisdom that the two always go together were true, these lists would not exist.
image The large US businesses with the best and worst customer and employee satisfaction

Here are the large US businesses that everyone (customers and employees) love, and the ones they both hate.
image Short update on last year’s research: There is almost no relationship between employee and customer satisfaction

This article is intended for readers who remember last year’s article or have read the corresponding chapter in our book Customer Experience Strategy – Design and Implementation. Others should read the longer version below.
image New data: Does employee satisfaction drive customer satisfaction? Not really!

This article is an updated version of what I wrote on the same subject a year ago. The results continue to be surprising and to go against what most people think. If you remember the details of last year’s article, the short version may be enough for you.

 

Notable customer experience items from other sites

Thematic software: Why US airlines rank best or worst, according to passengers

Great article by Alyona Medelyan on how to use web scraping and text analytics to understand what your customers are thinking. Truly an innovative approach. You can read it here.

CMO: Businesses rate themselves two times higher than consumers on CX

An Australian article about the main findings of the 2018 Starcom Media Futures report. And that gap has almost doubled since last year. Read more here.

 

Looking forward

I am currntly trying to suggest how a large sports association with three million members should go about getting feedback from its 60 national associations. I have never done anything like this before, so any relevant experience you have would be most welcome.

Here are links to all of our books on Amazon.com. Kindle versions are available in all stores. Print versions are available from the major stores only, with the notable exception of Australia, where print versions are not available from amazon.com.au.

Customer Experience Strategy – Design & Implementation

Net Promoter – Implement the System

Customer-centric Cost Reduction

“So Happy Here”: The Absurdist but Essential Guide to Better Business (Color edition)

“So Happy Here”: The Absurdist but Essential Guide to Better Business (Black & White edition)

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

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