B2C Most Engaged Customers Study_PeopleMetrics

TABLE OF CONTENTS

Introduction ...................................................................................................3

State of the Union.........................................................................................4

The Winners ..................................................................................................5

Impact of Change in Customer Engagementon Business and Stock Performance ...........................................................7

Customer Engagement and Behaviors .......................................................8

Creating Customer Love - How Do They Do It? ........................................9The Offer................................................................................................9Care........................................................................................................11Consistency............................................................................................12Trust........................................................................................................13Effort.......................................................................................................15Genuine .................................................................................................16

What Can Companies Do to CreateHigh Levels of Engagement and Love?......................................................19

About the 2010 Most Engaged Customers Study.....................................22

About PeopleMetrics....................................................................................22

Appendix: Ranking Customer Engagement...............................................23

1717 Arch Street Suite 3220, Philadelphia, PA 19103, USA | 215.979.8030 | www.peoplemetrics.comCopyright © 2010 PeopleMetrics Inc

There has been much written of late on the topic of the “new normal.” Evidence points to the fact

that the current economic downturn differs from prior recessions and that consumer behavior has

fundamentally shifted. In essence, we are thinking more about how we spend our money.

Personal values, experiences that create lasting memories, and getting a bargain play a greater

role in purchase decisions than they did in the past. Business-to-consumer brands have to work

harder today to capture a share of consumers’ diminishing discretionary dollars.

The 2010 Most Engaged Customers study was designed to define the building blocks of

Customer Love. The output is a roadmap companies can follow to create higher levels of

Customer Engagement and emotional attachment.

In 2010, our third year of conducting the study, we decided to dig deeper into the “hows,”

“whys,” and “whats” of Customer Love. Specifically, we answer the following questions:

• How do customers who love companies behave?

• Why do customers love some companies and hate others?

• What can companies do to get more customers to love them?

We also wanted to check in on the state of Customer Engagement in 2010. As the financial crisis

continues, recession talk turns to depression talk and unemployment rates persist at an all time

high, we were curious about:

• The State of the Union: What has happened to the customer experience since lastyear- is it better, worse, or the same?

• Winning Sectors and Winning Brands: Which industries and brands are winning inthis environment, and which are struggling?

• Impact of Change in Customer Engagement on Financial Performance: How doshifts in Customer Engagement impact financial performance? Does an increase inEngagement mean an increase in stock price and vice versa?

INTRODUCTION

In the words of Peter Drucker,

“The purpose of a business is to create a customer.”

However, “creating” a new customer can cost on average five

times more than satisfying, retaining, and growing an existing one.

Companies that are able to create customers who love them are

more likely to adapt and thrive in the new economic order.

1717 Arch Street Suite 3220, Philadelphia, PA 19103, USA | 215.979.8030 | www.peoplemetrics.comCopyright © 2010 PeopleMetrics Inc 3

MEASURING CUSTOMERENGAGEMENT (CUSTOMER LOVE)


Throughout this paper we use the terms Customer Engagement and Customer Love interchange-

ably. We are effectively getting at the emotional attachment that a customer has to a company or

brand. It is assessed using a validated, comprehensive measure that links to financial performance.

The calculation is based upon individual responses to four questions:

• Retention: “Given the choice, I would do business with [Company] again”

• Effort: “I would go out of my way to do business with [Company] in the future”

• Advocacy: “I would recommend [Company] to a colleague, friend, or family member”

• Passion: “I love doing business with [Company]”

All questions are asked on a 5-point agree/disagree scale and a customer is engaged if they give

a “4” (Agree) or “5” (Strongly Agree) rating to all four questions.

We have measured Customer Engagement levels since 2008; we found that Engagement dipped

along with the recession in 2009 and has remained at the same level in 2010.

This year’s study included 26 brands that were also

assessed in 2008 and 2009. On average, across

these common brands, half (52%) of customers are

engaged and the balance is ambivalent at best.

This compares similarly to the 2009 level (51%).

However, in 2008, Engagement was seven points

higher (59%). Similar to the reset in the economy

and stock market, it appears that Engagement

levels have also been reset (Figure 1).

This doesn’t mean Customer Engagement is

illusive or that it lacks value. Some companies are

excelling at engaging customers and are financially

out-performing their industry peers. With three years worth of Customer Engagement data, we

are able to investigate how Customer Engagement and financial performance vary over time.

THE STATE OF THE UNION

Figure 1. Shifts in Overall Customer Engagement OverTime

THE WINNERS


SECTORSAlthough Overall Customer Engagement has stayed the same from 2009 to 2010, individual

sectors have seen shifts in Engagement in the last year (Figure 2).

eRetailers, a group consisting of Amazon.com, Netflix, Newegg.com, and Zappos.com, have

increased their Customer Engagement index by seven points to 61%. This sector, one that plays

to convenience for the shopper, now holds a close second place position next to the Luxury

sector which has always been a clear winner (64% Engagement). Netflix and Amazon.com, two

brands contributing to this sector’s Customer Engagement growth, represent success stories with

regard to stock price performance between 2009 and 2010 (the former showing a 338% increase

and the latter a 91% increase).

At the other end of the spectrum, Cable & Satellite TV Providers, the lowest performing industry

in 2009, retained this depressed position with an Engagement score five points below where it

stood last year. Wireless Service Providers are also heading in the wrong direction with a three

point move downwards since last year. While some sectors have improved overall with regard to

Customer Engagement levels and others have dropped, the 2010 winning brands span sectors

(see table next page).

Figure 2. Industry Trends in Engagement (2009 vs. 2010)

THE WINNERS


BRANDSAcross the top ten, representation from Luxury, Insurance, Grocery, Specialty Retail, Restaurants

and eRetailers is evident 1.

Because we really want to know about the brands consumers “love” and for what reasons, this

year we added some new companies to the mix that have great reputations for creating excep-

tional experiences that customers love. Per our hypothesis, some of our new brands emerged as

winners this year. USAA, Build-a-Bear Workshop, Trader Joe’s, Ruth’s Chris Steak House, and

Whole Foods Market all make the 2010 Top Ten list.

1 A complete list of brands, ranked by Engagement within sector, can be found in Appendix II.

IMPACT OF CHANGE INCUSTOMER ENGAGEMENT ONBUSINESS AND STOCK PERFORMANCE


In the 2008 MEC study, we set out to discover if

passion pays in business and if so, how much?

We found that companies whose customers love

them had dramatically superior financial

performance (growth, EPS, ROI, ROA) (Figure 3).

While we were able in 2008 to demonstrate that

companies with higher levels of Customer

Engagement performed better, we weren’t at

that point able to show how Customer

Engagement and financial performance interact

over time. In 2010, this analysis was possible. The

chart below highlights what we found 2 (Figure 4).

Specifically:

• Retailers in our study for which Customer

Engagement increased at least five points

exhibit 56% cumulative share price appreciation

since 2008.

• Correspondingly, retailers suffering drops in

Customer Engagement of five or more points

appreciated an average of just 22%, earning less

than half the return for shareholders. Customers

who love brands help them succeed.

Some customers in our study went as far as to say that they have invested in the brands they love,

recommended them to others, and written letters of compliment. Clearly, continuing to focus on

the customer during an economic downturn is a smart business strategy.

Figure 3. Impact of Customer Engagement onBusiness Performance

Figure 4. Relationship between change in CustomerEngagement and change in share price (2010 vs. 2008)

2 Analysis of a sub-set of retailers in the Consumer Discretionary Fund (Ticker: XLY).

CUSTOMER ENGAGEMENT & BEHAVIORS


In addition to examining the link with financial performance, we were also interested in looking at

how customers in each of the four separate Engagement segments behave 3.

Our analysis revealed a strong positive

correlation between high levels of Customer

Engagement and website visits, purchases, and

recommendations (Figure 5):

• More Visits to the Site: Fully Engaged

customers visit a company’s website twice as

often in a six month period than customers

who are On-the-Fence or Actively Disengaged

• More Purchases Online: They make three

times as many purchases when they are at the

site versus those who are ambivalent to the

brand

• Higher Conversion from Visit to Purchase: They make a purchase close to once out of every

two visits to the website compared to once out of every 4 visits for an On-the-Fence customer

• More Frequent Recommendations: They recommend an organization twice as often as those

who are On-the-Fence

Because customers who choose a company based on recommendation are more engaged

and forgiving, increasing positive word-of-mouth and referrals should be a goal for any

organization.

Recommendations hold a lot of weight — not only

when acquiring new customers, but throughout

the customer’s relationship with a brand — as is

evident by the graph. (Figure 6).

Encouraging more positive word-of-mouth can

provide a safety net to businesses even when serv-

ice failures occur. Customers who have come to an

organization via recommendation are more likely

to forgive if someone they trust recommended the

company in the first place.

3 Consumers responding to the survey were grouped into one of four Engagement or Customer Love Segments defined according to theirresponses to the four Engagement questions (Retention, Effort, Advocacy and Passion). A Fully Engaged customer is one who gives all“5’s” (Strongly Agree) to all four questions; an Engaged Customer gives “4’s” and “5’s”; an Actively Disengaged customer gives at leastone “1” or “2” and the On-the-Fence customer gives a mix of ratings indicating emotional ambivalence to the brand

Figure 5. Impact of Engagement on onlinepurchases and recommendations

Figure 6. Impact ofRecommendation onEngagement


CREATING CUSTOMER LOVE –HOW DO THEY DO IT?

High levels of Customer Engagement and Love clearly translate into the behaviors that support

achievement of financial goals. The question then becomes, is it possible to manufacture

Customer Love? Can we control our customers’ emotional reactions? Can we make them love us?

Our research across all consumer industries has revealed a hierarchy of needs that together create

Customer Love and Engagement.

There are six elements in the

hierarchy (Figure 7). Customer

Engagement requires all

elements to be present.

Specifically, these are:

1. The Offer: Products, services

and/or experiences that

customers want or need

2. Care: A company culture that

cares for and values customers

3. Consistency: Excellent service at every touch point

4. Trust: If something goes wrong, the customer has faith the company will put it right

5. Effort: Employees who exert extra effort and go above and beyond

6. Genuine: Authentic service from real people

THE OFFERThe winning companies in our study all offer something that is special, unique, fun, extraordinarily

convenient, or of exceptional quality or value. Consider the first-class experience you get at The

Ritz-Carlton or the unusual product choices you get at Trader Joe’s or the one-of-a-kind experi-

ence BuildA-Bear Workshop offers its customers.

Figure 7. Customer Engagement Dimension

Customer Love begins here. While a great, compelling offer is a requirement for Customer

Love, it is very rarely sufficient. To touch their hearts, consumers demand that an amazing

offer be combined with softer elements of the experience. These softer elements begin to

truly separate companies that are liked and those that are loved.



CAREOnce a consumer feels they’re getting a great product/experience, their attention turns to how

much the company cares. Customers who believe that, think that decisions are being made with

their best interests in mind. Words & actions demonstrate that the customers are valued.

These companies care about pricing fairly and don’t quibble over refunds/returns. Customer

care/centricity begins with senior leadership commitment; winning companies put the customer at

the heart of their business ensuring that they, in turn, have a place in their customers’ hearts.


CONSISTENCYBeyond a great offer and evidence that a company cares about their business, consistency of the

experience comes into focus. This speaks to the strength of a company’s customer-centric culture

and how well it executes against that promise. Excellent service at every touch helps to forge

strong emotional bonds with customers. Companies that offer a dependable, even level of excep-

tional service regardless of who or where it is being delivered are winning. This, again, depends

upon senior leaders instilling a culture of customer-centricity that includes the systems and

processes to support it.

Companies that do this can be

counted on. It is no small feat,

however, to ensure that all

employees are trained and

motivated to deliver against

this promise.

This is why the winning companies in our study invest heavily in selecting the right talent and

training them to deliver an experience consistent with the promise. For Zappos.com, for instance,

employees who aren’t able or willing to uphold the consistently excellent service experience

promised to customers are offered $1,000 to resign. This is one example of an organization that is

so committed to delivering consistently excellent customer service that they’ll pay to avoid incon-

sistencies.


TRUSTCustomer Love is not easy. So far, we have discussed the importance of a great offer combined

with a caring organization that delivers consistent service, and we are only half way to achieving

true Customer Love (see Figure 8).

Flawless service delivery creates trust. Many of our winning companies never give customers a

reason to doubt them because service is perfect each and every time (see point three above). In

addition, the companies in our study that recover well from service failures have higher levels of

customer trust than those that fail to respond adequately.

Thus customer trust is created in two main ways:

• First, flawless service delivery will create

trust. As noted earlier, consistently excellent serv-

ice delivery is an essential ingredient to create

high levels of Customer Engagement.

• Second, if mistakes happen (and they

inevitably do happen) the way that a company

responds will either create or destroy cus-

tomer trust. The graph to the right (Figure 9)

demonstrates that perceptions of trust are often

highest among customers who have had prob-

lems & experienced positive problem resolution.

Conversely, fewer than half of customers who

had poor problem resolution trust the organiza-

tion will be able to fix it in the future. Trust is built when the organization is put to the test.

Figure 9. Impact of Problem Experience andHandling on Ratings of Trust (scores represent %agree/strongly agree with, “I trust if somethinggoes wrong, [COMPANY] will make it right”)


Not surprisingly, a negative correlation exists between service failures and Customer Engagement

(Figure 10). Customers experiencing problems are significantly less engaged than those who

never experience a problem. However, there is a silver lining in that companies that “take care”

of customers’ problems and strive to recover from failures experience an Engagement

bounceback.

Committing to a systematic service recovery and complaints handling process is one step in the

right direction toward converting disgruntled customers into loyal advocates. This should include

a proactive outreach to customers to learn of their issues and respond in real-time.

One interesting ele-

ment of Trust (or dis-

trust) is that it can be

built in a short time

span but is long

lived. Customers

have long memories

for those moments

of truth created at

points in the cus-

tomer’s lifecycle

with a company.

Many customers in the study who explained why they trusted, or did not trust, a particular brand

pulled examples and stories from years long past.

Figure 10. Impact of Service Failures and Recovery on Customer Engagement


EFFORTSo far, we’ve introduced a great offer, a caring organization, consistent customer service, and trust

as being the building blocks of Customer Love and Engagement. There remain two additional

dimensions of Customer Love, and these are the most difficult to achieve but can provide lasting

competitive advantage for companies who are able to get there. Customer Engagement is

impacted by the extent to which your employees go above and beyond for customers, demon-

strating extra effort to meet their needs.


Interestingly, some of these examples come from some of the lowest scoring brands in our study.

The point is that every organization has its Brand Ambassadors, those people who really want to

delight the customer and will go to all lengths to do so. The secret is in ensuring that every

employee is a Brand Ambassador – that the effort expended is consistent. This is what separates

the companies with a majority of customers who love them from those where just a select few do.

GENUINEFinally, Customer Love is gained

and sustained through relation-

ships. Companies that encourage

people to be themselves, creat-

ing relationships with their cus-

tomers, score better. These com-

panies’ customers tell us that

service is delivered with a “real”

smile, relevant questions, active

listening, and eye contact.


The conundrum we face is that

genuine, authentic service is more

easily delivered in person than

over the phone. In our study, we

discovered that customers who

deal with companies via the

telephone are less engaged than

those who have face-to-face

interactions because the opportu-

nity for genuine interactions and

relationship building is lessened in

these more remote service

exchanges (Figure 11).

The challenge for organizations

delivering service via multiple

channels is to ensure that the met-

rics used to manage our business

(such as call volumes and service levels) don’t interfere with employees ability to connect in a

personal way with customers.

Figure 11. Relationship between Mode of Interactionand Customer Engagement


SPECIFICALLY

• 52% of Actively Disengaged customers had phone contact with the company versus just 18% of

the Fully Engaged.

• This finding is in stark contrast to the 76% of Fully Engaged customers who have had in-person

interactions versus 48% of the Actively Disengaged.

We looked further into the data to see whether phone contact was more highly correlated with

problem handling (do customers call to deal with problems more so than visit in person?) and

found this not to be corroborated in the data set.

In a face-to-face service interaction, the ability to make eye contact, read facial expressions, and

assess the customer’s personality and mood is greater than over the phone. Adapting service

delivery based upon these in-person cues is possible. Furthermore, the very nature of some of the

metrics used to manage most call centers inhibits the ability for even the very best Customer

Service Representatives to engage with customers, creating an impression of authenticity.

Call volumes and service levels usually trump small talk and humor.


WHAT CAN COMPANIES DOTO CREATE HIGH LEVELS OFENGAGEMENT AND LOVE?

The 2010 Most Engaged Customers study has revealed that companies who embrace Customer

Love and Engagement are winning and growing even in difficult economic times. Their customers

are more likely to recommend them, visit and purchase from them online, and say they will return

in the future. A corporate focus on Customer Engagement, therefore, is not just the job of market-

ing or customer service but of the c-suite. Customer Engagement is a strategy and not an event

or study.

This year’s study also revealed that there are six avenues by which companies can increase

Customer Engagement. To achieve true Customer Love, all of these dimensions must be present.

The following steps highlight actions that can be taken to increase positive scores for the six

dimensions:

(1) Define your Compelling Offer: The number one driver of Customer Engagement in the busi-

ness-to-consumer space is The Offer: desirable products, services, and experiences that are

offered by the company. This is the core of Customer Love. Our winning brands’ offers stand

out for being all about one core promise such as luxury, fun, choice, one-of-a-kind experience,

or convenience. Companies need to start by ensuring that they know what they stand for. Is

your message clear? Are you trying to be too many things? And where is the customer in your

promise – at the heart or an afterthought?

(2) Identify and Celebrate your Care Givers: It seems simple and yet many, many organizations

aren’t able to act in ways that make the customer feel cared for. Is customer-centricity a true

business strategy or just a buzz word in your organization? Customer care is the job of the c-

suite not just the call center. Start by identifying the employees in your organization who really

“care” for customers – find out what they do, how, and why. Clone them. A Brand Ambassador

program is a good way to start. Using customer feedback you will be able to identify which of

your employees are showing care. Recognize them, learn from them, and train and hire more

of them.

(3) Measure to Ensure Consistency: Our research has revealed that a consistently excellent experi-

ence across touch points and individuals is essential to creating Customer Love. One poor

experience can alter a customer’s view for years into the future. Each and every customer-fac-

ing employee needs to deliver the same exceptional quality of service and care. How do you

know if your organization is consistently delivering against the brand promise? One answer is in

feedback and measurement. A real-time, enterprise-wide customer feedback program will

ensure that you are keeping your finger on the pulse of the customer experience and are able


to intervene with agility and impact if and when consistency falls short. Make sure the results

from your feedback program are available to front-line managers and are not the exclusive

domain of market research or strategy departments.

(4) Manage Moments of Truth to build Trust: Customers trust organizations that are consistent, but

they can also trust organizations that are consistently good at recovering from problems. You

can build trust by systematically capturing, categorizing, and analyzing where service failures

are occurring. An analysis of service breakdowns will allow your organization to prioritize

required changes and improvements in people, process, and technology to minimize the fail-

ures. Next, you can ensure that your people have the latitude to respond to customer issues

and make them right. A feedback program that is truly enterprise-wide will empower your

front-line employees to take the necessary actions to recover from service problems. The

Brand Ambassador programs we run for our clients have revealed that extraordinary people

are doing extraordinary things every day to turn unhappy customers into those who will trust

their organizations for the long haul. They can only do this, though, if they have adequate span

of control. You have to trust employees so that they can build trust in turn with your customers.

(5) Engage your People so they Give Extra Effort: Engaged employees go above and beyond for

customers. Disengaged employees do the opposite. If you don’t know how engaged your

people are, or why they are or are not, you are managing in the dark. A formal Employee

Engagement program will allow you to identify the areas in need of fixing. Before doing this,

though, you must be prepared to make changes to increase Engagement, and by extension

see more employees doing more for your customers on a regular basis.

(6) Encourage your People to be Real with Customers Regardless of Role: Changes to the way

you run your call center, if this is a piece of your business, may be required in order to allow

employees who are “engaging” with customers in a remote fashion to let the customer experi-

ence them as real, genuine people. If you hire with emotional intelligence in mind, you should

feel comfortable allowing employees to be themselves with your customers.

The above steps can help companies across industries realize a stronger and more profitable rela-

tionship with their customers.

Finally, a systematic approach to managing Customer Love and Engagement is essential for suc-

cess. Winning companies are capturing and taking action on customer feedback through an

ongoing Customer Engagement Management program. By so doing, they are able to engender a

consistent culture of customer-centricity, build trust through responsive and exceptional service

recovery, and empower employees across the enterprise to own the customer experience.

We know that Customer Love doesn’t just happen. And we know that it is rare that a great offer

alone will generate consistent levels of Customer Love. You have to manage the process of

Customer Engagement. Customer Engagement Management (CEM) is a consistent and


systematic approach to measuring customer experiences. Here are some highlights of a successful

CEM program:

• Enterprise-Wide Access: Everyone who is responsible for customers within the organization

should have access to their feedback

• Accountability for Taking Action: Specific customer feedback should be assigned to individuals

within the organization so follow-up actions are taken

• Real-Time Information: Customer feedback should be available in real-time, seconds after fee

back has been provided

• Transactional Customer Feedback: Leading organizations obtain feedback from customers after

specific transactions or experiences to help build consistency in the customer’s experience of

the company

• Action Oriented questions: Feedback should drive specific actions that employees can take to

strengthen emotional bonds with customers

For more information on implementing a CEM program within your organization, please contact

Frank Rowe at 215.979.8038.


ABOUT THE 2010 MOST ENGAGEDCUSTOMERS STUDY

In June 2010, PeopleMetrics conducted the third annual Most Engaged Customers (MEC) study

among 5,000+ consumers and 1,200 Business-to-Business decision-makers and day-to-day con-

tacts. The consumer feedback focused on 12 industry sectors: (1) Apparel, (2) Cable & Satellite TV

Providers, (3) Department Stores, (4) Discount Retailers, (5) Electronics, (6) eRetailers, (7) Grocery

Stores, (8) Insurance, (9) Luxury, (10) Restaurants, (11) Specialty & Household Furnishings, and (12)

Wireless Service Providers. Partnering with Toluna Group, PeopleMetrics captured close to 15,000

ratings of both business-to-consumer and business-to-business service providers.

PeopleMetrics is a leading research and technology firm that helps companies engage customers

and employees to drive bottom line results. Our solutions support the success of managers by

providing continuous feedback from stakeholders and guidance on the best actions to take in

response to specific comments.

Since our inception in 2000, PeopleMetrics thought leadership, exceptional client service, and

easy-to-use technology has helped hundreds of clients generate remarkable results.

For more information about PeopleMetrics services please contact [email protected] or

[email protected].

ABOUT PEOPLEMETRICS


APPENDIX: RANKING OF ALLCONSUMER BRANDS IN THE 2010MOST ENGAGED CUSTOMERS STUDY

The table below ranks the brands included in this year’s study within sub-sector based upon

Customer Engagement score. For more detailed results from the 2010 study please contact Frank

Rowe at 215.979.8038 or [email protected].



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B2C Most Engaged Customers Study_PeopleMetrics