How Large Corporations Are Thinking About Customer Centricity

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 Table of Contents

1. Introduction
2. The Customer And Sales
3. Customer Satisfaction Or Customer Centricity In Corporates Today
4. The Future Of Measuring Customer Centricity: How Corporates Are Looking To Improve
5. Trends Among Australian Corporates
6. The Future Customer

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Introduction

The notion of customer centricity is a growing focus among large corporations across the world, as the customer is increasingly recognised as the most important asset to a business. This piece investigates how companies are dealing with the growing issue of customer centricity and examines the evolution of the ways that large enterprises have examined and will continue to assess customer satisfaction. This includes a deep dive into one of the most commonly used frameworks, the Net Promoter Score, and how corporations are moving beyond this measurement in the coming years. This article closes with examples of customer centricity in Australian corporates and an outlook of how customer centricity is likely to develop in the years to come.  

The Customer And Sales

In 1970, Simon & Garfunkel made it clear to “Keep the customer satisfied”. What seemed common logic then was the result of several thousand years of man’s experience how best to sell goods and services. A satisfied customer is likely to return which will help the business to grow. Turning it around, it seemed prudent to increase sales – at least partly – by keeping the customers content. Unsurprisingly, when modern marketing techniques emerged in the US, Europe and later in Japan, successful ways had to be worked out how to best win sales from customers. Inevitably, business logic had it that sales were causally related to customers: no customers, no sales. Customer Relationship Management – or, for short, CRM – was a natural consequence of more available data on purchasing and marketing behavior when it started in the early 1990s. CRM became a buzzword for most big corporates around the world. It became increasingly clear that in order to win and keep customers it was pivotal to learn more about them.

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This included their socio-demographic background, spending capacity, and purchasing habits. Naturally, CRM went hand-in-hand with the evolvement of customer databases and specific sales software, such as the products from companies like PeopleSoft, Oracle, SAP or Microsoft. Modern software such as Salesforce or the latest efforts to offer CRM as SaaS (Software-as-a-Service) cloud options still embrace the very same notion of gaining maximum information and data from and about customers.

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Despite the importance of the customer in achieving sales, many companies perceive sales-related variables as the more important Key Performance Indicators (KPIs). Adidas, one of the world’s leading sports article providers spearheaded efforts to structure its KPIs into a so-called KPI driver tree. The idea behind was to get a better grip on the dozens of KPIs which are compiled for decision-making. Guess what mattered most? Unsurprisingly, the financial KPIs like turnover, ROI, EBITDA and sales of particular product lines.

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This example – which is by no means unique – underscores nicely what is often more on the minds of CEOs and Managing Directors: achieving sales and profit margins. Or shareholder value. But customers and staff?   I mention ‘staff’ explicitly here as, typically, staff plays a key role in attracting customers and driving sales. There appear to be causal links between staff, customers and sales as demonstrated in this causal model of branch performance of retail banks: Top-level managers and larger companies quite often tend to ignore the preceding links of this chain and focus on sales instead.

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When the database giant Oracle entered the European market around the turn of the millennium, its sales force had to fulfill key benchmarks of achieving a double-digit increase in sales each year for over a decade. Customer and staff satisfaction was a secondary issue, last but not least because the IT market was extremely dynamic and bore lots of growth potential. When the market situation changes it is often high time for companies to reconsider their business model. In this case, companies need to think about new marketing or sales strategies, expand or modify their product or service range or invest time in those who drive sales and turnover: the customers.  

Customer Satisfaction Or Customer Centricity In Corporates Today

The Challenge Of Gaining Insights

With the rise of market changes, increased competition or new sales channels opening up any company is forced to reconsider who its customers are and, more so, how to attract them to buy. Learning from the theoretical developments in psychometrics, where particular behavioral constructs like anxiety, motivation or happiness were successfully measured in the 1960s and 1970s, market researchers developed means to assess customer satisfaction numerically. In principle, customer satisfaction was broadly defined as an indication of how successfully a company or organization operated in selling products or services to customers or clients. Throughout the last couple of decades, dozens of well-defined instruments and models (tests or questionnaires consisting of a range of items) have been developed and validated, measuring customer satisfaction and customer behavior on various scales. Usually, surveys are carried out by big international market research companies like Nielsen, IBM’s Information and Analytics Group, IMS Health Ipsos, GfK, comScore or J.D. Power to obtain insight about customers and their behavior, their likes and dislikes, and possible purchase behavior. Typically, such customer satisfaction surveys comprise dozens of items. These are asked either in a structured face-to-face interview, by letting the customer respond to a paper and pencil questionnaire or, commonly these days, be answered online. While a hotel chain may be interested to find out more about customer satisfaction with regards to the welcome at the reception desk, the room maintenance, dining or recreational facilities and the overall service quality, it can easily be seen that there are dozens of specific aspects with which customers can be satisfied or not satisfied. Further, corporate management often uses aggregated scores to watch how customer satisfaction develops. In addition, there is not one single standard reflecting customer satisfaction which can be compared internationally or across industry sectors. Seemingly, “customer satisfaction” about the freshness of bread rolls in your nearby Ferguson-Plarre or Bakehouse franchise is different conceptually than the satisfaction of technical services rendered by Telstra or Optus.  

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Net Promoter Score: A Modern Corporate Trend

Based extensively on the observations and research conducted by the consulting company Bain & Company, large corporations have embraced the idea of measuring customer satisfaction in a much simpler and logistically easier way. The Net Promoter Score (NPS) is typically obtained by asking customers to which degree they are inclined to recommend a company and how satisfied they are with (the products/services of) the company. In addition, a few questions may be added ascertaining more details about the background of the customers and their involvement with the company. The NPS serves as a regular means of customer satisfaction and has become a popular KPI. It has been widely accepted as a correlative for sales and turnover. Companies, such as Bank of Melbourne, Qantas and Telstra - that rely on the NPS in many of their management, investment and operational decisions - measure the NPS regularly. Those companies that resort to the NPS and base their management decisions on this descriptive score tend to believe it serves them well in understanding the customers’ needs and getting better sales.     However, the Net Promoter Score itself is calculated across all respondents on a scale of 0 to 10. The NPS results simply as the percentage of detractors (scores 0-6) being subtracted from the percentage of promoters (scores 9-10). Respondents giving a score of 7 and 8 (passives) are discarded from the calculation. The NPS can be followed across time and trends can be correlated with sales or turnover so management decisions or marketing incentives can be taken. Further, the NPS is often broken down in reporting sheets by standard subgroups of customers, differentiating them, for instance, by gender, age, socioeconomic status or high volume/low volume customers.  

The Detractors: Arguments Against NPS

While many big corporates – internationally and within Australia – have embarked on regularly assessing their NPS, the advance of online sales channels plus the availability of much faster, and more elaborate and in-depth business analytics begins to cast doubts on the usefulness and suitability of the NPS.  

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In a recent consulting project these concerns culminated in the following key questions for the management of some Australian companies to ponder and answer: What are the reasons that Australian companies, despite many efforts, have insufficient promoters among their customers while this is different in other countries, particularly the United States (e.g., Apple, USAA, Costco)? Which are the factors and variables that lead a customer to award a particular score of recommendation (NPS)?

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How strong are the effects which form, directly or indirectly and in proportion to each other, the customers’ NPS? The only mathematical way to answer these questions is conducting causal analyses or path analyses.

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Causal analyses constitute an ideal approach to investigate an outcome or strategic KPI, such as the NPS, objectively and precisely. Inevitably, this will require the management of companies taking a much more comprehensive approach. In contrast, the current ‘quick & dirty’ approach calculating the NPS merely from a couple of hundred or thousand customer responses is a comparatively cheap investment into market research. Proper in-depth analyses of customer satisfaction cost money and time but, most definitely, reveal a much more refined insight into what drives sales and why customers buy or abstain from buying certain products or services. The NPS takes a retrospective look at customer behaviour and its degree of satisfaction. New online sales channels, for example, online platforms like Alibaba, Amazon, ebay or Zalando, offer a completely new perspective on understanding customer behaviour.

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Sales happen faster and do not follow the very same behavioural patterns as if customers stroll along a shopping mall. Ever since the arrival of online sales platforms advertising and marketing companies had to react and design new approaches of attracting online shoppers. The first decade in business for Amazon was very hard and a steep learning curve. But it invested millions of dollars into understanding the needs and behaviour of online customers. It became apparent that online platforms like Amazon had to adopt a completely new focus on customers, their online behaviour and, subsequently, their shopping behaviour. Consequently, the concept of customer centricity was born.  

The Future Of Measuring Customer Centricity: How Corporates Are Looking To Improve

While there is no exact definition of customer centricity, many companies, marketing experts and sales specialists would agree that it has become important to look at the overall customer lifetime value (CLV). They need to develop strategies to retain those customers who are regarded as valuable and promising for making sales and profits. This general notion of customer centricity is underpinned by the need to learn more about the digital customer. It is here where online shopping excels as it bears the potential for obtaining more refined data about customers. Chief Marketing Officers (CMOs) and Chief Customers Officers (CCOs) commonly share the view that today’s companies should take a comprehensive view across their own organizational structure on how to attract, win and, most of all, keep customers. This means an understanding who the customers-to-be are and how their ‘online journeys’ with a company continue. The figure below illustrates such possible customer journeys across the different touchpoints of a company. Journey profiles of each customer are obtained and statistically analyzed. Business analysts can then give recommendations where particular shortcomings may have arisen and at which points certain customers or customer segments may have jumped off the online journey, i.e. leaving the online shop of a company to do something else.

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Once those drop-off points are identified, remedial action – perhaps by revising the website or online shop – may be possible.     Customer centricity means getting a better insight into purchasing behaviour and also about the many steps preceding the online sale. Customer centricity, therefore, is directly connected with concepts such as customer loyalty or customer retention. You will have noticed the substantial rise of loyalty programs across the last decade. The reason for this revival of offering special incentives to loyal customers – which, of course, is not new but has been an effective marketing tool even in the 1950s and 1960s – is quite straightforward: by offering some tokens or specially-priced offers companies collect a plethora of data about the customers.

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These data, in turn, help them to learn more about their customers and to understand how best to market their products or services. One can readily see the potential of big data and how much more valuable information is available to companies that embrace customer centricity as a strategy or comprehensive marketing approach. exApple or Samsung need their front-end flagship stores in shopping malls to bolster customer centricity.   The benefit of operating multi-channel or cross-channel systems under one company roof – and not going digital only – offers a better opportunity for customers to shop 24/7 at any time, any location and via any media/channel.

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One interesting observation which companies have made was that so-called channel-hoppers have been found to be particularly loyal customers given they find adequate purchasing options at each channel. Still, the digital revolution has gripped sales and marketing firmly. In the bigger industrialized countries online trading increases around three to ten percent annually. The diagram below highlights the key marketing instruments prevalent for increasing the conversion rate from classic brick & mortar to online shopping. Thus, customer centricity has become an inevitable aspect for C-levels within corporates to address adequately.    

Trends Among Australian Corporates

As we have learnt, a customer-centric attitude starts by creating the right attitudes within an organization. Of course, that is easier said than done, particularly when management structures and a different thinking was prevalent in a company for years.   American Express VP of consumer acquisition and loyalty, Dean Chadwick, recently stated that organisations need to embrace the customer-first concept culturally from the top down. Jee Moon, VP Marketing at OPSM believes that it is imperative to understand the language of customers, their needs and desires first and foremost. She even speaks of an intimacy a company has to build with its customers: “The idea of getting really intimate with customers is important.”    

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One company which has embarked strongly on creating and measuring its customer experience (CX) is Bendigo and Adelaide Bank. As a result, it is leading the Forrester Customer Experience Index in Australia. Ian Jackman, who carries the interesting job title as Head of Customer Voice at Bendigo Bank, attributes the bank’s success in leading the CX barometer as the result of a carefully orchestrated strategy to see the customer at the center of the bank. In such corporate environment – which is strongly supported from Mike Hirst, Bendigo Bank’s Managing Director, downwards – it does not come as a surprise that eighty percent of the company’s workforce reports to a Chief Customer Officer. It is fair to say that when the bank puts a lot of effort to understand the why behind customer behavior it can safely claim to be the ‘most connected bank’ in Australia. Indeed, the Voice of the Customer (VoC) program has helped Bendigo Bank to achieve a comprehensive understanding of its customers. The success of the VoC program is measured against customer-led metrics like brand equity, customer ease and customer growth regularly.     A radically different approach is pursued by Aldi (Australia) since it entered the Australian market.

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Though new to the Australian supermarket terrain occupied by competitors Coles, Woolworths, Foodland and the like, Aldi was able to build on decades of customer experience, primarily in Germany. A survey conducted by the German market research institute Forsa in 2002 found that 95% of blue-collar workers, 88% of white-collar workers, 84% of public servants, and 80% of self-employed Germans shop at Aldi. Does that leave room for customer centric improvements? It surely does. Even a world-wide powerhouse like Aldi had to make readjustments to its customer and sales strategy and it had to learn that there are substantial differences between German purchasing habits and those prevalent here in Australia. Such learning curves sometimes work reciprocally: the customers learn, too. Initially, most Australians scoffed at the minimalistic approach of Aldi’s product range which barely reached 2,000 (compared to about 15,000 – 25,000 at many Woolworths and Coles outlets).

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But it was Coles Managing Director, John Durcan, who realized the new shopping trends among customers when he announced a drastic cut of his supermarket shelves by up to 15 percent in 2016. This was, quite clearly, a necessary strategic adjustment to the market share taken away by Aldi. This example demonstrates the dynamic and volatile nature of customer centricity. With a management strategy that centers on customer behavior, important lessons can be learnt and fading businesses can be revived. Two Australian examples should be pointed out here: Qantas and Telstra. Even if some analysts would rather put these two Australian flagships into the semi-government basket, both companies operate independently, trying to please their shareholders by making profit and, at the same time, trying to be considered Australian brand icons.    

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Qantas was on the verge of collapse and a costly showcase for the Australian taxpayer. With the arrival of the codeshare agreement and management infusion from Emirates things turned around. How did Emirates become the leading international airline when it came to NPS and customer satisfaction? Quite simply: it learnt a lot about its customers. It put huge efforts – and investments – into building a fabulous online presence hiring the smartest talents from around the world. That, coupled with top-notch industry experts in the Emirates Group, boosted Emirates’ standing in a couple of years. Copycats like Etihad and Qatar Airways followed. It was the expansion drive of Emirates to set better foot on Australian soil by obtaining significantly more landing rights and the sagging numbers of Qantas which led to a the current collaboration. A learning curve for the new Qantas management and a lucky coincidence since Emirates had already built up a very good understanding of its customer base. Now, Qantas vows to put its passengers first and the profits have come back.

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Telstra’s star also suffered somewhat when the telecom market was privatized and Optus and Vodafone became serious contenders, at least in the mobile phone market segment. Originally equipped with the burden of being a state-owned company, Telstra had to restructure repeatedly and realized that in today’s day and age customers do not want to be tied down by 24-months contracts only. By now, Telstra has released well over 100 different ‘plans’, each of them a nightmare for the conscious consumer if he/she wants to read and understand the small print and the many footnotes. With the arrival of the Voice-over-IP (VoIP) technology in 2014, Telstra had to take yet another step in the direction of customer centricity.

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This chart from one of its in-house leaflets shows how the telecom provider planned to improve its customer focus:     The management at Telstra figured out that its service quality vis-à-vis its customers needed remedial action. It is hard to summarize the trends for Australian companies with regards to their understanding of and steps taken towards customer behavior and customer loyalty. Yes, most blue-chip companies have got an online presence.

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There are less qualified business analysts available in comparison to the numbers sought and needed. However, there is a gradual learning curve that ignoring customer needs will have to come to an end  – which is also reflected in the legislation of consumer rights; consumer rights which trail behind those of other industrialized countries, particularly in Western Europe. Yet, let us be clear about what drives business: for most CEOs it is still about making profits. However, these diehards will have to face the reality that in order to make profits sustainably they have to pay more attention to the needs of customers, clients, patients and passengers. Those are the ones who buy… or abstain from buying. It would, therefore, be ignorant not to learn as much as possible about customers and their behavior, online and/or at the shopping mall.  

The Future Customer

The story about Bendigo Bank made it clear that mere transactional data is not sufficient in order to really understand customers. Ongoing engagement is imperative in learning why customers behave the way they do. Only such intricate understanding will eventually lead to a more authentic relationship with customers across the years. Figuring out the reasons for specific customer behavior is complex and not an easy task. Today’s customers are more dynamic than ever and so are their shopping habits. Businesses – and especially the Australian ones – have to be alert when it comes to new trends in customer centricity and marketing, especially due to the proximity to Asia where massive market changes are likely to occur over the next decades.

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The traditional approaches of selling and just making profits will not suffice. While individual tycoons like logistics giant Lindsay Fox may have been successful in building up their business with just one lorry, Linfox is well advised to take a look at the development in transport sectors around the world. Uber is just one such example which no one had anticipated even a decade ago. Markets react and evolve very dynamically these days. Thus, it pays off to pay tribute both to your customers and staff learning about them as much as possible and as regularly as you can.     More so, the next level of business intelligence, or enterprise intelligence as it is now labeled more adequately, will draw from increased cloud services and new technologies like robotics or drones. With 5G in the making in the IT sector, customer satisfaction is even more difficult to accomplish and customer centricity, thus, will become more relevant.

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The earlier companies and their C-level executives understand to look more closely at why customers do what they do and perceive their corporate structure more comprehensively, the better for their companies turnover, profits and personal well-being.