Traditional methods for measuring value focus predominately on value to the company over value to the customers. They also focus more on B2C than on high-value B2B and on lagging and hypothetical indicators instead of leading indicators.
A new practice called Customer Success, used primarily in SaaS, subscription-based business models, does focus on mutual value, but is concerned primarily with continued and expanded product use, not on improving processes.
CLV, NPV, and RFM: Customer Lifetime Value (CLV) adjusts the value of future profits by using Net Present Value (NPV) calculations, which consider the risk and the cost of money in the future. According to research by Rajkumar Venkatesan and V. Kumar, published by Marketing Science Institute, CLV is proving to be more effective than other methods for predicting future profits from customers, including Recency, Frequency, and Monetary (RFM) analysis. Their findings were surprising given that share-of-wallet or RFM had been considered a best practice and millions have been spent to measure loyalty marketing that way.
CSAT, NPS: Extremely satisfied customers, according to CSAT measures, are more likely to be repeat customers, increase the amount they purchase, and purchase new offerings more easily. They are also more likely to refer new customers. Frederick Reichheld, author of The Loyalty Effect and The Ultimate Question: Driving Good Profits and True Growth, improves upon “plain vanilla” satisfaction research by suggesting segmenting customers by those who will promote your business and give you a recommendation of 9 or 10 on a scale of 0 to 10.” His Net Promoter Score (NPS) metric subtracts the percentage of customers who detract from those that promote to signify a company’s growth potential based on the strength of its relationships. While both CSAT and NPS are lagging indicators, a Forrester analyst recently labeled NPS, “hypothetical” as well, because it is based on a possible future action.
CES (Customer Effort Score): A recently promoted methodology and another lagging indicator, the Customer Effort Score, asks the question: “How much effort did you personally have to put forth to handle your request?” Marketers are just beginning to correlate favorable Customer Effort Scores with propensity to purchase again.
Effectiveness of Traditional Methods: No surprise, it depends on whom you ask. Two credible sources disagree. The Corporate Executive Board Company (CEB) claims that CES is 1.8 times more predictive of customer loyalty than CSAT and 2 times more predictive than NPS. New research from the Netherland’s University of Groningen suggests that the most effective predictor of customer retention is NPS and that a top-2-box customer satisfaction is slightly better overall. One could argue…what matters?
We’d say none of these methods are actionable or operational enough to measure and manage in the Relationship Age. Here are three that are:
#1 We take CES (Customer Effort Score) and Customer Success to another operational level with our Value Creation Mapping methodology to map and quantify the Customer Experience in Critical Interaction Processes. We quantify how easy or how hard it is for a customer to deal with the company and what impact, positively or negatively, this has on mutual costs and mutual customer value.
#2 Using our self-diagnostic model, we collaborate with the company’s team to quantify the company’s alignment to create value for customers. The takeaway is their Customer Success Score. Executives see what it takes to win and then decide what is practical to do to achieve a customer focus.
#3 Better yet, in real time we track the Customer Experience critical Relationship Interaction by critical Relationship Interaction. This actionable, relevant intelligence about relationships is tied to profit…and mutual Customer Success.
Want to know more, ask for our thought leadership paper on “Relationship: The Foundation of Value” by our CEO Linda Sharp and Director Ray Sheen. They are co-developers of our Value Creation Mapping methodology.
Want a jumpstart on these game-changing Relationship Age analytics and processes? Invite us in for one or more workshops in our CX Performance Management Workshop Series. To learn more, Be In Touch.
Customer Experience Wisdom: Customer value is mutual. Customer Success is mutual.
Questions: How actionable, how operational are your methods to measure customer value?
Not satisfied? Then,