The Key to Making Your Voice of the Customer Actionable: Choosing the Right Metric
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The key to profitably increasing revenue and market share lies in creating and delivering superior competitive value—and this is especially true in a lean economic environment. Ask all your customers—business or consumer—about any recent purchase, and they will likely tell you that they were seeking the best possible quality at the most competitive price. This is the very definition of value, and it is that definition that your VOC information system should provide.
Each of the market segments you target for business growth will define value differently, uniquely. That’s the very reason for segmenting markets in the first place—to group together customers with similar needs (similar ways of defining value), and to separate them from customer groups that define value differently. The key challenge of a very challenging time is to choose the VOC metrics that will quantify those value definitions. And you won’t find the answer to that challenge in the metrics of customer satisfaction or net promoter!
The False Promise of Customer Satisfaction
The metrics of customer satisfaction have failed to be useful strategic measures because they typically fail to be predictive of business performance. And there are two key reasons for these failures.
First, market share gains are a function of both acquiring new customers and retaining the loyalty of the customers you already have. But the metrics of customer satisfaction, by definition, focus exclusively on one’s own customers. Consequently, your customer base may be shrinking, but the satisfaction of your remaining customers may continue to increase.
Second, the metrics of customer satisfaction fail to account for the trade-off between Quality and Price. And it is this trade-off that is at the heart of Value. For example, suppose you go out to a new restaurant for a special dinner. Among the "Quality" components you’ll be evaluating are such things as the variety and quality of the food, the service, perhaps the ambience and even the parking. And, after you receive the bill, you’ll ask yourself and perhaps your dining partner, "Was it worth it?"
The answer to that question will determine whether you return, how often and whether you’ll recommend the restaurant to others. It’s this "worth it" question that the metrics of customer satisfaction fail to address, and that’s why the metrics of customer satisfaction have proven such a disappointment as strategic tools.
The (Un)Actionability of Net Promoter Score
In 2003, a Harvard Business Review article, "The One Number You Need to Grow," introduced the world to Net Promoter Score. Based on a 0–10 rating for "How likely is it that you would recommend...," the Net Promoter Score is calculated by subtracting the percent of "Detractors" (ratings of 0—6) from the percent of "Promoters" (ratings of 9 or 10), yielding a single score ranging from -100 to +100. The author, Frederick Reichheld, argues that Net Promoter Score is the single most reliable indicator of company growth. Although there are staunch advocates as well as naysayers regarding the relationship between NPS and business performance, the fact remains that a single "report card" measure has little utility in guiding effective managerial action. Suppose you get an NPS of 30: What do you do to move that score up to a 60? Why would you even ask a single question if the answer won’t help you become more effective at customer management? (Click on diagram to enlarge.)
The Value Concept
By now it should be clear that a good Voice of the Customer metric must meet three key criteria:
Operationalizing the Value Metric
The foundational metric for an actionable Voice of the Customer information system is the Market Value Model. The Value Model must be market-based—that is to say, the model must reflect the perspective of all customers in the targeted market segment, not just the customers of your company. Increases in market share are a function both of keeping your current customers and acquiring new customers, so the Value Model must reflect that competitive reality. The Value Model is also unique to the targeted product/market—the relative importance of Quality, Image and Price will differ from one market segment to another, and from one product or service line to another. Finally, the Value Model must also identify those individual factors that are critical-to-quality, and their relative importance. (Click on diagrams to enlarge.)
The First Step Toward Actionability
Consider the following two Value Models. Both were focused on a single product line (agricultural tractors), but each came from a different market segment. In both cases, Quality is significantly more important than Price in defining Value, and Image plays a relatively minor role in each case. But the relative importance of the Critical-to-Quality factors in each market segment is vastly different. In which segment would you focus on product development, based on this information? In which segment on process improvement? In which segment would people skills be more important? Would you develop the same promotional materials for each segment? (Click on diagram to enlarge.)
The Second Step Toward Actionability
Now imagine that you are the manager in charge of Segment B and you are tasked with "improving dealer service." The information from the Value Model alone is still not sufficiently specific to provide the appropriate direction.
Each Critical-to-Quality "bucket," however, is comprised of the individual questions from your Voice of the Customer survey. In the case of "Dealer Service" those include (among others):
Additional Value Metrics
The Market Value Model is the foundation upon which you can build an actionable Voice of the Customer information system. Robust models of value can only be attained if:
Each of the market segments you target for business growth will define value differently, uniquely. That’s the very reason for segmenting markets in the first place—to group together customers with similar needs (similar ways of defining value), and to separate them from customer groups that define value differently. The key challenge of a very challenging time is to choose the VOC metrics that will quantify those value definitions. And you won’t find the answer to that challenge in the metrics of customer satisfaction or net promoter!
The False Promise of Customer Satisfaction
The metrics of customer satisfaction have failed to be useful strategic measures because they typically fail to be predictive of business performance. And there are two key reasons for these failures.
First, market share gains are a function of both acquiring new customers and retaining the loyalty of the customers you already have. But the metrics of customer satisfaction, by definition, focus exclusively on one’s own customers. Consequently, your customer base may be shrinking, but the satisfaction of your remaining customers may continue to increase.
Second, the metrics of customer satisfaction fail to account for the trade-off between Quality and Price. And it is this trade-off that is at the heart of Value. For example, suppose you go out to a new restaurant for a special dinner. Among the "Quality" components you’ll be evaluating are such things as the variety and quality of the food, the service, perhaps the ambience and even the parking. And, after you receive the bill, you’ll ask yourself and perhaps your dining partner, "Was it worth it?"
The answer to that question will determine whether you return, how often and whether you’ll recommend the restaurant to others. It’s this "worth it" question that the metrics of customer satisfaction fail to address, and that’s why the metrics of customer satisfaction have proven such a disappointment as strategic tools.
The (Un)Actionability of Net Promoter Score
In 2003, a Harvard Business Review article, "The One Number You Need to Grow," introduced the world to Net Promoter Score. Based on a 0–10 rating for "How likely is it that you would recommend...," the Net Promoter Score is calculated by subtracting the percent of "Detractors" (ratings of 0—6) from the percent of "Promoters" (ratings of 9 or 10), yielding a single score ranging from -100 to +100. The author, Frederick Reichheld, argues that Net Promoter Score is the single most reliable indicator of company growth. Although there are staunch advocates as well as naysayers regarding the relationship between NPS and business performance, the fact remains that a single "report card" measure has little utility in guiding effective managerial action. Suppose you get an NPS of 30: What do you do to move that score up to a 60? Why would you even ask a single question if the answer won’t help you become more effective at customer management? (Click on diagram to enlarge.)
The Value Concept
)
By now it should be clear that a good Voice of the Customer metric must meet three key criteria:
- It must be an effective leading indicator of business performance.
- It must quantify the key components of Quality and Price, and their relative importance.
- It must provide information that has managerial utility: it must be actionable.
Operationalizing the Value Metric
The foundational metric for an actionable Voice of the Customer information system is the Market Value Model. The Value Model must be market-based—that is to say, the model must reflect the perspective of all customers in the targeted market segment, not just the customers of your company. Increases in market share are a function both of keeping your current customers and acquiring new customers, so the Value Model must reflect that competitive reality. The Value Model is also unique to the targeted product/market—the relative importance of Quality, Image and Price will differ from one market segment to another, and from one product or service line to another. Finally, the Value Model must also identify those individual factors that are critical-to-quality, and their relative importance. (Click on diagrams to enlarge.)
)
The First Step Toward Actionability
Consider the following two Value Models. Both were focused on a single product line (agricultural tractors), but each came from a different market segment. In both cases, Quality is significantly more important than Price in defining Value, and Image plays a relatively minor role in each case. But the relative importance of the Critical-to-Quality factors in each market segment is vastly different. In which segment would you focus on product development, based on this information? In which segment on process improvement? In which segment would people skills be more important? Would you develop the same promotional materials for each segment? (Click on diagram to enlarge.)
)
The Second Step Toward Actionability
Now imagine that you are the manager in charge of Segment B and you are tasked with "improving dealer service." The information from the Value Model alone is still not sufficiently specific to provide the appropriate direction.
Each Critical-to-Quality "bucket," however, is comprised of the individual questions from your Voice of the Customer survey. In the case of "Dealer Service" those include (among others):
- Dealer responsiveness in solving problems
- Ability of dealer service people to do repair
- Ability of dealer to complete repairs when promised
- Technical knowledge of dealer personnel
- Dealer performance on warranty claims
- Quality of shop repairs
- Diagnostic skills of field service people
Additional Value Metrics
The Market Value Model is the foundation upon which you can build an actionable Voice of the Customer information system. Robust models of value can only be attained if:
- your Voice of the Customer system is a proactive one (customer complaints won’t work),
- your survey questions were provided by customers themselves (managers can’t develop their own questionnaires), or
- you survey both your customers and those of key competitors in each targeted market segment and ratings are based upon performance.
- A Competitive Value Matrix
- A Customer Loyalty Matrix
- A Competitor Vulnerability Matrix
- Cause and Effect Matrices leading to systematic process improvements
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