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Are You Listening to Your Customers?

By Jack Borland
June 7, 2006

Do you know what your customers are thinking? Apparently not. According to a November 2005 study by Bain & Co., most companies (80%) think they provide a "superior experience" for their customers. Customers, in contrast, rated only 8% of companies as truly delivering a superior experience.

Understand What Customers Are Thinking

Most companies use some combination of market research and data analytics to try to segment and understand their customers, their habits, propensity to buy and potential profitability. But if you're not actually talking to customers, you won't understand what their key issues are. Understanding what they like and don't like about your product or service requires going beyond satisfaction surveys. You've got to ask open-ended questions and analyze the qualitative answers you get back.

Loyalty Misperceptions

To dig into this a little deeper, let's look at how loyalty can sometimes be misperceived. When customers buy a company's product repeatedly, many data mining tools will register them as "loyal". But the propensity to buy your current offerings can reflect quite a number of factors besides loyalty to the brand, including:

  1. A relatively closed market, with little access to competing products;
  2. Price sensitivity, with the company's products having a price advantage in this market;
  3. Customer inertia, and lack of marketing penetration by competitors;
  4. A larger than recognized ongoing spend on this type of produce or service, of which the company is only receiving a fraction;
  5. Personal loyalty to a specific channel or outlet (i.e., insurance companies that use independent insurance agents - the customer base is often loyal to the agent, not the company).

In all these cases, there is no company-controlled barrier to exit except price. And if you're competing on price alone, you're training the customer to defect as soon as someone else can provide a lower price.

Companies may perceive, incorrectly, that customers who are repeat purchasers or users are:

  • Very satisfied with the product or service;
  • Willing to pay a premium price;
  • More profitable than other customers;
  • Immune from competitive offers.

Given these types of misperceptions, companies can make disastrously wrong decisions by developing products or services with no demand or providing inferior levels of support that drive customers to look for alternatives.

Voice of the Customer

So how do you begin to understand your customers? You can start with the standard customer satisfaction surveys and data analysis, but you've got to recognize that the results from this sort of effort are much better at explaining what's currently happening rather than explaining why. To get to the qualitative information, you need to conduct specific outreach efforts. There's even a term for this type of effort - "Voice of the Customer" (VOC) initiatives or programs.

Voice of the Customer programs take many forms, including reviewing unsolicited complaints, monitoring word-of-mouth, developing customer forums, and actively reaching out to customers to ask for their feedback. One key element to an effective VOC program is the feedback plan. You must set parameters on what areas are strategically important to focus on. Decide how you will systematically act on what you learn. Set up a review system to reevaluate your priorities based on the data coming back from the VOC program.

I can just hear some of you saying, "This sounds way too expensive." But what's the cost of not understanding your customers? Another Bain study showed that 70% of people who defect said they were satisfied just prior to defection. Satisfaction is not loyalty. When you have a loyal customer, they continue to buy your product or service as well as additional ones. They say good things about you and recruit more customers through word-of-mouth. And the cost of maintaining them as a customer is a fraction of what you have to spend to acquire new customers. Only when you understand what a person really wants, can you start to craft a superior customer experience - which will drive loyalty, and with it, profitability.

Jack Borland is a Customer Experience Consultant and Sales and Marketing Manager at Vox, Inc., a customer experience research and consulting firm. Contact him through the feedback form on our Contact Us page. Copyright 2006 Vox, Inc. All rights reserved.

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