LOYALTY

CARD
SEE PAGES
38-39

VOLUME 13 ISSUE 3
May/June 2005

HIG6I:<N6C9EG68I>8:;DGI=:8JHIDB:G"9G>K:C:CI:GEG>H:

HOW ROLE REVERSAL PSYCHOLOGY

MOTIVATES YOUR PEOPLE - PAGE 16
CONTACT CENTRES: BETWEEN A
ROCK AND A HARD PLACE - PAGE 24
WHY YOU NEED TO STAKE OUT
YOUR CUSTOMERS - PAGE 54
VOLUME 13 ISSUE 3 May/June 2005

What organisations
really think about their PLUS
customer relationships WORKFORCE
OPTIMISATION/
PERFORMANCE
MANAGEMENT
SPECIAL - PAGE 75
 leader

Why you canÕt beat a bit of

passion with your customers
Some of the figures revealed by the comparative global research in the Cover
Story of this issue make for some pretty uncomfortable reading. It is quite alarming,

leader
for instance, to learn that only around one in three (35.5%) leaders responsible
for customer care and marketing believe that their company actually deserves
the loyalty of its customers. Just as concerning is the fact that even fewer of them
(31.4%) believe they have the tools to service and resolve customer problems
Ð down from 37% the previous year. Then we have two thirds (65.4%) saying
their company executives do not meet frequently with customers Ð a significant
increase from just 46% a year earlier.
The study illustrates a pretty grim picture, suggesting that the majority of senior
managers - those at director and vice president level - do not believe in their own
value proposition or their ability to retain customers. This vote of no confidence in
their own organisations is something that really does need to be addressed. This is
required reading. And because of space constraints in Customer Management we
have gone into greater detail about its findings and recommendations in our website
newsletter (go to www.customermanagementonline.com for more details).
The key objective of the global customer experience study from US based
organisation Strativity Group was to identify what organisations really think
about their relationships with customers. The result is a new book ÔPassionate
& ProfitableÕ in which author Lior Arussy, president of Strativity, looks at how
companies often treat customers as a Ôsidekick programmeÕ. Arussy describes
this phenomenon as ÔLipstick on the PigÕ - where companies are concerned
with a completely different set of issues than those of their customers. Failing to
recognise this inherent conflict is the main reason for the fatal mistakes companies
make with regard to their customer relationships.
Arussy argues that these Fatal Mistakes combine to mean that even before
a customer initiative is launched, failure is ensured Ð this is because they have
become an integral part of the corporate DNA and difficult to remove. They must
be removed, but will not be until organisations stop thinking about all customer
relationships as a cost, and therefore something to be trimmed. Key to this is
knowing the cost of a new customer and also the annual value of a customer
Ð in both instances more than eight in ten senior managers did not know the
answers. Arussy calls for organisations to be genuinely passionate about their
profitable customers (and this is where knowing the costs involved is of paramount
importance) and pursue those relationships with passion as a matter of course.
Here at Customer Management we are truly passionate about our customers,
and thatÕs why weÕve launched initiatives such as our Loyalty Card, the Customer
Management Information Exchange and fortnightly online Newsletter. ItÕs
good to know our efforts are being recognised, and particularly gratifying to
learn that Customer Management has been identified by business leaders (in a
recent research report from the Manufacturing Foundation in partnership with
the Leadership Trust Foundation) as an important source of information and
1
inspiration. Inspiration and passion, after all, go hand in hand.

Steve Hurst
Editor

May/June 2005
people & culture
love
So do you really
your customers?
Lior Arussy reports on ground-breaking global comparative research that drills down into what
organisations really think about their relationships with customers Î with some surprising and disturbing
results
C
onsidering the failure rate of
todayÕs customer strategies,
serious questions should
be raised regarding the true
intentions of organisations.
What are they really seeking from their
customers? Are their stated intentions in
line with their execution?
According to Gartner Group, 50%
of customer-related projects fail every
year. This is a risk level most companies
normally would not tolerate. Yet customer
programmes continue to be launched at
a high rate all in the name of maximising
revenues and extending customer relation-
ship longevity.
The study illustrated a grim picture in which executives do not believe in
their own value proposition. In fact, executives have given a vote of no
conÞdence to their own products and services as well as to the overall
organisation. With such a state of mind, delivering a delightful experience
that gives customers a serious reason to stay, let alone pay premium prices
or evangelise products, will be difÞcult
Two years ago we decided to take a
10 deeper look into the matter. We wanted to
understand why it is that companies can
not get their customer relationships right.
We decided to take a look at companies
and their execution, rather than customers
and their expectations.
The main objective of our global
May/June 2005
customer experience study was to identify
the true state of affairs with customers
from the companiesÕ perspective. We
surveyed directors and vice presidents
responsible for customer care or marketing
and asked them about their view. In 2004,
we repeated the study with 212 executives
participating from around the world. The
results from 2003 were repeated and in
some cases got worse (see panel on p14
for details).
The study illustrated a pretty grim
picture in which executives do not believe
in their own value proposition. In fact,
executives have given a vote of no conÞ-
dence to their own products and services
as well as to the overall organisation. With
such a state of mind, delivering a delightful
experience that gives customers a serious
reason to stay, let alone pay premium
prices or evangelise products, will be
difÞcult.
Living in an inherent conßict
As described in my new book Passionate
& ProÞtable (John Wiley & Sons, 2005)
companies often treat customers as a side-
kick programme. ÔLipstick on the pigÕ is the
term I used to describe this phenomenon.
Failing to recognise the inherent conßict
they have with customers, companies are
constantly trying instead (and failing), to
run efÞciency-based relationship with their
customers. By its own deÞnition, efÞcient
people & culture

11
people & culture

JC9:GHI6C9>C<I=:;6I6AB>HI6@:H

The pursuit of the customer is as old as the
search for business success, and we have yet
to see a company that will not declare total,
undeniable dedication to the customer. Every
company believes that they are focused on
customers. They have a long list of initiatives
to prove it. At the same time, customers feel
more neglected than ever. Customer frustration
is skyrocketing, and very few companies can
demonstrate long, sustainable, and proÞtable
relationships with their customers.
Considerable attention has been focused
on customers in the last decade, as shown
by certain investments and declared
commitments. It is well understood that
without a loyal customer, no business can
exist. Customers ought to be the centre of
everything we do. We ought to love, hug,
delight, and please customers every day, with
everything we do. Why is it then, that despite
great intentions, companies manage to fail in
the most important task they have: attracting
and retaining customers? Why is it that despite
billions of dollars in investment, executives
have very little to show in the form of results?
There is no single answer to this question. In
our consulting and research work, we have
come across many reasons for failure. We call
them the Fatal Mistakes. For many companies,
the answer is a combination of several Fatal
Mistakes. The Fatal Mistakes are considered
fatal because companies fail to notice them
and to understand how signiÞcant they are
to customer success. For many organisations,
the existence of the Fatal Mistakes means that
even before a customer initiative is launched,
failure is ensured. They are fatal because
they are woven into corporate behaviour and
culture. They have become an integral part
of the corporate DNA and thus are difÞcult
to remove. Companies often try to launch
customer programmes, knowing about these
Fatal Mistakes but wanting to believe that
such programmes will work anyway. This is just
wishful thinking.
Unless companies address and uproot these
Fatal Mistakes, their customer initiatives will
continue to fail, despite the money invested
and the level of commitment demonstrated.
Customer-centric strategy cannot coexist with
these Fatal Mistakes. As with most strategies,
it boils down to a trade-off between tough
choices. Ignoring these Fatal Mistakes is a
choice companies make every day, one that
works against the customer.
For details of the ten Fatal Mistakes
(and much more besides) please log
on to our online newsletter at www.
customermanagementonline.com

relationships are self contradicting. If
efÞciency is applied to relationships they
become minimalist and offer insufÞcient
value for customers to participate in them.
At the essence of the problem is
this conßict. Companies are concerned
about a completely different set of issues
than those at the top of their customersÕ
minds. Obsessed with cost reduction and
efÞciency, companies reduce costs and
subsequently devalue their products in the
process. Experiences are diluted and any
uniqueness or relevance is lowered to the
lowest common denominator. In fact, com-
panies are the primary force in accelerating
their own productsÕ commoditisation. The
inherent conßict is the main reason for the
fatal mistakes companies make with regard
to their customer relationships. From lack
of leadership commitment, to technology
short cuts and loss of passion, companies
stay obsessed within their ecosystem
and fail to venture out to the customer
domain. Customers pay a premium for
amazing experiences, as argued in Michael
SilversteinÕs book, Trading Up, and they
will not pay top dollar for mediocre value.
Yet despite these clear trends, companies
are still reluctant to make the investment
required to please customers.

Stop satisfying, start innovating

One of the common mistakes we have
encountered during our research and
consulting work is the false notion that cus-
tomer satisfaction studies drive information
about how to increase loyalty. The truth
of the matter is that customer satisfaction
studies merely eliminate dissatisfaction.
Through customer satisfaction studies,
businesses manage to bring customers
from below par, or a state of dissatisfac-
tion, to at-par. In one case, an executive
12 who had determined, through such a
study, that their invoicing system needed
a tune-up, bragged to me about how he
had improved the invoicing system and
reduced mistakes by 50%. He was quite
proud of himself and viewed his efforts
as a victory for customer commitment.

I commented that, while I considered it
admirable, accurate invoicing is not really a
loyalty or proÞtability driver. Naturally, this
didnÕt go over too well with him. I went
on to remind him, that no one will pay
you even 1% more for sending accurate
bills. Accurate invoicing is a cost of doing
business.
DonÕt get me wrong. Listening to
customers is very important. But listening
to customer vis-ˆ-vis customer satisfaction
surveys doesnÕt build customer loyalty.
Yes, you do end up with small, incremental
changes, but in order to really build dif-
ferentiation and drive loyalty, an order of
magnitude change is necessary. In order
to surpass the at-par line and venture
into real proÞtability riskier, moves must
be made. Limiting customer strategies
to customer satisfaction statistics doesnÕt
yield much and instead, produces a false
license for companies to stop searching for
that next great, way to amaze and surprise.
Being consistently at-part is nice and cus-
tomers will pay a small premium for it over
the short term. Consistency, however, or
striving to remain at par, is not a long term
strategy.
Taking a different approach
Successful companies that truly love their
customers, approach the issue in a differ-
ent way. They do not attempt to paste a
customer-lover sticker over what really is
an efÞciency-driven operation and claim
victory. EfÞciency-driven companies are
not focused on relationships and loyalty.
On the contrary, loyal relationships are
determined by the customer and tend to
evolve naturally. They are the effortless
result of an amazing experience and speak
for themselves.
Unlike the majority of companies who
are focusing their efforts around repeat-
ability, and sometimes through loyalty-
building reference programmes, the rare
and truly successful companies focus on
the experience phase of the customer
strategy business (To use a light analogy,
the best coffee is brewed with the best
coffee beans. So line your coffee Þlter with
good java, and smell the rich ßavour as it
percolates upwards). These companies are
keen on ensuring that the total experience
and value to the customer is amazing and
always fresh and relevant. They let their
products do the advertising and market-
ing. They do not need to invest much
in selling, the investment in experience
drives it.
When H&M launched the new Carl
Lagerfeld line, over 1000 shoppers were
lined up outside many of their stores at 6
oÕclock in the morning, to get a glimpse
of the new line of clothing. How many
of your customers will wake up to stand
E6HH>DC6C9EGD;>I/I=:I:C;6I6AB>HI6@:H
Here is just a taster of the ten fatal mistakes.
For full details go to our online newsletter at www.customermanagementonline.com
1. CULTURE OF THE NEW: companies
admire and adore new things: new products,
new customers, new deals, new territories. We
live in a culture in which new is admired and
old is rejected. Maintenance of the existing is
drudgery, left to the lower paid, least important
employees; trail-blazing of the new is the
privilege of bright, talented executives.
2. LIPSTICK ON THE PIG: for many
companies, the customer strategy is not an
in-depth change of processes, behaviour, and
methods. It is common for companies to assume
that their rather tight and highly efÞcient
operation (which hardly regards customer
needs) can stay intact with no changes.
3. PASSION LOSS: in the beginning, there
was an entrepreneur with a noble idea to make
life better through a new product or service.
This entrepreneur used passion to create and
sell new products. In fact, the company was
running on passion - which was contagious and
caught customer attention. Then the company
grew, and the bean counters took over.
4. REAL COST OF COST REDUCTION:
companies that focus on cost cutting must
confront a simple truth that they prefer to
ignore or deny: there is no such thing as a
free cost reduction programme. The unasked
question in a cost reduction programme is:
Who pays the price? It is the customers who
pay the price.
5. FAILURE TO OPERATIONALISE:
what does it mean to implement a customer
strategy? How does it impact on the shipping
department or accounts receivable? An
operational plan is frequently missing. How do
we change and align a company around the
customer?
people & culture
6. YOU GET WHAT YOU PAY FOR:
current compensation plans focus on
productivity. Maybe the rewards come in the
form of lead generation incentives for the
marketing department, quotas for the sales
force, or production quantity for the operations
department. Either way, the focus is on quantity
and not quality.
7. MANAGEMENT OF CHANGE: change
does not happen by itself. Customer strategies
require some fundamental internal changes. For
companies that spent years organised around
products or operational efÞciency, customer
strategies require major changes, ranging from
updated roles and responsibilities to completely
new organisational charts.
8. LACK OF LEADERSHIP: when you
look into CEO suites these days, you Þnd many
veterans of Þnance or operations but very few
with a background in marketing, sales, or human
relations. Corporate leaders are experts in
efÞciency and number crunching but are not well
versed in human aspects.
9. UNSTRUCTURED RELATIONSHIP:
most customer relationships are not structured
to continue beyond the initial sale. ItÕs often
the case that we have nothing else to sell.
Needless to say, this approach is costly, because
the total sales revenues compared with the
cost of courting new customers makes it highly
expensive way to do business.
10. TECHNOLOGY SHORTCUT: for many 13
companies, customer strategy development
means buying a piece of technology. They want
to believe that a magic gizmo will relieve them of
the need to confront the tough tasks of strategic
planning, process development, and change
management.
May/June 2005
people & culture

Another surprising Þnding from our study was that 89% of the executives surveyed did not know the cost
of a new customer. Additionally, 89% of the respondents did not know the cost of a complaint, and 82% of
them could not state the annual customer value. These Þndings helped substantiate why companies are
not making the investment required in their customer relationships. In the absence of Þnancially driven
justiÞcations, customer experience and relationships are perceived as a cost. And cost is something every
company is trying to trim, not expand

did not know the cost of a new customer.

8JHIDB:GH6C98DBE6C>:H/I=:<G>BIGJI= Additionally, 89% of the respondents did
not know the cost of a complaint, and 82%
Only 40.6% of the global respondents agreed that their company deserves customer of them could not state the annual cus-
loyalty; 35.5% in Europe vs. 43.4% in the US (down in Europe from 36% and 54%
tomer value. These Þndings helped sub-
in the US in 2003).
stantiate why companies are not making
65.4% stated that their company executives do not meet frequently with customers the investment required in their customer
(a signiÞcant increase from 2003 - 46%). relationships. In the absence of Þnancially
driven justiÞcations, customer experience
54.1% stated that their customer relationships are not well deÞned (as opposed to and relationships are perceived as a cost.
60% in 2003). And cost is something every company is
trying to trim, not expand.
46.1% stated that their company takes any customer that is willing to pay (up from
Understanding the economics of cus-
42% in 2003). In B2B and the services business, the numbers were 43% and 39.2%
respectively (down from 72% and 69% respectively in 2003). tomer relationships is crucial to customer
strategy. Basic understanding should
Only 18.8% stated that their compensation was tied to quality of service (compared include:
to 32% in 2003). Cost of a new customer
Cost of a complaint
Only 31.4% agreed that they have the tools to service and resolve customer
Customer relationship longevity
problems (down from 37% in 2003).
Customer annual value
Only 24.3% agreed that their company invests in people more than in technology Customer lifetime value
(24.1% in the US and 17% in Europe) (down from 36% global and 38% in the US, Customer potential value
but up from 10% in Europe in 2003). Cost per customer segment
Cost of customer inßuence
57.8% of the respondents agreed that their employer deserves their loyalty (down
from 73% in 2003). Only after establishing these Þnancial
drivers can a company make a decision on
the investment required to delight their
in line at 6 am to get a glimpse of your customers. It is based on this information
products? As our study indicated, most that companies will become more selective
executives surveyed did not believe that about customers, and pursue the decision
too many customers would do this. If this to focus on certain customers while leav-
is indeed the case, then it is time to go ing the unproÞtable customers to their
back to square one. Focus on building competitors. After all, market share targets
amazing, not just consistent experiences. are not a justiÞcation for serving unprof-
If you build them, they will come. In recent itable customers. Although customer
years, customers have acquired new tools relationship practitioners cite many studies
to share their thoughts and opinions to that justify the investment, companies are
millions of people worldwide. Tools like still doubtful. It is only when the analysis is
AUTHOR INFORMATION blogs, Vlogs and podcasts have given conducted internally that companies will
14 A^dg6gjhhn^hi]ZegZh^YZcid[ new power to customers to reach out. Let realise that loving the customers and pur-
HigVi^k^in<gdje!>cX#VcYVji]dg
them do the talking (it is more credible and suing passionate customer relationships is
d[i]Z_jhiejWa^h]ZYEVhh^dcViZ
Egd[^iVWaZ/L]n8jhidbZgh cheaper anyway). what they should be doing everyday as a
HigViZ\^Zh;V^aVcY&%HiZeh matter of course.
Id9dI]ZbG^\]i!ejWa^h]ZYWn Passionate is proÞtable!
L^aZn—&.#..=7!>H7C%),&,&(.'.#
Another surprising Þnding from our study email: info@StrativityGroup.com
DgYZgVXdenVilll#l^aZn#Xdb
was that 89% of the executives surveyed web: www.StrativityGroup.com

May/June 2005