It’s a truism – a business lives or dies on the strength and longevity of the relationships it builds with clients. If relationships are weak, customers leave, and the costs incurred in replacing them in B2B sectors is high. Being able to measure, repair and extend customer relationships is clearly vital, then, to the business health of an organization.
There are different ways of measuring and gaining a better understanding of the strength of such relationships and how, by using different approaches in combination, businesses are in a better position to plan ways to strengthen bonds with customers.
But before we get to these measures, let’s talk a little about forgiveness. The ultimate test of a good business relationship is what happens when things go wrong, and things do go wrong–deliveries not meeting schedules, errors in manufacture, failure to meet service standards, or poor performance from a customer support team member. The list is endless, but the big test is how many times the customer will forgive a supplier, and how big a problem can be forgiven. This is where companies and consumers behave in a remarkably similar way.
How many times have you been personally so annoyed by a shop assistant, or your favourite restaurant, or a mobile phone service provider that you vow you’ll not buy from them again? With some brands it takes just two or three little problems for you to switch, but other brands seem to be far more difficult to live without.
Apart from the inconvenience, much of your forgiveness comes from your emotional attachment to the brand – the feeling that its reputation must have been built on solid customer relationships and sound products, the belief and trust you have in the business to sort things out, the generally positive feeling you have about its people, or the cachet the brand confers on you.
Businesses have emotions too
Businesses are made up of people, and brands influence people at work as much as they do in their private lives. Consider, for example, the Head of Procurement: a potential supplier might offer a better price but should he risk his reputation and, potentially, the company’s future on a business he hasn’t heard of? Companies are looking for suppliers they believe they can trust. And remember, a corporate relationship is the sum of many individual relationships, each with its own set of emotional and functional requirements.
So brands and reputation are crucially important, as are a whole load of other ‘soft’ or intangible aspects that build to become the emotional ties and trust between two organisations.
Let’s get measuring
So, what measures can a business use to reliably:
1. Determine the strength of relationships with corporate customers?
2. Spot relationships that are weak or those customers no longer committed to relationships with their supplier?
3. Identify the strategies and tactical activities required to effect repairs?
The following examines three measures – Customer Satisfaction (CSat), Net promoter Score (NPS) and Customer Relationship Quality (CRQTM).
Satisfied? Well I am at this moment…
We’ll return for a moment to forgiveness. Almost all suppliers will be forgiven once or twice, but every failure incurs a degree of dissatisfaction. Fix the problem and lavish some TLC and the customer will probably express a fair degree of satisfaction if asked how the relationship is going. But what happens on subsequent occasions? The likelihood is the customer will just cease doing business with you.
Meanwhile, the supplier conducting regular measures of customer satisfaction (CSat) may well have seen a period of dissatisfaction which, on the next survey appears to be resolved. Studies have shown this to be the problem with CSat – it is a very poor indicator of long term customer loyalty. It’s not to say it is an unimportant measure, as constant dissatisfaction will destroy any relationship, but satisfaction is an expectation, and few customers are going to build an emotional bond just because their supplier has achieved a threshold level of expectation.
The beauty and the frustrations of NPS
Clearly, a new and more reliable measure is required. NPS, or Net Promoter Score, was first introduced by Fred Reichheld in 2003 and has been embraced since by some of the world’s largest companies – sufficient to benchmark its effectiveness as both a measure of relationship strength and an indicator of continuing commitment to the supplier, i.e. their intention to repurchase over the long-term. Furthermore, it measures how likely customers are to recommend the supplier to others – a further source of revenue.
The simplicity of NPS is that it links customer loyalty to the answer to a single question:
“How likely are you to recommend [company name] to a friend or colleague?”
The problem is that the NPS is an outcome. This singular score is the result of all of the interactions, personal relationships, quality of products and service, reputation, speed of problem resolution, and so on. The NPS relating to a particular relationship may be reasonable and indicate no major signs of problems, but maybe it could be better.
The question here is which performance levers can be pulled to convert a good relationship into one that can be sustained long-term? When available resources are tight it’s important those levers are identified precisely and investment made where it counts the most. This is where this simple NPS measure falls short, as it doesn’t identify the root causes of relationship weakness or how to go about making the necessary repairs.
So, with NPS we have a perfect measure but lack some of the insight required for targeted improvement. This brings us on to our final measure, CRQ.
CRQ™ (Customer Relationship Quality) is a measure derived from the work of two American academics, Robert Morgan and Shelby Hunt, who studied the drivers of long-term relationships between organisations. The crux of their hypothesis, published in “The Commitment-Trust Theory of Relationship Marketing,” is that by looking at the relationship as a partnership, two bonding factors become evident – trust and commitment.
The irony here is that while many companies adopt mission statements and brand values that invoke trust and commitment to customers, few measure their performance by asking customers how well they are living up to them.
Benchmarking research carried out globally across more than 800 corporate relationships shows that companies with a high CRQ™ score have more loyal customers who generate positive “word of mouth” referrals (and a higher Net Promoter Score).
In addition to determining the strength and longevity of the relationship, CRQ™ incorporates measures that indicate how both can be improved –it pinpoints the important areas where the organisation needs to invest or change how it operates.
By placing a benchmark measure on the longevity of its relationships, CRQ™ provides evidence of one aspect of the future financial stability of an organisation. And by segmenting clients by the strength and longevity of relationship, resourcing to improve performance can be allocated to gain the best returns.
Bringing it all together
For the first time, these important measures of customer relationship strength have been brought together into a single survey and reporting suite. Thus, companies are able to continue to track NPS performance while using CRQ™ to both verify the longevity of relationships and uncover ways to enhance their NPS rating with customers.
The real value for our clients has been in applying the approach in different ways:
- At the very highest level, they gain an accurate assessment of whether or not they have a relationship problem, and how “at risk” or unstable their revenue streams might be.
- By segmenting customers by the strength of relationship from Ambassadors to Detractors, they are able to evaluate and reward their sales and account management teams on the basis of the strength of the relationships they are creating.
- Those in the process of acquiring businesses or moving towards IPO are able to carry out due diligence on the goodwill they are supposedly acquiring, or conversely placing a quantitative value on the goodwill of their own organisation.
- Verify the competitive strength of the brand and level of emotional engagement it is achieving with corporate customers – in particular around the critical attribute of trust – is important in establishing the effectiveness of the brand and ROI from marketing spend.
By bringing together the various measures of corporate relationship strength and longevity, businesses are thus able to make the customer relationship a key element of their reported commercial strength. These vital intangible assets can be made tangible and benchmarked, and resources and activities refocused to build competitive robustness.
So when you next hear an account manager say that a relationship is simply down to the personal chemistry, just ask them to benchmark that chemistry.