Five Critical Moments in the Customer Experience

Manage these situations well and customers will be yours forever. 

Veteran salespeople know sales ultimately don't come from a prospect's logical evaluation of a product's features, advantages and benefits. They know people make decisions based on emotions and then use logic to justify them. What matters is not what the product is but what it does and how buyers feel about it. Time and again, what makes top salespeople successful is their ability to link product benefits with the personal impact they make. 

But closing the sale is just the beginning in recurring revenue businesses. Customers must remain subscribers for years before they become profitable. Like experienced salespeople, Account Managers and Customer Success professionals must go beyond software usage, good NPS® scores or satisfactory customer service to influence what makes customers loyal. They must create personal attachment throughout the subscription experience so their customers continue to renew. 

Essential interactions

SaaS companies can systematically build affective bonds with their customers. It begins with knowing how the subconscious brain works, especially when it comes to subliminal needs for safety and security. When managers are attentive to the process and consistently orchestrate the following five encounters, they reduce fear and create ideal conditions for relationships to flourish. Customers are more than satisfied; they become loyal, raving fans. 

1. Moments of Connection. Humans naturally seek commonality. We engage in small talk, chatting about a bad call while sitting next to a stranger at a ball game or talking about the weather on a conference call with new vendors. When we have things in common, we sense we are among friends. We subconsciously gravitate to people like us because we feel safe with them. 

To create stronger connections, SaaS companies must set aside “zero touch support” and corporate façades and create warm, personal interactions early in their customer relationships. When customers feel they can relate to the people behind the brand, suddenly the company has a face. In the beginning, a friendly encounter with someone who seems familiar alleviates the customer’s subliminal anxiety. When a smart mix of personal and electronic communications follows, the relationship builds over time. 

2. Moments of Power. At times we have all felt powerless and out of control. For example, nothing rattles nerves more than driving in winter and sliding on a patch of ice. That gut-wrenching feeling is a natural defense mechanism that evolved over eons. Our emotional programming helps us avoid situations that put us at risk. In day-to-day life we compensate automatically by attempting to control outcomes, making us feel safer.  

SaaS companies can reduce natural anxiety by encouraging autonomy and choice. For example, customers can feel powerless learning how to use a new product. Customer Success Managers can lower tension using an onboarding process that helps customers quickly practice new skills and build proficiency. When the company allows customers options to choose from, customers also feel empowered. And as the adage goes, knowledge is power. Keeping customers informed is another easy way to soothe the psyche. 

3. Moments of Proof. Our deep hunger for certainty is another natural protection from our evolutionary heritage. Subconsciously we want to know what’s going on and what happens next, once again because it’s safer. We are comforted when things go as we expect and anxious when they don’t. 

SaaS companies can increase certainty in many ways, from demonstrating products to hosting quarterly business reviews to displaying system performance statistics. When the company makes promises and keeps them, expectations are met and customers become more confident. And when SaaS companies also prove that the business and personal outcomes they predicted came to fruition, they erase any remaining doubts in the customer’s mind. 

4. Moments of “Wow!” We cherish times when friends and family surprise us with simple acts of kindness, appreciation and gratitude. These occasions happen infrequently, but when they do, they leave profound impressions. Like all social animals, we reflexively evaluate our status and importance relative to others. Rank ensures we maintain a greater share of resources, which in turn increases chances for our survival. When someone surprises and delights us, we feel special and cared for—we find our prestige is greater than expected. 

Solving a problem meets minimum expectations, but going the extra mile on occasion makes customers feel important and desired. For example, resetting a password is a mundane task for Customer Support. But when a technician also takes a minute to check the customer’s system configuration and makes a change that speeds up system response times, the customer is thrilled. Simple acts of kindness pay substantial dividends. 

5. Moments of Truth. Life occasionally involves crises. When we have no choice but to rely on others, we find ourselves in our most vulnerable psychological state. How others respond when we need them most can make or break a relationship. As they say, when the chips are down, you find out who your friends are. 

In business as in life, stuff happens. Sometimes the ball gets dropped, leaving a customer with mess. Other times, issues are widespread, such as the havoc caused by a major outage or security breach. When SaaS companies use an effective service recovery process, one that restores confidence along with service, customers regain trust. How the company responds reveals character and can quickly turn around a bad situation. 

Product value and quality matters, but how SaaS companies create positive emotional experiences over time ultimately tips the scale when customers consider renewing their software subscriptions. Understanding and responding to customers’ deep psychological needs is the first step to building stronger relationships and creating loyal customers. 

Net Promoter and NPS are registered service marks, and Net Promoter Score and Net Promoter System are service marks, of Bain & Company, Inc., Satmetrix Systems, Inc. and Fred Reichheld.

Excel-lens is a publication of Service Excellence Partners. We increase customer loyalty and business performance in the cloud computing industry. Contact us today.

Why Customer Defections Mean Things are Worse Than You Think

“A bird in the hand beats two in the bush.”

John Ray's A Hand-book of Proverbs, 1670

Most SaaS executives assume customer churn rises the minute a company loses its competitive edge. Not so. If customers are switching to top rivals in appreciable numbers, executives should be especially nervous—the situation is already much graver than they think. Research suggests customers leave because they’re long dissatisfied and now view the competition is twice as good. Executives must heed the warnings and overcome their own biases if they want to turn things around.

Thinking that doesn’t add up

Strangely, people tend to avoid loss even when they are faced with the possibility of larger gains. Research shows that people require more compensation to give up a possession than they would have been willing to pay to obtain it in the first place.¹ Even when all things are equal, repeated experiments show people subjectively weigh gains much differently than losses.

In 1654, French mathematicians Blaise Pascal and Pierre de Fermat proved that the expected value (EV) of an investment depends on the amount (x) and the probability of its outcome (p):

EV = px

For example, say a coin flip determines you collect $100 for heads and $0 for tails. Since the probability of obtaining heads using a fairly balanced coin over a large number of trials is 50%, the likely payout, on average, is $100 * 50% = $50. As shown by the charts, this relationship is true no matter the amount or the probability used in the calculation. Today many financial decisions are made using Pascal and Fermat’s expected value.

But that's not how most people make decisions. Faced with a choice of receiving $3,000 for sure or taking an 80% chance to win $4,000, most people will keep the money, even though the expected value for taking the risk is greater ($4,000 * 80% = $3,200). Prospect Theory in modern economics asserts that rather than apply logic, people instinctively determine value (V) by weighting differences in probabilities (p) and amounts (x) shown below:

V(x,p) = w(p)v(x)

The clean, linear function reflecting objective reality is suddenly replaced with this subjective, nonlinear aberration:²

Intuitively, the irregular curves hold water. People would rather take a 95% chance losing $100 than pay $85 for sure because amounts “feel” equally painful and 95% probability “feels” less than certain. On the other hand, people will take a 5% chance to win $100 instead of choosing $13 cash because $100 seems a lot more than $13, and 5% seems like a realistic chance.

Scientists also discovered that when they tested 50-50 win-loss scenarios, subjects said the following ratios equally attractive to when compared with receiving nothing:³

In other words, faced with even odds, most people want 2:1 upside before taking a risk. A bird in the hand is indeed worth two in the bush!

Why do we think this way? Most scientists believe it’s a vestige of our human evolution. In prehistoric times, survival probably depended upon playing it safe when we had resources and taking risks when we had none. In the modern age, however, our success depends on scientific and social advances, situations requiring thoughtful reflection instead of impulsive action. But since our complex reasoning evolved relatively recently, it often takes a back seat to our more primitive instincts, even when the consequences aren’t life or death. Despite today’s advances, subconscious emotion, not conscious logic, often rules the day. This explains why regardless of the odds, we continue to buy lottery tickets.

Tip of the iceberg

Evidence shows people are far more likely to stay in a bad situation than pursue a better one. What this means for SaaS companies is that once customers subscribe, they are likely to stay. But when customers switch, it’s very serious. Their actions show they’ve already had enough and customers realize competitors offer significantly greater advantages.

As humans themselves, executives likewise have a choice. They can either look logically at their company’s performance gaps and do something about them, or scoff at their customers’ subjectivity and do nothing at all. Like their customers, executives must overcome their own, natural inclination to preserve the status quo even when things are going south. If they can see the advantages of change and take risks to improve organizational performance faster than their customers get fed up and go elsewhere, churn reduction has a fighting chance. Otherwise, perhaps, companies with more evolved thinking will be the survivors.

Excel-lens is a publication of Service Excellence Partners. We increase customer loyalty and business performance in the cloud computing industry. Contact us today.

Sources:

1. Kahneman, D., Knetch, J. L., and Thaler, R. H. (1990). Experimental tests of the endowment effect and the Coese theorem. Journal of Political Economics, 98, 1325-1348.
2. Kahneman, D., and Tversky, A. (1979). Prospect theory: an analysis of decision under risk. Econometrica, 4, 263-291
3. Tversky A., and Kahneman, D. (1992). Advances in prospect theory—cumulative representation of uncertainty. Journal of Risk Uncertainty, 5, 297-323

Why a CSM's First Impression Means So Much

“My good opinion once lost is lost forever.” 

― Jane Austen, Pride and Prejudice

Eye contact. A smile. Friendly conversation. We all know first impressions mean a lot when we meet someone new or interview for a job. The same is true when it comes to customer interactions. How things go at the outset makes a big difference in the final outcome. Research offers intriguing insights why getting off on the right foot in the SaaS business is so important for reducing churn and building customer loyalty down the road. 

Most managers, including many prominent Customer Success consultants and authors, assume that all customer interactions have equal importance. Science, however, suggests that some carry far more weight than others. While the ultimate goal may be continuous improvement at every point along the customer journey, managers should start by concentrating on the critical few areas that yield the greatest impact. And the most essential exchanges occur in the very beginning. 

What starts right, stays right

Research from the wireless industry shows that first encounters matter.¹ Investigators studying wireless subscribers hypothesized that customers “anchor” their satisfaction and value perceptions based on their service history, incrementally modifying their beliefs by incorporating new information after each interaction. They found that customers who had many months of positive experiences early in the relationship weighed them more heavily than they did later experiences. But if new customers had early disappointment, they became particularly vulnerable to churn. 

Creating positive outcomes from the beginning yielded significant financial impact. The study found that one in four longer subscriber durations could be attributed to a series of satisfactory experiences. Doing a better job right from the start made a big difference. Simply having agents spend twenty additional minutes helping wireless customers activate and successfully use their phones cost the company $888K more each year, but the revenue increase due to churn prevention was estimated to be a whopping $4.48M. This represented gain of 2% in company profits, or an ROI of about 4:1.

Roots in biology

Neuroscience explains how anchoring works on a cognitive level. Our minds use reward prediction error (RPE) to gain new knowledge and skills because it is the fastest and most efficient learning method.² The brain subconsciously encodes differences between how rewarding something is compared with how rewarding it was expected to be. The brain then recodes expectations after each experience, and with successive cycles, outcomes eventually match expectations. RPE therefore serves as the anchor by which the brain evaluates its next learning experience.  

Learning is a mentally costly and permanent process. The brain consumes a great deal of energy building new circuitry by releasing neurotransmitters, firing millions of neurons, and modifying synaptic weightings. Given the high resource burden it places on the body, the brain is selective about what it learns, and it creates efficiencies by constructing new neural connections upon old ones. As a result, neural architecture has intrinsic latency. Once the mind learns, the underlying neural patterns are difficult to change, which explains why perceptions linger. 

When circumstances are unique, however, our expectations are undefined, and our protective evolutionary biology kicks in. In these cases, RPE is very high, and the brain subconsciously reacts to the increased uncertainty. We perceive novel situations as risky, and our cave man brain releases a neurotransmitter called norepinephrine, a stress hormone that increases attention and concentration and facilitates learning. The amygdala, the part of the brain responsible for encoding and evaluating our emotional responses, is on high alert. Norepinephrine also catalyzes our autonomic “fight or flight” system, readying us for possible action. Just like our primitive ancestors, new situations put us on edge, grab our attention, and sharpen our senses. We’re ready to learn quickly because our survival may depend on it.

Learning is rarely a matter of life and death in the modern world, but our brains are conditioned to respond to new situations in much the same way. Faced with uncertainty, the brain sets the first and most impactful cognitive anchor upon which all subsequent learning is based. Our neurobiology therefore predisposes us to automatically place more importance on first impressions. Subsequent learning then reinforces our initial experiences, and in time our cumulative perceptions evolve into long-term biases. First impressions are meaningful because it’s how our brain works on a fundamental level.   

Getting off on the right foot 

Customer Success Managers face a challenge to make their customers’ journeys optimally productive and enjoyable from the outset. Customers’ tendency to quickly judge the value of the product and the quality of the relationship means onboarding must go smoothly. CSMs should do their homework, researching the customer and their business and reviewing account history during the sales process. During the call, the CSM should take the time to understand and respond to the customer’s cognitive state, both effectively (meeting utility needs) and affectively (meeting emotional needs). When CSMs are mindful of conversations that gratify both conscious and subconscious needs, they not only solve problems but promote the conditions that lead to stronger relationships. If action items must be addressed after the call, prompt follow-up and follow through are critical because the customer is primed to learn if the CSM can be trusted and relied upon.  

As the customer learns to use their new software, they continue to refine their understanding about the nature of the relationship, too. The CSM should check in frequently in the early stages, helping the customer overcome obstacles in a friendly way. In the first few months, customers will not only come to appreciate the value of the product, they will do the same with the CSM and the company they represent, and the positive effects will stick. If the findings in the wireless industry are any guide, the financial outcomes are dramatic.

Contrary to popular belief, science shows not all interactions are created equal—first impressions really matter. Research from another industry and advances in neuroscience confirm the effects and demonstrate the financial impact. For CSMs, doing things right from the beginning sets the stage for stronger relationships and significantly lowers customer churn.

Excel-lens is a publication of Service Excellence Partners. We increase customer loyalty and business performance in the cloud computing industry. Contact us today.

Sources:

1. Bolton, Ruth N. “A Dynamic Model of the Duration of the Customer’s Relationship with a Continuous Service Provider: The Role of Satisfaction.” Marketing Science, 17 (1), 1998, 45-65.
2. Frank, M., Munakata, Y., Hazy, T., and O'Reilly, R. (2012). Computational Cognitive Neuroscience, Kindle Edition.

Are CSMs Taking a Critical Process for Granted?

It’s time to view relationship-building from a new perspective 

Studies have shown that people switch vendors for three reasons:¹ 
1. Expectations for quality and value go unmet
2. Customers lack personal attachment to the supplier 
3. It’s easy to switch  

When all three factors are present, churn results. Factor 3 above depends on product complexity, cost to change, and competitive pressures. Customer Success teams address the first factor, building value through software usage, answering questions, and demonstrating the benefits promised during the sales cycle. But the second factor, building personal attachment, rarely gets the attention it deserves, yet it’s a major driver affecting churn.  

Now wait a minute! Everyone agrees that building customer relationships is important. It’s intuitively obvious that better customer relationships lead to greater retention and loyalty. After all, people prefer to do business with people they know, like, and trust. But many companies take relationship-building for granted. They believe it happens on its own—simply hire friendly front-line employees, give customers what they need, and better relationships will somehow result. But if relationships are so important, why leave them to chance? Is there a better way? 

Relationship is a process

Psychologists say relationships have a beginning, middle, and sometimes an end.² Think about how you became friends with someone. You met, discovered you had a common background and shared interests, and you found each other likeable. Something “clicked.” You connected because the person showed empathy and realness, and you immediately felt comfortable with them. After subsequent contacts, your relationship deepened through mutual connection, caring, confiding, and trust. You found you were helping each other achieve goals and deal with daily frustrations. You maintained your relationship through periodic social get-togethers or by enjoying common interests. If you’re fortunate, this person is still in your life. But as you know, friendships can lull when the other person gets busy, goes through life changes, or moves away. Friendships can also abruptly dissolve due to a “falling out.” 

Imagine if all your business relationships could be close friendships. Most will never be, but all relationships follow the same pattern of initiation, maintenance and dissolution. Relationships, like all processes, occur in a sequence of steps, and outcomes obey the laws of cause and effect. The strength and quality of the relationship that develops depends on a number of factors, some of which can be controlled and others cannot. For example, people can't change their basic nature and few will ever become best friends. However, it is possible to become more likeable. Since some relationship factors are controllable, influencing them improves relationships. 

Relationship factors

Subconscious social signals lie at the heart of our relationships. David Rock, founder of the NeuroLeadership Institute, distilled neuroscientific research and social evolutionary theory into a simple model to describe the reflexive behaviors all humans share.³ His SCARF model outlines the core psychological drivers hardwired into our subconscious:

• Status—how we perceive our importance relative to others
• Certainty—our ability to predict the future
• Autonomy—our sense of mastery and control over events
• Relatedness—our connection and sense of safety with others
• Fairness—our perception of equitable exchanges 

These factors influence relationships positively or negatively. For example, consumers who call technical support complain when technicians make them feel stupid. The customer subliminally perceives the interaction as a status threat. In extreme cases, the conversation provokes anger and causes customers to terminate their contracts. “You’re not treating me like a valued customer!” they exclaim. Most of the time provocations are unintentional and subtle, but even minor comments at the wrong time can leave lasting impressions. 

Conversely, SCARF techniques can promote positive encounters that lead to stronger attachments. For example, a Customer Success Manager begins an onboarding call saying, 

“I saw on your LinkedIn profile that you’re from Chicago.” 

“That’s right. I grew up on the South Side, 120th and Pulaski,” the customer says.

“No kidding!” the CSM exclaims. “I’m from Orland Park!”

The CSM is building relatedness right from the start, sending a subliminal signal that she’s a friend, not a foe. After the small talk, she says she will help him get his account set up and it will take only fifteen minutes. This creates a sense of certainty in the customer’s mind. By proactively sending these and other signals, the CSM produces warmer, friendlier interactions.

In a similar manner, CSM leaders should look closely at how interactions occur throughout the customer lifecycle. They can do this by mapping the experience from the customer’s perspective and by identifying the customer’s practical (effective) and emotional (affective) needs at each step. Then, executives can close performance gaps by implementing process improvements and measuring the impact on customer churn. Often simple changes in the right places can make significant improvements through training, website revisions, and e-mail edits. 

SaaS companies tend to take the process of building relationships for granted. Like all processes, however, those better designed and managed produce better results. CSMs should be more mindful, both in what they do and how it impacts the customer’s brain. Proactively and systematically creating the conditions for friendly attachment leads to stronger relationships and reduces churn.  

Excel-lens is a publication of Service Excellence Partners. We increase customer loyalty and business performance in the cloud computing industry. Contact us today.

Sources:

1. Gremlera, D. and Brown, S. (1996) Service Loyalty: Its Nature, Importance, and Implications, University of Idaho and Arizona State University, USA
2. Blieszner, R. and Roberto, K. A. (2003). Friendship across the lifespan: Reciprocity in individual and relational development.  Also in F. R. Lang and K. L. Fingerman (Eds.), Growing together: Personal relationships across the lifespan (pp. 159-182). Cambridge, U.K.: Cambridge University Press.
3. Rock, D. (2012) “SCARF: a brain-based model for collaborating with and influencing others.” Neuroleadership Journal

Software Adoption is a Matter of Habit

Six tips to increase user adoption by capitalizing on human nature

In the SaaS industry, customer retention rates depend heavily on the extent to which customers engage with their product, especially during the early stages. The more they use it, the more value they find in it, which increases the chances that they will continue to subscribe. In fact, data from Scout Analytics indicates that customers who use their new software at least once per week over the first six months of their subscription are about 50 percent less likely to churn.¹ Understanding this well, most Customer Success operations focus their churn reduction efforts on encouraging product usage. However, this approach is insufficient by itself because it overlooks human nature, the most influential factor of all. SaaS companies must change customer habits before product adoption is fully realized.

Creatures of Habit

How many times have you driven to work, but upon arriving, had no memory of the commute that got you there? Clearly, driving is complicated. You get into your vehicle, fasten your seatbelt, apply the brake, start the engine, put the gear selector in reverse, look behind you, back out, turn the wheel, apply the brake, close the garage door, put the car in drive—and that’s just getting out of your driveway. You process thousands of stimuli, decisions, and actions in a typical commute, yet it can all be done without much conscious thought.

How can something so complex become second nature? Our magnificent brains help us simplify life. Because cognition demands so many resources, our subconscious creates habits to increase efficiency. Although the brain accounts for only 2 percent of body weight, it consumes 20 percent of the body’s total energy.² To streamline, the basal ganglia recognizes patterns and creates shorter neural pathways to get the same job done faster and with fewer resources. The brain automatically rewires itself, enabling reflexes to perform tasks that once required more cognitive power. This subconscious rerouting happens all the time. By some estimates, about 40 percent of what we do every day is habitual.³

The Habit Cycle

Habits are made up of four things: a cue, a routine, a reward, and an underlying craving.⁴ A cue is something in the environment that triggers the behavior, the routine is the action, the reward is the positive outcome, and inner cravings are the motivation.

Let’s say you want to start exercising habitually. We’ll assume you want to shave off a few pounds because you don’t like how you look in the mirror. A better self-perception is your underlying craving. Next, to create the new habit, you follow a cue-routine-reward cycle. First, you set up a recurring reminder in your calendar (cue) and then go to the health club every time you schedule it (routine). After the first few workouts you'll start to notice newly toned muscles (reward). It may be difficult to repeat the cue-routine-reward cycle, but if you stay disciplined and patient, your brain rewires itself. Pretty soon, exercising regularly will be automatic. Simple enough.

The problem is that old habits are notoriously stubborn. This is because our brains always take the path of least resistance. Having been more efficiently converted and stored in the subconscious, habits become easier for the brain to recall and execute. Once neurons have been wired together during the learning process, the connections become permanent, so the brain must now expend more energy to substitute a new habit. Conscious repetition causes neural connections to strengthen, forcing the subconscious brain to eventually choose the new wiring over the old. If repetition is lacking, the brain simply defaults to the old reflexes. That’s why reinforcement is so important for creating habits and why change is so difficult. The more entrenched our behaviors, the harder and more frequently our brains must work to replace them.

Making Product Usage Habitual

You should view software adoption within the context of changing habits. Upon subscribing to your service, customers are essentially trying to replace one behavior with another, such as using your online database rather than an Excel spreadsheet to track their information. Your customers’ brains are wired to repeat their former behaviors, so the key to success is to be patient and vigilant, while smoothing their path to change. The following six tips can help:

1. Promote the Motivation—People ultimately change their behaviors because they are inspired to do so. In cases where a department head makes the software purchase decision, it is likely that many users won’t feel personally connected to the motivation behind it. Be sure to repeatedly reinforce your benefits with all users. Cultivate their desire to adopt new habits, such as explaining how the new software saves them significant time and effort.

2. Chunk Large Processes into Small Cue-Routine-Reward Cycles—Any process can be reduced to a series of repeatable steps, and stringing together smaller routines allows the brain to learn, adapt, and reuse skills more efficiently. Running a new financial system is a daunting task, but “paying a bill,” “reconciling a bank statement,” and “running a month-end report” are more accessible and easier for the brain to make into habit.

3. Implement Recurring Cues—Recall that every habit needs a sensory cue to initiate the autonomic behavior. You can provide simple triggers through e-mail reminders with embedded links to start transactions. For example, Facebook and LinkedIn constantly send updates to revisit their website and reconnect with friends, family, and business associates. If you identify and map the routines involved in using your product, you can associate a cue to enact each step.

4. Reward Frequently— Don’t leave progressive adoption to chance.  It is essential to track, display, and reward it at every turn. Recognize customer successes via web pages or e-mails when new users accomplish milestones. Note their “moments of proof,” drawing attention to the improvements that using your software yields. Be sure to recognize both initial and repeat successes to promote habit formation.

5. Leverage the Support of Others— Rewiring the brain is difficult and takes conscious effort. Use your cohort’s shared experiences to encourage fellow users. Whenever possible, train people in groups and let them interact. Just like Alcoholics Anonymous and Weight Watchers, social groups provide a safe environment and unmatched support for people undergoing changes in habit. User groups also increase perceived value and builds affective bonds between the company and its customers, which further reduces churn.

6. Be Mindful—Above all, be patient. Experts estimate a new habit can take from 22 to 60 days to form, depending on complexity, entrenched current behaviors, level of motivation and reinforcement frequency, and even the age of people involved. It’s a process that requires intense focus in the beginning, and typically includes false starts and frustrations along the way. Once the habit is established, however, it tends to stay for the long haul.

Software adoption is about changing habits. To maximize usage and minimize churn, your SaaS company should look a step beyond software features, focusing more on the human beings who use the product and the new habits their brains are attempting to form with it.

Excel-lens is a publication of Service Excellence Partners. We increase customer loyalty and business performance in the cloud computing industry. Contact us today.


Sources:

1. Scout by ServiceSource blog. 
2. Swaminathan, N. (2008) “Why does the brain need so much power?” Scientific American.
3. Duhigg, C. (2012) The Power of Habit: Why We Do What We Do in Life and in Business. Random House, New York. ISBN 978-0-679-60385-6
4. Ibid.

Is Your Customer Success Team a QA Department in Disguise?

A revolutionary change may be at hand.

Many Customer Success teams work with customers to help them learn and deploy new software in order to increase usage and build relationships at a critical time in the customer lifecycle. Others perform an important account management role, providing ongoing support and generating renewals. Often, however, CSM teams fill their days responding to customer complaints or being pressured to push upgrades to compensate for high churn. If CSMs spend most of their time mending frayed relationships or engaging in retention heroics, managers should be concerned—perhaps the Customer Success function is really there because the company lacks successful customers. 

Sound familiar?  Take heart. This situation is reminiscent of the transformation that occurred in manufacturing Quality Assurance departments not long ago. The important lessons they learned can help you lead your SaaS organization out of the problem-solving dark ages and into a problem-prevention renaissance. 

Learning from the Quality Movement

Reeling from tough economic times in the late 1970’s, Americans needed answers. Japanese brands Sony and Panasonic had decimated the American consumer electronics industry, while Toyota, Honda, and Nissan were busy thumping the Big Three auto makers. The Japanese produced significantly higher quality, lower cost goods, and consumers everywhere snapped them up. From the Rust Belt to Silicon Valley, the once-dominant American manufacturing industry was in crisis. 

Then in 1980, NBC News ran a program entitled, “If Japan can… why can’t we?” The show revealed how the quality improvement methods we taught the Japanese after World War II helped them beat us at our own game. Dr. W. Edwards Deming’s work with the Japanese challenged conventional notions that high quality must come at a high cost. Their global success proved that high quality meant far less waste and rework, lower costs, more reliable products, and happier customers. 

American industry got the message. After losing its way during the post-war boom, it was time for a new start. Led by Motorola, Alcoa, Ford, and many others, manufacturing rebounded by rediscovering quality methods, revamping operations, and regaining lost market share. Today, defects are no longer measured in percentages but in parts per million. It’s all due to a fundamental shift—manufacturers now achieve high quality not through inspection and remediation but by designing it into products and processes in the first place. Gone are large “test and fix” Quality Assurance operations, thanks to robust product designs, high capability production lines, and responsive supply chains. The modern, lean Quality function no longer requires scores of repair technicians but a select few quality consultants working upstream to ensure improvement never ends. 

Enlightenment in Customer Success

Just as manufacturing defects crippled manufacturing companies, experiential defects now rob SaaS companies of millions in revenue each year. Too often after buying SaaS offerings, customers find features lacking, software difficult to use, information hard to find, and support frustrating and unresponsive. This leads to churn.

When your Customer Success team becomes a de facto “save desk,” it’s behaving just like the Quality Assurance department of old, reacting to problems rather than adding value from the start. Worse, factors affecting churn can appear at multiple points in the process, but these problems get funneled to the Customer Success team in the name of “efficiency.” As a result, the team spends its time solving avertible problems at great expense. 

To remedy the situation, SaaS leaders must shift their focus to prevent churn in the first place:
• Create better products 
• Deliver better services
• Strengthen customer relationships 

To accomplish these goals, it’s critical to address the negatives that make customers leave and the positives that make them loyal. Leaders must dig deeper to uncover the cause-and-effect relationships that lead to better results. Doing so eliminates frustrations, saves time and money, and grows revenue through more successful installed-base sales campaigns. Given relatively low barriers to entry and increasingly crowded markets, companies that keep and grow hard-won market share will be the survivors when SaaS markets inevitably shake out most of the competition. 

Joining the Renaissance

The spark that ignites change is close at hand. Now more than ever, SaaS executives and investors understand the financial consequences of customer churn, emphasizing continuous improvement and analyzing customer use patterns and satisfaction data to drive software revisions. Executives are also beginning to look beyond the technology and to the people using it, placing greater importance on the overall customer experience. They see that the art of up-selling, cross-selling, and referral selling begins with a clean canvas of happy customers. As helpful visualization and predictive analytics technologies arrive on the market and teams adopt time-tested process improvement disciplines, your SaaS company can build customer loyalty that transcends software development and involves all aspects of the business.  

Excel-lens is a publication of Service Excellence Partners. We increase customer loyalty and business performance in the cloud computing industry. Contact us today.

Customer Loyalty Problem Solving

A three-level model helps focus improvement efforts. 

Customer retention is critical for companies with business models that rely on recurring revenue. The “leaky bucket” that is customer defection robs 

companies of precious revenue and profit. In cloud computing, cutting customer churn in half over the typical customer life cycle doubles company cash flow and gross margin.¹ Even a small churn reduction pays off in the long term when millions of dollars in revenue are in play.

Obviously, improving customer loyalty is the key, but how? Where should managers start? I propose a simple, three-level model to concentrate on the customer benefits that lead to loyalty: Implicit, Explicit, and Experiential.

Implicit Benefits

Customers take certain things for granted, such as reliable wireless phone service, accurate bank statements, and bug-free software. People assume basic attributes come with the service, and when companies fail to deliver on these minimum expectations, customers have little patience. Chronic problems providing what quality expert Dr. Noriaki Kano calls “must-be” quality² leads to customer defections in every industry. In Software-as-a-Service (SaaS) companies, churn can lead to the loss of half of a firm’s customer base during each renewal cycle.

This is why managers must make delivering the fundamentals a company’s first priority. In cloud computing, that means system uptime, secure data, error-free code, and basic product support. SaaS executives must get and maintain control of their technology development and operations processes or prepare for a rapid demise.

Explicit Benefits

Companies promise things during the sales cycle. When deciding between competitive options, customers evaluate each company’s “value proposition” and choose the best option. If promises don’t materialize, customer expectations go unmet. For example, a SaaS company may state that their software creates a certain type of report, but the customer later discovers it can’t. Customers may not return if the issue is severe and the dissatisfaction high enough. If a competitor offers comparable benefits, and changing providers is simple and cheap, potential for churn grows.

Marketing masters Michael Lanning and Lynn Phillips say companies should make strong value propositions their strategic foundation.³  First, managers must choose a winning value proposition, one that focuses sharply on a target market and offers a compelling alternative. Second, executives must deliver the chosen value proposition by translating it into design requirements, bringing it to market, and then providing it in day-to-day operations. Finally, the company must communicate the value proposition clearly and consistently in marketing, sales, and customer service. When promise-making and promise-keeping are in close alignment, customer expectations are reliably met and churn is reduced. An effective strategic management system ensures value propositions aren’t empty promises.

Cloud computing companies competitive in delivering Explicit and Implicit benefits will typically retain 80-85% of their customers from one renewal cycle to the next. But to raise performance to world-class levels of 95% or higher, companies must become proficient delivering a third type of benefit.

Experiential Benefits

Customers prefer to do business with people they know, like, and trust. How a company does business is as important to customers as the product or service they receive from them. When customers have lackluster experiences, churn increases. Just one unhelpful tech support interaction can end a business relationship, especially when the customer feels ignored, devalued, or unfairly treated. On the other hand, service companies that form strong relationship bonds enjoy significantly higher customer loyalty.⁴

Customer Experience Management (or Customer Journey Management) is a technique used to analyze and improve customer interactions. Managers collect data on myriad customer “touch points” (website visits, phone calls, e-mails, blog entries, social media, etc.) and plot each interaction against time. Patterns emerge where gaps and problems exist, and managers can use process improvement techniques, such as Lean Six Sigma, to resolve them.

While addressing functional gaps is the first place to start, research suggests a more mindful approach is the secret to achieving the highest levels of customer loyalty. Underlying all human

relationships are reflexive responses to subtle, social cues that can have a profound effect on conscious feelings and decisions.⁵ For example, our subconscious mind is sensitive to certainty, the ability to predict the future. When a Customer Success Manager begins an onboarding call by saying, “We’ll have you up and rolling in just fifteen minutes,” she provides subliminal assurances to the customer, producing a rewarding dopamine burst in his brain. If additional, beneficial cues accumulate during the call, the brain assigns a positive marker to the memory.⁶  Later, the brain reactivates the marker as it recalls the experience, allowing subliminal emotions to “weigh in” on the evaluation. When companies understand and proactively manage simple social cues through employee training, refined user experience (UX) design and other means, the resulting positive interactions lead to richly satisfying relationships and more loyal customers.

Loyalty troubleshooting is easier when managers focus on Implicit, Explicit, and Experiential benefits. When customer turnover is high, executives should attend to the basics. When it’s moderate, the priority becomes clearly articulating and consistently delivering competitive distinction. And when managers strive for world-class loyalty, being mindful of the customer experience is the path to success.

Excel-lens is a publication of Service Excellence Partners. We increase customer loyalty and business performance in the cloud computing industry. Contact us today.

Sources:

1. Skok, David (2013). “SaaS Metrics 2.0 – A Guide to Measuring and Improving What Matters,” For Entrepreneurs blog
2. Adapted from Noriaki Kano, Nobuhiku Seraku, Fumio Takahashi, Shinichi Tsuji (April 1984). "Attractive Quality and Must-Be Quality" (in Japanese). Journal of the Japanese Society for Quality Control 14 (2): 39–48. ISSN 0386-8230. 
3. Lanning, M. and Phillips, L. “Building Market-Focused Organizations,” (Gemini Consulting White Paper, 1992).
4. Gremlera, D. and Brown, S. (1996) “Service Loyalty: Its Nature, Importance, and Implications,” University of Idaho and Arizona State University, USA
5. Rock, D. “SCARF: a brain-based model for collaborating with and influencing others,” NeuroLeadership Journal.
6. Damasio, A. R. (1996) “The somatic marker hypothesis and the possible functions of the prefrontal cortex,” Philosophical Transactions of the Royal Society B, 351, 1413-1420. 

Start 2014 With New Customer Insights

Three changes to your annual customer satisfaction survey can better focus your improvement initiatives

Many organizations conduct comprehensive customer satisfaction surveys this time of year in preparation for their annual planning exercises. Surveys aid decision making for process improvement initiatives and can also be used to test new product and service ideas. But most companies miss easy opportunities to gather valuable information along the way because they fail to do three things:

1. Ask segment identification questions.

Surveys typically ask customers for demographic information (age, gender, income, location) or company-specific information (products or services purchased, account size, salesperson) to categorize and compare responses. But these questions tend to be driven by whatever is easy to measure, not by what’s most essential to know. Asking respondents to identify themselves by market segments allows companies to align their products, services, and process improvements with the benefit of greater context.

For example, let’s say a travel company identified three distinct segments in their customer base: families vacationing on school holidays, seniors enjoying their retirements, and corporate group travelers celebrating successful sales years. While all may purchase travel services, each customer set values what the company does differently: holiday availability may be more important to families, while low travel cost may be more important to retirees. The company may also determine that some customer segments are more profitable than others or represent opportunities for growth. In this example, the company could ask, “Which statement best describes you?” and offer descriptions of the three segments.

When data are analyzed according to cleanly defined segments, suddenly results have far greater strategic impact. Prioritization becomes much easier when improvements can be traced to potential top-line revenue or bottom-line profit by customer segment.

2. Ask what’s important.

Many organizations use the same survey questions they’ve always used, which allows them to track customer satisfaction changes over time. This certainly makes sense, but doing so blindly eliminates the chance to verify what’s relevant. The Importance-Satisfaction (I-S) survey technique adds the question “How important is this to you?” along with a rating scale (e.g. 1= not at all important to 5 = extremely important) to track customers’ current and changing tastes. Collecting both importance and satisfaction provides a handy measurement of the gap between the two.

High-performing organizations periodically challenge their understanding of customer preferences. After receiving the prestigious Malcolm Baldrige National Quality Award a second time in 1999, Ritz-Carlton CEO Horst Schulze remarked:

“During our implementation of the Baldrige Criteria, I’ve learned that although the sparkle of the chandeliers is important, it is not the only priority of our guests. It doesn’t matter that the petunias are perfect if the valet dents your car or your bill is wrong. We’ve learned to make our customers’ priorities our priorities… We’ve shifted from looking ‘out’ from our own perspective to looking ‘in’ from the customer’s.” ¹

Besides asking customers the right questions to determine areas of most concern, eliminating questions deemed unimportant allows organizations to make surveys shorter, which in turn increases survey response rates.

3. Analyze correctly.

Most companies use very basic calculations which can lead to the wrong conclusions. Managers typically compare average satisfaction scores from one period to the next or between one group and others. For example, if average satisfaction was 4.3 in 2012 and is 4.4 in 2013, managers often conclude satisfaction has improved 0.1. This may not be true—the determination has not accounted for experimental error, and the difference may actually be due to randomness. Student’s t or Analysis of Variance (ANOVA) is the correct approach when comparing sample means between two or more groups. Technically, if data are not normally distributed (most satisfaction data are skewed, not bell-curve shaped) or respondents select from a set of discrete ratings (e.g. categories 1-5 on a Likert Scale or 1-10 for Net Promoter Scores®), contingency tables with chi-square analysis then becomes the correct approach. To properly separate the “signal” from the “noise,” the analyst must calculate p-values to determine if differences between sample means are statistically significant.

Most executives want to understand cause-and-effect relationships and make predictions, not just make comparisons. For example, call center managers may want to know, “Which will have a greater impact on overall customer satisfaction: reducing call hold times or resolving issues on the first call?” In this case, analysts use multi-way cross-tabulation tables, but when evaluating four or more factors, the analyses are more elaborate (correspondence, classification trees, log-linear). The right methods can uncover a wide range of new insights, but managers should ask qualified statisticians for help.

Collecting customer feedback is a healthy first step for annual business planning. Adding segment identification, importance-satisfaction questions, and proper statistical analysis can then make a substantial impact on what is decided during business planning.

Excel-lens is a publication of Service Excellence Partners. Our unique approach helps founders at early stage companies better scale operations and manage growth. Contact us today.

Source:

1. James Hunt, Elaine Landry, and Jay Rao, 2000. “Case Study: The Ritz-Carlton Hotel Company, 1992 and 1999 Malcolm Baldrige Quality Award Winner,” Journal of Innovative Management, Fall 2000. GOAL/QPC.

Net Promoter Score (NPS) is a registered trademark of Fred Reichheld, Bain & Company, and Satmetrix