How to Win the Game of Trust

Evidence suggests trust forms a barrier to churn

A competitor just introduced a new product that delivers significantly higher performance. Do you worry your customers will jump ship? If they trust you, there’s little to fear. A new study using collaborative games demonstrates people value trust far more than performance when choosing partners.  

New research

Scientists at the University of Maryland recently conducted an experiment to see how feelings of trust guide decisions.¹  Test subjects first played an investment game in which they could keep or invest $10 with three other players. Participants learned by playing the game that one (benevolent) always returned slightly more than the player invested, another (greedy) never returned any investment, and a third (exploitative) returned slightly more than invested in first two rounds and then returned nothing. 

Then researchers asked participants to play a second game, a team version of Battleship. Subjects would choose one of the three partners from the previous game to play with them. Scientists told participants that during the game, all players would select their targets at the same time, shots would be revealed simultaneously and shot sources kept hidden, so no player knew who shot at which target or which board. At the end of the game, winners would split a $50 prize. Subjects saw a chart indicating that some partners were significantly more skilled than others. Faced with the challenge of maximizing their winnings, players had to choose either a better player or one they trusted. 

The scientists discovered that people were nearly eight times more likely to choose a poorly performing but trustworthy partner than an untrustworthy but highly capable one. It was as if skill didn’t matter at all; people’s subjective evaluation of trustworthiness far outweighed their objective evaluation of skill. The “halo effect,” in which one’s initial impressions of another’s character significantly influences later assessments of that person,²  was clearly in evidence.

The game of business

This experiment suggests trust may inhibit customer churn in the event a competitor introduces a game-changing product. People are increasingly skeptical of marketing claims,³  so given a choice of maintaining a trusting relationship or believing a sales pitch and taking a chance on an unknown supplier, customers are far more likely to stay than switch. There are limits, of course. According to prospect theory, customers seriously consider alternatives when promised benefits exceed 2:1,⁴  and high churn may indicate things are worse than they appear. But high levels of trust can buy companies precious time to catch up. When companies enjoy a base of trusting customers, simply sharing product roadmaps and allaying concerns about timelines may be all that’s needed to keep them from switching.

Conversely, the experiment shows just how detrimental betrayal can be. When companies use deceptive marketing practices, treat customers unfairly, or fail to keep promises, customers learn the company can’t be trusted and look elsewhere. This conclusion supports other research that suggests trust moderates customer loyalty. 

Winning trust

People don’t immediately trust each other—they learn to trust over a series of experiences. It’s a process, and like all other processes, relationships can be continuously improved. Therefore companies can design and implement processes that increase customer attachment and lead to higher levels of trust. 

Customer journey mapping is a handy tool for improving processes. First, managers determine the sequence of events that makes up the customer experience, from becoming aware of the company’s offering to purchasing, implementing, using, and eventually renewing or canceling the subscription. Managers then critique each touch point along the journey, looking to remedy frustrating or inefficient steps. When managers include mindful customer experience techniques in the mapping process, they uncover hidden opportunities to strengthen customer bonds along the way. They learn that managing five critical moments in the customer experience makes all the difference. As a result, companies systematically increase trust and customer loyalty. 

Intense competition and fleeting technology advantages characterize the subscription economy, so executive should expect times when their offerings lag competitors.  If companies make it difficult for rivals to dislodge their customers during these times, the countermeasures protect the company’s sustainability over the long run. Strengthening customer relationships then becomes a high stakes game, one companies don’t want to lose. Taking a systematic approach to building trust can separate the winners from the losers. 

Sources:

1. Buntain, C. and Golbeck, J. (2014). Trust transfer between contexts.
2. Thorndike, E.L.: A constant error in psychological ratings. Journal of Applied Psychology 4, 25–29 (1920).
3. Friestad, M. and Wright, P. (1994). The persuasion knowledge model: how people cope with persuasion attempts. Journal of Consumer Research, vol. 21, No. 1, June 1994.
4. Tversky A., and Kahneman, D. (1992). Advances in prospect theory—cumulative representation of uncertainty. Journal of Risk Uncertainty, 5, 297-323

Why Trust Matters for Customer Success

Software usage is just one driver in customer loyalty

A widespread belief shared by Customer Success professionals is that promoting software use early after the sale leads to less churn. It makes sense. But usage is just one factor leading to customer retention. Studies show building trust is equally important for retaining customers and growing revenue. To generate high loyalty and more business, SaaS leaders must pay as much attention to affective processes as they do effective ones. 

Usage: the good and the bad

We’ve all had the experience of canceling an unwanted magazine subscription. Perhaps we signed up impulsively after reading a good article on a plane, or subscribed as part of a fundraiser to help a favorite charity. We thought it was a good idea at the time, but eventually the magazines stacked up—we didn’t have the time or the interest to actually read them. Eventually when the envelope asking us to renew came in the mail, we just tossed it. Since we didn’t use the subscription, it had no value to us. 

The same applies in software subscriptions. If customers invest in new applications but don’t use them, it’s hard to justify the ongoing expense. That’s why SaaS companies pay so much attention to user adoption. Customer Success teams spend much of their time onboarding new customers and helping them achieve early results. It pays off. Data from Scout Analytics by ServiceSource suggests that customers who use their new software at least once per week over the first six months are about 50 percent less likely to churn.¹ 

But high usage doesn’t necessarily equate to high retention. In the wireless industry, for example, heavy users are more likely to churn.² Why? Experts cite poor service quality (dropped calls in particular), price sensitivity due to high monthly bills, and preference for more advanced capabilities they find somewhere else. Similarly in the SaaS business, “power users” tend to be the most valuable but come with a downside. They’re the first to notice company “warts”—software bugs, system downtime, or poor customer service—and may be the first to leave.

Factor ignored?

SaaS companies frequently overlook an important loyalty dimension: trust. Researchers define it as the confidence business partners have in the reliability and integrity of each other.³ Studies in technology markets show that high trust leads to affective commitment; in other words, people are inclined to stick with a supplier because they want to, not because they have to.⁴ The lower the trust, the more customers revert to calculative commitment, considering other alternatives and spending time weighing product costs and benefits vs. the competition. Relationship factors are therefore as essential as product attributes and market variables when it comes to loyalty. Companies increasing trust increase loyalty.  

Despite the numerous shortcomings of Net Promoter Scores (NPS®),⁵ its fundamental question, “How likely are you to recommend our product to a friend or colleague?” offers a practical example of how we view trust. Recommending a vendor to a friend or colleague, for any of us, is a risky proposition. Our trust in the supplier’s ability to satisfy must greatly exceed the chance of impairing an important relationship. 

Brain trust

Neuroscientists say we learn to trust people in much the same way we learn about everything else. A part of the brain called the striatum specializes in social decision making, detecting and evaluating levels of fairness, cooperation, and reciprocity. Social learning begins with a bias, or cognitive “anchor,” which is surprisingly sensitive to what people say about others.⁶ As we learn about people, we compare situational outcomes against our expectations and subconsciously adjust our mental anchors along the way. Through experience, feelings of certainty and fairness acquired from multiple interactions then grow into a generalized sense of trust, a bias which in turn influences our future decisions. 

Our evolutionary biology explains why we developed the need for trust. Humans became the most successful species on earth primarily because of our ability to cooperate and learn from each other. But not all people work towards mutual interest. We subliminally perceive social deviations as threats, which in turn activate the ancient “fight or flight” mechanism in our reptilian brain. Low trust means high risk, prompting us to avoid the situation in the future.  

How to build trust

Software companies can grow trust in a number of ways. When organizations carefully and consistently set and meet expectations, it creates harmony in their customers’ minds. When things go wrong, leaders taking responsibility, communicating frequently, and quickly resolving problems build confidence. And when administering policies, treating customers fairly helps, too. Since a customer’s trust perception is strongly influenced by what others say, companies must guard their reputations with the same vigilance as their intellectual property. SaaS executives should be especially concerned when they see low NPS scores, indicating trust is low and further investigation is warranted.

Customer Success teams play a critical role as well. They can create more mindful customer experiences that systematically build trust in addition to early usage. The trick is to examine the customer’s journey and design processes that satisfy a customer’s effective and affective needs. For example, besides helping customers learn new software, CSMs can sow the seeds of trust by simply making a personal connection during an onboarding call. Doing so increases a sense of relatedness which quells the customer’s natural, subconscious threat response when encountering new people. Customer Success teams that skillfully manage five critical moments in the customer experience create conditions for strong, trusting relationships to form. Lower churn and greater revenue from up-selling and referrals result. 

SaaS companies must create and deliver value to be successful, but their loyalty efforts must extend beyond increasing software usage. It starts by understanding human nature and the factors that ultimately drive renewal decisions. Deliberately and systematically influencing these factors in turn makes SaaS subscription businesses thrive. 

Excel-lens is a publication of Service Excellence Partners. We increase customer loyalty and business performance in the cloud computing industry. Contact us today.
Net Promoter Score (NPS) is a registered trademark of Fred Reichheld, Bain & Company, and Satmetrix

Sources:

1. http://research.scoutanalytics.com/churn/the-data-behind-adoption-and-retention-in-the-customer-journey/ 
2. Ahn, J.H., Han, S.P., Lee, Y.S.: Customer churn analysis: Churn determinants and mediation effects of partial defection in the Korean mobile telecommunications service industry. Telecommunications Policy 30 (2006) 552–568
3. Morgan, R. M., and Hunt, S. D.: The Commitment-Trust Theory of Relationship Marketing. Journal of Marketing 58, 20–38 (1994).
4. Ruyter, K., Moorman, L., Lemmink, J.: Antecedents of Commitment and Trust in Customer–Supplier Relationships in High Technology Markets. Industrial Marketing Management 30, 271–286 (2001)
5. Sauro, J.: Should The Net Promoter Score Go? 5 Common Criticisms Examined. Measuring U. July 22, 2014 https://www.measuringu.com/blog/nps-go.php 
6. Fareri, D., Chang, L., Delgado, M.: Effects of direct social experience on trust decisions and neural reward circuitry. Frontiers in Neuroscience, 16 October 2012

Why SaaS Needs Lean Six Sigma

The cloud computing industry loses about $10B every year due to customer churn, and in response, many executives launch improvement initiatives. They assign Customer Success teams to engage new customers, increase product usage and probe for sales opportunities. Other times, executives hold developers accountable for monitoring online customer behaviors and designing stickier user interfaces. Marketers sometimes get into the act, countering revenue losses through new customer engagement programs or by introducing renewal incentives. 

These isolated activities can incrementally reduce churn, but customer defection is a complex, enterprise-wide problem that requires joint effort. Customers leave when a number of deficiencies in sales, development, marketing, operations, and even accounting combine to frustrate them. Instead of assigning a single function or diluting efforts among multiple groups, SaaS companies should address customer attrition holistically with a disciplined and coordinated Lean Six Sigma approach.

Proven and unified

For decades, manufacturing and service organizations have used quality improvement techniques to satisfy customers, save money and increase revenue. Companies have shown repeatedly that relying on personal perceptions and making snap decisions leads to treating symptoms, not underlying causes. Using formal techniques, practitioners first explore difficulties from the customer’s perspective and then analyze data to uncover and resolve “root causes” of problems. As a result, improvements people make are dramatically better and more sustainable. Studies show that companies proficient in quality improvement practices consistently outperform rivals in growth and profitability by a factor of 2:1.¹

Quality methods have evolved over the years to help teams be even more successful. Modern Lean Six Sigma techniques include rigorous financial analyses to target improvements and demonstrate monetary gains. Lean principles remove wasted time and effort, speeding cycle times in engineering, production, and service operations. But best of all, Lean Six Sigma espouses cross-functional teamwork instead of working independently. Ineffective, inefficient workflows and fumbled handoffs between departments are often the most significant obstacles. When greater customer focus and scientific methods combine with better coordination and cooperation, solutions transcend internal boundaries and deliver maximum impact.

Lean Six Sigma in action

A young firm introduces an app that allows people to capture and annotate photos taken on mobile devices. The software then automatically uploads images and links them with documents the user stores in the cloud. During early trials, the founders discover that the software has widespread appeal, so they introduce the product at a low price point, expecting it to sell in high volume. 

But after several months, the executives discover a problem. Monthly customer churn numbers run far above expectations. Rather than settling for myriad, piecemeal solutions, the executives form a cross-functional Lean Six Sigma team to address the issue from a broader and deeper perspective. The project follows DMAIC, the phased improvement process at the heart of Lean Six Sigma:

Define. The problem is straightforward: 2.2% of users cancel their subscriptions each month, costing the firm $5M annually. The team establishes a goal to significantly reduce this number.

Measure: Despite having extensive data on mobile and website usage patterns, the team realizes that little is actually known about their customer churn. Marketing had originally decided to capture only basic contact information in order to reduce sales “friction” during the sign-up process. As a result, there’s no data classifying behaviors by market segment. In addition, the team finds few customers complete the online exit survey upon cancellation, so the reasons why customers leave are unknown. The team hires a third party to collect the missing information. The vendor uses billing records to e-mail and call a sample of departed customers to ask questions about their experience.  

Analyze: The vendor finds that the company indeed attracts a wide range of customers, but after using Lean Six Sigma’s Pareto analysis, the analyst shows that just a handful of segments account for the majority of churn. Surprisingly, estimators at small auto body shops are the largest defecting group. Challenged with extensive visual inspections and impatient customers during peak times, auto estimators purchase the mobile app hoping to speed their quoting process by quickly capturing images and making shorthand notes for later documentation. But the estimators learn that the time they spend copying photos into their company quoting systems negates the time they save with customers. Getting assistance from the software firm to solve the problem isn’t easy. The company’s limited self-help resources and e-mail-only, 2-day customer response time prompts most estimators to abandon the idea after just a few months. 

The team then examines internal factors. Investigating the technical issues, they learn that the company’s online database can’t exchange data in the formats commonly used by repair quoting systems. Customers buy software online and the firm provides no special attention or information to help estimators in the beginning. The company’s heavily burdened customer support team handles all tickets on a first-come, first-served basis, forcing customers to wait equally long periods for help. When estimators get into trouble, their options are few. It’s no wonder they’re leaving in droves.  

Improve: The team enhances the product and redesigns the process to make estimators more successful. Engineers research the most common exchange formats and discover they can develop an API that automatically imports images into quoting systems without the need for manual intervention. The plan calls for Marketing to add a single question during the sign-up procedure to assign each user to their respective market segment, allowing the company to better track behaviors. The team then proposes hiring a Customer Success Manager to reach out each estimator within a day of their subscription to help integrate the API, ensure the estimator gets the results he or she desires, and create a stronger working relationship. The team advocates “triage” (a Lean Six Sigma technique) in Customer Support to separate the estimators’ trouble tickets and deal with them first. Thanks to the use of simple statistical tools, the team calculates that the improvements will recover about $1.5M in lost revenue. Adding up the cost of implementation, the team finds the expense makes up a small fraction of the segment’s expected customer lifetime value. Management gives the go-ahead and the team coordinates and implements the changes. 

Control: Estimators are delighted with their new experience. Churn drops 82% in the segment and more auto shop estimators join based on strong recommendations from their associates. Overall, the company’s monthly churn drops by 38%, boosting topline annual revenue by $1.9M. What’s more, estimators who left come back, generating another $220K in revenue. Product managers notice new product and service opportunities in the market segment, promising to grow it even further. The Lean Six Sigma team then standardizes the approach and turns its attention to next group of departing customers. They repeat the DMAIC cycle and lower churn even further. 

It’s a better way

Had each SaaS company function done what they naturally do and worked within their own silos, the results would not have been the same. They would have proceeded without an in-depth understanding of their customers’ challenges. Functional leaders would have prioritized their activities around their favorite projects or according to whatever was most pressing at the time. As a result, improvements would have been typically myopic and disjointed, failing to benefit specific customers or deliver clear economic gains. 

Perhaps it’s time for a different strategy. The Lean Six Sigma method encourages SaaS functions to join forces, focus intently on customers, develop comprehensive solutions, and achieve more impressive results. A holistic improvement strategy may be just what the industry needs to retain more customers. 

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

Source:
1. Hendricks, K. and Singhal, V. March, 2000. The impact of Total Quality Management (TQM) on financial performance: evidence from quality award winners. DuPree College of Management, Georgia Institute of Technology

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

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.