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:
- http://research.scoutanalytics.com/churn/the-data-behind-adoption-and-retention-in-the-customer-journey/
- 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
- Morgan, R. M., and Hunt, S. D.: The Commitment-Trust Theory of Relationship Marketing. Journal of Marketing 58, 20–38 (1994).
- 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)
- 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
- Fareri, D., Chang, L., Delgado, M.: Effects of direct social experience on trust decisions and neural reward circuitry. Frontiers in Neuroscience, 16 October 2012
Universal practices instill high performance
What makes some companies like Intel, Southwest, and Ritz-Carlton perennial performers? Is their secret charismatic leaders? Good timing? Grand vision? No. High performance isn’t about what organizations do, but how they do it. Customer Success teams can apply the same disciplines used by top-performing companies to dramatically increase results.
Jim Collins, author of Built to Last and Good to Great, says “dynasty” companies (those generating financial returns of at least 10x for 15 years or more) behave very differently than the rest. Unlike typical organizations, top performers are fanatically disciplined, empirically creative, and productively paranoid.1 Laser-focused and utterly relentless, they eliminate distractions and drive continuous improvement everywhere. Rather than follow industry experts or imitate others, top companies engineer their own breakthroughs using empirical evidence, observation and experimentation. And they remain hyper-vigilant, watching competitors intently and adjusting their strategies to thrive in a constantly shifting landscape.
High performing organizations like the ones Jim Collins describes depend on a set of interconnected, self-reinforcing management systems to instill their unique behaviors. Their management disciplines become embedded in the organization’s “operating system,” creating a culture of excellence in individual work areas and throughout the enterprise. The management systems they use are universally applicable, so Customer Success leaders can use them to realize similar benefits:
Sensory System
What it does: Methodically collects and interprets customer, market, competitive, regulatory, workforce, and technology trends to continually uncover new opportunities and threats.
Leading practices: Use quantitative and qualitative analysis extensively for market and product definition and performance monitoring. Implement internal and third-party “listening posts” in multiple channels. Increase relevance and salience by interpreting findings according to market segment. Systematically analyze, review and prioritize feedback for company business reviews, product roadmaps, and process improvements. Reduce “blind spots” by periodically challenging underlying assumptions and measurement techniques.
Application in Customer Success: Collect product usage, customer satisfaction, trouble ticket, and contact frequency statistics to generate health scores for specific customers and market segments. Utilize direct customer comments in CRM records and formal customer reviews for product and process deficiencies. Share discoveries via periodic, formal feedback sessions with development, sales, marketing, accounting, and operations leaders.
Planning and Review System
What it does: Inputs information, prioritizes actions, defines objectives, goals, strategies, tactics, and owners, and aligns financial and personnel resources to promote successful execution. Evaluates progress formally and periodically, holding people accountable, adjusting plans, and promoting learning.
Leading practices: Develop strategic (multi-year) plans that articulate long-term vision, objectives and goals, customer and market dynamics, competition, product and service roadmaps, value propositions, value delivery systems, staff development, risks, and financial pro-formas. Link strategic with annual plans and implement through product development and process improvement plans. Coordinate planning and review activities via calendars, and use scenario analysis to detect and quickly respond to environmental “triggers.” Involve all employees to build commitment for action.
Application in Customer Success: Participate in enterprise planning activities, share customer intelligence and help set functional objectives, goals, strategies and tactics. Prioritize, define, implement and track account management and marketing plans along with process improvement projects. Review progress monthly and quarterly.
People System
What it does: Defines jobs, employee knowledge and skill requirements, and facilitates screening, hiring, training, performance feedback, career development and overall organizational change.
Leading practices: Define short-term and long-term staffing and skills requirements as well as succession plans aligned with the strategic plan. Use structured screening, hiring, training, retention, and cultural indoctrination practices. Conduct both formal and informal performance reviews. Interpret quantitative job performance measures in proper statistical context. Collaborate to define and hold employees accountable for development plan execution.
Application in Customer Success: Craft position plans, metrics, knowledge and skill requirements, and development plans for CSMs to build stronger relationships, deliver onboarding, and uncover and advance sales opportunities. Characterize and use personality traits, in addition to education and past experience, to screen new hires. Give regular feedback, formally and informally, and avoid ranking.
Work System
What it does: Describes requirements and designs optimal workflows at a macro and micro level between customers, business partners, suppliers, company departments and work groups.
Leading practices: Map processes to identify critical handoffs, disconnects, metrics, and process improvement opportunities. Periodically redesign processes for enhanced speed, cost effectiveness and increased quality. Protect and develop core competencies to promote strategic advantages. Use partnership management and supply chain management techniques to influence change and improvement with third parties.
Application in Customer Success: Define the customer lifecycle linking onboarding, training, engagement, renewals, upselling and cross-selling activities using phone, e-mail, video, events, webinars, and social media contact as required. Define critical handoffs and feedback loops with sales, customer support, development, and accounting.
Metrics System
What it does: Focuses managers and teams on the critical few cause-and-effect relationships that keep processes under control and promote beneficial end results.
Leading practices: Deploy and manage daily operations across the enterprise via linked, balanced and aligned dashboards. List a critical few leading and lagging indicators in each dashboard to measure key business process performance, especially attributes driving competitive distinction and financial results. Calibrate dashboard signals using customer specifications or statistical process limits. Review periodically, take corrective action, and launch process improvement projects as signals dictate. Benchmark performance against competitors and “best in class” process references.
Application in Customer Success: Construct dashboards measuring outcomes (renewal rate, new revenue, etc.) and process factors leading to them (conformance to contact schedule, 30-day adoption %, etc.) as appropriate to the defined CSM role. Use a total of ten or fewer metrics, rolling up individual statistics into overall team performance. Set “red,” “yellow,” “green” action limits based on historical performance or goals articulated in the annual plan. Make dashboards visible in work areas, review and discuss performance with team members at least monthly.
Continuous Improvement System
What it does: Manages projects emphasizing customer focus, teamwork, and scientific methods to uncover root causes of problems, driving ongoing improvement in products, services and internal processes.
Leading practices: Execute cross-functional improvement projects using formal methods such as Lean Six Sigma, process simulations, and predictive analytics to maximize results. Choose projects based on financial or strategic impact, including major initiatives linked to annual and strategic plans. Increase effectiveness and customer value and reduce customer dissatisfaction, cycle times, and inefficiencies in all products and processes. In SaaS companies, diminish downstream bug detection, remediation, and customer churn costs through better upstream product definition, software development and validation processes.
Application in Customer Success: Implement formal methods to collect data and analyze processes to determine changes that increase customer retention and revenue and lower the Cost to Serve. Use statistical techniques such as logistic regression to study factors that impact customer churn, such as adoption rate, unresolved trouble tickets, or contact frequency. Design and execute experiments to test new ideas. Participate in company feedback loops to report software bugs and advocate for product and service enhancements.
Leadership System
What it does: Provides strategic direction, prioritizes actions, engages and inspires employees to perform at high levels, learn, and enact changes.
Leading practices: Articulate clearly and broadly communicate company mission, vision, values, goals and strategic plans. Engage the workforce and lead strategic change using formal processes. Model by example, recognize and reward high performance, and develop new leaders throughout the organization. Provide and receive performance feedback.
Application in Customer Success: Define the team’s purpose, goals and values. Understand and align with what motivates individual team members. Recognize and reward performance and hold people accountable. Incorporate leadership effectiveness feedback from superiors and employees in personal development plans.
When Customer Success leaders run their operations using the seven management systems above, their results rival the very best performers. Excellence becomes part of the culture, and customer churn, referrals and revenue relentlessly improve.
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. J. Collins, M. T. Hansen, 2011. Great by Choice: Uncertainty, Chaos and Luck—Why Some Thrive Despite Them All.
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.
