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

The Seven Systems of CSM Excellence

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.