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.
You contact a company trying to get a problem solved and you find yourself passed between multiple departments. While people are sympathetic, their response is, “It’s not my job.” Despite multiple voice mails and e-mails, you get nowhere. Your issue has fallen into the company’s “white space,” the cracks between the boxes on the organization chart.
You’ve probably experienced white space issues inside your own organization, too. People perform departmental tasks smoothly, but there’s friction interacting with other groups. Processes don’t flow. Often things get “thrown over the wall,” there’s lots of finger-pointing, and it’s difficult to get things done.
Functional silo-ism first rears its ugly head when companies reach about 40 employees. At this threshold, companies must departmentalize to increase technical capabilities and bolster management’s span of control. But priorities slowly begin to shift. Soon pleasing the boss becomes more important than making customers happy. As the firm continues to grow, functional barriers get larger and more entrenched. Left unchecked, departmental relationships can become adversarial, paralyzing new product development, service delivery, customer acquisition, and customer care efforts.
Four tools that reduce silo-ism
Progressive companies deploy countermeasures to mitigate the effects of white space behavior. Top organizations combine the four management practices below to substantially diminish internal friction and dramatically increase performance.
1. Hoshin Kanri
What it is: Developed in the 1960’s at the Bridgestone Tire Company in Japan, hoshin kanri (literally translated “a bright, shiny needle”) is a rigorous, integrated system of planning, implementation, and review that points the way like a compass needle. Caterpillar, 3M, Toyota, Bosch and Danaher and many other leading companies use it.
How it works: Senior executives collaborate to prioritize common issues, and then decide on a single breakthrough. The objective is then decomposed into a smaller set of strategies, each featuring its own executive owner and performance measure. Leaders cascade the plan throughout the organization, finally defining implementation plans at lower levels. Formal hoshin reviews then roll up progress, allowing executives to eliminate barriers that crop up. The method’s closed-loop system promotes intense focus, relentless execution, and forward momentum.
Why it works: Unlike the common Management by Objectives (MBO) approach, hoshin aligns the organization around business, not functional, imperatives. Leaders pass these priorities down and reinforce them across the company. As a result, teams work towards enterprise-wide goals that transcend parochial concerns.
2. Process Mapping
What it is: A time-honored technique used to study workflows, process mapping reveals the “hidden factory” behind service work. Describing the process visually helps teams identify critical handoffs, gaps, rework loops, and queues. After pinpointing improvement areas, teams can then reduce errors, speed cycle times and reduce costs. Value Stream Mapping and Customer Journey Mapping are popular variations of the method.
How it works: Teams define process suppliers, inputs, outputs, customers, and requirements. Then they brainstorm tasks that must be completed to convert inputs into outputs, typically using Post-it® notes and butcher paper to record the workflow. Along the way, mapping participants identify improvement opportunities.
Why it works: Mapping allows people to see the systemic nature of business—everything is connected to everything else, and what happens in one area affects all others. People quickly realize that fast, efficient, customer-pleasing workflows trump choppy, disconnected vertical structures. Top organizations assign executives to lead cross-functional, key business processes, holding them accountable for optimizing teamwork across, rather than inside, department boundaries.
3. Enterprise Dashboards
What it is: The Japanese call an interlinked system of color-coded metrics nichijo kanri, or “daily control.” These displays help people at all levels manage the variables that lead to favorable business outcomes. Each manager’s dashboard typically monitors the key business process he or she oversees using 8-10 essential metrics that describe volume, time, cost, quality or other attributes.
How it works: Leaders define the critical few measures that really matter by analyzing company processes, economic models, and Value Propositions. They calibrate indicators by determining ranges of acceptable values based on stakeholder requirements, process capabilities and business goals. Managers then collect data act appropriately on the signal: “green” means everything is good, “yellow” means keep an eye on it, and “red” means take immediate action.
Why it works: With the right metrics, managers and teams focus on the most essential aspects of the job. They keep things under control and prevent downstream chaos. At top companies, executive dashboards reflect measures tied to cross-functional processes. When reward and recognition is tied to systemic improvement, managers and employees have greater incentives to work with other teams for mutual benefit.
4. Lean Six Sigma
What it is: Lean Six Sigma is the modern integration of two proven methods: lean production and six sigma quality. Lean (a technique pioneered by Toyota in the 1970s) emphasizes speed and helps identify and eliminate wasted time, motion, and raw materials. Six Sigma (a quality method named after an imperceptibly small error rate) aligns processes with customer needs and then reduces defects and excessive variation that causes dissatisfaction. Both have been used for years in manufacturing, and the combined approach is increasingly common in service environments.
How it works: Teams use formal methods to characterize process performance, estimate financial impact, uncover root causes of problems, design solutions, and implement changes. DMAIC (Define-Measure-Analyze-Improve-Control) or RIE (Rapid Improvement Events) provide teams with structure and statistical tools to effectively manage projects. Since teams make systemic improvements, results tend to be more dramatic and sustainable.
Why it works: Teams are often made of up representatives from all functions involved in the workflow. By working together towards common business goals, team members learn to appreciate the challenges people face in other functional areas. Besides creating more effective and efficient processes, a broader “systems view” and stronger interpersonal bonds between people promotes greater cooperation long after the project is complete.
White space problems are a natural part of organizational development. All companies deal with it in one way or another. Fortunately, proven tools and techniques can help young companies arrest its impact and promote scalable growth.
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
