Listening Versus Understanding Your Customer

These days a huge gap has formed between listening to our customers and actually understanding what they are saying.  It’s now evident to most companies that Social Media has opened new doors for listening to customers.  Although it seems they are drowning in volumes of voices, without good tools and/or methods to extract clear and actionable signals.  In a sense they can’t see the forest for the all the trees.

While CRM has become the hottest way to connect with customers, it is often mistaken as a form of technology used to disclose customer feedback throughout a company.  CRM is much more than technology; it’s an ongoing process to improve relationships with your customers resulting in better customer service, improved customer satisfaction, retention and loyalty.

So what is Social CRM?  Simply defined, this new advancement is a way to manage social relationships.  Its function is collecting data found in social networks and disseminating among the areas within the company that can respond to it. In the words of Paul Greenberg:

“Social CRM is a philosophy & a business strategy, supported by a technology platform, business rules, workflow, processes & social characteristics, designed to engage the customer in a collaborative conversation in order to provide mutually beneficial value in a trusted & transparent business environment. It’s the company’s response to the customer’s ownership of the conversation.”

Typically, it has taken a drastic measure such as decreased revenues, customer churn or product issues to compel us to reach out to our patrons. On average, this knee-jerk reaction is short-lived and dropped once the next crisis appears.

Customer satisfaction surveys are also utilized by many companies as a way to ‘connect’ with consumers. Although well intentioned, satisfaction surveys are often self serving and primarily give management the impression they are accomplishing something.

A good place to start connecting with your customers is by way of:
Buyer behavior – adopt a ‘buyer orientation’ vs. the typical ‘seller orientation’
Voice of the Customer (VOC) programs – go beyond satisfaction.  Bruce Temkin, a principal analyst at Forrester, defines VOC as “a systematic approach for incorporating the needs of customers into the design of customer experiences.”
Empowerment – make sure your organization is focused and able to make changes based on customer feedback.  Lack of this key element is often why customer satisfaction surveys are typically a flop.

Another interesting fact is the correlation of customer satisfaction with a company’s market performance.  A study published in the Journal of Marketing found that companies at the top 20% of the American Customer Satisfaction Index greatly outperformed in the stock market, generating a 40% return.

There is also a strong correlation between customer satisfaction and financial performance.  A study by JD Power and Associates discovered that organizations with the highest levels of customer satisfaction experienced profit margins at three times the growth rate than those with medium levels of customer satisfaction and more than 21 times that for low customer satisfaction ratings.

Often an organization may possess various methods of obtaining customer feedback but they are not able to comprehend it, creating action plans while many do not have the resources to try.  As a veritable strategy, perhaps we should be focusing more than ever on CRM (& Social CRM) development to bridge the enormous gap between listening and understanding our customers.


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4 Responses to Listening Versus Understanding Your Customer

  1. Greg
    From the BigPicture blog you quote there is definite causation implication – which is slippery slope. The data reported is only correlation.The R-sqr change is 9% when they added ACSI, how can this be described very strong? The JD Power associates study is firm level cross-sectional study not a customer level longitudinal study.

    There is quite possibly omitted variable bias in both the studies quotes – there is another lurking variable (e.g., strategy, products, effective pricing, channels, quality, market etc) that drive both stock prices and the customer satisfaction.

    Even if we assume there is causation, investing based on customer satisfaction is a good investment strategy only if this information is not already reflected in the stock (in other words, high customer satisfaction gives new information that is not available through other indicators like earnings growth, accruals, cash flow etc).

    Just some thoughts
    -rags

  2. Rags,

    Thank you for your comment. You bring a valid point, however we do not fly planes or sail boats relying on just one instrument – making predictions of a company financial performance is far more complex and therefore requires a good number of reference points than most activities we usually deal with. In that context, the use of customer satisfaction trends to assess a company profit forecast risks, seem to me a very valuable approach. In fact I spoke to a number of financial securities analysts who use customer satisfaction data trends as one of predictive indicators.

  3. Valerie Fielder says:

    Gregory,
    Interesting discussion. It’s true that we often get caught up in the technology rather than viewing CRM as a progression of activity.

    I don’t see the reference to a definate causation, but a suggestion that a “relationship” probably does exist between Cust. Satisfaction & Econ. Performance. I gathered from The Big Picture that the concept is valid and perhaps a connection has been proven.

    Of course it doesn’t happen in every situation and underlying variables will always be present in terms of performance AND stock price. That is just a given.

    Your overall message of closing the gap between listening and understanding our customers is commendable.
    Regards,
    Valerie

  4. Gregory says:

    Thank you Valerie. I am glad you agree that listening to the customers is not enough and is a worthwhile endeavor.

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