Magazine article Ivey Business Journal Online

Measuring Customer Relationships: What Gets Measured Really Does Get Managed

Magazine article Ivey Business Journal Online

Measuring Customer Relationships: What Gets Measured Really Does Get Managed

Article excerpt

Is a satsified customer a loyal customer? Not necessarily so says the author of two books on CRM, who in this article makes the important point that satisfied customers can defect but customers who have a strong relationship rarely do.

While many companies invest a great deal of money in building close relationships with profitable customers, their efforts are often unsuccessful because they fail to incorporate two important tools. The first tool is a method for setting relationship objectives and measuring the firm's progress toward achieving them; the second is a strategic, integrated plan for managing customer relationships. Companies often do not know what good relationships should look like, how to form them, or how to measure them. Little wonder, then, that customer relationship management (CRM) initiatives often fail to deliver the desired returns on investment.

Instead of measuring the customer relationship, many companies focus on researching customer satisfaction. This is a good start, but customer satisfaction data do not sufficiently describe a customer relationship or serve as a predictor of loyalty. Companies also have to consider customer behaviour and profitability in order to successfully manage individual customer relationships. In respect to profitability, all attributable costs should be applied to each customer. Some examples are customers who communicate through more expensive channels, such as in person or via call centres, versus customers who use lower-cost channels such as the internet; customers who are slow payers versus those who pay quickly; and customers who return merchandise frequently or tie up the company's time with long conversations versus those who are less timeintensive and problematic.

This article describes approaches that companies can use to develop a comprehensive picture of each customer relationship. They work equally well for companies that sell goods and services to businesses, public-sector organizations and consumers, although changes will be required to reflect differences in markets and buyers.

Customer satisfaction measurement is not sufficient to describe a relationship

Companies have been measuring how customers perceived them for a long time, with the help of tools such as Usage and Attitute surveys. The introduction of Total Quality Management offered more direct methods for researching customer satisfaction, largely as a basis for process re-engineering. More recently, some organizations have developed methods to measure aspects of customer loyalty in addition to customer satisfaction.

The Customer Satisfaction Index continues to be the most common measurement of customer attitudes. CSI is determined from market research that incorporates elements such as:

* Determining the purchase decision-makers and influencers (both for business-to-business goods and services, and consumer products);

* Assessing and weighting the relative importance of the decision-makers (of considerable importance to suppliers of goods and services to business customers); * Establishing decision-makers' perceptions of the main attributes of satisfaction;

* Weighting the relative importance of these attributes by purchase decision-maker;

* Scoring the performance of the supplying organization in respect of these weighted attributes; and * Multiplying performance ratings by weighted attribute rankings to arrive at an index.

Data are typically presented in an importance-andperformance matrix like the one in Diagram 1. This matrix is often seen as a portfolio of opportunities to help the company prioritize its actions. Most companies concentrate on the area showing weak satisfaction scores for attributes that are also most important to customers. In Diagram 1, this box is shown with a star.

Many organizations do not pay much attention to the other boxes in the matrix.

For example, some companies inadvertently lower their profitability by over-investing in attributes that do not matter much to customers. …

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