Just Follow the Yellow Brick Road: A Manager's Guide to Implementing Value Creation in Your Organization

Introduction

While managers have been searching outside of the organization for ways to develop a competitive advantage in the marketplace, there remains one much-overlooked source that has flown beneath the radar for far too long.

Before introducing that source, I would like to review what we do know about value creation. Value is in the eyes of the consumer. Organizations need to determine what customer needs exist, and fulfil those needs, better than the competition. This is very simplistic, but not very easy. What are the customer experience attributes that are most important to the customers, and how can they be fulfilled? These are the questions that face every organization.

According to Kano (1984), there are three main customer preferences regarding attributes, which can give us insights into customer behaviour. Basic attributes are also called ‘must have’ attributes. Their absence will cause great dissatisfaction, but they do not add much extra value when they exist. Consider, for example a parking place at a restaurant. If there is one, extra parking places do not add much value, while if there is none, it causes great dissatisfaction.

Performance attributes work both ways. They can increase or decrease value. We expect the food in the restaurant to be good. If it is great, that will enhance the experience. If it is terrible, that will detract from the experience.

Excitement attributes can only add satisfaction and value. Consider the waiter who offers a couple to try a new dessert for free. This can only add value to their experience, especially if the dessert is good.

Kano suggests a very simple hierarchy of spending resources. In his opinion, organizations must first spend resources strengthening the basic attributes, and then spend resources on the excitement attributes. Only if there are resources left over, should they be used for performance attributes (Matzler et al., 1996).

Consider the child filling a leaky bucket at the ocean to fill his little wading pool. By the time the child returns, most of the water has leaked out, from cracks and holes. Off goes the child to refill the bucket, without a second thought. This is very time consuming and not very efficient, but it is a logical course of action for a child. It is not a logical course of action for an organization. The bucket represents the customer base, the water represents the customers. Organizations are so focused on acquiring new customers that they do not notice all the other customers leaking out.

Kano and the New Business Model

Organizations first need to plug the holes in the bucket, fix the problems that are causing customers to leave. Only then can they reasonably expect to keep their existing customers. This is why Kano insists on maintaining the basic attributes first. Parasuraman et al. (1988) found that reliability is the most important factor in service quality. We define reliability as what was promised, when it was promised, and according to the specifications that were promised. ‘No surprises’ is the bedrock of the basic attributes in the customer experience. Taking care of the basic attributes makes sure an organization is not letting any customers leak out of their bucket.

Once the customers have been secured, organizations can then start to WOW them. Here the focus on the excitement attributes enables the customers to talk about their great experience. The focus is on giving the customer such a great experience that they cannot help but talk about it with their friends. Yes, this costs a little bit extra, which is why most companies only do the minimum necessary.

However, from a cost–benefit perspective, this is the way to maximize value, both for the customer and for the organization. For the customer, they are getting a great experience. For the organization, a small investment in the customer produces a huge increase in profit. Most organizations claim they do not have a budget to invest more in their customers. To this, we would reply that organizations do not do it for all of the customers, only for their best customers. The idea is to leverage the best customers into word–of-mouth (WOM) evangelists, who will bring the organization more new customers. The money comes from the advertising and promotion budget. This is a far better use for the money, focusing it on the best customers, instead of scattering it all over inefficiently. It is a far more effective use of the money, not only does the organization keep more of its customers (thus needing to acquire less customers), but the WOM evangelists bring in far more new customers of the kind that the organization can serve profitably. As a result, the organization needs to advertise much less, leaving more money to invest in the top customers and for profit. These are the elements of the new business model.

Lipstick on a Pig or a New Business Paradigm?

Having reviewed the basic ideas of how to create value for customers and for other stakeholders in an organization, we remain with the question of where can we find such a resource in the organization? There is one such department in almost every organization, but it has usually been relegated into an insignificant role. We are talking about the complaint handling department. In the late 1970s these departments were shown (TARP, 1986) to be profit centres in their own right with a positive return of investment (ROI). Academic research started to develop and the truth about complaint handling became evident. Very few dissatisfied customers actually complained. Only if a customer complained could he hope to rectify the situation, and only if he complained could the organization know there was a problem. Yet statistics showed that only between 2 and 5 per cent of dissatisfied customers would complain (Goodman, 1999). Complaint-handling models were developed, and organizations made an effort to convince customers to complain, and to retain them as loyal customers.

Recent research has shown that despite organization's best efforts, the situation today has not really improved. Levels of complainant satisfaction are lower today than in the mid 1970s according to a 2003 study which compared the current situation with that of the TARP study in 1976 (Grainer, Broetzmann & Cormier, 2003). There is a 40 per cent increase in the number of households reporting problem experiences. Customer rage has become a pervasive phenomenon (reported by 68 per cent of respondents), as respondents claim they are forced to call multiple times (3.5 times on average) to solve a problem; and 50 per cent of the respondents claim that organizations did nothing about their complaint. There is no surprise that pre-social media, the WOM index (ratio of negative comments to positive comments) climbed 70 per cent.

There is no doubt that while most companies have adopted many of the correct policies, many have failed in their implementation (Grainer et al., 2003). It would appear that while many industry leaders have realized high ROI's from complaint handling, most other companies have failed. From where we stand, it would appear as if most companies still treat complaint handling as a cost centre rather than a profit centre. This would lead them to minimize costs as much as possible, leading to very dissatisfied customers, which means that organizations are leaving a lot of value added on the table. For the rest of this article, we will be looking at the value creation opportunities that organizations have eschewed, and talk about how to implement them successfully.

Chief Customer Feedback Officer

To be very clear, we are calling for the establishment of the position of Chief Customer Feedback Officer (CCFO) which will become the customer compass that every customer-centric company needs. It will embody nine different functions aimed at creating value for organizations. It will elevate customer feedback to a C-level suite, because without the authority to make strategic changes, the responsibility to make changes is worthless. Today, organizations have the knowledge and the skills (but not the resources or the responsibility) to become customer-centric. The position of CCFO will use this customer feedback to increase value in two different ways. First, it will eliminate value destruction by getting rid of bad (anti-customer) policies and procedures from the organization, and second, it will create additional value by focusing on enhancing the customer experience throughout the organization. While most of the ideas presented here are not new, it is the synergy of combining them all into a C-level suite with the resources and the commitment to follow through that is revolutionary. It is an organization that is fully committed to creating value for its customers and stakeholders, while also increasing its profits.

The Nine Dimensions

The first dimension is Complaint Handling. The emphasis here needs to be on the customer. For whatever reason, the customer is convinced that they are right. They may not be, but they are convinced that they are. This is the story that they are telling themselves and their friends. This is the story that will impact their future purchase behaviour. An organization has two options, they can object, argue and risk losing the customer, or they can make things right for the customer. Here is where we start to use the basic tools mentioned earlier in the article. The customer is convinced that they are right. If the organization tries to compromise or argue with them in an attempt to save money, the complaining customer will be less than satisfied (failure of a ‘basic’ attribute). The organization needs to make sure customers are more than satisfied in order to ensure that they remain loyal to the company. This way the organization does not risk losing their future stream of revenue. How the organization handles customer complaints will dictate whether the complainers remain as loyal customers and whether the organization continues to benefit from their future revenue stream. According to the A-CRAFT complaint handling model (Davidow, 2014), different aspects of an organization's complaint handling will have different influences on WOM and repurchase intentions. In other words, the organization has complete control (by way of their complaint responses) over future revenue and profits. Ignoring complaints is not good for business. Complaint-handling is a profit centre for the organization.

Let us look at the cost/benefit of both sides of the equation, minimizing costs versus maximizing loyalty. If an organization makes sure customers are satisfied with the complaint handling, the company will spend more money, but have a better chance at retaining customers in the long term. This has been called the service recovery paradox. There is also a trust issue involved, just as in any relationship. The organization is building trust by demonstrating their commitment to their customers. This increases the switching costs for customers and increases the value of the organization to the customer. In a sense, customers are willing to pay a premium for their peace of mind. Other organizations may be cheaper in price, but they do not take care of their customers when there is a problem. This was the idea behind the Hertz Rent a Car ad campaign of ‘There's Hertz, and there is not exactly’. Should organizations be worried about getting ripped off by scheming customers? No, with today's technology, a scheming customer can be detected just by looking at their purchase history and how many times they have unfairly complained (genuine complaints are legitimate and not the sign of a schemer). Actually, organizations need to worry more about being there for the 99 per cent of customers who are legitimately trying to get what they feel they deserve. If there is a problem with a customer complaint, the organization needs to find out what in their communication with the customer led him to believe he was right when he was not. Is there something ambiguous that might convince other customers they are right as well? In other words, organizations should first take care of the customer, and then take care of the problem and locate the root cause. Handling a complaint as if the customer is right may actually end up costing the organization less money if it leads them to correct their communications with their customers. This is a basic attribute as per Kano, and it must be fixed with a top priority.

If the organizational focus is on saving money, representatives will tend to argue with the customer, an argument an organization can never win. This will lead to a lot of negative WOM on social media, and a loss of future revenues and profits. The organization may save money in the short term, but they will lose customer trust, as well as employee trust, and risk losing future revenues and profits. If organizations really want to save money, they should not handle complaints at all, and then they could save a lot of money (and lose a lot of customers). They will not be able to prevent future complaints, and they will lose out on a lot of value added. Customers will continue to complain multiple times, because the complaint was not handled properly the first time, thus necessitating increased staffing costs to handle the increase in complaints. Employees will tend to turnover quickly, as they will be handling the same complaints all the time, with the perception that management does not care about solving the situation. By cutting corners, organizations are actually cutting off the branch that they are sitting on.

Organizations can save money or they can save customers and future revenue streams. They cannot do both. Your choice, how badly do you want to keep the customer? I ran a complaint handling department for three years and showed an ROI of 177 per cent. It can be done. What is the ROI in your organization?

The second dimension is Defections Management. In this dimension, the focus is still on preventing failures (basic attributes). Organizations need to identify recently lost customers and try to ascertain the reasons behind the defection. Most customers do not complain (the three main reasons for not complaining are: not worth it, do not know where or how, will not do any good anyway), they just leave. By not knowing what the problem is, organizations will not be able to solve it for their customers. The organization needs customer feedback in order to succeed in creating a great experience for the customer. This will require some silo breaking, and working together with the sales department to obtain this vital information. By understanding why customers left, it will be easier for the organization to plug the hole in the bucket and prevent other customers from leaving for the same reason. This is not an attempt to try and retain lost customers, or to justify policies and procedures. This is just listening to the customer to detail why he felt it was too difficult to work with the organization. It is very sobering, and very helpful. In conjunction with other dimensions, it can dramatically increase trust, as well as prevent other defections. It can also be the source of value added for the customers. By realizing some of the problems customers have with the organization, the company can add value to the customer by increasing convenience. The investment for this dimension is funded by the increase in our customer retention rate. It can and should be measured.

The third dimension is Problem Impact Management. This is an analytical function where an organization tries to determine how to spend its resources in the most efficient manner. It is not necessarily the problem frequency that determines where to spend resources. It is a function of the problem frequency, the problem impact on future revenue (likelihood of defection), and the cost of the problem resolution. Not every problem needs to be solved immediately, or even at all. We need to calculate the cost/benefit of every solution, including the cost of doing nothing. The cost of dealing with a problem should be allocated to the offending department, thus increasing accountability, and assuring that the relevant resources will be available. This is a critical dimension for the organization, because in some cases the problem is not evident. For instance, most organizations have made a decision to incorporate interactive voice response (IVR) technology into their systems in order to save money on switchboard operators. This resulted in huge cost savings for the organizations, but a huge drop in customer satisfaction because the option menus were not clear, and customers had to work harder to get to the person they needed to speak with. Dissatisfied customers could not get through the IVR to complain, and simply left the organization in frustration. Problem impact management would have caught this problem in the planning stages and prevented it from happening. This function utilizes a cross functional approach which will tear down silos to maximize organizational effectiveness by best utilizing its resources.

The fourth dimension is Employee Education. In order to increase the accountability of each and every employee (and manager) to the customer and their needs, every employee needs to spend a month a year (a week every quarter) in the complaint-handling department answering phones and other customer communications. This is a real learning experience, emphasizing the importance of the customer to every employee. It leads to a better understanding of the emotional toll a bad customer experience can cause the customer (above and beyond the financial expense), and can sometimes lead to epiphanies regarding possible solutions for the organization to prevent future problems, or for the customer to know how to handle the problem in the future if it occurs. The organization engages the employees in finding solutions to customer problems, thus leading to increased value creation for the organization, and to a cessation of value destruction due to management hearing first hand of the customer cost. This will guarantee that the organization will remain plugged in to their customer needs.

The fifth dimension is Issue Management. The focus in this dimension is on proactively finding the WOW! By listening to customer concerns and asking appropriate questions, management can receive early warning indicators of a problem or opportunity and develop strategies to defuse the problem and take advantage of the opportunity. By fixing the immediate problem, and then introducing an innovative solution for the future, management can strengthen the bond between the customer and the organization. It will also help prevent the company from being blindsided by an escalation of complaints about a problem. The basic issue at play here is that customer preferences change over time, and organizations must change with them. This show of responsiveness to the marketplace gives customers another reason to continue the relationship with the organization. In a sense, the organization can plan in advance and make sure that it has the resources in play to handle the change in customer preferences, thus adding value to the relationship. The customer again has the peace of mind in knowing that the organization will adapt itself to solving the customer's evolving needs. Classic examples are the Disney theme parks. Customers would complain that coming out of the park late at night, they could not find their car. This is not a Disney problem, but it is an opportunity. Today, Disney fills the parking lots according to times. If you know when you arrived, they can tell you in which area to find your car. Each parking lot has a different Disney song playing, remember the song and they can tell you where the car is parked. Each parking area has a picture of a different Disney character, remember the character, they can tell you where the car is parked. Customer feedback provided the spark for a WOW customer experience. This is value creation at its best.

The sixth dimension is Consumer Education. It is a well-known fact that ‘when all else fails, read the instructions’. This dimension tries to educate consumers before the problem. Research has shown that over one-third of all customer complaints are customer-related. Imagine the value added to the customer if an organization can fix a customer-caused problem. Now imagine the value added if the organization can prevent the problem from happening in the first place. By analyzing customer complaints an organization can determine which customer-caused complaints are the most serious, and develop solutions to prevent them ahead of time by educating consumers on the use and misuse of the products or services. Pre-emptive education is a lot cheaper than having a disgruntled consumer. It helps promote reasonable expectations which will increase satisfaction from the customer experience, thus preventing complaints due to inflated expectations. It will also increase consumer confidence in the organization.

The seventh dimension is Customer Research. This is not meant to be statistically significant research. It is an opportunity, after solving the customer's problem, and having earned some customer goodwill, to ask the customer a few questions about the company, how the customer uses certain products or how the customer feels about certain issues. It builds customer relationships by co-opting the customer into organizational discussions by asking for his opinion. Customers who complain are usually very loyal customers who feel connected to the organization, and this function reinforces that connectedness. It increases customer satisfaction and leads to certain insights as to how customers use the products and services, and how they can be designed to work better or more conveniently, thus leading to more value added for the customer. It is here that organizations learn the 'why' behind customer purchases, which will allow the organization to suggest other, better solutions to customer needs, as well as increasing the possibility of increased cross selling.

The eighth dimension is Social Media. In order for the organization to speak with one voice to the customer, and to bring that voice into the organization (on behalf the customer), it is critical for this dimension to handle all social media communications. Currently, different organizations give the responsibility for social media to different departments. The problem is that there is no coordination between the departments. If a customer contacts the complaint department, they will get one response, but if the customer uses social media to make the same complaint, they will get a completely different response. This is very confusing to the customer, and potentially value destroying, as customers will compare notes.

Social media is not a marketing tool (although it can be used as such). It is a customer feedback tool. It gives the organization the power to co-create with the customers. It gives the organization the ability to build a strong customer community of users and to focus them on making a difference, causing change and making the community a better place. This is far too important and long term to cheapen it by using it for short-term gain such as marketing or promotion.

Promotion is the price an organization pays for having an average or ordinary product/service. Utilizing the customer's voice at the strategic level of the organization will create value for all of the stakeholders, thus negating the need for marketing or promotion. The customer advocates will do that for the organization. In a sense, the organization is leveraging its connection with its best customers to give them an extra-ordinary customer experience and to give the organization a significant competitive advantage.

The last dimension of customer feedback management is Consumer Feedback. Here, the organization relays back to the customer all the changes that the organization has incorporated due to the customer feedback they have received. This is positive reinforcement for customers to continue to give customer feedback to the organization. Imagine the impact on a complaining customer when the organization handles the situation to the customer's satisfaction, and then a few months later the customer receives a communication from the organization detailing how and what the organization did to prevent future problems. This could be changes in policies and procedures all the way to development of new products. The customer realizes that the organization values his opinion, and takes it seriously. No wonder the customer will continue to repurchase and advocate for the organization. An easy and effective way to do this is to segment the complaints by type or by product, and for each segment send the customer a coupon for a free new or upgraded product/service based on the complaint. This demonstrates to the customer the end result of their complaint, a better process or product. Again, the cost for the free products comes from the promotions budget, and the benefit can be easily calculated to show a positive ROI based on increased loyalty and repurchase.

Conclusion

Where does all of this leave us? The office of CCFO is a strong commitment to your customers to be customer-centric and to create value for them by being very attentive to their needs. The organization is constantly looking for ways to help their customers (by doing so, they are also increasing shareholder value as well). Strengthening the customer relationship is the main focus of customer feedback management. It is cost-efficient as well as cost effective. By eliminating problems, the organization is making it easier for the customer to have a relationship, thus promoting higher retention. It convinces new customers to want to join the relationship because of the value created, while also allowing the organization to cut its advertising to almost nothing. The organization finds itself in a better position to exploit opportunities in the marketplace.

In the bottom line, the customer comes to an organization for a solution to a need. If the organization can solve that need, the customer will have a great experience, leading to increased revenue and profits as well as evangelical customers. There is a lot more to handling complaints than just treating the problem. It is a great opportunity for the organization to strengthen the relationship with the customer. How much is that worth? The office of CCFO will work with every department in the organization to determine the true cost/benefit of proposed changes. It will be in charge of quantifying the true value of a customer, and the true cost of losing him. It is easy to quantify the value of an existing customer. The revenue shows up in the system and can be parsed out into expenses and profits. It is much more difficult to quantify the lost sale of a customer who had a bad experience and is not coming back. This is the major challenge of the CCFO, of being the customer compass for the organization, making sure the organization is focused on creating value for the customer, making sure the organization knows exactly what the costs and benefits are of every decision. In this way, the CCFO can guarantee that the organization is making optimal informed decisions.

It is also a great opportunity to instil a customer-centric culture into the organization, thus insuring employees of a great experience as well. There is a constant challenge in the organization to create value that is fuelled by customer feedback, bringing every department in the organization to satisfy customer needs. It is truly the customer compass for the organization, as well as a great source of additional organizational profits and a better strategic view of the marketplace.

Complaint-handling is not just a minimum necessary function, it can and should be made into something far more than that. The real strategic benefit to the organization of the CCFO is to bring the voice of the customer deep into the organization and guaranteeing that it is heard in every department and at every level. This will lead to increased value creation for all the stakeholders in the organization. This is the new source of the sustainable competitive advantage, and it is waiting to be activated now in your organization.