Should Customer Feedback Scores Drive Compensation?

Alignment of people management processes is a key success factor in making an organization customer focused. This is much easier said than done in my experience, and sometimes overly simplified approaches are doomed to fail. I was very pleased to read this posting by customer experience pundit Bruce Temkin.

"A lot of industry pundits suggest that tying compensation to customer feedback is a good thing. But is it really?!?

My take: I’ve seen situations where tying compensation to feedback scores has helped a lot and I’ve seen situations where it has failed miserably. So the correct answer is much more nuanced than a simple you should or you shouldn’t tie compensation to customer feedback.

Before I give my advice, here are three key underlying principles:

1. If there is significant compensation tied to any metric (including customer feedback), then people will look for ways to manipulate the measurement.
2. If people don’t understand a metric, then tying compensation to it will have little impact on their behavior and any downside in compensation will create a very negative response.
3. If people don’t understand how they personally can affect a metric, then tying compensation to it will have little impact on their behavior and any downside in compensation will create a very negative response.

One of the bad situations that I’ve seen is when a CEO falls in love with a metric like Net Promoter Score (NPS) and insists on immediately tying large chunks of compensation to it. Executives often don’t understand how they impact the measurement, can’t explain some of the movement, and therefore become resentful of the overall NPS program.

Does that mean that I am against tying compensation to customer feedback scores? No! Since customer perceptions determine loyalty, feedback is an important barometer of the future health of the business. So it makes sense for it to be part of a compensation package.

Alas, here are my recommendations:

• Create a metric (it can be made up of one or several customer feedback measurements) that is easy to understand and make sure that you educate the organization about what it is, why it’s important, and what they can do to affect it. Allow at least 2 quarters for educating the organization.
• Provide reporting that shows how the company and each organization is doing in terms of the metric. Make sure that you can provide an analysis of internal activities along two dimensions 1) how correlated is the activity to the metric?; 2) how well is the company performing in those areas (based on customer feedback)?
• Develop specific customer feedback goals for the entire executive team. Start by using shadow goals (without any compensation impact) for at least two quarters so the execs can understand how they can affect the measurement.
• After the executive goals are in place, use a company-wide or division-wide metric to raise awareness of the importance of customer feedback. Incorporate it into the overall profit sharing or bonus structure in the firm.
• If your metric has some slight unexplainable variance (which many do), tie compensation to bands of performance instead of to a single number. This focuses people on moving in the right direction and away from obsessing about a single number.
• Consider starting with a compensation plan that is biased towards upside. In other words, you may want to introduce the plan where there is little negative impact on compensation if the group doesn’t hit a goal, but there is positive impact of they exceed it. This can help eliminate some of the negative perceptions early in a program.
  

The bottom line: Companies should tie compensation to customer feedback scores… slowly."

Five steps to thriving in an experience economy

According to customer experience expert Shaun Smith these are the the five steps that are crucial for you to get in place if you are going to turn your customers into fans.

One of the most important trends that has been identified by experts is the shift from a product economy to service economy to experience economy, says Smith: "If you go to the early stages of any market, you can be pretty successful if you have a good product. If you can bring a product to market at the right price, at the right place, with the right functionality, it can be successful," he says. "What we know though is that it isn’t very long before you get competitors, with substitutes and alternatives coming into the market. All of a sudden, having a great product is no longer enough. And what happens then is that the default becomes service. The customer starts expecting not just a product but service on top of the product."

However, that is now no longer enough. With the web you can now buy whatever you want, whenever you want, wherever you want. There are so many organisations out there offering very similar products, with value added services, meeting all the basic requirements, that actually the only thing that makes you a market leader is if you create a great experience.

Research from IBM found that companies that are successful in creating both an emotional and functional bond have much higher levels of retention and also cross sells. It found that retention rates were 84% compared to only 30% for those organisations that didn’t create a functional and emotional bond, and it found that cross-sell success was 82% compared to 16%.

As such, here are five steps that are crucial for you to get in place if you are going to turn your customers into fans.

1. Customer insight

The three things you want to know are:

Who are your profitable customers – you may serve many types of customers and can’t afford to just focus on a few profitable ones, but when you are designing how you are going to serve your customers, what channels you are going to use, and where you are going to invest your money, you absolutely need to know which are your most profitable ones because they are the ones you have to love to death, they are your potential fans.

What do they value – to make them fans you need to have level of insight around what your most profitable customers value so that you can make a proposition to meet their needs.

How are their needs changing – make sure you are ahead of the curve by knowing how their needs are changing.


2. Brand promise

Once you are clear about who your profitable customers are and what they value and what you can do differently, then you need to be really clear about what your stand for, what your propositions are and what your promise is. What does your brand stand for, what can you promise and how will this differentiate you?


3. Design the customer experience

You then have to deliver the promise. So how do you deliver the promise and where do you over-index? During the recessionary period executives all around the world were having the same conversation: "Revenues are down and sales are down so we need to cut costs, so let’s take 10% out of everybody’s budget." When execs say that, it demonstrates that they have no conception about where value is created for their customers, says Smith.

"The fact is there are certain touchpoints where you deliver maximum value to your customers, where they really derive value from you. And there are others where they don’t care. And you need to over-index to protect those areas that create the value and take away from those that don’t. "


4. Drive organizational behavior

Having identified the proposition, the promise, and having designed the experience, we then need to drive it through the organization. And that is the hard bit.

Getting your people and your processes and your technology to support and enable the experience is very difficult because all of these things just tend to get in the way and what we need to do is make them enablers. From Convergys research we know that when you call into the contact centre for instance that having knowledgeable and responsive employees is in the top three things that customers value. Your people are your brand.

The majority of contact centres are still run as cost centres instead of strategic business units. Traditionally call centres were cost-focused and providing customer support at low price points. For those organizations that are price leaders and are competing primarily on the basis of a low price model, having contact centres like that is fine because you need to strip the costs out of your business. But if your business model and the way you’re trying to compete is not on the basis of low price then this is a dumb way to run a contact centre because all you are doing is creating an experience which is more cost-driven and not customer-driven.


5. External communications

Customers are increasingly looking for us to interact over various channels. Recent Convergys research, for instance, demonstrates that text is emerging, with the millennials being very likely to use text – 55% would use it if it is reliable. There are also apps, and with the iPad this is an area that is really going to grow as apps become more important.

The younger generation are more likely to want to use channels such as text, SMS and apps so we are going to see that growth increasingly rising in subsequent years.

But the important thing to remember is that it is horses for courses, says Smith. "There are times when I want to be able to speak to someone in the call centres because she can help me. There are times when I want my bank balance and when all I want to do it text and get it right away. There are times when I want money and so I’ll go to the ATM machine. So the experience we have depends on the channel we want to use. So we shouldn’t stereotype and assume that all the boomers want to talk to people and all the millennials want apps. It depends on the purpose that you have. And if you have a problem there is no substitute to talking to a real purpose."

The question of credibility will also become more important than ever before when it comes to communications. What can your organisation claim credibly? “I think we’re going to see a shift from expectation marketing to experiential marketing. Expectation marketing is traditional above-the-line marketing – ‘use us’, ‘buy us’. What is the point of making claims in advertising which are clearly incredible. We are seeing a big backlash against marketing claims. We are seeing movement towards experience marketing.”

Experience marketing is when we believe other consumers - when people go onto TripAdvisor to check out a hotel for instance. Increasingly we pay more attention to what other consumers have to say that what marketers say.

Being a big company or being around a long time is no longer so important to customers. Yet much of traditional marketing still focuses on telling customers that the company is big, has been around a long time and is everywhere. But what the customers really want to know is why they should trust you. According to research by Grey Worldwide, millennials are 31% more likely than baby boomers to rank “is a company or brand I can trust” as a top five customer service attribute. Trust is becoming an increasingly big deal.

You need to be able to deliver on that trust by responding, Smith says. According to Convergys research, 85% of customers that have had a bad experience will tell friendly or colleagues. And when customers choose to use social media the damage can be far greater than simply a verbal conversation – as United Airlines found to its detriment when it damaged Dave Carroll’s guitar.

"Word of mouth is an incredibly powerful weapon – for you and against you. And unless you’re managing it you are going to have problems. That is why we are going to see a shift from traditional expectation marketing to experiential marketing," says Smith.


Ultimately, Smith believes these steps could prove crucial for organizations if they are to respond to the shift to the experience economy - and turn your customers into fans.

"In real terms, this would wipe out any of the impact of the recession, because this kind of shift is way bigger than any decline we’ve seen," he concludes. "Yes the size of the cake is smaller, but your slice of the cake can be a lot bigger, and the reason you get a bigger slice of the cake is by taking it from your competitors - and the way you do that is by creating an emotional bond with your customers."