If you are one of those people who actively recommends services or products to others, posts comments on blogs or writes reviews on the Internet about the businesses you patronize, then you would be considered an "engaged customer" by marketers. Such consumers play a critical role in the long-term profitability of companies, and have captured the attention of marketing professionals who are interested more than ever in taking the next step in managing their customer portfolios.
“Until now, when people analyzed their customer portfolios, they used Customer Relationship Management (CRM) tools and databases to measure and track how active each customer was when it came to specific [business transactions]. These variables are easy to measure,” notes Jesús Cambra, a marketing professor at the Pablo de Olavide University in Seville, and co-author of a paper titled, “Approaching the concept of engagement: An exploratory study in the mobile telephony sector,” published recently in Universia Business Review.
But the concept of "engagement" requires marketers to look at less measurable customer activities. According to Cambra, "Marketers should take into account other aspects [of engagement], such as if a customer recommends a product to others. This is something that is hard to measure. One customer can spend 1,000 euros, but he can also recommend that product to another five customers who each spend 500 euros. The total impact from that one customer will therefore amount to 2500 euros — that is to say, an additional 1,500 euros. If the company spends 1,000 euros on satisfying that customer, it’s not as if he generates a net balance of zero for the company…. What happens, instead, is that he recommends [the business to] five additional customers, which means he is a profitable customer. Until now, this was something that very few companies were measuring.”
This pattern of customer activity, known as "non-transactional" behavior, is based on commitment, loyalty, positive word-of-mouth and so forth. It goes beyond the act of purchasing, and does not generate immediate revenues for the company but improves its image and influence over other consumers. “[Engaged] customers have a deferred impact that is equally critical for the performance of organizations,” Cambra and his coauthors — Iguácel Melero and Javier Sese of the University of Zaragoza — note in their study.
The value that engaged customers create for companies is so strong that firms sometimes offer consumers rewards for recommending a product or service to new customers, the authors point out. For example, Spanish mobile phone companies have carried out customer acquisition strategies that involve offering discounts on the bills of current customers, or gifts of 50 euros (about US$64), if they can bring in a new customer to the company. In addition Movistar, a well-known mobile telephone company in Spain, recently launched a campaign with the following slogan: “Bring your friends. If you tell them to come, they will come running.”
When Service Fails…
Nevertheless, the authors warn that initiatives and investments made by organizations in order to create successful "customer engagement" relationships can be threatened by service failures. Resolving problems successfully is critical for restoring the satisfaction of those who are affected, and for “making them committed and loyal — getting them to speak well about the company,” notes Cambra.
However, are companies really aware of how the careful management of their customers’ complaints can lead to better engagement? Previous studies on customer engagement began with the satisfied customer but did not analyze those customers who are affected by a failure in service. To fill this void, the professors decided to focus their research on Spain’s mobile telephone sector. Each year, there has been a significant increase in the number of complaints in the mobile industry, although the sector is growing steadily. According to an August 2011 report issued by the CMT, Spain’s telecommunications market commission, there were 5.5% more lines in Spain last year than a year earlier, making a total of 58 million lines. There was a penetration level of 118.5 lines for each 100 people. The report also makes it clear that the number of people who are taking their phone numbers with them from one service provider to another – a process known as “portability” — grew steadily, at a year-on-year rate of 16.2%, through August 2011. In response to that trend, phone companies are asking customers to commit to them for a longer period of time rather than jump from one mobile phone provider to another, in order to get better phones or take advantage of other promotions.
The market has also become very competitive as a result of the arrival, among other things, of virtual operators, such as Skype, which provide phone services over the Internet. This is forcing companies to develop aggressive policies for capturing – as well as retaining – customers. “This could lead to a great deal of interest in how to apply the concept of service recovery and engagement,” write the authors.
The researchers conducted surveys in February and March of 2011 of 176 consumers — 52.84% of whom were males. The respondents fit the following profile: adults (over 21 years of age) who had experienced an interruption with their mobile telephone service, who had complained about it and who had received a response from their mobile service provider.
When the results of the survey were analyzed, the authors came to the conclusion that failures were not being managed in an appropriate way by companies. Customers were still unsatisfied and, as a result, did not demonstrate commitment or loyalty. They also did not generate positive word-of-mouth about the company. Nearly 52% of all respondents said they were unsatisfied with their provider after it tried to address the problem, and another 26% said they were indifferent about the way the problem had been resolved.
According to the authors, this general lack of customer satisfaction can have dangerous consequences for firms. Previous research has “demonstrated that customer dissatisfaction over the restoration of service can provoke customers to abandon their relationship with a [mobile] company. Applying this idea to our study, more than half of mobile telephone customers who experience a problem could abandon their relationship with a company if it does not manage the problem appropriately.”
Nevertheless, 22% of all customers who were satisfied with the restored service gave their provider an average score of 5.14 on a scale of 1 (lowest) to 7 (top score), indicating that those people will continue to be engaged in the future. This compares with a score of only 2.24 among unsatisfied customers. “What we demonstrate in this study is that if companies really want to concern themselves with customers who are dissatisfied with the handling of their complaints, they must attend to those complaints correctly," Cambra notes. For example, when customers have to dial a call center, it’s not a good idea for their calls to get passed around from one person to another. "Failure to do this properly carries a real cost, and the benefits of doing this right are significant in the short, medium and long term. How much is a customer worth if he talks highly of me? This is something very hard to measure, but he clearly has a value because I trust the recommendation of someone I know more than I trust an advertisement. Intuitively and qualitatively, he has a positive value.”
The researchers add that the data reveal that companies in the mobile sector in Spain apparently perform in a way that is contrary to how their customers want them to behave. “Companies know that [these firms] are not doing a good job attending to complaints and that the problem is their problem, but so far no one has dared to take the first step,” Cambra says.
One Road to Engagement: Social Media
The data suggests that other kinds of firms must try harder to satisfy their customers as well. And in case of a service failure, they must try to restore a customer's level of satisfaction. "If they have developed strategies of relational marketing and recognize the real needs and expectations of their customers, it will be much simpler for them to repair the damage caused so that they can turn those people into customers who have a higher level of engagement, and who want to correspond with the company and get more involved with it,” the researchers write.
The authors cite two examples of foreign mobile operators that have taken such steps and gotten good results. One is O2, a British firm that launched a channel on YouTube called O2 Guru TV. This channel “gives advice to customers, makes suggestions about the appropriate use of products and shows customers how various mobile devices function. In short, it interacts with its customers” using social media, the authors note. The other mobile operator is GiffGaff, a virtual telephony firm. “Its customers interact with the company through a web portal on which users can contribute ideas about new products and services … and they can participate in forums. [This] rewards customers with a higher degree of involvement in the strategy of the company,” they note.
The authors warn that while most companies in Spain have a presence in social media, they still fail to provide significant incentives for their customers to become engaged, although they perceive a need to start doing so. To incentivize engagement, Cambra and his coauthors propose that operators create an online space in which consumers can offer ideas for improving service or be notified about any deals. “The company could choose a deal each month and provide consumers with advantages, discounts and free phones. Such a move would … get customers more engaged with the organization,” they write.
Another move they recommend is selecting a group of customers who are expert users of mobile technology and have them share information with other customers. “Given that mobile telephone services can be complicated to manage and understand, getting help not just from the company but from other users can bring people closer,” they write. “This would not only improve their experience with the company, but also generate positive word-of-mouth and a higher level of engagement. The customers chosen to share this information will be rewarded with various measures for improving their involvement and loyalty with the organization.”
The researchers are now investigating how to analyze the individual profitability of each customer through such popular marketing metrics as Customer Lifetime Value (CLV). According to Cambra, CLV involves analyzing the profitability of each customer throughout the lifetime of his or her relationship with the company. “For example, during the first year of a customer’s relationship with a mobile phone company, he is not going to be profitable [for the company] because of the advertising costs [invested in attracting him] as well as, perhaps, because of the gift of a phone and some of other promotion. If the customer changes to another service provider during this period of time, then the cost [of attracting him] will have outweighed the revenue” for the company.
On the other hand, “If [the customer] stays for two years, he may spend more because he increases his [data] usage and the number of his calls. Little by little, the balance between the revenues [gained by the company] and the costs [incurred by the company] is leveled out. But if, during this process, the company is capable of generating that non-transactional behavior and the customer recommends [the company] to other customers, or if the customer makes suggestions for improving the service, then the value of that customer continues to increase.” However, the customer has to be satisfied, warns Cambra. “The more the time horizon increases, and the more satisfied the customer becomes, the more his profitability [for the company] increases. Nevertheless, if an unsatisfying event occurs, depending on how it is managed, the value of the customer can either increase or it can wind up being negative again.”
How do you measure all of these factors? “We’re looking into that," Cambra says.
