Customer Led Growth

Friends : This is one of the interesting articles from Bains & company on customer led growth, I liked this one as it reiterates the need to think for and as customers..........

Most companies assume they're giving customers what they want. Usually, they're kidding themselves. Bain & Company recently surveyed 362 firms and found that 80% believe they deliver a "superior experience" to customers. But when Bain asked their customers, they said only 8% are really delivering.

Bain dubbed the 80% the "believers" and the 8% the "achievers." Whatever the nomenclature, this ten-to-one ratio suggests a startling gap between those who think they’re doing right by the customer and those who truly are.

It’s just this gap, of course, that Net Promoter Scores can help close. Create a credible, timely NPS system and companies will be well on their way toward focusing their organizations on what customers are really thinking, feeling, and doing.

There are two reasons for the gap. The first is a basic paradox: Most growth initiatives damage the most important source of sustainable, profitable growth—a loyal customer franchise. To increase revenue and profits, businesses do things like raise transaction fees that end up alienating their core customers. Efforts to pursue new customers compound the problem, distracting management from serving the core.

The second is that good relationships are hard to build. It's extremely difficult to understand what people really want, keep promises and maintain a dialogue to ensure customers' changing needs are met. Even initiatives to "better understand" customers can backfire, drowning firms in a sea of data.

How can companies close the delivery gap? Bain found, in analyzing the achieving 8%, that they rigorously focus on treating their most profitable customers in ways that ensure they come back for more and recommend the company to friends. Unlike most companies, which instinctively turn to product or service design to satisfy customers, the elite few pursue three imperatives simultaneously.

These are the "Three D's":
1. They design the right propositions for the right customers.
2. They deliver those propositions at the lowest system cost.
3. They develop the institutional capabilities to do it again and again.

Each of these Three D's reinforces the others. Together, they ensure the company is continually led by the voices of its customers.

Design: Most large companies are adept at traditional market research, segmentation and product design. But in their efforts, the 8% who succeed include customer interaction—focus groups, interviews and observation—that leads to real insights. They convert those insights into truly differentiated propositions reflecting a customer's total experience.

Delivery: The achievers treat every customer interaction as a precious resource, continually listening to what customers want. These companies set up cross-functional teams to ensure that they keep their promises to customers at all touchpoints.

Developing capabilities: Finally, companies that delight customers build processes to maintain a real dialogue. They establish capabilities that foster ongoing, systematic improvement and feedback loops that identify shifts in customer attitudes.

Case Studies :

1. Design:

Company Example : Commerce Bank of New Jersey

Design the right propositions for the right customers , Many managers claim that they can’t design value propositions for targeted segments because their industry is just a commodity business. What they are really saying is that they have failed to uncover innovative solutions for their customers. Many of the NPS leaders operate in industries that were once considered commodities. What could be more commodity-like than renting cars—the same Fords, Pontiacs, and Toyotas that everyone else rents? Then there was Enterprise. What could be more commodity-like than a no-frills airline seat? Then along came Southwest. If every business these days is a service business, as has often been said, then every company is capable of designing value propositions for particular segments of the market that can both deliver a high profit and turn customers into promoters.

Perhaps the clearest illustration of this maxim is Commerce Bank of New Jersey, which turned the so-called commodity business of branch deposits into a rocketing growth success story. Most companies in the industry right now are playing an end-game of branch closures, mergers, and consolidation, in hopes of squeezing the last drop of profit out of a moribund business. Rather than pursue traditional retail banking, they are pushing customers to use ATMs or online services, both of which cost them less. CEO Vernon Hill of Commerce Bank, by contrast, stopped thinking like a banker and began to focus on creating a “Wow!” experience for his design target, busy middle-class mothers. Commerce Bank’s new branches blanket target neighborhoods and remain open seven days a week. On weekdays they are open more than twelve hours, 7:30 in the morning to 8:00 in the evening. The company’s carnival-like branch openings, entertainment for kids, and lunchtime concerts have made banking fun. A free (and fun) change-counting machine called the Penny Arcade appears prominently in every branch. But Hill didn’t stop there. He and his team redesigned the appearance of branches to appeal more to their target customers. They simplified and streamlined the company’s products. They slashed nuisance fees, even eliminating (for qualified customers) the charges for using other banks’ ATMs.

The bank’s motto—“fans, not customers”—is reflected in Net Promoter Scores topping 50%, the highest anywhere in banking. (Branch banking averages an NPS of 12%.) While competitors are happy to eke out single-digit growth, Commerce’s same-store sales are expanding at 32% a year. The franchise now extends beyond New Jersey to Philadelphia, Manhattan, Delaware, and the Baltimore-Washington area. Returns to shareholders from 1991 to 2004 have averaged 30% a year. Commerce Bank’s 2004 Annual Report reveals its formula: “We know that improving the customer experience is the key to success.”

2 . Delivery:

Company Example : USAA Call Center

Deliver your propositions at the lowest system cost

All the problems and opportunities of creating promoters through enthusiastic, well-trained front-line employees come together in that signal institution of modern business, the call center. And what an irony it is! Employees in call centers are in constant dialogue with customers. They spend hour after hour, day after day, listening to customers’ needs and concerns. They are responsible for solving customers’ problems. Yet most companies regard the call center purely as a cost—as a function to be minimized, automated, outsourced, or eliminated. They give call-center employees little opportunity to exercise initiative or judgment. They don’t ask these employees to weigh in on customer concerns. Indeed, many phone reps are so tightly scripted that they have virtually no flexibility to come up with creative decisions. Quite the contrary: since their performance evaluation is based solely on productivity—the number of calls handled per hour—all their creativity goes into getting the customer off the phone as fast as possible. Of course, by the time a customer actually reaches a rep she is likely to be infuriated by the series of automated prompts that companies use to screen and classify customers. A time-pressed rep, an angry customer—it is not a recipe for delight.

But it doesn’t need to be that way. Consider USAA, the San Antonio, Texas, company that is the nation’s preeminent insurer of military personnel. The company could be a poster child for many of the points made in this book. A top-ranker in Fortune’s annual “Best Companies to Work For” list, the company instills the military values of honesty, integrity, loyalty, and service in all its employees. Every individual goes through an orientation process to learn military culture and nomenclature, including ranks, service branches, and history. Monthly videos feature members of the USAA customer community and their military experiences.

Not surprisingly, USAA’s call center is a model of its kind. The company avoids recruiting agents with previous call center experience, so as to keep bad habits out. It uses no pre-scripted conversations, and it empowers the phone staff to use their judgment on all issues, including authorizing payments on the spot. It also spends twice the industry average on training—and it trains every employee every year, not just new hires.

Rather than being rewarded for high productivity, call-center staff are measured on their ability to resolve all of the customer’s issues on the first call. This metric both delights the customer and motivates employees. Then, too, the firm invests aggressively in customer service technology, such as scanning all documents into a central database and providing reps with real-time access to the trail of customer communications and interactions. For USAA, the call center plays a central role in driving world-class customer loyalty. Employees, too: turnover in the centers is one-third that of USAA’s competitors.

The retired military officer in charge of phone operations at USAA—almost all the executives are retired officers—explains that the military studied the link between team size, effectiveness, and loyalty for many years. It concluded that the best building block for a high performance organization was a team of two five-man squads. At this scale, team members could rely on each other; they could connect with one another at an emotional level; they could learn rapidly; and they could respond flexibly to the chaos of combat. Again not surprisingly, USAA has organized its phone reps into teams of ten to twelve people. Because each team sits together, members overhear each other and can learn and offer suggestions. They also can collaborate on coming up with ideas for improvements to deliver an even better experience for their customers. (It doesn’t hurt that employees become eligible to become USAA members themselves, so they have little trouble relating to their customers’ situations.) If management wants to find out which individual reps are doing the best job in providing and outstanding experience, managers can simply ask the team.

USAA racks up NPS scores of over 80 percent. Its credit-card division generated the highest NPS ratings of any business we have found to date—over 90 percent. Unlike so many companies, USAA understands that its front-line employees are the key to delivering a great experience to customers, and it treats them accordingly. Its managers recognize that it is impossible to earn customer loyalty without first earning the loyalty of front-line employees.

3. Developing capabilities:

Company Example : Intuit

Developing capabilitiesCompanies can’t delight customers when they are abusing them. They win customers’ loyalty by providing goods and services wrapped in an outstanding end-to-end experience. Net Promoter Scores quantify how delighted customers really are. They thus convert vague words like customer focus and customer delight from fuzzy philosophy into hard, objective strategy. Measuring NPS makes generals and troops alike accountable for the customer experience. The payoffs of raising your score—of delighting more and more customers—are growth and profits: true growth and good profits, the kind that can be sustained over time.
The real challenge is to delight more customers and thus to generate more promoters. Promoters rev up the growth engine. They buy more. They generate more than 80 percent of referrals. If you have enough promoters, and if you continue to delight them, you don’t need to rely on big advertising budgets or an aggressive acquisition plan to grow. The promoters will make you grow.
You need to develop your capabilities to find innovative ways to delight customers month after month and year after year. That is how you will surprise them, turn them into fans, and inspire them to sing your praises to their friends and colleagues.
To learn how to do that—to learn what to emphasize, which direction to go in, where to focus your investments in innovation—well, listen to your customers. They will tell you.
Software powerhouse Intuit did this to help reverse a slide its TurboTax program briefly experienced in the online market in 2003. Intuit institutionalized constant improvements in its offerings by creating a 6,000-member "Inner Circle" of customers, who serve as an ongoing focus group. In addition to answering the all-important question "How likely are you to recommend TurboTax?" they explained their top priority for enhancing any aspect of service, and ranked a list of suggestions from others.
Thanks to such moves, Intuit was able to better segment its customers, redesign its TurboTax product, deliver it more effectively, and maintain a mechanism for continually developing related capabilities. Customer advocacy surged, and unit sales for the tax season rose 27% over the previous year. By systematically attacking the Three D's, Intuit closed the delivery gap.