Understand how to relate Customer Experience Management (CEM),
Customer Relationship Management (CRM) and Return on Investment (ROI)

By Baumin Lee

     A great deal of measurement goes on in the Call Center: Call Time, Customer Satisfaction, and First Call Resolution are just a few of the key performance indicators. With all focus on the metrics, it is easy to lose sight of what we are trying to achieve: Building an ongoing customer relationship which results in repeat sales and referrals.

     One reason why this happens is the metrics are easiest to calculate if you are just taking a “snapshot” of a single call or single interaction. Doing the follow up and follow through is seldom done. Why? Because it takes real discipline and sustained attention to track the series of customer interactions, the experiences that a customer goes through in interacting with your business over multiple media (face to face, online, on the phone)  that make up an ongoing customer relationship. Before we go further, let’s bring in the concept of Customer Experience Management described below in Figure 1.

Figure 1: Customer Experience Management

     From this, you can quickly realize that Customer Experience Management requires developing and building a customer relationship over a period of time. In order to see what strategies deliver good financial outcomes, we need to examine what revenues can be generated and what costs are required for each strategy. Tracking the financial impact over time is the purpose of “Return on Investment Analysis”. In the most recent article in this series we studied how to calculate Customer Lifetime Value (CLV), this concept is a special application of Return on Investment. In this article, we’ll go over how to apply CLV analysis in developing a customer relationship. Being able to analyze the return on investment of customer relationships is an important skill that every team leader, supervisor, quality manager and call center director should have. If you don’t use CLV to analyze the policies, strategies and tactics, then you might do things in your team or call center which reduce the health of customer relationships, wasting the earlier efforts your team has spent in developing the relationships up to this point.

     We can be very systematic about the stages of a customer relationship – the seven stages of a relationship lifecycle are shown in Figure 2.

Figure 2: The 7 Stages in Customer Relationship Lifecycle

     Not every relationship goes up to the Relationship Level 7, but when they do, then the relationship is most profitable for the business and most satisfying for the customer. The diagram on the left of Figure 2 shows that the costs associated with a customer start before, when the customer is just a prospect. Only after the customer starts purchasing does the revenue start flowing. Let’s investigate further what is happening at each relationship level.

     Level 1 - The Encounter
     For a business, this is the first stage of "Customer Acquisition" and involves welcoming and engaging the interest of a prospective customer. For a prospective customer, this stage is the "First Impression" that the prospect has of the business. The prospective customer has to decide whether or not to spend time to get to know the business, finding out whether the business can or cannot provide something of value to them.

     Level 2 - An Exchange of Facts
     The business tries to find out if the customer is really serious about buying something and if that something is a product or service they have to offer. The prospective customer is working out whether or not the business can fulfill a current need, or might be valuable in the future in fulfilling a requirement which might arise. What happens at this level is an exchange of facts that determine whether or not both parties decide to move to the next level of relationship. The actual words used by each party are very important to note because they are a valuable indicator of whether or not there is enough common understanding, enough common perspective, and enough interest in developing a relationship. Each party is trying to decide whether to move forward to the next level of relationship, because if they do so, they will have to reveal additional information to the other party that they would not lightly reveal.

     Level 3 - Exchange of Opinions
     The business starts to go beyond sharing factual capabilities, but begins to describe "why we are in business, why we would make a good partner". The prospective customer at this stage, opens up to explain more about what they need beyond the delivery of the goods or services - what the selection criteria might be for a supplier on an ongoing basis.

     At Level 3, both parties are starting to invest more in the exchange. The information shared at this stage is generally not freely shared at the beginning of the relationship, a degree of trust has been built up that both parties believe the other is likely to be receptive and react positively to the exchange of opinions at this stage.

     Relationships only go up to the next level if both parties are ready and willing. Sometimes they fall back a level or two, if the expectations of one or both parties are not met at the higher level. It is possible to recover a fallen relationship after time has passed, whether this happens or not, depends on how important the relationship is to party who makes the first move to recovery.

     Level 4 - The Close. I like to also call it the "We have a dream" stage....The stage of establishing a Common Purpose in that both parties have agreed to move beyond exchange of opinions to an exchange of value, a purchase transaction takes place.

     When two parties come together, it’s because both parties get value out of having the relationship. The business gets the opportunity to get paid more than it cost to produce the good or service. The customer gets the opportunity to gain more value than the price paid.

     At Level 4, a sense of common purpose is achieved where both parties see that each benefit from the relationship and the opportunity to transact will bring concrete benefits to both the business and the customer.

     Both sides invest in the initial transactions knowing that the payoff to the relationship comes over time, as each learn more about the other, and build a sense of shared purpose. The relationship begins to shift from adversarial (I win you lose or you win, I lose) to collaborative – We both can win. Looking for the circumstances to generate a Win/Win relationship becomes more important as the relationship matures. The business and the customer help each other out in ways that would not have been possible at the beginning of the relationship.

     Level 5 - The stage of Mutual Collaboration and Innovation, of together deciding to take more Risks to generate higher mutual returns. The relationship can expand to provide more value to both parties, mutual innovation; mutual learning provides gains that were not possible before.

     The customer begins to depend on the business - this only happens as trust deepens.
     The business begins to depend on the customer - to grow the business, to expand in new ways. At this stage, Listening carefully and clearly are critical skills for both sides.

     Level 6 - The stage of Honesty or the stage of admitting "Here’s where I really need help"

     The business and customer have reached a stage of trust and acceptance of each other as dependable, trusted partners who will take risks for each other. Only then, are they able to move to the next stage of actually being ready to confess "I need help" or be willing to willingly admit fault and error knowing that the relationship is strong enough to be fully authentic with each other.

     Level 7 - The Stage of "The Best Possible Version"

     At this stage, both the business and the customer wish for and want the best possible version of each other. Both seek to help the other fulfill their potential, because both benefit from this fulfillment.

     In CRM, people have called this, from the business perspective: Customer Asset Portfolio Management, where the business tries to maximize the customer assets of the business.

     From the customer perspective, you could call it "Supplier Asset Portfolio Management" - which is for a customer to manage the set of businesses that the customer depends on, so that each supplier provides the best possible set of services for the customer.

     When a supplier knows that the customer wishes for the supplier to be the best possible supplier, they are more likely to fulfill that expectation.

     When a customer knows that the supplier wants to provide services that will help the customer be the best possible version of the customer, then the whole game has shifted away from a Zero Sum game (I win, you lose) to a Positive Sum game (You win, I win) which expands the value for both sides.

     Ok, now we’ve got to the fun part, let’s do the Marketing Math!
Let’s compare the Customer Lifetime Value for prospects/customers who reach different levels of the customer relationship. Here’s the scenario. The customer acquisition process for a software vendor is as follows:

     Level 1: Create Awareness to generate an encounter – Cost is 1 cent per Level 1 prospect

     Let’s say the business decides to advertise in phone directory. It costs $100 to advertise in the newspaper which reaches 5,000,000 people. Not everyone sees the advertisement; let’s say that only 1 out of 500 sees it, so the cost per impression is 1 cent for each of the 10,000 prospects who actually notice it.

     Level 2: An Exchange of Facts – Cost is 10 cents per Level 2 prospect

     Of the people who notice the advertisement, only1 out of 10 will check out the product further. At this stage, the business actually still does not know anything about the customer. The business wants to interact only with those customers who are serious about investigating the product. One way to do this is to offer the opportunity for the customer to try out the software before buying, often this trial of software is offered free of charge to those who might download it from the Internet. So Level 2 might be defined as those who get to the point of downloading the software.