Thursday, April 23, 2009

The Metrics of Satisfaction & Success … or, If “Love Stinks” and You “Can’t Buy Me Love”, Well, Maybe You Should Try Something Different – Tom Parish

This week’s blog returns to our “love” series. As a quick reminder, the general thesis of those earlier blogs was that the real goal of our entire brand building effort was love. We want our customers to love us – our product, our service, our brand.

Inducing love gives us some breathing room in the event that we screw up a bit – if your significant other is truly in love, and you…forget a birthday, buy an inappropriate gift, or some other minor mistake, hopefully that love will make them give you a pass. If you really aren’t in love, just about anything – say choosing the wrong fork for eating a salad – can get you in trouble.

So, how do you know if your significant other is in love? Or at least interested? What is the right metric? I don’t think it is stretching the analogy to say that the ultimate metric for love is whether they stick with you. It is loyalty. After the first date, do you really want to know how “satisfied” they were with the date (ignoring the obvious double entendre)? No! You want to know whether they will go out with you again.

It is the same way with cars, trucks, dozers, and tractors. Ultimately, do we care how “satisfied” our customers are? Or do we care whether they will come back to spend money on our products again? Whether those products are service, parts (retention and service share) or new vehicles (repurchase loyalty). Loyalty is it – the definitive outcome metric. At the end of the day, we do not care about anything else.

If this is true, shouldn’t we all be measuring loyalty directly? Many are, but many are not, and there are difficulties in measuring loyalty. On the vehicle side, there are questions around whether to measure it at the individual, household or vehicle level, whether it should count if you don’t sell the type of product your departing customer bought, etc. On the service side, some are at least measuring visits and defining “loyal” to be a certain number of visits over a certain period of time. However, the challenge is that does not really measure service share, and it is hard to argue that a service customer is loyal if you only get 20% of their service business. So yes, there are difficulties, but most can be overcome – and in any case, the fact that it is hard is no excuse not to do it. We’re talking about love, right?

If loyalty is the ultimate outcome metric, what should we be measuring as interim or process metrics? What are the leading indicators for loyalty that we want to measure and act on to ensure we are working on the right things to improve loyalty?

Today, almost everyone uses customer satisfaction (sales satisfaction or service satisfaction) as their primary interim or process metric. Customer satisfaction is seen as the primary proxy for what will keep customers loyal to a brand. This seems to make sense on the surface – the theory being that happy customers will come back to buy more of our products. The problem with this is that what makes customers likely to return goes far beyond good treatment at the dealership. For some customers, product quality (IQS or reliability) will have a greater impact on loyalty than how well they are treated at the dealership. In fact, our analysis shows that IQS correlates better to service loyalty than service satisfaction (CSI) does. These differences in owner characteristics (not to mention differences in vehicle population, dealer network, price point, etc.) make it impossible to say that a single lever – customer satisfaction – is the only lever that you want to pull to ensure customers come back. We may all have the same outcome metric – loyalty – but that does not mean we want to all focus on the same interim/process metric.

To illustrate, let me offer another analogy. Baseball. Every team in baseball has the same ultimate outcome metric – number of wins. Before Moneyball popularized the statistical approaches used by Billy Beane and others to analyze player performance, most people looked at just the basic interim/process metrics. These were the standard stats – ERA for pitchers, batting average, homers and RBIs for hitters. With popularization of Moneyball type stats, people started looking at a multitude of other statistics – on base percentage (OBP), batting average with runners in scoring position (BA/RISP) – don’t you just love these acronyms! This plethora of statistics allowed managers to evaluate specific types of performance and target players that perform well in the areas that are most important to their particular strategy.

That is the real key – tying metrics to strategy. In baseball, strategy is influenced by the environment (if you have a park with a 400 foot fence you are going to go for speed and defense – if you are at Fenway with a 315 foot left field fence you are likely to go for homerun hitters) and it is influenced by current personnel (if you have Manny Ramierez you may not want to base your strategy on defense and base running). Everyone’s situation is different, so their strategy will be different, so their metrics should be different too.

Again, same thing with cars, trucks, dozers, and tractors. Everyone has the same ultimate outcome metric – loyalty. But everyone’s starting point is different. Different volume levels. Different UIO. Different dealer body. Different owner characteristics (Saab owners “love” their vehicles for the quirky engineering while Honda owners “love” their vehicles for the bullet-proof reliability. Luxury brand owners will tend to be more influenced by convenience issues than cost, while volume brand owners also want convenience, but will likely trade off some of that for lower cost.). The starting points are different. Therefore, the strategies are different. Therefore everyone’s interim or process metrics – and the targets for those metrics – should be different.

For example, Lexus is one brand that probably should focus on customer satisfaction, because it is a core element of their brand. But Porsche? Whether a Porsche owner returns to the brand is surely driven more by product execution – whether they love the car – than it is by customer treatment. So they should be looking at metrics regarding vehicle quality. Metrics follow strategy.

Let’s look at parts pricing strategy. In general, we argue that dealer satisfaction with parts pricing is one area where you can be too high. Very high dealer satisfaction with pricing can mean you are leaving money on the table. Too low is probably not good either. In most cases there is a “golden zone” in the middle and that is where most brands should target to be. However, in the case of a highly value-focused brand, they may need to target extremely high dealer satisfaction with pricing. If everything about the brand is aimed at perceived value for the customer, parts pricing needs to be consistent with that positioning – and if parts are priced to provide value, dealers will likely be highly satisfied with that pricing. Again, metrics (and targets) follow strategy.

Just like the Moneyball statistics, because of the huge range of potential starting points, and therefore strategies, we need a range of metrics that are used as the primary interim or process metric. The diagram below is a simple representation of the highest level potential influences. Each of those boxes could be drilled down into their own more detailed influences – each of which would have their own key metrics.

I don’t mean to imply that you are not all doing this already. Most are and are doing it well. But the key is to keep your eye on the ultimate goal – loyalty. If you are not measuring it today, start doing so. It is less important that everyone measure it the same way than that everyone measures it. Period. Do not put too much focus on customer satisfaction to the exclusion of other process measures that are more relevant to what your specific organization needs to do to improve performance in that ultimate goal – achieving loyal customers that come back and spend their hard earned money with you.

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