Retention is Not the Same Thing as Satisfaction

March 21, 2010

Last year I posted about the research Dennis Campbell and I did in financial services where we found the surprising result that self-service can increase costs (the article was just published in Management Science.)  Dennis and I have been working with Ryan Buell, a fantastic doctoral student at HBS, on additional research about self-service.  This new research shows, unsurprisingly, that online customers have higher retention than customers who are exclusively offline.  The goal was to determine whether the increased retention is due to greater satisfaction (customers love being in control and using all those convenient online tools) or greater inertia (it’s too painful to re-enter all those billpay addresses).

The winner? Greater inertia — the aggravation of switching  is just too high for online customers.  Even more troubling, it turns out that online customers are less satisfied than offline customers.  So even though online customers stick around longer, they’re not at all happy about it.  Why is this a problem?  Because these customers are a ticking time bomb for banks.  Once a competitor figures out how to reduce the pain of jumping ship, they’ll be first to exit.

It’s tempting in any competitive environment to conclude that “loyal” customers must be satisfied ones.  But we’ve found that even when customers keep giving you their money, they still might be miserable.  All those familiar faces may not be placing a particularly high value on your products and services — rather, they may simply be placing a higher value on the time and energy it would take to leave you.  My advice is to start scanning the horizon for competitors who can give your customers a better experience without exacting a high price for the privilege.  Or better yet, play it safe and become that competitor yourself.


Upside Down Operations: Self-Service Can Increase Labor Costs

September 29, 2009

A “self-service” play almost always has a strong cost component.  The model’s logic is that if your customers are doing more of the work, then your employees can do less of it — and can be paid less for it.    Of course, firms look for additional advantages to customers meeting their own needs such as increased retention, but the desire to drive down costs anchors most of these initiatives.  (For a dated look at these type of motivations, see this link.)

I want to share a recent research finding that upends this logic in surprising ways.  Dennis Campbell and I studied what happened to customers after they adopted online banking services, which are essentially designed to drive people away from retail branches that are costly to build, maintain and staff.   The web’s promise of low-cost, scalable self-service business models seemed like a reasonable direction for the banking industry, and so we studied the option to measure just how much companies could save.  We were then shocked to discover that the cost to serve these customers increased after they moved online.

As we investigated this phenomenon, we uncovered something interesting.  When customers move online, they become more engaged with their financial information.  They can suddenly spend hours examining each transaction, and no one is line behind them to hurry them along.  This new consumer behavior, on its own, is not problematic for the banks.  But the  heightened level of engagement can also drive customers to consume more full-service resources from the bank.  Customers now call more.  They have more to say and more to inquire about.  They even visit branches more often.

In other words, an unintended outcome of self-service is increased engagement, and a predictable outcome of increased engagement is the desire to engage even more.  The lesson I take from this research is that managers must anticipate the potential impact of self-service on their customers’ engagement.  If it seems likely that engagement will increase, make sure that the goals of a self-service model go beyond potentially elusive cost savings.  Make sure that improved service is a central part of your agenda.  Indeed, make sure that the project will be considered a success even if costs go up.

Who should pay attention to these findings?  New self-service options that make customer information more accessible are ripe for this dynamic.  Think online health records, not pumping your own gas.


Self-Service Innovation at USAA

August 13, 2009

The NYT recently described an innovative new iPhone “app” that allows customers to use their phones to deposit a check.  Take pictures of the front and back of the check with the phone’s camera, and then use its email function to send the pictures to USAA.  Now discard the check.  No trip to the bank necessary. 

The application is a great model for self-service innovation.  USAA customers get a solution they prefer to the existing alternatives.  Instead of going to an ATM, they can now deposit a check from anywhere.  Customers get the enhanced convenience of mobile banking without having to sacrifice functionality.  In fact, the mobile deposit service increased the functionality of the traditional online banking experience, essentially overcoming the classic tradeoff between functionality and convenience.

USAA didn’t just transport the same services to a new channel — it designed new services for a new channel.  Bank of America, in contrast, created an iPhone application that only performs a limited set of transactions, all of which can be performed through its online banking program.  This type of solution is far more common and creates far less value for customers, a concession to the tradeoff between convenience and service.  USAA reminds us that great service innovation occurs when we challenge our employees (and often customers) to overcome persistent assumptions.


Customer-Operators: Not Paying Them Doesn’t Mean They’re Free

May 6, 2009

People, it turns out, are desperate to be helpful.  Verizon has discovered this and joined the growing ranks of companies using what I call “customer-operators” to do the work employees used to do, everything from generating new product ideas to servicing other customers when those product ideas fail. Betting on the hope that all these customer-operators need in return are the intrinsic rewards of serving others and the status associated with becoming experts, Verizon is primarily making a cost play by inviting customers to perform routine customer service functions. The company has stumbled on some additional perks of engaging these “super-users,” like their knack for good improvement ideas, but this value is seen as peripheral.

At this point in the experiment, Verizon only sees the upside in recruiting and deploying an army of customer-operators. Before the company doubles down, I want to offer two points of caution:

First, customers are different from employees in ways that matter operationally. In general, they’re more difficult to manage, measure, recruit and fire.  Just because you don’t pay them, doesn’t mean they’re free. The price may be worth it to achieve radically higher levels of quality (Wikipedia) or a radically lower cost structure (eBay), but the tradeoffs aren’t as clear for traditional business models.

New management systems must be designed and maintained once you bring customers into your operations. And the effort may require more than a few “feedback stars” to measure and maintain quality. Reputation is a powerful incentive for good behavior, but it’s not all-powerful (see John Edwards). Have a plan for when the customer you’re relying on to provide good service doesn’t respond to another customer’s inquiry for days.

Second, those feel-good emotions of service and status may not be enough to compensate your most active (and valuable) customer-operators as time goes on. A lesson from many organizations is that when you ask customers to donate their labor, they often feel entitled to a seat at the decision-making table. Back to those feedback stars, I spent some time on the outrage of eBay customers when the color of their own stars was changed in an HBR case. Outrage may be too weak a word. There was an electronic revolt.

I’m with Verizon. I think customer involvement is a tremendous opportunity for many businesses. But I want to add a few caveats — customer-operators aren’t always easy to manage, and they aren’t always willing to stop at the operational boundaries you propose.  You may invite them on to the shop floor, but some of them are taking the elevator up to the C-suite.  Have a plan for what happens next.


Customers for Hire

January 24, 2009

Embracing the humanity of your customers has another distinct advantage — customers can also help you run your business. Companies that recognize that their customers are thinking/feeling/doing human beings often learn to work effectively with them to operate and improve organizations.  This has cost advantages, of course, but it also opens up new opportunities for increased quality and differentiation.

Intuit is a great example of a company that leverages their customers as contributors.  Intuit actively engages customers in everything from coming up with new product ideas to answering service questions from other customers.  Employees still do the bulk of the work at Intuit, but customers improve their work at almost every step in the value chain. Threadless, the fast- growing T-shirt company, takes this customer operating role a step further by using customers to create the vast majority of new product designs.  At Threadless, employees improve the work done by customers.

Customer insight and creativity is among the most underutilized assets in organizations today. Particularly in our current economic climate, it’s worth it for most companies to explore ways that their customers can play a more active role in creating the products and services they consume.


Self-Service Revolution or the Worst Meal I’ve Ever Bought?

January 8, 2009

I fought off anxious flashbacks yesterday to the least satisfying meal I’ve ever exchanged for hard currency. These memories were not a welcome intrusion. We live in complex times. But anxiety is a blunt instrument – it doesn’t distinguish between wondering whether the coffee maker is still on and fear of unemployment.

A trip to Harvard Square sent me back to my experience at a restaurant called “Fire and Ice,” an “improvisational grill” that lets customers design their own dishes, wait on themselves promptly, maintain control over the pace and substance of their meals. These are tasks, of course, that most other restaurants pay the professionals to do.

My own improvisational ride involved roaming around a table of possible ingredients as I questioned my femininity (the other women seemed confident with cabbage) and tried to get the few employees I could find to smile at my discomfort. To their credit, they didn’t bite. And one of them transformed my sad mix of vegetables and raw chicken into a warm, Salmonella-free meal. Still, I sulked as I ate the mediocre dinner I’d helped to create, confused that everyone around me seemed energized and satisfied. Couldn’t I cook myself bad food in the comfort and privacy of my own home? What was I paying for? Even yesterday, when the competition for discretionary income is as fierce as its been in my lifetime, the place was jumping.  Frances, I know you have a thing for self-service, but I think the right service decision in this case would have been to save me from myself.


Self-Service Revolution: Response

January 8, 2009

Self-service is very tricky to get right.  My rule of thumb is that self-service excellence needs to be designed such that customers prefer the self-service to a readily available full service alternative. A great example is airline check-in kiosks. When these kiosks first appeared, passengers felt compelled to use them only because carriers had allowed the lines in front of staffed counters to become ridiculous.  Now many frequent fliers prefer the kiosks. They’re fast, easy-to-use and they provide more control over the service experience, primarily through the seat-selection chart.  This self-service solution is now preferred to a readily available full-service alternative. As a counter example, consider the self-checkout options at many supermarkets – customers have revealed little interest in managing the complexity and effort of scanning and bagging their own groceries.

Fire and Ice clearly failed this “better than the full-service alternative” test for you.  There could be two explanations. Either its service design is inferior or its service is not designed for you. Given the thriving business you referenced — and indeed I see its success each time I walk past it – my inclination is to say that you’re not part of its target market. That it resists making changes for customers like you who fall outside this market is to be applauded, in my mind. Bristol Lounge at the Four Seasons?