The Godfather of CX: A look at metrics & loyalty

INTRO:

You're listening to CX Confessions, brought to you by Khoros. In each episode, we’ll share the customer experience stories and insights you need — straight from the sharpest minds in CX — to better connect with your customers and create customers for life. Let's start the show.

KATHERINE CALVERT:

Hello, and welcome back to another episode of CX Confessions. I'm Katherine Calvert from Khoros with my trusty co-host Spike Jones, and do we have an exciting show for you today. We have a serious celebrity guest. CX Confessions obviously stands for customer experience confessions and today we have the authority on customer experience here to join us and talk about lessons learned over all that time.

Our guest today is Don Peppers. He is a marketing futurist and trend spotter. He's also the most widely read LinkedIn influencer on the topic of customer experience: over a quarter million followers, almost a half a million followers, on LinkedIn. So very, very lucky to have him joining us. He's written over 9 books on the topic. He's a professor and a world-traveling speaker, and we get to talk to him about customer experience — what good looks like and what the bad has looked like over the years.

Welcome to the show, Don.

DON PEPPERS:

Thank you, Katherine. Nice to be here.

SPIKE JONES:

Yeah. I think we should almost add, like, Godfather of customer experience. I think that would be good in your title.

KATHERINE CALVERT:

Yes. Pioneer.

DON PEPPERS:

I may call on you for a favor at some point.

SPIKE JONES:

I'll be waiting for that with bated breath.

Because you've been in this game for a long time. I mean back, I mean like one of the things that you and I have in common is we're both recovering agency folks, but, like you were talking about this back in the day at Chiat. Like, Chiat Day. Like the infamous Chiat Day, and so you've seen a lot. You have seen this space evolve, you have seen, probably things stay, some things stay the same that needed to stay the same. But can you talk a little bit about that evolution over your years of experience?

DON PEPPERS:

Yeah. Well, I think it was a technology-ignited revolution. You know, the agency world, we grew up in, you know, an ad agency had to have a product with a brand message, but the reason they called it a brand message, it went out the same way to every customer. You know, you bought a big TV spot and it was really, really creative and you suddenly publicized your product to everybody. But guess what? The quality of the advertising is what drove the campaign. It wasn't the quality of the product. It was the quality of advertising. To get a great advertising campaign you needed a good agency, but these days, with interactively, because we can interact with customers individually, one at a time and because of databases which we, in which we keep track of individual customers even if we have millions of them, we can keep track of any individual customer one at a time and instantly get access to that customer’s history with us and their transactions and so forth.

I can treat different customers differently. That's a totally different business model and that's really what gave rise to the customer experience movement. Because in the agency world, your success was based on publicizing your products, attributes, and benefits. But in the interactive world, your success is based on managing each customers’ interactions. What is their experience with you over time? And that's really what we're talking about.

SPIKE JONES:

Absolutely. And an even, you know, just that evolution even with digital and social, about how in the advertising world we saw marketers going, oh look, another channel to push out my message. This is fantastic. And then people started talking back and they were like, okay, we need to rethink what we're doing.

DON PEPPERS:

That's really interesting. You know when Martha and I wrote our first book, The One-to-one Future, it was based on an idea that we’d come up with. We said you know, advertisers expect interactively to work like this: You see a commercial on your television set and you push a button and a coupon would print out of your set top box. That was the idea of interactivity.

But we posed ourselves a thought experiment: Let's suppose, in the interactive future, that a child could talk back to Tony the Tiger. What would Kellogg do with that child's feedback? And the answer is, they wouldn't do anything with it, because in mass marketing, individual customer feedback is anecdotal. It's not projectable. It doesn't represent an audience. But the truth is, if you're a relationship marketer, feedback is what drives the relationship. And you know, everyone would be involved in creating relationships with customers and trying to manage their ongoing customer experiences.

KATHERINE CALVERT:

Well, and I think that's been, as a lifelong marketer, the big “a-ha” for me over time is that my most beautifully articulated value proposition, my most perfectly creative and innovative brand campaign, is only as valuable as my customers' experience of my brand.

So my most perfect press release is worthless if I've got an angry customer who's undermining that story. Fundamentally, I can build, design, I can architect what I aspire for my brand to mean, but it's really the customer experience that is your brand.

DON PEPPERS:

I'll go even further, Katherine, because you know the truth is, your customers don't really need to have your brand message anymore. To figure out what your company is about. If they want to really know what your company's about they'll ask people on social media. They'll find out: Has anybody dealt with Company A, and what do you think about this brand of bananas, or about this type of car? And the customers are empowered to collect this information instantaneously. You know so —

KATHERINE CALVERT:

That's right. And I, that's can be very overwhelming, right, but it is the reality so as a marketer, what, or as a CX expert, how do you think about the cost, the planning, for not just getting somebody to buy your product, but thinking about that overall experience and making the right kind of investments that may not pay off today or tomorrow?

DON PEPPERS:

That's a really, really good question, because that's the biggest dilemma faced today by companies trying to make this transformation from product-centric to customer-centric, because customers, unlike products, customers have memories. They remember you. Whether you remember them or not, they remember you. And so the experience I have today could well affect my business with you tomorrow. The problem is the cost of providing that experience occurs today — and you see that cost — the benefit arrives tomorrow and you may not be able to predict it carefully, okay, and so reconciling this future benefits with current cost, that is the biggest dilemma that most marketers face today and it's a difficult issue. It's a very difficult issue.

KATHERINE CALVERT:

I can't remember where I put my car keys, but I will never forget the stationary company that messed up my Christmas card three years ago.

DON PEPPERS:

Exactly. And you'll never forget them.

KATHERINE CALVERT:

Right [laughs]. Speaking of that, Spike, yeah.

SPIKE JONES:

I think one of the questions we ask all of our guests, and this is one of my favorites, because it really allows, I think them to stretch their legs a little bit, but especially in this in this world of customer experience, in this practice of customer experience, and in your years talking to brands, what is a commonly held belief that you have found that you disagree with that these brands might come to the table and go, well this is table stakes. We have to do this. Or we, you know, we've seen this work with other customers, or, you know, this is the way we do it. You know, how do you think about that?

DON PEPPERS:

I think one of the most misplaced ideas in customer experience management is how to interpret Voice of Customer survey data. Don't get me wrong. You know, when you ask, there's no better authority for the quality of a customer experience than the customer themselves, right. But people are subjective animals, okay. Their mood, they go up and down with the moods. There was a story about AT&T in the 1990s and Ray Kordupleski was in charge of the customer satisfaction thing in the in the early 1990s and the CFO at AT&T almost cut the program altogether because it clearly showed that in some markets they had very low customer satisfaction but they had a high and growing market share, whereas in other markets, they had high customer satisfaction and they had declining market share.

So, the CFO said, obviously our survey doesn't work. It’s not worth anything, there's no money in it. But what was really happening was their satisfaction survey was measuring regional differences. In the markets of New York and Chicago, people dislike everything, but they disliked AT&T a lot less. Okay. In the markets of Atalanta and Denver, people like everything, but they didn't like AT&T as much as they liked others. And I've seen that over and over again.

I talk with a big company in another country. I don't want to tell you the name of the country because we’ll give the company away, but basically, they put their senior executives on a gated bonus based on what they called their “strategic NPS score.” Now, if you're in the CX business, you know what NPS is — a Net Promoter Score: on a scale of one to ten, how likely would you be to recommend us to a friend? So every month they called four hundred customers, of their customers, at random, and asked the NPS question.

And when they contacted me, because at the end of 2013, their NPS score fell off a cliff and they all had their bonuses canceled. And they came to me and they said, oh, what do we do? Our customer experience must be awful now. We don't know what went wrong. We couldn't figure it out. What happened? And how can we improve our customer experience? So I said, well, what did the NPS score of your competitors do? Competitors? Why would we measure our competitors’ NPS scores? It's our bonus here. It's our company that we're dealing with. I said well, okay, well, let's look at the, let's, I tell you what, I went to the Ministry of Commerce and I pulled off the monthly Consumer Confidence Index at the Ministry of Commerce. And I put that bar chart up against their monthly NPS score, and it was almost an exact match. They were measuring consumer confidence.

So, the biggest problem that many companies have is they do these surveys where — we serve every customer, and so we, it's very valid cause it’s got ten thousand responses. Oh yeah? Well, you had five million customers, so you have a response rate of a tenth of a percent, right. So at every company there are people in charge of these surveys who don't, a lot of times, don't understand that you have to normalize them relative to geographic differences and temporal differences. Consumer sentiment goes up and down in waves, and so you know, if I had one thing to fix about the customer experience industry, it’d be the way CX professionals understand and talk about the learnings they get from their Voice of Customer surveys, which are very important, but are misused.

KATHERINE CALVERT:

Well, and so, Don, that's a great example of so much data — data-like feedback can be a gift, but it can also, it's very subjective. It can be misinterpreted. And sometimes there's just so much.

SPIKE JONES:

You can lead a man to water — you can lead a man to data, but you can't make him think.

[Laughter]

KATHERINE CALVERT:

What do you — when you go and talk to customers and brands, what do you advise when you think about data? What's the most important things for data — what are the most important pieces of data that a brand needs to focus on?

DON PEPPERS:

Well, I do think that the satisfaction of the customer is important, but I think even more important is, you need to identify friction in the customer experience. There's been a lot of research that shows that customer loyalty and customer satisfaction are not very highly correlated, but customer dissatisfaction is highly correlated with customer disloyalty. And so what you want is you want to find those sources of friction and eliminate them before somebody can get dissatisfied enough to leave your franchise. And that's fundamentally an issue of friction removal, or what I call complaint discovery. You need to discover all the complaints out there that haven't been voiced to you. And if there's one really good function of Voice of Customer surveys, which companies in most parts don't really take advantage of as well as they could have, it is complaint discovery.

If you do a universal VoC, Voice of Customer survey, after all your transactions and so forth, when somebody says they're dissatisfied, you want to reach out to them within hours, if not minutes, and try to find out why they weren't satisfied, and try to find and then try to fix their dissatisfaction, but also use that as input for what might be wrong with your system or your processes.

KATHERINE CALVERT:

Have you ever seen anyone do that really well?

DON PEPPERS:

Sure, sure companies do that, some companies do it really well. And some companies try to do it, but they don't connect the dots. A friend of mine said that she's never going to shop at Home Depot again, and then she told me why. She said that she'd been at a Home Depot store that day, she'd been looking for something very specific and she had two different sales people and it never helped her and she finally found it on her own after all, and then she had to wait an hour to get out, check out, or half an hour whatever, so she was just fed up to here. And that evening, Home Depot called her and said on a scale of one to ten, how satisfied — how likely would you be to recommend our brand? And she went off on him. She left him, you know, an immense comment about how dissatisfied she was, and she said that's the last time she heard from Home Depot. And her judgment of Home Depot was: it's not trustworthy.

My judgment is they haven't connected the dots. That's all. They got one department running the VoC survey, one other department running, you know, customer service at the store, and they don't talk to each other and they haven't — nobody’s thought about the right way to — think about it this way: when you discover somebody who is irate and difficult, their expectations are really low. It's not hard to exceed those expectations, and if you do, you could convert them from scathing critic to a raving fan.

I’ll tell you a quick story. Did you know that if you take two glasses, one full of cold water and one full of warm water, and you put them in your freezer and close the door, which glass will freeze first? The warm water freezes first. People have known this since the time of Aristotle and it's never been a problem. Science hasn’t figured out why this happens or what solves it. There's even a prize out to solve that problem in the scientific community.

The same thing is true of complainers. Okay. If you turn a really bitter complainer into a raving fan, I mean they’re, that's an easy thing to do with, you can exceed their expectations and then you treat them well, they're going to be a great supporter. They're being a real advocate for you.

SPIKE JONES:

Right, and that's a story that you gave them now, too. They're going to go tell other people how you helped solve their problem. You turn into a fan.

DON PEPPERS:

Sure, yeah, they're going to spread it around, and you know why, because it shows them well too, it puts them in a good light in the same way that you tell when you tell somebody about this lousy customer experience you had it kind of puts you in a good light. They're so stupid, they're so dumb. You know, but now, when they reached out to me and I said this and this and wow, that was really terrific. You'd like this company.

SPIKE JONES:

Yeah, and it's about me. I got to tell a story about me and how they helped me. You use the word satisfied and you use the word loyal. Do brands mistake one for the other when they do these surveys? Like, oh, I've got satisfied customers that must mean I have a lot of loyal customers.

DON PEPPERS:

I think generally they take it for granted that loyalty is generated by satisfaction. And it's not that satisfaction isn't important. I think it certainly is. I don't want to minimize the importance of satisfying your customers. But it is the dissatisfaction of customers that most creates disloyalty. Because the world economy, at least in the western nations, has progressed to the — there are very few businesses that can survive very long if their customers aren't generally satisfied. So, even though I'm satisfied with you, I can leave your business and go someplace else and also be satisfied.

KATHERINE CALVERT:

It's too easy.

DON PEPPERS:

Exactly.

KATHERINE CALVERT:

It's too easy to switch.

DON PEPPERS:

I'm not going to take that initiative unless I have some reason to do it and that, and don't give me that reason. Don't make me dissatisfied, because that does give me the reason to do it. That's kind of the way I think about it. I'm not positive what the dynamics are, but that's the way I think about it.

SPIKE JONES:

Yeah there was a book forever ago called Creating Customer Evangelists by Jackie Huba and, and they talked about the loyalty ladder. And it always stuck with me because, on the rungs of the ladder, satisfaction was the lowest one. Evangelism was the top one, but there was a lot of things in between, but that always stuck with me about, like a, just like you said, a satisfied customer doesn't mean they're going to stick around.

DON PEPPERS:

Yeah, but you're not going to create an evangelist if there's friction in the customer experience either. Okay. You know, you can't create a customer evangelist with a defective product, a whatever. You can have a terrific advertising campaign, even if your product is defective. In fact, I remember at Chiat Day we used to say, “Nothing will kill a bad product faster than great advertising.”

[Laughter]

KATHERINE CALVERT:

Do you think that's still true, though?

DON PEPPERS:

No, what'll kill a bad product is some word-of-mouth and social media commenting and Yelp. Okay?

KATHERINE CALVERT:

Right, so the greatest ad in the world, right, is only, it's still on equal footing with a dissatisfied customer who has enough Twitter followers.

DON PEPPERS:

Exactly.

SPIKE JONES:

So, it is, the name of the podcast is CX Confessions and another question that we always ask all of our esteemed guests is what I, you know, this is your confession time. So what is a hard lesson that either you've learned in this space or you've seen one of your customers — and you don't have to mention them by name, obviously — learn in this space?

DON PEPPERS:

Alignment. If you want loyal customers, you need to align your product-centric metrics and accountabilities toward customer-centric goals. Okay? So, for instance, consider the most ordinary incentive in a business of sales commission: I pay you a commission to bring me a new customer. Now, do I pay you the commission based on how loyal that customer is? No. I pay the commission for bringing in a customer. Now, who's the easiest customer to acquire? Someone who is naturally disloyal. They are the easiest to acquire. Okay. So you need to align your metrics around your goals, and if your goal is loyalty, then I should pay you a commission for bringing in a new customer, and I'm also going to, I'm going to pay you slightly less commission now. But I give you a piece of that customer's action for the next five years, let's say, and that gives you an incentive to go out and look at the most loyal customers.

In the late 80s, early 90s, when both Infinity from Nissan and Lexus from Toyota came to the United States, two luxury cars, they both had almost identical service reputations. They were fantastically good service, customer service and so forth. But after a few years it was obvious that Lexus had a much higher repurchase rate than Nissan did, than Infinity, and do you know why that was? They had identical service, but they had gone after different customers. Lexus went after Mercedes and Cadillac buyers, primarily. They tended to be older, set in their ways, harder to get, and they stayed put once you got them. Infinity went after what you call experiential customers. This is demographically. They went after BMW drivers and Jaguar drivers. And an experiential customer is much more likely to say, wow, that Infinity. I love that. Let's try something different now.

And so you need to go after — if you want loyal customers — go after those types of customers who are likely to remain loyal. Some types of people tend to be more loyal than others, even at that level.

SPIKE JONES:

Have you seen anyone even try to attempt something like that? Like a model? Especially the commission part?

DON PEPPERS:

I've seen a couple of attempts. One of our clients, I can't tell you who, did it for a while and it sort of worked, and then finance people took issue with it and they had their own conflicts, and you know.

SPIKE JONES:

Leave it to the finance people, I tell you what.

DON PEPPERS:

Yeah, well, you know, I talked to a company once where they were trying heavily to improve their customer experience and prove their customer experience, and they're measuring their NPS score every month, you know, on a transactional basis. And then one quarter, the finance people felt that they weren't going to make their estimates. So at the contact center where, which was our client, they made a rule: from now until the end of the quarter, no customer refunds under any conditions. No refunds under any condition. So guess what happened to NPS score? They made their quarterly results, but was that good or bad, right?

KATHERINE CALVERT:

Well, and you know, I've heard, we talked about this when we first met, Don, but that ability to look over the horizon and think about the near-term purchase or the lifetime value, right, and if you can get alignment in the company around what the lifetime value is, maybe you don't live quarter to quarter and make short term decisions like that.

DON PEPPERS:

Yeah, and if we got time I'm going to talk a little bit about lifetime value because it's, that's another concept, that's a financial concept that could be used to help bridge the gap between the short term value and the long term value that are created by customers.

Lifetime value is today's value of all the money you're ever going to get from the customer, let's say. Okay? Now you can't ever know what a customer's lifetime value is going to be because it's the future, and it’s, no matter how much AI you have you'll never ever be able to predict it for any single customer exactly because it's the future.

However, that doesn't mean that it's not a real number. If I go back twenty years ago and look at some valuable customers I had twenty years ago and what they did over the last twenty years, I could then say, twenty years ago, their lifetime value was this, right, so we know the number exists. So the question is: where can you meet with the finance people that they feel comfortable and you feel comfortable that you're at a reasonable place?

So we could say, you could say you could say, a certain — classes of customer. Let's say: Let's take, let's take, we're a CPG company. A package goods company. And we have, we're selling cereal. We’re Kellogg’s. Let's look at families of five or more, and what do you think that they're worth right now on average — thousand dollars? No, too much? Okay? Well, how about five hundred? Can you do six hundred? Okay, we'll get, we'll give, we'll go five hundred. Okay. You have a discussion with the finance people, but once they agree that this is the lifetime value for these kinds of customers, then you can say: What's the value of getting ten more of them or of losing ten of them? Or a hundred thousand of them? Okay. We know, what's the benefit, what's the cost, if we lose one percent of these types of customers, what's it going to cost us over time? Not just this quarter, not just this month. And I think we can have discussions like that.

SPIKE JONES:

Yeah and to your point, and even to further your point, I do think, if you bring in, I think, there's a stigma around the finance folks and the legal folks that people — “Aw they're just going to slow stuff down,” and I have found that if you align yourselves with them and you all get in the same room and go, man you're part of the solution, and get them on board, man, it makes life so much easier and they can be your biggest allies. Which is super fantastic.

DON PEPPERS:

Exactly. Why not, hey, we're marketing people. Why not treat the finance people like we want to be their friends? We want to manage their experience well. Okay.

SPIKE JONES:

Absolutely. I married one of them, so you know, I got nothing but great things to say.

DON PEPPERS:

There you go.

KATHERINE CALVERT:

And well, and shout up to our own CFO, April Downing, who's definitely a CF-yes. So all right, that was awesome. Thank you, Don. Before we go, we always like to make it a little more personal, to your point. The world today, great CX starts with contextual personal connections and connecting those dots. So tell us a little bit more about Don Peppers. We have five questions we ask all our guests. I will start: Don, what was your first concert?

DON PEPPERS:

You're going to laugh when I say this, but there, I have never been to one, I was never at a concert until I was, I had a little girl and I took her to a Beach Boys concert when I, when I was in my 30s. When I was in my teens and 20s, I was a cadet at the Air Force Academy and we didn't go to rock concerts during the Vietnam era. You know, you had short hair. You didn't, you stayed out of the way of the long-hairs, you know. You just couldn't do it.

SPIKE JONES:

Fair enough.

KATHERINE CALVERT:

Thank you for your service.

SPIKE JONES:

Yes, absolutely. What was your first job?

DON PEPPERS:

I was an economist for an oil — after I left the Air Force, I became an economist for an oil company in New York City. An economist, yeah, there you go.

SPIKE JONES:

How did you get from there to here?

KATHERINE CALVERT:

Bad experience at the gas station?

DON PEPPERS:

I've never had a job for which I actually was educated. I have a degree in engineering from the Airforce Academy and I have a degree from Princeton in International Affairs, and I've never had an engineering job or a public policy job ever. So, there you go. I guess I'm just, I got a low attention span.

SPIKE JONES:

Professionally curious, we prefer to say.

DON PEPPERS:

Professionally curious. There you go.

KATHERINE CALVERT:

Well, and speaking of that, if you couldn't do what you're doing today, what profession, other than your own, would you attempt?

DON PEPPERS:

It's funny, nobody's ever asked me that before you did, you know, in the, preparing for this podcast, and I had to think, and I suppose, right now, where I am today — I'd love to be an actor.

KATHERINE CALVERT:

I love that answer. So unexpected.

DON PEPPERS:

Yeah, I have a son-in-law who’s an actor and has been on the BBC and stuff, and his brothers are actors. We watched one of them on a series last night. Looks like a cool occupation to me.

SPIKE JONES:

Next season on Netflix, Don Peppers stars in — okay, I'll be looking for it. I'll be looking for it. Next question: what's your favorite app on your phone.

DON PEPPERS:

Flight radar 24.

SPIKE JONES:

What's that?

DON PEPPERS:

I can, at any point in time, open that app, see a map of myself and see little airplanes around, which are the flights that are in the air. So if I'm, if I see a jet going overhead, I open Flight Radar 24 and I say: Oh, that's the, that’s Singapore Airlines, they’re landing in San Francisco. So.

SPIKE JONES:

Well that's cool. I'll be downloading that today. Very cool.

KATHERINE CALVERT:

That's, are you a pilot? You were at the Air Force Academy.

DON PEPPERS:

No, I was. I went to the Air Force Academy, I didn't go to flight training. I wanted to be an astronaut, so I actually have a degree in astronautical engineering.

SPIKE JONES:

Holy moley.

KATHERINE CALVERT:

So weird, so do I. Just kidding.

DON PEPPERS:

But, Spike, when we were working on really hard astronautics problems with differential equations and so forth, somebody sooner or later would say, come on guys, this isn’t advertising.

[Laughter]

SPIKE JONES:

Fair enough, fair enough.

DON PEPPERS:

Now, yeah, I may be the only rocket scientist whoever actually went into the advertising business. So.

SPIKE JONES:

There you go. Put that in your bio as well. That's good.

KATHERINE CALVERT:

That's so great. All right, and finally, Don, what is your biggest indulgence?

DON PEPPERS:

Peanut butter.

KATHERINE CALVERT:

Peanut butter?

DON PEPPERS:

I plead guilty. Peanut butter. I eat lots and lots of peanut butter — I don't know, I do. I can't get enough peanut butter.

KATHERINE CALVERT:

Like, from the jar, on a spoon? How do you? How do you deliver it?

DON PEPPERS:

Super crunch. I eat it out of the jar. I eat it on raisin bread toast. I eat it with my apple. Sometimes before I go to bed, I have to have a little hit of peanut butter. That's some real indulgence.

SPIKE JONES:

The keys to a healthy life, ladies and gentleman. You heard it — running, for many years, and peanut butter. There you go.

KATHERINE CALVERT:

Yeah, Don’s, a runner, as well. All right. Well, this was amazing. So insightful. Thank you so much for sharing your perspective, Don, and your experience with our audience and with us. We are lucky to have had you on the show. Thank you

DON PEPPERS:

Well, thank you, Katherine, Spike. Nice to meet you.

SPIKE JONES:

The pleasure was all mine.

KATHERINE CALVERT:

All right, thanks, everybody. Stay tuned for our next episode.

KHOROS:

Your customers expect to be understood — their likes and dislikes, their history with your brand, and their communication preferences. But so many companies struggle to connect the dots of the interaction across their own teams and channels and its creating customer experience challenges and disasters. That's where Khoros can help. Khoros is the award-winning customer engagement platform built to turn those siloed interactions with your customer into enterprise value. Khoros works with more than 2,000 of the world's leading brands and powers more than 500 million digital interactions every day. Khoros is the award-winning platform for digital-first customer engagement. Ready to create human connection across the digital customer experience to create customers for life? Learn more at Khoros.com.