Optimizing the Profitable Link Between Employees and Customer Loyalty Behavior

Slide 2: Strengthening Bonds Driving Customer Commitment Employee Ambassadorship: Optimizing the Profitable Link Between Employees and Customer Loyalty Behavior Michael Lowenstein, PhD CMC Vice President and Senior Consultant Harris Interactive Loyalty HARRIS INTERACTIVE Loyalty © 2007 Harris Interactive Strengthening Bonds Driving Customer Commitment

Slide 3: HARRIS INTERACTIVE Loyalty 3 Strengthening Bonds Driving Customer Commitment

Slide 6: Harris Interactive Loyalty Concept & Model of Customer Commitment Strengthening Bonds & Building Relationships HARRIS INTERACTIVE HARRIS INTERACTIVE Loyalty 6 Strengthening Bonds Driving Customer Commitment

Slide 7: Defining Rational and Emotional Bonds RATIONAL CONNECTION RATIONAL Based on Satisfaction • Relationship based on meeting functional expectations • Reinforced by ongoing performance quality • Value for the money EMOTIONAL EMOTIONAL CONNECTION Based on Trust • Sense of personal relationship with brand or company • Reinforced by service experiences • Supported by customer touch points HARRIS INTERACTIVE Loyalty 7 Strengthening Bonds Driving Customer Commitment

Slide 8: Conceptual Framework: The Commitment Model Relationship Relationship Commitment Diagnostics Conditions Dimensions Corporate Reputation Emotional Policies Trust CONTRACTUAL COMMITMENT Connection Rational Connection Service Satisfaction PURCHASE Commitment ENVIRONMENT Product Satisfaction ROMANCE ACQUAINTANCE Rational Satisfaction Connection Price Emotional Connection Competitiveness HARRIS INTERACTIVE Loyalty 8 Strengthening Bonds Driving Customer Commitment

Slide 9: Conceptual Framework: The Role of Advocacy Rationally Connected Committed STRONG • Committed customers are ADVOC more likely to turn into ATES active Advocates. • True Advocates actively tell others how great the Rational Connection brand or company is. • Advocates create brand momentum. • Saboteurs can actively destroy reputations. SABOT EURS Disconnected Emotionally Connected WEAK STRONG Emotional Connection HARRIS INTERACTIVE Loyalty 9 Strengthening Bonds Driving Customer Commitment

Slide 10: Connection of Employee Attitudes and Beliefs to Customer Behavior HARRIS INTERACTIVE HARRIS INTERACTIVE Loyalty 10 Strengthening Bonds Driving Customer Commitment

Slide 11: The Role of People… Why They Can Be So Critically Important 68% 41% 70% …of customer …of customers LEAVE …of customers are LOYAL brand perception because of poor employee because of a good employee is determined by experiences attitude attitude with PEOPLE Source: Parkington and Buxton, Source: MCA Brand Source: Ken Irons, Market Leader Study of the US Banking Sector, Ambassador Benchmark Journal of Applied Psychologyy UK retailer: 1% increase in employee commitment = 9% increase in monthly sales Enterprise IG HARRIS INTERACTIVE Loyalty 11 Strengthening Bonds Driving Customer Commitment

Slide 12: Why Do Customers Stop Doing Business With a Firm? Why Do Companies Lose Customers? The Technical Assistance Research Program (TARP) studies show: • Customers who complain to an organization and have their complaints satisfactorily resolved, tell an average of 5 other people about the good treatment they received, and 20 people if they receive poor treatment. • Of the customers who register a complaint, between 54% and 70% will do business with the organization again if their complaints are resolved. This figure goes up to 95% if the customers feel the complaints are resolved professionally, quickly and proactively, depending upon both systems and positive employee attitudes and behaviors. HARRIS INTERACTIVE Loyalty 12 Strengthening Bonds Driving Customer Commitment

Slide 13: Further Proof Points of Employee Attitude/Action Linkage to Customer Behavior • Northwestern University: Study in hotel chain showed that, for ‘The extent to which employees try to satisfy customers’, a 10% increase in this factor resulted in a 22% increase in customer spending per hotel visit. • Sears: Study in 800 stores showed that a 5 percent documented improvement in employee attitudes toward their jobs and commitment to the company directly resulted in a 1.3% increase in customer perceptions toward the retailer and, in turn, a .5% increase year-over-year revenue. • Royal Bank of Canada: Studies have shown that level of employee commitment accounts for 60% to 80% of bank customer satisfaction; and 40% of the difference in how customers view RBC’s services can be linked directly to their relationship with bank staff. HARRIS INTERACTIVE Loyalty 13 Strengthening Bonds Driving Customer Commitment

Slide 14: Employee Mirroring Research HARRIS INTERACTIVE HARRIS INTERACTIVE Loyalty 14 Strengthening Bonds Driving Customer Commitment

Slide 15: Conceptual Model of Service Quality (Berry/Parasuraman/Zeithaml SERVQUAL Model, Updated in 2000) CUSTOMER Past Experience Personal Needs Word-of-Mouth Communications Expected Service GAP 5 Perceived Service GAP 1 External GAP 4 Communication Service Delivery to Customers GAP 3 Service Quality Specifications GAP 2 Management Perceptions of Customer Expectations HARRIS INTERACTIVE Loyalty PROVIDER 15 Strengthening Bonds Driving Customer Commitment

Slide 16: Employee ‘Mirror’ Research: Customer-Supplier Perceptual Gap Profiling • Valuable staff debriefing device • Counterpoint for customer research findings; adds significant, unique insight • Alignment determination is foundation for training and process improvement • Can be utilized for employee incentive and motivation programs • Effective for staff communication continuity HARRIS INTERACTIVE Loyalty 16 Strengthening Bonds Driving Customer Commitment

Slide 17: Measuring Customer and Staff Alignment Staff All Customers HNW Customers 100% 80% 60% Significant 40% misalignment 20% 0% Product, Service Interest in My Follow-through on Responsiveness Makes Me Feel Anticipates My Inspires My Trust Gets Answers Knowledge Needs, Goals Problems Part of a Special Needs Quickly Group HARRIS INTERACTIVE Loyalty * Based on % 6/7 performance ratings on a 7-point scale 17 Strengthening Bonds Driving Customer Commitment

Slide 18: Mirroring (Overall) – Satisfaction with Performance Areas The importance employees think customers attach to the specified attribute/area. Chart displays Top 2 Box Scores Top 2 Box s score from (ratings of “6” or “7”) employees Top 2 Box score Employee Rank Ordering overall. from of Importance (#1) CMG/WMG/EMG 67% 38% customers, Service quality/Netw ork reliability 1 58% overall. * 42% 20% 5 Service management or problem resolution Top 2 Box score from BMG 28%33% 2 Pricing customers, 40% overall. 53% 36% 7 Technical support staff 49% 47% 14% 4 Service activation or installation 36% 50% 35% 6 Sales or account management 39% 40% 16% 8 Ordering/Booking 35% 38% 19% 9 Billing or invoicing 35% CMG/WMG/EMG BMG 53% 30% 3 Overall reputation 44% * Top 2 Box score from employees. Note: Attributes are rank-ordered by CMG/WMG/EMG importance. Q820 How satisfied or dissatisfied, overall, do you feel Level 3’s external customers would say they are with the organization’s performance on . . . ? Base: Employees– Total (n=4552); CMG/WMG/EMG – Total (n = 69-101); BMG – Total (n=239-260) HARRIS INTERACTIVE Loyalty 18 Strengthening Bonds Driving Customer Commitment

Slide 19: Perceived Performance Gap Profile Staff vs Special Education vs Mainstream Subject Areas Mainstream Special Education Staff 1. Simplicity of materials 2. Appropriateness of materials for reading levels 3. Overall cost 4. Responsiveness to service requests 5. Shipment accuracy 6. Range of mainstream materials available 7. Range of remedial materials available 8. Effectiveness in helping reach teaching goals 9. Overall graphic content 10. Contemporary nature of material 11. Speed of order delivery Overall Performance 10% 30% 50% 70% 90% High Performance* HARRIS INTERACTIVE Loyalty * Based on % high (5) performance ratings on a 5-point scale 19 Strengthening Bonds Driving Customer Commitment

Slide 20: Employee Mirroring: Customer Need Importance Perceptual Gaps Actual vs. Perceived Customer Needs Product Reliability Customers Tech Support Employees Customer Service Product Features .00 .10 .20 .30 Relative Importance Of Issue HARRIS INTERACTIVE Loyalty 20 Strengthening Bonds Driving Customer Commitment

Slide 21: Defining the Employee Ambassador Research Framework HARRIS INTERACTIVE HARRIS INTERACTIVE Loyalty 21 Strengthening Bonds Driving Customer Commitment

Slide 22: Employee Research Approaches Employee Attitudes and Behaviors Research Employee Employee Employee Satisfaction, Commitment and Engagement and Values, and Ambassadorship Alignment Loyalty (Advocacy) HARRIS INTERACTIVE Loyalty 22 Strengthening Bonds Driving Customer Commitment

Slide 23: Definitions of Employee Research Concepts and Methods • Employee Satisfaction and Loyalty – Identifies employee attitudes and behaviors leading to job satisfaction and employer loyalty • Employee Engagement and Alignment – Identifies employee attitudes and behaviors leading to agreement with, and belief in, overall company mission and objectives, as well as ‘fit’ and productivity within organizational culture • Employee Ambassadorship – Identifies the most active level of employee commitment to the company’s product and service value promise, to the company itself, and to optimizing the customer experience. It is linked to, but distinctive from, the productivity and empowerment elements of employee satisfaction, engagement, and alignment research because its emphasis is building customer bonds through employee interaction. HARRIS INTERACTIVE Loyalty 23 Strengthening Bonds Driving Customer Commitment

Slide 24: Optimizing Customer Experience and Relationships Linking Customer and Employee Commitment to Business Results C E Employee Customer U M Commitment and Commitment and S P T L Ambassadorship Advocacy O O M Y Now Now E E Strong R E Correlation R R Employee Engagement E E Customer Loyalty and Alignment S S E E A A 1990’s 1990’s R R Weak and Intuitive C C Correlation H H TQ and Employee Satisfaction Satisfaction & Loyalty 1980’s and earlier 1980’s and earlier HARRIS INTERACTIVE Loyalty 24 Strengthening Bonds Driving Customer Commitment

Slide 25: Personnel Psychology Volume 54 Issue 1 Page 101 - March 2001 To cite this article: DANIEL J. KOYS (2001) THE EFFECTS OF EMPLOYEE ATTITUDES, ORGANIZATIONAL CITIZENSHIP BEHAVIOR, AND TURNOVER ON ORGANIZATIONAL EFFECTIVENESS: A UNIT-LEVEL, LONGITUDINAL STUDY Personnel Psychology 54 (1), 101–114. THE EFFECTS OF EMPLOYEE ATTITUDES, ORGANIZATIONAL CITIZENSHIP BEHAVIOR, AND TURNOVER ON ORGANIZATIONAL EFFECTIVENESS: A UNIT-LEVEL, LONGITUDINAL STUDY DANIEL J. KOYS Department of Management DePaul University Abstract This study addresses the issue of whether positive employee attitudes and behaviors influence business outcomes or whether positive business outcomes influence positive employee attitudes and behaviors. We hypothesize that employee satisfaction, organizational citizenship behavior, and employee turnover influence profitability and customer satisfaction. Data were gathered from the units of a regional restaurant chain via employee surveys, manager surveys, customer surveys, and organizational records. Cross-lagged regression analyses show that employee attitudes and behaviors at Time 1 are related to organizational effectiveness at Time 2. HARRIS INTERACTIVE Loyalty 25 Strengthening Bonds Driving Customer Commitment

Slide 26: Issues Affecting Staff Belief in Employer and Brand Lower Brand Higher Brand Loyalty Loyalty Percent Employee Product Perceptions Employees Employees Difference Greater number of features than competitor 28% 48% +20%* Higher overall quality than competitor 41% 73% +32% Better overall value than competitor 38% 65% +27% More prestigious than competitor 34% 58% +24% More durable than competitor 36% 50% +14% More reliable than competitor 32% 59% +27% Employee Attitudes Toward Employer Company is customer-focused 32% 59% +27% Proud of company 28% 48% +20% Company is well-managed 38% 65% +27% Like working for company 41% 73% +32% * Actual difference is +71% (48%/28%) HARRIS INTERACTIVE Loyalty Source: Fram and McCarthy, Marketing Management, Jan./Feb., 2003 26 Strengthening Bonds Driving Customer Commitment

Slide 27: Employee Ambassador Research Concept • In active refinement. Goal is to create a framework consistent with the customer Commitment Model and Harris Interactive Loyalty enterprise portfolio and platform, representing a suite of stakeholder loyalty solutions • First generation baseline in September, 2006 conducted using Harris Poll – 612 overall full-time employees working for a company, 441 full-time service employees. Comprised of 13 core questions designed to identify the level of commitment to the value proposition, enterprise and customer. • First generation beta test in October, 2006 for 2,622 employees of leading Las Vegas hotel/casino; results reported January, 2007 • Second generation development encompasses qualitative research delving into emotional and rational dimensions of employee commitment, followed by quantitative refinement of final item battery. HARRIS INTERACTIVE Loyalty 27 Strengthening Bonds Driving Customer Commitment

Slide 28: Employee Commitment Categories Employee Ambassadors (Advocates) – the most active level, representing employees who are strongly committed to the company’s brand promise, the organization itself, and its customers. Also, and importantly, they behave and communicate in a consistently positive manner toward the company, both inside and outside. Positive Loyalists – employees who exhibit positive feelings about their job and emotional kinship with the company. They are favorable about the company, overall, have every intention of remaining with the company, and actively and positively perform on its behalf. Though their communication about the company to others is infrequent to nil, when they do communicate, the messages are largely positive. Passive Contributors – employees who are generally satisfied with their jobs but rather ambivalent to mildly positive about the company overall, their relationship with it, and its products. They may communicate some generally positive messages about the company to others, but rarely and inconsistently. Disinterested Seatfillers – employees who, because of their lack of interest, favorability toward or kinship with the company and its products, either do not communicate positive messages about the company internally or externally, or do not communicate at all. For these minimally involved members of staff, employment with the company is ‘just a job’, and very little more. Employee Saboteurs – employees who, though still drawing a paycheck from the company, are active, and frequently vocal, detractors about the organization itself, its culture and policies, and its products and services. These individuals are negative advocates, communicating their low opinions and unfavorable perspectives both to peers inside the company and to customers, and others, outside the company HARRIS INTERACTIVE Loyalty 28 Strengthening Bonds Driving Customer Commitment

Slide 29: Presentation of First Generation Findings HARRIS INTERACTIVE HARRIS INTERACTIVE Loyalty 29 Strengthening Bonds Driving Customer Commitment

Slide 30: Overall Ambassadorship Method Findings Dis- Employee Positive Passive Employee interested Ambassadors Loyalists Contributors Saboteurs N Seatfillers Harris Poll – 9/06 • Overall Full-Time Employees, working for 612* 15% 27% 27% 20% 11% a company • Overall Full-Time Service Employees, 441* 15% 31% 27% 16% 9% working for a company Las Vegas Hotel/Casino • All Employees 2,622 23% 28% 25% 15% 9% * weighted HARRIS INTERACTIVE Loyalty 30 Strengthening Bonds Driving Customer Commitment

Slide 31: Harris Poll Service Employee Baseline Results Thoughts/Feelings About Company Employee Ambassadors Employee Saboteurs 100% 86% 90% 80% 71% 65% 70% 60% 53% Percent 50% 40% 30% 20% 10% 0% 0% 0% 0% 0% (16%)* (18%)** (8%)** (20%)* I trust the company I like the company * = Top Box % on 5-point description scale ** = Bottom Box % on 5-point description scale HARRIS INTERACTIVE Loyalty 31 Strengthening Bonds Driving Customer Commitment

Slide 32: Harris Poll Service Employee Baseline Results Thoughts/Feelings About Job Employee Ambassadors Employee Saboteurs 100% 90% 80% 70% 60% 59% 60% Percent 50% 43% 35% 40% 34% 30% 19% 20% 14% 8% 6% 10% 3% 0% 0% 0% (6%)** (18%)* (30%)* (5%)** (32%)* (2%)** I very much enjoy The work I do provides valuable I am very committed to my doing my job services and/or products to customers work * = Top Box % on 5-point description scale ** = Bottom Box % on 5-point description scale HARRIS INTERACTIVE Loyalty 32 Strengthening Bonds Driving Customer Commitment

Slide 33: Harris Poll Service Employee Baseline Results Company Attributes/Diagnostics Employee Ambassadors Employee Saboteurs 100% 90% 80% 71% 70% 62% 62% 60% Percent 45% 50% 43% 41% 40% 30% 20% 10% 2% 0% 0% 0% 0% 0% 0% (12%)* (16%)** (25%)* (6%)** (13%)* (16%)** The organization is The organization is focused on attaining The organization is very well-managed the highest quality possible loyal to its employees * = Top Box % on 5-point description scale ** = Bottom Box % on 5-point description scale HARRIS INTERACTIVE Loyalty 33 Strengthening Bonds Driving Customer Commitment

Slide 34: Harris Poll Service Employee Baseline Results Comparative Assessments (Fram & McCarthy Diagnostics) Employee Ambassadors Employee Saboteurs 100% 90% 80% 70% 60% Percent 45% 50% 42% 41% 40% 39% 40% 36% 36% 30% 20% 6% 10% 4% 4% 3% 3% 3% 3% 0% (29%)* (33%) (31%) (29%) (34%) (25%) (30%) # of product/ Overall Overall Trust among Long-term Perceived Benefits of service features product/ value of customers relationships prestige of products/ we provide service product/ with the services to quality service customers organization customers * = Percent rating their company ‘Much Better’ compared to competition (5-point scale) HARRIS INTERACTIVE Loyalty 34 Strengthening Bonds Driving Customer Commitment

Slide 35: Comparisons of Key Results Fram & McCarthy Employee Brand Champions and Employee Ambassadorship Saboteur to Low to High Brand Ambassador Loyalty (Difference (Difference in % in % Points) Points) Attitudes Toward Employer • Organization is well-managed +27 +62 • Like the company +32 +65 • Proud to work for company * +20 +64 (Comparative) Attitudes Toward Employer’s Products/Services • Number of product/service features +20 +30 • Overall product/service quality +32 +33 • Overall value of products/services +27 +37 • Perceived prestige of organization +24 +36 * = Element of employee ambassador technique HARRIS INTERACTIVE Loyalty 35 Strengthening Bonds Driving Customer Commitment

Slide 36: Mirroring Diagnostic Elements (Top 2 Box Scores – 7 Point Scale) • Employee Ambassadors were dramatically more likely to rate Las Vegas Hotel/Casino highly when compared to Saboteurs All Employees Guests Employee Ambassadors Employee Saboteurs 100% 90% 84% 80% 79% 80% 73% 71% 71% Percent Top 2 Box 70% 60% 49% 44% 44% 50% 41%43% 40% 37%38% 38% 40% 34% 33% 25% 30% 20% 11% 9% 8% 7% 7% 5% 10% 0% Guests would Guests would Guests are Guests are Guests would Guests would continue to stay continue to stay continue to stay continue to stay committed to loyal hotel at the hotel at the hotel continuing their customers at the hotel at the hotel because of the because of the because of the relationship because of the high level of fun and fulfilling value of what with the hotel exceptional personal service experience it they receive for quality of the they receive provides the price experience HARRIS INTERACTIVE Loyalty 36 Strengthening Bonds Driving Customer Commitment

Slide 37: Mirroring Diagnostic Elements (Top 2 Box Scores – 7 Point Scale) • Employee Ambassadors were dramatically more likely to rate Las Vegas Hotel/Casino highly when compared to Saboteurs All Employees Guests Employee Ambassadors Employee Saboteurs 100% 90% 82% 82% 81% 79% 80% 73% 72% Percent Top 2 Box 70% 60% 49% 49% 48% 46% 50% 40% 39% 38% 37% 36% 40% 32% 31% 25% 30% 15% 20% 14% 10% 9% 7% 6% 10% 0% The hotel will do The hotel The hotel will do The hotel The hotel Guests feel they what it takes to trends whatever it takes has the exceeds have a personal resolve any guests as to make guests guests best guests’ relationship with problems the valued happy interest at expectations the hotel as their guests have customers heart Las Vegas destination HARRIS INTERACTIVE Loyalty 37 Strengthening Bonds Driving Customer Commitment

Slide 38: Swing Voter Analysis HARRIS INTERACTIVE HARRIS INTERACTIVE Loyalty 38 Strengthening Bonds Driving Customer Commitment

Slide 39: Swing Voter Analysis of Employee Ambassadorship • “Swing voter analysis” for Las Vegas Hotel/Casino employees, as it does in politics, deals with how to move the undecided and leaning “voters” into the desirable camp and how to avoid moving them into the undesirable camp. • In this case the desirable camp is the Employee Ambassador group and the undesirable camp is the Employee Saboteur group. – In particular, this analysis shows how to move Passive Contributors and Positive Loyalists, the two groups closest to becoming Ambassadors and therefore easiest to influence, into the Ambassador camp. – It also shows which attributes put at risk the employee groups that are closest to becoming Saboteurs, i.e. the Passive Contributors and the Disinterested Seatfillers. • Note, that the Passive Contributors are considered swing voters in either direction. HARRIS INTERACTIVE Loyalty 39 Strengthening Bonds Driving Customer Commitment

Slide 40: Ambassador/Saboteur ‘Swing Voter’ Analysis What turns passive, positive employees into ambassadors? Employee Ambassadors Positive Loyalists Passive Contributors Disinterested rs Seatfillers e Vot g in Sw Saboteurs What turns passive, disinterested, negative employees into saboteurs? HARRIS INTERACTIVE Loyalty 40 Strengthening Bonds Driving Customer Commitment

Slide 41: Swing Voter Analysis Classification of Attributes In swing voter analysis, key drivers are divided into three groups depending on their unique contribution to employee growth and/or risk. These are: • Delighters: Improving performance on these attributes will move swing voters into the ambassadors group while declining performance on them has little impact. These delighters tend to have impact if there is good employer performance where good performance wasn’t expected. • Dissatisfiers: Declining performance on some attributes will move swing voters into the saboteur group while improving performance has little impact. These dissatisfiers tend to have impact when there is poor performance where good performance is expected. • Dual Effects: These dual effect attributes show improved overall feelings about the hotel in both directions, i.e. they are associated with moving swing voters into the Ambassador camp with good performance as well as with moving swing voters into the Saboteur camp with poor performance. The following chart shows selected attributes that are either delighters, dissatisfiers, or Dual Effects. HARRIS INTERACTIVE Loyalty 41 Strengthening Bonds Driving Customer Commitment

Slide 42: Swing Voter Analysis Importance Scores for Selected Attributes (“Swing Up” To Ambassadors, “Swing Down” To Saboteurs) Swing Swing Up Down I trust the hotel 28% 4% My work gives me a sense of personal accomplishment 8% 4% The hotel is focused on attaining the highest quality possible 7% - Overall value of service provided 6% 23% I very much enjoy doing my job 6% 10% I feel a lot of stress at work 6% 6% The hotel is very loyal to its employees 6% 2% My immediate supervisor 4% - The hotel will do whatever it takes to makes guests happy 4% - I have a clear understanding of the hotel’s mission, goals, and objectives 2% 13% The extent of diversity of co-workers - 8% I am very committed to my work 2% 5% Dual effects Dissatisfiers Delighters HARRIS INTERACTIVE Loyalty 42 Strengthening Bonds Driving Customer Commitment

Slide 43: Delighters (Opportunities for Ambassadorship Growth) Building employee trust and pride in the hotel (viewpoint that the guests believe Las Vegas Hotel/Casino has their interests at heart), pride in their work and their accomplishments at work, clear supervisory direction and training, and a clear view to the potential of a promising future at Las Vegas Hotel/Casino all can create a higher proportion of Employee Ambassadors at Las Vegas Hotel/Casino. Primarily upside diagnostics (in order of importance): • I trust the hotel • My work gives me a sense of personal accomplishment • The hotel is focused on attaining the highest quality possible • My immediate supervisor • The hotel will do whatever it takes to make guests happy • Guests would continue to stay at the hotel because of the high level of personal service they receive • Diverse perspectives are valued and encouraged in my departme

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