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Academic Journal  :  Linking Empathy with Profit
 

Academic Journal : Linking Empathy with Profit

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    Academic Journal  :  Linking Empathy with Profit Academic Journal : Linking Empathy with Profit Document Transcript

    • Original Article Customer experience and profitability: An application of the empathy rating index (ERIC) in UK call centres Received (in revised form): 6th April 2009 Jamie Lywood is CEO of Harding & Yorke (www.empathy.co.uk). He is a well-known and highly respected speaker, and is directly responsible for the strategic direction of the Harding & Yorke businesses, which include measurement, benchmarking and consultancy in the Customer Experience space. Merlin Stone is a leading author and advisor on CRM strategy and implementation. He is Research Director at WCL, one of the United Kingdom’s fastest growing management consultancies; Professor of Marketing at Bristol Business School; and Visiting Professor of Marketing at several universities, including Oxford Brookes. Yuksel Ekinci is a reader in Marketing at Oxford Brookes University Business School. He specialises in customer satisfaction measurement and user satisfaction with CRM. ABSTRACT This article explores the relationship between customer experiences with call centres and company profitability. Empirical research using data from the ERIC Programme™ of Harding & Yorke and financial data from the AMADEUS database identifies that there is a strong relationship between certain dimensions of the customer experience and profitability. The article concludes that companies need to investigate this possible relationship for their call centres, to determine whether their management of call centres is focusing on the right attributes. Journal of Database Marketing & Customer Strategy Management (2009) 16, 207–214. doi:10.1057/dbm.2009.24 Keywords: call centres; customer experience; profitability; service quality; customer satisfaction INTRODUCTION experience, and creating superior customer The literature in marketing and consumer experience has become a strategic necessity research has historically not considered for firms to survive in competitive business customer experience as a separate construct. environments.2,3 A similar position can be Instead, researchers have concentrated on found in the managerial field. The majority Correspondence: measuring service quality and customer of senior business managers believe that Merlin Stone WCL Office, 83 Victoria satisfaction.1 However, in recent years, differentiating solely on the traditional Street, London, SW1H scholars and practitioners have become elements such as price, product and quality 0HW, UK E-mail: merlin.stone@ increasingly aware of the need to create is no longer an effective business strategy, w-c-l.com value for their customers in the form of and even more senior managers maintain © 2009 Palgrave Macmillan 1741-2439 Database Marketing & Customer Strategy Management Vol. 16, 3, 207–214 www.palgrave-journals.com/dbm/
    • Lywood et al that the customer experience is the next These are influenced by negative and competitive battleground. Creating superior positive forces that culminate in customer customer experience has become essential satisfaction. Carbone and Haeckel10 for repeat purchases and customer loyalty. introduce the notion of experience cues, It also affects a firm’s market share, and defined as the visual, auditory, tactile, thus provides enormous economic value for aromatic and taste signals emitted by firms.4,5 products, services and the environment. Despite the recognition of the Recently, marketing scholars and importance of customer experience, few practitioners have begun to recognise the firms understand what this means, what it importance of the customer experience. entails and how their managers can Today, definitions of customer experience galvanise the firm to deliver a superior abound in the literature.3 Hoch11 stated customer experience.1,5 For instance, Meyer that customer experience, as an emotional and Schwager6 quoted research from Bain and subjective experience, is uniquely & Company’s recent customer survey that personal and changeable with the customer, included 362 companies. Although 80 per product or service. Meyer and Schwager6 cent of the companies surveyed believe that defined the customer experience as the the experience they provide is ‘superior’, internal and subjective response from only 8 per cent of the customers described customers. Padgett and Allen12 referred to their experiences as ‘superior’. This survey the customer experience as a coalescing of discovers a huge gap in the perception symbolic meaning with consumers’ allied between the companies and their customers behaviours, thoughts and feelings during about the quality of customers’ experiences. service or product consumption. It is The problem in creating superior customer suggested that customer experience experience appears not only to be its originates from a set of interactions supposed intangibility, but also its between a customer and a product or inherently personal nature. Customer company, or part of its organisation, that experience exists only in the mind of an provokes a reaction. Pine and Gilmore8 individual, and will probably be different argue that customer experience is not an for each customer.7 amorphous construct, but is as real an offering as any service, product or THE DEFINITION OF commodity. Carbone and Haeckel10 CUSTOMER EXPERIENCE described the customer experience as Customers’ experiences result from the the aggregate and cumulative customer interaction with a company or use of the perception created during the process company’s product or service.3 Pine and of learning about, acquiring, using, Gilmore8 suggest two dimensions to assist maintaining and sometimes disposing thinking about the customer experience. of a product or service. Although a review One dimension is the level of customer of the literature on customer experience participation (from passive to active) and yields many definitions, some features the other is the level of connection (or of the customer experience are common depth of relationship) between the customer to most. First, it has a temporal dimension and the performance – ranging from that originates from all the contact points absorption to immersion. O’Loughlin et al,9 between the customer and the firm, on the other hand, state that the concept or the firm’s offer. Second, it is strictly of customer experience consists of three personal, and involves and engages a components: brand experience, transactional customer at different levels (rational, experience and relationship experience. emotional, sensorial, physical and spiritual).3 208 © 2009 Palgrave Macmillan 1741-2439 Database Marketing & Customer Strategy Management Vol. 16, 3, 207–214
    • Customer experience and profitability CUSTOMER EXPERIENCE AND advantage, such as customer loyalty and PROFITABILITY profitability, research on call centres and The relationship between the quality of the voice-on-voice encounters is very limited.14 customer experience and achievement of This lack of literature arises from the fact business objectives such as profit has rarely that most research on customer experience, been researched, although its importance is to date, has focused on face-to-face service acknowledged. Tools such as Net Promoter and sales interactions, and relatively little is Score have made claims of correlation with known about the special needs of key business objectives that are often telephone-related customer experience. misinterpreted as profit ratios. Following Call centres are an increasingly important more detailed academic research, these component of the services that companies claims have been challenged.13 offer customers. Many business organisations More confusion is created by the provide this as their main (or only) complete lack of correlation with traditional customer interface for solving problems, customer satisfaction scores used by the vast resolving complaints, providing information majority of organisations to measure their or answering questions. Scholars suggest relationship with their customers. While we that service-based competition and the appreciate that some firms will produce opportunity for high-volume, low-cost independent evidence of a correlation with service delivery via telephone-based profit, these research initiatives, by their technology have resulted in the enormous very nature, rarely stand up to proper growth of call centres. Managing the academic scrutiny. Thus, Frow and Payne5 customer experience resulting from call suggested that improvements in customer centre encounters will likely have important experience should be based on the profit implications for a firm’s success.14 potential, and that service strategies and Customer experience often depends on investment decisions should be made with an evaluation of the service encounter with the knowledge of this profit potential. contact employees, in face-to-face or The purpose of this research is to telephone encounters. However, there are contribute an understanding of the differences between these two types of customer experience and investigate how encounters as far as the issue of customer the customer experience relates to company experience is concerned.15 At call centres, profitability through Harding & Yoke’s service encounters occur via telephone each ERIC database – the UK’s most time a customer interacts with a company. comprehensive research on customer This is different from face-to-face experience with call centres. encounters that occur between employees and customers in the non-electronic CUSTOMER EXPERIENCE environments of service companies.16 DURING CONTACT WITH CALL In face-to-face encounters, tangible CENTRES factors such as physical appearance The customer experience takes place in (including dress) and body language of many different ways – on the web, via employees and characteristics of the tangible e-mail, in a store, hotel, restaurant, airport environment in which encounters take or other service location, when the place are important determinants of customer is using the product or service, customer experience. However, in and of course at call and contact centres. telephone encounters, physical issues do Although many organisations have not contribute to customer experience. identified the importance of the customer Customer experience is based on factors experience in achieving a competitive such as empathy, reliability, responsiveness © 2009 Palgrave Macmillan 1741-2439 Database Marketing & Customer Strategy Management Vol. 16, 3, 207–214 209
    • Lywood et al and assurance, and thus customer related to service quality and its translation experience may be influenced by the into affective commitment and customer interpersonal traits of call centres. The loyalty. The main findings of this research customer-contact employee plays a major were that customer focus was related to role in delivering superior customer loyalty, with partial mediation by perceived experience.15,16 Interestingly, the differences service quality. In contrast, customer between the customer experience as defined feedback exhibits a direct relationship only by face-to-face versus telephone interactions to affective commitment. may not be so extreme, according to research being carried out by Harding & Yorke. They are investigating the physical METHODOLOGY perception of agents by customers who interact mainly through call centres and Measure of customer experience only rarely, if ever, through face-to-face at call centres interactions. Initial findings suggest that the Customer experience with call centres was ‘perceived’ physical embodiment of the measured by Harding & Yorke’s ERIC agents by the customer is very strong, and Programme™ (Empathy Rating Index that this will vary both positively and Company), which started to be developed negatively with the levels of positive and in 2002 and was launched 2 years later in negative empathy. 2004. The ERIC Programme™ measures Empirical evidence from studies on the the nature of feelings resulting from being effect of call centres on customers is limited a customer, and includes semi-annual and still far from sufficient. Feinberg et al17 measures in the call centres of 200 investigated the operational determinants of companies from 12 different industries caller satisfaction at call centres, finding that (mortgages, savings, home insurance, motor of all the critical operational determinants, insurance, loans, credit cards, catalogue only ‘percentage of calls closed on first clothing, utilities, healthcare insurance, life contact’ and ‘average abandonment’ have a insurance, mobile phones and telephone significant influence on caller satisfaction. banking). The selected companies have a Mount and Mattila18 examined the impact large market share in the relevant sector. of three types of listening behaviour They may subscribe to the service (attentiveness, perceptiveness and (subscribers are called ‘Members’) or may responsiveness) on call centre satisfaction be included because a Member has and future purchase intention, finding that requested it. For call centres, the research attentiveness and perceptiveness are the is accomplished by specialist, trained most salient dimensions of listening researchers calling an advertised number behaviour with regard to call centre identified as a main brand contact for the satisfaction and future purchase intention. target company (in some cases these Research by Dean19 indicated that both experiences may be considerably distanced perceptions of quality and customer from the actual brand through the orientation of call centres were related to outsourcing of the call centre operations). loyalty to the providing organisation, while Test calls are made to each company by the perceptions of quality partially mediated the Harding & Yorke research team to ensure relationship between customer orientation that the target telephone numbers are and loyalty. Another study by Dean14 correct and that the receiving agents are investigated how the perceived customer able to deal with the stories and scenarios orientation of call centre employees used. The trained researchers then make (customer focus and customer feedback) 40 unscripted calls over three weeks 210 © 2009 Palgrave Macmillan 1741-2439 Database Marketing & Customer Strategy Management Vol. 16, 3, 207–214
    • Customer experience and profitability to each company and complete an online companies was extracted from ‘AMADEUS’, questionnaire. Harding & Yorke researchers a pan-European financial database. are recruited for their sensitivity to customers’ physical and emotional needs and their ability to articulate feelings in a The sample concise, fair and consistent way. Each The study sample was limited to 28 researcher is trained and constantly companies in which ROCE and ERIC monitored for accuracy, fairness and ratings were both available. As the unit of call-assessment techniques. analysis was a company, the ERIC ratings The ERIC instrument consists of 29 were taken from 1400 customers and empathy questions measured on a 10-point aggregated to a company level. The study rating scale and 11 call process questions that sample included the following companies: are related to how the calls are processed. BT Mobile, Bupa Health Insurance, Cotton The empathy questions include insights into Traders, Dial-a-Phone, EDF Energy, the developing of the relationship, handling Freemans, Grattan, Halifax Travel of the task, promotions and wrapping-up Insurance, Halifax Home Insurance, J D and some common values. The call process Williams, Lands’ End, Legal & General, questions are grouped into five parts: Littlewoods, MBNA, Morgan Stanley Opening Salutation (based on three Credit Cards, Norwich Union Life, O2, questions), Putting on Hold (based on two Sainsbury’s Bank, Scottish Hydro Electric, questions), Preparing for the Call (based on Scottish Power, Sony Ericsson, South East three questions), Offering Further Assistance Water, South Staffs Water, Tesco Personal (based on three questions) and Number of Finance, The Carphone Warehouse, Three Calls. Since 2004, nearly 4 million data Valleys Water, Virgin Mobile, Virgin points have been collected and analysed Money Life Insurance, Vodafone and by the ERIC Programme.20 Exploratory Yorkshire Water. Factor Analysis with a sample of the 5000 randomly selected customers from this database showed that the construct FINDINGS validity of ERIC was robust. The OLS regression analysis assessed the Cronbach statistics suggested that the influence of customer experience on EMPATHY scale was a very reliable ROCE. Before analysis, the suitability of measure ( = 98 per cent).21 the research variables was checked for the regression assumptions. Accordingly, no Profitability: Return on capital effect of multicollinearity appeared and the employed (ROCE) distribution of the model variables was Having established the validity and normal.22 Table 1 shows the influence of reliability of the measures, this study sought customer experience on profitability. to identify whether there was a relationship The findings suggest that the customer between the customer experience, as experience had a statistically significant measured by Harding & Yorke, and influence on profitability. The profitability as measured by ROCE. ROCE intercorrelation between ERIC and ROCE is a financial performance indicator that was very strong (r = 0.85; P < 0.05). represents the ratio of income before taxes, ERIC™ explains 72 per cent of the total minority interest, and taxes to capital variance in profitability, which is a very employed. This ratio indicates the efficiency good prediction. Five out of the six and profitability of a company’s capital components from the ERIC Programme™ investments. The ROCE ratio of the demonstrated a statistically significant © 2009 Palgrave Macmillan 1741-2439 Database Marketing & Customer Strategy Management Vol. 16, 3, 207–214 211
    • Lywood et al Table 1: Customer experience and profitability Harding & Yorke) are linked with Customer experience Profitability profitability; however, this does not Beta t-value P-value necessarily mean that they ‘cause’ profitability. However, companies that focus Opening salutation 0.47 3.50 0.002* Putting on hold 0.59 4.29 0.000* on the customer experience as measured by Preparing for the call 0.14 0.97 0.342 the ERIC Programme™ seem to be more Offering further − 0.87 − 5.63 0.000* assistance profitable than those who do not. The Number of calls − 1.10 − 5.85 0.000* empathy component of the ERIC Empathy 0.97 5.42 0.000* (Constant) − 3.78 0.001* Programme™ is seen to be a key driver of profitability: the higher the empathy rating, R2 0.727 the greater the profitability. This study also F 9.319 P 0.000 supports other studies that suggest a positive relationship between customer experience *statistically significant at the 0.01 level. and customer loyalty or brand image, both of which are essential for profitability. As found by this study, empathy is an essential influence on ROCE, including the component of customer experience. The empathy and opening salutation dimensions. findings suggest that while companies As expressed in Table 1, a positive extend greater empathy to their customers, relationship exists between Empathy and they must also control the cost of the call ROCE. Empathy, in particular, had the in order to manage profitability. largest positive beta coefficient (0.97), The results of the ERIC Programme™ implying that it makes the strongest show that managing call centre profitability contribution to explaining profitability. is a complex issue. A firm’s inherent ability Furthermore, every point increase on to manage and control its costs is identified empathy projects a 16.4 per cent impact on through the cultural elements of the ERIC ROCE if the other variables are held Programme research, and support is on a constant. This finding suggests that empathy case-by-case basis. However, some basic is not only a good measure for assessing observations can be made: For example, the customer experience with call centres, but study found negative relationships among is also one of the key performance ‘offering further assistance’, ‘number of indicators for managing profitability. calls’ and profitability. Arguably, when the Number of calls and offering further call centre agent offers extra help to assistance had a negative influence on develop better empathy with customers, the ROCE. Arguably, these could be indicators extra time increases the call centre’s of cost pressures. As the time spent on calls operating cost, and thus this would have a increases, so does the operating cost, and negative impact on profitability. Call centre therefore extending time spent per call will managers are well aware of the fact that negatively affect profitability. extra time spent on calls dramatically increases operating costs as a result of CONCLUSIONS processing a high volume of calls. One of Our findings suggest that customer the implications of this study for call centres experience with call centres had a is that companies must determine a statistically significant influence on company desirable level of empathy versus cost. profitability centres. The significance of this Alternatively, a more cost-effective method finding for companies with call centres is of developing empathy with customers must relatively simple to discern. Some aspects of be considered. This will, inevitably, involve call centre behaviour (as measured by creating an environment in which empathy 212 © 2009 Palgrave Macmillan 1741-2439 Database Marketing & Customer Strategy Management Vol. 16, 3, 207–214
    • Customer experience and profitability can thrive. Additional interventions may feel?’ and then let the scale reflect two involve improvements to employee opposite points and the variants between recruitment, training and retention, the use them (Harding & Yorke use a combined of technology, or better call routing. To verbal and numeric scale). create and manage sustainable empathy is A third reason is linked to who is doing not an easy task, and may require a change the measurement. If customers are asked in customer management culture. how they feel, they will often provide a We may be naive to suggest a positive logical rather than an emotional response. relationship between empathy and They do not mean to lie, but find difficulty profitability. After all, ROCE is a general in articulating their emotional states. Even measure, resulting from the endeavours of if they can, they prefer to respond in a way managers in all functions. We have found a that does not cause further questioning, that correlation, not necessarily a causal does not open an avenue to personal relationship. However, the correlation may criticism or that will include a personal be good because ERIC™ is a good analysis of a prolonged relationship with the measure of the quality of call centre organisation. Instead of asking customers, management, which may in turn be the ERIC Programme™ uses trained correlated with profitability. Customer researchers to analyse interactions between satisfaction surveys have mainly measured customers and companies. This removes the either the process of satisfying customers effect of any previous expectations a (for example did the agent say Good customer may have about an organisation, morning/afternoon? and so on) or the end and captures emotional effects fairly and result of an interaction (for example did the consistently. The ERIC Programme™ customer get what they wanted?). While measures the agent rather than the the ‘process’ element of ERIC™ is customer, and reports on an organisation’s comparable to many of these measures, the culture, which is why it seems to correlate ‘empathy’ element measures something very well with ROCE. different, namely, how customers are made ERIC analysis and validation may reveal to feel through the combination of attitudes reward and recognition approaches for call and subsequent behaviours of call centre centre workers that do not make customers agents. This is closely related to a common feel better. ‘Getting what you measure’ is ‘gut feeling’ that is difficult to articulate, intensified by reward and recognition but may result in customers buying more programmes, while the ERIC and/or staying loyal, or bad-mouthing the Programme™ aims to improve overall company and leaving. Importantly, the empathy between agent and customer, ERIC Programme™ captures both ‘gut making the interaction more enjoyable and feeling’ and some key operational measures rewarding for both parties. of call centres. This research has been specifically based A second reason for the quality of the on the relationship between customers and ERIC Programme arises from the quality of organisations when interacting through call the questions assessed and the scales against centres. However, the findings are based which they are measured. The questions are more on the Harding & Yorke designed not to lead the answer. Thus, methodology of measuring ‘feelings’ than ‘How good does it feel?’ is a leading on more traditional measures, and it is question because it implies the need for likely that similar outcomes and correlations ‘goodness’ in an experience rather than a will be developed though alternative dispassionate response. It is fairer and more channels such as internet, correspondence appropriate question to ask ‘How does it and face-to-face interactions. Using a © 2009 Palgrave Macmillan 1741-2439 Database Marketing & Customer Strategy Management Vol. 16, 3, 207–214 213
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