From your biggest disruptors to your closest ally

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At this year’s World Economic Forum in Davos, two thirds of CEOs agreed that customers are among the most disruptive forces that their business is facing. In part, this is for reasons we know: in the ‘age of the consumer’, people are better informed and much more demanding. But this disruption is also because of something we don’t understand – namely, our customers. 

Modern consumers are increasingly defying stereotypes. A connected and globalised world means they are seeing all the possibilities in life and feeling empowered to create their own unique identities, values and paths. 

Companies feel comfortable observing their customers, but don’t feel as comfortable engaging in challenging – and more meaningful – conversations. That is understandable; building genuine customer relationships requires a shift in the way many organisations do business. But relationships with those disruptors are key to growth. One sale is good, but a bond and loyalty that leads to a lifetime of sales, that’s long-term value. 

At C Space, we believe companies that truly ‘get’ their customers perform better than those who don’t – and we’ve put our belief to the test by building a new way to measure the strength of customer relationships and a framework for understanding how companies can improve these. 

Customer Quotient (CQ) is the capacity of a company or brand to build strong relationships with its customers, and measures how well they understand and empathise with them. Businesses should focus relentlessly on the consumer’s point of view – so it follows that the way we assess customer-company relationships should too. Most of today’s measures of customer loyalty, satisfaction and experience are written from the company’s perspective, assessing what customers will do for the business. ‘Will you recommend us?’ ‘Will you purchase from us again?’ ‘How was your experience with us?’

CQ includes familiar measures of loyalty and experience, but reframes them through the customer’s lens. You can think of CQ as buying criteria, or an emotional blueprint of what draws customers to certain brands.

‘Do you really “get” me (more than other companies)?’
‘Do you speak my language?’
‘Do you share my values?’

To tap into this blueprint, we’ve identified five key business behaviours, selected for their ability to predict outcome measures such as intent to purchase in the future and likelihood to recommend to others: 

1. The ability to deliver superior customer experiences, respecting customers’ time, appreciating their loyalty and making customer service everyone’s job
2. The desire and ability to provide emotional validation, creating a sense of belonging and making people feel smart and proud for being customers
3. An appreciation of relevance; speaking the customers’ language and sharing their values
4. An open and genuine interest in dialogue with consumers, as opposed to continual – even incessant – messaging and requests for feedback
5. An understanding of consumers’ needs and preferences, and an ability to exercise better ‘customer intuition’ than competitors.

These behaviours are the basis for calculating the CQ score.

The 2016 UK CQ survey was designed to solicit consumers’ largely unaided evaluations. Rather than ask people to rate a prescribed list of businesses or brands, we asked them to think of a company that ‘got them’ and that demonstrated good customer intuition, as well as one that did not get them and demonstrated poor intuition. They rated each on attributes corresponding to the five behaviours above, and this gave us two key pieces of information:

• How frequently a company is identified by customers as really relevant to them, or not – the relative proportion of ‘good’ and ‘bad’ mentions per company
• How much customers feel a company is really relevant to them – how well a company rated among our five dimensions.

To calculate CQ, we transform the seven-point scale into a 10-point scale, take the cross-item average of the positive ratings for a company, and multiply that by the percentage of favourable mentions for it. We reverse-score the ratings of companies with ‘bad’ intuition, taking their average scores and multiplying them by the percentage of unfavourable mentions. Finally, we subtract the sum of bad scores from the sum of good to get a CQ score ranging from -10 to 10. 

We see in our 2016 CQ UK study that CQ is a powerful indicator of a customer’s intent to purchase in the future or to recommend a business or brand to others, with 90% accuracy. This demonstrates a relationship between high CQ scores and the kinds of consumer behaviours that lead to improved financial performance.

We went one step further to examine the relationship between CQ and financial performance measures, including return on assets (ROA) and revenue growth. We found that a company’s ability to demonstrate good brand behaviour is positively and significantly related to its profitability, with a one-point increase in CQ associated with a 0.3% to 0.5% increase in ROA. This may seem quite modest, but can translate to billions of dollars. CQ is positively and significantly related to revenue growth, with an R2 of 12.6% (p < .0001 ). Our analyses show that if companies improve their CQ by a full point, the upside is a potential 0.43% lift.

Lessons from the leaders

To be a top CQ performer, a company has to be performing well against all five key brand behaviours. But our leading brands have some particular lessons to share about creating vibrant and lasting customer relationships.

Lloyd’s Pharmacy – our top-scoring CQ brand – is acclaimed by its customers, who appreciate that it truly respects their time, particularly after investments in digital services that allow customers to avoid multiple pharmacy and doctor trips for repeat prescriptions. Customers also feel that service at Lloyd’s Pharmacy is everyone’s job. That’s no accident: the pharmacy staff spend a day in the life of a customer to understand their challenges. 

Dove, another top CQ performer, has mastered what it means to be open. Customers still point to its Real Beauty campaign for starting a conversation about the expectations around beauty for ‘real women’. Dove’s position at the helm of this movement has helped build its perception as a truly authentic brand. Its customers believe Dove is genuinely interested in a dialogue, not just with its own consumers, but with women around the world. 

Nina Kanin is a senior consultant at C Space