[Type text]

Measuring Your Customers

Loyalty
TRGiSKY Relationship Investment Model®
A TRGiSKY Study
December 2009

Kevin Schulman,
Kevin Schulman, SVP
SVP TRGiSKY
TRGiSKY
Kevin.Schulman@trgworld.com
Kevin.Schulman@trgworld.com
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The Theory
There is near unanimous support among marketers, operational executives and
brand professionals that “Relationship” is the new coin of the realm. The notion of
delivering high quality products or services to produce satisfied customers and yield
repeat business is as outdated as it is intuitively appealing – a dangerous
combination. The reality is that if functional exchange theory – rationale actors
making cost/benefit based decisions – is no longer (if it ever was) a valid theory to
explain, measure and therefore, manage customer behavior.

The problem however, to quote Susan Fournier of Harvard Business School, is:

“In a sense, the field has lept ahead to application of relationship ideas and the
assumption of benefits without proper development of the core constructs
involved.”

The Relationship Investment Model (RIM) fills this void by identifying the core
constructs of a healthy customer relationship, the items to measure them and how
the constructs work together to explain customer behavior. We introduce the
model and how it can be applied to customer acquisition, retention and brand
equity valuations as part of our first annual Relationship Investment Model (RIM)
Report. The data in the report comes from 3 nationally representative online
studies of consumers in clothing retail, grocery and cable/satellite. From this data
we’ve assembled the first nationwide set of Relationship Investment Scores (RIS) for
over 30 different companies and 3 industry averages to compare and benchmark.
In subsequent administrations we will focus on other verticals while repeating these
to build a more complete and longitudinal database.

THE MODEL
What makes for a MustHaves
healthy and strong
• Includemeasures of consumer’sfunctional RIcaptures customer level motive or
interpersonal and emotional connection to brand intent – degree of commitment to
relationship? Read • Be predictive of consumer behavior maintain relationship
• Be parsimonious
enough of the
academic theory on
relationships and you’ll Personal Connection
no doubt come across I believe what BRANDsays about their products
BRANDis committed to the satisfaction of its customers
the core ideas (i.e.
constructs) in this
Personal
graphic – reliability, Diagnostics(Inputs) (Fidelity)
fidelity and especially • Product Behavior(Output)
• Service Attachment
trust. Is it possible that • Brand (Trust)
• Spend
• Engage
these same constructs • Operations • Recommend
• Marketing
Functional
(Reliability) AttachmentOverall
I am a committed BRANDcustomer
BRANDis my favorite
Functional Connection I feel a sense of loyalty to2
BRAND
I know what to expect when I use BRAND
With BRANDI get good value for my money
are at play in B2B and B2C worlds? The short answer, from our own work and that
of others, is yes. Having a theory driven view of the world to determine what to
measure – i.e. identifying the constructs – is however, only part of the answer. One
must know how to measure each (include flash component that shows the
measures for each construct by hovering over them in graphic?) and how they fit
together. Then a theoretically sound model must be proven out in the real world
with real data across different points in time and industry settings. It must be
shown to actually predict key behaviors (the outcome side) and map or link well to
firm inputs – i.e. those marketing or operational levers designed to build consumer
relationships. The Relationship Investment Model (RIM) meets all these criteria and
serves as a Key Performance Indicator for your business. The model measures
consumer commitment to your brand including its strength, source and financial
value to your business.

Predictive Strength
How well does RIM predict consumer behavior and more importantly, how much
better is it then other well established measures? In the grocery industry RIM is
135% more predictive of share of wallet than customer satisfaction, which
performed the best of the “competitors”. This means you can better predict where
the next grocery dollar will go for a given consumer (or segment) when measuring
their functional, personal and Attachment than their satisfaction or willingness to
recommend the brand.

FIGURE 2

Overall Unique
Overall Opinion Satisfaction Experience Recommend
0%

-50%

-100%

-150%
Satisfaction is
Predictive -200% 135%worsethan
Strengthof Other RI at explaining
-250%
Attitudinal Proxies grocerySOW
IndexedAgainstRI -300%

-350%

-400%

-450%

-500%

TRGiSKYSelf-FundedGroceryStudy-National Sample,1000n, ResearchNow

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In clothing retail RI has 65% more discriminating power than satisfaction or
recommend on total spend. To be a good predictor it must capture the highs and
lows of the variable of interest – in this case, spend. RI does this much better than
these other measures.

FIGURE 3

$75
Monthly
Clothing
Retail Spend
$70

$65

•RI has 65%morediscriminating power on

$13
retail spend than Satisfaction $60 $22 High
$18
•RI has 25%morediscriminating power on Low
retail spend than Recommend $55

$50

$45
Investment Satisfaction Recommend

TRGiSKYSelf-FundedGroceryStudy-National Sample,1000n, ResearchNow

This data showing the link between RI and key behaviors and its relative superiority
to well established and broadly used measures is the RI proof of concept - the
reason one should bother reading the rest of this report.

So, how can the model be applied to drive more profitable consumer
behavior?
The balance of this report will provide multiple examples of ways to use the
Relationship Investment Model to improve business performance through better
measurement and management of customer relationships.

Brand Positioning
A picture is worth a thousand words. This map adheres to that philosophy and
chances are, so does someone in senior management within your firm. The value of
knowing, in an instant, where you stand against the competition and, at a broad
level, your strategic advantage or weakness is powerful. And if nothing else, the
Personal (Y axis) and Functional (X axis) Relationship dimensions demonstrate the
ability to differentiate and stand out from the competition in the often crowded
space of the consumer’s mind.

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FIGURE 4

Functional Connection

Strong Personal and Weak Strong Personal and

Functional Connection Functional Connection
82
Publix HEB
Harris Teeter

Kroger
68
Shaws Wal-mart

Whole
Giant
74 73
Foods
75
FoodLion
lC
cn
o
aP
e
rs

SuperValu Winn
ti

75 73
Dixie
Safeway
Piggly
Weak Personal and Strong
Wiggly
Albertsons Functional Connection

Weak Personal and

Functional Connection

TRGiSKYSelf-FundedGroceryStudy-National Sample,1000n,ResearchNow

FIGURE 4a
Functional Connection

Strong Personal and Weak Strong Personal and

Functional Connection Functional Connection

Ann Taylor
Banana Republic

Kohls
Wal-mart

J Crew

Abercrombie& Fitch Nordstrom J.C. Penny

Target
lC
nP

Macy's
c
tio
ae
rs

Ross Stores

Weak Personal and Weak Personal and Strong

Functional Connection Functional Connection
TheGap

TRGiSKYSelf-FundedGroceryStudy-National Sample,1000n, ResearchNow

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 Key Driver Analysis

Up until this point, the model and application has been a lot like one hand clapping
– showing only how well the Relationship constructs map to the “output” side of
consumer behavior. But what about the “input” side? What does the firm do from a
marketing or operational standpoint to impact and manage customer RI? This
analysis, often referred to as key driver, identifies the levers of firm activity that
actually impact RI.

FIGURE 5

Personal Dimension Functional Dimension

0% 10% 20% 30% 40% 50% 40% 30% 20% 10% 0%

Hasbest value for prices

Store ismodern and inviting

Store is modern and inviting

Carriesawide variety of productsI'minterestedin

Hasknowledgeableemployees

Keepsme informed about safety and recalls

Hasknowledgeableemployees

Has favorite foods/brands instock

Keeps me informed about safety and recalls

Trust I amcharged correctlyfor my purchases

TRGiSKYSelf-FundedGroceryStudy-National Sample,1000n, ResearchNow

Identifying what matters is often not enough to take action, to actually change
something. In this instance, taking the “modern and inviting” finding back to the
operations and store layout people will likely result in a big “now what?” response.
And so we combine the model with text analysis of open-end customer comment to
gain the kind of nuanced insight and context that can only be found in more
qualitative analysis.

This chart, courtesy of Wordle, shows how consumers define the “modern &
inviting” phrase with frequency of mention denoted by word size. This definitional
analysis combined with linkage analysis of open-end consumer comment on the
parts of the store that do the best job of conveying “modern & inviting” provides
enough detail, nuance and context to get the discussion with operations on exactly

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how to make the store more modern and inviting much further down the proverbial
road.

FIGURE 5a

Sizeof word denotesfrequency– “Clean”(37mentions) &“Friendly”(15mentions) wereremoved

Produced using Wordle

TRGiSKYSelf-FundedGroceryStudy-National Sample,1000n, ResearchNow

FIGURE 5b

Lighting(19)

Layout(12)

UseColor(5) Aisles(16)
Floors(4)

Carts(5)

Parking(6)

Displays(4) Well Lit(6)

Signage(9)

Services(3)
Products(9)

TRGiSKYSelf-FundedGroceryStudy-National Sample,1000n, ResearchNow

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Customer Acquisition
Marketing success is partly about efficiency – where should my next dollar go to
have maximum benefit? Targeting your competitors’ customers who give them low
share of wallet is a good strategy since it suggests greater receptivity to your
marketing dollar. Targeting those who give low share of wallet and have little or no
relationship is an even better one since it virtually guarantees greater receptivity.

FIGURE 6

Walmart Relationship Map by Share of Wallet (SOW)

Strong Personal and
Functional Connection
Strong Personal and Weak
Functional Connection

Walmart competitors should

focus here – No brand
connection and low SOW to
Walmart

HIGHSOW
LOWSOW
lC
c
tin
o
aP
e
rs

Weak Personal and Weak Personal andStrong

Functional Connection Functional Connection
Functional Connection

TRGiSKYSelf-FundedGroceryStudy-National Sample, 1000n, ResearchNow

Customer Retention
It is true that a low customer satisfaction score at point A in time is reasonably
predictive of what that customer will do at point B. However, if they have a decent
or good experience at point B then all bets are off using satisfaction alone to
accurately predict points C, D, E…

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Combine satisfaction with RI and you have a powerful identifier for who is truly at
risk of immediate and medium or long term flight. Customers with no personal,
functional or brand Attachment and a bad experience are almost certainly gone.
Those that have managed, despite all this, to give decent share of wallet or be
otherwise profitable may be worth saving but most will not.

FIGURE 7

Comcast Relationship May by Satisfaction (SAT) Strong Personal and

Strong Personal and Weak
Functional Connection Functional Connection

LOW SAT

HIGH SAT
At

High SAT (and Low

SAT) are retention
risk but… …these aren’t

High SAT are

retention risk
lC
c
tin
o
aP
e
rs

Weak Personal and Weak Personal and Strong

Functional Connection Functional Connection
Functional Connection

TRGiSKYSelf-FundedCable/ SatelliteTVStudy-National Sample,1000n, ResearchNow

Customer Feedback Programs

Measuring a customer’s satisfaction with a given, recent experience is a good way
to know if you screwed up or not – i.e. they give you a low score. If you have this
feedback loop incorporated into processes and business rules to remediate and fix
the problem then the firm is making good use of this data and as importantly, of the
customer’s time to give it to you.

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Applying this model to simply move from a “2 bucket world” of either low or high
satisfaction to a “4 bucket world” where you discriminate among the “low
satisfaction” crowd is a big step int the right direction. The big leap however is to
move beyond the “squeaky wheel” customer feedback program to a true, customer
relationship framework where something is done with all four buckets.

FIGURE 8

•C-sat and most customer feedbackprogramsareall about problemresolution

•This is a mistake
•Every single touch is an opportunityto remediate or build relationship (i.e. future cash flows)
•Need to discriminate amongst your top box – don’t miss opportunity to engage customer

LowSatisfaction LowSatisfaction HighhSA

Hig atisfaction
ttachment

HH
n
e
m
c
ta
A
h
ign
e
m
c
ta
A
h
ig
8%
These two groups
NOT the same
41%
HH
m
n
eA
ig
h
ta
c m
n
e
cA
ig
h
ta

L
n
e
m
h
c
ta
A
o
w
This is the
“forgotten”
group, 42%
high SOW

15%
m
n
h
o
ew
A
ta
c m
n
h
Lo
e
cA
ta
L

37%

TRGiSKYSelf-FundedGroceryStudy-National Sample,1000n, ResearchNow

This means taking full advantage of the precious time a customer will give to share
feedback by collecting the RIGHT feedback. Just asking them if you screwed up this
time can create mild customer frustration (in short term) and missed opportunity by
not also asking about the status of the relationship for the medium and long term.

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Tracking/Benchmarking
And what would any self respecting model be without a single number or score to
sum it all up and track and benchmark against?

FIGURE 9

Grocery Investment Score

HEB 59.0
Publix 58.3 Retail Investment Score

Kroger 55.6 Kohls 56.5

Walmart 55.6 Ann Taylor 55.0 Cable/Satellite Investment Score
Harris Teeter 52.9 Walmart 54.6
Verizon Fios 68.3
Shaws 52.7 BananaRepublic 54.4
Direct TV 63.8
Giant 49.2 J.C. Penny 53.0
Dish Network 59.8
Food Lion 49.2 J Crew 50.4
Safeway 47.4 Nordstrom 49.9 CoxCommunications 59.6

Winn Dixie 46.5 Target 49.1 Charter

56.6
Communications
Whole Foods 46.4 RossStores 48.3
Cablevision 58.2
Super Valu 44.9 Abercrombie & Fitch 47.9
Time Warner Cable 55.2
PigglyWiggly 43.0 Macy's 47.9
Albertsons 42.4 Gap 43.7 Comcast 52.8
GroceryIndustry Retail Industry Cable/Satellite
51.2 51.3 58.1
weighted) (weighted) Industry(weighted)

TRGiSKYSelf-FundedStudiesinGrocery,Retail andCable- National Sample,1000n, ResearchNow

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 www.trgisky.co
m

Kevin Schulman, SVP TRGiSKY

Kevin.Schulman@trgworld.com

© 2009 All Rights Reserved

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