This post follows beaton’s joint webinar with APSMA on 22 November 2016. During this webinar, Paul Hugh-Jones (Partner, beaton) and George Beaton (Executive Chairman, beaton) discuss trends in client buying behaviour, best practice in client centricity and why becoming more client centric will improve your firm’s financial performance. To watch this webinar, please click on this link: https://www.youtube.com/watch?v=42NFuyKtZr4.
Trends in clients' buying behaviour
beatonbenchmarks™ data collected in beaton’s annual professional services benchmarking studies over the past five years demonstrates why clients are becoming more demanding, using the Accountancy profession (Figure 1) as an example.
Perception of fee levels has remained stagnant since 2011, while Overall client service ratings and Perceived value have steadily increased. This plays out similarly in beaton's large-scale benchmarking studies of the legal and consulting engineering professions.
These trends have two important implications. Firstly, they corroborates a large body of evidence that suggests clients' perception of value does not mean cheap pricing. There has been no perceptible fall in prices since 2011, yet Perceived value has increased by 14%. Improving your client service will make your clients feel that they are getting better value without the need to reduce price or discount. In fact, firms who lead on client service build price-setting discretion, enabling them to charge a price premium.
Secondly, because profession-wide client service increases each year, any firm that has not improved its client service, and as a result its value, is actually going backwards.
This can make sellers of professional services feel snookered. Their clients are enjoying more choice, more price-based competition and commoditisation of services. Combined with the rise of procurement, loyalty is no longer the norm. The result is that profitability of incumbent firms declines.
Counter-intuitively, these trends can be your firm's biggest opportunity if you recognise them in the context of client choices. These choices are:
A. Exit (that is, sack you)
B. Neglect (that is, start using other firms without telling you)
C. Voice (complain)
D. Loyalty (remain, repeat buy, advocate)
Improving your client-centricity will minimise your clients using choices A and B and encourage C and D. While C may not be palatable, complaints are far better than A and B, and give you an opportunity to resolve issues and retain your client’s business.
A roadmap for client centricity
To improve your firm's client-centricity you must know how and when you are 'moving the dial' on your client service. The key to this is measurement.
Client centricity can be measured at three levels.
Using standardised client service metrics is vital as it allows you to put your results into a competitive context.
What to measure
Net Promoter Score®
One such metric is the Net Promoter Score®. Seen as a key outcome metric because of its important microeconomic implications, NPS® is calculated by asking clients the extent to which they are likely to recommend your firm to a friend or colleague on a scale of 0-10. Those scoring 0-6 are 'detractors' who are unhappy with your service, and likely to vocally recommend people NOT to use your firm. Those giving scores of 7-8 are 'passives' who are neither particularly happy nor unhappy. Those giving '9-10' are 'promotors' who are likely to actively promote your firm. The NPS® is calculated by subtracting the percentage of 'detractor' scores from the percentage of 'promoter' scores.
While a strong NPS® score bodes very well for your firms’ financial performance, it is not in itself actionable. Firms with a weak or average NPS® often lack a road map of how to improve their score. You should therefore measure the biggest statistical drivers of NPS®, which beaton has derived through over a decade of benchmarking studies.
Market and client relationship level feedback
At a brand and client relationship level, the beatonbenchmarks enables firms to measure Relationship NPS® and key attributes, set strategic goals for your firm’s improvement in specific areas of client service and track your progress against competitors. It is a valuable, but incomplete method of ensuring that your firm is client centric. It lacks the immediacy of transactional feedback required to minimise your clients’ Exiting and Neglecting choices and to encourage them to constructively Complain and to remain Loyal.
Transactional level feedback
Best practice transactional measurement programs gauge your firm’s key attributes in near real-time. They alert you to detractors to prevent Exit and Neglect, while giving you important intelligence on growth and promotion opportunities with promoters. Measuring Transactional NPS® and its drivers is therefore valuable in improving your client centricity and financial performance. This was fundamental to the design of beatondebrief; our granular, interactive tool for client feedback at a transactional or matter level.
Choosing metrics and method for measuring client centricity is important. However, for client feedback programs to succeed they must have good governance. For example, removing sponsor bias will result in more accurate results, as clients have been shown to be more candid when giving feedback to an independent party. Further, it is vital to prevent your program being gamed. In the context of a partnership, for example, allowing your partners to choose which clients get surveyed (or don't get surveyed), i.e. cherry picking, will yield highly biased results.
Finally, internal buy-in is vital, especially from firm leaders, who should act as role models and follow up promoters and detractors This will firstly reduce the likelihood of people trying to game the system, and secondly ensure that your commitment to securing client feedback is adhered to. A part of ensuring internal buy-in is developing a culture whereby there is shared commitment to improving the firm's performance.
Careful consideration is needed in governing client-feedback programs, but the returns on client-centricity are significant.
How client centricity boosts your financial performance
Client centricity, as manifested in NPS®, can explain 20-60% of variation in organic growth rates. In fact, NPS® leaders can double their competitors’ compound annual growth rate. This is not to say NPS® is a panacea – rather, it is the result of strong performance in client service attributes which leads to some fairly common-sense results. These are demonstrated by the schema in Figure 3, below, which give a picture of the benefits of fostering and retaining positive client relationships.
NPS leaders more easily recoup fees, get more repeat business and can charge more. Further, acquiring clients is cheaper because of less churn, and because clients do BD work for them. The economic case for measuring and improving your client centricity is compelling.
Case study: Maersk
Maersk is the world's largest container shipping company. The shipping industry is highly commoditised and plagued by over-capacity, price wars and stagnant sea traffic. In this industry, volume vital to economic success.
Through providing a comprehensive, top-down approach to improving client centricity, in which all management had to spend a 'day in the life of a customer' Maersk was able to improve its NPS® from -10 to +30. Every 4 point lift in NPS® resulted in a 1% increase in shipping volume. This had huge flow-on effects for Maersk's operational efficiency and its profitability. More can be read about Maersk's success here: https://beyondphilosophy.com/case-studies/improving-customer-experience/
Maersk differentiated itself on its customer service. With such a profound effect on the profitability of a firm in an increasingly commoditised industry, improving client centricity is a big opportunity for professional services firms.
Knowing how to execute on client centricity, track progress and drive real time improvement is crucial for professional services firms that want to excel in the buyer’s market.
For more information on how to improve your client centricity through beatondebrief, click here: http://www.beatonglobal.com/beatondebrief/
Dr George Beaton is a Partner in beaton and has guided clients through a variety of strategic decisions as a researcher, adviser and consultant. George’s experience includes executive director roles in marketing research and advisory firms. George is a senior fellow in the Law School at the University of Melbourne.
Paul Hugh-Jones is a beaton partner with a wealth of experience in B2C and B2B marketing. Paul led global brands for Mars, British Airways and Bacardi before becoming CMO at King & Wood Mallesons and Ashurst.