A Better Way for Service to Predict Future Customer Loyalty

Customer service and support (CSS) leaders invest huge amounts of time and money evaluating their contribution to customer loyalty — most often by asking customers how happy they were with the quality of their service experience. Yet our newest research clearly shows that a good service interaction by itself isn't enough to achieve the desired loyalty outcomes.

Of course, it remains Job No. 1 for service organizations to provide a good, low-effort service experience — which is proven to help prevent customers from leaving. But to increase loyalty, you have to help customers see more value in the products and services you provide, not just solve their immediate problems. 

“ Shifting from CSAT and NPS to the VES will allow CSS leaders to demonstrate their ability to drive revenue”

The take-away for CSS leaders who want to create and demonstrate tangible business outcomes is that they need to start asking questions that are forward-looking. The most effective questions focus on the impact customer service had on product perceptions. Those questions show whether you are helping customers to move forward in achieving value — which can drive actions such as buying more from the same provider.

We analyzed the factors that drive true behavioral customer loyalty and identified two attributes of a service experience that tangibly predict future loyalty. We index those two predictors in the Gartner Value Enhancement Score (VES). 

What VES is and does

The VES focuses on the value customers place on their product or service and helps CSS leaders understand the quality of the service experience. But more importantly, it is the best predictor of all dimensions of customer loyalty — customer retention, increased wallet share and positive word of mouth — compared to other commonly used metrics. 

Traditional metrics include customer satisfaction (CSAT) and the net promoter score (NPS), which ties loyalty to a customer’s likelihood of repurchase and referral. While NPS and CSAT are proxies for loyalty, they focus on customer perceptions — what customers are feeling based on the interaction. VES is far more of a leading indicator, enabling service leaders to more accurately predict a customer’s future loyalty.

VES focuses on two key areas of a customer’s perception of a product or service. Specifically, it evaluates how the service interaction affects the customer’s:

• Ability to use the product or service
• Confidence in the decision to purchase the product or service

Our research shows that increasing customers’ positive feelings toward those two concepts increases the value they derive from the purchased product or service — which, in turn, makes them much more likely to: 

• renew their relationship with the company
• advocate on behalf of the company
• increase spending on the company’s products or services

What’s a “good” VES score?

Let’s look at how VES plays out in actual service organizations.

We studied more than 2,000 customers actively considering a stay/go decision following a recent service interaction, and the biggest lift is in getting customers to at least 5 on a 7-point Likert scale. Respondents rating their experience as a 5 in VES show significantly higher signs of loyalty, while scores of 6 or above report the highest levels. If all customers rate their VES positively, we found that 82% will be retained and 86% will spend more money in the future.

The good news is that the average VES of respondents we studied was 3.96. That means that, without deliberately trying to enhance value, service organizations are already creating neutral interactions. With some dedicated focus — and our data indicates this is happening 25% of the time already — service organizations can easily improve these results and achieve measurable impact on the bottom line.

VES also increases positive word of mouth and reduces negative word of mouth. Those advocacy outcomes could be especially important for companies in industries where switching is difficult — and customer dissatisfaction doesn’t necessarily translate into reduced retention and spend. Companies in the utilities and telecommunications sectors come to mind. 

3 ways to use VES

There are three practical uses of the VES metric:

1. Predicting customer behaviors and tailor interactions
2. Identifying which interactions are more conducive for increasing loyalty 
3. Identifying which reps are skilled at delivering value

CSS organizations can use this metric to identify areas where the opportunity to increase loyalty through value enhancement is abundant. Tracking an individual customer’s VES can be easily used to predict the probability of loyalty in the future. Regardless of the CSS organization’s industry or business model, the overwhelming benefit to measuring this metric speaks for itself. 

Shifting from CSAT and NPS to the VES will allow CSS leaders to demonstrate their ability to drive revenue and provide loyalty-building opportunities for the organization’s future.