- development of Customer. and beyond. NCSI Anniversary Presentation Seoul, Korea January 29 th, 2008 Jan Eklöf, EPSI Rating and SSE

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1 - development of Customer satisfaction studies in Europe and beyond NCSI Anniversary Presentation Seoul, Korea January 29 th, 2008 Jan Eklöf, EPSI Rating and SSE

2 NCSI 10 Year Anniversary Presentation Congratulations to the first decade of national customer satisfaction assessment. Have a successful future! EPSI Rating, Pan-European counterpart 11/10/

3 Plan European Performance Satisfaction Index Why?

4 Why listen to the customers? The customer base, the only reason for existence of the company/venture The external customers generate all long-term revenues for the operation It is profitable to adopt to their expectations Customer perception is much more than just supplying good goods and services Any provider can work on customer expectations and perceived satisfaction to enhance sustainable profitability. Revive the dormant potentials. Prioritization crucial for financial strength Why? 11/10/

5 The customer is King But certainly not always right How to react to their wishes Should we always try to fulfil or even exceed their expectations How is the image and expectations handled by a supplier 11/10/

6 Deming said One has to focus on the customers Current customers satisfaction Future (potential) customers needs and demands Because there are no more any truly supply driven economies or markets, but demand sets the rule of the game 11/10/

7 Who are the customers? Internal Current employees Potential affiliates External Current clients Potential clients Those you want to do business with 11/10/

8 The EFQM Excellence Model - the basis for EPSI - The EPSI analysis Framework Why? 11/10/

9 (external) Customer Loyalty Satisfied customers might not be enough Loyal customer are key LOYAL CUSTOMERS Cost less to maintain Buy more products Buy more efficiently Act as ambassadors 11/10/

10 What is EPSI? Why? Economic Indicator Financial Indicator EPSI, European Performance Satisfaction Index, is an economic indicator based on modeling of customer assessment of the quality of goods and services purchased in European countries. It reflects causes and consequences of customer satisfaction and their mutual relationships. EPSI is an important indicator of economic performance, both for individual firms and on the industry and society levels. It is related to leading indicators that are able to predict consumer spending and stock -market growth. Integrated Indicator EPSI started as a voice of the customers and later proved to be most useful also as a reflection tool of Employees Satisfaction and Loyalty/trust. Further development allowed applying EPSI approach for other stakeholders Satisfaction and its drivers, for example, citizens in general and CSR (corporate Social Responsibility) assessment. 11/10/


12 Customer Satisfaction Index by Country 85 Customer Satis sfaction Index (EPSI) Denmark Finland Greece Portugal Sweden Ireland Iceland Russia Estonia Latvia Lithuania Norway Czech Republic Pan European Average Ukraine 11/10/

13 Customer Satisfaction Index by Sector Customer Satisf faction Index (EPSI) Banking Mobile Supermarket Insurance Pan European Average Datacom 11/10/

14 Main countries and sectors coverage Why? - Nations covered at present Denmark Finland Iceland Norway Sweden (initiator) Estonia Latvia Lithuania Russia Czech Republic Greece France (emerging) Germany (emerging) Ukraine United Kingdom (emerging) Portugal (affiliated) 11/10/

15 Main countries and sectors coverage - Industries/sectors covered at present Why? Banking (consumer and corporate segment) General Insurance (consumer and corporate segment) Life/pension insurance Retail Trade Mobile Telecoms and Broadband (consumer and corporate segment) Utilities (electricity etc.) Health services Education Police and public safety Public transport Public administration Logistics (corporate segment) Postal Services Business Services (IT, auditing, legal) 11/10/

16 History Why? The EPSI-initiative (started 1999 with 11 countries; 8 countries year 2001, about 15 in 2004 and almost 20 in 2008 ) under the Umbrella of EPSI Rating EPSI aim at cooperating with similar initiatives in USA (ACSI), Far East countries (like NCSI) and Middle East/Africa (SAS etc.) 11/10/

17 Comparability with other initiatives EPSI is in its core approach very similar to ACSI (the USA-counterpart) Model sructure and estimation techniques are harmonized Comparisons of results may be possible on both aggregate index and latent (driver) level For impacts-comparisons specific calibration (on industry level) should be done. 11/10/

18 Value of A model where the market value of a firm is related to the level of customer satisfaction previous year has been established Studies have been done for a number of industries (incl. banking and insurance) on the relationship between satisfaction and financial performance/market value showing positive correlation (with a time-lag) - Similar studies have been documented based on USAdata (Fornell et al) 11/10/

19 Pan-European CSI studies for Why? Ranking and promotion (beauty contest) Finding areas calling for improvements (SWOT-aspect) Identifying where more analysis is needed General benchmarking Analyzing effects of modifications Evaluating effects of strategic improvements Guiding customers All this is part of the EPSI agenda 11/10/

20 EPSI RATING Master Model Structure Image Customer Expectations Perceived Quality product quality Perceived Value Customer Satisfaction Index (CSI) (SCSI) Loyalty (retention) Perceived Quality service quality Complaints (not part of the master model) 11/10/

21 Design aspects (the Pan European approach) Survey design properties Questionnaire design Sample selection Field operation 11/10/

22 Questionnaire Design A set of master questionnaires is developed and tested; A common scale is used (1-10); The wording is calibrated on the Pan-European level (with adoption to national peculiarities ); Each latent variable is covered by at least 3 manifest questions. 11/10/

23 Level of Detail About 35 questions are included in the master questionnaire; Possible to add a limited number of specific questions by a company (similar to the entire market); Flexible results presentation possible, based on the full range of collected items, with extensive analysis on the driver side. 11/10/

24 Blocks of Questions Three standard questions are used for measuring the EPSI construct itself. These are: Overall satisfaction with the product/provider; Satisfaction compared to expectations; and The product/provider compared to an ideal (not always relevant, may be substituted; see below). 11/10/

25 Blocks of Questions (cont.) For loyalty, we use: Intention to buy again (or remain as a customer to the said company/product); Intention of cross-buying (buy another product from the same brand/company); Intention to switch to another brand/company/supplier; and Intention to recommend the brand/company to other consumers (word of mouth). 11/10/

26 Latents on Driver side Image Expectations Perceived Quality Product domain Service domain Perceived value 11/10/

27 Blocks of Questions (cont.) On the driver side we use about 20 questions relating to the image, expectations, product and service quality as well as to the perceived value. The definition of aspects differ slightly from sector to sector, depending of the characteristics of the industry: The exact wording of questions is standardized to allow comparative studies. 11/10/

28 Sample Selection Representative sample of current customers is key; Experience of the provider product is crucial; The reference period is industry-specific (banking 12 months, retail trade 3 months, car purchase 36, etc.); Consumers vs. corporate customers (B2C vs. B2B); Extensive non-response monitoring is conducted. About 250 observations for each study domain is required for comprehensive model analysis 11/10/

29 Field Operation Data collection is done by telephone as default; Only qualified field interviewers from recognized survey organizations - and specially trained - are used; A full-fledge CATI-system should be in operation by each considered data collection agency; A process quality control system developed; Validation in relation to population characteristics. Also other alternatives tested and introduced step-by-step (like. Web-based surveys) 11/10/

30 The analysis tool The model is estimated by means of structural equation techniques (basically Partial Least Squares approaches); Results are obtained for: customer perceived index levels impact strength/importance of all aspects (manifests) Relative weights for manifest questions Model quality (accuracy, explanation power, robustness) 11/10/

31 Model Quality assessment Why? Quality requirements for: - Precision The 95 percent confidence interval for the CSI shall have a width of not more than 4 units (referring to an index scale of 0 100). - Explanatory power The econometric model must be able to explain approximately 65% of what drives customer satisfaction. 11/10/

32 Comparability In any comparison two aspects are at stake. The two main dimensions of comparability of course are: Over time Between similar phenomena (individuals, companies, industries, etc.) These two dimensions are often combined into a composite cross-section time-series approach. It would be fair to say that such analyses constitute the standard case in all economics and business studies. 11/10/

33 Benchmark Country specific differences are expected in the measurement process. EPSI Rating has developed a modelbases approach to measure this kind of effects. -This gives calibration factors by country and industry - Further, in-country differences occur due to the fact that consumers react differently to measurements (by i.a. age, gender and socio-demography etc.) 11/10/

34 Benchmark studies Using data from major industries and several countries we have obtained measures of: 1. Country effects 2. Industry effecs 3. Segment effects 4. (B2B vs. B2C and customer profile) 5. Customer based differences 11/10/

35 Corporate Usage of EPSI (benchmark) Results The EPSI approach and empirical resultas are used internally for more than merely promotion in numerous major companies and organisations. More than 50 multi-national companies currently have EPSI as one performance dimension. Companies like: Nordea, Danske Bank, Handelsbanken, SEB, Swedbank, SBAB, SPP, Stadshypotek, Den Norske bank, Gjensidige Nor, If, Codan -Trygg Hansa, Folksam, TeliaSonea, Ax-food, ICA, Erste Bank, Athens Metro. EXAMPLES

36 De-regulation in Telecoms An Example relating to Business - to - business Fixed Telecommunications The old monopoly and the competitors In Sweden 11/10/

37 Trends in Telecoms S C S I fo r th e C o m p a n y - T im e D e v e lo p m e n t Index 5 6 The C o m pa ny /9 9 y e a r 11/10/

38 Trends in Telecoms W a tc h T h e C om p e tito r Index The C o mpa ny The C o mpe tito /9 9 Y ear 11/10/

39 Corporate Telecoms 1999 C u s to m e r V a lu a tio n In d e x T h e c o m p a n y T h e C o m p e tito 5 0 Image Expectations Product Quality Service Quality In d ic a t o r Perceived Value SCSI Loyalty 11/10/

40 Corporate Telecoms 1999 P e rc e iv e d v a lu e Procent V alu TE LI V alu A N N A In d e x 11/10/

41 Telia and its competitor(s) Telia och konkurrensen 70 Telia 65 Konkurrenten competitor N?d dhet / 흏 11/10/

42 Competition in the fixed phone sector: Sweden Fast telekom F? etagsmarknad i SKI Kundn? dhe et 60 Telia andra / 흏 11/10/

43 The third wave of market adoption Why? Fixed lines B2B market in Sweden EPSI Customer satisf faction Telia Tele2 Phonera Ventelo Annan / Year 11/10/

44 Insurance company usage - Finland B2B segment Priority setting The improvement candidates - Today and compared with the situation Last year 11/10/

45 Svenskt EPSI Kvalitetsindex Finland General Bank Privatmarknad Insurance B2B Company X Föreningssparbanken If Drivande Driving Factors Faktorer Image ,1 Resultat Results 0, ,20 Kund Expectations Förväntningar , , ,52 Perceived Upplevd Product Produktkvalitet Quality , ,50 0,24 0, , Perceived Prisvärde Value ,1 Customer ,16 Kundnöjdhet Satisfaction 0, , , , Complaints Klagomål Lojalitet Loyalty 73, , Perveived Upplevd Servicekvalitet Quality ,2 11/10/

46 Company X Why?

47 Total Effect from Divers to Customer Satisfaction EPSI Finland 2007 Driver is increased by one unit Total Effec ct Image Expectations Product Quality Service Quality Value Fennia If Pohjola A-Vakuutus Tapiola Other 11/10/

48 Total Impact from Drivers to Customer Satisfaction Driver is increased by one unit Fennia If Pohjola Tapiola Other Total Impa act Image Expectations ProdQ ServQ Value

49 Priority Map If Company X EPSI Finland Score Importanc e Image E xpect P rodq S ervq Value 11/10/

50 Prioritization Image is still the most important aspect for improvemnet (has the highest effect on satisfaction). However it has decreased slightly from Product Quality is this year almost as important as image (their relative impact has increased) Expectations come as third in importance. That will be achieved by increased image. 11/10/

51 Improving IMAGE By..

52 Score and Weight Image EPSI Finland Score Weight 0.23 Score Weight the image of being a reliable and transparent insurance company? the image of providing excellent overall customer service? the image of offeringthe image of being athe overall image of good value for money to the customers in terms of fees and claim settling? professional, stateof the-art insurance company? your insurance company? 0.15 *No big differences in relative weight, so concentrate on the ones that are cheapest to improve! 11/10/

53 Effect Calculation - Image A: Improve the image of providing excellent customer service with one unit on 1-10 scale 2007 yields (result 2006 in parenthesis). An increase in overall Image by 2.60 units (2.92 units last year). An increase in customer satisfaction by 1.63 units (1.93 units) B: Improve the image of providing value for money with one unit on 1-10 scale 2007 yields... An increase in overall Image by 2.10 units. An increase in customer satisfaction by 1.30 units 11/10/

54 Improving Product Quality By..

55 Score and Weight Product Quality EPSI Finland Score Weight Score Weight 6.5 the quality of the insurance functions offered (fees, coverage, etc.)? the quality of the the technical quality of the overall insurance reliability and accuracythe products (functions) quality of the functions (standing orders processed in accordance with offered (data transfer, Internet connection, that matter for you offered by your insurance company? instructions, accuracy of statements, etc.)? overall security system, etc.)? Relative importance of technical quality has increased from /10/

56 Effect Calculation - ProductQ A: Improving the quality of the reliability and accuracy with one unit on 1-10 scale 2007 yields (result 2006 in parenthesis). An increase in overall Product Quality by 2.94 units (3.14 units last year). An increase in customer satisfaction by 1.81 units (1.78 units) B: Improving the quality of product functions with one unit on 1-10 scale 2007 yields... An increase in overall Product Quality by 2.70 units. An increase in customer satisfaction by 1.66 units 11/10/

57 Thus provided these above aspects can be improved in the eyes of the customers Why? With 1 unit each (from 7.9; 7.6; 7.9 and 8.1 respectively) it is possible others have succeeded with improvements of 1 unit or more during 1 2 years time The customer satisfaction may (theoretically) improve with (up to) 6.4 units. Highly significant indeed! 11/10/

58 But, maybe the strategies should be more select Focussing of special categories of customers..

59 Because, Customers are different Spread in customer satisfaction and other latents Complaints Claims and their handling

60 Spread Customer Satisfaction General Insurance B2B EPSI Finland % 50% Proport tion (%) 40% 30% 20% 10% 0% Index level If Pohjola A-Vakuutus Tapiola Other 11/10/


62 The integrated approach EPSI Customers and Employees integrated

63 The EFQM Excellence Model - The EPSI analysis Framework 11/10/

64 EPSI Employees There is a strong relationship?? Satisfied employees Satisfied customers 11/10/

65 Top Management Image EPSI Employees ---- Structural Model Framework My boss Cooperation Satisfaction (R 2 = ) Loyalty (R 2 = ) The daily work 80,4 Motivation Salary and other working regulations Personal development

66 Approach for integrated analysis From the integrated model we calculate:... Index for each latent Priority areas and possible conflicts (between consumer and employee perspective) Improvement possibilities 11/10/

67 Challenges for the future Opportunities and Threats In the European EPSI environment

68 Opportunities Why? It is becoming increasingly important for the corporate image to have good customer satisfaction; More and more multi-national companies are using non-financial performance indicators for assessment (like in BSC-systems); EPSI is becoming increasingly using in such applications (both strategic and more operational); Priority setting and evaluation of improvement schemes is more and more critical for costefficiency in the industry; and Society-activities (public sector) call for more and more of prioritization based on user-responsiveness. 11/10/

69 Threats Short-term financial monitoring dominates, and longer-term investing in customers get too little priority; Data collection is becoming increasingly difficult and costly generating nonrepresentative samples; and Reaction patterns by customers are changing calling for adaptive modelling 11/10/

70 EPSI Challenges Develop and Run national as well as corporate customer satisfaction studies in Europe Have EPSI accepted as a standard performance indicator in corporate society Cooperate with similar initiatives on other continents Offer benchmark opportunities using interaction between performance areas 11/10/

71 For more information European Performance Satisfaction Index Webb-plats: /10/