While complaints and contacts are a critical input to CX and Quality Strategy, few executives are comfortable using them to create a business case. The actual calculation is rather simple once the data becomes available.
This article provides fresh data from a first quarter 2020 study of complaining behavior in the US in general as well as specifically in the food industry.
KraftHeinz was a key sponsor of the study. In addition to providing current data on Multipliers by channel, the study also suggests that email and Chat have become as important to consumers as the 800 number for problems and questions.
1. The challenge of creating a business case based on complaints.
The consumer package industry produces millions of units of product. Often the receipt of a few dozen or even 100 complaints is looked upon by quality and marketing as being a minor issue.
What quality professionals and other executives often miss is the fact that only a small percentage of consumers complain about the problem. Further, complaint rates vary by the type of problem the consumer encountered.
This study quantifies how many problems exist for each complaint received. This ratio of problems to complaints is called the Multiplier.
To estimate the real number of problems that exist in the marketplace for each complaint received, one must multiply the number of complaints by the multiplier. Then the revenue damage is estimated by multiplying the number of problems by the value of the customer.
The equation we are completing is simply that shown in Figure 1:
Figure 1 Quantifying Revenue At Risk Based On Complaints
2. Description and Key Findings of the New 2020 National Rage Study Sponsored by KraftHeinz
A challenge of using customer contact data to obtain changes in corporate operations is that only some of customers who encounter problems complain.
The first study to quantify this non-complaining behavior was conducted for the White House Office of Consumer Affairs in 1976, a study that instigated the use of 800 numbers for customer service and institutions such as the GE Answer Center and toll-free support centers.
The study reported here is the ninth replication of the original study which surveys a cross section of the US. A representative household panel of 1,026 consumers were surveyed via internet questionnaire.
The study explored three aspects of consumer complaint behavior:
- Behavior upon encountering the most serious problem the household encountered in last six months
- Use of social media and other internet channels
- Experience and complaint behavior with problems with food products valued at less than $10
The acceptance of the internet as a primary communication channel combined with dissatisfaction with traditional 800 number support, has resulted in major changes in how products are purchased, which products cause rage and how consumers complain.
- More customers have problems and greater rage than in 2017-
- More problems are coming from internet purchases
- More customers are buying from smaller companies
- Consumers are now using internet and chat much more, surpassing use of 800 numbers for the first time
- For food product problems, more consumers are complaining than in the past and as noted above, many more are using chat and internet communication options
Because more consumers are complaining, the multipliers traditionally assigned to CPG items and food items specifically appear to be decreasing, from the 15-50 instance in the market for each complaint received used in the last decade to a range of 8-18 instances in the market for each complaint submitted.
3. Quantifying the multiplier for food products and estimating revenue impact of a problem
The 1026 consumers were asked if they had encountered any serious problems with a food product in the last three months.
As shown in the chart below, 21% of consumes had a problem. Of those, about 60% complained somewhere but 20%, or a third of complainers, complained to the retailer – which the manufacturer never hears about.
- Step 1: Convert percentage complaining to a channel into the multiplier for that channel:
The chart shows that 22% complain via email/website form and 11% complain to the chat channel vs. only 8% to the 800# channel and 5% to social media. Therefore, the multiplier for email is 4:1, 9:1 for chat and 13 to 1 for the 800#, while the multiplier for social media is 20:1.
- Step 2: Estimate the revenue impact of a problem using the multiplier.
The equation in Figure 1 allows extrapolation of complaints to the complete market and then, using damage to loyalty and value of customer, to estimate revenue damage per month.For example, if 100 consumers report encountering a problem with the taste of a product by the chat line, that implies that 900 consumers actually encountered that problem.If a taste issue causes 33% decrease in loyalty and a consumer is worth $400 over a two year period, then the monthly revenue damage is calculated as follows:100 complaints X 9 multiplier X .33 decrease in loyalty X $400 value = $120,000 per monthThe $1+ million per year revenue hit is usually enough to get attention to the problem.
- Step 3: Enhance the business case by using multipliers from several channels
We can now use channel multipliers to integrate data from all the touch points as well as quality inspection data, as shown in the following chart.If we had 235 emails and 53 chats, how may instances are there in the market and how do we compare that input to our internal quality inspection data?We use the multipliers from Chart 1 above and multiply each by the number of complaints to arrive at an estimate of instances from each channel.We then take the average of those six data sources to say our best guess is 800 instances.
Chart 2 Integrating Data From Multiple Touchpoints Into Estimate of Instances in Market
We then use the average times the damage and value of customer to arrive at revenue impact.
- Step 4 Further enhance the business case using word of mouth impacts.
Via survey, measure how many people each consumer tells and how many told acted on the recommendation. Convert to sales.
4. How the iceberg and multiplier varies by industry and problem
Caution! Multipliers are not the same across all products and problem types. The size of the complaint iceberg varies by the value of the product or service and by type of problem.
Multipliers vary by industry due to product value as well as ease of access to the company, e.g. if you are insulated from customer by a sales channels or retailer.
For instance, multipliers for food products are generally higher than for larger ticket items like smart phones because higher cost often equals higher involvement.
Multipliers also vary by type of problem. When a product is dangerous or unusable, multipliers are low (and complaint rates higher) because the customer cannot use the product and wants a remedy.
When the sales process is onerous or there is a minor defect, the customer can still receive and use the product so motivation to complain is lower and the multiplier is higher.
5. Actions you should be taking – Strengthening your business case
- Quantify the multiplier for your main product using a simple survey
- Ask a random sample of customers if they have had any recent problems and, if so, did they complain and to whom. Those three questions will give you a general multiplier and will be key in getting executive buy-in.
- Get buy-in from executives that complaints are the tip of the iceberg and that revenue implications are much greater than cost implications
- Ask the Finance Department for a very conservative estimate of the value of the average customer. Combine the multiplier data with complaint data on one prevalent problem to estimate the number of customers and revenue at risk from customers you are not even hearing from.
- The estimate will surprise many executives and Finance will be supportive because you are using their conservative customer value.
- Once educated, leading companies use scaled up complaint data to set priorities for quality initiatives.
- Carlos Abrams-Rivera, CEO of KraftHeinz North America, recently stated, “KraftHeinz is a data driven company and we understand that complaints must be scaled up by the multiplier to give us a valid estimate of the size of the issues we face.
- We can only address problems we know about and continuous improvement of the customer experience is dependent on timely, valid data from the market.”
- Get the Chief Marketing Officer committed by adding word of mouth (WOM) to the business case
- In most cases, at least six others hear about each bad customer experience. For the customer problem addressed above, multiply the number of non-complaining customers that were not heard from by six and show that number to the CMO.
- Point out that service and quality are WOM management mechanisms and that customers gained from WOM are 25% more valuable than average.
- Conversely, customer lost due to WOM can seldom be won back and customers with bad experiences are more sensitive to price.
- Create a more compelling business case using data from touchpoints as well as surveys and quality data
- A business case based on multiple sources of data is much more compelling because it is not just one source indicating that there is a problem but multiple sources.
- Therefore, combine the complaint data scaled up by the multiplier with survey and quality data sources which corroborate the issue.
- This creates the argument that not only are customers reporting the issue but internal quality and survey data confirm the size and scope of the problem.
Applying the Multiplier to customer complaint data allows you to scale up your business case by 400-2,000 percent, thereby demonstrating that enhanced customer experience provides a rapid, high return on investment.