Just What is The Customer Happiness Index?

Just What is The Customer Happiness Index? Alan Weaser of VIRTUATel  explains the metrics behind the Index. VIRTUATel .image.april.2016

Happiness. It’s what we all strive for. It’s what’s used to measure the progress of the nation in Bhutan. And increasingly, it’s becoming a measurement that can predict the customer churn rate of a business.

The cold, hard fact is that if you want your business to succeed, you need to keep your customers happy. In fact, a recent study by Autotask found that 85% of service providers view customer satisfaction to be one of the most important metrics you can measure in your business.

But customer satisfaction can be measured in many ways. Traditionally, this has been using the Net Promoter Score™, Customer Effort and other indices, but some of these have come under criticism in recent years.

Increasingly, you may have seen people talk about a new metric – the Customer Happiness Index.

It was first developed by a company called Hubspot, a B2B inbound marketing business whose customers are looking for new ways to pull people towards their product or service without using direct marketing. To make this process less complex, but more analytical, they created the Customer Happiness Index to try to ‘maximise customers’ engagement’.

The Customer Happiness Index works by measuring three key metrics to identify which customers are likely to abandon the service and go somewhere else. In other words, how many and why customers are likely to churn.

First the CHI measures frequency of product use. Needless to say, a customer who uses a product more often than average is most likely happier with it too. This maxim applies broadly to all different kinds of products and services, from hotels to restaurants to Apple iPhone users.

Secondly, it measures breadth of product use. The logic of measuring this metric is obvious: one customer that uses more features of the product than another is more likely to be happy with it, and more likely to continue using it.

Lastly it identifies what HubSpot call the ‘sticky product features’. This metric identifies which features of your product or service make the customer stand out to the customer and keeps them stuck around, using your service and not that of the competition.

These measurements on their own are not foolproof, however – they do have their downsides. For instance, in an industry where there are many competitors to choose from, establishing and maintaining brand loyalty is all-important. But in an industry where a company might have a monopoly, whether a customer is loyal to the brand because they are happy with it or simply because they have no choice is difficult to determine.

Compared to CHI, the Net Promoter Score appears more simplistic, but in fact, that is one of the reasons for its success. It consists of one question: ‘how likely is it that you (the customer) would recommend our product/service?’. The score is measured from -100, where every customer is a ‘detractor’, to +100 where every customer is a ‘promoter’. Above zero is positive and above 50 is excellent.

Just like CHI, the NPS can be used for any sort of business, and again, just like the CHI, an industry with high barriers to entry and barriers to switching may not have much use for the metric, since detractors have no competition to switch to.

Those companies that use the CHI over NPS scores reason that it covers more ground, with more questions and gets a more nuanced answer. The book Customer Satisfaction: The customer experience through the customer’s eyes by Nigel Hill and Greg Roche criticised the NPS by claiming that ‘[a] single item question is much less reliable and more volatile than a composite index’ and that ‘simultaneously investigating multiple dimensions of the customer relationship’ leads to more accurate results.

In particular, it boasts two strengths:

1) It is proven to accurately predict and prevent customer turnover. By identifying customers thinking about leaving, your business can take proactive steps to retain them rather than waiting for them to come to you with their complaints (most likely leaving before you can do anything about them). HubSpot now manage to keep a third of customers who were identified as potential leavers just through their use of the CHI.

2) CHI can be used to measure many aspect of a business, not just customer happiness. CHI can be used to differentiate between the success of two products with a metric other than sales figures; it can be used to determine which marketing approach works best for your business; it can be used to determine whether your customer service department adequately and accurately deals with customer complaints.

We find that our VIRTUATel clients, many of whom use real-time NPS currently, realise the value of cross referencing NPS with other questions to get truly in-depth intelligence. And in fact, VIRTUATel’s real-time automated surveys are already extensively used to uncover those potential customer losses for proactive attention – the crucial thing is to make sure whatever you’re measuring, you’re measuring it in real-time, so that you can make changes quickly.

Will CHI takeover NPS in customer satisfaction terms? Perhaps not, due to the very significant investment already made at board level. However, in the next couple of years, we might see an increase in its use, and perhaps see it integrated increasingly into existing customer satisfaction strategies.

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