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Turning Transactions into Relationships

by William J. McEwen

When experience and expertise are not enough

There's a great deal that we can learn from watching others -- but it's important to remember that what is apparent may not be what is real. Mirages are apparent. Often a guide is needed. Sometimes special glasses are required.

One recent case highlights this fact. It draws on the reported experiences of Home Depot, a story of success that has generated considerable interest, due in no small part to the enviable growth of this retail chain into an $30 billion company.

Home Depot has challenged traditional retailing assumptions -- and, unlike any number of other retailers, it has achieved great success in doing so. The traditional retail marketing approach would contend that, since product inventories are essentially identical, meaningful differentiation among retailer brands must be built through price advantages or locational convenience (or, on occasion, through both).

"Wrong," said Bernie Marcus and Arthur Blank, the founder managers at Home Depot. Low prices and accessibility were, in their eyes, merely the price of entry. Their search for brand differentiation would lead them elsewhere. As the company has stated it, "Low prices are just the beginning."

Building brand differentiation: the people potential
Where was the answer to be found for Home Depot? Not in any of the traditional four marketing "Ps" of Price, Place, Product or Promotion, but in a fifth P: People.

What has been the secret of Home Depot's success? Observers and analysts have typically pointed to their employees. But, what is about them that makes them unique? What is it that makes Home Depot's employees a powerful loyalty-building (and, thus, brand-building) resource? Several consultants have identified one simple but purportedly powerful differentiator: Home Depot hires employees who themselves have building trades expertise. They've worked in the building trades. They know what they're doing (and recommending).

Is that the secret of success? Just find employees who have walked in the same shoes and whose skills have been polished by a range and depth of relevant experience -- is that how a retailer begins to transform a single store transaction into an enduring brand relationship?

Relevant expertise is certainly part of the mix, but it is hardly all of it -- something the people at Home Depot understand far better than the consultants who claim to have divined the secret of the Home Depot success.

Knowledge isn't enough. Experience isn't enough. What makes for a great loyalty-enhancing employee? Relevant expertise is often necessary, but it is almost never sufficient. Expertise is not a linear (i.e., the higher the better) driver of brand loyalty.

Building beyond experience: Identifying and leveraging people skills
The ability to build customer relationships requires something that can't be learned and trained -- something that is essentially "wired in": talent. Customer-facing employees who have an abundance of relevant experience and training, but who lack essential "people skills," simply cannot create and nurture an ongoing relationship between company and customer.

A contrasting case illustrates the fact that the path to business success is not paved merely with employee expertise. A large chain of office supply stores had made an important strategic decision. They concluded that they could build their business -- and enhance their overall customer relationships -- by providing small business customers a variety of relevant services, and not merely an array of products. One of these business services involved photocopying.

The key need? Expertise, obviously -- or so they assumed, and so the Home Depot case would appear to suggest. Thus, this chain of office supply stores set about hiring people who knew all there was to know about reproduction, collating, binding and everything else related to photocopying. They hired people who had worked in print shops, and who had thereby gained a wealth of relevant experience.

The result? In the words of a senior company manager: "Disaster."

Why? The people they hired had rarely interacted with customers, and most of them had little or no talent for the assignment. They knew copying. However, they didn't know people. They were back-room employees, with back-room talents, and they lacked what it takes to build relationships with their customers.

The experience "boost" versus the talent "boost"
One of The Gallup Organization's clients is a major European insurance company, with a division focusing on business-to-business insurance products. This company recently undertook an evaluation of their staff of 146 customer service representatives. As they investigated ways to encourage future growth, they were understandably interested in the role that various types of industry experience might have, as this would give them avenues to explore when hiring additional reps.

What did they find?

As they worked to assess overall job performance ratings, they carefully examined the role of prior experience with various financial service products. They also looked at the role of sales talent, as measured by a Gallup talent inventory assessment.

The results might seem surprising. Previous industry expertise had absolutely no relation to on-the-job performance. The difference in rated job performance between sales associates with prior experience and those with none -- those with the "experience boost"? One percent. The difference between those with relevant talent, and those without the "talent boost"? Thirty-three percent.

It's not just one client, and it's not just one industry.

There is a "talent boost" wherever employees have direct customer contact, whether it's in person, on the phone or even over the Internet. Those with relevant "people" skills are consistently more productive, as evidenced in a variety of business outcomes.

The "talent boost" for one mortgage lending company was an additional $2.6 million in revenue per talented sales executive. For an investment company, individuals identified with sales talent (as distinct from sales experience) opened 102% more accounts than their less-talented coworkers. In an industrial supply company, the talent advantage was 83% higher sales revenue.

Does expertise matter? In many cases, especially wherever products are complex and employees must serve as an information resource and counsel, expertise is a critical component. However, whenever employees "touch" customers, there is always a talent component as well -- and the boost from talent is both appreciable and pervasive.

Avoiding customer defection: Pouring oil on troubled waters
To further our understanding of the role of employees in building -- or, at times, in destroying -- customer relationships, Gallup recently completed a major survey of more than 6,000 consumers in the United States, looking at six different product and service categories.

Part of this comprehensive survey looked at a key question that has been nagging marketers and, more recently, e-marketers: What turns a customer into a non-customer?

What did we find? Consistent with client studies we've completed in fields ranging from health care to hospitality, we found, not surprisingly, that employees make a huge difference. Employees greatly impact customer loyalty, and in many cases are the No. 1 drivers of repeat business. Importantly, they can also drive customers away. In fact, we found that negative experiences with employees are in many cases as important a predictor of customer defection as a bad product experience -- and they are often far more important than inconvenient locations or high prices.

We learned more than the fact that employees make a difference, however. We gained additional evidence about the particular employee characteristics that seem to make the most difference. And, we found that when it comes to driving customers away, a lack of trainable, experience-based skills is often less important than a lack of key "people" talents.

The critical role of these "people" talents was noted for industries such as airlines and long distance telecommunications, where employees are tasked with responding to customer requests and complaints. It was also noted for industries such as automobiles, where employees are tasked with selling and servicing products. In each case, the customer relationship is strengthened, or weakened, by the same "talent" factor: whether employees are helpful, friendly and approachable -- or not. In fact, for most of the brands we studied, problems with employee helpfulness outweighed any limitations in employee knowledge or expertise as predictors of customer defection.

Of course, in most cases it's not an "either/or" situation. Employees are selected and trained to be both knowledgeable and customer-focused. Yet there are numerous instances where the people talents of customer-facing employees prove to be the primary keys to customer retention.

For example, we found this pattern of results to be true for Circuit City and for Sears, for Ford dealers as well as for Chevy dealers, for United Airlines and for Delta, for McDonald's and for Wendy's, and for Wells Fargo as well as for Citibank. Expertise is never irrelevant. In as many cases, however, a lack of expertise is not as great a source of customer defection as the customers' perception that a company's employees are unfriendly and unapproachable.

Are experience and relevant expertise important? Absolutely. They're just not enough. And, given the pervasiveness of employee training programs -- which tend to create knowledge parity across competing airlines, banks or fashion retailers -- it is "people" talents that create brand differentiation. And brand differentiation remains, of course, the essential prerequisite for creating brand loyalty.

Thus, when searching through business cases for hints regarding the purported "secrets of success," it's important to dig a little deeper. The first, obvious answer is frequently not the right one. Shortcuts or simple solutions may seem enticing, but they may actually represent a driveway to disaster. The path to success is seldom simple, and thus it takes, as was true for Sir Edmund Hillary in his quest for Everest, a special Sherpa to find the right track.


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