You’re probably tired of hearing retail gurus tell you the importance of customer experience, especially if you’re a brick and mortar store trying to find your competitive edge against the box pushers.
Yet while the need for exceptional customer experience is a truism, few gurus talk about the tools required to measure and quantify the impact of customer experience to the bottom line. MI retailers have access to a wide variety of tools to measure and manage their tangible assets such as their music inventory via inventory management and POS systems. Finding access to the right tools to measure intangible assets is not as easy.
In my March MMR column titled “Masters of Intangibles” – intangible assets are 80 percent people and 20 percent enabling technology – I wrote about the challenges MI retailers have when trying to measure untouchable assets like customer experience and customer satisfaction.
As a non-financial asset, you’re not going to see your intangibles on your balance sheet, yet the impact of being able to measure customer experience is huge! According to an article published in the Harvard Business Review in 2014, customers who had the best past experiences spend 140 percent more compared to those who had the poorest past experience.
Key performance indicators (KPIs) are the tools business owners use to measure whether their business is progressing according to plan. It’s kind of like comparing an orchestral score to the musician’s performance. If there are mistakes, the music score will be the arbiter of truth. And likewise, your KPIs will tell you what needs fixing.
The challenge for the MI owner is to understand and identify which KPIs to measure. For example, there are financial KPIs (tangible assets) and non-financial KPIs (intangible assets). As an example, financial KPIs try to measure working capital, operating cash flow, and inventory turnover.
While business owners are awash in financial data from statements like balance sheets and profit and loss reports from their accounting team and POS systems, measuring non-financial KPIs takes a bit more creativity to develop.
Stage right enters Mr. Tom Hemphill, marketing manager for Yamaha’s Music Education System at Winter NAMM’s Idea Center. His talk this past January was designed to help operators grow their lesson programs.
Tom was extolling the merits of using a SWOT analysis – an acronym for Strength, Weakness, Opportunities and Threat – an example of a key non-financial KPI to better navigate your business. In a follow-up interview with Hemphil, here’s what he told me:
“I encourage the schools to do a SWOT analysis. I ask them to identify five competitors, and then list why their particular music education program is stronger, or weaker, and how the strengths and weaknesses stack up to their challengers. Always be looking for competitive opportunities and potential threats.”
The concept is simple. Measure feedback from your customers and take a hard look at your competitors and see what they excel in, and where you need improvement. A recognition of the latter is your doorway to more business. Tom also introduced me to the “Net Promoter Score,” a free tool the MI community can use to gauge the loyalty of a firm’s customer relationships. For example, try asking your customers the following question: On a scale of 1-10 (highest) how likely are you to promote our business to a friend?
Assign the following classifications to the numerical answers. Customers that give you a score of 6 or below are your DETRACTORS A score of 7 or 8 are your PASSIVES, while a score of 9 or 10 are your PROMOTERS. I took the example below from surveymonkey.com.
Let’s assume you asked 100 of your customers this question and they answered as follows:
10 responses were in the 0-6 range, Detractors
20 responses were in the 7-8 range, Passives
70 responses were in the 9-10 range, Promoters.
To finish up, subtract 10 Detractors (who wants them anyway?) from 70 Promoters, which equals 60. Your net Promoter Score is 60 out of a possible range from -100 to + 100.
The whole concept is about being able to measure customer loyalty. That’s important because what you can’t measure, you can’t manage, and what you can’t manage, you can’t grow. Once you go down this path you’ll find that one question alone won’t do all the work. NPS will tell you how you are doing, but won’t necessarily tell you why your customers responded the way they did. The good news is, there are plenty of resources to help you get started measuring your customer perceptions.
Another free resource is published by CGMA, Chartered Global Management Accountant, entitled How to develop non-financial KPIs. The white paper talks about a wide variety of value-building activities designed to increase the value of your business-like mystery shopping, external assessments, focus groups, and peer-to-peer evaluation.
Another fantastic resource readily available to every MI retailer is your knowledgeable and friendly vendor wholesaler. Just ask him or her, “How am I doing compared to my competitors?” and start writing down some great free advice.
If you’re a Yamaha dealer, ask your wholesaler about the resources Hemphil’s team brings to the MI/Education world. If you’re not, there are plenty of resources available on the internet, including my website.
Jaimie Blackman – a former music educator & retailer – is a certified wealth strategist and creator of Value-Builder | MoneyCapsules, which capsule value-building activities into 90-day sprints. Blackman helps music retailers accelerate business value now and maximize value when it’s time to exit. Blackman is a frequent speaker at NAMM’s Idea Center. Visit jaimieblackman.com to subscribe to his newsletter and webcasts.
