keymodels
Customer engagement
How can customer engagement improve people, teams, or organisational effectiveness?
Contents
Helps managers answer: To what extent are our customers engaged with our organisation?
Customer engagement can be measured as the strength of the overall customer relationship and through specific behaviours in websites, communities and other channels. The KPI must state whether it captures perception, emotional attachment, rational loyalty or observable participation.
When to use it
- Answer the key performance question: “To what extent are our customers engaged with our organisation?”
- Assess this KPI within the Customer perspective.
- Plan data collection, formula use, reporting frequency, and data-source requirements for this KPI.
- Compare results against the targets, benchmarks, examples, or trend guidance available for this KPI.
Origins
Customer engagement grew from relationship marketing, service-dominant logic and interactive media. Marketing scholars began treating it as a distinct construct in the mid-two-thousands, and the Advertising Research Foundation proposed an influential practitioner definition in 2006. Current practice distinguishes a psychological state from behaviours such as participation, referral, content creation and repeated interaction.
What it is
Perspective: Customer perspective.
Key performance question: To what extent are our customers engaged with our organisation?
This KPI uses the broader, traditional meaning: the strength of a customer’s relationship with the organisation across every relevant online and offline touchpoint.
The commercial objective is a loyal customer base that generates superior returns. The simple chain “satisfied customers 5 loyal customers 5 profit” is unreliable: customers can describe an offer as satisfactory and still defect.
In the mid-1990s, Xerox found that more than a quarter of “satisfied” customers left when their contract ended. Loyal customers were more often “very satisfied,” usually because of how they experienced the relationship—what would now be described as engagement.
Enterprise Rent-A-Car similarly moved beyond a conventional satisfaction measure. Its Enterprise Service Quality metric counts only “completely satisfied” customers because internal research found they were three times more likely to return and recommend the company.
Gallup’s 11-question measure classifies four relationship states:
- Fully engaged: emotionally attached and rationally loyal; normally the most valuable customers.
- Engaged: beginning to form emotional attachment.
- Disengaged: emotionally and rationally neutral.
- Actively disengaged: emotionally detached and antagonistic.
Gallup’s historical database covered almost three million customers, 47,000 workgroups, 16 industries, 53 countries and four years. Fully engaged customers represented an average 23% premium in share of wallet, profit, revenue and relationship growth; active disengagement represented a 13% discount. Organisations with optimised engagement outperformed competitors by 26% in gross margin and 85% in sales growth. These are associations and benchmarks, not a guarantee that changing a score causes the full financial difference.
How to use it
Measurement
Data collection method
Collect perception through quantitative surveys, using a clearly anchored Likert scale such as 1 for very dissatisfied to 5 for very satisfied, or validated yes/no items. Add qualitative questions to understand why the rating was given.
Formula
Many instruments exist; Gallup’s engagement ratio is a notable macro indicator comparing fully engaged with actively disengaged customers.
Gallup refined the measure through customer interviews, behavioural analysis and testing. Eight emotional-attachment items and three rational-loyalty items consistently related to business outcomes, producing the 11-question CE11.
Calculate fully engaged customers for every actively disengaged customer. A ratio of 5.4 to 1 means 5.4 fully engaged customers for each 1 actively disengaged customer, allowing placement in an engagement category with likely financial implications.
CE11 covers rational brand assessment in questions 1–3 and emotional attachment in questions 4–11, including confidence, integrity, pride and passion.
Frequency
Measure and report at least annually, using rolling samples where faster feedback is needed.
Source of the data
The data come from the customer-engagement survey and should be joined to outcome data only under consistent governance.
Cost/effort in collecting the data
External administration can be expensive but brings benchmark access and specialist design. Internal administration reduces cash cost while increasing effort and limiting external comparison.
Target setting/benchmarks
A specialist such as Gallup can compare results with industry and cross-sector databases. Gallup historically reported 0.8:1 for an average organisation and 8:1 for a world-class one. Select targets relevant to the organisation rather than adopting an elite benchmark without context.
Example
In 2009, Gallup reported a multi-year restaurant study covering 2006 to 2008 in which chains with stronger engagement ratios outpaced industry growth.
One chain improved its ratio from 5.4 to 1 in 2006 to 7.2 to 1 in 2008; the 2008 endpoint accompanied 30% US sales growth and a 13% increase in unit sales. A competing chain declined from 0.63 to 1 to 0.46 to 1 and its sales fell 2% over the same period. The example supports monitoring but does not isolate engagement from every other cause.
Top practical tip
Use a rolling design—such as surveying 10% of customers 10 times per year—when an annual result is too slow. Add qualitative research to explain the score and compare customer engagement with employee engagement, since the service experience is produced by employees.
Top pitfall
Do not assume a stronger engagement score caused the associated financial result. Validate the measure, analyse customer and employee experience together and test which operating changes produce incremental improvement.