An Evident Horns Effect

Background:

Client is a mid-sized manufacturer with a competitive edge in the market, being considered of higher quality than competitors in their space, and highly requested among customers of their distributors. 

In previous waves of research with Loyalty Research Center (LRC), Client sought a baseline measurement NPS, and understanding of differences in their key verticals and channels, identification of benchmark competitors and market position, evaluations relative to 2-3 years ago, and market projections.

The first wave of research gleaned a high NPS score of 83, associated mainly with high product quality, reliability of products, and customer service. In this wave of research, lead times were identified as the main pain point for customers across all segments.

Challenge:

Client engaged LRC to:

  1. Obtain a new baseline NPS score,
  2. Understand the strengths and weaknesses in the market, and 
  3. Conduct a deeper assessment of their lead times.

Due to market changes, Client suffered operationally and experienced lead time issues with their customers. Client had made changes to reduce lead times and were hopeful that their customers’ evaluations of their organization would come up to an average rating.

Solution:

The 2018 wave of the NPS study showed that Client’s NPS fell to 25. Additionally, many of Client’s previously strong product and service related evaluations fell between 10 – 20%. LRC hypothesized a Horns Effect taking place, where lead time issues were impacting customer evaluations across the whole business.

Customers were asked to evaluate their delivery experience in the past 3-6 months versus the past 12-24 months.

Figure 1: Change in Client delivery experience

It was evident that customers’ memories were long and they had not forgotten the lead time issues that had severely impacted their business. Because Client was confident that their changes had made a positive impact on lead times, it was surprising that almost half of customers reported that their delivery experience with Client 3-6 months ago was “about the same” as it was 12-24 months ago, as noted in Figure 1.

Comparing Client’s “most favorable” (Excellent and Very good) evaluations from 2018 to 2016 (Figure 2), it became clear that Client’s evaluations had fallen across the board, even in their strongest categories of product reliability and quality.

Figure 2: Client’s top 2 evaluations, 2016 and 2018

LRC hypothesized a “horns effect,” meaning that the negative evaluations surrounding lead times had permeated the entire customer relationship with Client. LRC tested this hypothesis through running indirect NPS models, showing that lead times had a strong impact on the shipping and account management evaluations, accounting for 30% to 40% of the drop in evaluations.

Diving deeper, LRC conducted driver analysis, and identified “Lead Time on Orders” and “Reliability of Products Over Time” as strong drivers of Client’s customer relationships, noted in Figure 3.

Figure 3: Client driver evaluations with top 2 and bottom 2 evaluations

“Customer Service” and the “Level of Value for the Price of the Products” were identified as moderate drivers. “Lead Times,” the strongest driver of Client’s customer relationship, was identified as having the highest Fair/Poor evaluations, and the lowest Excellent/Very Good evaluations. Compared to the high evaluations of the second strong driver,“Reliability of Products,” it was clear to LRC that “Lead Times” was the main pain point for the Client customer relationship.

Finally, customers were asked their industry standard expectation of lead times, and the lead times they expect from Client. In comparison to 2016, lead times lengthened with both the standard expectation of lead times and with Client in 2018. Longer lead times industry-wide could be attributed to market changes that affected all companies in this industry.

However, when comparing the average expectations of lead times, the results were more telling. Results from the graph above were averaged, creating the output for the table below (Figure 4).

Figure 4: Industry standard and Client average lead times in days

As displayed in the chart above, customers of Client stated that Client’s lead times were, on average, 4.5 days longer than their standard expectation. However, in 2018, while the standard expectation’s lead times lengthened by 3.4 days compared to 2016, Client’s lengthened by 7.1 from 2016 to 2018. This shows that although lead times had lengthened for all competitors over the past two years and not just Client, Client’s lead times lengthened by almost twice the standard in 2018.

Figure 5: Client competitive comparison

Finally, the impact of long lead times was again evident in the competitive evaluations of Client (Figure 5). In the “Lead Time on Orders” category, Client had a competitive disadvantage over 69%, its largest competitive disadvantage over any other segment. It is also important to note that “Shipping Process” had the second-largest competitive disadvantage at 40%.

Next Steps:

After seeing the results of the NPS study, Client identified that the customer’s perception of lead times did not match up with Client’s actual lead times. Client hypothesized that their customers’ issues with lead times was now a communications problem, not an actual lead times problem. Client wondered if the customers were getting accurate and timely information about their products’ lead times, causing them to believe that lead times were longer than they actually were. Communications and consistency will be key moving forward.

LRC also suspected that although Client’s lead times had decreased, customers have long memories and were still remembering the long lead times from 12-24 months ago. As a result, Client’s leadership was able to connect with another business in a similar industry who also had lead time issues to brainstorm ways to improve lead times and customers’ perceptions of lead times. Fixing customer issues doesn’t always fix their lasting impressions of your business. This is why staying close to customers and ongoing feedback is key to growing and maintaining strong customer relationships.

Posted in Case Studies, Industrial Goods and Services, Insights.