What is Customer Due Diligence?

A value-centered approach to analyzing deals through the lens of the customer.

Financial due diligence only tells part of the story.

 As 68% of Private Equity leaders anticipate deal activity to rise in 2021 and multiples continue to grow, it is more important than ever to ensure opportunity areas and systemic risks are identified pre-transaction.

Customer Experience (CX) is the driving force behind revenue – largely why an overwhelming majority of Sales and Marketing leaders expect to compete primarily on CX. Yet, according to Accenture Strategy, $1.6 Trillion is lost every year in the US because of poor customer service.

So why are deal teams not paying enough attention to the most important asset of all? Of the few that do, their approaches leave a lot left on the table.

Traditional approaches often involve 2-3 people on the deal team dialing customers to get a sense of current performance. Not only is it proven that this is ineffective at reaching the necessary volume of interviews, but the majority only focus on identifying short-term problems.

Loyalty Research Center (LRC) has developed a tried-and-tested set of capabilities based on over 20 years of serving the Private Equity community. Through surveys, phone interviews, and panels, we measure attitudinal strength of the customer relationship through an aggregate metric: Loyalty.

We then use the metric and quantitatively model the impact of various experiences (e.g., Product, Customer Service, Digital, etc.) on Loyalty. Doing so allows us to identify significant opportunity areas and risks by segment in order for the operational team to prioritize resource investment into the areas with the greatest impact following the transaction.

How is this any different than just measuring Bain’s Net Promoter Score (NPS)? The answer lies in years of diligence programs that have proven an aggregate metric more accurately explains behaviors.

Customers categorized as “Loyal” may only make up 22% of the total base, but have a significant greater share of spend, margins, retention, and numbers of referrals. Just like financial due diligence, NPS or traditional approaches to CX research routinely miss that part of the story.

By collecting and analyzing this information prior to transaction, you are able to provide the necessary level of rigor to diligence around Marketing, Sales, and Service needed to scale in highly competitive environments. More so, this information can correctly shape your transformation journey before it even begins.

Contact us today to speak to a member of our Client Services team and find out the benefits we can offer you and your firm.

Posted in Blog, Insights, LRC Blog, Mergers and Acquisitions.