Measuring happiness: what do your customers value?

Competitive tender is the norm in our building and construction world. Awarding a contract to the lowest price bidder may seem to be both the easiest and fairest way. However, there are adverse side effects to this practice. The most obvious issue is that the whole industry becomes far too cost-focused. Everybody is trying to be more productive whilst delivering the job at the lowest cost, and as a result they are sometimes cutting corners without considering the long-term impact of this attitude, including on their customers.

Customer satisfaction is widely known as being crucial to a company’s success, and can impact the following areas within a company:

  • Driving market share
  • Customer retention ratings
  • Stock price
  • Process improvement

Customer satisfaction surveys can provide a useful wake-up call if you are not really satisfying your customers, and also provide a good way forward for process improvement. Surveys can establish areas for development in a company and help you to stay ahead of the competition (techniques include the Likert scale, and tools like the ACSI, below).

Competitive Advantage

Recent research studies show an important relationship between customer satisfaction and economic performance (Fornell et al., 2006). Firms that receive positive customer feedback are likely to improve the level and stability of their net cash flows, and even benefit from high return with low risk.

Customer satisfaction, as measured by the American Customer Satisfaction Index (ACSI), can be correlated to the market value of equity. It has therefore been suggested that securities research needs pay closer attention to customer satisfaction and the strength of customer relationships. From a corporate CEO perspective, it is clear that the cost of managing customer relationships and the cash flows they produce is fundamental to value creation.

Customer Value Models

Achieving higher customer satisfaction may require more resources and incur higher costs. So, it’s important to invest well. With data from a carefully designed customer satisfaction survey, we can develop a Customer Value Model for our customers and find out what services or produces they most value.  For example, should you invest in hiring more engineers or instead invest in new technologies? Customer Value Models can help a company focus on the highest value areas, and hopefully benefit from the bigger financial return.

Example:

A client has asked for a quick response on a service request. A.) Your engineer could spend a few days preparing a thorough quotation whilst the customer is waiting. B.) Alternatively the engineer could respond with a basic quote and deliver the service with a short lead time.

You know your customers – your Customer Value Model indicates that they place a high value on quick results. Go with B.) and as a result the client will feel you listened to their needs, and your company will be the winner.

Yes, it can be that simple! Do you have a model in place – and when’s the last time you measured your customer satisfaction? Are they happy?

The next question is how can you put a proper process in place to work things out?

References

[1] Claes Fornell, Sunil Mithas, Forrest V. Morgeson III, & M.S. Krishnan (2006), “Customer Satisfaction and Stock Prices: High Returns, Low Risk,” Journal of Marketing Research, Vol. 70 (January 2006), 3-14

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[2] Claes Fornell, Donald C. Cook Professor of Business Administration and Director of the National Quality Research Centre

District heating is on the move

Last November at the BSRIA Briefing, I shared my thoughts about how CHP and Energy Supply Contracting models can possibly contribute to building a low carbon community. CHP is a low carbon technology but is only suitable for a larger scale site with a good base load to have better efficiency. ESCOs using the Energy Supply Contracting model can avoid a client’s upfront cost on implementation. However, no matter how good the solution and technology is, capital is always the barrier. Recently, I came across two pieces of news that I would like to share with you. It looks to me things are now moving.

First, the Scottish government announced in March a new £2.5 million District Heating Loan Fund. Registered social authorities, SMEs and ESCOs can apply for funding. The fund will offer loans of up to £400,000 to support low carbon and renewable district heating in Scotland.

Second, Leicester City Council is going to extend the current district heating network across the City of Leicester. The Council signed a 25-year contract with an ESCO to maintain and operate the plant. The ESCO will be responsible for part of the capital investment and there is additional funding from the Community Energy Saving Programme (CESP). It is predicted that the project will help the Council to reduce at least 10% of their carbon footprint.

It seems funding is coming and district heating is on the move. Are you aware of this move?

As an aside I noticed National Grid runs a program called Short Term Operating Reserve (STOR). Under this scheme, National Grid buys electricity power from privately owned generating facilities. The need for STOR is because at certain times of the day, the National Grid needs reserve power in the form of either generation or demand reduction to be able to deal with actual demand being greater than forecasted demand.

The question is, how will STOR influence large scale CHP in the future?…

Making CHP ‘do-able’

Front view of a CHP unit

The Government’s set a target for the UK to generate 15.5 GWe from combined heat and power (CHP) by 2020. Today, only 5.5 GWe is generated from CHP. So, how do we deal with this target shortfall in CHP?

The planning department has, in recent years, relaxed their policy on approving CHP plant projects. On the other hand, they try to insist on new building design incorporating CHP.  Of course, nobody likes to be coerced like this. But what is more important is that arguably this approach is not effective. For example, design engineers sometimes find it difficult to justify using CHP instead of the traditional boiler. It is seen to be too costly to build the CHP where the return on carbon reduction will be so little.

There is nothing inherently wrong with CHP, but rather in how we apply it. This large kit, even with better efficiency, is not suitable for a building-by-building application. We need to think at a community scale. It works perfectly well in district heating, or even a small community with several buildings. The key is to have more buildings where the load profile requires a constant energy demand.

CHP is more costly than traditional boilers. When it comes in a larger scale, the capital investment will probably be rejected by your finance director. But, does that really have to be the end of the story?

A happy ending with Energy Supply Contracting?

Perhaps, if you haven’t already done so, you should consider Energy Supply Contracting (which is also called Contract Energy Management in the UK). The service providers (ESCOs) provide low carbon energy to the clients, and the advantage of this business model is that it can allow the end user to enjoy low carbon energy without any upfront cost.

More thoughts on this particular model to follow – but what do you think? Can you tell me about any good or bad experiences with this?

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