Measuring the ROI of Customer Satisfaction Programs Methodology

Measuring the ROI of Customer Satisfaction Programs Methodology, Case Studies, and Financial Model Service Strategies SCP Certification Showcase November 8, 2005 San Francisco

Agenda About Customer. Sat, Inc. Our Solutions The Challenge & Opportunity: Demonstrating ROI & Winning Funding for Feedback How to Measure ROI Case Study: Honeywell Case Study: Digital Insight Downloadable Spreadsheet Summary and Q&A 2 © 2005 Customer. Sat, Inc. All rights reserved.

About Customer. Sat, Inc. Overview Real-time customer and employee feedback & analytics systems for large enterprises since 1997 Customer. Sat Solutions: Capture feedback on overall relationships and from key touchpoints: call center, website, on-site service… Enable managers to monitor and analyze results, drive and coordinate responsive action, and optimize business performance Solutions consist of: Customer. Sat Enterprise™ hosted application: powerful, secure, scalable, flexible, and easy-to-use Professional Services – Experts in design, implementation, and analysis, reporting 3 © 2005 Customer. Sat, Inc. All rights reserved.

About Customer. Sat, Inc. Overview (Continued) Typical Applications: Overall customer satisfaction and loyalty Customer service, tech support, product installs, professional services Workforce commitment and engagement, workplace climate Market/competitive assessment, customer value analysis Web site and e-commerce effectiveness Web. Focus Groups Seamless integration with CRM systems and customer databases – combine attitudinal, operational and financial data Multi-channel – Gather feedback by Web, phone, automated voice (IVR), PDA, and more 4 © 2005 Customer. Sat, Inc. All rights reserved.

Overview Global 2000 Clients Telecom ATX Bell. South Comcast Net. Solve net. com Nortel Sprint U. S. Cellular Virtella 5 Technology AMD Apple Computer Canon Computacenter HP Honeywell IBM Motorola NICE Systems San. Disk Financial Services E-Business Allstate Akamai American Express Ariba Charles Schwab Cobalt Group Digital Insight Internap Kirchman Salesforce. com Metavante Stub. Hub Metrocities Veri. Sign Mortgage Web. Ex Wells Fargo © 2005 Customer. Sat, Inc. All rights reserved. Software Amdocs CSG Systems Cyber. Source Datastream Hire. Right Indus Math. Works People. Soft Trend Micro Consulting/Education Aberdeen Group DCI Getronics Hewitt INS J. D. Power Peppers & Rogers Hospitality/Travel Cessna Circles Hilton Pegasus Solutions Sodexho Health Care Hollister Kyphon Mc. Kesson HBOC Quintiles Ventana Medical Manufacturing Kodak National Starch Toro

3 Overall Trends Overview Gather feedback by whatever channel customer prefers Online, phone, PDA, speech-enabled IVR Take advantage of customers’ available time Touch rules protect customers from being over-surveyed Co-ordinated transactional surveys at key touchpoints are subsuming the annual relationship survey Briefer surveys; immediate feedback Results rolled-up across touchpoints to gauge performance enterprise-wide Real-time optimization of business performance Open cases when scores fall below specified thresholds Stated purchase intentions helping drive: Sales forecasting, Production planning, Supply chain management Scores drive management incentive compensation 6 © 2005 Customer. Sat, Inc. All rights reserved.

Customer. Sat Solutions Customers, Workforce, Partners… Customer. Sat Enterprise™ Feedback Analytics • Satisfaction • Other attitudes • Intentions • Preferences • Suggestions… Actions Surveys Invitations • Perceptions • Demographics Interactive Dashboards & Push-Reports Touch Rules PC Alerts & Cases PDA/Paper Phone/IVR 7 CRM system, Customer Database, or E-commerce Website Benefits: • Save at-risk customers • Recognize/address problems & opportunities immediately © 2005 Customer. Sat, Inc. All rights reserved. Drive and coordinate action • Increase customer retention & loyalty • Streamline operations; reduced expenses • Drive enterprise-wide rewards, recognition • • • CEO VPs Directors Managers Supervisors Reps

Metric-Verbatim Integration With Drill-down to Detailed Survey Responses Product A Documentation 8 © 2005 Customer. Sat, Inc. All rights reserved. Customer. Sat Solutions

Quadrant Charts Prioritize Responsive Action Customer. Sat Solutions Use Correlations to Position Attributes by Importance (Impact) and Performance Key Vulnerabilities or primary opportunities Potential Vulnerabilities or secondary opportunities Strategic Advantages or primary areas to maintain Potential Differentiators or possible over-investments

Customer. Sat Solutions Positioning Charts To Tailor Account Management by Customer, Industry, Product, or Region Hostages are likely to switch suppliers when alternatives become available Defectors create negative wordof-mouth by broadcasting their dissatisfaction Apostles and Loyalists act as advocates, create positive word-of-mouth, and deserve to be delighted and preserved Mercenaries tend to be pricesensitive, non-committal; explore raising barriers-to-exit

Action Alerts and Built-in Case Management Customer. Sat Solutions Enable Immediate Follow-up and Coordinated Action by the Right Individuals 11 © 2005 Customer. Sat, Inc. All rights reserved.

The Challenge and Opportunity: Demonstrating ROI and Winning Funding for Customer Feedback Initiatives Measuring ROI Feedback initiatives compete with many other corporate initiatives, e. g. , Sales and support productivity aids Market intelligence services Directly revenue-generating headcount Execs often don’t see feedback’s bottom-line impact Impact is not automatic – feedback must be acted upon Impact is hard to quantify Our objectives: Quantify feedback benefits that can be measured Make tangible benefits that cannot readily be measured 12 © 2005 Customer. Sat, Inc. All rights reserved.

Lost Customers Impact Revenue Growth Measuring ROI CAGR 25% 20% 15% 10% 5% In these five scenarios, revenue from new customers represents 25% of the total each year’s total revenue. Revenue from lost customers ranges from 0% to 20% Revenue retained from existing customers, ranges from 55% to 75% of each year’s total revenue (or equivalently, as shown in legend, from 73% to 100% of each year’s total excluding new customers). 13 è After only four years, revenue under the best scenario is twice that under the worst scenario. © 2005 Customer. Sat, Inc. All rights reserved.

Measuring ROI Factors Contributing to Feedback ROI Feedback Features ROI Contributors by Time Horizon Benefit Short Medium Real-time Analytics and Open-ended Comments Correlations and Positioning Charts 14 © 2005 Customer. Sat, Inc. All rights reserved. • • • Immediate follow up on customer concerns • Save at-risk customers immediately • Better cross -sell and upsell • Real-time Alerts and Case Management Respond more quickly to competitive developments • Streamline operations Better coach and reward employees Increase sales productivity • Customer, market, and competitive intelligence Better set investment priorities and tailor account management • • Reduce overhead Long • Stronger and more favorable word-ofmouth • Strengthen market position • Optimize resource allocation

Feedback Systems provide Intelligence on the Entire “Ecosystem” Surrounding Enterprises Suppliers’ Suppliers Measuring ROI Customers’ Customers Market Suppliers Customers ENTERPRISE Workforce Distributors Partners Brand Partners’ Partners 15 © 2005 Customer. Sat, Inc. All rights reserved. Resellers

The Bottom Line on VOC ROI Measuring ROI The ROI of well-executed VOC initiatives is very high. Reason: The costs of VOC programs – gathering the feedback – are relatively small. But the assets leveraged by them – customer-facing sales & support organizations and more broadly, the entire enterprise – are large. 16 © 2005 Customer. Sat, Inc. All rights reserved.

Measuring ROI 6 Steps to Measuring VOC ROI 1. Determine what part of the business’ revenue is touched by the VOC programs 2. Model that revenue by category: Model 1 Model 2 i. New (revenue from new clients) i. New (includes upsells and crosssells from existing clients) ii. Upsell/Cross-sell (existing clients) ii. Retained (existing projects only) iii. Retained (renewals) iii. Lost (existing projects lost) 3. Measure or estimate changes in revenue and growth rate by category due to VOC programs 4. Account for all VOC program costs 5. Estimate profit increases from increased revenue; subtract costs to determine changes in net profit 17 6. Calculate ROI © 2005 Customer. Sat, Inc. All rights reserved.

Measuring ROI How much Revenue is at Stake? Modeling the Enterprise Value Proposition 100% Web-based Resources Service & Support Delivery & Installation Value Delivered Products Account Management Brand 0% 0% 100% Customers 18 © 2005 Customer. Sat, Inc. All rights reserved.

Measuring ROI How much Revenue is at Stake? Modeling the Enterprise Value Proposition 100% Web-based Resources Bronze Value Delivered Silver Service & Support Gold Delivery & Installation Product A Product B Product C Product D Telecom Financial Services Acme 0% Deluxe 0% © 2005 Customer. Sat, Inc. All rights reserved. Account Management Brand 100% Customers 19 Health Care Product

Measuring ROI Mapping Feedback Processes to Overall Value Proposition 100% Web-based Resources Bronze Value Delivered Silver Service & Support Gold Delivery & Installation Product A Product B Product C Product D Telecom Financial Services Acme 0% Deluxe 0% Transactional (horizontal) Relationship (vertical) 20 © 2005 Customer. Sat, Inc. All rights reserved. Health Care Product Account Management Brand 100% Customers

Two Approaches to Measuring Changes in Revenue due to Feedback Approach Description Pilot vs. Control Measure differences in revenue by Before vs. After 21 Measuring ROI Measure differences in revenue by © 2005 Customer. Sat, Inc. All rights reserved. category between a pilot customer group with VOC and control group with no VOC category before and after VOC programs implemented

Measuring ROI Pros & Cons of the Two Approaches Approach Pilot vs. Control Before vs. After 22 © 2005 Customer. Sat, Inc. All rights reserved. Pros • • • Cons Most rigorous approach (customers in pilot and control groups selected at random) • Can be applied to VOC programs already in place Does not delay full implementation • • • Must be planned in advance Can delay VOC implementation (until pilot completed) More uncontrolled variables Differences in retention may be attributable to factors other than VOC

Case Study Pilot vs. Control: Honeywell Automation and Control Systems (ACS), Phoenix, AZ Description • $8 billion strategic business group of Honeywell Commercial & residential security, sensing, comfort, and control systems 40, 000 employees • Online VOC Pilot with Control Group • 616 customers in pilot group received VOC surveys and follow-up through Customer. Sat Action Alerts • 1, 369 customers in control group did not receive surveys • Service contract cancellations were 40% lower in the pilot group than in control group • $X (several) million dollars in service contract revenue saved • Anecdotal evidence of increase in upsell and cross-sell revenue • Situation Pilot Group/ Control Group Result after six months Revenue Impact 23 © 2005 Customer. Sat, Inc. All rights reserved. •

Before vs. After: Digital Insight Leading provider of Internet-based banking services (Nasdaq: DGIN) Timeline Event Mid 2000 Situation: Crisis Description • • • Late 2000 Partnered with Customer. Sat • © 2005 Customer. Sat, Inc. All rights reserved. Semi-annual relationship surveys Continuous event-based surveys • • 24 Fewer than 30% of clients referenceable Goal: 50% referenceable clients by YE 2001 Customer service and web site Interactive dashboards and real-time alerts Case Study

Digital Insight Pre-Feedback Revenue Mix Revenue Type New contracts won during year (new clients + new products to existing clients) Existing contracts retained during year (renewals) Pre-Feedback Revenue Mix 40% 50% Existing contracts lost during year 10% Total 100% Not actual percentages 25 © 2005 Customer. Sat, Inc. All rights reserved. Case Study

Before vs. After: Digital Insight Case Study (Continued) Timeline Event Description • • Organized support teams by product specialization • Conducted employee-specific monitoring and coaching • Added skills-based routing • Launched client self-service website • 20012002 Selected Actions Driven by Feedback Provided extensive product and technical training for all Customer Service and Client Relations employees Implemented additional transaction surveys to guide improvements • 2002 and Beyond Results 75% of clients referenceable by YE 2001 • 85% of clients referenceable by YE 2002 • Not a single contract cancellation due to Service & Support 26 © 2005 Customer. Sat, Inc. All rights reserved.

Case Study Result: No Non-Renewals Due to Service/Support For 2002 through 2003 Non-Renewal Driver 1 H 2002 1 H 2003 Change of DP Vendor Pricing <--------- Activity ----------> Merger or Acquisition <--------- Activity ----------> IT Interface <--------- Activity ----------> Service/ Support <-------- NO Activity ---------> Product 27 <------------------ Activity -------------------> © 2005 Customer. Sat, Inc. All rights reserved.

Case Study Lag Effects 0 -6 months 6 -12 months and beyond Improved Service > > > Greater Percent of Saved Customers > > > Improved Word-of-Mouth > > > Greater Percent of New Customers > > > 28 © 2005 Customer. Sat, Inc. All rights reserved.

Case Study Pre- vs. Post-Feedback Revenue Mix Revenue Type Estimated Feedback Impact Post. Feedback Revenue Mix New contracts won during year (new clients + new products to existing clients) 40% +2% 40. 8% Existing contracts retained during year (renewals) 50% +3% 51. 5% Existing contracts lost during year 10% -5% 9. 5% Total 29 Pre. Feedback Revenue Mix 100% Not actual percentages © 2005 Customer. Sat, Inc. All rights reserved. 101. 8%

Case Study Revenue Growth Rate Findings Estimated Digital Insight Revenue Growth (Normalized) With and Without VOC Programs 500% 434% 450% 400% With 350% 321% Without 371% 300% 238% 250% 177% 200% 133% 150% 100% 286% 220% 169% 130% CAGR with VOC = 44% CAGR without VOC = 39% 100% 50% 0% Year 0 Representative Data 30 © 2005 Customer. Sat, Inc. All rights reserved. Year 1 Year 2 Year 3 Year 4 Year 5

Two Ways to Account for Feedback Costs Measuring ROI 1) Operational + Measurement = Total Costs Operational -- costs to follow-up and reach closure with customers and carry out other actions in response to VOC feedback Measurement -- include VOC software, managed hosting, usage fees, and professional services, as applicable Ø Operational costs often larger than measurement costs 2) In-house + Outsourced = Total Costs Operational costs more often in-house Measurement costs more often outsourced ________________ Costs incurred whether or not VOC implemented are excluded from ROI calculation Ø 31 E. g. , salaries of service reps employed whether or not VOC systems are in place © 2005 Customer. Sat, Inc. All rights reserved.

Digital Insight VOC Cost Estimates Case Study Costs include all or a percentage of: Service Quality Programs Manager Client Relations Account Manager VP, Growth & Retention Programs Outsourced partner – Online and Professional Services (Customer. Sat) Most costs of customer service staff are incurred with or without VOC programs, and so are excluded Direct cost savings not estimated E. g. , streamlining processes 32 © 2005 Customer. Sat, Inc. All rights reserved.

Measuring ROI Calculation - Refresher Using Discounted Cash Flows (DCF) and Net Present Value (NPV) Present Value of cashflows (PV) = (Cashflow at end of year 1)/(1+interest rate) + (Cashflow at end of year 2)/(1+interest rate)2 + (Cashflow at end of year 3)/(1+interest rate)3 + … Example For cash flows of $1 million per year for three years, where interest rate is 10%/year, PV = $1 million (1/(1. 10) + 1/(1. 10)2 + 1/(1. 10)3 ) = $2. 48 million. Net Present Value (NPV) = PV of Cashflow – Initial Investment. Return on Investment = ROI = NPV of Cashflow / Initial Investment. 33 © 2005 Customer. Sat, Inc. All rights reserved. Assumptions: 3 -year write-off of initial investment 10%, 15% and 20% discount rates per year

ROI Financial Model www. Customer. Sat. com/news/ROI. xls 34 © 2005 Customer. Sat, Inc. All rights reserved.

DI ROI approximately 40 -50%/year From Increased Revenue Alone 35 Actual Data © 2005 Customer. Sat, Inc. All rights reserved. Case Study

Conclusions Overall Conclusions VOC significantly raises corporate growth rates ROI is high because feedback programs, at relatively low cost, make more effective many people who sell to and support customers Informs better actions Speeds actions Additional factors contributing to ROI Direct cost savings from streamlined operations Product, market, and competitive intelligence Smarter investing in areas with the greatest impact 36 © 2005 Customer. Sat, Inc. All rights reserved.

Online Resources (Free) Conclusions Measuring the ROI of Real-time Feedback Analytics (white paper) www. Customer. Sat. com/Resources/White_Papers/pdf/ROIAnalytics_wp. pdf Honeywell case study www. Customer. Sat. com/Resources/Newsletter-May 2005_1. asp Digital Insight case study www. Customer. Sat. com/Customers/Digital_Insight. pdf ROI Spreadsheet www. Customer. Sat. com/news/ROI. xls 37 © 2005 Customer. Sat, Inc. All rights reserved.

Measuring the ROI of Customer Satisfaction Programs Thank You! World Headquarters 500 Ellis Street Mountain View, CA 94043 www. Customer. Sat. com Phone 650. 237. 3300