Like Alice in Alice in Wonderland, we chase an elusive white rabbit--in our case, the rabbit is client satisfaction. We check our clients' vital signs at relationship meetings and through satisfaction surveys, assuming that positive feedback bodes well for future business.
However, certain contextual issues and a growing body of research suggest that client satisfaction, as traditionally measured, is but one modest indicator of client retention.
What are the other indicators? More importantly, what do they teach us about fine-tuning our service to boost our odds of keeping clients in our fold?
The Research: Satisfied Isn't Good Enough
First, let's first discuss the research. As reported in The Loyalty Effect: The Hidden Force Behind Growth, Profits and Lasting Value (Harvard Business School Press, 1996), one study found that satisfaction is not a surrogate for retention--that, actually, between 65 percent and 85 percent of defectors say they were satisfied or very satisfied with their former firm. As author Frederick F. Reichheld pointed out in an interview in Relationship Management Report (July-August 1999), "Most of the client defectors said they were satisfied … very satisfied. The key is not how satisfied your clients are, [it is] how many satisfied clients you keep."
A complementary study, "Why Satisfied Customers Defect," reported in Harvard Business Review (November -December 1995), found that only the "completely satisfied" are loyal clients, where loyal clients by definition provide an ongoing stream of business, are more profitable and cheaper to serve and are willing to market the firm to others. According to the researchers, Thomas O. Jones and Earl W. Sasser, Jr., the "completely satisfied" were nearly 42 percent more likely to be loyal than the "merely satisfied."
A third study, "Dynamic Customer Relationships: Incorporating Future Considerations into the Service Retention Decision" ( www2.bc.edu/~ lemonka/dynamic.htm, July 2001), observed that satisfaction is but one deliberation clients make when considering future business with a firm. Of critical importance is how clients evaluate the future benefits (or anticipated losses) they expect to receive from the firm, and how this evaluation influences their current retention-defection decision. Moreover, the authors, Katherine N. Lemon, Tiffany Barnett White and Russell S. Winer, describe these outlooks as being dynamic, "as clients update their expectations of future use following an 'adaptive expectations approach' into their next period expectations." In other words, it appears that firms are only as good (or as bad) as their recently memorable work.
Contextual Issues: New Pressures Ratchet Up the Threshold
There are, as might be expected, contextual issues that influence the correlation between client satisfaction and retention. For one, it's no mystery that these days client relationships are affected by shrinking stock valuations and challenging profit-and-loss statements at client companies. In particular, general counsel are pressed by their CEOs and CFOs to run their departments like a business and to derive greater value from outside firm relationships. Illustrative of this quest for increased value, general counsel expect a smaller number of firms to be more insightful about their legal issues and business strategies and, therefore, able to more quickly and cost-effectively formulate their legal issues.
In addition, competition among law firms affects the client satisfaction-retention correlation as well. Long-standing relationships are challenged when new firms are able to ratchet up the threshold of satisfactory service. What was innovative today is commonplace tomorrow. (See the sidebar, "What Corporate Clients Are Saying," for what general counsel of some top U.S. companies think about the topic.)
The Keys to Retention: Understanding, Measuring, Auditing, Investing
Given the research on client satisfaction and the contextual issues influencing client decisions, how can law firms expect to maintain strong client relationships for the long term? The answer is by turning their attention to the four keys to client retention today.
- Understand the relationship value drivers at the individual client level. In the eyes of clients (and prospective clients), law firms often seem undifferentiated and indistinguishable from one another. You would do well to ascertain from individual clients what each considers as its true drivers of value. Identifying these drivers represents a starting point for assessing current levels of satisfaction. It is also a starting point for determining the basis by which the client evaluates future benefits, and losses, when considering future business with your firm.
- Determine how the firm measures up against the competitive standard in delivering value. Once clients articulate their individual value drivers, you can compare this input against the firm's stated value proposition and make necessary adjustments. It is particularly important to gain the client's evaluation of how the firm currently measures up against the value drivers and against the client's perception of the competitive standard for the industry. For instance, if the client views accurate, reliable billing as a top value driver, you'll want to learn how the timing, promptness and detail of your billing presently stacks up against competing firms in particular and the industry standard in the aggregate.
Remember, this determination and evaluation is not a one-time, fix-and-forget effort--it is dynamic in nature, because clients constantly update their expectations for future business with the firm.
- Audit the caliber of the client's everyday experiences with the firm. Clients interact with your firm through the receptionist, legal assistants, partners and associates, your marketing, finance and information technology people and through your Web site, firm events, law alerts and other venues. Some of these experiences advance the relationship, while others deter it.
In what is termed "client experience management," clients evaluate their experiences with a firm on the basis of physical and emotive considerations. The physical side includes quality work product, equitable billing, timely delivery and relevant activities. The emotive side includes perceptions of trustworthiness, competence, deference, insightfulness about the client and responsiveness to particular needs. Indeed, client experience management may be the sole source of firm differentiation today. You need to be aware of its various aspects and address those areas that call for improvement.
- Invest in and deploy information technologies that cement the client relationship. Firms that acquire and deploy information technology solely on the basis of internal efficiency and knowledge sharing miss a great opportunity to strengthen structural bonds with core clients.
Rather than viewing core clients as eventual beneficiaries of pass-through benefits derived from technology investments, you should position those clients as key stakeholders who help craft the technology strategy for your firm. This shared strategy serves to strengthen structural bonds, while bolstering the differentiated, consistently enhancing experiences of the value-conscious client.
Your Best Assurance of Their Loyalty
Keeping a bevy of loyal clients goes far beyond mere levels of client satisfaction--something that is imprecisely measured and reflects the past, not the future. The best assurance of future business rests on continuously monitoring the client's perception of value derived from the relationship, knowing how well the client perceives your performance against the standards of competing firms and, then, consistently delivering above those standards. n
Michael (Mike) D. Wiley ( email@example.com) is founder and President of Wiley Group, Inc., a firm that helps major law firms differentiate themselves in the eyes of their clients.
SIDE BAR: A Synthesis of Factorsin Play Today
The research and contextual issues convey five salient points about client retention. Here's a summary.
- The satisfaction-expectation bar is steadily rising. Services offered by new firms can shake the foundation of long-standing relationships, especially when a law firm rests on its laurels and fails to evolve with the times. Meanwhile, clients' expectations continue to increase as a result of constant competition between the firms vying for their business.
- Only the "completely satisfied" are likely to be retainable. There are various degrees of client satisfaction that traditional measurement schemes fail to gauge. Retention is best assured by strategies that advance clients from standard levels of satisfaction to "completely satisfied" or loyal status.
- Retention rests on how clients evaluate the future benefits (or losses) of the relationship. Focusing on satisfaction alone, as a single indicator of future client retention, is missing significant opportunities for influencing dynamic, forward-looking considerations.
- The client's retention decision is based on constantly refreshed evaluations. Clients regularly update their expectations of future benefits (or losses) resulting from the relationship, where current or recent experiences hold the most sway. This is particularly the case with the client's quest for value-based relationships.
- Firms must strengthen their bonds with clients to enhance future benefits (or losses) evaluations. It is the ties that bind, but the nature of those ties should be stated and prioritized by the client. Firms should not presume that an internal "inside-out" approach to clients will establish the basis of an enduring relationship. Rather, firms should identify and strengthen bonds based on what clients describe as important, in an "outside-in" fashion.
SIDE BAR: What Corporate Clients Are Saying
- "We look for technical expertise but that is commonplace today. So the relationship is what's paramount. What's important is service, willingness to go the extra mile, to know our business."
-- Steven F. Hauser, Senior Vice President, General Counsel, The Minute Maid Company
- "I find that brand-new firms are more receptive to the kinds of changes we've been talking about, they understand partnership more. I find that firms we have had long-standing relationships with have grown very accustomed to doing things the way they have done things over 20 years ago. This is dangerous because we now have purchasing involved and information systems involved-we have a variety of influences who are saying it has to be done differently because it's more compatible with the objectives of the business."
- - James K. Grasty, Vice President, Associate General Counsel, SmithKline Beecham
- "I look less to what the technology of the firm is than what their attitude or aptitude toward technology is. I would be much more attracted to firms that seem to understand and be inclined to participate in technological innovation because I am at the cusp. And it's less important to me what you're doing today than [whether] you're going to grow with me over the next period of time."
- - Larry Appel, Senior Vice President, Chief Legal Officer, The Home Depot