GfK HealthCare August 2011
	Measuring Customer Loyalty: Integrating Feedback Into the Rep Compensation Plan By Jonathan Honiball, Vice President A key ingredient in the success of a loyalty program within the health care market is organizational commitment. One way a pharmaceutical company can show commitment to the goal of understanding and managing loyalty of customers is to include a measure of customer loyalty within the overall sales rep compensation plan. There are a number of significant concerns that must be addressed, but with proper planning and an understanding of the various implications, customer feedback can be successfully integrated into a compensation plan. This article addresses three concerns: Choosing the correct metric Measuring at the correct level Understanding the specific situation Some background on incentive compensation Pharmaceutical compensation models are based on two core pieces, fixed and variable compensation. Fixed compensation consists of base salary and benefits. Variable compensation, or bonus, is put in place to motivate sales reps to achieve various business metrics, including total sales volume, sales growth, number of new accounts, increasing scripts written, etc. There are two key concerns when developing variable compensation metrics: Return on investment (ROI) – Is the money invested in variable compensation a benefit to the organization? Easy to understand – Is the metric easy to understand and communicate? A complicated metric may create a trust issue and a lack of buy-in from the sales reps – exactly opposite of what was intended. The financial metrics are easily defined and can be quickly measured to determine ROI. They are considered the gold standard in incentive compensation. However, there are various issues related to using these measures that could unfairly impact a sales rep’s potential compensation based on factors beyond his or her control: Measurability – Data issues that exist at lower levels of data (i.e., physician-level prescriptions) Geography – Smaller territories yield smaller sales Product – Inferior or undifferentiated products Managed care – Unfavorable managed care position within a region Including customer feedback/ratings in the variable compensation model recognizes the need to develop a relationship with the customer in an effort to become more customer-centric and could motivate sales reps to develop these relationships and focus, serving the customer and not simply pushing a product. What is the ROI for developing this relationship? In general, GfK has demonstrated that loyal customers tend to: Try, use or recommend your company’s products and services Resist offers from the competition Give you a larger share of category spend Choose your products/services as substitutes for other categories Try your brand extension products Require fewer discounts and promotions Require fewer resources to serve There is definitely ROI with loyalty, but how can it be measured in a way that is easy to understand? Choosing the correct metric One burden that every organization faces when considering the inclusion of customer feedback is that some metrics may not actually drive financial performance – and may even hinder financial performance. This is typically the item that derails most customer loyalty programs within an organization: Customer loyalty, as defined by some metric (or set of metrics), can increase or decrease and there will be no correlation to movements in any financial metrics. This causes discomfort with the metric and a loss of confidence in the overall program. This highlights the necessity of measuring the correct customer feedback and ensuring that the metrics chosen are related to financial outcomes as a first step and not as a later add-on analysis to determine a potential relationship. This also requires that the loyalty metric be flexible rather than a locked set of questions. This flexibility and direct relationship to financial outcomes at the outset will help develop the buy-in needed. Through the use of scale development and construct testing, metrics can be created that can be used to judge against baseline or normative data and subsequently used in the evaluation of pharmaceutical sales forces. Two types of metrics can be developed: Single Construct – typically, similar items are combined to make a single compound variable (e.g., psychological scales, multiple measures of depression; some loyalty metrics are typically single construct: likelihood to recommend, likelihood to prescribe, continued use, etc.). Multiple Construct –items from different factors compound into a single metric. (e.g., overall college SAT score combines reading, math, problem solving, etc. Customer loyalty composite metrics typically consist of multiple constructs: product performance, price sensitivity, customer service reaction.) A tradeoff exists between a single construct and a multiple construct in the ease of understanding. A one question construct is easier for individual sales reps to understand. The more complex the measurement used, the more difficult the understanding. On the other hand, a multiple construct is more likely to have a higher level of correlation with the financial metrics when compared to a single construct. Measuring at the correct level A second limitation of using customer feedback is the inability to measure performance at the rep level. This has been a consistent request across various clients: the need to judge performance at the most granular level possible. However, in almost all cases, this desire is impractical because of the inherent sample size limitations. A single sales rep does not typically call on enough unique physicians to make a random sample practical. For example, to achieve a sample size of 30 (minimum statistical standard), a sales rep would need to actively call on a target list of 900 customers/respondents (based on 1/30 recruiting ratio). So what is practical? Rather than focus on the individual sales rep, companies that measure customer feedback do so at team level (region, district, etc.) where a meaningful measure can be taken. This allows for a more robust sample and supports a shared focus within a smaller unit. Some organizations will even measure only at the national level; however, analyzing the data at a lower level allows for an organization to learn from itself and apply successful strategies found in the more successful geographies. Considering the costs of measurement Even if a large enough sample size were obtainable, the costs related to the fielding would be extreme and may present an insurmountable burden within an organization. One technique to lessen this burden would be to create two separate survey versions. A shorter survey version could be used to only track the chosen metric(s). By creating this shorter version, costs could be contained while still achieving the necessary number of respondents within a given geography. Understanding the specific situation Even if the correct metric is being measured and the correct analytic unit (region, district, etc.) is being used, there is still a need to understand the specific situation. That is, it would not be ideal to determine variable compensation from a one-time survey measurement. While it makes sense to compare across geographies for any learning that can be shared within the organization, different geographies are likely to give scores within the context of their market. Much like the gold standard variable compensation metrics, survey responses can vary on market factors beyond the immediate control of the organization or the sales rep: product, managed care, etc. For fairness, a variable compensation plan is better based on the change displayed within any of the geographies over time. This is also easily understood: A sales rep would receive variable compensation if his or her specific customer feedback score increases from the previous score. Increasingly, pharmaceutical companies have worked on ways to increase customer loyalty in their specific market. Incorporating a customer loyalty metric into a variable compensation plan is an effective way to show organizational commitment and drive desired sales rep behaviors. To ensure that this effort is successful, care must be taken at the beginning of the process to ensure that the correct metric has been selected, the correct group is being measured, and that the measure is repeated over time. Want to learn more on this topic? Please contact:

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