Feedback Loops: How Customer Feedback can increase Business Success

Feedback loops are an important marketing tool for strengthening customer loyalty. What may sound innovative and technical at first is based on a principle that is almost as old as the Earth itself. Without feedback loops, there would be no people, nor the ability to read this article on the Internet right now. Feedback loops can be found in all areas of our lives and control our technical, biological, and social systems.

Such feedback regulates and balances almost all the processes in the human body – from the production of hormones and their delivery to the blood to the water balance in our cells. After a three-course meal, for example, the stomach sends feedback to our brain to let us know we're full up. When these processes run naturally and as intended, our body works perfectly and is in balance. However, when a feedback loop breaks, we slip out of balance and get sick. Feedback loops are thus a sophisticated safety and control system that, on the one hand, ensures our survival and, on the other hand, creates pathways to further development.

Even though many of these feedback loops run in the background, they greatly affect the body and mind and influence the creation of good and bad habits. If we listen to the message of our stomach by stopping eating when the feeling of satiety occurs, we have created a positive habit. Our stomachs can do their job unhindered. If we ignore his message, we risk stomach pain.

What works in nature can also lead to a developmental leap for businesses. Each customer is individual and therefore has different expectations for and wishes from a company. Companies are increasingly faced with the task of finding out what most excites or annoys their customers. A simple and effective method is to ask the customer directly for their feedback and implement a feedback loop.

What is a Feedback Loop?

A feedback loop describes the input from a customer and the company's response to it. It is an ongoing process that describes the interrelationship between customers and companies. By repeatedly asking customers for feedback on their products or services, companies can:

• Identify weaknesses,
• restore balance in the event of a conflict and stabilize the customer relationship,
• optimize their workflows

As in the body, this creates a cycle of constant control and improvement. Feedback loops are therefore an effective way to look for improvements and take into account customer wishes. The most important prerequisite for this is active listening. Profitable information about customer behavior is revealed in real-time through the coveted answers provided. Using feedback loops in a targeted manner gives companies the opportunity to influence the behavior of their customers.

“Constant development is the law of life, and a man who always tries to maintain his dogmas in order to appear consistent drives himself into a false position.”

– Mahatma Gandhi

Feedback loops can be divided into two groups. There are positive feedback loops, where the feedback enables the customer to make a positive change compared to the previous state in the company. Numerous positive feedback loops are also observable in nature: when plants die, their dead components enrich the earth with humus. The hummus, in turn, provides nutrients and moisture so that more plants can grow and thrive. The more plants grow and die again, the more humus is produced. More new plants can sprout. A colorful flower meadow results. Customer feedback is thus like the hummus that makes the company grow and flourish. In marketing, this process is described as an output increase.

However, feedback loops can also form a negative cycle. For example, if a forest is cut down, that area becomes more vulnerable to erosion. Erosion, in turn, deprives the earth of organic material and nutrients. It becomes harder and harder for plants to find what they need in the soil. At the same time, a soil without roots further promotes erosion – a kind of vicious cycle is created. Critical customer feedback acts as an erosion of the company. In broad circles, it can negatively affect potential customers and their consumer behavior, thereby weakening the company and its products. Just as more and more plants lack a foothold in the soil, more and more customers are losing confidence in the company and its products.

Companies can target measures against such downward spirals:

• Balancing feedback loops: these feedback loops have a balancing effect. Their aim is to weaken negative habits.
• Reinforcing Feedback Loops: these reinforce behavior and help build good habits.

The Feedback Loop in NPS^®

“It takes humility to seek feedback. It takes wisdom to understand it, analyze it, and appropriately act on it.”

– Stephen Covey, author of the book "The 7 Habits of Highly Effective People"

Customer feedback can be collected in many ways these days - at the end of a phone call, in writing via SMS or as a direct online survey in the customer portal, or on completion of an order. A relevant metric in this context is the Net Promoter ScoreⓇ (NPS). It provides information on how satisfied your customers are. At a relevant contact point with the company, the so-called Main-Touchpoint, customers are asked about their willingness to recommend their experience so far. In order to get truly meaningful results, it is important to ask the customer at a certain point in the customer journey. At best, you should ask the customer for their evaluation just after they have come into contact with your company or the product, or shortly thereafter. The answers can be used to divide respondents into critics (detractors), neutral customers (indifferents), and advocates or fans (promoters).

However, even if the NPS® is an important metric, it does not explain why customers behave in the way they do. Only the possibility to give qualitative feedback at the end of a survey gives the customer a chance to share their view in their own words. We at zenloop have recognized this and go a few levels deeper in analyzing the data to provide a more comprehensive picture of the customer and their needs. But collecting the data is only the first step. Similar to chemistry, it is necessary to crystallize the essence from the amount of information. It provides the DNA for the strategic actions of the company and determines possible future tasks such as:

• Turning critics and indifferents into fans
• Optimizing internal processes, divisions, and product fields
• Developing new distribution channels, processes and products
• Improving service quality
• Managing basic business decisions (initiating big changes)

The Inner and Outer Loop

Just as in nature several feedback loops run, cross-over and influence each other, so also in a company different feedback loops are of use:

1. Inner Loop - Get customer feedback
   The Inner Loop describes the management process in which feedback is obtained directly from the customer. An individual exchange takes place between the employee and the customer. These customer inputs are collected and forwarded to the relevant department. All the team members, therefore, have the same level of information. Together, the team then searches for solutions. At the same time, employees contact the dissatisfied customer in order to propose a solution. The aim of the conversation is to win back the customer. Subsequently, measures are developed on the basis of the feedback call and a solution found in order to avoid the problem in the future. The Inner Loop also promotes individual learning process in the company.
   
   
2. Outer Loop - The feedback draws wide circles
   In the Outer Loop, it's not just the team that deals with customer feedback, but the entire company. The customer's input is used to identify customer satisfaction strategies and opportunities for improvement. In this way, customer-oriented strategies can be developed from the results. In most cases, these strategies involve investment because they involve new policies, price adjustments, processes, or technologies. The Outer Loop thus tracks customer-friendly changes that go beyond the scope of individual employees and teams.

Why Closing the Feedback Loop is so Important

Far-sightedness is required if companies want to create a positive feedback loop. After all, customer surveys are more than a one-dimensional action in which the company asks and the customer responds. When surveys become a one-way street, they miss their target and do the opposite - the customer relationship becomes permanently damaged.

The Closed Loop is therefore an elementary part of any feedback management process. As a result, customer contact should not end with the NPS^® query. This is because the customer receives feedback on his or her answers. And last but not least, customers are interested in finding out their complaint or desire for improvement was dealt with. If this feedback is not received, the customer is discouraged and frustrated.

Forward-looking companies will then pro-actively telephone to ask for the reasons behind a negative assessment. In a personal conversation, they can respond individually to the wishes or problems of the customer and offer solutions immediately. The Closed Loop also gives companies the opportunity to apologize for mistakes and offer redress. With each feedback, the company receives in-depth inside information about error-prone products or even missing processes. This input is collected and forwarded to the relevant departments. Ideally, the customer will be contacted again if their problem has been resolved. If the solution lasts longer than planned, a status message is helpful. In the best case, the update provides a positive experience for the customer. They receive a signal that the company has not forgotten them, takes them seriously, and acts effectively. This can turn frustration into enthusiasm. If the company succeeds in this balancing act, the customer attitude to the company, and thus the recommendation rate can be improved sustainably.

Critics become enthusiastic customers and advocates especially when not only their minds or wallets are addressed, but also their hearts, i.e. their emotions. This is the case, for example, if:

• the brand gives them the feeling of being valuable
• the company has fixed its problem
• the product or service is optimal

But it doesn't take a "shitstorm" on social networks to enable companies to evolve through feedback. Even satisfied customers (promoters) can provide valuable information to improve the performance of the company. By sharing their enthusiasm for the service or products, companies learn what they should focus on in the future. Whoever wins promoters as an ambassador or influencer can additionally maintain the image and increase their reputation. Promoters are often true innovators with high potential for the company. With their insider knowledge, promoters can provide creative input for new product development processes. Attentive action after receiving positive customer feedback makes an already satisfied customer radiate. This creates a positive feedback loop.

Companies that want to work with the closing the loop methodology have to be extra mindful since the new General Data Protection Regulation (GDPR) ) came into force. In order to contact the customer and ask them questions, their explicit consent is necessary in advance.

Checklist for a Successful Closed Loop

A successfully closed loop needs to be well thought out. It represents a management process that needs to be constantly developed and adapted to customer needs. This is the only way to deliver valuable results. The following questions can help to plan the process:

• What is the goal?
  Should critics be recovered? Or do companies go one step further and want to turn detractors into fans? Do you want to collect information about the products and services? Should promoters be recruited as multipliers and ambassadors? Do you want to communicate particularly positive feedback to the public?
  
  
• Should there be a follow-up?
  Which customers should be contacted again? When should the follow-up take place? How quickly should you react to critics? How should the contact take place, by phone, e-mail, or even mail? Should there be reparations in the form of vouchers or giveaways?
  
  
• Who is involved in the closed-loop process?
  Do the people involved have enough time and resources at their disposal? Who is allowed to distribute refunds or credits? Are there any technical challenges that need to be resolved?
  
  
• What is expected to be the result?
  What process result and output are expected in terms of the resources invested?

Closing the Loop – Closing the Feedback Loop as Part of NPS

But detailed and extensive data is of little use if it disappears into someone’s desk drawer instead of being effectively deployed in the right position. Modern software such as zenloop, therefore, relies on topicality and regularity. It helps employees to respond effectively by...

• offering the possibility to request weekly reports by e-mail. In this way, employees can always keep an eye on current developments
• sending customer feedback via an "alarm system" in real-time to a computer or smartphone. Employees can respond to the feedback immediately
• despatching, with the help of various integration tools, messages, and comments on the request to the relevant department. These messages can then be further processed via a ticket system.

Summary

The Feedback Loop describes a multi-step process: from obtaining customer feedback to analyzing it, and then deriving insights. These findings, in turn, have an impact on the individual divisions. The Feedback Loop is closed by an active message to the customer about how the issue has been resolved. With the Closed Loop, customers can be transformed into enthusiastic, loyal fans.