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More executives and management teams are interested in customer satisfaction and loyalty metrics than ever before. And, more recently, there has been specific interest in customer loyalty metrics and gaining competitive advantage through loyalty as outlined in any of the several popular books authored by Frederick F. Reichheld. Interestingly, very few executives and managers understand the critical difference, requirements for measurement, or value to the business for actively improving both. Although both metrics have a loose, interdependent relationship, they are two very different metrics with different business implications.
Let me make a powerful statement. Customer Satisfaction is VERY DIFFERENT from Customer Loyalty. One is a requirement to do business; the other is the basis for sustained profitability and growth.
Customer churn rates are at unprecedented highs everywhere. A recent CRM Guru survey noted that 70 percent of customers indicate poor customer service as the prime reason for defection. Unfortunately, regardless of mottos on call center walls, many organizations still view and manage customer service as a cost center, or worse, a distraction from their core business. The irony with regard to customer churn is that most organizations believe pricing as the primary reason for customer turnover.
This article explains the difference between customer satisfaction and customer loyalty – and how they relate to customer retention. It explores the interdependent relationship between the two - and how they are both driven by customer experiences. Finally, this article will share the importance of understanding and measuring both with granular, actionable data.
Customer Satisfaction
Customer satisfaction is just that, a customer’s sense of satisfaction. Speaking simply, customer satisfaction is a measure of expectations being exceeded, met, or not met. That’s it. When thinking of customer satisfaction measurement, we want to know that we are meeting or exceeding customer expectations. We want to believe that we have satisfied customers and that this will lead to their loyalty and improve revenues. Unfortunately, customer satisfaction has little to do with customer loyalty.
I spent time recently with several organizations who had invested considerable time and resources to survey the satisfaction levels of their customers. The results were in and overall they were very positive aggregate scores.
But while everyone that was a part of the process was pleased with the ratings indicating high levels of customer satisfaction, they were disappointed that customer turnover rates continued to be very high despite these recent findings. “How could that be?” I was asked. “Is it possible that satisfied customers would leave with such high satisfaction scores?”
The answer to this question is a resounding YES!
Why? Satisfied customers will stay until there is a better alternative offered to them – even if there expectations are exceeded! This is true for both external and internal customer groups. When ex-customers are surveyed in exit interviews, they typically reveal that they left because they received a better deal or offer. They did not feel committed to the prior company. No emotional investment or connection.
On the other hand, loyal customers are a different breed. Loyal customers will stay with a product or service provider through thick and thin. The mistake we make is confusing loyal customers with satisfied customers. Much research over the years has indicated that there is no connection between customer loyalty and customer satisfaction. None. Just because a customer indicates a high level of satisfaction does not mean that they are or will be loyal to you. Customer loyalty entails an emotional connection. You have embedded yourself in the heart and mind of that customer.
Customer Loyalty
I live and work in Silicon Valley here in Northern California. And I confess there are several restaurants in Silicon Valley that serve high-quality, satisfying, delicious breakfasts. But, when I want to go out to breakfast on the weekend, I jump in the car and head over the hill to Santa Cruz to have breakfast at Linda’s Seabreeze Café. The food is okay, but the service is incredible. It feels like visiting family when Tex the owner greets me by name – even if it has been several months since my last visit. Denise always has a warm smile and brings out a cup of coffee and a warm cinnamon roll before we order – she knows that we like that. I feel an emotional tie to this restaurant.
What is the difference between the customer satisfaction and loyalty? It’s all on the emotional level. In order to gain customer loyalty, you need to engage my mind and pierce my heart. It’s that simple. I need to feel as though I am a part of the process and business I initiate – and that you care about that business.
How can you differentiate between your satisfied customers and your loyal customers? Here are eight ways. They are equally relevant to your external customers as they are to your internal employee customers.
1. Pricing. You negotiate prices with satisfied customers. You negotiate costs with loyal customers.
2. Payment. Satisfied customer pay at their discretion. Loyal customers pay on time.
3. Referrals. Satisfied customers become referrals of your competitors. Loyal customers willingly provide referrals to you.
4. Turnover. Generally, you will experience turnover rates of 15% or higher of satisfied customers. The turnover rate of loyal customers will be less than 5% and will be for reasons out of your control.
5. Competitive data. Your satisfied customers are seeking competitive data. Your loyal customers are sharing competitive data.
6. Perception. Satisfied customers perceive you as a commodity provider. Loyal customers perceive you as a partner.
7. Contract. You will need a contract to keep many satisfied customers in place. You have a virtual lifetime contract with your loyal customers.
8. Difficult times. Satisfied customers will leave you. Loyal customers will stay by your side.
People, Products, and Processes
Loyalty comes primarily from a customer’s emotional connection and experiences with an organization’s people. Secondarily, Customer Loyalty is driven by customer experience with products and processes.
A company’s customer satisfaction metrics are a superset of customer perceptions regarding their people, products, and processes. At aggregate levels, customer satisfaction metrics have no value. Understanding the drivers of customer satisfaction at granular levels (by agent, by product, by process) and taking timely action to improve them in a way customers notice, creates and drives Customer Loyalty and markedly improved customer retention. There are two important keys in the last sentence that merit repeating:
1. Understanding drivers of customer satisfaction at granular levels – by agent, by product, by process or transaction type, and
2. Taking timely action to improve them.
Customers’ experiences with people, products, and processes will determine their emotional connection and loyalty to an organization. An analysis in the Harvard Business Review showed that a 5% increase in customer retention could increase profits by as much as 100%.
A large customer of ours that leveraged Amae Software technology to understand if a customer had been seriously considering competitive products or services was alarmed to learn that over 11% of a specific queue was in fact planning to defect. By understanding the drivers of their perceptions and reaching out to the entire group to take action, they were able to save 88% resulting in literally millions of dollars of customer revenue.
Action Follows Feelings
Customer decisions and customer behaviors ultimately align with feelings regarding people, products, and processes. Customer Loyalty is determined by how the drivers of Customer Satisfaction are managed – this is the essence of Customer Experience Management.
Amae Software has captured all the benefits of CEM technology and processes within the Amae CI Suite. Data throughout this article is supported from actual implementations and customer experience. For further information or demonstration of the Amae CI Suite, please contact Amae Software at www.AmaeSoftware.com or call direct: (650) 965-0820.
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