Satisfaction: Guaranteed?
By Web Fletcher
"Satisfaction guaranteed" has been a mantra of
many companies' march toward "customer-centricity." And as more
and more companies have adopted the principles of CRM, they have made
significant investments in measuring and monitoring their traditional
gauge of customer performance: customer satisfaction. But despite these
investments, many companies will find that they provide little real understanding
of their customers, no insight into why these customers stay or defect,
no better understanding of how their business is truly performing, and
little direction for impacting growth or profits.
Why is that? The well intentioned desire to satisfy customers
does not reflect the complexities of today's markets, and does not support
companies' need to drive additional value from their customer base. Customer
satisfaction, while an important measure, falls short as an effective
customer management tool for several important reasons:
- It typically does not reflect why customers are satisfied
or dissatisfied, and provides little insight into why customers are
or are not loyal at the end of the day;
- Customer satisfaction does not reveal which elements
of the company's products or services could be improved to have the
greatest impact on customer loyalty;
- It is typically measured in broad averages, masking critical
issues and trends below the surface, or even misleading companies about
the strengths or weaknesses in the business;
- It does not distinguish between the customers you'd like
to keep vs. those you wouldn't mind losing, and typically includes no
measure to identify which customers are worth investing in;
- Last, it assumes that satisfaction leads to loyalty,
an optimistic but increasingly unrealistic and imprecise measure of
the drivers of customer loyalty.
Despite its widespread use, customer satisfaction is often
merely a proxy for what companies need to know to improve their business.
While important, it is just one of many components that must be understood
in order to drive customer loyalty and corporate profitability.
So, if customer satisfaction alone is not sufficient to
build true customer understanding and drive increased loyalty and profitability,
what can companies do? Our experience with companies across various industries
has identified several ways to more effectively use customer knowledge
to drive business results and help make their CRM investments pay off:
1. Don't confuse satisfaction with loyalty
Customers today have more choices, through more channels, at better prices,
for almost any product or service imaginable. The Internet has removed
traditional switching barriers, provided near-perfect information, and
raised the bar for service expectations. In this environment, it is a
mistake for companies to believe that a satisfied customer is a loyal
customer. The reality is that satisfied customers defect, and dissatisfied
customers stay. In fact, research suggests that 60 to 80 percent of customers
claim to be "satisfied" or "very satisfied" prior
to defecting1 Braun's experience with clients confirms this, and our research
similarly reveals that factors other than satisfaction are often significantly
more influential in customers' loyalty decisions. Predictors of loyalty
today are more often based on customers' attitudes, behaviors, competitive
sets, and their unique perception of your products and services compared
with all of their options. For many companies, investments in measuring
customer satisfaction could be better applied elsewhere.
2. Measure what matters
To effectively drive business performance, companies need to move from
the loose proxy of satisfaction to analysis that provides better insight
into the business. The framework that most effectively supports this goal
remains customer value. Customer value management (CVM) provides a mechanism
for integrating specific metrics that differentiate customs and their
importance to the business, and supports more appropriate and comprehensive
management of customers as assets.
But most companies still do not have a good enough customer
value model to distinguish their unprofitable customers from the most
valuable ones. An effective customer value equation can help a company
integrate the key components of current value — such as revenue,
acquisition costs, and service costs — as well as future value, including
lifetime value and potential for loyalty.
Understanding customer value and the drivers behind it is
necessary for a company to truly understand its portfolio of customers
as well as to understand the financial impact of all of its customer interactions.
3. Get below the averages
New tools and technology have allowed companies to begin collecting comprehensive,
integrated information on their customers. But too often, that data is
rendered meaningless by simplified analysis, preconceived notions, or
historical biases within the organization. Few customers are "average,"
and measures that aggregate a million customers into an average measure
risks being more misleading than revealing. Similarly, grouping customers
based on internal product categories or other arbitrary distinctions may
hide more important dynamics or influences within the customer base, such
as demographics, attitudes or lifestyles.
Getting results from CRM data investments requires companies
to invest in the analytics that allow them to dig into the data, get below
the averages, focus on the differences rather than similarities, and develop
multiple new and creative ways to segment and analyze their customers.
4. Don't confuse customer data with customer insight
With all the data generated by new CRM tools and technology, companies
may be too easily fooled into thinking that analysis can take the place
of first-hand customer knowledge. The data is critical, but companies
need to have customers tell them how to interpret it. Data may reveal
that sales are dropping among certain customers, but those customers need
to be able to tell you why. This in-person relationship is still the only
way to understand what customers love or hate about your products and
services, or why they are choosing your competitors over you. Only through
personal communication with customers can managers capture the opinions,
emotions, and idiosyncrasies that reveal customers as people, not data.
Profitability: Guaranteed
Companies may guarantee the satisfaction of their customers, but that
does not guarantee that these customers will stick around or contribute
positively to the bottom line. If companies are serious about improving
their ability to manage customer relationships to drive growth and profits,
they need to dig under the surface to understand the specific issues that
impact customer loyalty and profitability. Rather than focusing on measures
of average satisfaction, companies need to invest in building true customer
understanding and knowledge. This insight — integrating customer
value, loyalty, wants and needs — will allow companies to differentially
target investments to help keep the customers they want, lower their cost
per customer, and increase overall profitability.
1 Reichheld, Frederick F., The Loyalty Effect, p. 237.
Web Fletcher is Vice President of Braun Consulting, a Chicago-based
professional services firm that provides its clients with the strategy
and technology to deploy customer-centric solutions.
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