(5 minute read)
On the surface, it seems like a logical business conclusion: Keep customers and employees satisfied, and an organization can expect to earn their long-term loyalty. According to industry experts, that’s actually a huge leap of faith. For starters, many people mistake customer satisfaction and customer loyalty for each other—assuming that they’re essentially the same thing. Actually, they’re quite different, and it’s important for professionals to understand the difference, says William Bleuel, Ph.D., a well-known expert in consumer research.
Definitions of Customer Satisfaction and Customer Loyalty from Industry Experts
“Experience tells me,” Bleuel writes, “as do the definitions in several dictionaries, that satisfaction relates to the results of a process,” whether it’s the process of sales, service or product performance. In service industries, for example, satisfaction is often based on the real-time, on-site experience.
Loyalty, on the other hand, is a much longer-term proposition. Loyalty relates to a relationship—one that can actually survive a negative product or service experience. (Just think about how loyal parents remain to their children, even after the inevitable challenges.)
Truly loyal customers look beyond the occasional negative experience, continuing to purchase a company’s products or services. Surprisingly, the converse is not always true. As many studies have shown, satisfied customers do not necessarily become or remain loyal customers.
In a recent Harvard Business Review article, noted loyalty expert Frederick Reichheld of the Bain Company noted that between 65% and 85% of customers who defect said they were “satisfied or very satisfied” with their former supplier. He specifically noted that while satisfaction scores in the automobile industry average 85% to 95%, only 40% of these customers purchase their next vehicle from the same supplier.
Case Study—Frequent Travelers Go “hotel hopping,” Cite Staff Attitudes
A recent article on CNN.com, “Executives can be fickle guests,” discusses just how razor-thin the line between satisfaction and loyalty can be.
Based on a study by Cornell University’s Center for Hospitality, which examined the habits of several hundred guests at two typical Midwest hotels, the study found, among other things, that while 36% of business/leisure travelers were “satisfied” with their hotel—and even professed loyalty to it—they weren’t sure they’d stay at the same place on a subsequent visit.
Interestingly, the study also uncovered another, unexpected trend—“unsatisfied” guests that continue to patronize the same establishments, even while spreading word of their dissatisfaction to family, friends and associates.
Finally, the researchers also found that satisfied guests who described themselves as “not likely to switch” noted the importance of the attitudes of hotel staff, which the article cited as “a finding that underscores earlier studies that have argued for the ‘people factor’ in services.”
Different—But Intrinsically Linked
Of course, just because satisfaction and loyalty are different doesn’t mean that they’re completely unrelated. Just the opposite; they’re closely linked.
Bleuel notes that as more and more companies wisely jump on the customer-satisfaction bandwagon, “It’s time to realize that “customer satisfaction is a cornerstone in building the bridge between company and customer.” Unfortunately, until now, most companies haven’t moved beyond building this cornerstone. They’ve failed to see that customer satisfaction is a worthy goal—but not the only goal. It’s one of the primary ingredients for creating customer loyalty in the first place, but moving forward, it’s also necessary to examine company operations to find out which are having the greatest impacts on loyalty.
To change your organization’s vision from one of initial satisfaction to overall, long-term loyalty, it’s critical to change how you measure customer satisfaction. More detailed cause-and-effect relationships need to be examined.
Two simple, accurate metrics for measuring customer loyalty are:
- Retention rate. Loyal customers come back and make additional purchases from your company. It’s as simple as that.
- Purchase share. If a customer typically splits its purchases among several suppliers, it’s extremely valuable to track the percentage of purchases allocated to you.
From Satisfaction and Loyalty to True Customer Value
To some industry experts, the debate goes far beyond customer satisfaction vs. customer loyalty. Braun Consulting, a leading Customer Relationship Management (CRM) firm, actually advises that for many companies, resources devoted to measuring customer satisfaction would be best diverted to more relevant metrics — “from the loose proxy of customer satisfaction to analysis that provides better insight into the business.”
To Braun Consulting and others, the framework of “customer value” drives the new model. They’re pioneers in the emerging field of Customer Value Management (CVM), which allows companies to identify and track specific metrics that differentiate customers and their relative importance to the organization.
The challenge is to develop a customer value model specific enough to differentiate their most profitable customers. With a proper model in place, companies can compare such metrics as revenue, acquisition costs, service costs and even lifetime customer value. More importantly, it allows you to truly understand your customers—and the business impact of every business interaction.
Satisfied Employees are Critical, Too
Many companies make the mistake of measuring only customer satisfaction. In fact, customers’ perceptions of a company are often driven by the performance of its employees, and research shows that organizations with engaged, enthusiastic staff have more satisfied customers. It’s a direct, irrefutable link, because your employees are part of your brand.
But how can you effectively—and objectively—measure employee satisfaction and promote long-term loyalty? Many companies conduct internal research with opinion or attitude surveys, but these often devolve quickly into complaint sessions, creating a negative downward spiral. Not only are resources wasted; employee morale actually goes down, precisely the opposite of the intended effect.
It’s important to work with a professional service provider that has the experience to help you avoid these pitfalls in measuring employee satisfaction. They key is to provide a positive, open line of communication that allows employees to positively impact customer experience—and the organization’s bottom line.
It’s critical to focus on measuring both the satisfaction and long-term loyalty of your organization’s customers and employees. It’s more than just another way to gather statistics—it’s part of the never-ending cycle of constant business improvement.
For more information, including how you can accurately measure the satisfaction and loyalty of your customers and employees to benefit your bottom line, contact us today!