Are you customers satisfied? That’s good, right? Well, yes for the short term. But in the long term, it’s not necessarily enough.
Even among many business leaders and managers, it is common to equate customer satisfaction to customer loyalty – they sound similar, right? But while a loyal customer is a satisfied customer, the converse is not necessarily true. And many organizations are measuring customer sat while leaving customer loyalty to the side – a dangerous practice. It’s really pretty simple. Is it “Like” (no pun intended for Facebook) or is it “Love”?
Customer satisfaction is a far more tactical concept and measurement than true customer loyalty. Customer satisfaction speaks only to one moment in time—typically, right after a customer has completed an interaction such as a purchase or has a problem solved. Usually, a customer will be satisfied if her expectation has been met. So measuring customer satisfaction merely tells you if you are doing your job, in the perspective of the customer. Many organizations should be performing up to their customers’ expectations. This is really just the basics. While these days consumers are in the driver’s seat, the mindset tends toward “what have you done for me lately?” as opposed to “that transaction went well so I’m a customer for life.” Thus, good customer satisfaction does not guarantee that you will continue to keep those customers.
A much more reliable and strategic measure is customer loyalty. True loyalty – much harder to earn than mere satisfaction – tells you that your customer wants to stick with you over the long haul and will share that feeling with others. Loyalty derives not from hum-drum “good” transactions but from exceeding the customer’s expectations on a repeated basis. It is the delightful experiences that make someone – emotionally devoted to you - want to tell others.
The Net Promoter Score (NPS) question, developed by Satmatrix, “would you recommend us to your friends and neighbors?” gets to the heart of loyalty. If your customers are really happy and loyal, they will recommend you. If their feeling is not that strong, they will not want to go out on a limb (i.e., on Facebook or other community) and make a recommendation that later turns out to be a dud. So, to meet and maintain the threshold of “net promoter” is what companies should strive for in the long run.
Roger Hallowell’s seminal 1996 Harvard Business School study concluded that customer satisfaction is a necessary but not sufficient pre-condition for customer loyalty, which strongly relates to profitability. Though no more authoritative research has been done in the intervening years, it is widely accepted that loyalty drives profitability to at least some degree. It is critical, therefore, to track loyalty via a score like NPS or other similar ones over the long haul. The loyalty measurement will give you a much more accurate picture of how you’re doing vs. your peers.
So, yes it’s good that you measure and track customer satisfaction. It gives you the feedback so you can make the necessary adjustments in the short term. However, don’t stop there. You’ll need to find out if your customers are truly loyal. Because in the long term, customer loyalty is what really matters. A loyal customer is worth recurring revenue, while a satisfied customer is worth, well – maybe that last purchase transaction that probably net you zero margin.