James Spillane
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.
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This article was written for Business 2 Community by James Spillane.
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A very nice article here, Mr. Lieu – like versus love is an excellent analogy. The difference between like and love is found in their emotional foundations.
We have found that in order to create loyalty in a customer, three things must happen. First, you must satisfy the customer’s practical product-related need. Second, you must meet the customer’s emotional need tied to that practical need. Third, you must create a perceived “low-effort” experience for the customer.
A customer whose emotional need is not met may end up satisfied as a result of the experience (like) but not necessarily loyal to your company, product or brand (love). Companies that focus more time, energy and resources on meeting their customers’ emotional needs are more successful in generating loyalty in their customer bases.
Jack Dempsey
Principal, Pretium Solutions
It is very correct that loyalty is a stronger connection to the company than satisfaction. It is also true that loyalty (the action not the emotion) drives long term profitability.
You also mentioned Net Promoter Score in your article. We do a lot of work with NPS with our clients and one client in particular allowed us to publish our findings from their customer base.
In summary we found that, for them, NPS is almost 3 times more sensitive at predicting customer churn, i.e loyalty, than customer satisfaction. You can read the full findings here:
http://genroe1to1.genroe.com/2011/10/05/net-promoter-score-is-2-7-times-more-sensitive-than-customer-satisfaction/
We have found that NPS is a much better metric to get to the heart of customer loyalty than customer satisfaction.
Adam Ramshaw, Director, Genroe
Hello,
I would would like you to point you to: http://www.wouldrecommend.com
It is a web application that allows you to easily create and run web-based net promoter surveys, it calculates the NPS for you and you can export the results in various formats.
I would be very happy if you or the readers of this blog would like to give it a try and share some feedback based on your experience with Net Promoter Score surveys and wouldrecommend.com
Kind regards,
Peter Kröpfl
Hello Jack, Adam, & Peter,
Thank you for reading and sharing your perspectives.
One of the challenges that organizations have with using NPS is that it is difficult to devise an action plan to fix it. Customer loyalty is the sum of many things, from product design and experience to customer service. Customer loyalty must by owned by everyone in the organization, not just one line of business.
Hi, great point about the difference. Reminds me of Forrester’s recent report on The Age of the Customer here http://blog.getsatisfaction.com/2011/08/08/age-of-the-customer/
Hi Hansen,
Hey, great article! You definitely hit on one of my personal pet peeves: the practice of wrongly equating customer satisfaction with customer loyalty. As you point out, they are two very different things!
I’m a little late joining the conversation, but here are a couple of additional thoughts from my side:
1) You mention that, “But while a loyal customer is a satisfied customer, the converse is not necessarily true.” However, I would actually disagree with your first premise that a loyal customer is necessarily a satisfied customer. I am a loyal customer of United Airlines in that I go out of my way to choose their flights over flights of other providers. Yet, I am not anywhere near being a “satisfied” customer of theirs; in fact, I hate their [email protected]#$ guts. I despise their lame attempts at “customr service”. Yet, I don’t really have much of a choice as they have me held captive with their loyalty program and points. So yes, I guess loyalty/points programs really do work.
2) I would propose that customer loyalty is itself really nothing to write home about either. Neither customer satisfaction nor customer loyalty really measure how a customer feels “emotionally” about the company and whether the customer would recommend the company to friends/family. For that I would argue that you actually need to measure “customer experience” or “customer referals” or some other metric that looks at how willing the customer is to praise the company publicly.
Just my two cents.
Regards,
John
John,
Thanks for reading my post.
In your example, I would not call you “a loyal customer”. You are a captive customer. Their only way of keeping you is by “paying you” with their “loyalty points”. You would switch as soon as there is another option or the “loyalty points” (discount) devalue. This is not the type of “loyal” relationship companies should have with their customers. A true customer loyal relationship is one where the customers truly love the brand and would voluntarily continue the relationship purely because they feel strongly about it.
With regards to measuring loyalty, your suggestion is exactly what I proposed. There is no more effective way to measure loyalty other than their referral rate, which is what NPS measured.