Updated · Feb 27, 2002
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.
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.