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What's Better Than Customer Satisfaction?
A commitment to wowing customers is dangerous.
Posted May 24, 2004
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Organizations bow low to the god of customer satisfaction. Companies boast about how satisfied their customers are. Consultants urge that companies not just to satisfy customers, but to wow them. Many CRM strategies are based on customer satisfaction. Although the goal of satisfied customers is all well and good, it misses the point for three reasons. First, satisfaction is too fuzzy an idea to serve as a meaningful benchmark. Definitions of satisfaction will vary from customer to customer, or even within departments inside the same company. The same event that satisfies one customer might be meaningless to another. The confusion gets even greater during analysis. Does somewhat satisfied mean that we do a superlative job in most categories, but a poor job in others, or does it mean that our performance is adequate in all areas? What does 90 percent of customers are satisfied mean? That 10 percent of customers are impossible to please or that operations are not firing on all cylinders? Data collection inadequacies also complicate analyses. Most customer satisfaction surveys are self-reported, which opens the door to several failings. Questions can shape answers. Questions posed in positive terms ("How satisfied are you?") get more favorable responses than "How dissatisfied are you?" Measurements taken immediately after purchases are likely to yield more favorable responses than measurements taken later on. Even the temporary mood of respondents can alter results. Customer satisfaction is also inextricably linked to price. We can be satisfied with a product that performs adequately when the cost is low, yet we may be dissatisfied with adequate performance if we've paid more. So if price is the weakest foundation for a brand, then why have an objective that varies according to the price paid? Additionally, a commitment to increasing customer satisfaction usually means increasing costs, with an unknown effect on profitability. For example, a customer survey by one large bank indicated dissatisfaction with long lines. The bank hired more tellers. This increased costs and had little effect on the satisfaction levels of its most profitable customers, who rarely came into the bank and who were more interested in process improvements. That's why a commitment to wowing customers is so dangerous. Costs are increased, with no certainty that profitability ultimately benefits.
The problem is compounded when customer satisfaction is tied to compensation. That can lead to "purchasing" customer satisfaction with lower pricing or to resistance to innovation or other changes that could impact satisfaction levels. Ethics can be compromised: Since J.D. Power started measuring dealer performance, some dealers offer free car washes or other benefits to any customer who gives the dealership high grades on satisfaction surveys. Finally, and most important, satisfaction has little connection to repurchase loyalty, which is essential to customer equity and profitability. The Juran Institute, a leader in studies of quality management, found that fewer than 2 percent of the 200 largest U.S. companies were able to measure a bottom-line improvement from documented increases in levels of customer satisfaction. Harvard Business Review reported that between 65 percent and 85 percent of customers who chose a new supplier say they were satisfied or very satisfied with their former supplier. So, while customer satisfaction is certainly a noble goal, companies should concentrate on a goal that's more closely linked to customer equity. Instead of asking whether customers are satisfied, companies must use their CRM systems to determine how customers hold them accountable. For some customers accountability might be driven by on-time deliveries. For others it might be quality, with minimal defect rates. Knowing how customers hold you accountable has numerous advantages. It allows you to focus your improvements on operational excellence. If the majority of your customers hold you accountable for on-time deliveries, you then know where to devote the bulk of your attention and resources. It makes little sense, for example, to invest in improving satisfaction when it's not relevant to customer operations. Knowing accountability also provides an early warning signal. If customers who hold you accountable for excellent customer support start defecting, it's time to add more front-line personnel or to take other steps. Additionally, knowing what's vital to customers focuses relationships away from satisfaction and price toward value, which enables the most profitable pricing. If you are effectively providing services and capabilities the customer values most, it's unlikely that the customer will defect solely based on price. Finally, accountability allows you to segment customers more effectively. Customers who demand high support levels can be grouped together to improve operational efficiencies and pricing. Low-equity customers who demand high, expensive levels of accountability can be dropped. Satisfaction is important, but in the customer economy, it is no longer enough. Customer satisfaction provides little guidance about what's wrong, how to fix it, or even whether a customer is worthy of satisfaction. Even worse, it can distract from increased profitability or customer equity. So stop looking for warm-and-fuzzies from customers, and start looking for the definitive ways they hold you accountable to their bottom line. About the Author Nick Wreden is a speaker and customer loyalty consultant. He is the author of FusionBranding: How to Forge Your Brand for the Future. Contact him at nick@fusionbrand.com
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