There is some interesting research being done in the UK. Rosa Chun is a professor of business ethics and corporate social responsibility and Gary Davies is a professor of corporate reputation at Manchester Business School. They have been investigating the validity of the assertion that seems to stem from the 1994 Harvard Business Review article "Putting the Service-Profit Chain to Work" and the subsequent book by James L. Haskett that happy workers equal happy customers. The concept of happy employees equal happy customer has been a mantra of high profile executives such as Gordon Bethune, the former CEO of Continental Airlines and many other public, private, non-profit and governmental organizations.
These academics have created a survey of customers and staffs of 49 business units and 13 service organizations in the UK. The survey covers fields ranging from financial services to retailing.
They start out with the statement that they haven't seen any hard data that supports the idea that happy workers equal happy customers. In fact, their research failed to confirm that service businesses with more-contented staff also have more satisfied customers. They found a positive correlation between happy employees and happy customers in only one firm where the business units with employees with higher satisfaction also had happier customers. There were two firms in their sample that had negative correlation between happy employees and happy customers.
Perhaps one of the most startling outcomes of their study was the factors that apparently increased customer satisfaction seemed to decrease employee happiness. The researchers admit there is a great deal of evidence that there is a causal link between happy customers and higher profits but there are a great number of steps to reach happy employees equal happy customers (or loyal customers). It appears that using a happy employee in a service role is not enough to win customer loyalty.
The bottom line is this research is important and needs further verification because there are many companies that hold the belief that happy employees equals happy customers and that this new knowledge may well change their strategy of how to create satisfied and loyal customers. There are several areas that need further investigation; namely,
1. What is meant by happy and how is it measured? (These definitions may be answered in the full documentation of the research.)
2. Would either of the definitions of happy include the topic of compassion that was discussed in my blog from yesterday (April 14th)?
3. What is the satisfaction criteria that indicates a satisfied customer?
4. It is not clear how many actual employees and customers were included in the sample.
I look forward to further information about this very important relationship since there are so very many companies that are spending a great deal of their resources to create "happy employees" with the expectation that it will lead to satisfied customers and perhaps loyal customers.
Saturday, November 7, 2009
Tuesday, October 27, 2009
Multiplicative versus Additive Customers
There was an interesting note in the October 22nd edition of the Philippine Daily Inquirer entitled "Customer complaints, dissatisfaction." While the article was aimed at showing that a focus on customer complaints and dissatisfiers is an excellent way to improve customer loyalty, the intriguing concept that was included in the article was that of multiplicative customers versus additive customers. Once the terms are defined, they are obvious and, I think, many of us wonder why we haven't considered customers this way before.
A multiplicative customer is usually highly demanding and who what to be satisfied for all of his/her expectations. You get a failing grade if any one of the expectations is not met. The final score is zero since the multiplicative customer "multiplies" all satisfaction scores together. A similar scenario is when the customer scores all aspects zero because one of the expectations were not met. This is often referred to as the "halo effect." In any case, customers will give extremely low scores when one or more of their expectations are not met and thus they "punish the company by giving an extremely low overall score. Thus, even though other scores on the survey are reasonable, one expectation not satisfied leads to a zero on the overall satisfaction score.
On the other hand there is the additive customer, most easily characterized as forgiving customer seems to have the ability to segment his/her response so that the final score may be averaged down due to one or more low scores but each of the other scores are considered when deciding the final score. For the additive customer, the final satisfaction score will probably represent some average of the individual question scores. In other words, this type of customer adds the scores to get a perspective whereas the multiplicative customer multiplies each score to get a measure for the overall score.
The bottom line is that everyone who is measuring customer satisfaction or customer loyalty should be aware of these two types of customers. The challenge is to figure out how to convert the multiplicative customers to additive customers. When the market is as competitive as it is these days the number of multiplicative customers seems to be increasing.
A multiplicative customer is usually highly demanding and who what to be satisfied for all of his/her expectations. You get a failing grade if any one of the expectations is not met. The final score is zero since the multiplicative customer "multiplies" all satisfaction scores together. A similar scenario is when the customer scores all aspects zero because one of the expectations were not met. This is often referred to as the "halo effect." In any case, customers will give extremely low scores when one or more of their expectations are not met and thus they "punish the company by giving an extremely low overall score. Thus, even though other scores on the survey are reasonable, one expectation not satisfied leads to a zero on the overall satisfaction score.
On the other hand there is the additive customer, most easily characterized as forgiving customer seems to have the ability to segment his/her response so that the final score may be averaged down due to one or more low scores but each of the other scores are considered when deciding the final score. For the additive customer, the final satisfaction score will probably represent some average of the individual question scores. In other words, this type of customer adds the scores to get a perspective whereas the multiplicative customer multiplies each score to get a measure for the overall score.
The bottom line is that everyone who is measuring customer satisfaction or customer loyalty should be aware of these two types of customers. The challenge is to figure out how to convert the multiplicative customers to additive customers. When the market is as competitive as it is these days the number of multiplicative customers seems to be increasing.
Saturday, October 24, 2009
Confusion Reigns
In my opinion there is no consistency in our market regarding customer loyalty, customer satisfaction and customer dissatisfaction. For example, I have on my desk a blog regarding hyper-loyalty, an article about creating customer loyalty, and article which focuses on customer dissatisfaction. The problem is they do not connect.
For example, Bill Self in his blog "Thinkinglikeacustomer" of October 21st he discusses the concept of hyper-loyalty. He points out some companies whose customers are "beyond loyal." These customers appear to have a passion for converting others to become "members" of a particular business. One business he uses as an example is In-N-Out Burger. When asked how this passion is created Mr. Self suggests that the secret to creating his passion goes much deeper than customer satisfaction. Stacy Perman notes in her book "In-N-Out Burger" that "the chain's regulars assumed the responsibility of bringing in a constant stream of new devotees, an act generally referred to as "the conversion." It had the feel of bestowing membership into a club that seemed at once exclusive and egalitarian."
As a side note, when I am teaching queuing theory I have my class measure the queuing performance of some business. Often the various teams in the class will focus on fast food companies. In-N-Out Burger also has the longest wait time; however, when I ask how many students go to In-N-Out Burger, there is rarely a time when there is a student who does not go to In-N-Out. In fact, the students fit the description of being "hyper-loyal."
Mr. Self continues by suggesting the hyper-loyalty comes by winning the hearts and minds of the market. He notes that when done properly it creates contagion and people will have an unconditional love for the services because they trust you. In other words, hyper-loyalty is the way to focus customer-centered efforts. What this translates into is that your customers believe you are the best and will keep getting better.
My concern is that not every product and/or service is capable of creating hyper-loyalty. Certainly, it can be developed with high ticket products and services such as automobiles (Lexus and Porche come to mind). Certain airlines seem to be close to being hyper-loyal (such as Singapore Airlines). One aspect of "hyper-loyalty" is that they do not appear to be operating loyalty programs. This implies that loyalty programs are not required to build hyper-loyalty. One could conclude that hyper-loyalty has a higher customer retention percentage than the current market loyalty programs.
I believe this is an interestin concept! I would like to see some more research on companies that have hyper-loyal customers. One aspect that hasnot been addressed is the cost to the company of implementing a program that could lead to hyper-loyalty. As a secondary question is how long it takes to achieve customer relationships that become zealous for the products and/or services.
I would like to appeal to the consultants in the market to look into hyper-loyalty and see if this phenomenon can be replicated. This is one of those great ideas that may become a Black Swan. In the meantime the question is do we stick to the loyalty programs that seem to be working or do we re-direct the loyalty program efforts to building hyper-loyalty? Until then confusion reigns.
For example, Bill Self in his blog "Thinkinglikeacustomer" of October 21st he discusses the concept of hyper-loyalty. He points out some companies whose customers are "beyond loyal." These customers appear to have a passion for converting others to become "members" of a particular business. One business he uses as an example is In-N-Out Burger. When asked how this passion is created Mr. Self suggests that the secret to creating his passion goes much deeper than customer satisfaction. Stacy Perman notes in her book "In-N-Out Burger" that "the chain's regulars assumed the responsibility of bringing in a constant stream of new devotees, an act generally referred to as "the conversion." It had the feel of bestowing membership into a club that seemed at once exclusive and egalitarian."
As a side note, when I am teaching queuing theory I have my class measure the queuing performance of some business. Often the various teams in the class will focus on fast food companies. In-N-Out Burger also has the longest wait time; however, when I ask how many students go to In-N-Out Burger, there is rarely a time when there is a student who does not go to In-N-Out. In fact, the students fit the description of being "hyper-loyal."
Mr. Self continues by suggesting the hyper-loyalty comes by winning the hearts and minds of the market. He notes that when done properly it creates contagion and people will have an unconditional love for the services because they trust you. In other words, hyper-loyalty is the way to focus customer-centered efforts. What this translates into is that your customers believe you are the best and will keep getting better.
My concern is that not every product and/or service is capable of creating hyper-loyalty. Certainly, it can be developed with high ticket products and services such as automobiles (Lexus and Porche come to mind). Certain airlines seem to be close to being hyper-loyal (such as Singapore Airlines). One aspect of "hyper-loyalty" is that they do not appear to be operating loyalty programs. This implies that loyalty programs are not required to build hyper-loyalty. One could conclude that hyper-loyalty has a higher customer retention percentage than the current market loyalty programs.
I believe this is an interestin concept! I would like to see some more research on companies that have hyper-loyal customers. One aspect that hasnot been addressed is the cost to the company of implementing a program that could lead to hyper-loyalty. As a secondary question is how long it takes to achieve customer relationships that become zealous for the products and/or services.
I would like to appeal to the consultants in the market to look into hyper-loyalty and see if this phenomenon can be replicated. This is one of those great ideas that may become a Black Swan. In the meantime the question is do we stick to the loyalty programs that seem to be working or do we re-direct the loyalty program efforts to building hyper-loyalty? Until then confusion reigns.
Saturday, October 17, 2009
A "Little" problem
A poll was recently commissioned by IM Shopping and conducted by Harris Interactive. The survey of 2,274 adults, ages 18 and older, measured customer sentiment on receiving human assistance while shopping online. The results seem to indicate that customers really would like to talk to humans even when buying online. Some of the statistics are:
1. About 74% of US online adults have purchased online in the last 6 months.
2. The most common purchases were:
44 percent purchased clothing
38 percent purchased books
28 percent purchased music
28 percent purchased health and beauty products
28 percent purchased travel related items
4 percent purchased automobiles
1 percent purchased real estate.
3. About 77 percent who have purchased within the last 6 months say they would be interested in getting help from a real person before making certain online purchases. More than half say they would want help before purchasing real estate
(56%), automobiles (54%),and insurance (51%). Other items that many would also like help from a real person to make the purchase include computer hardware/software, home appliances and mobile phones.
4. A significant point is that 82 percent say there have been times when they have not been able to get the help from a real person.
5. Perhaps one of the most telling statistics is that 52 percent who have not been able to get the help they needed from a real person say it affected their decision to not purchase the product (at least sometimes).
6. Automated assistance is not the answer. About 93% of those who purchased online say they have had a question about an online purchase and over half (58%) say the question cannot be answered from the information on the website at least sometimes,and 16 percent say their question almost always or often cannot be answered.
The statistics tell the story that people are important when in comes to selling even when the selling is online. Most companies know about VoIP and how to tie phones into their Internet site. Maybe these statistics will inspire the companies that have a large presence online to reexamine their online strategy.
The bottom line is that we have not yet achieved the ability to displace people in the sales cycle. Until the computers start acting more human or the population becomes more adjusted to online shopping, the successful companies will make sure that real, live people are available to their online customers.
1. About 74% of US online adults have purchased online in the last 6 months.
2. The most common purchases were:
44 percent purchased clothing
38 percent purchased books
28 percent purchased music
28 percent purchased health and beauty products
28 percent purchased travel related items
4 percent purchased automobiles
1 percent purchased real estate.
3. About 77 percent who have purchased within the last 6 months say they would be interested in getting help from a real person before making certain online purchases. More than half say they would want help before purchasing real estate
(56%), automobiles (54%),and insurance (51%). Other items that many would also like help from a real person to make the purchase include computer hardware/software, home appliances and mobile phones.
4. A significant point is that 82 percent say there have been times when they have not been able to get the help from a real person.
5. Perhaps one of the most telling statistics is that 52 percent who have not been able to get the help they needed from a real person say it affected their decision to not purchase the product (at least sometimes).
6. Automated assistance is not the answer. About 93% of those who purchased online say they have had a question about an online purchase and over half (58%) say the question cannot be answered from the information on the website at least sometimes,and 16 percent say their question almost always or often cannot be answered.
The statistics tell the story that people are important when in comes to selling even when the selling is online. Most companies know about VoIP and how to tie phones into their Internet site. Maybe these statistics will inspire the companies that have a large presence online to reexamine their online strategy.
The bottom line is that we have not yet achieved the ability to displace people in the sales cycle. Until the computers start acting more human or the population becomes more adjusted to online shopping, the successful companies will make sure that real, live people are available to their online customers.
Wednesday, September 23, 2009
Rethinking Customer Satisfaction
This past spring I read a short article by Xavier Quenaudon of the CFI Group and thought he made some sense when he described some of the myths we live with in the world of customer satisfaction. I believe that once you see these myths described you might want to rethink what you have believed about customer satisfaction and how you might want to change your perspective.
The first myth says that loyalty is more important than customer satisfaction. Since it takes a while to get a measure of customer loyalty, loyalty can be considered a look through the rear view mirror. Loyalty comes with building a relationship which takes time. Although this is worthwhile, it is a lagging indicator. Customer satisfaction, on the other hand, is instant and can quickly identify the short term direction of customers. Loyalty is a strategic variable whereas customer satisfaction is tactical. If the tactics are not right, the strategy will fail.
The second myth says you should maximize customer satisfaction. It doesn't take a brain surgeon to realize that not all customers are profitable and you can't afford to keep them. The better approach should be to optimize customer satisfaction. That means you want to spend enough on customers to keep them profitably satisfied but you may not be able to afford to keep them completely satisfied.
The third myth is that you should exceed customer expectations (Wow them). I think we would all agree that customer expectations should be met - but not necessarily exceeded. It may not be profitable to reduce waiting time for service and so long as the real waiting time is within reason, the customers will often not notice the difference (such as waiting 30 seconds instead of 20 seconds when calling customer service).
The fourth myth says that customer dissatisfaction should be avoided. Thee are some customers that are not profitable and companies would be better off if those customers went to the competition (I have suggested this approach to some of my clients). While a company must be careful to take care of the profitable customers, the unprofitable customers can become a cash drain as well as a resource drain. It may not be profitable to eliminate dissatisfaction and it also may not be possible.
The fifth myth says the customer complaints should be minimized. One of my golden rules is that a customer complaint is the cheapest consulting you can get. Your customers know your company, your products and your services. When they complain they are, in fact, telling you the result of their analysis of your operation and have found a problem which they are usually suggesting that you fix. What a wonderful way to get first-hand analysis of your operation. The best thing you can do is make it as easy as possible to submit a complaint and then PAY ATTENTION to what the customer is telling you.
The sixth myth says that customer satisfaction should be expressed as a percentage. As I continue to blog about customer satisfaction the one message that continues is that customer satisfaction is a complex bundle of thoughts and emotions. I continue to write about the various methods academics and consultants devise to measure customer satisfaction. Almost all of them end up using more than a single measure. When customer satisfaction is reduced to a simple percentage it increases the likelihood that management will focus on the percentage and see it only as a simple number rather than seeing it as a major component of their corporate strategy.
The bottom line is that we often hear platitudes such as "we must get from our customers a "WOW" if we are to be successful." Too often we forget these myths and why they are important to remember.
The first myth says that loyalty is more important than customer satisfaction. Since it takes a while to get a measure of customer loyalty, loyalty can be considered a look through the rear view mirror. Loyalty comes with building a relationship which takes time. Although this is worthwhile, it is a lagging indicator. Customer satisfaction, on the other hand, is instant and can quickly identify the short term direction of customers. Loyalty is a strategic variable whereas customer satisfaction is tactical. If the tactics are not right, the strategy will fail.
The second myth says you should maximize customer satisfaction. It doesn't take a brain surgeon to realize that not all customers are profitable and you can't afford to keep them. The better approach should be to optimize customer satisfaction. That means you want to spend enough on customers to keep them profitably satisfied but you may not be able to afford to keep them completely satisfied.
The third myth is that you should exceed customer expectations (Wow them). I think we would all agree that customer expectations should be met - but not necessarily exceeded. It may not be profitable to reduce waiting time for service and so long as the real waiting time is within reason, the customers will often not notice the difference (such as waiting 30 seconds instead of 20 seconds when calling customer service).
The fourth myth says that customer dissatisfaction should be avoided. Thee are some customers that are not profitable and companies would be better off if those customers went to the competition (I have suggested this approach to some of my clients). While a company must be careful to take care of the profitable customers, the unprofitable customers can become a cash drain as well as a resource drain. It may not be profitable to eliminate dissatisfaction and it also may not be possible.
The fifth myth says the customer complaints should be minimized. One of my golden rules is that a customer complaint is the cheapest consulting you can get. Your customers know your company, your products and your services. When they complain they are, in fact, telling you the result of their analysis of your operation and have found a problem which they are usually suggesting that you fix. What a wonderful way to get first-hand analysis of your operation. The best thing you can do is make it as easy as possible to submit a complaint and then PAY ATTENTION to what the customer is telling you.
The sixth myth says that customer satisfaction should be expressed as a percentage. As I continue to blog about customer satisfaction the one message that continues is that customer satisfaction is a complex bundle of thoughts and emotions. I continue to write about the various methods academics and consultants devise to measure customer satisfaction. Almost all of them end up using more than a single measure. When customer satisfaction is reduced to a simple percentage it increases the likelihood that management will focus on the percentage and see it only as a simple number rather than seeing it as a major component of their corporate strategy.
The bottom line is that we often hear platitudes such as "we must get from our customers a "WOW" if we are to be successful." Too often we forget these myths and why they are important to remember.
Tuesday, September 22, 2009
More Metrics
If you think that NPS is the only way to go, be prepared to stop and take another look. This blog is based on an article by Suresh Lulla. I think the main message out of this blog is that we still haven't decided what is the best way to measure customer satisfaction and loyalty.
The first method is a single measure like NPS but his measure is CPV which stands for Customer-perceived value. The basis of this measure is the belief that perceived value is the basis of customer loyalty, retention and re-purchase. The measure is a cost-benefit analysis of a product and/or service. One of the challenges of CPV is that it is usually implicit and abstract. It is often used to compare alternatives. Customers don't usually put the CPV down on paper with numbers. However, the brain seems to be able to integrate values so that each purchase can be reviewed relative to all the other purchases made over a period of time. That is why customers can compare the value of a pair of shoes with a new shirt or blouse; or they can compare the value of a toaster to a mixer. The advantage of CPV is it is a great metric for benchmarking. Since customers value can change over time as result of purchases CPV becomes a dynamic measure and must be continuously revised. this puts a great deal of stress on the company to keep the measure current.
NPS is a single metric that many use to measure loyalty and predict future performance. NPS is based on the question "how likely is it that you would recommend this product/service to a friend or colleague?" Customers respond on a scale from 0 to 10 where 0 indicates no chance for a referral and 10 means the customer will make a recommendation. The scale is interpreted as follows: scores of 9 or 10 indicate a promoter, scores of 7 or 8 are neutral and scores from 0 to 6 are considered detractors. The Net Promoter Score (NPS) is the difference between the percentage of promoters and detractors. Most companies seem to fall into the range of 5% to 10% and market leaders such as Southwest Airlines and Federal Express will have an NPS score near 50%.
Another measure is Share of wallet (SOW). This metric forms the basis for penetration marketing and measures the percentage of the customer's purchase against their total product/service budget. Share of Wallet is being recognized as a more effective predictor of long-term performance than of market share.
The Gallup group uses four measures of customer engagement to analyze the satisfaction and loyalty of a company. Their four measures are:
1. Confidence - this is a measure of how the company is perceived in delivering on its promises.
2. Integrity - this measure detects the faith in the organization's commitment to quality, customers and ethics.
3. Pride - measures the ownership of the brand. This measure the personal association with the product/service.
4. Passion - It is a measure of the belief that the product/service is the perfect solution to their requirements.
Gallup's research suggests that customers who score high on all four metrics tend to contribute about 23% more to profitability than the average customer.
As you can easily see there are a number of metrics in the market that are all being promoted as the metric which will improve your company's performance. It is not clear that any one of the measures outperforms the others. These measures remind me of the simple management principle that "people do what gets measured." Once management starts looking at a metric, the metric tends to improve.
The bottom line is that measures are good but there is also the problem that the measure itself may become more important than the performance it is measuring. I call it the measurement trap and will discuss it in the next blog.
The first method is a single measure like NPS but his measure is CPV which stands for Customer-perceived value. The basis of this measure is the belief that perceived value is the basis of customer loyalty, retention and re-purchase. The measure is a cost-benefit analysis of a product and/or service. One of the challenges of CPV is that it is usually implicit and abstract. It is often used to compare alternatives. Customers don't usually put the CPV down on paper with numbers. However, the brain seems to be able to integrate values so that each purchase can be reviewed relative to all the other purchases made over a period of time. That is why customers can compare the value of a pair of shoes with a new shirt or blouse; or they can compare the value of a toaster to a mixer. The advantage of CPV is it is a great metric for benchmarking. Since customers value can change over time as result of purchases CPV becomes a dynamic measure and must be continuously revised. this puts a great deal of stress on the company to keep the measure current.
NPS is a single metric that many use to measure loyalty and predict future performance. NPS is based on the question "how likely is it that you would recommend this product/service to a friend or colleague?" Customers respond on a scale from 0 to 10 where 0 indicates no chance for a referral and 10 means the customer will make a recommendation. The scale is interpreted as follows: scores of 9 or 10 indicate a promoter, scores of 7 or 8 are neutral and scores from 0 to 6 are considered detractors. The Net Promoter Score (NPS) is the difference between the percentage of promoters and detractors. Most companies seem to fall into the range of 5% to 10% and market leaders such as Southwest Airlines and Federal Express will have an NPS score near 50%.
Another measure is Share of wallet (SOW). This metric forms the basis for penetration marketing and measures the percentage of the customer's purchase against their total product/service budget. Share of Wallet is being recognized as a more effective predictor of long-term performance than of market share.
The Gallup group uses four measures of customer engagement to analyze the satisfaction and loyalty of a company. Their four measures are:
1. Confidence - this is a measure of how the company is perceived in delivering on its promises.
2. Integrity - this measure detects the faith in the organization's commitment to quality, customers and ethics.
3. Pride - measures the ownership of the brand. This measure the personal association with the product/service.
4. Passion - It is a measure of the belief that the product/service is the perfect solution to their requirements.
Gallup's research suggests that customers who score high on all four metrics tend to contribute about 23% more to profitability than the average customer.
As you can easily see there are a number of metrics in the market that are all being promoted as the metric which will improve your company's performance. It is not clear that any one of the measures outperforms the others. These measures remind me of the simple management principle that "people do what gets measured." Once management starts looking at a metric, the metric tends to improve.
The bottom line is that measures are good but there is also the problem that the measure itself may become more important than the performance it is measuring. I call it the measurement trap and will discuss it in the next blog.
Saturday, September 5, 2009
Two Opposing Views of Customer Loyalty
There was an interesting column in the Phillippine Daily inquirer by two consultants, Ned and Ardy Roberto who see what they call the reality of customer loyalty. They start by pointing out the difference between "how can we retain a customer whom we have not satisfied" and saying "satisfying customers is not necessary for retaining them." The obvious difference is that the first quote refers to an individual customer and the second is aimed at the entire customer base or some subset of the customer base.
From this perspective they note that surveys treat customers as a whole and what may be true for a group of customers may not be true of each individual customer. Besides the leap from customers as a group versus an individual customer, they ask what are you going after by focusing on customer satisfaction. Their conclusion is that one reason companies measure customer satisfaction is that it leads to customer loyalty. They quote the article in the Harvard Business Review in 1990 when Earl Sasser and Frederick Reichheld wrote that "by increasing customer satisfaction you will increase retention. ... Raising retention leads to more customer loyalty." The article goes on to state "if loyalty is the end, it follows that companies should strive for 100 percent retention or zero defection, or perfect customer satisfaction.
These two consultants point out they have never witnessed perfect customer satisfaction, or zero defection or 100 percent retention. The highest satisfaction score they ever saw was 92 percent and usually the scores were between the mid 70s and mid 80s.
What they found was that Professor Roland Rust at the University of Maryland replicated and re validated the study by Sasser and Reichheld but found that higher customer satisfaction does not necessarily lead to higher customer retention and shouldn't be expected to do so. He found that customers segmented themselves into three satisfied-retained/loyal segments; namely,
1. Dissatisfied-defecting/disloyal customers whose population ranged from 1 to 5 percent of the customer population.
2. Satisfied-borderline retention/loyal segment making up about 70 to 85 percent of the customer population
3. Delighted-raised retention/loyal customers who account for about 5 to 10 percent of the customer base.
From Dr. Rust's data he concludes that highly satisfied and loyal customers actually get in and out of loyalty depending on two recurring factors; namely some are seeking some variety in their product or service which may lead to defection and the second factor is competition continues with intense promotional activities such as discounts, coupons, etc. From this Dr. Rust concludes that 100 percent retention does not appear to be viable.
Whereas Sasser and Reichheld give an unqualified "yes" to the question "does higher customer satisfaction lead to higher customer retention?" The results from Dr. Rust's wider based research found that higher customer satisfaction does not necessarily lead to higher customer retention and shouldn't be expected to do so.
The bottom line is customer satisfaction appears to be more complex than most market researchers attribute to it. There must be some factors that we still do not understand which is why we continue to get different theories on how to keep customers, grow the business and increase profits. There is enough going on to keep a lot of consultants busy.
From this perspective they note that surveys treat customers as a whole and what may be true for a group of customers may not be true of each individual customer. Besides the leap from customers as a group versus an individual customer, they ask what are you going after by focusing on customer satisfaction. Their conclusion is that one reason companies measure customer satisfaction is that it leads to customer loyalty. They quote the article in the Harvard Business Review in 1990 when Earl Sasser and Frederick Reichheld wrote that "by increasing customer satisfaction you will increase retention. ... Raising retention leads to more customer loyalty." The article goes on to state "if loyalty is the end, it follows that companies should strive for 100 percent retention or zero defection, or perfect customer satisfaction.
These two consultants point out they have never witnessed perfect customer satisfaction, or zero defection or 100 percent retention. The highest satisfaction score they ever saw was 92 percent and usually the scores were between the mid 70s and mid 80s.
What they found was that Professor Roland Rust at the University of Maryland replicated and re validated the study by Sasser and Reichheld but found that higher customer satisfaction does not necessarily lead to higher customer retention and shouldn't be expected to do so. He found that customers segmented themselves into three satisfied-retained/loyal segments; namely,
1. Dissatisfied-defecting/disloyal customers whose population ranged from 1 to 5 percent of the customer population.
2. Satisfied-borderline retention/loyal segment making up about 70 to 85 percent of the customer population
3. Delighted-raised retention/loyal customers who account for about 5 to 10 percent of the customer base.
From Dr. Rust's data he concludes that highly satisfied and loyal customers actually get in and out of loyalty depending on two recurring factors; namely some are seeking some variety in their product or service which may lead to defection and the second factor is competition continues with intense promotional activities such as discounts, coupons, etc. From this Dr. Rust concludes that 100 percent retention does not appear to be viable.
Whereas Sasser and Reichheld give an unqualified "yes" to the question "does higher customer satisfaction lead to higher customer retention?" The results from Dr. Rust's wider based research found that higher customer satisfaction does not necessarily lead to higher customer retention and shouldn't be expected to do so.
The bottom line is customer satisfaction appears to be more complex than most market researchers attribute to it. There must be some factors that we still do not understand which is why we continue to get different theories on how to keep customers, grow the business and increase profits. There is enough going on to keep a lot of consultants busy.
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