Saturday, May 24, 2014
The Customer Satisfaction Conundrum
An interesting article written by Harvey Schachter dated May 4, 2014 points out the conundrum that we often face when reviewing customer satisfaction. Many people believe that if you focus on customer satisfaction success will follow. Mr. Schechter points to some of the research by Timothy Keiningham which shows this relationship between customer satisfaction and spending is simply not true. He points out that the relationship between customer satisfaction and customer spending behavior is actually very weak. Quoting Mr. Keiningham “yes, the relationship is statistically significant, but it is not very managerially relevant.”
The article points to three factors which should be considered when evaluating customer satisfaction.
1. The first factor in customer satisfaction is low price. Unfortunately, greater satisfaction gained by lower prices is not sustainable and should not be considered a long-term strategy.
2. The second factor to consider is the size of the organization. He points out that companies with a lesser market share may, in fact, have higher customer satisfaction scores. An example would be that Burger King and Wendy's typically have higher satisfaction scores that McDonald's. The point he is making is that as a company becomes larger the customer base becomes more diverse and it becomes more difficult to keep everyone satisfied.
3. The third factor which is often overlooked is that single brand loyalty is no longer dominant in today's market. When a company shares loyalty with other brands in the market, the better metric is to have your product or service as first choice. This will likely be a better measure of your performance than the customer satisfaction score by itself.
The bottom line is the customer satisfaction is not as simple as it used to be. No longer are customers uniquely loyal to only one brand. An example noted in the article is a study of the hotel industry by Deloitte that found that about 50% of spending by hotel guests does not occur with their preferred hotel brand. Certainly, it is important to maintain customer satisfaction, but the satisfaction scores by themselves are not sufficient to ensure sustainability and growth.
It is important to understand the basis of your satisfaction scores. You may want to consider how your product or service ranks in the choices be made by your customers when they are spending before you sit back and think that all is well because your satisfaction scores are high.