Last month I got a call from a client wanting me to deliver a keynote address on customer satisfaction. I politely explained, “I don’t speak on customer satisfaction.” My client was shocked, as for the past 12 months I’ve been rolling out a strategic plan in her company designed to increase the bottom line by increasing customer retention and by building a customer recovery strategy. I went on to explain 4 reasons why I, as a fierce customer loyalty advocate, don’t speak on customer satisfaction.
1. Customer satisfaction means NOTHING these days. The truth is, today’s customers expect mediocre service. Apathy is expected. Late is expected. Problems are expected. No follow-through is expected. As long as companies don’t go below these very low expectations, customers are satisfied.
2. Customer satisfaction = “Sufficient or Adequate Service.” When a company achieves “customer satisfaction” what it’s really achieved is getting customers to feel that the service is adequate or sufficient—that it wasn’t horrible. The customer’s expectations, typically very low expectations, were met. That’s all customer satisfaction means.
3. Customers report being “satisfied” only because their expectations are so low and because no one else is doing any better.
4. Satisfied customers are not your customers. They’re just with you until they find something better.
I concluded that I do speak on and help my clients build customer loyalty. Customer satisfaction is a feeling…a feeling that low expectations have been met. Customer loyalty, on the other hand, is a set of behaviors that produce revenue.
- Loyal customers by definition don’t defect.
- Loyal customers reward the company by buying from you again and again.
- Loyal customers buy other products or services in your line.
- Loyal customers tell people in their network about your company (referrals). – That is, they actually market for you and word-of-mouth advertising is the most persuasive form of advertising.
Does loyalty v. a feeling of satisfaction really impact profits? You bet it does! Take a look at these two examples.
A. One of my colleagues, Ed Peters of the 4Profit Institute, conducted a large customer satisfaction survey that provides irrefutable proof that the difference between satisfaction and loyalty can be a “million dollar difference.” Ed’s survey for a men’s clothing store in the Midwest found that customers who had an “excellent” shopping experience (48%) visited the stores an average of 3.9 times a year and spent an average of $465 per visit. Customers who merely had a “good” experience (49%) visited 3.5 times a year and spent only $397 per visit. Excellent service is what builds customer loyalty. Good customer service results in customer satisfaction. Now look at this…the difference between an “excellent” experience and a “good” experience was half a visit per year and $68 in sales – or about $3.2 million a year in lost sales!
B. Suppose two companies add 10 percent new customers a year; company A has a 95% customer retention rate, while company B retains only 90 percent. In fourteen years company A will double in size while company B will not grow at all.
And because of its loyal base, company A’s customers are more profitable. It costs less to keep customers than to get them; money is saved as companies and customers learn to work together; satisfied customers generate more referrals; and it’s much easier to get better prices from loyal customers than from those who are not. The net result is that company A outperforms company B on most measures. Generally, retaining 5% more customers increases the bottom-line by 25 to 95%.
I urge you to stop striving for high customer satisfaction and focus on delivering truly outstanding service and building a profitable base of loyal customers. Satisfied customers will give you a “good” ranking on a survey today and leave you for the competition tomorrow. Loyal customers return again and again, recommend your company often and significantly add to your bottom line!