Studies show that customer satisfaction is a feel-good metric that contributes little to the bottom line and provides little guidance for management. A well-known customer loyalty consultant and author suggests that it's more important to know how customers hold you accountable.
(PRWEB) December 12 2003--Few goals seem nobler than "customer satisfaction." Companies boast about how satisfied their customers are. Consultants urge that companies should not just satisfy customers but "WOW!" them. Corporate taglines claim they "exceed expectations."
Although the goal of satisfied customers is all well and good, it misses the point in any strategic branding effort for three reasons, according to Nick Wreden, well-known customer loyalty consultant and author of FusionBranding: How to Forge Your Brand for the Future, named as a "best new business book." A more meaningful metric for management is knowing how customers hold companies accountable, he argues.
First, satisfaction has little connection to repurchase loyalty, essential to profitability. The Juran Institute, a leader in quality management studies, found that fewer than 2% 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% and 85% of customers who chose a new supplier say they were satisfied or very satisfied with their former supplier.
Next, "satisfaction" is too fuzzy to serve as a meaningful benchmark. Definitions of satisfaction will vary from customer to customer. 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% of customers are satisfied' mean? That 10% of customers are impossible to please or that operations are not firing on all cylinders?," says Wreden, who frequently gives seminars on customer loyalty and satisfaction. "Customer satisfaction data often doesn't give management enough insights for meaningful action."
Data collection inadequacies also complicate analyses. Most customer satisfaction surveys are "self-reported," which opens the door to several failings. Questions posed in positive terms ("how satisfied are you?") get more favorable responses than "how dissatisfied are you?" Measurements taken immediately after purchases yield more favorable responses than later measurements. Even the temporary mood of respondents can alter results, Wreden points out.
Concentrating on customer satisfaction leads to a price-based relationship, the weakest foundation for a brand. "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 paid more. What good is a metric that varies according to the price paid?" asks Wreden.
Instead of satisfaction, Wreden believes that companies dedicated to building a FusionBrand should concentrate on determining 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. Some might judge you by order processing and billing capabilities; others, by the immediacy of customer support," says Wreden.
Wreden argues that knowing how customers hold you accountable has numerous advantages. It allows companies to focus improvements in operational excellence. If the majority of customers hold companies accountable for on-time deliveries, they then know where to devote the bulk of resources. Knowing accountability also provides an early warning signal. If customers who seek accountability for excellent customer support start defecting, it's time to add more front-line personnel or take other steps.
Additionally, knowing what's vital to customers refocuses relationships away from satisfaction toward value, which enables the most profitable pricing. If companies are meeting customer standards for accountability, it's unlikely that the customer will defect solely based on price. A relationship based on accountability becomes simply too vital to risk for a few dollars.
The increasing number of Service Level Agreements (SLAs), especially in the IT industry, symbolizes a new emphasis on accountability. SLAs are negotiated performance agreements between a vendor and its customer concerning support and other issues.
"Look for SLAs to spread to other industries," predicts Wreden. "How many, for example, would love to have an SLA with their cable company?"
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. It can lead to expensive investments with little return. So stop looking for warm-and-fuzzies from customers, and start looking for the definitive ways they hold you accountable to their bottom line.
For more information, contact Wreden at info@fusionbrand.com. FusionBranding: How to Forge Your Brand for the Future is available at major bookstores, Amazon.com and BN.com. The Web site is http://www.fusionbrand.com.
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