Turning Customer Satisfaction into Profits

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Turning Customer Satisfaction into Profits

Most managers would agree that they want satisfied customers. The reasoning is simple: satisfied customers are good for business. If that is indeed the case, however, then most U.S. companies are not very successful. According to the University of Michigan's American Customer Satisfaction Index, U.S. companies on average rate only a "C" grade for customer satisfaction. The key to turning customer satisfaction into profits is how a company implements quality customer satisfaction research results.

While management tends to be very efficient at focusing resources into areas it believes will generate a reasonable return on investment, most managers lack conclusive proof that their satisfaction initiatives register with customers, and further lack definitive guidance on how to best respond to results from satisfaction surveys. Even firms that identify "key drivers" (those performance activities that are disproportionately important in driving satisfaction) have suffered disappointment. They may track improvement on their "key driver" attributes only to discover that their overall satisfaction scores have failed to show a corresponding increase. At other times, improvement in satisfaction has failed to demonstrate an increase in financial results.

Failure is not limited to inexperienced, unheralded firms either. Consider the fate of the Wallace Company, the first small business to win the Malcolm Baldrige National Quality Award: its customers were extremely satisfied, but it also went bankrupt within a year of winning. Unfortunately, similar stories abound-so much so that many people have openly challenged the relationship between customer satisfaction and profits.

Yet overwhelming scientific evidence points to the link between satisfaction and the financial performance of firms. Therefore, it is not the underlying theory that is suspect, but the particulars of the implementation.

While there are a number of reasons why individual firms fail to make investments in satisfaction payoff, one thing tends to be common among the wreckage: managers consistently fail to understand the nature of the relationship between satisfaction and business outcomes. As a result, firms fail to focus their efforts on areas that will actually impact customers' willingness to increase purchasing behavior.

While most managers treat the satisfaction-behavior link as linear, it's really not. Ipsos Loyalty's work shows the link to be curvilinear with three threshold levels: dissatisfaction, mere satisfaction, and delight (see Figure 1).

Realizing this more complex relationship means that improving customer spending is not as simple as improving average satisfaction scores; one has to understand the underlying relationships before one can formulate the appropriate business strategies. Rather, producing real change in customer spending means moving customers to the next satisfaction threshold on the curve (e.g., dissatisfaction to mere satisfaction, and mere satisfaction to delight).

The problem for managers is this: what causes customers to be dissatisfied seldom causes customers to be delighted when fixed. For example, if a bank "bounces" a customer's checks when there is sufficient money in the account, s/he will most definitely be dissatisfied. Correctly processing checks, however, regardless of the number of checks correctly processed, will not create delight.

This creates a significant problem that must be addressed when analyzing customer satisfaction data. Those activities that cause dissatisfaction must be distinguished from those that create delight. If this is not done, the supposed "key satisfaction drivers" will almost always lead to erroneous priorities for creating customer delight; firms seeking improved satisfaction scores will overcommit to routine tasks (see Figure 2). To prevent such misallocation, two sets of key drivers are required: Dissatisfaction Drivers, and Delight Drivers.

With the Delight Principle's ability to cope with the inherent non-linearity and asymmetry of customer satisfaction data, it then becomes possible to tie specific actions to customer behaviors that result in positive financial outcomes (e.g., improved retention, share-of-wallet, word-of-mouth, etc.) Improvement alternatives can then be prioritized based upon the expected return on investment. As a result, efforts to improve customer satisfaction are changed from costs to financial investments. Then (and only then) can managers ensure that customer satisfaction pays big dividends.

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