What Do Customer Satisfaction and Loyalty Mean--to Your Bottom Line?

If you're managing a brand, a service line, or are responsible for quality management, you know how rewarding it feels to know that your customers are satisfied. You can rest assured that what your providing you're customers is what they want, and if they're satisfied, they won't leave, right?

Not necessarily. They'll leave if they change or if their environment changes, or if the competition offers something that they think will make them even more satisfied. Satisfaction is an attitude, and attitudes do not always translate into expected behaviors. You'd think that a satisfied customer would be a loyal one, for example, but this isn't always the case. Loyal behavior can be based on all sorts of other attitudes, including simply considering it a too much of a pain to switch to another service, even if it looks more interesting (e.g., changing cell phone service may be little or no pain; changing a long established checking account, perhaps more painful).

These unfortunate facts pointing to the ephemeral--and not always rational--nature of customer satisfaction and loyalty puts management in a tough position. Moreover, in the environment we live in, political, business, and economic realities can change even in the midst of a strategic plan's roll-out, as can customers' attitudes and behaviors.

But there is a way to minimize this risk: anticipating change, and building strategies that leave room for alternative plans to be conceptualized and executed. An integrated customer loyalty and customer relationship management system, which incorporates survey research, database management, marketplace assessment, and multivariate modeling and forecasting tools, can help organizations to achieve these goals of flexibility and adaptability. Ultimately the goal is to help organizations move swiftly to retain their best customers, attract new ones, and in many cases, win back those who were lost.

An international team of Ipsos Loyalty researchers has developed an integrated system, which allows us to segment customers according to their commitment and loyalty levels, as well as their value to the company and paint scenarios for keeping the best. Clients working with this system are thus free to work out strategies to keep their best customers happy and loyal--even as they change.

Satisfied customers won't necessarily be "true" to you

Even if satisfying your customers seems like a cornerstone of good business practice, and a noble one at that, it isn't the only goal to be striving for--nor is it the most important goal. That's because of an odd generalization that can be applied to customer attitudes: satisfied customers often leave and dissatisfied customers often stay!

More deserving of managers' time and efforts is encouraging the behavior of loyalty among their customers. The AMA defines loyalty as "the degree to which a consumer consistently purchases the same brand within a product or service class." The repetitive customer actions that are implied in this definition are one reason why loyalty is so crucial. Loyalty levels are strongly correlated to market share; the more loyal customers a brand, product, or service has, the greater share it is likely to have. Moreover, another correlation exists between loyalty and price inelasticity: companies/brands with higher loyalty measures tend to have lower price elasticity, and consumers with stronger loyalty patterns are less likely to switch to other brands based on price deals they are offering.

Combining satisfaction and loyalty to generate strategies

Though loyalty is the more bottom-line oriented goal to work toward, as discussed, there is definitely a place for satisfaction measures in arriving at a method for keeping good customers. We can look at typical measures of satisfaction as a measure of commitment; in other words, as attitudinal loyalty. These measures might include intention to repurchase and likelihood to recommend to others, as well as levels of brand affinity and pricing sensitivity.

By crossing commitment with loyalty components, including past behavior and current marketplace conditions, we get four segments of customers:

Understanding the segments

Contented Advocates are customers that are both attitudinally committed and behaviorally loyal. Understanding what drives these Advocates offers the strategy needed to build market share. Retaining them requires ongoing commitment to taking their pulse in terms of how they view an ever-changing environment, as of course, they will change along with it.

Well-Intentioned Prospects are customers that have high commitment, but low loyalty, and they are buying your competitor's products. Determining what it is about the competitor's products this segment likes--and what their limitations are in terms of using yours more--is a next step along the path of increasing their loyalty.

Picky Long-Shots are customers with low commitment and loyalty; if they buy from you, it won't be because of anything you've done or not done. It may be strictly due to some promotional offer or other extenuating circumstance. Potentially "price-buyers", Long-Shots are not optimal customers.

Perhaps the most interesting segment contains behaviorally loyal, but low commitment customers, the Disheartened Critics. These customers spend a fair amount of money with you, but they don't really like you! Of all the segments, you would think these customers have the highest potential of leaving, at least if you look at their attitudes. Actually, some will leave, but many will stay.

Why don't dissatisfied customers show themselves the door?

There are a variety of reasons why these customers continue to do business with the company they're so not committed to. To help understand the Disheartened Critics, we need to divide them into two segments. The first segment we will refer to as Captives. Captivity can come in two flavors: market-driven or self-imposed. An example of market-driven captivity would be monopolistic businesses-like utilities. If you want electricity, in most markets, you don't have a choice of provider. By contrast, a self-imposed captive has a number of alternative providers of the product or service, but the pain of leaving you is too high. Changing your bank account, for instance, requires changing auto-deposits and auto-payments, waiting for a new checkbook to arrive, etc.

In all truth, the more Captives a company has, the less concerned it needs to be with having delighted (or highly committed) customers. What the company should concern itself with, though, is not spending excessive resources servicing these customers. For example, if dissatisfied customers call my 1-800 number to complain each time they receive a statement, I need to increase the level of satisfaction just enough to stop this behavior. That means investigating and investing in improvements in the statement and billing process/delivery, and determining whether or not frequent callers are problem customers who may not be worth the investment in statement/billing process change.

Through the use of simulation tools, scenario analysis and planning allow just this type of situational assessment. Not only by identifying these issues and its components, but also allowing the option of testing new service offers and win-back tactics at early stage, then forecasting the best path to fixing vulnerabilities "on the fly." And try to stay ahead of the speed of change that is occurring in the environment in which companies compete.

The second segment is the Vulnerable segment. In contrast to the Captives, the Vulnerables can leave; they just haven't done so yet, for whatever reason. This group is the most likely to leave. But, since they represent a sizeable value to the company, we are interested in understanding the difference in their attitudes versus those of the Company Advocates. If we can figure out what buttons to push, we should be able to convert these folks from their status as Vulnerables to Company Advocates, thus minimizing their propensity to leave.

Looking for your "best" loyal customers

Once we have a good understanding of what drives each of our loyalty segments, we look for ways to identify and target them. Looking at the existing information in the company database is a good place to start. Customer relationship management initiatives (NB: not the software itself, but the communications/database research technique) can really help to focus a general drive to instill loyalty among your customer base to something more targeted: keeping your best (often synonymous with "lucrative") customers loyal. This is a great example of a proactive tool that helps managers be selective and discerning with scarce company resources, since it prioritizes their retention strategy with customers.

More specifically, customer relationship management (CRM) assesses the value of customers by merging database information of their past behaviors and preferences with survey data, allowing managers to understand how to manage each relationship. Generally, this will mean working on a mutually valuable relationship--the customer is happy, the company keeps a customer. But again, resources are scarce, so the other thing CRM can do is let managers center their efforts on their best, most lucrative customers, since CRM has identified them, and not put too much time into less valuable customers.

But the process doesn't stop there. The opportunity to understand brand perceptions and equity dimensions as part of the broader equation can help determine whether communication initiatives can impact loyalty and retention behavior. Further, if it is determined that your current offering leaves something to be desired the opportunities exists to test newly optimized offerings among targeted samples using forecasting and modeling tools to identify winning options. A similar approach in creating and testing win-back offers or service concepts among lost or vulnerable customers can also be used. Helping organizations move swiftly to retain their best customers and attract new ones is closing the loop on a fully integrated loyalty system--one that accommodates changes and indicates how best to act on them.

Know Thy Customers: The Foundation for Success

There's a general truism that applies nicely to customer relationship management: you can't please everyone, all the time. As much as it might seem like a good idea to work on your entire customer base, this quantity-over-quality approach is an exhausting and none too effective use of resources. Taking the time to figure out your customers' behaviors, ideally through the type of segmentation we've outlined, will focus energies right where they should be: on customers who are currently loyal, or on those who have the potential to be loyal, even if they aren't convinced yet.