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You Say Your Customers Are Satisfied? Uh-Oh

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by Michael Hinshaw
Managing Director
MCorp Consulting

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Article Highlights:

  • The examples of satisfied customers who are eager to defect are legion.
  • The jump from purchase to loyalty doesn’t require that satisfaction step in the middle.
  • don't think about improving customer satisfaction. Think about improving experience.

If your customers say they’re satisfied–and you use this as a way to measure business performance–then the more satisfied customers you have, the bigger your cause for concern. Because, “Yup, I’m satisfied,” is just another way your customers say, “I’m open to something better.”

The examples of satisfied customers who are eager to defect are legion. Banking industry research (also supported by our work with regional and community banks) suggests that in surveys conducted by their banks, between 60 and 80 percent of “lost” customers described themselves as satisfied just prior to defecting.

We’ve also tracked the buying habits of satisfied telecom business customers and found they didn’t purchase more, or do so more often, than other customers. In fact, lost account analysis determined that–as in banking–many had surveyed as satisfied prior to switching providers.

To varying degrees, we’ve seen this hold true in nonprofit, health care, and technology. The bottom line is this: No matter your industry, simply satisfied customers aren’t loyal. And many of them will defect.

Though this continues to shock some execs when I bring it up, it isn’t new news. In the November 1995 Harvard Business Review article “Why Satisfied Customers Defect,” the authors point out that simply satisfied customers are “easily lost.” Still other HBR research notes that “…it is difficult to discern a strong correlation between high customer satisfaction scores and outstanding sales growth.”

It’s Natural To Draw Connections Between Satisfaction And Loyalty
For years (from our initial work on customer experience in 2002 through 2007 or so) my view of the post-selection customer relationship life cycle went something like this:

It makes incredible intuitive sense and still accurately describes the relationship life cycle most companies wish to drive. I know of at least two large-company CMOs who still have an expanded version of this view on their office walls.

However, when it comes to statistically projectable correlation, our research–and that of many others–tells a slightly different story. In short, the jump from purchase to loyalty doesn’t require that satisfaction step in the middle. Why? Because satisfaction is more of a neutral holding tank. Yes, some will defect. And others will become loyal–provided you deliver a great customer experience and eliminate dissatisfiers that act as barriers to progression.

For the past six years or so, our view of the post-selection journey to customer loyalty has looked more like this:

If you’d like to improve your firm’s loyalty journey, then it’s pretty simple–in theory. Just follow these two steps:

1. Start by identifying and removing dissatisfiers. Though there’s no real correlation between satisfaction and loyalty, the fact is you can’t create customer loyalty until you’ve been able to identify and eliminate customer dissatisfaction.

To improve loyalty, you’re going to have to understand the drivers of dissatisfaction, and eliminate or fix them. That said, while important, a focus on eliminating “dissatisfiers” won’t do much more than set the stage for you to do what it takes to drive your customers to the next step…

2. To improve loyalty, improve customer experience. Good customer experience has long correlated with key loyalty measures, such as willingness to purchase, share of wallet, decreased likelihood to switch, and increased advocacy (not just willing to recommend, but have actually done so), among others. Improving your customer experience is a key step to creating more, and more loyal, customers. For example, Temkin Group research shows more than an 18-point gap between customer experience leaders and the average for their industries. Aberdeen Group says that best-in-class customer experience organizations have 75 percent greater customer retention.

So don't fall into the trap of using high satisfaction scores as a clue to the strength of your relationship with your customers. You may not get slammed, but you can be surprised. (Have you sat in a boardroom while a manager tries to explain to executives why they are losing profits and market share, despite sector-leading satisfaction scores? I have. And it’s not pretty.)

Getting beyond satisfaction to what actually drives loyalty requires a more holistic view of your customer and the experiences they have when interacting with your firm. It’s based on understanding what it’s like to do business with you–from your customer’s perspective.

In other words, don't think about improving customer satisfaction. Think about eliminating dissatisfaction and improving experience. Customer loyalty, such as it is in the era of smart customers, will follow.

About Michael Hinshaw

Currently managing director of customer experience innovation firm MCorp Consulting, Michael Hinshaw radically improves how companies connect with, serve and profit from their customers. On CMO.com, he shows executives ways to drive value for their firms by transforming customer experience, and the interactions and processes that support it. Michael is also co-author with Bruce Kasanoff of the best-selling book "Smart Customers, Stupid Companies: Why Only Intelligent Companies Will Thrive, and How to Be One of Them.

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