Customer satisfaction is simply how satisfied a customer is with a company’s products and services. It takes into account all interactions that customer has had with the company and how that customer has been treated along the journey.
Customer satisfaction is normally based on data collected in surveys, as it is dependent upon customer feedback. For this reason, customer satisfaction can be fleeting and fickle – a customer can be satisfied today and unsatisfied tomorrow. This is because customers re-evaluate their satisfaction after every individual interaction they have. An online experience may be great but a later phone conversation may be horrible, which changes their response to the question of whether they are satisfied.
Customer satisfaction can also provide a false sense of security to your company. For example, cable television customers who have only one service provider in their area may say they are satisfied; however, they might also switch providers if a competitor enters the market with a lower price.
Defining customer loyalty
Customer loyalty refers to how likely a customer is to buy additional products and services from a company. It should be included as one of a company’s metrics, showing how much an existing customer has purchased and over what period of time. It should include the specific items purchased, the sale price of those items, potential future value and more.
Customer loyalty is not subjective, nor is it reliant on feedback. It can be measured with real numbers and actually helps drive revenue and company growth.
Those Facebook ‘likes’ that companies love so much are not a measurement of customer loyalty. In fact, marketers refer to Facebook likes as a ‘vanity’ metric. There is no guarantee a customer who likes your page will buy more in the future.
Bending the data
Since customer satisfaction is often measured by sending out surveys, months can pass in between each input of data. A quarterly survey distributed in January might return a very high satisfaction rating but a drop in customer service in February might not reveal itself until the next survey in April, if at all. Meanwhile, dissatisfied customers went to competitors in February and March and no-one knew why.
This doesn’t mean surveys are useless. When completed after specific personal interactions, they can be very insightful. One example is immediately after an interaction with a technical-support person or customer-care representative, when satisfaction surveys give immediate insight into service expectations and delivery.
One key benefit of more tailored or customised surveys is that positive changes to business operations can be identified and made more quickly.
Bottom-line importance
Customer loyalty is more important to a company’s bottom line than customer satisfaction. Firstly, loyal customers are not only willing to buy more but also tend to be less price sensitive, so they are more likely to pay full price because they understand the additional value they receive from your company.
Secondly, acquiring new customers is more expensive than keeping existing ones. Selling more to existing customers increases revenue and decreases acquisition costs.
Thirdly, long-term customers don’t just recommend businesses to their friends and family; they become brand advocates, influencing much larger circles of shoppers via social media.
Finally, long-term customers understand the ins and outs of your business and your products. Long-term customers reach out less frequently and put fewer demands on customer care and billing departments.
Since customer loyalty is measured by looking at the purchasing habits of individuals, it is easy to use this data to create a profile of your most profitable customers. This can then be used to develop focused marketing programs to prospects who are more likely to become customers, remain customers longer and buy higher-priced products.
The last word
Understanding the differences between satisfaction and loyalty is important. Customer satisfaction can provide high level insights into the health of a business and, when used strategically, can identify specific areas of the business that are doing well and areas that could be improved.
Customer loyalty data, including actual purchase and revenue numbers, is critical for knowing where a business stands today and where it will likely be in the future.