Satisfaction isn't enough. If you mean to beat the competition, your surveys should measure customer loyalty
Customer satisfaction has been a major business buzz phrase for more than a decade. In his 2001 book, The Loyalty Effect, Fred Reichheld claimed that customer loyalty is a dominant determinant of success in business. He purported, for example, that a 5% improvement in customer retention for an advertising agency can create a 95% increase in average profit per customer over time. He claims similar (though less extreme) effects in most other industries.
To address the loyalty question, consultants often persuade companies to spend time and money trying to ensure that they know precisely how pleased their customers are. Theoretically, this is vitally important information. Empirically, however, it can be of little worth. In our experience, many large companies kid themselves about how accurate a picture they really get. So how do you get truly worthwhile feedback?
A survey conducted by a client of mine, a large phone company, revealed that 94% of customers were "completely satisfied" with their experience. However, in a separate, concurrent survey conducted by the same company, 30% of customers claimed that given the option, they would switch to a new provider. The former survey indicated only 6% of their entire customer base is less than completely satisfied. Assuming those 6% were among those who would switch, at least 24% of their customers who claimed complete satisfaction felt no loyalty to the company.
The problem is, companies are interpreting satisfaction to mean loyalty. Sure, a customer may be satisfied, but if the customer believes she would be equally (or better) satisfied with any other provider, she'll switch. A new scale is required to measure loyalty. In this new scale, the middle answer is "Perfect. I have no complaints. On the other hand, I didn't feel it was anything special." Frankly, this is likely what most of your customers actually think about you. This level indicates that you can expect an average rate of attrition from this group. All else being equal, you will lose your customers at the same rate as your competitors.
Better than the Rest?
The next-higher rating should be "Better than I could expect from another provider." Here, loyalty begins to assert itself. However, be careful interpreting results in these tough economic times. Recent University of Michigan surveys on the fast-food industry show that the recession is causing consumers to be willing to reduce their own "total satisfaction" in favor of "purely the lowest price."
If you want to measure the ultimate test of loyalty—the willingness to tell friends—the top rating should be "This was so great I will mention it in conversation later today." (Remember that your customer has lots of things to talk to friends about—a referral only comes when your product makes it to the top of that list.)
As anyone who has had a car repaired lately knows, as you leave the dealership, the salesman lets you know that you will be getting a call about feedback. He also informs you that the company's goal is a perfect score, that anything less is considered unacceptable, and asks if there's anything he can do to make that happen. While the guidance is disguised as an offer of service, you know very clearly what they really care about is getting a good score. When you indulge the company that way, its employees never learns that you really didn't think they were anything special.
Long ago, research about marketing showed that customers will phrase their reactions in whatever way you coach them to. Coaching is insidious because it teaches your customers to phrase "I have no complaints" in a way that you interpret as "I loved it and could not possibly be happier." Employees at one hospital recently achieved the pinnacle of coaching. They were given preprinted cards providing guidance on how to answer any survey questions ("we want to be a perfect five")—just to avoid any misunderstanding on our part as to what box to check.
Perils of Coaching
There are hidden costs to such coaching. Take, for example, the recent experience of a friend who works at a large bank. She had assisted a customer in opening a new account but did not coach him on how to respond to the survey. The surveyor used a seven-point Likert scale (agree, strongly agree, etc.), and she received a score of 6.5. As a result of getting a less than perfect store, she was required to attend additional training.
Did she provide sub-perfect service? Perhaps. Should companies strive for perfection? Absolutely. However, how do you figure that a 6.5 out of 7 justifies the cost of additional training? Unless the bank is training the entire staff at all times (and we know it isn't), it must be getting perfect scores (in this case, 7's) for more than 95% of its staff. As customers of that bank, we feel pretty confident that its actual service level is only a bit better than average. But the executives don't know that. They believe the feedback that is inflated by coaching.
Many executives fail to understand that their subordinates have erected barriers to avoid negative feedback. Employees of some companies can actually block certain customers—ones they believe would give them negative feedback—from getting survey calls. In addition, some companies make it almost impossible to give unsolicited feedback. After a recent terrible car-repair experience, we were not called (surprise!), so we tried to contact the dealership's survey function. It was nearly impossible.
Being on top of your negative feedback is more important than ever because of the transparency created by the Internet. If customers can't tell you, they will tell someone. Instead of only telling a few friends, your customers can participate in forums that allow them to share their feedback, positive or negative, with anyone and everyone who might go looking for it. Every product failing is meticulously detailed on any one of dozens of Web sites that include customer experience message boards. Remember that the tech-savvy are wont to seek input from such forums before any major purchasing decision.
In this economic climate, no company wants to waste money. You save money by eliminating misleading loyalty studies—and bad business practices. Focus on changing the ways you gather feedback, and you'll get a reading on your customers' true level of satisfaction.