Friday 11 January 2013

The Great Myths of Measurement: Satisfaction is Dead

In the late 1990s Jeffrey Gitomer wrote a book entitled - "Customer Satisfaction is Worthless, Customer Loyalty is Priceless" - a title which neatly encapsulates the second myth of measurement, "loyalty is better than satisfaction". What Gitomer and countless others seem to miss is that "loyalty" cannot and should not "supersede" satisfaction.

The way to think about this is to consider the evolution of customer measures. Years ago we used to think that complaints were a good way of tracking customer satisfaction - simply count how many times people complain and then you'll know how good your products and services are. We now know that measuring the numbers of complaints is not a particularly effective measure of customer satisfaction. There are two reasons for this - first, in some organisations it is difficult even to get a complaint registered! Second, and more commonly, people don't complain directly to their organisation, they simply tell their friends about their bad customer service experiences.

So we move from customer complaints to customer satisfaction. Here firms decide to be more proactive and go out and ask their customers what they felt. Hence the plethora of surveys and phone polls asking for your opinion about service experiences. Xerox collected data in the late 1990s that showed highly satisfied customers were much more likely to repeat purchase than customers who were merely satisfied, so again the focus shifted - this time to "how do we get highly satisfied customers that will keep buying from us". The natural evolution was to customer loyalty - how do we measure the loyalty of our customers? Do they keep coming back and buying again - delivery repeat business? Do they help grow our business by recommending it to friends and colleagues (think how popular the net promoter score has become in recent years).

The final twist comes with the introduction of customer profitability as a measure. This was prompted by work which recognised that some customer were undesirable. Bain and Co released data suggesting that 140% of bank's profits come from 20% of their customers. The other 80% actual cost the bank money. So there was a sudden flurry of activity where people were trying to work out which customers were profitable and which were not. For the unprofitable customers the choice becomes - can we reduce the cost to serve (and make them profitable) or should we fire the customers and stop dealing with them.

These different perspectives on measurement complaints to satisfaction to loyalty and profitability are often seen as a natural progression, with more mature companies measuring loyalty and profitability. This is simply wrong. And it is wrong for a very simple reason. We have to different between what the customer wants of the organisation (great service, good prices, etc) and what the organisation wants of the customer (their loyalty, a decent return by working with them, etc). Customer loyalty and profitability don't supersede customer satisfaction - they look at the issue of customer measurement through a different lens. Customer loyalty and profitable are what the organisation wants. Great service and good value for money is what the customer wants. Our measurement systems have to track both, as both perspectives matter in successful organisations.

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