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.

Five predictions for the future of services

What does the future hold for services? I was recently invited to give a talk on this topic and gazing into a crystal ball produced five predictions...

1. Services will become more automated, but automation will brings risk...
Clearly technology will play an increasingly important role in services. RFID tags and barcodes on installed products will store service and parts histories - no need to search for those old service records anymore. Social media and unstructured data will be used to guide service interventions. The city of Chicago, for example, is seeking to harvest Twitter data to identify potential problems with public infrastructure. Weblogs, loyalty cards, smart phones - coupled with position location trackers - provide valuable data that can be used to tailor and customise services.

Yet this increasingly interconnected world also brings new risks, particularly as organisation join data up across domains. Think of your local convenience store and the loyalty card data they collect. How happy would you be if they started selling data on your shopping habits to your health insurance providers? The automation of services will increase their efficiency, but firms will have to consider very carefully the ethical and morale implications of how they use data they can access.

2. Services will become more localised and personalised...
Technology is already enabling the localisation and personalisation of services. Couple these developments with environmental drivers, such as the cost of carbon, and we'll see an even great shift towards localisation and personalisation. Take 3-D printing – in the future we’ll have printers in our homes that can create incredibly complex products (things that can’t currently be manufactured). 3-D printing will revolutionise manufacturing, but it will also revolutionise the spares market – what will you do do when customers can 3-D print their own spares to order?

3. Health services will be massive...
The demographic changes that are afoot will have profound implications for healthcare – already pharmaceutical firms are redefining themselves as healthcare businesses. As their drugs come off patent, they are realising that they have to change their business model, reinventing themselves as healthcare solutions providers. A much more customer focussed approach - most of us don't want to take medicines, we want to be healthy in the first place. So if you can be the healthcare solutions provider that stops people getting ill you are in a powerful position. In healthcare, its not just the changing nature of the economic environment that matters. The ageing population will also stress the medical system – many countries won’t have enough capacity (beds) in hospitals for the potential demand and it is too costly to keep people in hospitals anyway. So Governments will look for alternative forms of healthcare provision, e.g. assisted living, where people remain at home and are remotely monitored, perhaps using biometric monitoring devices built into their clothing.

Then there’s the question of healthcare diagnostics – IBM's Watson, the software solution that won Jeopardy, is now being put to use in healthcare, supporting doctors in patient diagnosis. And the potential for new healthcare services does not end their. Will we see organ farms – farms where people grow replacement body organs that are sold on the open market?

4. Everything that can be digitised will be...
Digitisation is already a significant trend in some sectors - take books, music, films… When will we stop producing physical version of products that can be made available as electronic services? Will we stop producing cash – we can use electronic credits on our mobile phones – indeed M-Pesa already does! When will virtual holidays become the norm – augmented reality means we can take a Carribean cruise without leaving our house – we certainly won’t need to fly miles in an aeroplane…

5. We'll stop being consumers...
The growing pressure on the earth’s resources will make “consumers” outlaws… We won’t be pleased to be called a consumer – instead we’ll look for ways of sharing resources and physical assets. We won’t all own our car, our own washing machine, our own lawn mower… Instead we’ll share resources across neighbourhoods. Do we really need watches? Our digital devices (whatever comes after the iPhone) can tell the time, double as a TV, etc, etc.