Customer Satisfaction and Loyalty
Customer satisfaction and loyalty are fundamental elements that determine the success of every business
. Corporate executives and marketing managers who invest the resources to measure and understand these key metrics are arming their companies with the tools needed to survive and thrive during these challenging economic times. Globalization and the Internet have made it possible for many more companies to compete for a customer's business. The stagnant/shrinking economy means there are fewer customers to go around.
Satisfied customers generate more revenues than dissatisfied customers. This is not only due to repeat business, but also through new business that is generated from positive (and free) word of mouth advertising. Fully satisfied customers are less likely to consider competing products and services. Loyal customers are also less likely to respond to competitive actions.
Dissatisfied customers, on the other hand, have a profound negative impact on a company's bottom line. They tell their friends and associates about their dissatisfaction. Estimates vary on the reach of this "bad word of mouth." Some studies show that dissatisfied customers talk to 8 to 16 people about their issues. With the widespread use of social media such as Facebook, MySpace, and Twitter, the bad word of mouth has the potential to spread virally to many, many more people.
TechWise Research has conducted many customer satisfaction/loyalty studies for clients. Some of these were stand-alone projects while others were tracking studies designed to measure changes in customer satisfaction over time. Based on our experience we developed a Customer Satisfaction Index (CSI) which gives companies insights into how they are viewed by their customers. TechWise is also experienced implementing Net Promoter Score (NPS) studies.
Questions Answered by a Customer Satisfaction and Loyalty Study:
- What percent of customers are satisfied/loyal versus dissatisfied/mutinous?
- How does your company compare to your competitors?
- Which customers are most at risk for switching to a competitive product?
- What factors are driving your satisfaction? These can be used as foundation blocks for messaging and advertising?
- What factors are driving dissatisfaction? Resources should be focused here to improve overall satisfaction/loyalty.
TechWise prefers to study satisfaction from the perspective of the Total Customer Experience, or TCE. This means we measure satisfaction from the time a customer first investigates your products, through purchase, installation, training, and operation, and support. This provides management with the most complete picture of satisfaction. Our studies often have systems in place to identify trouble tickets. Some studies show that a prompt effort to resolve dissatisfied customers' issues can turn as many as 85% of dissatisfied customers into repeat customers.
Net Promoter Score (NPS)
Net Promoter 1 is a popular technique for measuring customer loyalty
. It was developed by Fred Reichheld who works for Bain and Company. The main premise of this technique is that a single question provides an accurate measurement not just for customer loyalty, but corporate success. This technique is explained in detail in Mr. Reichheld's book entitled "The Ultimate Question."
In this technique, customers are asked a single question on a 0 to 10 rating scale - "How likely is it that you would recommend our company to a friend or colleague?" Based on their response, they are coded as Promoters (9-10 rating), Passives (7-8 rating) or Detractors (0-6 rating). The NPS Score is simply the percentage of Promoters minus the percentage of Detractors. Any score over 50% is quite good while 75% or above is exceptionally good. Low (or negative) scores are indicative of companies that have serious issues regarding customer loyalty. Research by Bain has shown a correlation between NPS and revenues growth, the higher a company's NPS score the higher the revenues growth.
Since all of the analysis is based on a single question (and perhaps a follow-up question), NPS surveys tend to be short and simple. They are cost-effective studies that provide results that are easy to explain and communicate throughout the organization. There is an active debate within the market research community regarding NPS. While many researchers are proponents of this technique, other market researchers claim that other questions work just as well as the likelihood to recommend. There is an inherent lack of precision that comes from basing all analysis on a single question, which may be exacerbated by collapsing the results into three categories. Despite these issues, in our opinion Net Promoter is one of several valuable techniques that can help companies better understand their customers.
If you are interested in learning more about a Customer Satisfaction Study or the Net Promoter technique, or to request a quote on a project, contact us
(1) Net Promoter is a registered trademark of Fred Reichheld, Bain & Company. Those wishing to learn more about Net Promoter may wish to read Fred Reichheld's book shown above.
©1998-2011, TechWise Research: Customer Satisfaction / Loyalty and Net Promoter Score