Customer satisfaction is a term that is overused in marketing. We all have heard it. We all have experienced it in both ends – satisfied, dissatisfied. We know it has a great impact on profits and shareholders value. And because it sounds so natural and straightforward we all assume we know everything about it. Many businesses tend to put customer satisfaction in the centre of their strategy, values and so on. At least on paper. However, the truth is, academics and managers alike can hardly outline customer satisfaction antecedents definitively. Its correlation with profits and shareholders value isn’t exactly straightforward though. We agreed that, any business should create customers. Well, now we would like to write that again in the following manner: Every business should aim to create satisfied customers. In this article it is not our purpose to tell you how that happens, but to explain the nature of the concept of customer satisfaction, and to show you how it affects your business output. Positively.
What is the nature of customer satisfaction?
First things first, what is customer satisfaction? Customer satisfaction is a cognitive post-purchase consequence. It is the cumulative overall evaluation based on the total purchases and consumption experienced over time. Well, let us make it even more challenging to comprehend by pointing out that it is the discrepancy between what is expected and what is perceived as reality. I know you expected to hear that it is something that makes customers happy and excited so they tell all their friends about your product. This is partly it, but the psychological ground for that to happen looks pretty much like this:
In this particular blueprint we look at the adapted disconfirmation model which incorporates adapted Kano model in it. Its benchmark lies in the customer expectations, formed by the expected features and characteristics of the purchased product or service. Once the product or the service is obtained, the customer starts experiencing its benefits. For some durable goods and services it is a long process and satisfaction or dissatisfaction doesn’t happen immediately. It is driven by the perceived quality of the products in relation to their expected features and characteristics. If the perceived quality and overall experience are above what was expected, the customer feels delighted. Vice-versa, if they are below, the customer is dissatisfied. In the middle of the graph the customer is neither delighted nor dissatisfied. Here we may say the customer is positioned in the neutral zone or he is somewhat satisfied or dissatisfied but not to an extent sufficient to influence future business significantly.
The lower barrier for the expectations is influenced by the so called “Must Be” category. For example, if a customer purchases an electric drill for holes 10 mm in wood, the drill must be able to do at least that. Another example, in a 3 star hotel, a customer would probably expect all conveniences for a typical 3 star hotel. This lower barrier – must be characteristics could be repositioned, usually up, by the advertising and promotion activities. For instance, a toothpaste product could be promoted when the ad delivers a message such as “whiter teeth in 1 week.” An internet provider could also use the same tactic by advertising its internet service as 3 times faster than other internet services and so on.
More is better
Another category positioned just at the upper border of the expectations is “More is better”. A typical example is: calling a customer service. A customer would expect to go through the automated telephone answering service and eventually end up speaking with a free agent. If the agent responded immediately to the call though, the customer feels delighted and if his enquiry is well addressed – satisfied. So the “More is better” is actually all features that has been promised and expected, but delivered in a better way.
These are small characteristics that could take customer satisfaction from neutral to positive. Important feature of this category is that it is not expected. An example for a delighter would be: receiving a different colour spare kit of shoelaces for your new trainers or complementary glass of mineral water with your coffee. But this could be rather tricky, because the problem with delighters is that over time they become expected. Typical example is the delayed car light. It was a nice little feature 10 years ago, but now it is a standard that forms the “Must be” group of features and its absence is experienced negatively.
The conclusion is, if you want more satisfied customers, you must deliver more than what has been promised by you and your competitors. Of course to do so, you must invest more in your offering which will negatively affect your profits. And because customer satisfaction, increased expectations and added value all lie in the very concept of marketing, marketing is often seen as a spending money function, while engineering and finance are seen as making money. Now the question is, how does customer satisfaction affect profits?
Customer satisfaction and business performance
As we noted earlier, on the short term, any investment in increasing satisfaction will have a negative impact on profits. However over the long-run it turns out that customer satisfaction is the solid ground for building strong business. The only problem is that one has to wait for it to return. For different industries that time is different. In this regard, for a restaurant it may be one day, for a hairdresser – one month, for insurance company – one year, for a car manufacturer – four years etc. The point is, sustainable future of the business is impossible without satisfied customers, because at some point the pool of potential customer will exhaust itself and the business will perish. In conclusion, let us examine what is the link between customer satisfaction and business performance as well as cash flow and profit:
- Satisfied customers are more likely to become loyal.
- Loyal customers have a greater tolerance to price and are more likely to pay premium. Loyal customers are good predictor of future cash flow.
- Satisfied customers are likely to purchase a product/service more frequently
- Satisfied customers produce positive word of mouth and produce more customers
- Satisfied and loyal customers provide market ready for product/service extensions
Matzler et al. (2005) proposed a conceptual model to show the connection of customer satisfaction with shareholders value. The model is very useful especially in reminding every manager about customer satisfaction and the opportunities it creates for business development.
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American Customer Satisfaction Index National Customer Satisfaction Index – UK