Q

Customer satisfaction vs. customer loyalty

On what do you base the fact that customer satisfaction has little bearing on loyalty and further purchases? Surely if the gap between expectation, perception and delivery of customer service is managed at a high level, the customer will perceive that the relationship is a mutually beneficial one where there is an equilibrium of commitment. This in turn will encourage repeat customers and give a greater share of the customer, which...

is the defining factor in customer loyalty.


Our own research, plus study after study over the years, proves that there is, at best, only a tenuous relationship between customer satisfaction and customer loyalty. It is relatively easy to for suppliers to get high satisfaction scores from customers, but this frequently doesn't translate to high loyalty and profitability. In a study by the Juran Institute, for instance, conducted among hundreds of managers and executives from multiple industries, only 2% could identify a proven relationship between higher customer satisfaction scores and greater profitability.

To further illustrate, let me offer two quotes from my first book, Customer Retention: Keeping Your Best Customers, published in 1995, but written from 1992 through 1994:

"While it may seem intuitive that increasing customer satisfaction will increase retention and therefore profits, the facts are contrary. Between 65% and 85% of customer who defect say they were satisfied or very satisfied with their former supplier. In the auto industry, satisfaction scores average 85% to 95%, while repurchase rates average 40%." (Frederick F. Reichheld, "Loyalty-Based Management", Harvard Business Review, March-April, 1993, 71.)

"It would seem that most managers assume satisfaction scores to be positively correlated with customer behavior, i.e. results. The tacit belief is that as a customer grades a supplier with an increasingly higher satisfaction score, so should that customer increase share of spending on that supplier, pay a price premium, refer new prospects, and so forth. In point of fact, this assumed correlation between what customers say and what they do has been disproved in the vast majority of businesses studied." (Christopher J. Fay, "Can't Get No Satisfaction? Perhaps You Should Stop Trying", Juran News, Winter, 1995).

Customer loyalty, the degree of supplier commitment, is based on total perceived value of a product or service, not merely a single element, such as customer service level, price, accuracy, technical proficiency, completeness, brand image, etc. Satisfaction measures only attitude, superficial feelings about these elements. We begin with disciplined measures of both performance and importance (a derivative of expectation) and build from there. If you'd like to know more about our measurement process, and why it is so directly correlated to actual loyalty and purchase levels, please feel free to contact me directly.


This was first published in November 2001

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