Tuesday, June 2, 2009

Who do customers still defect with an 80% sat score?

Why do customers still defect with an 80% sat score?

Because the experience you have during every interaction with a company matters more.

In the early 90’s, Xerox did some pioneering work on customer satisfaction. Around the same time, the Michigan Ross School of Business developed what is now seen as the leading indicator of customer satisfaction: The American Customer Satisfaction Index. The latter sparked a massive growth in businesses and people offering their opinion on how you could use and measure this customer satisfaction through books (roughly 300 on Amazon) and tools (ForeSee, etc), and what this meant in terms of dollars and cents: “satisfied customers spend more”, “satisfied customers are more loyal”.

My discussion of the ACSI and the increase in companies offering ways to use it ends there. What I’m more interested in, and I think has more important implications for your business (anyone currently using customer satisfaction scores to improve loyalty or their customers experience) is the work done by Xerox. You see, when Xerox did this pioneering work in the early 90’s, they came across a very interesting finding: If satisfaction is ranked on a 1-5 scale, from completely satisfied to completely dissatisfied, the 4’s, though satisfied, are six times more likely to defect than 5’s.

Framing the problem

The Xerox finding turned many assumptions about customer satisfaction scores on their head. Thinking around this time, and what I think is a problem today with many marketers using satisfaction as a panacea measure for loyalty or customer experience, is that the correlation between satisfaction and loyalty is a normal, linear relationship. If you improve satisfaction, your customer loyalty corresponds accordingly. But, as Xerox showed, this actually wasn’t the case. In tends to have a slow build up then skyrockets around the perfect score of “complete satisfaction”. I find this even more interesting from a problem standpoint when you think about those who use sat scores to monitor individual components of their customers digital experience and really aren’t entirely sure what a 70 or 80 sat score means in the grand scheme of things

What can you do? Informed ramblings on a solution

For me, what I’d like to see is more people in marketing begin to question their satisfaction scores, and if they are in a highly competitive industry (as most industries are today) realize the bar is set to perfection. Be careful of building out even more predictive models from satisfaction scores and realize that it is not a panacea. In diversifying your risk from merely relying on customer satisfaction scores, I’ve seen a few other areas of measurement that I agree with. In Thomas Jones and Earl Sasser’s 1995 HBR article “Why Satisfied Customers Defect” they state that the ultimate measure of loyalty is share of purchase in the category. Other measures that can be used to determine this: intent to repurchase, primary behaviors i.e. recency, frequency, and secondary behaviors i.e. customer referrals, endorsements (free of forced prizes encouraging this behavior though).

But the measure that I have always found the most compelling and that I believe leads to the best experience and most loyal customers is in what Thomas Stewart concluded with in his 1997 Fortune article “A Satisfied Customer Isn’t Enough…”. A customer’s decision to be loyal or defect is instead the lump sum of many small encounters with your company. Thomas’s thoughts were echoed again 10 years later by David Armano in his Micro-Interactions In a 2.0 World presentation, “Each encounter, no matter how brief is a micro-interaction which makes a deposit or withdrawal from our rational and emotional subconscious. The sum of these interactions and encounters adds up to how we feel about a particular product or service.”

My thanks to those whose worked I’ve cited and used in this presentation:

- David Armano’s micro-interactions presentation

- Thomas Stewart’s 1997 Fortune Article “A Satisfied Customer Isn’t Enough…”

- Thomas Jones and Earl Sasser’s 1995 HBR article “Why Satisfied Customers Defect”

And the person who first planted the seeds of improving upon a customer experience and customer loyalty way back in my early 20’s:

- Dr. Gordon McDougal

1 comment:

  1. Probably why the netpromoter score is used in a ever more frequent basis. Would this customer refer you to someone else. This is a indirect but more effective way to measure the micro interactions.