What’s the difference between customer satisfaction and customer loyalty? How can you measure whether your customers are satisfied and will keep buying from you? How much effort should you make to offer your customers the ultimate experience? In this blog post, I will tell you all about it.
If you’re a service provider, what matters in the end is whether customers will keep coming back to you and will stay loyal. We often think that the best way to measure loyalty is through satisfaction figures. After all, a satisfied customer will keep coming back, right?
But if you want to accurately predict whether customers will come back, try looking at how much effort customers have to put in to do business with you. In part 1 of this blog post, I will focus on common concepts such as customer satisfaction and loyalty, and in part 2, I will go into a relatively new concept, namely the Customer Effort Score (CES).
Why is customer satisfaction important for your organization? What’s the difference between satisfaction and loyalty? What do both of these terms mean?
It deals with how customers feel about your products and service at a specific point in time. Often, the focus is the most recent interaction they had with you. Customer satisfaction can be assessed using various sources, such as customer reviews.
It is all about customers’ level of involvement with your company, product or service. It is demonstrated through their behaviour over a longer period of time, i.e. whether customers keep buying products or services from you instead of the competition.
As a general rule, the more loyal a customer is, the more the will buy from you and recommend you to others.
But there is more to it than that; customers may feel one way (about the shortcomings of a particular product, for instance) and behave completely differently (such as by buying the product anyway because there are not a lot of alternatives on offer). As a general rule, the more loyal a customer is, the more they will buy from you and recommend you to others.
In some cases, customers might not be satisfied while still continuing to buy from you, or the other way around; they may be satisfied but still switch to someone else. In short, there is a difference between current satisfaction levels and the future behaviour that your customers have yet to display. Measurements often focus solely on customer satisfaction, while loyalty also plays a big role. Businesses should consider customer loyalty as the next step in terms of satisfaction metrics.
Loyal customers are the key to your success; they buy more and recommend your business to people they know more frequently. Don’t let them switch to the competition. But how do you go about measuring customer loyalty? The book ‘The Effortless Experience’ (Dixon, M., Toman, N. & DeLisi, R.; 2013) illustrates that customer satisfaction regarding service delivery is a bad predicter of loyalty. 20% of satisfied customers will still switch to the competition, and 30% of loyal customers are actually dissatisfied.
Toman and Delisi’se book also mentions that loyal fans are only marginally more loyal to a business than ‘regular’ satisfied customers. However, it does take some time and effort to exceed their expectations; in fact, doing so costs between 10 and 20% more on average. In short, this book teaches us that we should try to live up to the promises we make to our customers, while being careful to not want to do too much.
As customer satisfaction is not a good predicter of loyalty, the so-called Net Promotor Score (NPS) is often used instead. The NPS is used to measure how likely customers are to recommend you to others – in short, it measures how many fans you have. You then focus on those fans to try to create even more fans.
However, some are critical of the NPS. For example, there’s no proof that the NPS is better at predicting whether your turnover is going to be growing than other methods of measuring satisfaction and loyalty. There is no clear causal link, the question being posed is too basic, and the NPS is the only indicator that does not show how customers are going to behave.
When looking at the issue from the viewpoint of a different industry, such as e-commerce, the results are different. Bain & Company researched average customer retention, loyalty, and the relation to purchases made in online stores. They found that customers do indeed start buying more when they have had a longer relationship with a retailer.
In addition, customer retention in e-commerce was shown to be slightly higher than in the service sector, coming in at 86% instead of 80%. The research also emphasized the importance of loyalty for online stores, as customer reviews and referrals are seen as the best way for e-retailers to grow, and the best way to generate such reviews and referrals is to create more loyal, satisfied customers.
However, there is still more to consider! There is another element at play that is hugely important to customer loyalty but is given very little attention in customer satisfaction measurements: the Customer Effort Score. I explain this method for predicting both and customer loyalty and satisfaction in this blog.