Is there a Link between Customer Satisfaction and Loyalty?

customer_loyaltyFew would argue the importance of customer satisfaction. Every business owner strives for happy customers. In practice, however, what does it mean to achieve customer satisfaction? What makes a happy customer? Are they more profitable? More loyal?

Fortunately, considerable research has been performed on this subject, which will be quite helpful to address these questions. The first challenge is to understand what is actually going on versus what business owners think is going on. According to Lee Resources, 80% of companies say they deliver “superior” customer service, but only 8% of people think these same companies actually deliver this type of service. That is quite a perception gap. A big part of the reason why such a gap exists is that most unhappy customers don’t tell you – only about 4% – according to “Understanding Customers” by Ruby Newell-Legner.

Conclusion: for every customer complaint you receive, realize there might be another 25 you’ll never hear.

Why Care About Happy Customers?

Beyond the ethical and philosophical perspectives on why it is important to spread good will to others – happy customers are simply more valuable, so can add more profit to your business. Selling to an existing, happy customer is far easier than selling to a brand new one. The probability of a successful sale to a new prospect ranges from 5-20% … that success rate nearly quadruples to 60-70% if a relationship already exists (source: Marketing Metrics). Not only does the probability of closing a sale increase dramatically with existing customers, but the cost to sell to new customers is significantly higher – about 6-7 times greater. Lastly, about 91% of unhappy customers will not willingly do business with you again, which ultimately will shrink the pool of prospects you can sell to (source: Lee Resources).

From a public relations or brand awareness perspective, happy customers tell better stories to their friends, co-workers, and others. Anyone who has tried to get an unhappy customer approve a case study knows what I am talking about here … it just doesn’t happen.

Author Pete Blackshaw suggests that happy customers tell their stories to three friends and that angry customers tell 3,000 – at least in today’s world of social media connectivity. As it takes 12 positive experiences to make up for one unresolved negative experience (source: “Understanding Customers” by Ruby Newell-Legner), one negative experience can ruin a good relationship. The only one who will be happy when you deliver poor customer satisfaction is your competition. About 3 in 5 Americans (59%) would try a new brand or company for a better service experience (source: American Express Survey, 2011).

So What Makes a Happy Customer?

It turns out, a lot of happiness can be gained (or lost) each time an interaction occurs between your company and its customers. According to Matthew Dixon and Brent Adamson in their book “The Challenger Sale” (see page 47), they explain that customer satisfaction (i.e. happiness) is not the primary driver of customer loyalty:

  • 53% of customer loyalty is related to the purchase experience
  • 19% of customer loyalty is attributed to brand and impact
  • 19% of customer loyalty is based on product and service delivery

In other words, customer loyalty comprises many factors, some of which is tied to satisfaction with your product or service, some is tied to your brand – but most is tied to the purchase experience. Based on these figures, it appears that a loyal customer may or may not be happy; they may simply be content enough to remain a customer, but not necessarily “happy” enough to purchase additional products or services. Alternatively, a happy customer is likely a loyal one, so will be more likely to purchase future items, and, will stick with you during the process. The key is the experience they feel each time an interaction occurs – be it good or bad. It is all about how you conduct yourself during each communication.

Based on these findings, the surprise might be the importance of the purchase experience. How easy do you make it to do business with? What is the initial experience for new prospects when they either come into your store, visit your website, or come in contact with one of your partners? The answer to these questions will be an important factor on what customer loyalty you will experience in the future – and that experience will have significant impact on your bottom line.

 

Gordon Benzie is a marketing communications professional and business plan adviser that specializes in preparing and executing upon business plans and marketing strategies. Gordon can be found on Google+

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