Most multichannel merchants know why customer satisfaction is important. It is understood that satisfied customers are more likely to make repeat purchases, shop more often, spend more money, and recommend your business to their friends. But companies sometimes fall into the trap of “unprofitable” customer satisfaction, which can hurt the bottom line.
So you want to satisfy customers, but you want to do it profitably, and you want to do it simply. More and more retailers are attracted to single-question metrics that promise to drive growth by measuring likelihood to recommend or other simplified measures of loyalty. But recommendations and loyalty are just outcomes of satisfaction, not drivers of growth by themselves, and unfortunately there is no one-size-fits-all solution. Loyalty, recommendation, share of wallet–all these things matter, and all are critical elements of a comprehensive customer satisfaction measurement program.
Can you prioritize your improvement initiatives in the most effective manner based on a laundry list of desired changes reported by the customer? You may be able to tell which types of customers are going to leave for a competitor, but how can you stop them and solidify their loyalty? How do you sift through reams of customer satisfaction data and charts and turn that into an actionable plan that will generate profitability? Assessing customer satisfaction in the right way–in a precise, accurate, and actionable manner–can answer all these questions.
Many companies have bought into myths regarding how to assess customer satisfaction. Are any of the five myths below costing your organization revenue and profits?
Myth #1: In retail (especially for discount retailers), price is the only factor that matters, so understanding other drivers of customer satisfaction is less important.
In working with a multibrand retailer that had different price positioning strategies for each brand, we discovered that while price has a clear effect on a customer’s initial purchase decision, it had no more impact on customer satisfaction and repurchase intentions for the company’s discount brand than it did for its higher-end brand. Make no mistake, price did play a key role for all of the company’s brands in driving satisfaction, but failing to understand the impact that other elements of the customer experience had on satisfaction would have been a costly mistake.
We found that for all brands, including the discount brand, the overall interaction that the sales staff had with the customer influenced satisfaction much more than price. This led the retailer to funnel resources into staffing instead of cutting prices. Another retailer might find a different level of staff interaction is appropriate. Or it might find that selection and availability are bigger influencers than price or staff interaction for their customers. The point is not to assume anything without testing the theory.
Reality: Regardless of your industry or pricing strategy, it is critical to measure and understand how all aspects of the customer experience affect satisfaction.
Myth #2: You can build satisfaction through a successful promotional campaign or coupons.
It’s true that promotional mailings and bounce-back coupons do increase the likelihood that a customer will shop with you again. But they do not make for more-satisfied customers. Customers who shop at your store because they received a promotional discount may be basing their return visit on the expectations of receiving additional promotional materials and discounts.
While working with a retailer that used promotional discounts, we found that customers who cited positive past experience as the reason for their visit were both more satisfied and more likely to shop again in the future than those who received a special discount.
Reality: Understanding and managing customer expectations and satisfaction is a more-effective method of building long-term success than promotions based on discount pricing.
Myth #3: Customer satisfaction should be maximized.
The reality is that you need to optimize customer satisfaction, not maximize it. Every retailer will reach a point where it is no longer profitable to satisfy every customer. Maximizing satisfaction is actually easier, though far less profitable, then allocating resources most efficiently. In an extreme example, a retailer could give away its products for free, offer 24/7 operations, and have a personal cashier for every customer. While customers may be exceedingly satisfied, the retailer certainly wouldn’t be in business long. Instead, a business needs to have a methodology in place that shows which improvement initiatives will drive profitable growth and which improvements will take resources away from other important pursuits.
For example, we work with a multichannel merchant that recently completed an aggressive renovation program to address serious problems with its stores. Customers were being driven away because stores were old and poorly maintained, and the layout made it difficult for customers to find what they were looking for. The retailer made significant improvements to the store appearance and layout and saw a significant increase in satisfaction and sales. Given these results, senior leaders and store operators pushed to do even more–if a little improvement is good, more must be better, right? Not in this case. Management was able to use its customer satisfaction system to demonstrate that further improvements would not yield a positive return on investment. By knowing when to stop, the company was able to focus its limited resources on positive ROI priorities.
Reality: Customers should be profitably satisfied, but not necessarily completely satisfied.
Myth #4: Customer complaints should be minimized.
Too many businesses do not actively seek complaints, and too often they treat the complaints they receive as a distraction. True, it can be costly to manage complaints, but listening to and analyzing customer complaints should be viewed as a valuable opportunity to learn about flaws in products or the processes so that they can be addressed, a better relationship can be built, and customers’ trust and loyalty can be earned.
One retailer we work with decided to make it easy for people to complain. The store used signage in a way that encouraged unhappy customers to talk to the manager. The retailer solicited feedback and determined from its customer satisfaction surveys that customer complaints had doubled during the past 12 months. At the same time, the store’s measurement of how well customer complaints were handled by associates had jumped 15%, and the company’s overall satisfaction score had gone up significantly as well. The lesson here: If customers don’t complain, they just stop shopping without explanation, and then it is too late. If it is clear why they are unhappy, you can take steps to correct the situation and preserve customers’ loyalty before they choose to depart permanently.
Reality: Failure to seek and address customer complaints can hurt the bottom line.
Myth #5: Customers are either satisfied or dissatisfied; there should be no middle ground.
Many businesses measure success or failure in terms of what percentage of their customers are satisfied. They look at assessments that report that 75% of customers are satisfied and 25% are not. Or they look at the percentage of customers who are “completely satisfied”–those who provide the highest possible rating. The truth is that customer satisfaction is a complex metric that cannot be expressed as an all-or-nothing percentage. The 75% of customers who are “satisfied” are not totally and completely satisfied, and the 25% who are “dissatisfied” are not totally dissatisfied.
Think of satisfaction in the same manner as intelligence: People are not either “completely intelligent” or “completely inept”; rather, their IQ is measured and reported on a scale with lower and higher values, based on several criteria. Measuring satisfaction as a percentage will not only result in a less accurate and therefore less reliable measurement, but it will also lead to the wrong decisions.
One illustration of this phenomenon is a customer who had bought a sweater over the Web and had a wonderful shopping experience. The Website was helpful (good); the sweater was on sale (good); the checkout process was easy (good). But the sweater fell apart the first time it was laundered and had to be returned (bad). The customer called the customer service line and was put on hold (bad), but ultimately was told she could return it to a brick-and-mortar store (good). That customer cannot be pigeonholed as “completely satisfied” or “completely dissatisfied” because the experience itself was neither positive nor negative but one of the many shades of gray in between. The entire consumer experience needs to be understood in a way that will allow you to make improvements on those things that will draw the customer back to the store.
Reality: Oversimplifying customer satisfaction increases your risk of making wrong decisions. By understanding the shades of gray that constitute the customer experience, you can improve upon areas of weakness and capitalize on areas of strength.
So, what’s the solution?
Truly understanding the components and nuances of customer satisfaction is essential to a company’s success, but this task does not have to be overwhelming. The key is in applying a precise, customized methodology to identify simple, actionable solutions that will reduce the risk involved in the toughest business decisions. A comprehensive customer satisfaction program allows you to look into the future rather than at the past, since customer satisfaction is a proven predictor of positive financial outcomes such as loyalty, likelihood to recommend, and even stock price.
When faced with a list of many improvement initiatives and a limited budget, you have to be certain to choose the actions that will produce the best return. You also need to keep in mind that there is a hidden cost to making misguided, suboptimal decisions. Customers’ behavior will indicate what is important to them; the right methodology will identify which initiatives will yield profitable growth.
When pursuing customer satisfaction initiatives, do so with both caution and determination. When a retailer relies on an actionable customer satisfaction program–one upon which resource allocation decisions can be based–positive return on those decisions increases dramatically.
Sheri Teodoru is a program director and partner at CFI Group USA, a provider of customer satisfaction research and consulting services based in Ann Arbor, MI.