Customer Satisfaction Research

Customer Satisfaction
Research

An introduction to customer satisfaction

research techniques and how it can
help your business

January 2001
Customer Satisfaction Research
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‘an introduction to customer satisfaction research’

The majority of organisations today, both public and private, include customer satisfaction as a
primary business or organisational objective. Indeed, most aim to deliver high levels of customer
satisfaction and many have made significant investments in Customer Care or Customer Service
programmes. The ability to set customer satisfaction objectives is dependent on the
organisation’s ability to understand the priorities of its customers in the first place, and
subsequently to put in place mechanisms to measure accurately levels of customer satisfaction.

Customer Satisfaction Measurement (CSM) is the term used by market researchers to describe
broad research activities that help to understand and measure customer satisfaction. This
document provides an overview of why CSM is important to all organisations no matter how large
or small, outlines the objectives of different types of customer satisfaction research studies, and
highlights some of the primary objectives of effective CSM programmes.

Why Measure Customer Satisfaction?

Most businesses lose a certain proportion of their customers in every year they trade, and in many
cases the customer is lost because they have defected to the competition. This is often referred
to by marketeers as ‘customer decay’ or ‘customer attrition’. In some markets, the average
attrition rate is between 10 and 30%! There are many reasons why a customer defects, but
without a doubt the primary driver is dissatisfion with the product or service being offered.
Providing organisations can replace the lost customer with a new customer, ‘customer decay’ is
not necessarily perceived as an urgent problem. But ‘customer decay’ should in fact be a
problem for all organisations and ignoring it is both dangerous and inefficient.

The underlying logic for minimising `customer decay’ is simple: the cost of acquiring new
customers is higher than the cost of retaining existing customers. As we shall see, there is such a
thing as an unprofitable customer and, therefore, circumstances when acquiring new customers
is a better strategy than holding on to undesirable customers, but in general it is now a widely
accepted business theory that customer retention optimises profitability.

So, there is a fundamentally good reason for measuring customer satisfaction: understanding
customer needs and delivering high levels of customer satisfaction ensures a high levels of
customer loyalty, and this in turn enhances profitability.

For public sector organisations also, customer loyalty is a key measure of their performance.
Public sector bodies which provide excellent service to their “customers” are fulfilling a key tenet
of contemporary public service philiosophy and most government departments now set rigorous
requirements for meeting the highest customer service standards.
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‘an introduction to customer satisfaction research’

Defining Customer Loyalty – three underlining principles

In the early 1990s UK supermarkets, followed by a host

of other retail businesses, began introducing new
consumer incentive schemes usually referred to as
loyalty programmes. If customers signed up to the
loyalty scheme and continued to shop at the
supermarket with their personalised loyalty card, they
would enjoy regular price discounts on their
purchases through accrued loyalty points. Years later
some of those supermarkets withdrew their loyalty
schemes because they realised loyalty wasn’t so
easily bought. Indeed, it became clear that many
customers were simultaneously holders of several loyalty cards from competing supermarkets!
More recently, internet retailers basing their customer loyalty strategies purely on discounted
pricing also found to their dismay that customers were only loyal to the latest highest discount.

First principle – loyalty isn’t bought cheap

Loyalty is not bought through discounts or cheap bribes. Demonstrating competitive pricing can
have a crucial role in winning or retaining customers, but this has to be seen in a wider context of
a valuable product or service proposition. The most effective way to retain profitable customers
is, therefore, to offer a product or a service package which the customer values as superior to the
competition. But before you can put together a value proposition which will generate customer
loyalty, you have to understand what customers really value the most.

Second principle – there are different types of loyalty

The second principle of loyalty is about differentiation. Your customers are not a homogeneous
group; they do not all have the same buying characteristics. Equally, there are fundamentally
different types of customer loyalty.
Customer Satisfaction Research
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‘an introduction to customer satisfaction research’

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At the bottom end of the scale there are customers who are simply
‘locked in’ with their supplier or have limited scope to change supplier
regularly. This is not uncommon in business to business markets. For
example, the significant investments made by manufacturing
companies to acquire ERP software stops them purchasing new
systems regularly. They are, to all intents and purposes, ‘locked in’ with
their supplier for a minimum of a few years no matter how dissatisfied
they may be with its performance. Consumers are in a similar position
with monopoly suppliers - they are forced to be loyal. Customers who
are forced to be loyal are not really loyal at all. Loyalty, and more
importantly, genuine commitment to a supplier, is a voluntary action
and has to be earned ultimately by consistently giving the customer what they need.
Customer Satisfaction Research
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‘an introduction to customer satisfaction research’

The second type of loyalty is often referred to as ‘incentivised

loyalty’, as manifested by supermarket loyalty cards, airline ‘frequent
flyer programmes’ and pricing discounts among telecoms
companies (e.g. BT “friends and family”). As mentioned earlier,
loyalty cards or other incentive schemes are no guarantee of loyalty
and often only succeed in reducing the customer relationship to that
of price.

The third type of loyalty is sometimes called ‘habitual loyalty’. If the

customer continues to buy from a supplier merely because it is easier
to do so but without truly valuing the supplier’s products or services,
then the customer has a relatively low level of commitment to that
supplier. In these circumstances the chances of a new supplier
surplanting the incumbent is high and becomes more likely over
time.

In business to business markets the buying decision is frequently more complex than consumer
markets. In general, the higher the purchase value and the more important to the business of a
single purchase, the more likely the decision will be made by a group of influencers, users and
decision makers. But uncomplicated, low value, low risk purchases frequently become habitual
purchases.

It is also the case that in many business and industrial markets, companies will generally seek to
specify several sources of supply. Multiple sourcing helps companies to negotiate with suppliers
and minimises supply chain problems. In these circumstances, even the most loyal business
customer may be unwilling to rely on a single supplier.

The most valuable type of loyalty is often referred to as

‘committed loyalty’. Those customers who are committed to a
supplier place a lot of value in using that supplier. More
importantly, they believe their chosen supplier is the best choice
for them in the market as a whole. There are a number of
distinguishing characteristics to help identify the ‘committed
loyalist’: they tend to buy more products, more often and spend
a higher proportion of their budget on their chosen supplier; they
consider competitors less often and recommend their supplier
more willingly and frequently to colleagues; they are emotionally committed to their chosen supplier.
Hence, committed customers are a valuable asset. Truly committed customers are more like partners
than customers - they actively support the supplier and recommend the supplier to other customers. As
such, marketeers often refer to these types of customer as ‘loyal advocates’.
Customer Satisfaction Research
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‘an introduction to customer satisfaction research’

Third principle – some customers are more equal than others

The third principle of

customer loyalty is
that some customers
are more equal than
others. We have seen Loyal advocates
that committed
customers and loyal
advocates can be Loyal (spenders)
highly valuable to a
business. Other
customers, while Won’t pay premiums
continuing to stay
with a supplier, may
Incentive shopper
be unwilling to act as
advocates or will
only purchase lower
priced products. In
other cases, a
customer will only
remain “loyal” while
discounted products
are offered and will
regularly switch supplier on the basis of the highest short term discount.

The real advantage of understanding customer loyalty is being able to differentiate the valuable
from the not so valuable customer. The ability to identify loyal customer groups and market to
them as distinct segments is the very basis of ‘Customer Equity’ strategies - managing a customer
base as a valuable business asset.

The term ‘customer loyalty’ in essence sets a very high expectation for the majority of businesses
and customers. In reality, the proportion of customers who are faithful to a supplier to the point of
pledging loyalty is tiny in most markets – often fewer than 10%.

Customer loyalty can be seen as the holy grail of business; it should be a cherished ambition,
businesses should strive hard for it, but as we have seen, their are degrees of customer
commitment. In the real world the ultimate goal should not be unquestioning loyalty (for that
would be unrealistic); however, it is entirely practical to develop a retained and committed
customer base. That’s an entirely more tenable and practical goal.
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Objectives and Scope of Customer

Satisfaction Measurement (CSM)

Types of Customer Satisfaction Surveys

There are several different types of Customer Satisfaction research exercises, which can be
differentiated by both the scope and scale of customer satisfaction measurement. Ideally, the
CSM programme should be based on the assessment of the full product and service range,
including issues of branding, product and price, distribution and service. On other occasions the
assessment will focus on narrower performance crtiteria, such as customer service performance
or a sub set of it, such as the performance of a help desk function.

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CSM programmes can also be differentiated by the scale of programme. If the focus of the survey is only
with the immediate customer base (e.g. does not include performance comparisons with competitors) it
is a Customer Perceptions Survey (CPS). If, however, the survey inlcudes competitor organisations and
seeks to provide benchmarks of customer satisfaction performance across an industry as a whole, it is a
Customer Benchmarking Survey (CBS).
Customer Satisfaction Research
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Scale of Customer Satisfaction Surveys

Type of Scale and

Survey Coverage

Customer Confined to the service

Perception relationship with
Survey immediate customer base

Includes competitor
Customer
organisations and sets
Benchmarking
satisfaction benchmarks
Survey
across the industry

Objectives of Customer Satisfaction Measurement

All customer satisfaction studies share the same underlying principle: to assess the performance of
an organisations’ products or services on the basis of how they are perceived by the customer.
Whether those perceptions are misplaced, lag behind current performance or are a very
accurate interpretation, customer perceptions matter. Indeed, understanding these perceptions
provides a critical understanding of future customer behaviour.

Creating a new Customer Satisfaction Measurement programme – exploratory

research

It is quite possible to design a new customer satisfaction survey and a passable questionnaire to
collect the data without first consulting customers. Managers who are close to their business and
their customers can usually specify a survey which broadly covers the customer-supplier
relationship. This is, however, not the best course of action, because it fails to utilise the first hand
opinions of customers. Where possible, an exploratory phase of qualitative research (e.g. depth
interviews, focus groups) should be conducted as an integral part of the set up process, and
should be conducted to ensure that the subsequent data collection design (a) asks relevant
questions (b) directed to the right people. In our experience, this is critical to executing
meaningful customer satisfaction programmes.
Customer Satisfaction Research
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‘an introduction to customer satisfaction research’

Interpreting Customer Satisfaction Performance

PFIs

Priorities for Improvement (PFIs) are determined by comparing the performance of an

organisation against the priorities of the customer. Improving performance on PFIs will improve
overall customer satisfaction. This is not quite as straight forward as simply asking customers what
they want because customers do not always accurately articulate what they really feel. Hence,
an effective assessment of customer priorities should include an understanding not only of the
‘stated’ priorities of the customer but of implied priorities as well (sometimes called ‘derived’
importance), which are established through statistical modelling techniques.

Understanding importance
A rigorous understanding of
importance takes account of both
‘stated’ and ‘derived’ importance, as
high mentioned above.
Derived Importance

High Critical If an attribute (e.g. factors used to

Potential Attributes measure satisfaction, such as delivery
speed, or product reliability) is
Moderate considered important by customers
Importance (‘stated’ importance) but in reality
does not strongly effect customer
Limited Visible
satisfaction (low ‘derived’ importance)
Importance Importance it is said to have ‘visible importance’ –
you have to be seen to perform. (see
diagram, left)
Stated Importance
At the opposite end of the spectrum,
low high attributes which have both high
‘stated’ and ‘derived’ importance are
critical to customer satisfaction.

Attributes which have low ‘stated’ importance but high ‘derived’ importance are unclearly
differentiated in the minds of customers and, therefore, present an opportunity to raising customer
satisfaction levels. These are called ‘high potential’ attributes. If you can identify ‘high potential’
attributes and perform well on these factors, you have an opportunity for raising customer satisfaction
performance.
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‘an introduction to customer satisfaction research’

Customer Satisfaction Index (CSI)

Having established the importance of the attributes which determine customer satisfaction, an
index of satisfaction scores should be produced which allows performance to be tracked over
time, when the survey is repeated. There are different approaches which can be taken for
formulating the CSI, but in general the satisfaction scores should be weighted according to the
relative importance of attributes.

Performance Gaps
Good customer satisfaction
measurement programmes will
determine performance:

performance § relative to the priorities of

customers
importance
`Performance
§ in relation to the performance
Gaps’ of the competition
1 2 3 4

Measuring Loyalty
supplier `a’
As we saw earlier in this paper,
supplier `b’ customer satisfaction research is as
much about measuring loyalty levels
among customers as it is about
1 2 3 4 measuring satisfaction.

The research should

Depth of Commitment (DoC) determine the precise
level of loyalty among
Segmentation of customers, and profile the
Loyalty Indicators
Customer Base ... customer base against
Loyal those loyalty criteria.
• Propensity to:
Advocates - recommend
There are many different
- continue with supplier indicators of loyalty which
Loyal
can be employed, but
• Share of purchases the most reliable will
• ease of switching supplier include measures which
• commitment to supplier
describe the strength of
• price sensitivity
Satisfied but • satisfaction levels the relationship between
uncommitted supplier and customer as
Vulnerable
well as the satisfaction
levels.
Looking to
Switch
Customer Satisfaction Research
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‘an introduction to customer satisfaction research’

Just as it is important to understand what it is that increases satisfaction levels, it is important to

explore what drives customer loyalty. We know which factors indicate loyalty (as shown in the
diagram above) - these are factors which tend to explain loyalty dynamics for most
organisations. But in order to manage and influence future loyalty, we need to understand which
specific attributes defined in the product and service relationship have the greatest influence on
and determine customer loyalty levels. Having profiled a customer base to establish the extent
and type of loyalty, the next step is to define the characteristics and behaviour of each of these
customer groups.

Towards a Customer Equity Strategy

Customer satisfaction research is a
fundamental tool available to all
organisations, but when it is used
customer properly it can have a critical role.
satisfaction In recent years the importance of
retention
Valued customer retention and customer
strategies
product loyalty has been realised by most
proposition successful organisations, although
many do not conduct sufficiently
robust Customer Satisfaction
Customer measurement programmes, or have
Equity a co-ordinated strategy for realising
customer Strategy employee
their organisations’ customer equity.
loyalty satisfaction
While ‘brand equity’ strategies focus
on the orientation of the product, a
‘customer equity’ strategy focuses
training resourcing the entire business process on the
customer, while treating the
customer as its most prized asset. In
this context, customer satisfaction
research has a critical role within the
business process.

Benchmark Research has developed a powerful ‘tool kit’ of research techniques for Customer
Satisfaction Measurement (CSM), including a proprietary analysis technique called ‘Prowess’. For
more information on Benchmark’s approach to customer satisfaction measurement, please
contact Neil Cary ([email protected]).