In my experience dealing with successful entrepreneurs and businessmen in Sub-Saharan Africa, I have encountered one common theme that always seems to resonate in every start-up story, whether I’ve heard the individuals tell me in person, during a seminar or whether it has been published in print- the story usually follows these lines: “ We really struggled at first, when we were starting up, it was really hard to get customers and we were barely breaking even”. The narrative then changes to a happier version; “Then we got our first chance to make a substantial profit, Mr/Ms XYZ (a customer carrying clout in the marketplace) decided to give us an order, and everything changed after that”. I think it is fair to say that this narrative is one that is globally commonplace.
The lesson we can learn from this narrative is that customers are vital, if not the most important variable when it comes to doing business anywhere around the world. Without customers- there is no business. It always takes two to tango. Just like in any relationship, compromise is essential- especially when the first party (your business) needs to be in a happy and successful relationship in order to survive- and not always the other way around. The second party (your customer) not only needs to remain in the relationship, but also needs to be content with the relationship, loyal to the first party and be actively involved in making the relationship better.
The previous relationship analogy can be framed in a business context: a business needs to first acquire a customer, make sure the customer is satisfied with his/her experience in dealing with the business, keep the customer loyal to the business (not defect) and increase the possibility of the customer spending an increasing share of his/her budget at the business.
In previous articles we have looked at the relationship between loyalty and satisfaction. To begin with, it is expensive to acquire new customers- businesses have thus resorted to ensuring that existing customers remain highly satisfied, enabling the business to sustain the customer base (Kombo 2015). Scholarly research carried out in many industries has gone on to prove that businesses generate higher profits due to the loyalty and repurchase intentions of satisfied customers (Fourie 2015). Additionally, satisfied customers can increase the customer base of a business by 100 new individuals by way of recommendations (Kombo 2015). Conversely, the trend is slightly dramatic- dissatisfied customers can influence up to 1000 people to have a negative perception towards a business (Kombo 2015). Letitia Fourie lists a variety of reasons in her research as to why businesses increase profits when they have satisfied customers: “acquisition costs decline; new customers will be referred by the satisfied repeat customers; marketing in the form of word of mouth is free; new customers do not buy as much as existing customers; loyal customers are less price sensitive than new customers; it costs less to serve existing customers” (Fourie 2015).
A study by Mckinsey on the healthcare-insurance customers was able to graphically illustrate the relationships between customer satisfaction and customer loyalty, as well as customer satisfaction and the likelihood of customers engaging in upselling/ upward migration. The diagrams below exemplify the positive correlation between customer satisfaction and both the aforementioned variables. Additionally, one should take note that it is safe to assume that the same correlation would exist if data from another industry was used instead of the healthcare industry- the same positive correlation has been illustrated in other studies in different countries and industries such as the South African study “Customer Satisfaction: a Key to Survival for SMEs?” and the Kenyan study “Customer Satisfaction in the Kenyan Banking Industry”.
(D’Emidio, Malfara, & Neher 2017)
(D’Emidio, Malfara, & Neher 2017)
Through this study, Mckinsey was able to show that if the customer is satisfied, there is a high chance that the customer will also remain loyal (not defect). More so, we have also determined that the expensive customer acquisition process can also been addressed by prioritising customer satisfaction. Nonetheless, it is very important to understand that the positive correlation between customer satisfaction and customer loyalty as well as customer satisfaction and upward migration, does not tell the full story.
According to research done by principals working for McKinsey & Company, “to increase customers’ loyalty, companies must do more than track today’s typical metrics: satisfaction and defection. Despite all the money invested to promote loyalty among high-value customers, it is increasingly elusive in almost every industry” (Coyles & Gokey 2005). The same research further elaborates that larger changes in value occur when existing customers change their spending habits as compared to when customers defect (Coyles & Gokey 2005). A contradiction comes into play when we compare this new-found insight to traditional business beliefs. Firstly, we already knew that satisfied customers can also defect and do so regularly (remember when I said that the positive correlation between customer satisfaction and customer loyalty did not tell the full story). Now we are burdened with the insight that defection is not as big a problem as downward migration.
The purpose of this article is to make common knowledge of the notion that: the customer satisfaction measurement process is not an all-encompassing solution for understanding, curating and managing relationships with customers. Notwithstanding, the customer satisfaction measurement process is and remains to be a crucial & mandatory initial step that should be taken when addressing and managing the complexities of relationships that exist between organisations and their customers.
Depending on the type of industry that categories your business, as well as the nature of the customers- the customer satisfaction measurement process has to be combined with a number of other steps, measurements and processes- in order to truly understand and manage customer relationships. The primary reasons for this are that customer satisfaction levels alone cannot be used to determine what makes customers loyal nor can they be used to predict the change in customer spending patterns.
Customer satisfaction levels can however be used as leading indicators for understanding data that is obtained from a variety of other measurements and analysis. This includes data from customer value analysis, customer loyalty profiles, traditional market research and surveys, customer defection rates analysis, demographic analysis, and customer-experience programs (Coyles & Gokey 2005) (D’Emidio, Malfara, & Neher 2017).
The crucial next steps after the customer satisfaction measurement process are; creating and understanding the loyalty profiles of all customers and creating a successful customer experience program. Simply put, a loyalty profile is document that segments customers based on their behaviour. They should be used to address and understand the following customer metrics: “How often purchases are made, the frequency of other kinds of interactions -such as service calls, the emotional and financial importance of a purchase, the degree of differentiation among competitors’ offerings and the ease of switching” (Coyles & Gokey 2005).
So why is a customer experience program necessary? To answer this question, we first have to understand the underlying elements that combine together to give context to “the customer experience”. To quote Nicolas Maechler:“Customer experience is a perception. This is not an operational KPI as you usually have in your company. This is a perception driven by a very clear equation. It’s the observed performance that the customer has with its supplier, minus its expectation” (Javetski, Maechler, & Fanderl 2016). Consequently, we can now comprehend why an effective customer experience program will need to “focus on identifying, understanding, and mastering the customer journey: the complete end-to-end experience customers have with an organization from their perspective” (D’Emidio, Malfara, & Neher 2017).
In conclusion, I want to reemphasize the importance of the customer satisfaction measurement process by listing the overarching benefits the process creates for a business, as stated by Letitia Fourie of the University of the Free State in South Africa (Fourie 2015):
- Reliable insight into the market and the competitive position held by the business;
- Awareness of dissatisfaction amongst customers as customers do not like to share dissatisfaction;
- Discovery of potential market opportunities;
- Exposure of differences in quality service perceptions between management and customers.
Kombo, Felix. “Customer Satisfaction in the Kenyan Banking Industry.” Journal of International Studies, vol. 8, no. 2, 2015, pp. 174–186., doi:10.14254/2071-8330.2015/8-2/15.
Coyles, Stephanie, and Timothy C. Gokey. “Customer Retention Is Not Enough.” Journal of Consumer Marketing, vol. 22, no. 2, 2005, pp. 101–105., doi:10.1108/07363760510700041.
Fourie, Letitia. “Customer Satisfaction: a Key to Survival for SMEs?” Problems and Perspectives in Management, vol. 13, no. 3, 24 Nov. 2015, pp. 181–188., businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/6944/PPM_2015_03cont_Fourie.pdf.
D’Emidio, Tony, et al. “Improving the Customer Experience to Achieve Government-Agency Goals.” McKinsey & Company, McKinsey & Company, Feb. 2017, www.mckinsey.com/industries/public-sector/our-insights/improving-the-customer-experience-to-achieve-government-agency-goals.
Javetski, Bill, et al. “Why the Customer Experience Matters.” McKinsey & Company, McKinsey & Company, May 2016, www.mckinsey.com/business-functions/marketing-and-sales/our-insights/why-the-customer-experience-matters.