We are currently in an age where the balance of power has shifted from businesses to customers through digital information. Customers are no longer exposed to imperfect information about the marketplace. In Kenya, 90.4% of the population has access to mobile phones and consequently the internet (Jumia, 2018). Customers have instant access to information about goods and services provided by businesses and can compare this across a vast range of options. While the age of the internet has forced businesses to come up with more innovative ways of building their customer base, it has made the challenge of retaining existing customers even more difficult. This new era has transformed traditional customer expectations into a continuously evolving set of requirements, unique to each customer and curated from their daily, ever expanding, digitally immersive experiences.
As has mostly been the case in the past, managers and decision makers in businesses today are interested in the bottom line, the company’s financial performance, how to make a profit and keep increasing it over time. This mindset attracts them to the concept of customer loyalty.
Customer loyalty can be summarised using the Harvard Business School concept of “3Rs”: retention, related sales and referrals. A customer who spends more time with the business, uses other related products or services with the business and refers the business to others will always translate to more revenue for the business. As would be expected, research by Fred Reichheld of Bain and Company reaffirms the financial benefit of customer loyalty by stating:
“increasing customer retention rates by 5% increases profits by 25% to 95%” – (Gallo 2014).
It costs a business between 5 to 25 times more to acquire a new customer compared to retaining a customer, the value a customer brings to a business also increases over time and is known as customer lifetime value, it therefore makes financial sense to take customer loyalty very seriously (Gallo 2014).
As majority of businesses now recognise the importance of customer loyalty, numerous new methodologies have been created to measure customer loyalty and its direct correlation to a company’s financial performance. Businesses have resolved to relying on customer complaint forms, measuring customer defections and asking customers for feedback regarding whether they would recommend the business to others. Enough importance has not been given to the act of measuring customer satisfaction especially when compared to measuring customer loyalty. This has been especially true when academic studies have published results stating that 45% to 65% percent of customers who defect were satisfied with their previous suppliers (Jones & Jr 2014). If satisfied customers defect, then what is the point of wasting an organisations resources in measuring customer satisfaction?
Whereas customer loyalty is a behaviour, customer satisfaction is a prerequisite attitude that is needed for the behaviour to be exhibited. Determining customer satisfaction levels allows businesses to predict future loyalty of customers, customer satisfaction measurement should be used as a tool to gauge the probability of whether a customer will remain loyal in the future. The relationship between customer loyalty and customer satisfaction is illustrated in the chart below.
Image from: https://hbr.org/2008/07/putting-the-service-profit-chain-to-work.
When conducting a customer satisfaction measurement exercise, it is vital to measure the satisfaction of customers according to their own requirements. The customers must be asked about what they find important when interacting with a business. The same customers must then be asked to rate what they find most important out of their own unique requirements. When customers are asked to score their satisfaction levels on each requirement, a trove of useful data then becomes available to the business to utilise.
After conducting a customer satisfaction measurement exercise, a business can determine its performance against a set number of variables that are most important to the customer. If a customer satisfaction index is created, this performance can be reviewed and compared annually or even more frequently depending on the type of business and the industry it is in.
Most importantly, managers can evaluate the business performance in those areas that are most important to the customer. If the satisfaction scores are lower than the importance ratings of certain requirements, then priorities for improvement can be identified. The higher the importance rating and the bigger the gap between the rating and the satisfaction score, the greater the need for the organisation to implement change in that area.
If businesses want customers to remain loyal, they must ensure that their customers are highly satisfied, this can only be done by performing well in areas that are of great standing to customers. Higher customer satisfaction levels also lead to higher employee satisfaction levels (Hill 2017). It is imperative for businesses to continually improve the satisfaction levels of their customers and employees, if they want to perform well financially in the long run.
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