Customer Satisfaction (CSAT) is a metric used to quantify the degree to which a customer is happy with a product, service, or experience. When it comes down to it, customer satisfaction is a reflection of how a customer feels about interacting with a business or a brand.
Definition of Customer Satisfaction == Customer satisfaction is defined as a measurement that determines how happy customers are with a company’s products, services, and capabilities. Customer satisfaction information, including surveys and ratings, can help a company determine how to best improve or changes its products and services. An organization’s main focus must be to satisfy its customers. This applies to industrial firms, retail and wholesale businesses, government bodies, service companies, nonprofit organizations, and every subgroup within an organization.
Explaining Customer Satisfaction
Customer satisfaction, a term frequently used in marketing, is a measure of how products and services supplied by a company meet or surpass customer expectation. Customer satisfaction is defined as "the number of customers, or percentage of total customers, whose reported experience with a firm, its products, or its services exceeds specified satisfaction goals." In a survey of nearly 200 senior marketing managers, 71 percent responded that they found a customer satisfaction metric very useful in managing and monitoring their businesses. It is seen as a key performance indicator within business and is often part of a Balanced Scorecard. In a competitive marketplace where businesses compete for customers, customer satisfaction is seen as a key differentiator and increasingly has become a key element of business strategy. "Within organizations, customer satisfaction ratings can have powerful effects. They focus employees on the importance of fulfilling customers’ expectations. Furthermore, when these ratings dip, they warn of problems that can affect sales and profitability. . . . These metrics quantify an important dynamic. When a brand has loyal customers, it gains positive word-of-mouth marketing, which is both free and highly effective."
The Importance of Customer Satisfaction
Customer satisfaction is important because it provides marketers and business owners with a metric that they can use to manage and improve their businesses. In a survey of nearly 200 senior marketing managers, 71 percent responded that they found a customer satisfaction metric very useful in managing and monitoring their businesses. Below are the top six reasons why customer satisfaction is so important:
- Leading indicator of consumer repurchase intentions and loyalty: Customer satisfaction is the best indicator of how likely a customer will make a purchase in the future. Asking customers to rate their satisfaction on a scale of 1-10 is a good way to see if they will become repeat customers or even advocates. Any customers that give you a rating of 7 and above, can be considered satisfied, and you can safely expect them to come back and make repeat purchases. Customers who give you a rating of 9 or 10 are your potential customer advocates who you can leverage to become evangelists for your company. Scores of 6 and below are warning signs that a customer is unhappy and at risk of leaving. These customers need to be put on a customer watch list and followed up so you can determine why their satisfaction is low.
- Point of differentiation: In a competitive marketplace where businesses compete for customers; customer satisfaction is seen as a key differentiator. Businesses who succeed in these cut-throat environments are the ones that make customer satisfaction a key element of their business strategy. Picture two businesses that offer the exact same product. What will make you choose one over the other? If you had a recommendation for one business would that sway your opinion? Probably. So how does that recommendation originally start? More than likely it’s on the back of a good customer experience. Companies who offer amazing customer experiences create environments where satisfaction is high and customer advocates are plenty. This is an example of where customer satisfaction goes full circle. Not only can customer satisfaction help you keep a finger on the pulse of your existing customers, it can also act as a point of differentiation for new customers.
- Reduces customer churn: An Accenture global customer satisfaction report found that price is not the main reason for customer churn; it is actually due to the overall poor quality of customer service. Customer satisfaction is the metric you can use to reduce customer churn. By measuring and tracking customer satisfaction you can put new processes in place to increase the overall quality of your customer service. It is recommended that emphasis be put on exceeding customer expectations and ‘wowing’ customers at every opportunity. Do that for six months, than measure customer satisfaction again. See whether your new initiatives have had a positive or negative impact on satisfaction.
- Increases customer lifetime value: A study by InfoQuest found that a ‘totally satisfied customer’ contributes 2.6 times more revenue than a ‘somewhat satisfied customer’. Furthermore, a ‘totally satisfied customer’ contributes 14 times more revenue than a ‘somewhat dissatisfied customer’. Satisfaction plays a significant role in how much revenue a customer generates for your business. Successful businesses understand the importance of customer lifetime value (CLV). If you increase CLV, you increase the returns on your marketing dollar. For example, you might have a cost per acquisition of $500 dollars and a CLV of $750. That’s a 50% ROI from the marketing efforts. Now imagine if CLV was $1,000. That’s a 100% ROI! Customer lifetime value is a beneficiary of high customer satisfaction and good customer retention.
- Reduces negative word of mouth: McKinsey found that an unhappy customer tells between 9-15 people about their experience. In fact, 13% of unhappy customers tell over 20 people about their experience. That’s a lot of negative word of mouth. How much will that affect your business and its reputation in your industry? Customer satisfaction is tightly linked to revenue and repeat purchases. What often gets forgotten is how customer (dis)satisfaction negatively impacts your business. It’s one thing to lose a customer because they were unhappy. It’s another thing completely to lose 20 customers because of some bad word of mouth. To eliminate bad word of mouth you need to measure customer satisfaction on an ongoing basis. Tracking changes in satisfaction will help you identify if customers are actually happy with your product or service.
- Cheaper to retain customers than acquire new ones: This is probably the most publicized customer satisfaction statistic out there. It costs six to seven times more to acquire new customers than it does to retain existing customers. Customers cost a lot of money to acquire. You and your marketing team spend thousands of dollars getting the attention of prospects, nurturing them into leads and closing them into sales. Why is it that you then spend little or no money on customer retention? Imagine if you allocated one sixth of your marketing budget towards customer retention. How do you think that will help you with improving customer satisfaction and retaining customers?
Customer Satisfaction Methodologies
American Customer Satisfaction Index (ACSI) is a scientific standard of customer satisfaction. Academic research has shown that the national ACSI score is a strong predictor of Gross Domestic Product (GDP) growth, and an even stronger predictor of Personal Consumption Expenditure (PCE) growth. On the microeconomic level, academic studies have shown that ACSI data is related to a firm's financial performance in terms of return on investment (ROI), sales, long-term firm value (Tobin's q), cash flow, cash flow volatility, human capital performance, portfolio returns, debt financing, risk, and consumer spending. Increasing ACSI scores have been shown to predict loyalty, word-of-mouth recommendations, and purchase behavior. The ACSI measures customer satisfaction annually for more than 200 companies in 43 industries and 10 economic sectors. In addition to quarterly reports, the ACSI methodology can be applied to private sector companies and government agencies in order to improve loyalty and purchase intent.
The Kano Model is a theory of product development and customer satisfaction developed in the 1980s by Professor Noriaki Kano that classifies customer preferences into five categories: Attractive, One-Dimensional, Must-Be, Indifferent, Reverse. The Kano model offers some insight into the product attributes which are perceived to be important to customers.
SERVQUAL or RATER is a service-quality framework that has been incorporated into customer-satisfaction surveys (e.g., the revised Norwegian Customer Satisfaction Barometer) to indicate the gap between customer expectations and experience.
J.D. Power and Associates provides another measure of customer satisfaction, known for its top-box approach and automotive industry rankings. J.D. Power and Associates' marketing research consists primarily of consumer surveys and is publicly known for the value of its product awards.
Other research and consulting firms have customer satisfaction solutions as well. These include A.T. Kearney's Customer Satisfaction Audit process, which incorporates the Stages of Excellence framework and which helps define a company’s status against eight critically identified dimensions.
The Net Promoter Score (NPS) is also used to measure customer satisfaction. On a scale of 0 to 10, this score measures the willingness of customers to recommend a company to others. Despite many points of criticism from a scientific point of view, the NPS is widely used in practice. Its popularity and broad use have been attributed to its simplicity and its openly available methodology.
For B2B customer satisfaction surveys, where there is a small customer base, a high response rate to the survey is desirable. The American Customer Satisfaction Index (2012) found that response rates for paper-based surveys were around 10% and the response rates for e-surveys (web, wap and e-mail) were averaging between 5% and 15% - which can only provide a straw poll of the customers' opinions.
In the European Union member states, manymethods for measuring impact and satisfaction of e-government services are in use, which the eGovMoNet project sought to compare and harmonize.
These customer satisfaction methodologies have not been independently audited by the Marketing Accountability Standards Board (MASB) according to MMAP (Marketing Metric Audit Protocol).
There are many operational strategies for improving customer satisfaction but at the most fundamental level you need to understand customer expectations. Recently there has been a growing interest in predicting customer satisfaction using [[Big Data|big data] and machine learning methods (with behavioral and demographic features as predictors) to take targeted preventive actions aimed at avoiding churn, complaints and dissatisfaction.
Example of Customer Satisfaction
Natalia is a marketing manager in a retail firm. Her firm has recently launched a new product and Natalia is asked to collect the information from 200 customer surveys and prepare a spreadsheet with the satisfaction metrics for the new product. The main questions in the survey were:
- Are your expectations met with this product?
- How did the product perform?
- Overall, how do you rate the product?
- How do you rate your shopping experience?
- How likely is that you recommend this product to a friend?
- Are you satisfied with the way the company performs on this product?
- Are service representatives knowledgeable?
- Are service representatives professional?
- Is the company responding in a timely manner?
Using a scale from 1 to 10, Natalia calculates the satisfaction score by averaging the customer responses. Then, she calculates the net promoter score using a scale from 1 to 10, and finally, the customer effort score, using a scale from 1 to 10. At the end of the day, she has drafted the following satisfaction measurement spreadsheet:
The company has a major satisfaction problem.
21.7% of the responders are satisfied with the product.
31.5% of the responders would recommend the product.
19.8% of the responders are satisfied with the customer service.
Although the product is rated high, the satisfaction metrics reveal that the customer needs are not entirely met. Hence, the company should change its service practices to retain its customers.
- Customer Satisfaction Model
- Customer Acquisition Cost (CAC)
- Customer Centricity
- Customer Churn
- Customer Data Integration (CDI)
- Customer Data Management (CDM)
- Customer Demographics
- Customer Due Diligence (CDD)
- Customer Dynamics
- Customer Effort Score (CES)
- Customer Engagement
- Customer Engagement Hub (CEH)
- Customer Experience Management (CEM)
- Customer Lifecycle
- Customer Lifetime Value
- Customer Loyalty
- Customer Needs
- Customer Retention
- Customer Service
- Customer Service Management
- Customer Relationship Management (CRM)
- Market Share
- Target Market
- Target Marketing
- IT Strategy
- IT Governance
- Enterprise Architecture
- IT Sourcing (Information Technology Sourcing)
- IT Operations (Information Technology Operations)
- Chief Information Officer (CIO)