What is customer satisfaction?
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.
Customer satisfaction is a measure that helps businesses understand how happy and satisfied customers are with their products, services, and/or functionalities. It can reveal major insights into how customers relate to a brand and how they will interact with it. Customer satisfaction (often abbreviated as CSAT) is calculated using a customer's perceived quality, value and expectations of a company and its offers. It is important for companies to focus on satisfying their customers, as this can impact customer acquisition cost, customer time to value, and customer retention numbers. Customer satisfaction should aim to go beyond simply meeting customers' needs and expectations and instead strive to delight them.
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."
Why is customer satisfaction important?
1. Increased sales
Increasing customer satisfaction can have a drastic effect on a business's sales. When customers are satisfied, they are more likely to stay loyal to the brand and make repeat purchases. Additionally, satisfied customers are more likely to leave positive reviews, which can be a powerful selling point for the sales team. Positive customer reviews can also lead to more potential customers being attracted to the brand, boosting retention and overall sales. Furthermore, businesses will save money on acquisition costs as the cost to acquire new customers is 6-7 times higher than retaining existing customers. Therefore, by investing in improving customer satisfaction, businesses can save money and increase sales.
2. Increased customer loyalty
Increased customer loyalty has a positive effect on a business’s sales revenue. When customers are satisfied, they become loyal and show repeat business. This repeat business helps increase the bottom line. A report from Adobe shows that loyal customers spend 67% more than new customers. Moreover, they also tend to promote the brand to their friends and family which adds more customers to the company. Research has also revealed that it is five to twenty-five times more cost-effective to retain customers than to acquire new ones. Therefore, focusing on customer loyalty and satisfaction is essential for sustaining a business and enhancing its revenue. Companies like Tesla are known to go the extra mile to ensure their customers are satisfied and stick with them. This strategy has proven to be beneficial in the long run as customers remain loyal and promote the brand to new customers.
3. Improved brand perception
Improved customer satisfaction can result in a positive perception of the brand. Satisfied customers will stand by in times of crisis, and they will care for the brand and want to see it thrive. Customer satisfaction will also have an impact on brand reputation and popularity as customers will be willing to provide honest feedback and recommend products and services to friends and family. Additionally, customer satisfaction surveys help to gather detailed information about customer attitudes, which can be used to boost marketing or sales efforts. By taking steps to improve customer satisfaction, companies can ensure customer loyalty and recognition, and build a strong, positive reputation for their brand.
4. Increased revenue
Increased customer satisfaction leads to higher revenue because it leads to customer loyalty, repeat purchases, and an increase in the customer lifetime value. Customers who are satisfied with the products and services they receive from a business are more likely to remain loyal, make repeat purchases, and even recommend the business to their friends and family. When customers are satisfied, they are also more likely to spend more money with the business. In addition, companies that have high customer satisfaction scores are 8.7 times more likely to have significantly grown customer spend during the first 6 months of the COVID-19 pandemic. Therefore, businesses should strive for higher customer satisfaction in order to increase their revenue.
5. Reduced customer churn rate
Customer satisfaction can help reduce customer churn rate by providing customers with positive experiences that make them loyal to the brand. Research has shown that acquiring new customers is five to 25 times more expensive than keeping current customers, and that 61% of respondents in one survey noted "generating traffic and leads" as their number one marketing challenge. Additionally, research from thinkJar has found that 67 percent of people cite bad experiences as a reason for churn. Therefore, in order to reduce customer churn rate, businesses should strive to increase customer satisfaction by providing quality customer service, meeting customer needs, and providing a positive overall experience with the products or services offered. For example, Tesla prides itself on effortless car services, which in turn leads to loyal customers who are less likely to churn.
6. Reduced customer support costs
Reducing customer support costs can have a positive impact on customer satisfaction, as it demonstrates that the business values customer feedback and is willing to invest the necessary resources to ensure a good customer experience. Companies that invest in customer service by providing prompt and accurate responses to customer inquiries are likely to see an increase in customer loyalty and satisfaction. Additionally, this investment can also help attract potential customers, as customers are more likely to purchase from businesses that provide quality customer service. Automation can also help reduce costs as it eliminates the need for a team member to respond to customer inquiries manually. Automation can also provide additional context about the customer or their issue, which can help reduce customer frustration and improve customer satisfaction. In conclusion, reducing customer support costs can have a positive impact on customer satisfaction by increasing customer loyalty and attracting new customers.
7. Improved employee morale
Improving employee morale is an effective way to increase customer satisfaction. When employees feel appreciated and take pride in their work, they are more likely to provide better customer service. This is because employees who feel valued and appreciated tend to be more motivated and engaged in their work, which leads to improved performance. Additionally, providing a personalized 'thank you' and introducing an employee of the month program can help to foster a sense of pride and ownership in the work they do. Moreover, customer happiness can be further improved by engaging in role playing exercises to develop customer service skills, eliminating or managing customer wait times, and providing proactive support to customers. Ultimately, customer satisfaction is key to a successful business, as customers who are satisfied with the service they receive are more likely to remain loyal and recommend the business to their peers.
8. Increased workplace efficiency
Increased customer satisfaction helps to increase workplace efficiency by providing a number of advantages. When employees feel appreciated, they can provide better customer service, leading to higher retention and sales among your existing customer base. Providing self-help resources, such as live chat, self-service order management software, and self-service kiosks, reduces wait time and allows customers to quickly complete their orders without having to wait for assistance. Additionally, giving employees the authority to handle customer issues without resorting to escalation keeps customers happy and reduces agent turnover, saving on operational costs. Finally, customer satisfaction surveys help you measure customer expectations and how well you meet those expectations, allowing you to identify pain points and make changes accordingly. All of these measures help to improve the customer and employee experience, leading to increased brand loyalty and customer lifetime value, which, in turn, increase workplace efficiency.
9. Increased productivity
Increased customer satisfaction can help increase productivity by driving loyalty to your business and creating repeat customers. When customers are satisfied with your products or services, they are more likely to come back and purchase from you again, which can reduce the time and cost of acquiring new customers. Additionally, customer satisfaction surveys can help you identify areas of improvement, allowing you to focus on areas that may need more attention or improvement. This can result in a more efficient and productive workflow, making it easier to deliver quality services to customers. Finally, customer satisfaction can help create a positive work environment where employees feel appreciated and supported, leading to better performances and improved customer service. Overall, increased customer satisfaction can result in higher levels of productivity, enabling your business to reach its goals faster and more effectively.
10. Improved business reputation
Improved customer satisfaction improves business reputation by creating positive word-of-mouth referrals, increasing customer loyalty, and inspiring social media shares and recommendations. According to Accenture, 55 percent of consumers will recommend companies they love to friends and family, while 83 percent of consumers prefer recommendations from their personal network over any other form of marketing. Improved customer satisfaction can also result in positive reviews which, in turn, attract more potential customers. Similarly, customers who are satisfied with a brand are more likely to stand by it in times of crisis. Finally, according to Zendesk's 2022 CX Trends Report, 73 percent of business leaders report a direct link between their customer service and business performance.
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.
How to measure customer satisfaction?
Measuring customer satisfaction is an important part of any business, as it allows you to assess the level of customer satisfaction and identify areas for improvement. Here is a step-by-step guide to help you measure customer satisfaction:
- Map out the customer journey – begin by mapping out the different touchpoints your customers will interact with throughout their journey. This will help you identify moments of the greatest emotional load, which are the points in the experience that can make or break it for the customer.
- Set a goal – decide on a goal for measuring customer satisfaction. Ask yourself, “What is the purpose of this activity? What will I do with the data?” This can be something like improving the quality of customer service.
- Ask for feedback – use customer surveys and feedback forms to gauge your customers' sentiment towards your brand. Ask the right questions to get the information you need, and make sure to ask regularly.
- Measure CSAT – use Customer Satisfaction Score (CSAT) surveys to ask clients to rate their experiences with your company. These usually take the form of a 1-5 scale, and can be used to track customer satisfaction over time.
By following these steps and regularly measuring customer satisfaction, you can easily identify areas where your service could be improved, and ultimately increase customer loyalty and retention.
Top tips for satisfying customers
1. Listen to your customers
Listening to customers and responding to their feedback can have a positive impact on customer satisfaction. By paying attention to what customers have to say, businesses can better understand their needs and address any issues they may have. Acknowledging feedback shows customers that their opinions are valued, which can help create a positive impression and build trust. Additionally, customer insights can provide invaluable information to help businesses refine their products and services to better meet their customers' needs. Furthermore, addressing customer issues and complaints can provide an opportunity to turn a negative into a positive experience and improve customer satisfaction.
2. Understand what your customers want
- Prioritize customer success: Before introducing any new products or services, make sure they resonate with your existing customers.
- Listen to feedback: Ask your customers to share their thoughts and opinions on existing products and services.
- Respond to customers: Acknowledge customers’ feedback, align with them, and assure them about what actions you’re taking.
- Ask customers for insight: Ask customers for their next big idea and suggestions for new products and services.
- Observe competition: Look at your competitors to understand how they engage customers and make them happy.
- Delight customers: Offer new products that your survey reveals to be in demand. Give customers compensation and clarify the resulting changes if they are unhappy.
3. Offer high-quality service
Offering high-quality customer service is essential for satisfying customers and fostering customer loyalty. According to PwC, 73% of people consider customer experience an important factor in their purchasing decisions. Companies that prioritize customer service not only differentiate themselves from the competition, but are also 3.3 times more likely to grow their customer base. Additionally, customer service is more important than pricing when it comes to customer churn. Therefore, offering personalized and attentive customer service can help businesses boost retention, increase sales, and attract new customers. Companies should strive to eliminate customer wait time and replace bureaucracy with customer-friendly processes in order to provide the highest levels of service and ensure customer satisfaction.
4. Be responsive to customer needs
Being responsive to customer needs can help to satisfy customers by demonstrating that their opinions and feedback are being heard and taken into consideration. By listening to customer complaints and feedback, businesses can make changes to their product or service that improve customer satisfaction. This could include implementing a new design or layout, providing discounts for products or services that have been classified as below par, or offering compensation for errors or mishaps. Additionally, providing customers with prompt responses to their inquiries or complaints, whether through surveys or social media, can help to build trust and loyalty. As a result, customers will have a higher chance of becoming repeat customers, leading to increased profits and shareholder value.
5. Treat customers with respect
Treating customers with respect helps satisfy customers by showing them that their opinion and feedback matters. When customers feel that their feedback is acknowledged and understood, they have a higher chance of returning and recommending your business to others. Good customer service makes customers feel respected and valued, which leads to increased customer satisfaction. Good customer service includes listening to customers, apologizing for mistakes, and offering compensation when appropriate. Additionally, businesses can demonstrate respect by thanking customers for their feedback and making changes based on their input. By doing this, businesses show that their customers are more than just a source of revenue, and that they care about their customers' satisfaction.
6. Offer a personalized experience
Offering a personalized experience is a great way to satisfy customers and stand out from the competition. Personalization tools such as inserting the customer's name in a canned response, recommending specific products based on buyer behavior, customizing onboarding based on pricing-level or trial stage, and sending a personalized email onboarding series can all help to build connections and loyalty with customers. These personal touches can make customers feel like they are the only one that matters and that their needs and interests are being addressed. Personalization also has an impact on the business side of things, reducing acquisition costs, boosting revenue and increasing marketing efficiency. In the end, delivering a personalized experience can be the difference between success and failure.
7. Provide value for money
Businesses should always strive to provide value for money when satisfying customers. This means focusing on delivering quality products and services at reasonable prices. To do this, businesses should invest in understanding customer needs and wants, as this will help them to create the right products and services that appeal to their customers. Additionally, businesses should focus on developing customer relationships and offering excellent customer service to ensure customers are satisfied. This includes providing personalised services, listening to customer feedback, and creating avenues for customers to easily reach out for help. Furthermore, businesses should also focus on providing quality products and services that meet or exceed customer expectations. This includes making sure products are of good quality and providing reliable services. Finally, businesses should offer competitive prices to ensure customers are getting value for money. By doing this, businesses can ensure that customers are satisfied and loyal to their brand.
8. Communicate effectively
Communicating with customers is a key factor in customer satisfaction; it allows companies to understand the needs of their customers and take the necessary steps to meet those needs. By communicating through their preferred method, businesses can ensure a more positive customer experience. Doing so helps to increase customer satisfaction by reducing the time it takes to resolve customer concerns, as well as providing a more personalized and efficient experience. Additionally, gathering customer feedback and responding to their insights in a timely manner will help to create a more loyal and engaged customer base. Ultimately, communication allows businesses to understand their customers better and provides them with the opportunity to make necessary improvements to ensure customer satisfaction.
9. Provide consistent customer experience
Providing a consistent customer experience is essential for satisfying customers, as it ensures that their experience is uniform every time they interact with a business. Consistency helps to build trust and reassure customers that the business is reliable and dependable. Consistency also helps to reduce customer effort and confusion, as customers know what to expect each time they interact with the business. By providing a consistent customer experience, businesses can create a positive impression of their brand and build customer loyalty over time. Moreover, consistency on customer journeys helps to predict overall customer experience and loyalty, as evidenced by research from banks. Finally, providing a consistent customer experience can increase customer satisfaction by up to 20%, while also increasing revenue and decreasing the cost of serving customers. In conclusion, providing a consistent customer experience is essential for satisfying customers and growing businesses.
10. Invest in customer satisfaction measurement
The importance of investing in customer satisfaction measurement lies in its ability to help businesses identify potential problems, improve customer loyalty, and drive repeat purchases. Measurement is the first step towards understanding, controlling, and ultimately improving customer satisfaction. Through the use of customer satisfaction surveys, businesses can gain valuable insight into customer opinions and satisfaction levels with their products and services. By understanding their customers’ needs and preferences, businesses can tailor their offerings to meet customer demands, drive repeat purchases, and increase customer loyalty. Additionally, investing in customer satisfaction measurement helps businesses save unhappy customers from leaving their brand for a competitor, discover customer pain points, and monitor and improve their brand reputation. Ultimately, investing in customer satisfaction measurement is an essential part of running a successful business, as it enables businesses to understand their customers better, keep their buyers happy, and ensure their long-term growth.