Monday, June 12, 2006

Satisfaction is NOT Loyalty

Over the years, most companies have acknowledged that happy customers are more likely to be repeat customers than unhappy ones. Owing to the difficulty of defining “happy,” loyalty indicators predominantly have been linked to satisfaction measurement. Some have even gone further, setting their sights on nothing less than “delighting” customers or eliciting the rare reaction of “wow.”

Yet none of these descriptors has proven sufficiently objective to span business units, channels, or customer touchpoints so as to create a consistent standard for managers to achieve. Nor has any been more than loosely correlated to incremental profitability because few attributes are so distinct that they exceed the matching efforts of competitors. Nevertheless, the majority of mid-sized to large companies today have some sort of measurement system for customer satisfaction, if for no other reason than to ensure continued performance at or above their category’s competitive standard.

Satisfaction = Loyalty?

Satisfaction, though necessary, is an insufficient solo condition for loyalty. You can achieve high levels of satisfaction yet not inspire any real loyalty. For an example, look no further than your local car dealer. Automotive companies have been fast — and thorough — in their willingness to embrace satisfaction metrics. But anyone who has bought a car knows how sales reps manipulate the satisfaction scoring system. In a quiet moment during the new car delivery process, when one might reasonably expect the customer to be at the very peak of happiness, salespeople blithely inform their customers of the impending arrival of a J.D. Power satisfaction survey. Even if dealerships play it straight and work hard to meet customers’ needs, the manufacturers they represent have no better insight into customer loyalty.

That’s because functional satisfaction doesn’t necessarily ensure that either behavioral or emotional loyalty will follow. Satisfaction rates among U.S. auto buyers are often reported in the upper 80th percentile range — this past summer Toyota Motor Corp. topped the University of Michigan’s American Consumer Satisfaction Index with an 87 — but actual manufacturer repurchase rates hover in the 30th to 40th percentile range. Dealer loyalty is even worse, with only about 20% of customers returning to the same dealer to purchase their next car. This suggests that even though customers may want different car experiences every three to five years, no one auto manufacturer is meeting their needs. Loyalty is low in the category, regardless of what satisfaction scores say.

To reinforce the point, a number of academic studies in recent years have shown that satisfied customers don’t necessarily buy more or more often, in any category. Satisfaction as a proxy for loyalty is relative to each brand’s position in the market at any given time. If we accept that the perception of value most heavily influences comparative purchase decisions at any point in time, and past satisfaction is but an element of that perception, then if company B offers me greater value, all my satisfaction with company A likely will not prevent my switching for greater relative value.

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