Satisfaction Mindsets and Metrics:  Addressing Major CRM Effectiveness Impediments

By Michael Lowenstein

  Michael Lowenstein, CPCM, is managing director of Customer Retention Associates, a customer and staff loyalty program development, research, and consulting firm located in Collingswood, New Jersey (www.customerloyalty.org).

  With over thirty years’ management and consulting experience in customer and staff loyalty research, CRM, loyalty program development and refinement, customer win-back, service quality, customer-driven corporate culture, and strategic marketing and planning to draw on, he is an active speaker, workshop facilitator, and trainer, and he is a regular featured contributor to three customer loyalty newsletters.  His keynote, general session speaking, and workshop facilitation assignments have been in the United States and Canada, Europe, South America, and Africa.  He also provides expert customer loyalty commentary and articles for several professional CRM sites on the Internet.  

   Michael is the author of two widely-regarded books:  Customer Retention: Keeping Your Best Customers (1995), and The Customer Loyalty Pyramid (1997).  He is also co-author of Customer WinBack: How to Recapture Lost Customers – and Keep Them Loyal (2001).   Additionally, he is a contributing author to Redefining Consumer Affairs (Society of Consumer Affairs Professionals, 1995), The Answer Book for Customer Service Managers (Bureau of Business Practice/International Customer Service Association, 2000), and Customer.Community: Unleashing the Power of Your Customer Base (Jossey-Bass, 2002)

   He has been a customer loyalty instructor for Pennsylvania State University and the American Management Association; and he holds an M.B.A. degree in marketing from the University of Pittsburgh, and a B.S. degree in economics and marketing from Villanova University.  He is listed in several international, national, and professional Who’s Who directories.  His clients include First Union, Toyota, Prudential, Westvaco, Cigna, Charles Schwab, Borg-Warner, Sygma, Comcast, Baptist Health Care, Metropolitan Life, Microsoft, Alliance of Community Health Plans (ACHP), Daimler-Chrysler, and Georgia-Pacific.  

   Customer Retention Associates specializes in helping clients optimize customer loyalty and value through customer and staff loyalty research, loyalty program development and refinement, loyalty action training for front-line staff and management, and customer save and win-back protocol development.  The company is a founding member of the CRM International Consortium (CRMIC), an affiliation of independent CRM and customer loyalty practitioners from around the world, which is based in Europe.  The mission of CRMIC is to offer leading-edge customer loyalty and value solutions.

   When the CEO of a major U.K. retailer says that satisfying its customers’ needs will provide the platform for the company’s future success and that “the results of our independent surveys show an encouraging improvement in customer satisfaction levels”, red flags regarding the ultimate effectiveness of CRM should immediately be hoisted for everyone to see.

   Many companies build customer satisfaction, and customer satisfaction objectives, into their mission and vision statements and into their stated strategic objectives.  There are two reasons for this.  One is because many senior executives, unfortunately, still continue to believe that customer satisfaction and customer loyalty are identical concepts.  The second is that well-respected market research companies still use customer satisfaction elements in evaluating the effectiveness of customer relationships and CRM programs, and they have convinced their clients that optimal satisfaction is a valid measurement and state of being with customers..  There is a fundamental difference between customer satisfaction and customer loyalty, however, especially where both supplier mindsets and performance metrics are concerned. 

   While it’s both an exaggeration and a superficial reflection to state, as one business author did, that “customer satisfaction is worthless, customer loyalty is priceless”, satisfaction might, in the abstract, be considered a lower level rung on the ladder of customer loyalty attainment.  Though there may be some tenuous relationship between satisfaction and loyalty (particularly in situations where there is little direct customer-supplier interaction), satisfaction metrics are generally very poor predictors of customer loyalty.

     Satisfaction will measure attitudes, a predominantly transitory, passive, and benign state for a customer, reflecting a relatively low threshold of their involvement with a company.  Achieving true advocacy as a result of a customer loyalty program, or other customer-focused efforts and initiatives, means that the customers believe one or more elements of the scheme have created desired value.  Customers can tell a supplier about performance, value and loyalty – if they are asked about it - and then a relationship between these aspects of supplier involvement can be determined when their in-depth responses are evaluated..  The objective here is to link beliefs, inherent in performance, and the actions and behaviors associated with likely future purchase and recommendation.

   With the abundance of satisfaction measurements and indices around – and, very prevalent in on-line research tools as well – and the many approaches to customer satisfaction indexing available, to what extent will they help us understand how the performance of customer loyalty schemes leverages customer loyalty?  Unfortunately,as noted above, not very much.  One major study among senior executives has shown that only 2% could identify increases in profitability as a result of documented increases in customer satisfaction metrics.

   If your company has developed a CRM, customer service, or loyalty program, how will you know if it really works?  Will you look for higher revenue and lower customer churn in the short-term, and conclude that you have succeeded?   Or will you seek to strategically understand and monitor the impact of your program on customers and their perception of value?  And if you take this latter approach, how will you choose to do the monitoring?

   We believe that there is a useful, reliable set of metrics and a measurement protocol any company can use to identify their program’s effectiveness and also determine what improvements or modifications can be made.  Begin by measuring performance and delivery of the program, which is far more rigorous in nature than satisfaction.   Since we have found that any rating less than the highest may indicate a level of attrition, or loyalty breakdown (so that we also rarely use mean data in our analyses), we also seek the verbatim, or anecdotal, reasons behind those ratings as well as any areas of customer complaint (previously expressed or unexpressed).  To effectively prioritize program, and other operational and performance, factors driving customer loyalty, we believe research should contain the following elements:

1. Attribute performance
2. Attribute importance
3. Competitive attribute performance
4. Best performed attribute/attribute most needing improvement
5. Overall performance, and performance change experienced period to period
6. Likelihood to repurchase or continue purchasing, as well as anticipated level of purchases and reasons for low intent level

         -      Likelihood to recommend, and reasons for low intent level

1. Complaints, expressed and unexpressed

   Other useful information, such as customer demographics, new or modified loyalty program element  reaction, and response to new concepts and processes, can also be obtained.

   Specifically with regard to attributes, we feel it’s extremely valuable to have elements of performance which are both tangible  (time, precision, accuracy, completeness, efficiency, cost-related, etc.) and intangible (empathy, trust, image, assurance, etc.), as defined by customers.   Attribute definition, in the customers’ terms, is done through prior qualitative research.

   Finally, our research invariably includes one or more cells of client staff.  We ask them to respond to overall performance, elements of attribute performance and importance, complaints, loyalty, and recommendation the way they think customers would.  From this information, we can make determinations about the cohesiveness of company culture in support of customers, and identify areas of desirable staff training or process modification.  Plus, the mere act of participation, and having information shared with them after the research is completed, helps to build staff morale and a sense of involvement.

    A key feature of our research is that it produces a set of action-oriented predictive, easily interpreted visual models which can be used to identify which attributes leverage customer loyalty, which most need to be improved, which are expected or one-dimensional, and which require more focused communication to be considered important by customers.

   A major consumer and business-to-business customer study conducted several years ago that, in a company where optimum satisfaction is the objective, customer processes will remain status quo, at best, with no forward movement.  If a company is extolling its approach to, and relationship with, customers as total satisfaction, guaranteed satisfaction, satisfaction or your money back, 100% satisfaction, or the like, and utilizing outmoded metrics and relationship monitors such as a Customer Satisfaction Index, two things can be assured:  they will never understand how their customers define value in supplier performance, and they will always be vulnerable to a competitor that possesses this insight.