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No silver bullet

Six myths of customer satisfaction.

May 13, 2008

This article originally published in Retail Customer Experience magazine, May-June 2008. Click here to download a free PDF version.

Customer satisfaction accounts for a large portion of thought and expenditure in marketing, yet it often is grossly misunderstood.

Consider: A radar detector is intended to indicate the presence of police radar. Quite often, however, the device may suggest police presence when there is none. On the other hand, despite using a radar detector, operators of speeding cars sometimes get caught. People have learned the hard way about the fallibility of those little devices.

As a tool, customer satisfaction measurement is just as fallible. It can be misleading at worst and inaccurate at best.

By itself, the concept of customer satisfaction is nebulous. In general, it is widely expected that increasing customer satisfaction will add value to the business. But the American Customer Satisfaction Index, published quarterly in The Wall Street Journal, does not demonstrate a link between customer satisfaction and growth. In fact, the contrary may be seen.

To use customer satisfaction well, managers need to understand it and be able to integrate it into a larger business strategy. Here are a few common myths:

Myth 1: Customer Satisfaction Equals Loyalty

Managers often behave as though customer satisfaction and loyalty are interchangeable. Those terms are not synonymous, although there is some overlap in the behaviors.

An article published in the Harvard Business Review in 1995 called "Why Satisfied Customers Defect" shows that even a dissatisfied customer can be loyal and satisfaction does not guarantee loyalty. The article found that satisfied customers can be polygamous in their shopping behaviors.

 Consider these hypothetical examples of dissatisfied but loyal customers:

Susan: I detest going to Discount Tires or Firestone; I have had some very bad experiences with them. But, then, they are not the BMW dealerships and I can't expect the same service. I go there for certain jobs, but certain jobs only.

Patrick: I dislike certain things about my gym. I have complained and things still have not changed. I am not happy with the gym, but it is the best fitness place in town for the price. Even if there were a better one, I would not be comfortable paying more than what I pay now.

Myth 2: Customer Satisfaction Equals Profits

Customer satisfaction does not correlate well with a business's financial performance; one is not necessarily dependent on the other. Rather than aiming for customer satisfaction as a way to boost profits, businesses need to know the circumstances under which they can create a positive relationship between profits and customer satisfaction. 

Myth 3: Customer Satisfaction Equals Differentiation

Proponents say customer satisfaction is important for the long-term viability of a business. They argue that differentiated offerings eventually generate competition; when this happens, businesses survive by providing superior customer satisfaction as a further differentiator. But research shows that customer satisfaction is not a differentiator. Instead, customer satisfaction becomes an expectation under competitive conditions. Focusing on customer satisfaction beyond a certain point will erode profitability without having any positive effect on revenue.

 Myth 4: Customer Satisfaction Equals a Product-Service Gap Analysis

Some say customer satisfaction research informs businesses about deficiencies in products. That is true — as far as it goes. However, a study such as SERVQUAL would be a better, more straightforward way to identify product/service quality issues. Such studies are less risky and less expensive than customer satisfaction research because they do not have to be done as frequently.

Myth 5: Customer Satisfaction Equals Evangelism

Satisfied customers will promote the product. It may be true, but what is the cost of delighting the customer and what are the results? Satisfaction-induced evangelism may be a great strategy for Nordstrom, but not for discount retailer Ross Stores, for example. Whether to use this method must be a case-by-case decision and one that should be part of the company's overall strategy.

Widely believed to be the beacon that guides businesses into the deeper waters of profitability, customer satisfaction research is more of a Calypso, impeding businesses from reaching their intended goals. In general, it is expensive, long and complicated and often results in little dependable guidance. It is no wonder most senior management pays little attention, if any, to such studies.

So now what?

If customer satisfaction is not a be-all-end-all, does it have any use? It does — but as one part of a larger strategy.

Customer satisfaction is not a measure that fits all firms, products and solutions. A business's overall strategy determines how it should be used and, if necessary, what should replace it. Here are three suggestions:

Manage customer expectations. Whether customers leave a business satisfied depends on the expectations they have as they come in. Those expectations are reset constantly.

It is important to know that a customer is satisfied, but to profit from that information we need to know when and how they were satisfied. Most importantly, we need to be in control of customer expectations, rather than leaving them to default. If businesses do not manage customer expectations, then managing customer satisfaction is like trying to move a boulder using a lever but no pivot.

Southwest Airlines is one company that has actively controlled customer expectations and then managed customer experience.

Does your business have a customer expectation tracker? Does it tell you what and from where customers' expectations are forming, or how well your firm is controlling these expectations? Most importantly, what is your customer strategy?

Customer-to-portfolio alignment. Let us first define what expectations we need to set. Nordstrom defines customer expectations differently than Southwest does, but both are steadfast about it. In Southwest's case, it is necessary to know, for example, what the trade-offs are between low-cost carrier and customer service.

Expectations are set specific to each product or service in a business's product line or its product category. By combining all aspects of product and service attributes, businesses often make a line of products targeted to specific segments. The tighter the segment definition, the clearer the expectations can be. The more granular the segmentation, the better.

To align your customers with your product portfolio, conduct archetype research. Know who the ideal customer is for your segments. Have you done category segmentation recently?

Differentiation. For profitability, the first two suggestions are not sufficient. Creating differential value is the most straightforward way to reach profitability. Profitability is directly proportional to the strength of your product differentiation for a given segment. Focus on measuring differentiation rather than on measuring customer satisfaction.

Differentiation is better achieved by product-positioning trackers, as opposed to customer-satisfaction trackers. The market is dynamic and customer expectations are fickle. Constantly identify opportunities and closed doors to keep your products and services updated in the customer's mental real estate. Keep your product positioning map fine-tuned.

If you have not used or are not using a differentiation tracker, a segment-alignment tracker and customer expectation trackers, then you are not making real progress. Changing your method will provide results that are directive and actionable.

Nick Vaidya is managing partner with The 8020 Strategy Group, a business thought leader in Austin, Texas. He can be reached atnick@8020strategy.com.