A New Way to Think About 'Customer Satisfaction'
Taking care of the customer is not a new idea. Most businesses take great pains to meet the needs of its customers in the hopes they will remain active and may help attract new customers through referrals and recommendations. One way to get a handle on the level of customer satisfaction is the use of satisfaction surveys and/or feedback systems. But do satisfaction scores tell us the whole story?
The fact is that satisfaction scores are useful; but not sufficient. That’s because satisfaction alone is not a predictor of loyalty. What matters most is relative satisfaction; that is, the degree to which your customers prefer your offering to their best alternative.
For more than two decades, the Competitive Edge Profile survey (formerly known as the eKG system) has been used by hundreds of graphic communications companies to accomplish three objectives. First, to determine the level of satisfaction customers have with each of their products and services. (Again, understanding customer satisfaction is necessary but it does not tell the whole story). Second, to determine how important each of these items are to the customer’s success. Third, to understand the extent to which each of these products and services are preferable to the customer when compared to their best alternative. This three-dimensional feedback system rolls up to an index known as the Quality/Competitive Index (QCI). Once established, this index can serve as a benchmark for continuous improvement over time.
The Quality/Competitive Index gives organizations a clear indication of the gap that exists between them and their competitors. Another way to think about it is this: Value is the distance between you and your competitors as measured by your customers. That distance defines your best, and your most profitable customer relationships.
The greater the index, the further away you are from your competitors and the more likely you are to gain the loyalty of your customers. Providing unique value also offers some measure of pricing leverage since customers will have difficulty getting what you are providing by shopping around.
Case in point. One Competitive Edge Profile client, a long established company found their QCI to be about flat; that is while their customers were very satisfied with their quality and service, there was virtually no discernible difference between them and their competitors in the eyes of their customers. Lacking a meaningful measure of unique value, the company was “commoditized” and therefore left to compete on one item alone: price. While customers will pay a premium for unique value, they will pay as little as possible for a commodity.
In his seminal book “The Loyalty Effect,” Fredrick F. Reichheld, a Director of Bain & Company identified factors that contribute to customer loyalty. These concepts paved the way for a new way to measure the long-term effect of strong customer relationships. Understanding and measuring the lifetime value (LTV) of your customers can move a business away from transactional customers and closer to the kind of high value client relationships that ensure profitability and growth. Once these factors are understood, they form the foundation for seeking out new customer relationships with organizations that have similar characteristics.
Yes, customer satisfactions matters but only to a point. Customer loyalty is a long-term business driver grounded in identifying and providing unique value to a select group of clients.
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Joseph P. Truncale, Ph.D., CAE, is the Founder and Principal of Alexander Joseph Associates, a privately held consultancy specializing in executive business advisory services with clients throughout the graphic communications industry.
Joe spent 30 years with NAPL, including 11 years as President and CEO. He is an adjunct professor at NYU teaching graduate courses in Executive Leadership; Financial Management and Analysis; Finance for Marketing Decisions; and Leadership: The C Suite Perspective. He may be reached at Joe@ajstrategy.com. Phone or text: (201) 394-8160.