Look behind the numbers

One insurance firm we began working with proudly pointed out to us that "93 percent of our customers rate us satisfactory or better." That may sound good but in this case it wasn't, because the split on that 93 percent went like this:

a. 51 percent rated them as satisfactory.

b. 35 percent rated them as good.

c. 7 percent rated them as excellent.

All of the studies we have done or seen point to one irrefutable fact: customer satisfaction is a poor predictor of customer loyalty. Customer delight, however, is a good predictor of customer loyalty.

Various studies have shown that between 65 percent and 85 percent of customers who have switched their purchases to a new source, rate the former source as "satisfactory." So if you look at a number representing customers who rate the firm as "satisfactory," recognize that 65-85 percent of those are "at-risk" customers. They may still be doing business with you but will switch allegiance given a little better price, a change in the weather, or perhaps on a whim.

Even the "good" level isn't particularly good. One firm found that of those customers who rated them as good, 10 percent were ready to leave right then and 40 percent were undecided about whether to stay or leave – 50 percent market damage at the good level.

So the insurance firm was fooling itself about its actual level of customer loyalty. Don't let that happen at your firm.

Look behind the easy numbers and ask the tough questions. Know that only "excellent" responses predict good levels of customer retention. Look for survey questions about "intent to repurchase" or "recommend to others" on survey results. They are even better questions to ask on customer satisfaction surveys because they are much better predictors of customer retention than "unsatisfactory," "satisfactory," or "good" types of questions. Insist on the same level of excellence and detail in measuring customer satisfaction and retention that you look for in measuring financial results.

Make links

One client firm found that a 1 percent increase in customer satisfaction produced a $250,000,000 increase in revenues over the next five years. They linked customer satisfaction to executive compensation by modifying their existing bonus system. Bonuses were based upon ten financial measures. They kept those measures, but added a caveat: if customer satisfaction levels went up by two or more points, bonuses went up by 20 percent. If customer satisfaction levels stayed flat or went up by 1 point, bonuses stayed flat. If customer satisfaction went down at all, bonuses went down by 20 percent.

In another, managers can increase their pay by meeting customer satisfaction targets or lose pay if service problems mount. For senior management at Federal Express, the leading overnight package service in the U.S., a substantial percent of compensation consists of a bonus, and 100 percent of the bonus is based upon 12 service quality indicators which are measured every day.

Many firms say they are "focused on the customer" or "obsessed with the customer." However, our experience has been that linking compensation to customer satisfaction brings a whole new meaning to the phrase "customer obsession."

Are there other places where these links need to be made? Absolutely! Reward and recognition programs at all levels needed to be linked to customer satisfaction and loyalty. Make sure the links happen everywhere.

Call home

The first three items focused on rational, logical, profit-linked factors - customer care and its specific measures of retention and satisfaction, what drives those numbers, and compensation. But what about feeling?

Call into your own company and ask for something - product information, help with a product, guidance about installing software, net present value of an annuity - something dealing with the goods and services offered by your company. Do so on an irregular but continued basis.

You'll then begin to get a sense of how customers experience the company. No perks. No free this. No complimentary that. Just the company as it interfaces with the rest of the world.

You'll find that this brings a new dimension to your sense of customer relationships. You'll have a new, non-quantifiable, no-numbers, intuitive sense of this thing called customer care. It will add depth to your decision-making that cannot be garnered from reports and numbers alone.

Act now

Avoid "Connellan's Law" which asserts that "things that get delayed tend to get delayed." If high levels of customer satisfaction are part of what drives the corporate future - and every piece of data says they do - then don't wait.

Get customer care on the next agenda. If you personally assign it a low priority to this issue, it increases the odds that it will be a low priority at every level of the organization.

If you wait, somewhere, someplace, someone else will be making customer care a priority, realizing that it affects profitability, market share, and earnings.

That lag puts the competition a quarter or two ahead. Maybe a whole year ahead. So don’t tarry. Your responsibility is to help set the tone and lead the way. Take action today.

© 2005 Thomas K. Connellan

About the Author

Tom Connellan is a motivational keynote speaker regularly used by leading firms such as GE, Neiman Marcus, Dell, FedEx and Marriott to strengthen customer loyalty and leadership practices. When looking for a keynote speaker, Tom probably belongs on your short list of possibilities.