If your customers are happy, it doesn’t matter whether you use the term customer satisfaction or customer loyalty to explain how they feel about your company, right? Not necessarily. These terms are often used interchangeably and they really shouldn’t be. Here’s why.
What is Customer Satisfaction?
Customer satisfaction is a customer’s perceived satisfaction or happiness with a company based on their overall experience with the company’s products and services. It's the way they’re treated by employees. It's all the other interactions they’ve had with the company. The "customer satisfaction score" of c company is normally based on data collected in surveys.
It’s important to remember that customer satisfaction can:
- be fleeting and fickle. A customer reevaluates their level of satisfaction with your company after every individual interaction they have. Their online experience may have been great, but a later phone conversation may have been horrible so their response to your question, “are you satisfied?”
- could change from one day to the next.
- provide a false sense of security to your company. For example, cable television customers who have only one service provider available to them in their area may say that they are satisfied with their service because they haven’t experienced any problems. However, they would switch providers in a minute if a competitor came to town with a lower price or more features.
What is Customer Loyalty?
Customer loyalty refers to how likely a customer is to buy additional products and services from your company. It should be included as one of your company’s metrics showing: how much an existing customer has purchased, over what time period, the actual cost paid for each item, the specific types of products purchased, potential future value and more.
Customer loyalty can be measured with unbiased facts and real numbers and helps drive revenue and company growth.
You know those Facebook “Likes” that some companies are so fond of? They are not a measurement of customer loyalty. We in marketing refer to the number of Facebook Likes a company has as a vanity metric. It’s one that’s interesting to look at but it’s missing one key component. Even if a customer likes your company, there is no guarantee that they will buy more from you in the future.
Customer satisfaction surveys can be used in other ways.
Since customer satisfaction is often measured by sending out surveys, months can go by before new data is collected. A quarterly survey distributed in January might return a very high customer satisfaction rating.
But, a drop in the quality of customer service in February might not be apparent until the next customer survey in April. This could result in large numbers of customers going to competitors in February and March and leave your company wondering what went wrong.
This doesn’t mean that customer satisfaction surveys are useless. When distributed to individuals after specific personal interactions with your company they can be very insightful.
If distributed immediately after an interaction with a technical support person, customer care representative or other employee, customer satisfaction surveys can give you immediate insight into areas of your business that are working well and those that need to be improved. The key benefit to more tailored or customized surveys is that positive changes to business operations can be made more quickly.
Customer loyalty is more important to your company’s bottom line. Why?
Here are a few reasons:
- Increased revenue growth and ARPU (Average Revenue Per User): Loyal customers who have been with your company for some time are not only willing to buy more, increasing your company’s revenue. But they also tend to be less price sensitive, meaning they are more willing to pay full price because they understand the additional value that they receive from your company.
- Lower acquisition costs: We all know the statistic that acquiring new customers is more expensive than keeping existing ones. Although the actual numbers vary between three to 10 time more expensive, selling more to existing customers does increase revenue and decrease acquisition costs.
- Increased customer referrals: Not only are long-term, happy customers much more likely to recommend your company to their immediate friends and family, they are also more likely to become vocal advocates for the company, influencing much larger circles of potential customers on social media.
- Lower operating costs: Long-term customers understand the ins and outs of your business and your products. Unlike new customers who might pick up the phone or chat with your team online to ask every little question they have, long term customers reach out much less frequently, putting fewer demands on your customer care, support and billing departments.
- Refined buyer persona: Since customer loyalty is measured by looking at the purchasing habits of individual customers, it becomes easier to combine customer loyalty data and create a profile of your most profitable customers.
This data can then be used by your marketing team to develop highly-focused marketing programs distributed to new prospects. Based on their customer loyalty data, these prospects are statistically more likely to become customers, remain customers longer, buy more products, and buy high priced products. This ability to be more targeted also lowers your CPA because you’re able to reduce your number of marketing channels and focus only on the ones where your target buyer is likely to be.
The last word.
It’s important to the success of your business to understand some of the key differences between customer satisfaction and customer loyalty. Both have their place and their benefits.
Customer satisfaction can provide you with high-level insight into the health of your business at certain touch points and, when used strategically, can give you more frequent insights into specific areas of the business that are doing well and others that could be improved.
Customer loyalty data, including actual purchase and revenue numbers, are critical in knowing where your business stands today and where it will most likely be in the future.