Satisfied and Loyal Customer - for profitability of every business


By

Satish Kumar Sagadevan
Assistant Professor (Senior Scale)
School of Business
Manipal University
Dubai, United Arab Emirates
 


Abstract:

The customer is always right. Right? But is a customer who is always right always a satisfied customer? Customer satisfaction is a key issue for every company wishing to increase customer loyalty and thereby create a better business performance. An important question is therefore: What is the relationship between customer satisfactions to loyalty to Profitability?  This paper is to look in the importance of customer satisfaction and loyalty in this vibrant business environment. Why it's imperative for companies' to measure and create marketing strategy with a core focus on customer satisfaction and loyalty.


Introduction

Customer satisfaction is a term frequently used I marketing. It is a measure of how products and services supplied to a company meet or surpass customer expectation. Long term customer relationships drive sales, sustainability, and expansion, particularly in today's economy. Firms that build and maintain exceptional customer and client relationships lead the pack, whereas those that don't put clients first fall off pace and, eventually, disappear completely.

It is no secret that customers are a firm's supreme asset and it costs much less to retain a current customer than it does to acquire a new one. But even though loyalty improvements should be a priority, many businesses struggle to improve the vitality of their customer relationships, especially when they confuse customer satisfaction with loyalty.

Sure, customer satisfaction is important, but to achieve long-term customer loyalty, businesses need to dig deeper and identify proven tactics for strengthening the health and depth of their business relationships.

What is customer satisfaction and customer loyalty?

Customer satisfaction is a self-reported measure of how much customers 'likes' a company and how happy they are with goods purchased or services obtained from the company. Customer satisfaction is an abstract concept and involves such factors as the quality of the product, the quality of service provided, the atmosphere of the location where the product or service is purchased, and the price of the product or service.

Customer loyalty, on the other hand, is a company-calculated metric of likelihood to purchase again or not defect to a competitor. There are many definitions of customer loyalty. Yet each of them fails to realize that loyalty runs hand-in-hand with emotions. Customer loyalty is the result of consistently positive emotional experience, physical attribute-based satisfaction and perceived value of an experience, which includes the product or services.

Why customer satisfaction is so important for companies?

1. It's a leading indicator of consumer repurchase intentions and loyalty

Customer satisfaction is the best indicator of how likely a customer will make a purchase in the future.  That's why it's one of the leading metrics businesses use to measure consumer repurchase and customer loyalty.

2. It's a point of differentiation

In a competitive marketplace where businesses compete for customers; customer satisfaction is seen as a key differentiator. Businesses who succeed in these cut-throat environments are the ones that make customer satisfaction a key element of their business strategy.

3. It reduces customer churn

Price is not the main reason for customer churn; it is actually due to the overall poor quality of customer service. Customer satisfaction is the metric you can use to reduce customer churn. By measuring and tracking customer satisfaction you can put new processes in place to increase the overall quality of your customer service.

4. It increases customer lifetime value

Satisfaction plays a significant role in how much revenue a customer generates for your business. Successful businesses understand the importance of customer lifetime value (CLV). If you increase CLV, you increase the returns on your marketing dollar. For example, you might have a cost per acquisition of $500 dollars and a CLV of $750. That's a 50% ROI from the marketing efforts. Now imagine if CLV was $1,000. That's a 100% ROI! Customer lifetime value is a beneficiary of high customer satisfaction and good customer retention.

5. It reduces negative word of mouth

McKinsey found that an unhappy customer tells between 9-15 people about their experience. In fact, 13% of unhappy customers tell over 20 people about their experience. That's a lot of negative word of mouth. What often gets forgotten is how customer satisfaction negatively impacts your business. It's one thing to lose a customer because they were unhappy. It's another thing completely to lose 20 customers because of some bad word of mouth. To eliminate bad word of mouth you need to measure customer satisfaction on an ongoing basis. Tracking changes in satisfaction will help you identify if customers are actually happy with your product or service.

6. It's cheaper to retain customers than acquire new ones

This is probably the most publicized customer satisfaction statistic out there. It costs six to seven times more to acquire new customers than it does to retain existing customers. Customers cost a lot of money to acquire. Marketing team spend thousands of dollars getting the attention of prospects, nurturing them into leads and closing them into sales.

Methods used by companies to measure customer satisfaction :

Direct Methods: Directly contacting customers and getting their valuable feedback is very important. Following are some of the ways by which customers could be directly tabbed:

*
Getting customer feedback through third party agencies.
* Direct marketing, in-house call centers, complaint handling department could be treated as first point of contact for getting customer feedback. These feedbacks are compiled to analyze customers' perception.
* Getting customer feedback through face to face conversation or meeting.
* Feedback through complaint or appreciation letter.
* Direct customer feedback through surveys and questionnaires.

Organizations mostly employ external agencies to listen to their customers and provide dedicated feedback to them. The design of the prepared questionnaire is an important aspect and should enclose all the essential factors of business. The questions asked should be in a way that the customer is encouraged to respond in an obvious way. These feedback received by the organizations can be treated as one of the best way to measure customer satisfaction.

Apart from the above methods there is another very popular direct method which is to send mystery shoppers to pose as potential buyers and report of strong and weak points experienced in buying the company's and competitors products.

Indirect Method: The major drawback of direct methods is that it turns out to be very costly and requires a lot of pre compiled preparations to implement. For getting the valuable feedbacks the supplier totally depends on the customer due to which they looses options and chances to take corrective measure at correct time. Hence there are other following indirect methods of getting feedback regarding customer satisfaction:

* Customer Complaints: Customer's complaints are the issues and problems reported by the customer to supplier with regards to any specific product or related service. These complaints can be classified under different segments according to the severity and department. If the complaints under a particular segment go high in a specific period of time then the performance of the organization is degrading in that specific area or segment. But if the complaints diminish in a specific period of time then that means the organization is performing well and customer satisfaction level is also higher.

* Customer Communication: It is necessarily required for an organization to interact and communicate with customers on a regular basis to increase customer satisfaction. In these interactions and communications it is required to learn and determine all individual customer needs and respond accordingly. A customer is said to be satisfied if he revisits supplier on regular basis for purchases.

The relationship between customer satisfaction and customer loyalty is shown in this diagram:


Strategies to Increase Customer Satisfaction & Loyalty

Many businesses have evolved over the last decade into a more web-based industry. The result of this transition is that consumers seeking to buy something now have more options than ever before. In turn, businesses are experiencing the challenge of increased competition and, in some cases, less business.

Certainly with repeat business and referrals being the bread and butter for many businesses and undoubtedly essential to anyone in business being able to satisfy clients becomes ever more important. Naturally, the more satisfied a client is, the more loyal that person will feel for years to come. It doesn't take expensive gifts to make a client happy either.

Here are few ways to help increase customer satisfaction and create client loyalty.

* Respond quickly or at least within a reasonable time frame

The majority of people these days expect a response back from their inquiry within a reasonable time frame. Whether it would be an email or phone call, a prospect or client, it's important to set up an effective communication system and make time out of busy schedule to respond. It's critical to be available at customers' schedules and not the other way around. By doing so, it proves that companies care about them as a client and will take care of their needs.

* Ask how clients would like to be responded to

One way to increase customer satisfaction is to communicate with clients through their preferred method. For online consumers, email is the standard method. This allows them to maintain the anonymous status which is important to online consumers. Even when consumers provide a telephone number, they may be surprised when contacted by phone.

Prepared notes or a list of questions to ensure all points are covered and maximize the time. By contacting people in their preferred method, it will most likely have a better chance of reaching them with that reasonable time frame, communicating effectively and achieving the goals.

* Create a positive website experience

Once visitor's lands on website or landing page, only about 10 seconds are available to capture their attention. People will judge site quickly and determine whether they'd like to give the opportunity to earn their business and be their Realtor. With an attractive layout, some photos, contact information clearly laid out on the home page, companies are off to a good start. Providing additional information on website about market area, like neighborhoods, schools, other points of interest, can increase the value of the site. It will become a reason to come back and customers will share about it, too. A blog is an easy and effective tool to communicate with readers. Companies can post market information, daily updates, and any opinions that may help educate visitors.

* Personalize and customize

For Internet customer everything should come across customized. The Internet allows people flexibility and anonymity but once they reach out for information, they expect high quality customer service. Templates are an important tool to save time, but never to forget tailor several components to suit client. People are becoming wiser and more Internet-savvy, so they'll be able to see.

* Think from the customer's point of view

Buying something is an important and often emotional decision in a person's life. Consumers will generally select companies whom they feel will take care of their needs best.  Listen to their requirements and preferences and respond in a way that demonstrates or conveys that company considers them a close acquaintance or friend. Think from the customer's perspective. This simple rule applies to any marketing initiative. Seeing things from the customer's perspective will help keep their experience a positive one.

* Educate clients.

Clients Side by side with setting expectations, a common sense to working successfully in challenging markets is to educate clients and to better manage expectations of the customers. Having facts, documentation, news, blogs, etc. will help them understand and validate companies perspective and point of view. 

* Conduct surveys and track results

Surveys can prove to be a valuable tool and source of information. Companies can set up surveys to go to clients in the beginning of a relationship, in the middle of a longer term transaction period, and/or at the very end when the transaction is finalized. Find out what clients like or dislike about offered services. Analyze their answers to find out what can improve approaches and methodologies. Keep results so that down the road it can be analyze metrics about how business has evolved and have the ability to chart a course of action based on empirical knowledge, not just guess work. Statistics and data will help companies make wiser decisions about business.

* Make sure your entire team is managing customer satisfaction

Everyone on in the company should understand that they are part of the customer service "department" regardless of where in the company they work.

* Listen to what customers are not saying

Companies have to develop the ability to listen to what customers are not saying and dig through that to get to the truth. If companies only listen to what they say, and don't listen for what they are not saying, then it may lead to false perception that everything is going fine - right up to the minute they take their business elsewhere.

Conclusion

Customer satisfaction matters. It matters not only to the customer, but even more so to the business because it directly impacts a company's bottom line profits. Furthermore, it is one of the most important components of a company's positive brand image. The reason why customer satisfaction directly affects bottom line profitability is quite simple: it costs far less to retain a happy client than it does to find a new client . Businesses that have been successful retaining the business of their loyal clients have shown over time to consistently increase profits from their installed client base.

All these have a cascading effect. Therefore, more profit is generated with more repeating customers and greater customer loyalty.

References

* Kotler Keller, 2012 14e, Marketing Management, Global Edition, Pearson
* Tom Cates, 2013, Five Tips for creating relationships drive sales, www.marketingprof.com
* Ross Beard, 2014, Why customer satisfaction is important (6 reasons), www.blog.clientheartbeat.com
* http://www.managementstudyguide.com
* Mark Klein, 2013, Customer satisfaction is not customer loyalty, www.dmnews.com
* http://www.research-pmr.com/customer-satisfaction
* Bambang Haryanto, 2009, Top 7 strategies to increase customer satisfaction and loyalty, www.top7business.com
* F.John Reh, How to increase customers satisfaction, www.management.about.com
 


Satish Kumar Sagadevan
Assistant Professor (Senior Scale)
School of Business
Manipal University
Dubai, United Arab Emirates
 

Source: E-mail October 21, 2014

          

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