Customer Satisfaction vs Customer Loyalty: A Complete Analysis
“Customer satisfaction is worthless and customer loyalty is priceless.” – Michael Heppell
You must have heard this phrase an innumerable number of times and most people work out their marketing strategies setting this in stone. Their motto is, to be successful in today’s ultra-competitive environment you must be obsessively focused on improving your customer satisfaction rates.
Though this idea holds a profound truth, it is merely one side of the rubrics cube. This does not mean that customer satisfaction is dispensable; it is, in fact, extremely important for the growth of a business. Even the Gartner research confirms that almost 80% of the future revenues come from 20% of the existing customers. However, most businesses fail to understand the crucial differences that customer satisfaction and customer loyalty have, and how they affect the success of a product.
Quite often, you may find that your customer satisfaction score is great, but the buyers still don’t seem to stick around. Once you successfully make a sale, it’s easy to assume that you have just served another satisfied customer. But still, if the churn rate keeps increasing, you can simply deduce that customers just don’t seem to love your brand and are not loyal buyers at all.
“Satisfaction” is a distinctly subjective attitude. It describes a perception I have of myself of being satisfied or that I have an attitude of being satisfied.
In contrast, “loyalty” is objective. When I am “loyal”, I will become a regular and repeat customer. I’ll recommend your brand or product to my family and friends and will also eagerly pay a premium in order to purchase your product.
But why does this difference matter at all?
To understand this, we will need to delve into real-world examples:
A quick example of customer satisfaction without loyalty
Sometimes we are overtly satisfied with something but still, fail to behave in a loyal way. For example, let’s consider my interaction with my local bookstore. I genuinely love the bookstore in my neighbourhood, and there are a lot of attributes of the bookstore that I find quite satisfying. It has a lovely environment, a nice selection of books, and also a small cafeteria that takes care of my cappuccino cravings from time to time. But am I a loyal customer of that bookstore?
Well, not entirely.
I also buy a lot of books from Amazon and Flipkart. I find online shopping to be a convenient option for buying books. The online websites offer a wide variety of options, provide exciting discounts and also delivers whatever my heart desires at my doorstep. And also I am not that fond of going into stores generally.
Therefore, as you can see, though I am quite satisfied with my local bookstore, I’m not exactly behaving in a very loyal way.
So, coming back to the previous question, why does this slight difference matter so much?
Well, the answer is; because you will need to know how your customers are likely to behave in the future.
If my local bookstore would conduct a survey on my satisfaction, and collect similar data from their other customers, they would likely conclude, “Business is going great! Our customers are totally satisfied and love our service.”
Thus they would be actually drawing erroneous conclusions about their business. But if they had asked questions like, “How likely are you to shop with us in the next 30 days?”, “Do you think about visiting our shop whenever you feel like buying a book?” it would have lead to an entirely different set of conclusions.
Therefore as you see, it will be essential to have a crystal clear idea about your customer’s experiences and emotions. The more aware you are about their experiences, the easier it will be to make your business flourish and prosper.
For brick and mortar stores, you still get to have a face to face interaction with the customer and get an idea about how his/her experience is going. But for online businesses, determining customer loyalty becomes even trickier.
For every touch point between your business and the customer, getting a stat on how the customers feel will help you to better understand your business. It will give you an insight on how you can improve your current business strategies and cultivate a consistent long term customer retention policy.
Now let’s delve into the most pertinent question; How can you get an informed idea about your customer’s experiences? There are great methods and metrics designed especially for this purpose. I am going to discuss a few of them that you can apply in your business today:
How can you measure Customer Satisfaction?
The most straightforward metric that measures customer satisfaction is CSAT. This score will help you to understand whether your brand is performing its most fundamental tasks. CSAT is a Key Performance Indicator that is used to measure the satisfaction of your customers on a percentage scale (for a particular product, interaction/service, transaction etc.) It allows you to pick different points within your customer’s journey to determine how happy the customer feels with the service he/she receives.
CSAT is usually measured on a scale of 1-3, 1-5, 1-7, and the questions generally maintain this following pattern.
- Very Unsatisfied / Very Unhappy / Very Bad
- Unsatisfied / Unhappy / Bad
- Satisfied / Happy / Good
- Very Satisfied / Very Happy/ Very Good
The customer’s scores are then calculated by adding up the sum of each and every score and then by dividing the sum with the number of respondents. CSAT immensely helps to improvise on the resolution, mode of delivery, channel, and much more.
Click here to know 13 top-notch strategies that will help you to kick-start your customer satisfaction goals.
How can you measure customer loyalty?
Ensuring loyal and repeat customers and building a good customer retention policy becomes imperative for a business’ success. There are five metrics that help you to measure the customer experience of your brand:
- Net Promotion Score
All kinds of businesses widely use NPS to monitor customer service and customer satisfaction. NPS is also conveniently short and crisp and consists of just one single question for the customer to answer: “How likely are you to recommend us to your friends and family?”
(For example, let’s consider you have an online coaching business and want to measure your customer experience. To measure your NPS you must ask the question, “How likely are you to recommend your friends and acquaintances to take writing service from us?
NPS will record the positive, negative as well as the neutral responses to the question and thus help you to gauge the loyalty of your customer base.
- Engagement with your brand
How often do your customers interact with your social media channels or write reviews of your products or services? The engagement with your brand shows that the customer believes you are listening to them and value their existence.
There will be many customers who buy faithfully but never write a review. However, a glance of their engagement with your brand (along with other loyalty matrices) will help you to build out the overall picture.
- Repurchasing levels
Track how many new customers you have and how many are making repeat purchases. Once you track the ratio of the two over a long period of time, you will be able to see how the retention rates rise and falls.
You must measure these figures as a proportion of the whole and not as absolute numbers. Otherwise, a rise or dip in overall sales will present confusing results.
- Multiple product purchases
A customer who buys a single product repeatedly over a prolonged period of time is likely to have confidence in your business as a whole. This means that they not only like the experience they had with you, but are also keen to explore more.
Also, while measuring the repurchasing levels, make sure you keep a keen eye on how many customers are broadening their purchase range as well.
- Customer loyalty index
Customer loyalty index is a standardised metric that measures the customer’s loyalty towards your brand. Like NPS, it is derived from the customer surveys (that covers repeat and multiple purchases as well) and records the customers intent for future engagement with your brand. However, its questionnaire is slightly different from that of the NPS as it consists of a couple of more questions.
Once you measure the customer intention scores and compare them with the real purchases of the consumer, you will be able to build up a clear picture of customer loyalty of your brand.
However, at this juncture, it will be crucial to recognize that customer loyalty and customer satisfaction are NOT interchangeable concepts. Rather in most cases, customer satisfaction and customer loyalty are closely linked. If satisfaction is what you are interested in, just determine the CSAT scores, and you will be good to go. And if you are interested in determining customer loyalty, you will need to flip the coin over and specifically ask about the behaviours that are vital for your business’ growth.