Why Customer Satisfaction is Important…Really

At HP Financial Services, we go to great lengths to measure customer satisfaction.  In our parlance, it’s known as Total Customer Experience or TCE.  Many companies do, so, it must be important, right?  It is, but how you turn that information into enhanced customer loyalty and competitive advantage is the real key.

It may sound too simplistic to ask the question, “Why is customer satisfaction important?”  But the answers are perhaps less obvious than you think.  Sure, you’ve got the typical indicators such as competitive comparison which is correlated to something we used to call Customer Loyalty which has traditionally been closely linked to market share statistics.  And, market share results have been known to drive all kinds of go-to-market decisions including, importantly, marketing expense – usually a big number in many companies.

But let’s start with the basic premise that it’s easier to keep a customer than it is to find a new one. An oldie but a goody, you say?  How about this: in most companies, the large majority of revenue is generated by existing customers, not new ones.  So, pick a number…75% to 80% of revenue emanating from customer relationships already in place is not an unreasonable estimate.

And if what you are measuring tells you who is committed to your company long term, who is ambivalent and who is utterly dissatisfied, what do you focus on?  You can’t ignore the dissatisfied customer, (but it is likely you will lose some of them no matter what you do), so you make adjustments to keep that number as low as possible while recognizing that zero dissatisfied is not realistic.  Committed long term is committed long term, you surely don’t take them for granted and guard diligently against a bad stumble.  That leaves the ambivalent layer, typically a sizable segment of your customer base.  At 75/80% of revenue, do you want customers to be neutral about whether they do business with you or the other guy?

I didn’t think so.  However, it takes quite a bit of diagnostic work to determine how to transition “ambivalence” to “committed.”  It starts with creating or enhancing a Customer Centric Culture.  Everyone, from the executive leadership to the field sales force to the back office needs to feel a sense of urgency around customer centricity.  You accomplish this through consistent / frequent messaging, organizational alignment choices and, importantly, through incentive compensation.  Everyone, from the CEO on outward through an organization should have customer service in annual objectives that show up, if successful, as incentive comp at the end of the year.

Another thing to keep in mind: all kinds of studies indicate a close linkage between customer satisfaction and profitability.  Can you doubt the validity of that when 75% to 80% of your business comes from existing customers?  I recommend you consider how to best turn your customer satisfaction results into advantage for your company.