On April 29, 2014, John Carroll III and Tim Keiningham, both of Ipsos Loyalty, certainly gave me a schoolin’. The mantra in the marketing world has been that satisfaction leads to loyalty which leads to higher sales, greater market share, rising stock prices, and the like. In short, we should always be striving to increase our customer satisfaction metric, whatever that metric is.
Well now, given the title of this post you should be thinking that maybe that is not the case. If you are questioning your long-held beliefs about customer satisfaction, then you get extra points. The presenters raised the issue that improving measures such as Net Promoter Score (NPS), customer satisfaction (CSAT) and likelihood-to-continue-doing-business are not always compatible with a market-growth strategy. They present a three-point argument for why there is a weak correlation, at best, between these measures and financial performance:
- Delighted but spending little with you – There is only so much room to lower price. Lowering your price will almost always prompt increases in satisfaction, but at some point you will be giving your product away for free. As marketers, we need to embrace our friends in accounting and finance to better understand which of our customers are profitable and which are not.
- Smaller firms almost always have happier customers – As companies grow, there is a natural tendency to acquire new customers that look less and less like the ideal fit. This corresponds with a higher likelihood that these new customers will experience a substantive gap between their expectations and actual experience. Hence growth comes with the potential for declining satisfaction rates.
- Our measures don’t link to behavior – Variables such as NPS or CSAT in the aggregate don’t always explain individual behavior with any degree of predictability. In scenarios where a customer may spread their budget across multiple providers, each provider may receive a high NPS rating from the customer.
The chart below is one of the matrices that the presenters used to tell their story. Simply, it allows us to focus our efforts on those customers that are profitable to us, or have the potential to be.
Lost Causes have low profitability and low satisfaction. The Vulnerable produce high profits, but are dissatisfied. Free Riders are happy with us and are using our products and services to their advantage but aren’t particularly profitable. We should develop and test strategies to move the Vulnerable and Free Riders into the Stars quadrant.
Ipsos proposed the idea of using alternate measures such as percentage of time your company is the first choice provider. This measure correlates highly with share of wallet, which itself has a solid relationship with market share, sales growth and potentially profitability. The key takeaway is that we have to tie our survey measures to financial measures in order to determine which levers to pull.