The Metrics that Matter – Does Measuring Customer Satisfaction Pay?

Heart of the Customer's Customer Experience ModelWhat’s your top customer experience priority? If you’re like most of the 290 respondents to the Temkin Group’s survey of customer experience professionals, “customer experience measurement and metrics” are a big priority. 81% said they expect to put more effort into this area next year, with 79% putting more effort into “customer insights and analytics,” and 73% doing more around their “voice of the customer program.”

Effective metrics are central to a Customer Intelligence program, your first step in creating a great customer experience. This is the first of a series of articles to discuss popular relationship metrics and whether they might make sense for your business. We’ll start with that old standby, satisfaction.

In this series I’m focusing on relationship metrics – those once-a-year measurements that are not part of a transaction. Customer satisfaction is a great measurement to use when measuring a transaction or touch point – but when does it make sense to use it for measuring the strength of your customer relationship?

Before we get into the metric itself, let’s re-examine why we measure relationship strength in the first place. I find that most people don’t ask this question – and it’s crucial to deciding on the right metric for your company. The reason we measure relationship strength is not to know whether our customers like us. That’s a nice by-product. Instead, it’s an early-warning system for trouble, that lets us react before we start losing those customers. The ultimate measurement of a business is typically profitability. But profitability is a lagging indicator – if you frustrate your customers today, you probably don’t lose their revenue and profit immediately. It takes time to kick in. But your customer relationship scores will go down immediately.

The goal of measuring your customer relationships is to predict future profitability through organic growth created by loyal customers.

Most don’t state it in such black-and-white terms. But if what you’re measuring doesn’t link to business success, then you’re measuring the wrong thing.

Net Promoter Score (NPS) enthusiasts will tell you that customer satisfaction has no link to loyalty. And there’s a good, logical case behind their arguments. Just because you’re satisfied with a transaction doesn’t mean you’ll stay when offered a better price. Bain reinforces this in their study that shows that 60-80% of customers who defect to another provider reported themselves as satisfied or very satisfied just before their defection. The CEB also rails against measuring satisfaction in their book The Effortless Experience, stating that Satisfaction has only a 0.12 correlation with stated loyalty.

Satisfaction doesn’t have many friends these days. Yet, many companies continue to measure it. Are these companies just out of touch with reality?

Well, not necessarily. While Bain and the CEB’s research show that customer satisfaction is not the best predictor, there are also contradictory studies (such as here and here). So what’s a customer experience professional to do?

First, look to see what customer satisfaction actually measures. Satisfaction is typically a table-stakes item. If you aren’t satisfying your customers you’ll spend much of your effort replacing them. Low-engagement relationships such as gas stations, health insurance companies and business supplies are typically good candidates for satisfaction, where many retailers are not. Such a high percentage of Apple, Nordstrom’s or Cabela’s customers are satisfied that it’s hard to find the variability needed to create a predictable relationship.

Satisfaction also works well when paired with other measures. At a recent CXPA meeting I was surprised to see that most of the attendees are using combinations of factors to measure their customer relationships. And in a recent research project for one of my customers we discovered that combining satisfaction with their Net Promoter Score increased its predictive power.

As always, the key is to measure the link between satisfaction (or whatever measurement you’re using) with business results. But if that’s not available, look at your customer retention. If retention is low, it suggests your satisfaction is, too. And that makes this a valuable metric for you.

Next we’ll move on to the Net Promoter Score.