The thin line between satisfaction and loyalty

In response to a study recently undertaken by CRM Guru in which seventy percent of customers stated that poor customer service caused them to switch services, Amae Software Co-founder / CEO Vance Christensen offered his analysis of differences between customer satisfaction and customer loyalty on the TMCnet website.

Customer satisfaction and customer loyalty, says Christensen, are both founded by customer experience. They are interdependent but possess completely different metrics which demand independent attention. The former, opines Christensen, “is a requirement to do business” while the latter is “the basis for sustained profitability and growth.” Customer satisfaction as a concept acts as a barometer of customer expectations exceeded. This can often be a dead end street, however.

One job performed to above the anticipated level of service, one happy customer. Period. Nothing regarding future sales is indicated with the completion of a single task. The fact of the matter is that, once a superior alternative is presented, even the most satisfied of customers is capable of jumping ship, loyalty be damned. Customer loyalty, argues Christensen, must therefore include “an emotional connection” to the provider, with the customer aware of his role in the business process.

Christensen goes on to offer a checklist of eight areas in which customer loyalty can be differentiated from customer satisfaction: pricing, payment, referrals, turnover, competitive data, perception, contract, and “difficult times.” Once presented with the list, the differences are pretty easily imaginable: Under payment, for example, Christensen points out that “Satisfied customers pay at their discretion. Loyal customers pay on time.” The most compelling information offered by Christensen here is a statistic he presents to show that the turnover rate of satisfied customers is a minimum fifteen percent, whereas the loyal customer turnover holds at a maximum of five percent.

Where customer loyalty is based in an emotional connection, experiences and people, customer satisfaction conversely begins and ends with the product and service provision. Christensen emphasizes that the keys to creating and spurring on customer loyalty are “Understanding drivers of customer satisfaction at granular levels [and] taking timely action to improve them. He goes on to cite a concrete example undertaken at Amae Software. An unnamed customer who leveraged Amae technology in the hopes of improving understanding of their customer base was shocked to find that, in one segment, more than eleven percent of their customers planned a switchover. Via addressing perceptual issues of their customers, Amae wooed back eighty-eight percent of the “satisfied” (but not loyal) customers.

Though a bit esoteric for the management world, Christensen’s philosophical outpouring should be considered from a real-world perspective. “Customer loyalty” and “customer satisfaction” may be abstractions based in a touchy feely world of “people persons,” but these intangibles become real enough when considering the bottom line.