Put All Your Eggs in This Basket: Customer Satisfaction

Quick Take: What differentiates successful companies from those that struggle? One thing is customer satisfaction. When customers are highly satisfied, they remain loyal. They return again and again and don't ask for a better price. And therein you find growth and profit.

When customers are asked what is important in a business relationship, they commonly reply: price, quality and on-time delivery. But today, everybody has on-time delivery. And price may not be the holy grail because rarely does the lowest bidder get the job.

In Managing Customer Value, Bradley Gail describes the "Customer Value Proposition" as the ability to supply a perceived product value that is higher than the actual product cost. But evidence is everywhere that customer value does not necessarily lead to high customer loyalty and resulting success.

For example, Splenda is generally judged to be a superior match to sugar when compared to Sweet'N Low, the early market entrant. But Splenda has stagnated in its quest to win over Sweet'N Low users, despite what many believe to be an inferior product.

Similarly, Coke continues to outsell Pepsi in spite of consistent preferences for Pepsi in blind taste tests. Wegmans, a regional grocery chain based in Rochester, N.Y. outsells its national competitors nearly two to one. It somehow does this while selling largely the same products.

The common thread among these enormously successful companies is unbending customer loyalty. Totally satisfied customers are up to 10 times more likely to repurchase than customers who are only just satisfied. Totally satisfied customers don't even entertain competitive offerings. "Businesses with the best growth rates and long-term stability have high percentages of repeat customers.

This applies to a wide range of businesses and industries, including commodity businesses with thin profit margins."¹

In addition, highly loyal or satisfied customers are more receptive to cross-selling. An article in The Journal of Service Research states: "The relationship between satisfaction and actual share-of-wallet in a business-to-business environment is not only positive, it is nonlinear, with the greatest positive impact occurring at the upper extreme of satisfaction levels." This is further supported by research conducted by IBM that found a ratio of revenue growth between very satisfied and satisfied customers of 3:1.²

It appears that companies must not only provide quality goods and services but also the highest levels of performance in areas that affect total customer satisfaction. Measuring performance in these terms is vitally important.

Also see the accompanying article on page 11, "Tips for Measuring Customer Satisfaction."

Morris Binder provided his expertise for this article. He is president of BLC-Bottom Line Connection-Corporate Division, a Baltimore-based sales, market development and market research firm. You can reach him at mbinder@hireblc.com.

¹ "Why Satisfied Customers Defect," Jones, Thomas O.; Sasser Jr., W., Harvard Business Review, Nov./Dec. 95, Vol. 73, Issue 6

² "The Quality Elephant," Hoisington, Steve and Neumann, Earl, American Society For Quality: Quality Progress, February 2003