How to Measure Customer Satisfaction

Businesses survive because they have customers that are willing to buy their product or
service. However, many times businesses fail to "check in" with their customers to determine
whether they are happy or not and what it will take to make or keep them happy

WHAT TO EXPECT

This Business Builder will explain why it’s absolutely necessary to measure your customers’
satisfaction level, different options for obtaining customer feedback, what is needed to ensure
an effective survey, how to analyze the results of your survey, and the next steps you should
take to attract new customers and keep your existing ones coming back for more.

WHAT YOU SHOULD KNOW BEFORE GETTING STARTED [top]

The Costs of Poor Customer Service

Just think of the money Coca-Cola might have saved if it had talked to its consumers before
changing its cola formula.

Businesses survive because they have customers that are willing to buy their product or
service. However, many times businesses fail to "check in" with their customers to determine
whether they are happy or not and what it will take to make or keep them happy.

Finding the reasons for customer defections and doing something about them is especially
important. According to the U.S. Consumer Affairs Department, it costs five times more to
gain a new customer than to retain an existing one. Other studies have reported that with just
a five percent increase in customer retention a firm can raise its profitability by 25 percent
and in some cases as much as 85 percent. Similar studies also show the longer a company
keeps a customer, the more money it will make. What happens is that consumers spend
slowly at first, but with succeeding years of good experiences, they will spend increasingly
more. The Profit Impact of Market Strategy (PIMS) database (see the Strategic Planning
Institute) shows that firms perceived as having better customer service can charge more for
their products and services and still have higher market shares and returns on sales than their
competitors.

TARP, a management consulting research company, reports only two to four percent of
dissatisfied customers ever complain to a business regarding a poor experience. The others
just leave and do business with competitors. Of customers that leave in a given year, 68
percent do because of supplier indifference or poor attitude. In a study conducted by General
Electric, GE found that word-of-mouth has a significant influence on consumer decisions–
twice as much as advertising. (The Information Challenge, General Electric Company,
Louisville, KY, 1982. Survey conducted by Cambridge Reports, Inc. 12 pp.) Negative word-
of-mouth can be really dangerous since dissatisfied customers are usually more vocal than
satisfied customers. Depending on the industry and the nature of the bad experience,
dissatisfied customers will complain to 10 to 20 friends and acquaintances–three times more
than those with good experiences. Furthermore, this negative information is influential, and
consumers generally place significant weight on it when making a decision.
If that isn’t reason enough to be concerned about how customers perceive us, fierce
competition is requiring more and more innovations to differentiate firms from one another.
With technology available to virtually everyone today, the traditional feature and cost
advantages are no longer relevant. Still, product and service quality provide an enormous
opportunity to distinguish a firm from the rest. The Japanese have recognized this and have
taught us to expect quality. Today’s consumers do, and they know more about products and
services than they ever did.

According to futurist and corporate advisor, Faith Popcorn, a new type of customer is
emerging in the ’90s. They are "vigilante consumers" — a new generation of super
consumers that are smart, discriminating and vocal. They demand value for their money and
expect the companies that they buy from to be responsible and accountable. When companies
don’t respond, these "vigilante consumers" will make sure that they will tell anyone who will
listen why they shouldn’t do business with those companies. Satisfying these smarter
consumers just makes good business sense.

The Customer Service Payoff

Customers are your best source of business information — whether it’s to improve an
existing product or service or whether you’re planning to launch something new. There’s no
substitution for "getting it from the horse’s mouth." When you open up the lines of
communication, you are able to align your resources to best advantage, and you often can
make changes or launch products more quickly. By talking to your customers directly, you
increase your odds for achieving success; you "mistake-proof" your decisions and work on
what really matters. Just think of the money Coca-Cola might have saved if it had talked to its
consumers before changing its cola formula. When you routinely ask your customers for
feedback and involve them in your business, they, in turn, become committed to the success
of your business.

Watch Out For…

Even the best intentions are subject to problems along the way. Temptations to avoid are:

 Complacency — Obtaining feedback is an ongoing process, not a one-time event.

You cannot know what your customers want if you only ask them occasionally.
Change is certain, and priorities do shift. The most successful companies are those
that can detect and respond to customer changes quickly.
 Analysis paralysis — When you get your feedback, don’t analyze it to death. Many
corporations have departments full of statisticians to determine the reliability and
validity of the feedback; however, they never get around to doing anything with the
data. In most cases, feedback will make it obvious what you are doing well and where
you need to improve, so it’s in your best interest to get started immediately.
 Doing nothing with the feedback — Nothing will do more to discourage feedback
from your customers than not doing anything with their suggestions. You must show
them that you appreciate their input as well as communicate to them what has
changed as a result of their input. If they feel nothing has been done, then they think
their efforts have been wasted and will not participate further.
 Failing to listen to your experts — Another valuable source of customer information
is your employees. They deal with customers constantly and often have first hand
knowledge on what the customers’ "hot buttons" are. Too often employers ignore this
 valuable resource. Big mistake! Talking to your employees should be one of the first
steps you take in gathering customer satisfaction data. That way you’ll get a
preliminary reading on potential problem areas so that you can focus your efforts
when soliciting your customers for their feedback.
 Demotivating employees — Customer feedback should not be used to punish
employees. Instead, use it to detect areas for improvement. Improper training and lack
of communication and direction are often the culprits of poor job performance.
Besides, if customers discover that their input is used to discipline employees, they
may stop providing constructive feedback altogether