Conducting customer surveys is a common business practice. Within the last two weeks alone, I have been asked to complete at least five customer surveys.
Q: Why is surveying customers such a common practice?
A: Because of the belief that customer surveys pay off with increased profits.
Is this belief correct or is the practice of surveying customers one that simply gives companies a false sense of empowerment? Social scientists all over the world have conducted much research across a broad range of industries (including e-businesses) in order to answer this question. One such study, conducted by John Bowen and Shiang-Lih Chen, professors at the University of Nevada in Las Vegas, examined the relationship between customer loyalty and customer satisfaction. Their study, published in the International Journal of Contemporary Hospitality Management, examined customer survey results and their impact on return on investment (ROI) at a hotel in Boston. Their data, consistent with the results of other studies, indicated a nonlinear relationship between customer satisfaction and customer loyalty. This relationship indicates that when customer satisfaction reaches a certain level, loyalty increases dramatically. However, the relationship also indicates that when customer satisfaction declines to a certain point, loyalty drops dramatically. In Bowen and Chen's study, when customer satisfaction increased by just one percent, customer loyalty indices increased by over 10 percent!
The results of this study supported the argument that there is a positive correlation between customer loyalty and profitability. Loyal customers provide more repeat business and are less likely to shop around for the best deals compared with non-loyal customers. Loyalty increases profit by reducing marketing costs, increasing sales and reducing operational costs.
Q: Do the reduced costs brought about by loyalty really have much impact on the bottom line?
A: Research conducted by Frederick Reichheld and W. Earl Sasser revealed that when a company retains just five percent more of its customers, profits increase by 25 percent to 125 percent!
In light of this and other similar findings, the impact of customer loyalty on the bottom line is obvious. Conducting research to discover how to increase satisfaction and loyalty pays for itself. Customer survey data allows companies to diagnose key attribute drivers that can be addressed by specific marketing and operational strategies within a company. These measurements can also help companies track performance over time, benchmark against competitors' offerings, and compare performance across different parts of an organization. Customers are the lifeblood of any organization and without them a firm has no revenues, no profits, and no market value. Thus, it is not surprising that a survey of senior executives, published in The Economist, uncovered that 65% of the respondents reported customers as their main focus over the next several years while only 18% reported shareholders as their main focus.
Numerous examples of customer satisfaction impacting ROI have been reported in the scientific literature. Claes Fornell and Sanal Mazvancheryl used 200 of the Fortune 500 firms across 40 industries to examine the relationship between customer satisfaction and ROI. They found that a 1% improvement in satisfaction in these firms led to an increase in the firm's value of approximately $275 million. In an examination of 140 firms by Christopher Ittner and David Larcker, a 1% increase in customer satisfaction led to a $240 million increase in market value of a firm. A study of 125 Swedish firms conducted by Eugene Anderson and Vikas Mittal revealed that a 1% increase in satisfaction led to a 2.37% increase in ROI.
There is no doubt that increasing customer satisfaction and loyalty will increase profits. Thus, many studies have attempted to identify crucial components of a customer-focused approach to business. For example, Michael Carver and Gary Cagnon, Professors of Marketing at Central Michigan University, have identified keys to improving customer satisfaction programs. The key activities they identify include:
o a customer-focused culture
o executive support, persistence, and intensity
o a set of customer listening tools
o linking performance measures
o identifying improvement opportunities
o evaluating and rewarding customer value and satisfaction (CVS)
The first key, a customer-focused culture, reflects a cultural value suggesting that satisfying the customer is essential for business success. Thus, a company with a customer-focused culture will continuously monitor and gather customer feedback, analyze and understand the information, and integrate this understanding into tactical and strategic decision-making. In such a culture there is a realization that customer data is just as important as financial data because it will affect the financial outlook in the future.Walgreens pharmacy store
The second key, executive support, intensity, and persistence, refers to the level of top management support that employees perceive is directly related to using CVS data. When it comes to valuing customers it is important that top management put words into action and set an example for the rest of the company to follow. There is much truth to the saying "Actions speak louder than words." If top management claims that customers are important but their actions do not support it, employees will believe their actions and not their words.
A set of customer listening tools, the third key, involves having a variety of tools to gain a complete understanding of the customer. Often both qualitative and quantitative research is used to facilitate this understanding.
Identifying improvement opportunities is another key to improving customer satisfaction programs. Best practice firms want employees to have specific priorities for improvement efforts.
Finally, evaluating and rewarding CVS performance is a key that sends a message to employees throughout the organization that CVS is critical to company success. All employees need to be responsible for customer satisfaction. Rewarding the fulfillment of CVS targets motivates employees to continue setting and achieving new goals.
