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Can customers be too satisfied?

17th Aug 2009
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Customer satisfaction is linked to better financial performance but how long do you have to wait until you actually see some results - and what exactly is satisfaction?

The Chartered Institute of Management Accountants (CIMA) pondered just this in a new report. The results were mixed. For example, it says one study in the hospitality industry found the time link between customer satisfaction and financial performance was about six months, while another in the fast food restaurant business put it at around one year.

More interestingly, it reported that because customer satisfaction measurements are so varied (and satisfaction may not even be the profit driver in some industries) some companies may actually be spending too much money on improving customer satisfaction.

CIMA went on to focus on a major US homebuilder that has an incentive scheme based partly around customer satisfaction measured by two indepedent consulting companies (you can read the executive summary results in more depth in the document attached below). Some of the key findings were that:

1. It's too simplistic to talk about a single customer satisfaction or employee satisfaction measure - one of the customer satisfaction measures highlighted contained five distinguishable dimensions.

2. Different measures and dimensions of customer satisfaction are not equally as informative.

3. Customer satisfaction levels and financial performance are not linearly related.

4. There was a weak positive association between employee satisfaction and customer satisfaction.

The conclusion was that managers "need to be more sophisticated in their management of customer satisfaction. They need to learn where it is important to pay attention to customer satisfaction measures, rather than performance factors" and "learn how, when and where to best measure it", assessing the benefits and costs. They also need to "test these relationships empirically, rather than just relying on intuitions".

Furthermore, the report goes on to say that companies can overspend on customer satisfaction, which "illustrates the importance of testing the costs and benefits of each variable...with data" and argues that just as you can't build the whole customer satisfaction picture with a single key measure, you can't measure it with a generic survey across diverse industries either.

The report may be based around one case study but it once again challenges the question of what customer satisfaction actually is and what it means for organisations - especially as most agree that customer retention is vital in the economic downturn and that customer satisfaction is intrinsic to this.


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By [email protected]
22nd Aug 2009 04:41

The question you raise here is important, and frankly not discussed enough. Every customer experience starts with a person who has a need or problem or desire they would pay money to solve - and whether or not they do is their ultimate measure of success.

Their satisfaction - often measured as a degree of "happiness" - is only one piece of solving their need, so it makes perfect sense that the studies outlined here found only a partial link between satisfaction and financial performance, or that more measures are needed to create a complete performance snapshot.

Here's another study you may find of interest. We found that organizations that focused on only satisfaction were less likely to beat financial performance targets than those who used a focus on solving needs, or customer experience as I mentioned above. Your thoughts?
Linda Ireland
Partner at Aveus and Author of Domino

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