Tips & Hints

Customer satisfaction vs. customer loyalty – what is more important?

Published on 16 April, 2021

 In order to succeed, businesses should put their customers (both existing and potential) at the heart of everything they do. To compete in ever-crowding marketplaces, simply having a customer service representative or team or department is not enough. Instead, businesses need to take a proactive and dynamic approach toward the way they manage and nurture customer relationships; and two such measures to do so are Customer Satisfaction and Customer Loyalty.

What is Customer Satisfaction?

Customer Satisfaction is a measure of how satisfied a customer is with their interactions with a business. This may be from a product or service purchase, a brand experience or a communication interaction with them. The term customer satisfaction refers to the attitude of a customer or consumer toward a brand at any point in time – be that positive, negative or neutral.

What is Customer Loyalty?

Customer Loyalty is the loyal attitude of a customer toward a brand that fosters the attitude of loyal repeat purchasing and/or recommending the same business time and time again. Someone demonstrating customer loyalty are likely to have opinions and feelings on a business, its products, services, brands or experiences, that favourable enough to facilitate patronage. In some cases, customer loyalty may be a result of pure necessity, but ideally, is of a positively nurtured relationship.

What is the relationship between Customer Satisfaction and Customer Loyalty?

Unless a business has sole control over a market, product or service (and so there is no choice but for consumers to practice loyalty toward a brand), customer loyalty will usually only be demonstrated when customer satisfaction is high. Dependent on the gravitas of the interaction and just how positive or negative it was, as well as the outcome of it, customer satisfaction can lead on to customer loyalty. It is always cheaper (in monetary, effort and PR terms) for businesses to retain customers rather than to recruit new ones, and so customer loyalty should be hugely valued by businesses who can galvanise it.

Consequently, the link between customer satisfaction and customer loyalty isn’t just a ‘good service = loyal following’ singular route. If customer satisfaction is low and consumers don’t feel positively about a brand, they are more likely to try out a competitor’s product, service or experience. With the bar of expectation lowered, it may then be easier for a competitor to drive a positive interaction and foster customer loyalty onward – essentially ensuring that the customer remains loyal to them and will not return to other brands; ringfencing and securing their business.

Measuring Customer Satisfaction

Measuring customer satisfaction can be done in several different ways and at several different times through the customer lifecycle. The aim of measuring customer satisfaction should be to understand customer sentiment – in order to use this sentiment to build upon and improve the brand.

Feefo has a few tools that businesses can utilise to best measure, and understand, their Customer Satisfaction levels. These include:

Customer Surveys

Customer surveys are a targeted set of questions presented to a customer to understand their opinions and experiences with a brand, product or service. Tailored questions allow businesses to drill down into specific details to best allow for targeted improvements and business development. Surveys often fill knowledge gaps that are otherwise difficult to cover with standard customer feedback and give the opportunity for longer, detailed responses. Customers are often incentivised to complete surveys, but this isn’t always the case.

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The results of customer surveys are usually kept private and anonymous, but some brands do choose to present the results of such surveys in infographics or presentations (where appropriate). If contact details are supplied with individual entries, contact can be made to rectify or resolve an issue where presented.

Customer surveys can be sent out at various points of the customer lifecycle, but some points are likely to require more incentivisation than others for them actually to be completed. Customers are most likely to complete a full survey upon receipt of a product or service, and less likely to before purchase or a significant amount of time thereafter, when the experience is no longer fresh in their mind.

Customer Reviews

Of course, Feefo knows a thing or two about reviews! Customer reviews give those who have purchased from a business the opportunity to express their honest experiences in a third-party, independent facility – so they’re more likely to be genuine in their reviews.

Analysing the content of customer reviews gives a good overview of customer satisfaction as well as the ability to identify any areas for improvement to work on. However, the benefit of customer reviews being posted publicly isn’t just internal for the business; but external too. Customer reviews offer up social proof for those looking for information on the brand to others and help demonstrate that the product, service or experience is what the brand says it is!

NPS (Net Promoter Score)

The Net Promoter Score is a customer satisfaction measure based on a single figure that displays customer sentiment based on an individual’s likelihood to recommend the brand, product or service to other people. Scores vary hugely between industries and are variable on every individual who scores, but the range is between -100 (all respondents are ‘Detractors’ and feel negatively about the company) and +100 (all respondents are ‘Promoters’ and feel positively about the company enough to recommend it).

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Measuring Customer Loyalty

Customer loyalty is demonstrated through customer behaviour; in the way customers select which products and service to purchase, how customers experience the purchase process, how customers experience the post-purchase experience, the experience customers have with the products and/or service and how they decide whether or not to purchase with the same company again. There are lots of factors coming into play when we look at customer loyalty: economics, psychology, biology, chemistry and current affairs. If a business can understand what drives, prompts and nurtures customer loyalty for their consumer base, they’re able to make strategic business decisions to develop and grow the business suitably.

To measure customer loyalty, you must analyse both customer behaviour with repeat purchasing as well as which methods work to prompt repeat custom and what sentiments lead to business loyalty. The way to best track this using Feefo is to tap into Customer Insights. Taking into account sentiment at different stages of the customer journey, businesses can pivot and amend (and indeed, test) their efforts toward marketing, product development and customer communication to fit and best encourage loyal behaviour. This should see sales, and in particular, repeat custom, increase.

Repurchase Ratio

The Repurchase Ratio calculates the number of repeat customers to understand how likely customers are to buy with you again. Simply divide the number of customers who have purchased repeatedly by those who have only purchased once.

Upsell Ratio

Slightly different from the Repurchase Ratio, the Upsell Ratio tracks those who have bought more than one type or category of product.

Customer Lifetime Value

The Customer Lifetime Value (often abbreviated down to simply CLV) is a measure of the average total revenue a customer will bring in through the whole of their relationship with the company. The average purchase value multiplied by the average purchase frequency works out the CLV.

Customer Loyalty Index

Not dissimilar to the Net Promoter Score, the Customer Loyalty Index (CLI) measures loyalty over time. This takes into consideration all of the above factors to address not just how likely customers are to recommend, but also how likely they are to buy again in the future and how likely they are to buy other or different products from them in the future.

What’s the difference between Customer Satisfaction and Customer Loyalty?

Customer Satisfaction is a point-in-time sentiment toward a business, product, service or brand experience. customer loyalty is a continued customer behaviour that sees the consumer either declare loyalty to a single brand, product or service, or (ideally) demonstrate said loyalty by repeating their custom.

Does Customer Satisfaction lead to Customer Loyalty?

There’s definitely a correlation between customer satisfaction and customer loyalty. If a business isn’t able to provide products, services or brand interactions to the satisfaction (or, even better, to the delight!) of a customer, they are extremely unlikely to ‘give it another go’ and pursue purchasing or further interactions with that brand.

However, it really is imperative that businesses take advantage of positive interactions and high customer satisfaction when it occurs in order to best encourage loyal consumer behaviour. If companies don’t ‘strike when the iron is hot’ to maintain communication or interaction with the satisfied customer, they may well forget about their positive experience when the time comes to purchase again. This would result in a missed opportunity and so the recruitment process would need to begin again to gain them as a customer.

Although it is fair to say that customer satisfaction leads to customer loyalty, it must be maintained in order for customer loyalty to grow. It is not enough for a business to reach a high satisfaction level that encourages repeat custom and then to stop – because the customer will simply turn elsewhere as soon as their satisfaction is no longer reached.

So: what is more important… Customer Satisfaction or Customer Loyalty?

What came first, the chicken or the egg? There’s no one set measure that’s better than the other, and customer satisfaction often leads to customer loyalty. Customer Loyalty lowers costs and efforts in maintaining a customer base, and customer satisfaction ensures customers patron a business in the first place.

Both should be worked on and maintained in order to keep a healthy and profitable customer base – and if businesses are, as we mentioned at the beginning of this article, truly putting customers at the heart of everything they do, they’ll work on both in parallel and continually.

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