The Importance of Customer Satisfaction and Customer Engagement in Business Outcomes
Henry Ford famously said, “The customer pays the wages.” Translation: customers’ experiences ultimately determine whether or not a company stays in business. What Ford didn’t have any clever quips about was how to systematically quantify and improve the customer experience. Which customer feedback metrics should companies track to boost profits? Customer loyalty is one quality business leaders have long valued, as it is much more costly to attract new customers than it is to retain current customers. The importance of customer satisfaction was a hot business topic in the 1980s, as customer satisfaction was considered the best window into loyalty. In the late ‘80s, however, researchers questioned whether customer satisfaction actually impacts overall performance. They found that the link between customer satisfaction and higher profits, ROI, or share of market is dubious. What, then, should businesses follow to determine and improve customer loyalty? Is there a quantifiable link between the customer experience and business outcomes? PeopleMetrics research shows that Customer Engagement is the best metric to follow, as it incorporates customer loyalty and drives crucial business outcomes.
Over the course of more than 600,000 interviews with customers in service areas, PeopleMetrics defined Customer Engagement as the ideal metric to pursue. Customer Engagement is the emotional connection between a customer and a company or brand. To establish Customer Engagement, customers are asked questions about four traits: passion, retention, effort, and advocacy. Engaged customers are loyal to your brand; over their lifetimes, they will spend more time with your brand than with the competition. Engaged customers are also passionate about your brand—so passionate, in fact, that they go out of their way to do business with you. Finally, engaged customers are advocates for your brand; they are happy to recommend it to family and friends. Satisfied customers may leave for better or cheaper alternatives; engaged customers are emotionally invested in a brand, because they feel the company is emotionally invested in them.
Much of this research was conducted through PeopleMetrics’ annual Most Engaged Customers Study. The 2010 Most Engaged Customers Study will be available soon; the executive summary is available now.* In the 2008 Most Engaged Customers Report, PeopleMetrics proved a connection between Customer Engagement and business outcomes. Feedback from more than 10,000 customers was used to rank engagement for over 100 brands. PeopleMetrics then examined the relationship between Customer Engagement scores and publicly-available financial performance metrics. The impact of Customer Engagement was clear: companies with higher levels of Customer Engagement outperformed the average for their industry. For instance, companies with the highest Customer Engagement levels were found to yield an annual increase on ROI of 8% above the industry average, while companies with low engagement levels saw a decrease on ROI 23% below the industry average. Similarly, companies with highly engaged customers saw an average annual growth rate 13% higher than industry average, while companies with low Customer Engagement levels saw growth rates 36% lower than the industry average. Across many traditional business measurements, companies with highly engaged customers outperformed the competition, as the chart at left shows.
Today’s consumers are holding onto their dollars more tightly than ever. As consumer spending is stagnant, companies must provide more than just a good product at a fair price—they must also provide a positive emotional experience. Customer satisfaction is no longer enough—Customer Engagement is the new “must have” as far as the customer experience is concerned. Some companies still focus on building customer satisfaction, but as PeopleMetrics’ research has shown, Customer Engagement is the ideal quality to follow to improve the customer experience and see overall business success.