WHY SATISFIED CUSTOMERS DEFECT by Thomas O. Jones, W. Earl Sasser, Jr

Customer Satisfaction Example Survey by a light manufacturing, wholesale, distribution and consumer service company ( 8 divisions). 82% of customers scored as “Satisfied” or “Completely Satisfied” 48% - Completely Satisfied (5) 34% - Satisfied (4) “The battle plan is to find out what is making our least satisfied customers mad and fix it!”

Customer Satisfaction Example False Managerial Assumptions If a customer responds with “satisfied” or above, the company-customer relationship is strong The investment required to change customers from satisfied to completely satisfied will not result in enough financial return Addressing those who are least satisfied is the best use of resources

Customers Complete customer satisfaction is key to securing customer loyalty generating superior long-term financial performance. Completely satisfied customers are much more loyal than satisfied customers. Any drop in total satisfaction results in a major drop in loyalty, especially in highly competitive industries. In less competitive markets, providing outstanding value is the only reliable way to achieve outstanding customer satisfaction and loyalty.

Measures of Loyalty Intent to repurchase Primary behavior( recency, frequency, amount, retention, & longevity) Secondary behavior( customers referring other customers)

Loyalty True long-term loyalty vs. false loyalty False loyalty can be generated by government regulations, high switching cost, proprietary technology, and strong loyalty promotion programs (e.g., frequent flyer). Define a target customer, and deliver a product or service which completely meets their needs, in order to secure long term loyalty Often company attract wrong customers and lack adequate process for turning around the customers. Different satisfaction levels require different actions

Satisfaction-Loyalty Link Xerox finding: Totally satisfied customers were six times more likely to repurchase Xerox products than its satisfied customers. Findings of 5 markets: automobiles, personal business computers, hospitals, airlines, and local telephone services. (most competitive to least competitive). In most competitive industries, only highly satisfied customers are loyal. In least competitive industry, most customers are loyal regardless of satisfaction level; however, once barrier is eliminated, the loyalty shifts in remarkable speed.

Customer Types Loyalist/Apostle Completely satisfied customer who keeps coming back (company’s bedrock) Defector/Terrorist Defector- merely/dissatisfied, neutral (can be turned into loyalist) Terrorsist- very dissatisfied customers who tell others of their bad experience Mercenary Those who may be completely satisfied but not loyal (chase low price, buy on impulse, pursue new trends, seek change for change sake, etc. Hostage (monopolistic environment)

Customer Satisfaction, Loyalty, and Behavior Loyalist- Apostle HIGH Stay and Support Defector- Terrorist LOW-MEDIUM Leave and Unhappy Mercenary Coming and going Hostage Trapped

Elements of Customer Satisfaction Basic elements of the product or service (all competitors expected to provide these) Basic support services (make the product or service effective, and easy to use) Recovery process (for countering bad experiences) Extraordinary services (make the product or service seem customized )

How to Listen to Customers Customer satisfaction indices Feedback (comments and complaints) Market research Frontline personnel Strategic activities (e.g., Intuit bring in customers to participate in product development, MTV have employees with similar demographics of its viewers – 18 to 24 year olds)

Lessons Learned Complete customer satisfaction is key to securing customer loyalty generating superior long-term financial performance. Completely satisfied customers are much more loyal than satisfied customers. In most competitive industries, only highly satisfied customers are loyal. In least competitive industry, most customers are loyal regardless of satisfaction level; however, once barrier is eliminated, the loyalty shifts in remarkable speed. Define a target customer, and deliver a product or service which completely meets their needs, in order to secure long term loyalty Using a variety of measurement methods including surveys, unsolicited or casual customer feedback, and market research, frontline personnel, and strategic activities.