Deeper insights from Customer Satisfaction (Beyond Net Promoter)

[This is a guest post from Mike Pritchard, President of 5 Circles Research, a consulting and training firm based in the Seattle area]

With all the debate over the past few years about the Net Promoter Score, some people seem to have forgotten that Customer Satisfaction research can lead to deep insights about customers that will help organizations in many ways. Even the idea that higher levels of satisfaction are related to improved profits seems to have become a cliché. “Satisfaction would be nice,” some seem to say, “but I can’t focus on it now. Spending more time on sales is more important“.

Perhaps one reason for the lack of respect for customer satisfaction is the fact that the original studies are quite old. Perhaps too, managers think that focusing on the fundamentals isn’t as likely to pay off quickly. After all, it is easy to see and measure sales activity. But if you are chasing after the wrong customers that activity is likely to be inefficient at best, or even wasted. In today’s economy, it is critical to focus on the customers and prospects that will be profitable. And that doesn’t mean just the most obvious. Just because a customer is vocal doesn’t mean that they’ll be profitable.

There are a number of published studies showing the link between customer satisfaction and financial performance, including a paper from the Burke Institute.

Benefits from satisfied customers

Each industry is slightly different, but there are some consistent principles:

1. Satisfied customers tend to continue to buy from the same company. They are easier to market and sell to (for repeat purchases, increased usage or cross selling).
2. It costs much less to retain existing customers than to acquire new ones.
3. Satisfied customers tell others about their positive experiences, while dissatisfied customers tell even more people about their negative experience.

By understanding what distinguished satisfied customers, sales efforts can be directed more effectively. Obviously it is much better to target the prospects that will become satisfied customers than those who are a drain on resources. But too many companies don’t understand how to identify those good prospects. Focusing on the prospects whose product needs are aligned with what you are offering is a start, but you can do much better with the right kind of research.

What to measure

The question used for the Net Promoter Score is one of the three main questions that are used to develop the Secure Customer Index. The question wording will vary with the type of product or service, but you should ask about Overall Satisfaction, Willingness to Continue Use (or Repurchase), and Likelihood of Recommending. So a typical set of questions would look like this:

• How satisfied are you overall with XYZ?
• How likely are you to purchase another XYZ in the next six months?
• How likely are you to recommend XYZ to friends or colleagues?

Question considerations

Most researchers prefer to place the Overall Satisfaction question early in the survey, perhaps as one of the first questions. This avoids the survey taker being influenced by other questions (such as detailed questions about specific attributes or contact with customer support). But if the experience was some time ago the other questions may refresh memory and thus the results may give a truer overall perception. There is no absolute for placement, but you should be consistent to allow tracking to be valid.

The Repurchase question wording is quite varied and situation dependent. It is generally helpful to include a timeframe when appropriate. For example, asking about renewal at the end of the current subscription works well. For an appliance, asking a specific timeframe isn’t likely to do much (except perhaps to make the survey taker nervous that your products won’t last long!). In this case, ask “How likely would you be to buy another Brand A refrigerator when you next need one“, or something similar.

The Recommendation question wording is usually fairly standard, but try to tailor it to be a good fit for the product or service. Some researchers like to also ask a question about whether the survey taker has actually recommended, but this is uncommon – perhaps because there is a fear of encouraging the survey taker to lie.

The scales used for these high-level satisfaction questions should match scales you use elsewhere in the survey. If you are using the built-in Net Promoter Score question type from QuestionPro, you’ll want to use the same 1-10 scale for the other questions. If you aren’t using Net Promoter, choose at least a 5 point scale, perhaps a Likert scale.

How to classify customers

You’ll need to decide how to code the responses in order to perform the classification. A common approach for 5 point scales is to only count a score of 5 for the most satisfied etc. With a 10 point scale, you might call scores of 9 or 10 most satisfied, and 1 or 2 least satisfied (top box and bottom box). Then you classify each customer in your survey based on the responses, using the following scheme.

Secure customers are those who are most satisfied overall, most likely to repurchase, and most likely to recommend (scoring top on all three questions). These are the most valuable customers overall – because they buy the most, are the best advocates, and generally cost less to service. They probably won’t need expensive changes to remain classified as secure, but it is important that the company continues to provide appropriate support to keep them in the category. For the example study in the article, this group was 88% likely to remain a customer after 1 year, and 33% were likely to increase purchases. These results will vary by industry, may be driven by other factors including economic conditions, but the difference between secure and other customers is likely to remain. The percentage classified as Secure is known as the Secure Customer Index, and is a simple measure that can be tracked over time.

Favorable customers are generally well satisfied, scoring top or second for all the three questions. Some call this group Satisfied, but we prefer a different term as the word satisfied doesn’t adequately convey that there are benefits to be gained by directing attention to the category. Improvements directed at this group tend to be cost-effective because they are the easiest to move to the secure category where they become even more valuable. In the example study, this group was 57% likely to remain a customer, and 20% likely to increase purchasing.

The Vulnerable group is those who have middle of the road scores on all measures. This group is not usually as important to target as others, in part because the impact of changes is not as assured. Over time, the percentage of customers in this group should be minimized.

The Dissatisfied group is comprised of those customers who score lowest on any of the three satisfaction measures. It is often tempting to focus energy on making changes that improve perceptions by this group, but this may not pay off. Rather, learning the causes of the dissatisfaction will help the company to avoid seeking more customers who may also be dissatisfied for the same reasons when there are no immediate fixes. For example a customer who is driven mainly by low prices is probably not a desirable customer for a company seeking to differentiate through added services. Better targeting should minimize the size of this group.

Profiling for success

Once you have identified which customer falls into which group, you can examine other information to determine what are the common characteristics. For example, are the Secure customers buying a particular combination of products? Perhaps one of your products is a dud, and those who buy it have lower perceptions overall even if the rest of the products being purchased are received well. If so, it might be a good idea to de-emphasize sales until the product can be improved. Perhaps Secure customers are more likely to be from a particular industry. Your sales people would love to have a clearer target to go after, and your marketing efforts can be refined to provide better support.

Further information

Beyond the approaches described here, customer satisfaction research can be used to identify drivers of satisfaction among product attributes and other characteristics of the company that will help prioritize your efforts.

Just remember, learning more about your customers can be very valuable – as long as you measure the right things and then do the right things.

Idiosyncratically,

Mike Pritchard

More Reading:

• Net Promoter Score QuestionType: http://questionpro.com/help/245.html
• “Linking Measures of Customer Satisfaction, Value, and Loyalty to Financial Performance“

[Mike Pritchard is President of 5 Circles Research, a Seattle-based firm specializing in helping people conduct their own surveys through consulting and training. More information about training classes for do-it-yourself surveyors and the SurveyTips blog can be found at www.5circles.com.]