Why Customer Satisfaction is the Wrong Metric for Improving Business Performance

More than 70 years ago, organizations began to collect customer feedback through satisfaction surveys. By analyzing survey results, the goal was to more effectively guide decisions about product development, branding, sales, marketing and other business investments.

Today, more than 20 million surveys are being completed every day by customers around the world. Most organizations are tracking overall satisfaction using the two highest-scoring points on the commonly-used 5-point scale. While this type of customer satisfaction program was at one time considered to be an adequate way to gauge the pulse of the customer, today’s reality is that focusing solely on customer satisfaction data to direct business decisions may in fact be misleading.

It has long been proven that many customers who say they are satisfied with a service provider often defect to a competitor. In fact, as many as 65% – 85% of customers who defect reported they were satisfied or very satisfied before leaving.  On average, North American companies lose half of their customers every five years and the cost associated with acquiring a new customer is five times more than retaining an existing one.

While collecting customer feedback is still an important way of protecting and building customer relationships, forward-thinking organizations are measuring far more than customer satisfaction. They know that the most effective customer metrics are predictors of future business performance. They also know that value, as perceived by the customer, is the single most important indicator of market share and profitability. Understanding “what customers value most” can provide a CEO with one of the best predictors of business success.

Value is simply quality, however the customer defines it, at the right price. In other words, value is the relationship between price and quality. After experiencing a product or service, customers will ask themselves, “Was that experience worth the price paid?”

Compare this to customer satisfaction, which asks customers to evaluate only if they are satisfied with some element of the experience. Note that such a response does not take into account how much they had to pay.

Many best-in-class companies such as IBM, 3M and FedEx have used customer value management tools and techniques for decades. They can demonstrate a direct link between what customers value most and improvements in business performance.

The evidence is clear: Customer value metrics are critical performance indicators for every business leader today.