Podcast Episode #9: Are you In The Customer Satisfaction Trap?

Hi and welcome to the Key Customer Growth Podcast. My name is Jermaine Edwards and I have become obsessed with customer behavior and how people and organizations win with their best customers long term. After starting, failing, and growing my own companies, 30 customer growth projects, hundreds of strategies, and the study of 50 years of customer service research, I've seen firsthand how and why organizations win, lose, and win again with their most important customers. This podcast is my way of sharing those insights, failures, principles, and strategies so you can become what I call an Irreplaceable Advisor, someone so valuable your customers never want to leave. In an increasingly competitive world, how do you continue to deliver unrivaled value and deepen those most important customer relationships? Join me as your customer growth guide, your Your journey starts here. It's Jermaine Edwards, your customer growth guide, and this is the Key Customer Growth Podcast, and this is episode number 9.

And again, every week I get really excited about the particular topics that we get to explore together and just have a conversation. And ideally, I'd love to hear back from you on any particular topics that perhaps you wanted more detail of, or weren't as clear but you would like to get more clarity from, or particular topics that I haven't covered that you would find interesting for me to explore. Today we're going to talk about the whole idea of satisfaction or customer satisfaction and some of the things that may be misleading out there that would allow certain organizations that are applying it to believe that it has an intrinsic connection to certain kinds of customer results, like customer growth to be one of those, and What we're going to explore today are kind of really kind of 4 things. So what are the misconceptions around customer satisfaction? Why satisfaction might not be the best indicator for customer growth? What the alternative might be? And what you can start to do to begin to test this for yourself to really see if this is true and really kind of verify any things that I'm saying, because I don't want you to take it as gospel truth. I want you to go and look for yourself, and I've got some questions that you might be able to ask to go through that. So let's talk about just customer satisfaction by itself. So in its kind of early emergence in the 1950s, it was really coupled with this whole idea of the ability to capture and really harness customer data at scale and understand exactly how a customer thinks or perceives the things that we do with them and how beneficial that might be. And so in principle, I mean, it sounds really, really good, and it's always something you want to be doing is getting feedback from customer. Your customers, and it's really risen in prominence, and today it is the must-do business activity. Every organization on the planet will have, to the degree, some kind of customer satisfaction process, a way in which they collect information and feedback from their customers in the hope that that insight would help them to make some better customer decisions. I guess ideally that would be the case. Now, organizations to some extent, you know, will now look at this data and they will attribute it, or the ability to make decisions on that, as an opportunity to contribute to what they might think about in terms of customer retention, experience, and growth. And to the degree in which you can get really accurate data, there are some, some arguments to say that there may be some, some, some truth in that, that some of the information may help in some areas. Now, whereas customer satisfaction is often helpful and is helpful, it's not always very useful across almost every industry as a primary supporting driver for results like customer growth. And here lies the real challenge here, because it's so embedded in every facet of our business conversations. For many organizations, high customer satisfaction numbers has for them equated to growth. Now, if that's the case, and actually, if you look at some of the consumer indexes and general satisfaction across certain industry verticals and different countries, you'd actually look at that and think, actually, things are improving. Then if that's the case, why don't all companies with high customer satisfaction numbers have consistently growing or exponentially growing existing customers? And actually, I can prove it. I mean, you can look into your own business. That's, that's saying something here, and it's quite challenging. But let's begin at this place because I think there's some grounding in some, a lot of the studies that have looked at the empirical view and discovery of the validity of customer satisfaction. So there have been a number of academic studies that I've had the opportunity to read from reputable universities like Cornell, who have really studied the arguments for, from an economic, psychological, sociological, marketing perspective, to look at the aggregate view of customer satisfaction across industries and countries. And they found, like many other different institutions, numerous variances in satisfaction applicability and the results also that came with that. Three of the most interesting that I noted, and this is noted across at least 7 different sources, And if you want more on this, you can actually jump into my blog to see a little more detail on this. But essentially, there are 3 specific areas, and the first is regardless of methodology approach, regardless of where— what people were using regarding customer satisfaction, there were major differences in customer satisfaction by country. So what does that mean? Well, it means that there actually are broader cultural and behavioral norms that need to be accounted for when we think about the way in which we use customer satisfaction and how people view, how they rate, or at least attribute feedback to particular customers. Let's use some, some real interesting research around that. The second is satisfaction response rates in general. Although shown to be high in certain areas, they're actually highest in areas where the— there are competitive products. It's lower for competitive services and retailers and lower still for government and public agencies. So the response rates tend to be varied depending on the kind of service or product it is, meaning customers will weigh their time and the effort that they put in, the amount of thought they put in to responding based on specific criteria. So if it's a fairly basic product or if it's a high-value, high-competitive product, something that has significant, let's say, commercial or cost benefit or advantage to them, they're more likely to put a little more time aside and effort into responding. The other part to this is customers with customer satisfaction scores, or companies with customer satisfaction scores below 5, were outcompeted, without a doubt, outcompeted. Yet those companies that were scoring between 6 and 8 compared with competitors who were scoring 9, they actually saw almost no difference in company advantages in areas like revenue, market share, profit, and loyalty. And there are a number of different examples that we can find in this, particularly in places where there are simple monopolies, monopolies in different areas. So for example, uh, in the telecom space in the US, you'll find you know, fairly low scores with really big incumbent organizations like Comcast to be one of those, perhaps others, yet they have the highest market share, revenue, transaction customers, yet they score low in significant categories around customer experience because the competition to those things aren't as high. So what does this mean? Well, customers are showing wider weighted areas of preference. So rather than seeking to optimize across all satisfaction areas, organizations ideally must find out what their customers really value and optimize for this. So rather than continuing to try to optimize in categories you think are important to you, is actually looking at specific satisfaction areas in the places from a personalized perspective that are, that are valuable to those customers, and you'll get a much, much more rich view of where they are. So in addition to this research from Cornell and from some other study groups, there's actually some interesting studies that come out from the Association of Consumer Research, which had reviewed 200 studies on customer satisfaction research and models. And what they had noted was that a consumer that doesn't strive to— a consumer does not strive, I should say, to maximize his or her satisfaction in every purchase decision. So instead, a large proportion of consumption behavior is geared towards meeting some range of acceptable pre-consumption standards, and that is satisfying rather than maximizing satisfaction. So what does this actually mean for us? Well, it goes back to the third point, which is there are actually weighted areas of preference. So when you're actually sending out questions, you have to understand where the weighted areas of preference are, not for you, but for the customers you're working with. So the point is, this point is really important. So with that in mind, does customer satisfaction the numbers themselves actually equal customer growth? Well, the research in most cases says that it doesn't, and experientially, having worked with many organizations around the world, I've not seen the link. Now, this doesn't mean customer satisfaction isn't important. It's not what I'm saying. Instead, it suggests it should not be trusted as a primary indicator for customer growth and especially loyalty. And you should take my word for it. You simply just ask yourselves, you know, a few different questions. And this might be the core action that I'd ask you to consider in this podcast. So, question 1: Has continued customer satisfaction growth in your business actually resulted in year-on-year consistent growth from your most important customers? So, have a look. Is there an actual correlation between continued customer satisfaction growth and year-on-year growth from your most important customers? The other thing to that is, have you been able to track customer satisfaction as a core lead indicator to other significant customer growth measures? So other measures such as the increase in retention or upsell value or profitability or margin, have those things been correlated? If you don't have some of those answers, or if you do, hey, that's fantastic, you're ahead of the game. But if the answer is no to either of those questions, then we could be leading down the track to really verifying for your own business, just from an objective point of view, that actually we cannot rely on customer satisfaction alone or NPS or Net Promoter Score for that matter as helpful guides to real customer insight to drive customer growth. It's just not going to happen that way. So what do we rely on instead? So relying on satisfaction alone is dangerous and actually is a huge pitfall I see in most organizations, good companies that lose great customers. What do we do? Well, we have to begin to view this whole idea of what the outcome is that we're looking for is. So, we're not ideally looking for satisfaction. That's not what we're asking for from an organization, for a customer that we're working with. What we're looking for really is loyalty, because customer satisfaction is about a rating, whereas loyalty is about an emotional and relational commitment. And so ideally, both satisfaction and loyalty have different implications, benefits, and challenges. And I'd encourage you to look at my blog to have a look at some of those differences there. But ideally, let me give you just two, just to be, um, to give you some example here. So satisfaction benefits that we get. So we ideally can, we can connect with customers, we can see potential trends over time, we can understand some of the potential customer needs and wants. So some, some benefits can come out. Some challenges might be that oftentimes satisfaction is overly contextual and cannot be weighed accurately over time in the same conditions to determine, you know, a particular feeling of a customer. So there is little defense against bias. However, with LARTI, the benefits are the same, and actually there are added benefits to that. Challenges: it can be difficult to measure, it does take some effort and resource to set up, but generally we get much deeper and better insights. And so the implications for this is that we receive very deep and rich customer insights takes a little longer, it's a little more effort and resource to put in, but however, once we do, we have that measure, we know how to do that, we're going to get a much more accurate view, not of a rating, but actual emotional relational commitment from the customers we're working with. So let's just talk briefly about that. So the alternative is measuring loyalty and looking at loyalty much more intentionally within our businesses. And there's a big difference between what a customer says and what they do. So as a, as a partner to your customers, you want more than just information about your customers. You want real confidence in the relationships and the insights that you're really building with those customers that you want. And so there are actually 3 core drivers, practices that within the context of any high-performing organization with their customers, you'll be doing. You'll be looking at relationship influence. You're looking at the advantages you create through your value. You're looking at the intimate loyalty, which is where we're going to spend our time. And intimate loyalty is all about your ability to create positive and impactful customer experiences that connects shared values and establishes future commitment. So let me just highlight some words here. So positive Impactful experiences, shared values, and future commitments. Those are really important key terms to intimate loyalty. So we want to focus on the emotional triggers that impact day-to-day engagement with our customers and understanding the power of shared values, raising standards, being part of the customer's story, and the world in which they operate and how they actually make decisions, not just as a person but as an entity itself. And so if we look at just relationship theory in itself, and there's so many different, uh, different schools of thought and disciplines, different research areas around general human-to-human relationships, um, what's most interesting to me is the whole idea of Commitment-Trust Theory of relationship marketing, which states that between an organization, two fundamental factors have to exist. So trust and commitment. So trust, naturally we've understood this, and there's actually some really interesting work I did in an earlier episode on sticking through trust. And then we have commitment. So we must look at these whole, these two ideas, two really complementary ideas of trust and commitment for a really successful long-term relationship to exist. And intimate loyalty allows you to focus on those areas So if that's the case, then what we need to do is think about who we are together with the customer and begin to shape and design that purposefully in our conversations. So the next level of integration with satisfaction, or perhaps that comes and complements satisfaction, is the journey to evaluating emotional and relational commitment. And actually, the behavioral sciences— neuroscience, analytics, IoT, AI, or AEI, artificial emotional intelligence— are getting us much, much closer to having systematic ways of measuring this more accurately. And it doesn't come, you know, easily necessarily. There are some ethical things around this. There are some interesting things around how those things are integrated into daily practices within departments through technology and so forth. But despite this, there's great opportunity, and studies from institutions like the University of British Columbia or Berkeley show that generally the post-choice process— so after a customer is bought from you as an existing customer— the insights to understanding customer satisfaction The current models really are not stacking up as being as coherent as theoretical foundations for really understanding the underlying post-choice decision-making. And so what many of the research groups are attempting to do is to find a more pragmatic way, more integrated way, to increase the accuracy level of understanding post-purchase and long-term customer relationship evaluation. Now, there are a few considerations here, but my company, we spent 3 years testing to discover that he— there is a way to do this, and it's an evolving way, and it requires a kind of a multiplicity of different interconnecting systems, but it is very possible, and we're seeing some really great results. So if satisfaction is about a rating and loyalty is about emotional, relational commitment, then we must focus on loyalty as a primary customer metric. And for us, it's really behavior is key, and it comes down to having an integrated set of evaluating systems. That's what the new world is. An integrating set of evaluating systems gives us a much more accurate, real-time predictive view of customers' behavior and their choices and gives us much more confidence to make really solid customer decisions. And we've done considerable research into this, fully studying consumer behavior and the organizing theories around that. And we call this Seven Signals. And these Seven Signals help us to really complement some of the things that are out there in a much more powerful way and eventually integrate all those things into a seamless system, because data doesn't change. Data doesn't change people, but behavioral reasons do. And behavioral reasons that we see with our customers are often the main proponent of the things that we want to be able to capture more accurately. So if we don't have the right reasons behind why our customers do what they do, what they believe, and why, we will always be vulnerable to a customer leaving. Despite having phenomenal customer satisfaction scores. So, these 7 Signal Components are the evaluating principles that we see are most powerful. We look at social evaluation, messaging evaluation, behavioral evaluation, organizational evaluation, voice evaluation, economic evaluation, market evaluation. These 7 Signals— you can find this in the blog or in the show notes directly. These 7 signals are extremely powerful even when looked at individually. And you may not be reviewing all of these 7 now, and maybe just 1 or 2, in order for you to begin to capture really powerful, visible, visible insight about your customers that you can use to shape and redesign any kind of result that you want with your customers, we have to look at the way in which we view and really evaluate our customers differently. And this comes with intimate loyalty and understanding how to really build integrated systems that allow us to evaluate multiple different touchpoints and get a much more accurate view of our customers. So question to you right now is, how accurate is the view of your current customers? What does that literally look like? How accurate is your view of your, and knowledge of your current customers? And how do you know that accuracy is correct? How do you know? How do you validate those things? These are really important questions, and I believe will be a talking point for a long time to come. And we're gonna be at the forefront of talking about this and bringing things to the marketplace. So look out for that space. We're gonna talk more about this in the future. Hope this has been of value to you and really thinking about satisfaction versus loyalty and understanding that satisfaction should not be a primary driver. But if you are doing it, it's important for you to evaluate the weighted value that your customer has, what's important to them, and then have your own information as secondary at the least. What I'm encouraging to do is to really think more accurately about integrating multiple systems that feed into one overarching report. And if you want to know more about that, you can get in touch with me, my company, so we can walk you through what we're doing with customers around the world. And I'll see you in the next episode.

Hey, thanks for listening to the Key Customer Growth Podcast. Hope you enjoyed the episode and got some great value. If that has been your story today, please share, comment, and subscribe so we can reach more people with the message and impact them also. Most importantly, I want to hear your feedback on what you liked or what you would like to hear and see in the future. Look forward to hearing from you, and you can find all the show notes below. Wishing you success in becoming an irreplaceable advisor.