Quirks July 2014
“How to Link Customer Loyalty to Profits”
By Michaela Mora
“Can’t get no (customer loyalty insights) satisfaction?” Don’t just listen to the Rolling Stones; take the advice of Michaela Mora. In this article she discusses how two key elements in customer research, customer satisfaction and likelihood to recommend, must be analyzed along with data on customers’ actions in order to link these two elements to loyalty. All too often, Mora observes, clients look for indicators that directly contribute to company profits, therefore rushing to conclusions.
The author cautions that customer satisfaction does not lead directly to motivation to purchase. Often, “…first-time purchases are filled with expectations and the product’s ability to meet them will have an impact on satisfaction but not always on repeat purchases.” Additionally, dissatisfied customers may continue to still buy a product for a variety of reasons, including contractual obligations (subscriptions); lack of available alternatives; lack of drive to research other products; or price. Alternatively, satisfied customers may discontinue purchasing products for a variety of factors. Thus, we know that satisfaction is not the only predictor of future purchasing.
Another hot topic in customer research is NPS (Net Promoter Score), based on self-reported likelihood to recommend as a measure of loyalty. However, as the author points out, respondents may give high recommendation scores at the same time they give low satisfaction scores, as satisfaction and recommendations are often driven by different factors. And haven’t we all seen cases where we may be satisfied with a product but not willing to recommend it—perhaps because it is from a category that is too personal, or because we don’t want to share an “inside” tip? As Mora says, NPS scores alone may be an oversimplification in some cases.
Further, Mora points out that it is easy to make erroneous connections between customer satisfaction, customer loyalty, and profitability: “To make loyalty an actionable concept and link it to profits, companies should take into account the value contributed by customers… Repeat customers driven by deals and discounts are unlikely to be profitable and are far from being loyal.”
This synopsis was written by Lynn Croft, independent marketing and market research consultant. With 15 years of experience at companies such as Genzyme, Bayer Corporation, Shire, and Eli Lilly, Lynn has expertise in market research, market analysis regarding product launches, pricing and lifecycle management.