What is the difference between customer satisfaction and customer loyalty what is their relationship

The following post is an excerpt from Chad Keck’s upcoming book on Winning with Net Promoter. Complete the form at the bottom of this post if you’d like to be notified when the book becomes available.

How many times have you heard that customer satisfaction is the key to a long lasting, successful business? Or that, if you want to succeed in today’s ultra-competitive environment, your company needs to be obsessively focused on customer satisfaction.

Let me venture to guess that you’ve heard it so many times that it’s almost become a cliché.

While this idea contains a profound truth, it also contains a profound error.

I’m not saying that customer satisfaction is not important — it’s critically important.

I mean, if a customer leaves a store having purchased an overpriced product with a subpar customer experience, yeah they’re a customer, but they’re not happy about it and they’re likely not to return and convince others to do the same.

Knowing what made them dissatisfied is very useful information in those situations.

But even with the happiest customer experience, one in which the price was reasonable and the service was stellar, satisfaction is still backward looking. It only measures whether someone was happy with your product, service, or interaction. It tells you nothing about their future intent.

The most important information for the success of your business is that which is forward looking.

You need to know how customers will behave in the future. Will they buy your product or service again? Will they recommend your business to a friend or colleague? Will they rave about you to their Facebook and Twitter followers. Or, will they get your logo tattooed on their forehead?

Believe it or not, you don’t need some sort of fortune teller named Zoltar to show you whether or not you’ll have that loyal, tattoo-branded customer. If you listen, your customers will tell you themselves.

Customer Satisfaction vs. Customer Loyalty

One of the biggest mistakes businesses make is that they focus on customer satisfaction rather than customer loyalty. It’s easy to do because most people don’t even know the difference between the two. But the difference is as important as the difference between a loyal romantic partner and one who’s merely satisfied. Think about that…

[bctt tweet=”To succeed, you NEED to focus on customer loyalty rather than customer satisfaction” username=”promoter_io”]

Customer loyalty measures something more than satisfaction — it measures whether someone is willing to put their name on the line and recommend your product or service to others or if they are willing to stick with your product/service in spite of an occasional poor experience.

It’s easy for a customer to tell you they’re happy with your performance. It’s a lot harder to get them to say they’d recommend you to a family member, friend, or colleague, because now his reputation is on the line. No one wants their mother-in-law to call him up at two in the morning yelling, “Why on earth did you tell me to buy this horrible mattress …  I can’t sleep!?” A routine mother-in-law call is bad enough as is.

The fact is, there is no correlation between someone saying, “I’m satisfied” or not, and almost any other important metric:

• How much more of a product or service they are going to buy (upsells / expansion revenue)
• How long they’ll remain a customer (retention / churn)
• Her willingness to recommend or refer a business, friend or colleague (organic growth, lower CAC, higher LTV)
• Levels of customer support engagement

As far as your knowledge of that customer’s behavior is concerned, it stops at knowing his/her level of satisfaction.

In a sense, customer satisfaction is a feel-good metric. It’s easy for a customer to say he’s satisfied.

When you hear a company like GEICO say that 97 percent of its customers are satisfied, it’s good marketing, and I’m sure it makes the GEICO team feel proud. But stats like that don’t actually correlate to customer behavior. The next time a GEICO customer hears from a friend that USAA, for instance, is incredible and that he swears by it, that GEICO customer is probably going to pick up the phone and give USAA a call.

On the contrary, a loyal customer wouldn’t be so quick to leave at the first sign of a better option. In fact, they would be the one that would come to your defense and likely bring their friend to your side.

To say it again but in a different way, if you want to succeed in today’s ultra-competitive environment, your company needs to be obsessively focused on customer LOYALTY, not satisfaction. The difference is paramount.

12 Pages Posted: 30 Aug 2021 Last revised: 16 Feb 2022

Date Written: December 25, 2020

One of the most important aspects to ensure the attention of the customers is to provide the best and the most favourable products at this competing market. With customer satisfaction comes customer loyalty. The topic for this review article is to determine the relationship between customer satisfaction and loyalty and the factors influencing these concepts. Further we will get to know that how these concepts affect the relationship that customers have with the organization that helps the organization to be at a better place in the market or beat the competitors. A highly satisfied customer will spread positive WOM and a loyal customer leads to an increase in both sales and profitability. Customer satisfaction affects the trust and customer trust is an antecedent of loyalty. When customers connect with emotions through the product/ services of the brand then it creates a bond between the customer and the brand. The relationship between satisfaction and loyalty influences the profits. The more customer is satisfied, the more loyal towards the brand. A loyal customer leads to an increase in both sales and profitability. Customer satisfaction mediates the relationship between customer loyalty and service quality.

Keywords: Customer Satisfaction, Customer Loyalty, Trust, Service quality

If customers are satisfied, but not loyal, it’s time to shift the focus from providing great transactional service to building a long-term relationship.

Your customer satisfaction score has never been higher. But your boss keeps asking you why customers aren’t sticking around. The churn rate is increasing and customers just don’t seem to be loving your brand. Why is this? If customers are satisfied, surely they must also be loyal? Unfortunately, customer satisfaction isn’t the same thing as customer loyalty.

Customer loyalty can be a result of customer satisfaction, but only along with a lot of other factors. In this article, we break down why customer satisfaction isn’t the same thing as loyalty, and how you can measure and increase your own customer loyalty metrics.

Why Customer Satisfaction isn’t Loyalty

When we talk about measuring customer satisfaction, we’re usually referring to the surveys customer service teams send after a customer conversation. Customer satisfaction or CSAT only measures the customer’s attitude towards their latest interaction with the company. Was the issue resolved? If so, most customers will reply that they are satisfied with the service they received.

However, that customer might still be upset that they had to contact customer service in the first place. Imagine signing up for a weekly meal delivery service. Each week, they forget one of the ingredients in your box. Each week, you emailed them to ask about your missing ingredient. Each week, they promptly replaced the missing ingredient quickly with a great apology and a credit towards next week shop.

You might be satisfied with the resolution of each conversation – but you probably won’t be loyal to the company for very long.

Customer satisfaction is a transactional metric. It’s a one time happy face response. It’s not permanent.

 What is customer loyalty?

If customer satisfaction is a short term win, customer loyalty is the long term goal. Loyal customers will spend more with your company over their lifetime. They will recommend you to family and friends. They will stick with you because they want to, not because they have to. Loyal customers are the ultimate goal of any company that wants to stay in business.

That’s because loyal customers spend more money than new customers. Bain & Company found that “a shopper’s fifth purchase was 40 percent larger than the first, and the tenth purchase was nearly 80 percent larger than the first.” Keeping a customer coming back for more means they’ll continue to grow their lifetime value with your company.

Customer loyalty has two sides – how a customer feels and talks, and how a customer actually behaves. For example, a customer might recommend you to family and friends, but never repurchase again. On the flip side, a customer might be using your product on a monthly subscription plan, but deeply unhappy that they don’t have another option. Both are examples of loyalty manifesting in different ways.

Measuring Customer Loyalty

How do you know if customers are loyal or just satisfied? Measuring customer loyalty can be difficult because customers don’t always do what they say they will. You need to measure both how the customer thinks of your business, as well as the actions they take.

Measuring feelings

Asking customers if they are loyal provides responses that will help you understand where to start looking for loyalty opportunities. NPS surveys ask customers directly about their willingness to recommend your product. Adding a follow up question will provide qualitative information about what’s driving your customer’s loyalty (or disloyalty).

Measure the number of customers whose first purchase came from a referral to see how likely customers are to refer your product. If most of your new customers come from referrals, it’s a good sign that your existing customers feel loyalty to your brand.

A newer survey, termed the “product-market fit survey” by Sean Ellis, asks customers how disappointed they would be if your product disappeared tomorrow. Customers who feel strongly about your product would be upset to find a new solution. Customers who are primed to become disloyal would not be very disappointed if you were gone tomorrow.

Measuring behavior

Even if a customer says they love your company, there can be reasons they don’t act loyal. If their needs change, or their budget is cut or a competitor woos them over, you might see a seemingly loyal customer leave.

That’s why it’s important to measure not just what customers say, but what they do.

Churn rate, measuring either the % of accounts cancelling, or the revenue lost by cancelled or downgraded accounts, is the clearest indication of loyalty issues. If you don’t offer a subscription product, you can swap churn rate for repurchase rate, which measures how many customers make a second purchase.

Active usage is a great leading indicator of loyalty. Customers that are consistently active tend to be more loyal. If you see a drop off in usage, that’s cause for concern.

Measuring loyalty is the first step in understanding whether your customers are sticking around for life – or if they are just satisfied.

Moving from Satisfaction to Loyalty

If customers are satisfied, but not loyal, it’s time to shift the focus from providing great transactional service to building a long term relationship. Customers will stay loyal to companies that provide value. Here’s three ways to start creating more loyal customers:

Reduce effort – 96% of customers who report high effort experiences become more disloyal to the company in the future. The easier you can make it for customers to do business with you and purchase from you, the more loyal they will be. Measuring customer effort score is a great way to get started with reducing effort.

Increase engagement – customers don’t just want to be satisfied, they want to fall in love with your brand. This means interacting with the people behind your company, participating in community events and feeling like part of a mission. It’s about communicating with customers more often than just when they have a service inquiry. You want to have more positive interactions than negative interactions.

Invest in loyalty programs – offering perks for referrals or repeat purchases is a lovely way to reward loyal customers. Sometimes just the smallest external motivation can make customers fall into a loyalty cycle. It’s worth looking into Nir Eyal’s Hooked method for creating addictive products. A small external trigger (maybe an email or a notification) triggers the user into performing a small action in anticipation of a reward. They receive value from the interaction and want to keep the cycle going.

Moving customers from satisfied to loyal requires a shift from reactive to proactive thinking. Low customer satisfaction can contribute to disloyalty, but high customer satisfaction doesn’t ensure loyalty.

To create long term relationships with your customers, you need to understand how and why they act the way they do. Then, work to build value into your product and keep customers engaged. Keep your customer with these customer retention strategies in our mega-guide.