The Value of Customer Satisfaction

What is the connection between customer satisfaction and the bottom line?

Ever wondered how much customer satisfaction is worth? We all know and accept that it is a strategic goal for all organisations involved in the delivery of customer service. Yet in all my experience as a professional in this arena, I have never come across a customer services director who could articulate the financial value of customer satisfaction to their business. Conversely, I have never met a Customer Service Director who wasn’t measured on it. How bizarre. Big business is happy to measure it but doesn’t know what it’s worth.

One of the reasons for the difficulty in making the connection, is the intangibility of customer churn. That is to say, how dissatisfied does a customer have to be before they leave and sign with the competition? What might be an intolerable experience for one customer may well exceed all expectations of another. Then there’s competition. What if there isn’t any? Before deregulation how concerned were the large utility companies with customer satisfaction or British Telecom come to that. Interesting therefore that the telecoms sector is where war is being waged on customer satisfaction. Could it be that high customer satisfaction attracts new customers and helps retain existing ones? Sounds like that could be worth something.

There is no question that customer satisfaction is difficult to measure, but why is measurement so essential?

As a student I opened my first bank as an adult with a major high street bank. They attracted me with their offer of a £10 deposit to the account. I stayed with them through the four years of University, through the gradually increasing overdraft, the unintentional forays beyond the overdraft limit, the lost ATM cards, the replacement cheque books, the minimal deposits, the regular and very small withdrawals. Except for the penalty charges for the overdraft excursions the bank made very little money out of me, and in fact incurred untold cost in maintaining me as a student customer.

All that effort, clearly with the goal of keeping me in my earning years and reaping back their investment. In fact I felt consciously loyal to them at that point and even recognised that it was my turn to pay them back. So why was their customer service so poor once I became a full-time employee? I stayed with them for several years using them for mortgage services, investments and insurances but eventually churned to one of the first telephone banks. I’ve been with them a few years now and every time I phone them they are aware of my recent communications with them, requests that I have made and they don’t try to sell an unwanted insurance policy at the end of every call.

The dissatisfaction that developed as I transitioned from a student lifestyle to a working lifestyle was sufficient after a few years to outweigh the goodwill they had built in looking after me as a student. So where did it all go wrong? They failed to treat me any differently as a worker to how they had dealt with me as a student. Letters informing me of a £2.50 step over the overdraft limit that cost me £15 in charges plus a £25 overdraft re-arrangement fee soon had me heading for the door.

Two important lessons that can be learnt from this are that you must treat your customers personally, and customer dissatisfaction will hit your bottom line.

If someone had asked me as a student how satisfied I was with my bank as a percentage, I would have replied 80%. Before I churned that would have dropped to 30%. It is possible that I would have churned had there been more competition in the market at the time. It took the launch of a brand new concept to push me over the edge. So in my case, in a semi-competitive market the threshold for churn was 30%. Assuming that at any given time a business has a percentage of customers at 30% satisfaction in danger of churning, and that a customer satisfaction score of 50% is sufficient to retain them, then an increase in customer satisfaction of 20% will retain all those customers at risk. How many are there and what are they worth?

I estimate that my own net-present lifetime value (throughout 35 years of employment) to a mobile phone company is £50,000 given that my average bill is £150 per month. I have already spent £18,000 on calls and even if that drops fifteen years before I retire, I’ll conservatively rack up another £32,000. Assuming that my telecoms provider has one million customers like me, and at any given time 10% are below the 30% satisfaction threshold, the lifetime value of a 20% increase in customer satisfaction across the board is £5billion, or £250million per percentage. Plug your own numbers in if you dare.

Makes you think and makes you realise the true value of customer satisfaction.