Why 'Customer Satisfaction' Misses the Mark — And What to Measure Instead

A 2016 survey of executive leadership found that 90% of CEOs believe that consumers are one of the greatest impacts on business performance and strategy. However, customer satisfaction provides an imperfect metric in driving performance, leading to blind spots and problems in long-term growth. Instead, we need to be focusing on a more accurate metric for predicting success: customer loyalty.

The Relationship Between Satisfaction and Profits

Customer satisfaction has not been in the spotlight without reason. Studies demonstrate a strong correlation between customer satisfaction and increased profits — with companies with high customer satisfaction reporting 5.7 times more revenue than competitors. Furthermore, improving customer satisfaction has been shown to increase revenue for 84% of organizations.

Why is this? There are a number of hypotheses.

Consumer surveys show that 42% of buyers will pay more for good customer service, suggesting that, when the satisfaction is high, organizations can charge more. In addition, the customer service platform, Zendesk, has even shown that improved customer satisfaction leads to better employee satisfaction, too, reducing high-cost employee turnover.

All these factors play a part in increasing profitability, but they don't tell the whole story.

Customer Loyalty: The Missing Piece of the Puzzle

While customer satisfaction may account for increased purchases in retail or SaaS companies, in healthcare, most individuals enroll in health insurance just once a year and try to avoid hospitals altogether. Yet member and patient satisfaction are still tied to increased profitability; in fact, hospitals with high satisfaction scores have a net margin that doubles that of hospitals with low satisfaction ratings.

What does this tell us? Increasing profitability is about more than just retention. It's about loyalty.

According to a study by Bain & Company, a 5% increase in customer loyalty increases profits by more than 25%, depending on the organization and industry. Consumer surveys from 2020 show that, on average, 57% of loyal customers spend more than new customers. Furthermore, when customers are loyal, they not only come back, but they bring others with them — with one report showing that loyal customers are four times more likely to refer friends to a company, generating new sources of revenue.

Three Tips to Shift Your Focus from Satisfaction to Loyalty

So, how do you build a loyal customer base?

Harnessing the long-term benefits of customer loyalty starts with letting go of vanity "customer satisfaction" metrics that assign any customer that is mildly satisfied — or at least not dissatisfied — as a happy customer. In addition, the three following tips can help organizations better measure, and improve, customer loyalty going forward.

Tip 1: Embrace more rigorous standards for success with NPS.

Net promoter score, or NPS, provides a more rigorous measure of customer loyalty than traditional satisfaction surveys — measuring a consumer's willingness to actively recommend a service or company. NPS asks customers to rate their experience on a scale of one to 10, counting only those who rate service as a nine or 10 as "promoters."

This scoring method, while harsh, has been helpful in allowing companies and services to identify more than just generic "satisfaction" and give a more meaningful measurement of true customer loyalty. Regularly monitoring this score — both during and after a customer experience or program — adds additional clarity into the consumer experience, and what can be done organizationally to ensure smoother processes throughout the customer journey.

Tip 2: Get buy-in by engaging your customers.

In the healthcare industry, customer satisfaction and NPS scores have historically been low, with 48% of health plan members citing dissatisfaction with their services according to the 2020 J.D. Power U.S. Commercial Member Health Plan Study. This dissatisfaction provides an interesting insight into what members — and many customers — are really looking for in an organization: buy-in.

According to the survey, health plans that were willing to engage with members to coordinate care and navigate care costs had the highest satisfaction scores. Why? By engaging with members, health plans were able to collaboratively develop win-win strategies for delivering effective care while maintaining lower out-of-pocket costs. As consumers were consulted in the process, their buy-in increased both to the prescribed care recommendations and to the health plans themselves.

This focus on buy-in can provide the key for other organizations looking to strengthen brand and customer loyalty. One report found that 77% of customers prefer organizations that actively seek out and apply feedback, reaffirming the trends seen in healthcare.

Tip 3: Lead with empathy to establish trust.

"Authenticity" has become a buzzword in the world of websites and social media, with consumers expecting more authenticity from corporate leadership. But what does this really mean? (Hint: It's not as simple as blunt honesty or a "take it or leave it, this is who we are" policy.)

The call for more authenticity in business speaks to a desire for corporations — large and small — to step away from a focus on statistics to a focus on people — the people who work there and the people who shop there. It's a desire to be seen and treated as an individual, not a "consumer," and that requires empathy.

According to a study published by the Harvard Business Review, organizations that rank high in corporate empathy financially outperform organizations that rank low in empathy.

The methods for demonstrating empathy will vary by organization — ranging from designated "empathy" funds to allow companies to send sympathy gifts to reducing hidden fees to creating member or customer support teams to provide ongoing personalized follow-up and support. However, the overall message remains the same: empathy has a statistically significant, positive impact on increasing customer loyalty.

Fine Tuning Your Feedback

The first few board meetings following a switch from customer satisfaction metrics to the harder-to-achieve customer loyalty metrics will be uncomfortable, but ultimately worth it.

As you learn to ask for what measures truly predict the happiness of our customers, you're better positioned to predict not only satisfaction but retention, loyalty and long-term business growth.