Customer satisfaction does not always lead to loyalty. What are the drivers of satisfaction and loyalty that build customer equity? How do we improve retention?
Customer satisfaction does not always lead to loyalty; however, dissatisfied customers are very likely to be disloyal or silently defect. If the new customer acquisition rate is less than the defection rate, then it could lead to a rapidly shrinking customer base. So, how do we measure customer dissatisfaction and find out what is causing it?
Loyalty and Satisfaction
Typically, the relationship between satisfaction and loyalty is modeled as linear – that is, loyalty increases as satisfaction increases. However, research shows that is not true in most cases. The relationship is best modeled as non-linear with two thresholds. Below a certain level of satisfaction, there is a sharp drop in loyalty. Above a certain level of satisfaction, there is a sharp increase in loyalty. In between these two thresholds, there is a zone of indifference where an increase in satisfaction does not lead to an increase in loyalty.
The Loyalty-Satisfaction Model
Often, the two threshold values between loyalty and satisfaction are not known in advance. We infer the threshold values from data using a non-linear regression model to estimate the relationship between loyalty and satisfaction. Satisfaction can be measured with a global measure of satisfaction. In some cases, if we want to understand the drivers of overall satisfaction, we can look at perceived quality, prior expectations, and perceived value as the drivers of satisfaction. Loyalty is typically measured by repurchase intentions, willingness to pay a premium, complaint behavior, or willingness to recommend the brand to others.
The lower threshold of the loyalty-satisfaction curve marks the dissatisfaction zone. What is causing the dissatisfaction can be estimated by running a regression only on this part of the curve with product or service features and benefits as the drivers and loyalty ratings as the outcome. The model helps to pinpoint the attributes and features that are causing dissatisfaction.
Why should you care?
The market today is full of “me-too” look alike products and services. Delighting customers with superior product attributes or services may be costly and difficult. It may be easier to focus on retaining customers by reducing churn. A well designed customer tracking program may help you to keep an eye on why customers leave or become dissatisfied and fix the major problems before they become a serious drain on your customer base. The tracking program should look at not only customers who have defected, but also those who are showing tell tale signs of dissatisfaction such as reduction in purchases over time.