Customer Satisfaction Measurement
There are a number of different methods for measuring customer satisfaction. The simplest method involves the direct measurement of performance across various factors using simple rating scales. For example, a customer might be asked to rate the quality of housekeeping services in a hotel using a 10-point scale from ranging from poor to excellent. While this method is simple and allows the firm to track satisfaction, it is not diagnostic in the sense that it permits the firm to determine how satisfaction varies over time. To do this, the firm can measure both expectations and performance at the same time. Exhibit 10.9 illustrates how this might be done for a hypothetical health club.
The ongoing measurement of customer satisfaction has changed dramatically over the last decade. Although most firms track their customer satisfaction ratings over time, firms that are serious about customer relationship management have adopted more robust means of tracking satisfaction based on actual customer behavior. Advances in technology, which allow firms to track the behaviors of individual customers over time, provide the basis for these new metrics. Some of these new metrics include:
There are a number of different methods for measuring customer satisfaction. The simplest method involves the direct measurement of performance across various factors using simple rating scales. For example, a customer might be asked to rate the quality of housekeeping services in a hotel using a 10-point scale from ranging from poor to excellent. While this method is simple and allows the firm to track satisfaction, it is not diagnostic in the sense that it permits the firm to determine how satisfaction varies over time. To do this, the firm can measure both expectations and performance at the same time. Exhibit 10.9 illustrates how this might be done for a hypothetical health club.
The ongoing measurement of customer satisfaction has changed dramatically over the last decade. Although most firms track their customer satisfaction ratings over time, firms that are serious about customer relationship management have adopted more robust means of tracking satisfaction based on actual customer behavior. Advances in technology, which allow firms to track the behaviors of individual customers over time, provide the basis for these new metrics. Some of these new metrics include:
- Lifetime Value of a Customer (LTV). The net present value of the revenue stream generated by a specific customer over a period of time. LTV recognizes that some customers are worth more than others. Companies can better leverage their customer satisfaction programs by focusing on valuable customers and giving poor service or charging hefty fees to customers with low LTV profiles to encourage them to leave.
- Average Order Value (AOV). A customer’s purchase dollars divided by the number of orders over a period of time. The AOV will increase over time as customer satisfaction increases and customers become more loyal. E-commerce companies use AOV quite often to pinpoint customers that need extra incentives or reminders to stimulate purchases.
- Customer Acquisition/Retention Costs. It is typically less expensive to retain current customers than to acquire new customers. As long as this holds true, a company is better off keeping its current customers satisfied.
- Customer Conversion Rate. The percentage of visitors or potential customers that actually buy. Low conversion rates are not necessarily a cause for concern if the number of prospects is high.
- Customer Retention Rate. The percentage of customers who are repeat purchasers. This number should remain stable or increase over time. A declining retention rate isa cause for immediate concern.
- Customer Attrition Rate. The percentage of customers who do not repurchase (sometimes called the churn rate). This number should remain stable or decline over time. An increasing attrition rate is a cause for immediate concern
- Customer Recovery Rate. The percentage of customers who leave the firm (through attrition) that can be lured back using various offers or incentives. Companies that sell products via subscriptions (e.g., record and movie clubs, magazines, satellite radio or television) frequently offer special incentives to lure back former customers
- Referrals. Dollars generated from customers referred to the firm by current customers. A declining referral rate is a cause for concern.
- Social Communication. Companies can track satisfaction by monitoring customers’ online commentary. The number of blogs, newsgroups, chat rooms, and general websites where customers praise and complain about companies is staggering.
Firms also have another research method at their disposal: the focus group. Long used as a means of understanding customer requirements during product development, companies use focus groups more often to measure customer satisfaction. Focus groups allow firms to more fully explore the subtleties of satisfaction, including its emotional and psychological underpinnings. By better understanding the roots of customer satisfaction, marketers should be better able to develop marketing strategies that can meet customers’ needs.
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