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When Customer Satisfaction Might Not Matter, And When it Does

January 06, 2010

Most large firms make some effort to measure customer satisfaction, the theory being that happy customers are loyal customers. There is much logic here. In any market that is even modestly competitive, it makes sense that unhappy customers will leave to check out other options.

 
But there is at least some evidence to support a rival notion: In a non-competitive market, even unhappy customers might not leave a firm. In the 1980s, a time when the multi-channel video entertainment and telephone or wireless markets were not competitive in a fundamental sense, not many customers ever changed suppliers. For the most part, there were no, or few, alternatives.
 
For a short time, lots of unhappy cable customers turned to “C-band” satellite dishes, but that market cratered suddenly once small dish services by DirecTV and Dish Network became available, and as cable operators completed their construction of cable networks in urban and metropolitan areas.
 
In modestly competitive markets, customer satisfaction obviously becomes more important. In most metro markets these days, there are just two major competitors, cable and telco, and yet bandwidth has leapt ahead while prices have remained stable or dropped. In all cases, price-per-Mbps of capacity has steadily declined.
 
Satisfaction still remains only a part of the churn picture, though. In modestly competitive markets the contestants tend to match offers, so there are not wide disparities in the product, the service or the price. Under those conditions, many “unhappy” or “somewhat unhappy” customers may see no compelling reason to quit one supplier and buy another.
 
In robustly competitive markets, satisfaction likely is quite important, as users are likely to be confronted with a fairly dynamic range of choices where it comes to features, price, conditions of service, terms of sale and other product attributes. Even there, though, retail packaging goes a long way towards offsetting unhappiness with any particular constituent service within a bundle.
 
People might be somewhat unhappy with a particular provider’s voice or video service, but the value represented by the other elements of the service, such as big discounts for bundled packages, might outweigh the unhappiness.
 
The point is that customer satisfaction plays a complicated role in retaining customers. One can assume that, at the beginning of a relationship, product value, features and price are the key drivers of behavior. Customer satisfaction with other elements of the service becomes apparent only over time.
 
For most products in competitive markets, whether modestly or robustly competitive, the key point likely is that customer satisfaction matters only in a relative sense.
 
An absolute level of satisfaction is important to some degree. But, for the most part, any single provider requires customer satisfaction levels that are “only” better than that experienced by that firm’s major competitors. The “I’m not so good, but the other guy is worse” approach might not be a goal, but it might work often enough to be quite useful.
 
That likely especially is true in businesses -- such as video entertainment, fixed or mobile phone service or broadband access -- that traditionally are “less liked” by consumers than many, if not most, other products. Airlines, another industry that traditionally gets relatively low marks for customer satisfaction, likely “benefits” from the same principle.
 
Almost no U.S. domestic airline providers actually have “high” satisfaction ratings. Typically, most consumers think the product is pretty bad. Still, at the margin, any single provider only has to be able to demonstrate that they are “less bad” than the other providers.
 
Something similar likely is at work in other areas. It often is supposed that “happy workers are productive workers.” As with the examples already noted, there is logic to that position. But it might not universally be true.
 
The Conference Board, for example, has reported that its studies of job satisfaction reached
an all-time low in 2009.The research showed that only 45 people are happy with their work.
 
But the U.S. Labor Department also reported in early December 2009 that worker productivity in the United States rose 8.1 percent in the third quarter of 2009.
 
You can guess why. The people still working at firms that cut employees have to work harder. Those who are still employed probably want to prove that they produce enough work so that they are indispensible.
 
The point is that though, most of the time, worker satisfaction is directly related to higher productivity, it isn’t always the case.
 
In other words, dissatisfaction does not have a simple and linear relationship to productivity. Neither does satisfaction have any clear and direct relationship to innovation.
 
Happiness in the workplace may have nothing to do with worker output, one might argue, at least at times. That might change again, as the economy eventually recovers.
 
The point is simply that customer satisfaction is no simple contributor to firm success or customer retention. Being the “best provider in the best business” is different from being the “best performer in a troubled business.”
 
Being any provider in a tough economy or highly-competitive market is different from being even the best provider in a robust economy.
 
Though not a goal to aspire toward, it sometimes might work well enough simply to be “less bad” than the other key competitors in one’s market. But business typically is not about bragging rights but financial performance. Sometimes key elements of financial success are achievable with “merely adequate” levels of customer satisfaction.
 
That isn’t to say such goals are good enough. When market leaders are challenged by truly disruptive new competitors, general unhappiness is likely to lead to sudden and dramatic negative financial results.
 
The issue in most communications and entertainment businesses these days is precisely that danger: not competition with one’s historic competitors, but competition from new providers that can merchandise the products that incumbents typically sell as their primary business.

Gary Kim is a contributing editor for ContactCenterSolutions. To read more of Gary’s articles, please visit his columnist page.

Edited by Marisa Torrieri

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