Today’s buzzwords, these terms are great performance indicators, if used properly
Customer “satisfaction”, “engagement” and “loyalty” are now commonplace business lingo, but how these should be used to drive business is perhaps less well understood.
While all three terms relate to customers’ sentiment (ie feelings) and their behaviour, these terms are often (and mistakenly) used interchangeably. There are also attempts to assign them some sort of linear relationship, for example, Satisfaction –> Engagement –> Loyalty.
The trouble starts when business managers are asked how these variables are best measured, and even more dauntingly, to demonstrate their impact on business outcomes.
It is useful therefore to unpackage these terms into their raw ingredients.
So what is Satisfaction?
This term is now most commonly defined as a customer’s post-use evaluation of a product or service.
This evaluation can come from a combination of factors including price, usability and convenience. For example, bank customers are often asked to evaluate their satisfaction (or lack of it) with their credit card’s interest rate or reward features, or the waiting times and teller’s helpfulness at their branch.
Satisfaction is therefore easily measured and deemed to be a good indicator of a customer’s likelihood to continue to use a service, or to repurchase a product. A business’ satsifaction index can then be translated into potential customer behaviour, for example, the number of transactions made or products owned.
Then what is Engagement?
Engagement originates from a different type of experience assessment, one that is more directly related to the customers’ personal desires, needs and goals.
For marketeers, engagement has become a more powerful (although somewhat less easily implementable) concept than satisfaction because it addresses the emotional connection with a customer. At a restaurant, rather than asking the customer to rate its cleanliness and service quality, engagement is about determining whether the customer’s dining experience was “memorable”, and whether he felt “passionate” about the food.
Given that engagement is a customer’s subjective assessment of the restaurant, engagement measures can be more difficult to interpret. However, an understanding of a customer’s engagement can help suggest how often and to what extent a customer may re-use a product or service.
And what is Loyalty?
Generally defined as a customer’s resistance to switching to a competitor’s products or services, loyalty is not necessarily a result of either satisfaction or engagement.
Nor is loyalty measured using Net Promoter Scores (NPS). NPS is an indication of how much word of mouth (WoM) a product or service can generate. However, unlike loyalty, WoM does not directly translate into business performance. For example, many customers may be willing to recommend a product or service but do not themselves intend to repurchase the product or re-use the service.
Rather, loyalty can be assessed by asking customers a more direct question such as “How often do you use a competitor brand instead of this brand?”. By doing so, businesses can then derive a customer’s lifetime value.
The time has come for Voice of Customer metrics to receive the same focus as other business KPIs. However, this is not possible without an acute understanding of the relevance of each metric.
A starting point for all businesses is the measurement of satisfaction. Satisfaction ratings provide businesses with a good indicator of customers’ potential for repeat purchases and product deepening. Customer engagement measures, while more difficult to design, help to highlight ways to truly bond with customers. Meanwhile, loyalty measures help business ascertain the potential for customer attrition and retention.
All three measures are not the same, but they all matter.