If you only ask your fan club what they think of you, then ratings will be fantastic. In this article, columnist Reg Goeke, looks at the perils of measuring customer satisfaction and why the data sometimes isn't telling you what you think it's telling you.
I’ve just returned from a business process improvement conference attended by approximately 1500 health care professionals. These professionals represented all levels of the health care value chain – from manufacturers to distributors to individual practitioners to retailers.
At one point I asked the group how many of them were relying upon some measure of customer satisfaction to track their effectiveness in the market place. Not surprisingly, nearly all in attendance responded that they were – with varying levels of sophistication and quantification. I then asked, "How’s that working out for you?" The response – embarrassed chuckles and knowing smiles – was equally unsurprising.
So why do so many business and quality professionals continue to spend vast sums of money on measures of customer satisfaction? Is this just a legacy that businesses don’t know how to stop? Or is it because business people are genuinely unaware of more recent, more powerful alternatives?
Satisfaction Metrics Fail on Two Counts
Business people of all stripes have long been aware of the fact that the metrics of Customer Satisfaction have failed to be good predictors of business performance. Just ask AT&T or Cadillac about the relationship between customer satisfaction and market share that they experienced during the 1980’s. During the same period of time in the mid- 1980’s that Cadillac’s satisfaction scores were increasing, their market share was declining.
Effectively, this was what was happening:
Figure 1: A Cadillac
Figure 2: Appearance of Happy Customers
Figure 3: Declining Marketshare
The obvious question is "Why?" And the answer provides one of the two key reasons why the metrics of customer satisfaction have failed to be useful predictors of business performance.
A Myopic View of Customers
When business researchers conduct surveys of customer satisfaction, who completes the survey? The all-too-typical answer: their own customers! For example, among Cadillac’s many customers in 1985, some were very happy with their ownership experience, and some were quite unhappy. The resulting average customer satisfaction score combined those two perspectives and produced scores ranging from 6 to 7 on a 10-point performance scale. Now, what happens when those unhappy customers discover greater value in a new competitive offering – such as a Toyota? The answer is that they leave Cadillac and become Toyota customers.
Figure 4: Customer migration to Toyota
So, what’s happened to Cadillac’s customer satisfaction scores? Obviously, they went up because the "drag factor" of unhappy customers was gone. What happened to Cadillac’s market share? Clearly, it declined. This myopic view of customers will often produce very misleading results – and yet, this is the guiding metric used by many process excellence practitioners when deciding where to focus business process improvements. The same myopic view of business dynamics extends to the Voice of the Customer (VOC) metrics used by many businesses today, and is the reason why we recommend using metrics associated with the Voice of the Market (VOM).
Failure to Account for Trade-offs
The second reason for the failure of customer satisfaction metrics is that they don’t take into account the trade-off between Quality and Price – a fundamental evaluation that every consumer goes through, whether in a B2B or a B2C business environment. This failure often produces a very distorted picture of reality.
Figure 5: Customers make trade offs between Quality (Q) and Price (P)
To the extent that measures of customer satisfaction ask about price at all, they simply treat price as one among many levels of "benefits." And when that happens, customers will always tell you that a low price is better than a higher one.
But that’s not how customers actually make purchase decisions. When faced with the choice between a low quality product at a low price and a higher quality product at a slightly higher price, many customers will choose to pay a bit more for the higher quality product.
Now, it should become clear that a failure to take this trade-off into account can lead process excellence professionals down some very dangerous improvement paths. When the metrics of satisfaction (and your own sales people) are telling you that lower prices are always better, your improvement initiatives will inevitably be focused on cost cutting measures – which may actually diminish your capacity to deliver superior value. The metrics of customer value, however, which do account for the trade-off between quality and price, may actually reveal that you should focus your improvement initiatives on specific aspects of quality – and those critical-to-quality factors may well go beyond the literal quality of the product itself.
Interpreting the Quality/Price Trade-off
Suppose, for example, that you are an optical laboratory that manufactures eye glass lenses, and your survey of Eye Care Professionals reveals that price is the dominant driver of value, with quality playing only a minor role. This represents a classic commodity situation in which no laboratory has succeeded in differentiating on the basis of quality. Because Eye Care Professionals don’t perceive any difference in performance on those factors that are critical-to-quality (CTQs), they are forced to base their purchase decisions on price. The implication for process excellence professionals is that they absolutely must understand what those CTQs are and which ones are most important. And they’ll also need to understand the criteria that define those CTQs in order to prioritize their process improvement initiatives.
Figure 6: Learning to see - how the eye doctor perceives value
On the other hand, suppose you are an Eye Care Professional and your survey of Patients/Consumers reveals that quality is the dominant driver of value. This situation is likely to be one in which price competition has squeezed all the variability from price, leading patients to base their choices on those CTQs that are most important to them. In this situation, the quality professional must determine not only the importance of the CTQs, but also her organization’s performance on those CTQs. It’s the competitive performance ratings from customers and prospects that will lead to the identification of value performance gaps which can be leveraged for differentiation, leading to significant market share and revenue gains.
Figure 7: Learning to see - how patients perceive value
The metrics of customer value represent significant advances over the metrics of satisfaction, and are especially useful to process excellence professionals who seek to identify improvement opportunities that will drive organic business growth. Customers are increasingly making purchase decisions based on value received. The key to effectively competing for those customers is to understand value better than anybody else!