Customer satisfaction
is a term frequently used in marketing. It is a measure of how products and services
supplied by a company meet or surpass customer expectation. Customer
satisfaction is defined as "the number of customers, or percentage of
total customers, whose reported experience with a firm, its products, or its
services (ratings) exceeds specified satisfaction
goals."[1]
In a survey of nearly 200 senior marketing managers, 71 percent responded that
they found a customer satisfaction metric very useful in managing and
monitoring their businesses.[1]
It is seen as a key performance indicator within business
and is often part of a Balanced Scorecard. In a competitive marketplace
where businesses compete for customers, customer satisfaction is seen as a key
differentiator and increasingly has become a key element of business strategy.[2]
"Within organizations, customer satisfaction ratings can have powerful
effects. They focus employees on the importance of fulfilling customers'
expectations. Furthermore, when these ratings dip, they warn of problems that
can affect sales and profitability.... These metrics quantify an important
dynamic. When a brand has loyal customers, it gains positive word-of-mouth
marketing, which is both free and highly effective."[1]
Therefore, it is essential for businesses to effectively manage customer
satisfaction. To be able do this, firms need reliable and representative
measures of satisfaction.
"In researching satisfaction, firms generally ask customers whether
their product or service has met or exceeded expectations. Thus, expectations
are a key factor behind satisfaction. When customers have high expectations and
the reality falls short, they will be disappointed and will likely rate their
experience as less than satisfying. For this reason, a luxury resort, for
example, might receive a lower satisfaction rating than a budget motel—even
though its facilities and service would be deemed superior in 'absolute'
terms."[1]
The importance of customer satisfaction diminishes when a firm has increased
bargaining
power. For example, cell phone plan providers, such as AT&T and Verizon,
participate in an industry that is an oligopoly,
where only a few suppliers of a certain product or service exist. As such, many
cell phone plan contracts have a lot of fine print
with provisions that they would never get away if there were, say, 100 cell
phone plan providers, because customer satisfaction would be far too low, and
customers would easily have the option of leaving for a better contract offer.
Here are the top six reasons why customer satisfaction is so
important:
- It’s a leading indicator of
consumer repurchase intentions and loyalty
- It’s a point of
differentiation
- It reduces customer churn
- It increases customer lifetime
value
- It reduces negative word of
mouth
- It’s cheaper to retain
customers than acquire new ones