An increase in customer satisfaction
Definition
Customer satisfaction: the feeling that the product and the way it was sold matched or beat what the customer expected.
- Satisfaction depends on the product and the experience together, so a good meal served rudely still sends the customer home unhappy.
- A satisfied customer finishes the purchase, does not ask for a refund and does not take up staff time complaining, so that sale costs the business less to make.
- Businesses track it through review scores, survey ratings and follow-up emails after an order, so they can see satisfaction slipping before sales do.
Note
Satisfaction is judged against expectations, so a budget business such as Wetherspoons satisfies its customers by doing exactly what it promised, not by doing more.
Customer loyalty and repeat purchase
Definition
Customer loyalty: when customers keep choosing the same business instead of comparing rivals every time they buy.
- Loyal customers stop shopping around, so a small price difference at a rival no longer takes them away.
- Repeat orders are predictable, which lets the business plan its production, staffing and stock with more confidence.
- Keeping an existing customer costs far less than advertising to find a replacement, so loyalty holds marketing spending down.
- Loyalty schemes reward the habit and give the business a record of what each customer buys, which it can use to bring them back again.
Example
- A Greggs regular collecting rewards on the app walks past two other bakeries to get there.
- One customer buys a £4 breakfast five days a week for fifty weeks of the year.
- That regular is worth £1,000 of sales a year, which is why keeping them matters more to the shop than winning any single sale.
Increased spend
- Satisfied customers come back more often, so what one customer spends across a year is far more than a single visit suggests.
- They buy more on each visit, adding the accessory, the dessert or the extended guarantee, because they trust the advice they are given.
- They trade up to the dearer version, since a customer who believes the business will support the product will risk more money on it.
- The business needs to discount less, because regulars are not choosing on price alone, so it can hold its prices instead of running a sale to fill the shop.
Recommendations and higher profitability
- Recommendations cost nothing. A satisfied customer telling friends, or leaving a five-star review, brings in buyers the business never had to advertise to.
- Revenue rises while marketing spending does not. The same customers return more often and new ones arrive on a recommendation, so sales grow without a bigger advertising budget.
- Costs fall at the same time. There are fewer refunds, fewer replacements and fewer complaints to deal with, and staff spend their hours selling instead of apologising.
- Profit can rise faster than revenue. Where a reputation for service lets the business charge a little more, the profit earned on each sale is larger as well as the number of sales.
Example
- Halfords fits bulbs, wipers and bike parts for customers, and charges a fee for the fitting on top of the part.
- The customer comes back for the next job instead of ordering online, so the service earns twice: once as the fee and once as the repeat sale.
Dangers of poor customer service
- Dissatisfied customers: some leave without buying, others demand a refund, and each one absorbs staff time that could have been spent serving somebody else.
- The cost of putting things right: refunds, replacement goods, free redelivery, goodwill vouchers and the hours spent handling the complaint all come off profit.
- Poor reputation through word of mouth: people tell more friends about being treated badly than about being treated well, and online that spreading happens within hours rather than over weeks.
- One-star reviews stay visible. A run of poor ratings on Google or Trustpilot is read by every future customer, long after the problem itself was fixed.
- Customers switch to a rival. With a competitor one street or one click away, nobody has to give a second chance to a business that wasted their time.
- A reduction in revenue: the business loses the repeat purchases of the customers it upset, plus the sales of everybody who read about them and never came.
Example
- A takeaway sending cold food and missing items slides to a two-star rating on Deliveroo.
- New customers scrolling the app never even tap on it, so the lost revenue includes orders from people who had never tried the food.
- Refunding the spoiled orders costs money as well, so the shop pays for the mistake twice.
Exam technique
- This topic is usually examined as analyse the effect on the business of improving its customer service, so run one chain all the way from the customer's feeling to the money.
- The chain worth learning is satisfaction, then loyalty, then repeat purchase and higher spend, then more revenue and profit.
- When the question is about poor service, say which revenue is lost and for how long the reviews stay visible, rather than only that customers leave.
- The mistake students actually make is stopping at "customers will be happy", which names a feeling and no business effect.
Self review
- Define customer satisfaction and customer loyalty.
- Give three ways a loyal customer is worth more than a new one.
- How does better service raise the amount a customer spends, and why does it reduce the need to discount?
- Name four dangers of poor customer service.
- Why is a bad online review more damaging than a complaint made in person?
