A customer walks into a donut store, queues up to purchase a cup of coffee, and a glazed donut. The queue shuffles along quickly, the salesperson behind the register performs her duties, smiles, hands over the change, and wishes the customer a great day ahead. The following day, the customer returns to the store to make the same purchase again.
Does the customer have loyalty towards the donut store? Or is she simply a satisfied customer? Is there even a distinct difference between the two?
What Do They Mean Exactly?
Customer satisfaction is a measure of the degree in which a product or service meets a customer’s expectations. The self-reported measure (or the personal opinion) a customer has of a company or business. The more satisfied a customer is, the happier they are with the company or the goods purchased and the services obtained.
Customer loyalty on the other hand, is a customer’s intention or predisposition to purchase from the same business again. While they might seem similar, (since a satisfied customer is more likely to return and purchase again) they are actually quite different.
How Are They Different?
Using the same example from above, the donut customer is satisfied with the business. Loyalty only enters the picture when a different donut store opens the following week, offering coffee and donuts at a discounted price, and yet she continues to purchase from the same donut store as before. There was an opportunity to purchase the same goods at a discounted price but she chose to continue visiting the same shop—this is one kind of behaviour organizations classify as customer loyalty.
How Are They Measured?
Since customer satisfaction is a measure against the benchmark of a customer’s expectations, self purported value, it is influenced by a number of factors—sometimes even when they have no direct relationship with the business. Customers can report a low level of satisfaction when they’re in a bad mood, or when they expected a level of service that the business was famous for, but had failed to achieve. Usually, the CSAT (Customer Satisfaction Score) is measured through surveys and questionnaires. If you’re using Zopim, you can enable our “Chat Rating” feature to find out the subjective satisfaction levels (CSAT) of your customer. This is a quick way to gauge your overall customer satisfaction levels.
Compared to customer satisfaction, customer loyalty is defined and measured by a business through market research surveys or observations.
How do satisfaction and loyalty benefit the company?
Customers who are satisfied are more likely to promote the company through word-of- mouth because satisfaction is something people often talk about. Loyal customers on the other hand, translate words into actions by engaging in repeat purchases. The best part is that loyal customers tend to purchase from the same brand or business without shopping around for the best deals or the best price.
Loyalty also creates increased profit through enhanced revenues (like when die-hard customers insist that their friends purchase from you), reduced costs to acquire new customers and their lowered price sensitivity. Loyal customers are also cost efficient because they are already familiar with the business’ existing modus operandi—thus they require less help, introductions, and free trials.
Numbers Don’t Lie
It costs 5 times more to acquire new customers than it does to keep current ones, thus, it’s financially wiser for businesses to work on retaining satisfied customers and converting them into loyal ones, rather than trying to attract brand new customers. Reducing churn rate (the percentage of subscribers that discontinue their relationship with a business) by 5% can also increase business profits by 25%-95% further indicating that converting customers into loyal ones should be something that businesses place in high priority.
Loyal customers, they don’t just come back, they don’t simply recommend you, they insist that their friends do business with you. ~ Chip Bell
While a satisfied customer may not be a repeat customer or a loyal one, they are the first step in the journey towards customer retention. Satisfied customers aren’t always happy with your business (it might just mean that they didn’t find anything wrong), but they’re still more likely to speak positively and make repeat purchases, albeit only in the absence of a direct competitor.
Knowing the benefits of having satisfied and loyal customers is not enough. Practicality comes only when you know how to transform regular customers into raving fans. If you’re really interested, stay tuned for the second installment of this series and we’ll discuss the perfect plan to creating perfectly loyal customers.
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