Understanding The Difference Between Customer Satisfaction and Customer Loyalty

Recently a friend was doing his taxes with an online service. When he finished, a survey popped up on his computer screen asking: How satisfied are you with our service? If the service was fast, convenient and easy to use, he might have answered that he was very happy.

But does this mean that he will be a loyal customer and use the service again next year? Not necessarily. There is a big difference between customer satisfaction and customer loyalty - a difference that can impact a business's bottom line.

Customer Satisfaction - "Not a High Enough Bar"

Ken Bernhardt, marketing consultant and Regents Professor of Marketing Emeritus at Georgia State University, writes, "A number of studies have shown that satisfaction is not a high enough bar- many satisfied customers defect when an alternative becomes available."

Consider this: there are two BMW dealerships nearby. Dealership A is five miles closer to my home, so I go there. If you asked me, "Are you satisfied?" I would answer, "Yes, sure. It's great." But I move, and now Dealership B is closer to my house. I switch because it's much more convenient. I was satisfied with A, but I "defected" when a better alternative became available.

Now I'm a happy, satisfied customer of Dealership B. Say my trusted service mechanic leaves Dealership A and is hired to Dealership B as well. Meanwhile, I develop a great working relationship with their sales manager. I might just be edging into loyal territory here. It's not that Dealership A did anything wrong. I was satisfied. Dealership B is becoming exceptional - and appeals to me beyond the simple matter of convenience.

Just Satisfied, Or Totally Satisfied?

In the Harvard Business Review, Thomas O. Jones and W. Earl Sasser, Jr., describe a Xerox study on customer satisfaction. They found that totally satisfied customers were 6 times more likely to purchase additional Xerox products over the next 18 months than satisfied customers. "Merely satisfying customers who have the freedom to make choices is not enough to keep them loyal. The only truly loyal customers are totally satisfied customers."

What Makes Loyal Customers?

Leaders need to know whether their reports - business developers, tech experts, sales reps, and everyone with a regular interaction with the customer - are creating loyal customers. Are they creating such unique and great experiences that customers will go out of their way? Will they drive the extra few miles? Will they spend the extra few dollars? Will they refer other prospective customers?

We Pay For Good Experiences

B. Joseph Pine II and James H. Gilmore write in HBR, "[E]xperiences have emerged as the next step in what we call the progression of economic value. From now on, leading-edge companies - whether they sell to consumers or businesses - will find that the next competitive battleground lies in staging experiences."

In other words, we buy experiences. Is an iPhone really superior to a Nokia X? Probably not. They both have advanced features, intuitive interfaces, and sleek designs. So why are Apple fans loyal to the point of being rabid about their gadgets? It's the experience. Not the experience with the phone, but the one you get when you walk into an Apple store. Apple has been winning on this battleground for years.

The entity, the person, who has the most power, who decides everything, is the customer. The customer votes with his or her feet and pocketbook, and that's the ultimate indicator of how well a business is doing. Satisfaction is not enough. Organizations have to create engaging, enriching, worthwhile experiences that turn satisfied customers into totally satisfied customers who are also loyal.