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How to measure Customer Satisfaction

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Customer Service and Customer Satisfaction are no new concepts – they have been around for quite some years. But the focus on customer satisfaction tools and customer satisfaction metrics, however, is more recent.

Why is that? Well, a possible explanation is the emergence of social media, review websites, rating apps, and a very diverse and easy to access offer of online services and digital products.

Customers have more options to choose from, so their criteria became more complex. There are plenty of good products and services out there at affordable prices, so customers need an extra argument to go with a particular brand.

Moreover, it has become effortless to express the degree of satisfaction in terms of ratings, comments, or scores. How many of you filter a list of hotels, for instance, by the clients’ ratings? Probably most of you if not all. This also applies to restaurants, apps, products and service companies. Those ratings are not only about the quality of the features but also about the customer experience. They talk about how much they liked their own interaction with the brand.

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Photo by Patricia Serna on Unsplash

Since customer satisfaction heavily impacts most of the existing businesses, let’s better define it and see how to measure it.

What is Customer Satisfaction and why is it important?

The Business Dictionary defines it as:

The degree of satisfaction provided by the goods or services of a company as measured by the number of repeat customers.

Business Dictionary

According to this definition, a returning customer indicates satisfaction with the service or product. It makes sense. However, choosing a brand repeatedly doesn’t automatically imply a pleasant customer experience. Inertia, comfort, proximity, lack of better choices may also play an important part in having a client returning. The customer buying process is complex and involves many different factors. 

A study conducted by the Harvard Business Review team revealed that it was not the extraordinary factor of an experience that convinced customers to stay loyal. It had to do more with how much a company manages to deliver its basic promise to the clients

So what is satisfaction all about? 

According to Hubspot:

Customer satisfaction (CSAT) is a metric used to quantify the degree to which a customer is happy with a product, service, or experience.

Hubspot

But what does it mean for a customer to be happy with a brand?

Going back to the study by Harvard Business Review, it also pointed out two important findings:

  • Loyalty is not obtained by delighting customers.
  • Loyalty is built by reducing the customer’s effort to have his problem solved. 

This is to say that the efforts to offer an over the moon experience to a client may not be justified by the results in terms of their satisfaction.

Sometimes, all he needs is to have a need answered as quickly and effortlessly as possible. Fireworks and confetti may be nice and appreciated, but they also may have no relevance if all that a client wanted was to recover a password and he had to spend two hours doing that with an employee who yelled most of the time and spoke in an arrogant tone. 

A study by McKinsey from 2004 on bank services showed how strong was the impact of treating customers right, by offering them a positive interaction.

Following a positive experience, 85 % of customers increased their value to that bank in terms of investments and acquiring more financial products. On the opposite end, 70 % of customers diminished their value after a negative experience.

McKinsey

What makes a Customer Happy?

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Photo by Bruce Mars on Unsplash

The natural question that follows is: what can make a customer happy, if not the extras, the glitter or the fabulous? To be able to answer that question, we need to understand customers first.

Factors that influence customer happiness

A study published in the Sustainability journal on MDPI, covering 104 studies on the satisfaction of customers between the years 1975 and 2017, revealed some common characteristics of customers present in most of the researched works. 

It turns out that consumers are considered autonomous, reflective, and critical in asserting their satisfaction with a product or service. The way they think and feel about a brand is influenced by different factors like social context, knowledge, personality traits, as well as previous attitudes. 

The social influences may not be so obvious, but they play an important part in how a customer evaluates the experience. Having seen other appreciations by peers, he may be tempted to rate the satisfaction similar to those with whom he wants to be compared or connect. It is the need for belonging and acceptance that intervenes. Expectations are also tailored by the social context.

The same kind of experience may be perceived differently by two customers from different social environments. What for one may feel extraordinary, for another may be „not good enough”. This is why it’s important to understand as in detail as possible which particular aspect of the brand experience was extraordinary, which was not good enough, and why. 

Knowledge is a powerful tool. The more a person knows about a field, technology, product or service, the higher or more precise the expectations. Informed customers are pure gold for a business. They are able to indicate what works well and should be kept or what can be improved. These customers are also more willing to give feedback, to share their knowledge and offer a larger perspective on how the product or service may develop further. 

Personality traits are equally important in assessing satisfaction in relation to a purchasing experience. Those with high self-esteem levels may have higher expectations about the experience your company delivers and may prove more severe in their appreciation. Introverts may not signal dissatisfaction and bias the results of a customer satisfaction survey. 

The principle of coherence governs most of our actions. If we had a specific attitude or opinion in the past, we are more likely to repeat it, even though our perception may have changed. We feel the need to be consistent with our past selves and how others see us. This is to say that some ratings on products or services may not reflect the current situation, but a past, similar experience. Such previous attitudes cling to our memory and we tend to repeat them unconsciously, to satisfy the need of staying coherent in our behavior.

Emotions control us more than we’d like to believe

As much as we’d like to think that our buying decisions are purely rational, based on product features, service quality, price or availability, the truth is emotions are in charge most of the time.

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Photo by Lidya Nada on Unsplash

There is a well-known study conducted by Antonio Damasio, professor of neuroscience at the University of Southern California, and his wife, Hanna Damasio on the importance of feeling in decision making. They revealed that people who had suffered lesions in those parts of the brains responsible for emotions, while having the reason areas unaffected, were unable to make good decisions. 

In his book, “Predictably Irrational”, Dan Ariely also proves, through the studies he conducted, how simple decisions are rarely made with the help of reason. Otherwise, why would we be inclined to purchase products of a higher value only to get free shipping, although we don’t need all of them? Fear of loss and fear of judgment are two of the emotions that influence our consuming behavior, contrary to what the reason would dictate us. Also, the need for positive feelings as a result of an experience can make us prefer a more expensive product or service.

A PwC research showed that:

16 % of customers would pay more for a better customer experience.

PwC

This seems a bit irrational, right? 

So rational thinking doesn’t have much to do with how we decide to choose a product/service or another and stay loyal to a brand. This means that the stakes are on how positive a customer experience the company can offer, as opposed to its competition. It is about how the interaction makes the client feel, whether we speak about a product, service, the personnel, location or online presence.

The benefits of having a happy customer

So why do you need to have happy customers in the first place? The business is about putting products and services on the market, not making people happy.

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Photo by Maitree Rimthong from Pexels

Yes and No. While it is true that the obvious purpose of a business is to generate revenue from selling products and services, customer happiness is an equally important aspect. There are statistics that prove how the level of customer satisfaction impacts the relevant numbers for a business.

The impact of bad customer experience

Just so you’ll have a complete overview, we will present you some statistics regarding customer experience:

A Genesys Global Survey cited by Forbes.com reveals that:

Businesses globally lose $338.5 billion each year due to bad customer service.

Genesys Global

According to Salesforce:

57% of customers choose the competition over their current supplier thanks to better customer experience.

Salesforce

78% of potential clients abandoned an intended transaction as a result of subpar customer service. 

American Express

As if the loss of a client to the competition is not bad enough, there are numbers that show other hidden costs.

The Harvard Business Review states that:

Getting a new client onboard can cost between 5 to 25 more than retaining an existing one.

Harvard Business Review

Also, the inventor of the Net Promoter Score – one of the customer satisfaction leading indicators, Frederick Reichheld of Bain & Company, shows that:

An increase of only 5% in customer satisfaction has results in 25% to 95% higher profit. 

Frederick Reichheld of Bain & Company

The impact of customer experience on brand reputation

We’ve talked about the effect of bad customer experience on business metrics, but unhappy customers can also affect the reputation of a company in the long run, which usually becomes obvious only too late.

As stated by Survicate:

13% of unsatisfied clients share their complaints with more than 20 people.

Survicate

On the other side, according to Hubspot:

71% of clients have a positive feeling about a purchase if they have read a positive company review.

Hubspot

And a piece of good news is that research performed by Salesforce reveals that:

Customers’ good experiences have a higher rate of sharing than negative ones (72 % versus 62 %). 

Salesforce

All this is to say that a negative review spreads exponentially and can cause real damage to a company, but good reviews by satisfied customers have the power to turn the balance in favor of the business.

The Halo effect and the importance matter

There is no “too soon” to focus on customer satisfaction dimensions. Companies need to start right from the first interaction with a potential client. We all know how important a first impression is, which can make or break the deal.

While most companies invest in client retention and after-purchase services, the initial point of contact tends to be left on a second or third place. This is a mistake that can affect the customer’s experience in the future. The first impression matters, because our brains will build assumptions based on the initial observation, according to the Halo effect, studied in the 1920s by a psychologist named Edward Thorndike.

The effect refers to our predisposition to think that if someone is good at something, he or she is also good at something else (and the other way around). This mechanism applies to experiences, as well: we tend to expect a certain quality of the experience with a service or product like the one we lived in the beginning. This is why the first contact of a customer with a brand draws the way he will further perceive it. 

Also, there is the “importance issue: customers transfer their satisfaction or lack of it with the aspects that matter the most to others less important. In other words, if a client is happy with an important part of a service, he will be happy with the service overall.

Same, if he is unhappy with something essential to him, he will probably ignore the good aspects and stay unhappy with the entire service or company. 

In short, keeping the customers happy is strategically important for a company, in terms of both money and reputation. 

Learn more about how you can improve your business by listening to your clients

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Customer satisfaction metrics and customer satisfaction KPIs

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First of all, congrats for sticking with this article so far. You’re halfway through it and we promise you that you will further discover a lot of helpful info.

Probably the question that arises now in your mind is how to measure customer satisfaction? so you learn where your company stands and what should be done next. That’s why we’ll take you, step by step, through the most important KPIs. So let’s start.

The customer satisfaction measurement process involves several crucial steps and dimensions that need to be investigated with the help of metrics and KPIs.

First things first, you should start with the customer satisfaction objectives. As with any other objective, they should be measurable. A good example is an increase in customer loyalty by 20% in the following year. So for that, you need to establish the current loyalty status.

What gives you a measure of your clients’ loyalty? For instance, if you offer a subscription-based SaaS, you may want to look at the number of subscription renewals for a single customer over a period of time, or the average time a client remains with your company.


Once the objectives are set, the following step is to establish the metrics and KPIs most relevant to your business and the tools to gather the data. Think also of having a customer satisfaction data analysis system to help you draw the conclusions.


Let’s have a look at some of the most commonly used customer satisfaction measurement techniques.

Net Promoter Score

The Net Promoter Score shows how many of your clients are likely to further recommend your company, product or service to others.

It is one of the most relevant scores, as it speaks about the emotional impact you had on your client. Making a recommendation puts at risk a person’s own reputation. Someone willing to recommend something implies a high degree of satisfaction and trust, making that person more likely to come back as a customer and remain loyal.

This KPI is measured with the help of a question about how likely the customers are to recommend the service or product. They need to score their inclination on a scale from 0 to 10. The results will divide the clients in Promoters (score of 9 or 10), Passives (score of 7 or 8) and Detractors (score from 0 to 6).

NPS is calculated as a difference between the percentages of promoters and detractors. A positive, over 50 result shows you are doing well in terms of reputation and customer satisfaction.

Customer Satisfaction Score

Analyzing customer satisfaction is also about measuring the level of overall customer experience. For that, companies use the Customer Satisfaction Score.

CSAT is about the short-term happiness of a client.

To find that out, they need to rate on a scale, how satisfied they were with the service received. The scale ranges from highly unsatisfied to highly satisfied, with a neutral point in the middle. CSAT is calculated as the average of the scores received. The closer to 100 the percentage, the more satisfied the clients are. Only the number of clients who answered Satisfied and Highly Satisfied are taken into account. The neutral choice (level 3 of the scale) is irrelevant.

Customer Effort Score

The Customer Effort Score or CES measures the degree of effort customers pay in their interaction with the company. It is particularly relevant, mostly if we think about the Harvard Business Review study mentioned earlier in this article, showing that satisfied customers are the ones who pay the least effort to get their problems solved.

To measure CES, a question is asked about the amount of effort they needed to invest in their interaction with the company. The answers are given as scores, also on a scale from 1 (meaning very low) to 5 (meaning very high). The average of the scores gives the CES indicator. The lower the effort, the better the experience.

Retention Rate

Because retaining a satisfied customer costs much less than acquiring a new one, it is very important to know your retention rate. For that, you need to first set a relevant period of time for which you’ll calculate this indicator. For example, if you charge an annual subscription for a service, you can measure how many clients stayed with you over a period of 2 years or more (how many renewed their subscriptions).

To calculate the Retention Rate, you need 3 numbers: clients at the beginning of the period, clients at the end of the period and clients acquired during the period. Deduct the number of clients acquired from the number of clients at the end of the period and divide by the number of clients at the beginning of the period and multiply by 100. The higher the retention rate, the better for the company.

First Response Time

With the competition only a few clicks away, you need to make sure you answer your clients’ needs and solve their problems promptly. First Response Time KPI measures the speed in answering customer requirements/issues.

The faster and smoother your clients will get their issues done, the more satisfied they’ll be.

And it has nothing to do with the quality of your product or service, but with the way a customer feels treated. So a quick first response will make them feel taken into account, important. That will translate into a positive attitude towards the company, increasing the chances to return as a client and make a referral. For that, you need to check with the customer service department and see, on average, how much time passes from the moment a client makes an inquiry or request and the moment an answer is sent. Some companies seek to be as fast as possible, even making the First Response Time under 20 seconds.

Even though you don’t have the answer to their problem right away, the client will be pleased even only to hear from you a simple: “we’ve got that, we’ll be back to you as soon we have the answer.”

The Customer Happiness Index

The Customer Happiness Index is a metric developed by HubSpot to make predictions on the customers’ churn rates. It is based on the observation that while a customer is happy with the service or company, he doesn’t feel the need to abandon and turn to the competition.

As described by HubSpot, CHI shows how successful a customer is as a result of using their services, which makes that client more likely to renew the subscription and refer the service to others. 

The CHI takes into account three key-indicators: frequency of product use, the breadth of product use and what HubSpot calls “sticky product features”. The explanation is rather simple: a happy customer uses the product often, he uses more features and, among these features, there are several he prefers, which makes the service/product stand out from the competition. By identifying and measuring these coordinates, you could tell how pleased the client is. The more pleased, the least likely to go to the competition. By using the Customer Happiness Index, HubSpot managed to keep a third of the customers they identified as having the intention to leave.

SERVQUAL

What the customer expects and if those expectations are met is another factor that influences the Overall Satisfaction. SERVQUAL is a multi-dimensional KPI and measures the quality of service compared to what the clients expected, in other words, the degree of meeting customer expectations.

Because giving scores on general scales can be biased by cultural differences (North Americans are more prone to choose extreme ends of a scale, while Japanese and Chinese the midpoint), offering a base for comparison can get more accurate answers. Dan Ariely also pointed out how having a benchmark helps with making a decision.

The customers are asked to rate on a Likert scale with 7 points (from strongly disagree to strongly agree) how they perceived the service and how they think that service should be. To calculate the SERVQUAL, compare the results from the two sets of questions: the scores from how it was and how it should be. The lower the difference, the better the expectations answered.

Instruments to measure Customer Satisfaction

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Photo by Amy Hirschi on Unsplash

In order to calculate the metrics and KPIs, companies need to gather quantitative data. These metrics, however, only draw a part of the picture. They don’t necessarily speak about the reasons, motivations or possible solutions. For that, different types of measurements are used.

Since the classic Register of suggestions and complaints, the tools to gather data and measure customer satisfaction have diversified significantly. Technology has always contributed to more accurate data gathering and analysis, so now there are no more excuses not to pay attention to customer satisfaction and improving their experience.

Surveys

The customer satisfaction survey is the most common method to measure the client’s experience with the product or service. The data gathered is measurable (most questions use a customer satisfaction scale) and generally accurate, so it helps to draw a rather realistic picture of how pleased the customers were with your company.

The questions included in a customer survey help to calculate the metrics indicated above. Questions like “How would you rate the experience…?” or “How likely is it that you would recommend the product/service to your friends?” or “How difficult was it for you to have the problem solved?” offer the data needed to find the NPS, CSAT, and CES. However, before building any survey or launching a question, you need to set the customer satisfaction objectives – what do you need to find out in order to improve your customer’s experience? Then, for each objective, you design a question or set of questions. 

Surveys are now easy to apply and mostly are sent via email, applied online or in-app. Their advantage is the economy of time (for both the company and the client) and the elimination of human error (automation for collecting the answers and calculating the metrics).

For customer satisfaction surveys, there are several online tools available, some even free, like Google Forms. According to PCMag, the top survey tools for businesses are Qualtrics, Zoho, Survey Gizmo, SoGoSurvey, SurveyMonkey, and KeySurvey

Surveys can also be applied in-store or even over the phone. Choosing the right channel is closely linked to the objectives of the survey, the customer’s persona and the moment when it is applied. If you want to check the brand experience following a store visit, then an in-store feedback form is appropriate.

For an online purchase, online forms are the best. Also, if you inquire about business people who have limited spare time, online or in-app questions can be answered quickly, with the least effort. These kind of persons are used to working with digital tools. On the other end, if you need to inquire elderly people and pensioners, for example, they might be more open to talking to someone over the phone, as they are in need of more human interaction and happy to be asked for their opinion. 

Social media monitoring and brand mention

There is a strong reason why most brands invest much money in their social media presence. It is not only for visibility but also for connecting with their customers. Social media has long passed over a simple way of staying in touch with friends. The ease with which information can be shared and opinions expressed have transformed these media vehicles into powerful tools for customers to get their needs answered and for brands to get to know their public

People tend to give much more credit to someone else’s opinion/review on a product or service then to the official brand channels.

It makes sense, it’s about real experiences versus the brand’s intention. Unsatisfied clients will get very vocal on social media, so you need to be there and be able to answer the complaint quickly. Bad news spread like fire and although bad publicity is still publicity, to paraphrase Phineas T. Barnum, your company shouldn’t ignore the criticism.

At the other end, praises from satisfied clients are pure gold and can attract more undecided potential clients. You can use their appreciation to further promote your services, repay their loyalty and turn them into long term customers or even brand ambassadors. 

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Photo by NeONBRAND on Unsplash

For all this to happen, you need to know who says what about your service, product or company. There are tools that monitor the mentions not only on Facebook, Twitter, and Instagram but also on Quora, Trip Advisor or Yelp. Mention is an example of such a tool. In addition to the social media mentions, you can also track whenever your brand appears in a prominent position in the google searches by using Google Alerts. It indicates other websites where your service, product or company might be mentioned (like a blog, a news website or a forum not covered by social media monitoring).

Client’s voluntary feedback

The client’s voluntary feedback is precious. When someone willingly is telling about their experience with your product or service, that is a gift. It means that the person cares enough to make the effort and offers you a hands-on, concrete way to improve something or the confirmation that you are doing a particularly great job. Still, no matter how willing people are to offer their opinion, it is also important that they don’t need to pay much effort in doing so.

Customers should find at hand, easy to use ways to offer their feedback whenever they feel like. It may be through the social media chat applications, a contact form or a live chat window on your website. Email is still in place and very much used. Make sure that there is always someone available to answer quickly to the messages coming on the email address you displayed. 

Although you may be tempted to automate answering to customers’ messages (which makes sense when there are hundreds coming in simultaneously), people feel much better when the answers are personal.

Try, as much as possible, to give your clients the feeling someone is really there to read (or hear) what they have to say.

Sentiment analysis through AI

The metrics presented above use specific questions to get quantifiable feedback and are sensitive to all sorts of biases: social, cultural, educational, etc. It also depends on the timing: how long after the interaction with the service or product or the moment of the day when a customer answers. Some scales don’t offer a complete picture of customer satisfaction: what is the difference between satisfied and very satisfied? What does it lack to get a customer from scoring 4 to a maximum of 5? Why is it very unlikely to recommend the service to a friend? Is it because he is unsatisfied with the brand or just doesn’t like to make any personal recommendations in general? 

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Photo by Hitesh Choudhary on Unsplash

The good news is that thanks to the development of technology, there is one more way to complete the customer satisfaction picture and fill in the gaps: sentiment analysis.

With the help of machine learning, now we can identify the emotions behind the words used by a customer.

Such analysis can be run on direct conversations with the client (emails, direct chat) or in the online mentions (forums, social media, blog articles). Its advantage is increased accuracy in determining how a customer feels about the service/product and a wider range of emotions in relation to the customer experience, which cannot be told by the basic scores used in the classic surveys.

How it works

The software links specific sentiments with specific words. By tracking those words across the online presence, it can give a broad picture of how customers feel like based on the words they use to talk about the product or service. Moreover, such software can build trends and point out specific issues that you should pay attention to.

Why customer happiness software helps

Normally, it would take very long and a lot of human effort to get this kind of insight. You need to put together survey results with direct feedback via email or live chat.

Customer happiness software automates the process and shows real-time results.

In addition, thanks to machine learning technology, it can build predictions and foresee solutions. Once you know the reasons behind the customers’ frustrations from their own words, you know what you need to work on. Plus, what a client expresses through his own words is more accurate and reliable.

This kind of analysis doesn’t require any effort additional from the client’s part. This is why we decided to develop such an AI-based customer satisfaction tool, as we noticed that the current classic ways don’t manage to give a wide enough picture of the entire customer experience matter.

In conclusion

To sum up, customer satisfaction should be part of any company’s strategy.

People are in search of experiences, rather than products or services and how they feel when using your brand will make them stay or choose the competition. 

Contrary to expectations, it is not the special perks or declarations of love that make the customers happy, but by much simpler things: how they are treated and the ease with which they get their problems solved by your company or service. 

There are several metrics and KPIs that can tell the level of customer satisfaction. The data to calculate them is usually gathered through specific questions in surveys applied both online and offline. The monitoring of the brand’s mention across the Internet and social media is another effective way to see how clients feel about the product or service.

Still, to get a more accurate picture, the AI technology now enables customer happiness software to analyze the sentiments behind the clients’ words in real-time. This way, you can tell more about how your service/product makes them feel and which aspects are responsible for those feelings, making it easier to improve the customer experience.

Turn your clients into evangelists

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