Customer Satisfaction Vs Customer Loyalty
When it comes to making a sale, it’s easy to think you’ve just served another satisfied customer. However, this isn’t always the case. This is because the customer experience presents itself in many different shapes and sizes, so the more you know about your organisation’s impact on it, the simpler it will be for you to improve things.
In bricks-and-mortar stores, companies can get some idea of how healthy their customer experience is by gauging face-to-face interactions. For instance, it’s reasonable to assume that a customer who is shouting at a sales representative is not having a good experience, compared with someone else who exhibits characteristics of loyalty by frequently bringing their friends and family with them.
However, trying to work out what your customer is thinking is much trickier on the web or over the phone. While analytics and other tools can help you to track the movements of a customer before they buy an item on your website, they’re not able to provide deep insights into how that customer is feeling, which could be good or bad.
For every touchpoint between your business and your customers, getting a measure of how those customers feel can help you to better understand where you need to improve. This can be both at a transactional level and a relationship building one to help you cultivate a consistent and long-term loyalty that pays dividends through referrals and reviews.
Customer loyalty and customer satisfaction aren't the same thing, which means you need to be measuring both.
To help improve your understanding of these terms, it’s useful to look at each in turn. However, before we do that it’s helpful to look at the difference between the two.
How to measure customer satisfaction
Customer satisfaction is all about the sentiment of a customer after they’ve completed an interaction or transaction with your business.
Through survey questions including multiple-choice, rating, open ended questions and more, customer satisfaction surveys can be used to better understand levels of contentment and whether your customer experience met with your customer expectations. You can even use customer satisfaction surveys as a private channel to help upset customers vent and offer their feedback, rather than expressing an angry opinion publicly on social media platform or a review site, which can be far more damaging.
However, for a more straightforward way of measuring your customer satisfaction levels, which will also help to assess how well your business is executing basic customer tasks, the customer satisfaction score (CSAT) metric can be hugely valuable. For example, while a high CSAT tells you that your shopper's journey to buying something is relatively smooth and successful, a low CSAT may indicate problems in this journey that’s causing you to lose customers before they buy.
The CSAT metric is typically used to measure a customer’s satisfaction with a product, service or support interaction and achieves this by asking your customers the following question:
"How satisfied were you with our (product, service, support interaction)?"
Customers are then invited to rate their experience using a 5-point scale from very dissatisfied to very satisfied.
The CSAT can be calculated by dividing all the positive responses you receive by the total number of responses and then multiplying this figure by 100. This gives you a CSAT percentage.
Scores closest to 100% indicate the highest levels of satisfaction, while those closer to zero the lowest satisfaction levels.
Quicker and more effective ways of calculating CSAT are also becoming more widely available. Our CSAT calculator is a good example.
How to measure customer loyalty
Compared to customer satisfaction, customer loyalty is more challenging to measure, as it’s more subjective and can vary among different businesses and industries.
However, by using a mix of qualitative and quantitative data, you can determine how committed your customers are to your business. Start by analysing your customer feedback, then look to compare the trends in this to other reports like product usage, repeat sales, churn rate and more.
While CSAT is an important metric for your business, customer loyalty may be even more critical. This is because loyal customers write positive reviews, spread the word to friends and family, and come back to you to buy and spend more - all of which generates new and repeat business for your company.
The customer loyalty metric is also forward thinking in terms of looking to measure how much value you may get out of your customers over the long term. This can be particularly valuable in enabling you to make productive changes to the customer journey and provide consistent value to your active user base.
Here’s some of the data you need to be analysing in order to measure customer loyalty.
Net Promoter Score
Customer loyalty can be measured using Net Promoter Score® (NPS) survey metric and asking customers the following question:
"On a scale of 0-10, how likely are you to recommend our [store/product] to a friend?" (on a scale where 0 represents not likely and 10 very likely)
You can then group your responses based on the following classifications:
- Promoters (Score: 9-10): Represents your best customers, who are advocates for your brand, returning often to buy again and referring their friends and family to you, in turn generating more sales.
- Passives (Score: 7-8): While these customers may score well on CSAT surveys, they don't have much loyalty to your brand beyond that. And if they find a better deal somewhere else, they're likely to take it.
- Detractors (Score: 0-6): The widest survey score range is reserved for customers who may actively look to damage your brand through negative reviews.
To calculate your NPS score simply subtract your number of detractors from your number of promoters.
You should be left with a positive or negative number, which you will need to divide by your total number of survey responses and then multiply by 100. This will leave you with a number between 100 and –100, where the higher your score the greater its desirability.
For a simpler and faster way of calculating this, you may like to try our NPS calculator.
A metric that’s not often mentioned in the context of customer loyalty yet speaks volumes about your business is customer engagement.
Customer engagement is concerned with the likelihood and frequency with which customers interact with your company, which can include anything from your physical stores and websites to communication with you over the phone, social media and more.
The good thing about customer engagement is that when customers engage more frequently with your company, they’re also more likely to become loyal to your business. This is because with each interaction your company has a chance to strengthen the relationship with that customer. So, the more you’re able to capitalise on these opportunities, the more loyal customers you should be able to generate for your business.
Customer Lifetime Value
Another useful way to get a better sense of customer loyalty, is to calculate the total amount of money a customer spends throughout their journey with you. This is known as customer lifetime value (CLTV).
Your CLTV is relevant to customer loyalty for two reasons. Firstly, it summarises how much tangible, monetary value your customers bring to your business. Subsequently, if you can improve customer loyalty it should directly increase your CLTV.
The second reason concerns your customer lifespan. This is because identifying your customers' shopping frequency is the key to determining whether or not they're loyal to your business. If their lifespan is significantly longer than the expiration date of your products or subscriptions, that may be an indicator that your business needs to step up its loyalty program.
You can calculate your CLTV using the following formula:
Average order total multiplied by the average number of customer purchases in a year multiplied by the average retention time in years
Share of wallet
If your CLTV appears to be on the low side, you might want to take a look at your share of wallet (SOW), which addresses the ratio of customer spending in your industry.
The SOW looks to analyse how much your customers spend on your products compared to similar products in the marketplace. Consequently, this metric can be very helpful when you’re trying to measure how well your company is doing in comparison to your competitors.
You can calculate your SOW by dividing the average amount of money spent on your products by the total amount that customers spend on products in your industry. This percentage illustrates how often customers return to your business when given a choice between you and your competitors.
Customer Retention Rate
Another helpful metric that it’s important to keep track of is your customer retention rate (CRR), which looks to measure the percentage of customers that remain with your business after a period of time.
You can calculate your CRR by looking at the customers you had at the start (S), the end (E) and those customers you acquired during the period you’re looking to measure (N).
So, you will want to use the following formula:
CRR = ((E-N)/S) x 100
Customer loyalty surveys
Finally, you can get a better idea of what your customers think of you and your brand by asking them directly through a customer loyalty survey.
From finding out what they most like and dislike about you, to knowing how likely they might be to use you again. The questions from this survey type can give you a better idea of what’s needed to increase your customer loyalty.
For even greater confidence, you could include some questions related to the customer loyalty index (CLI). Incorporating a similar point-scale to that used in the NPS metric, the CLI metric looks beyond solely the customer’s recommendation likelihood, by also asking them hypothetical questions about their repurchasing and upselling preferences too.
The three CLI questions are:
- How likely are you to recommend us to your friends or contacts?
- How likely are you to buy from us again in the future?
- How likely are you to try out our other products/services?
Respondents are asked to rate their answers to these questions on a scale of 1-6, where 1 is most likely and 6 least likely. Then the average of all responses is calculated to reveal your CLI score.
How to improve customer satisfaction and loyalty
Now that you’re clearer about the difference between customer satisfaction and customer loyalty and have some ideas on how to measure them, you now need to work on improving customer satisfaction and loyalty.
Here’s four areas you need to be thinking about:
It may sound obvious, but if you can communicate well, it will help you to improve customer satisfaction and loyalty.
Good communication is a human need, so if you can communicate well, it will help add a human element to your brand that inspires a deeper, more emotional connection between your customer and your business.
Areas of your business where your communications need to be as extra strong include:
- Any communication updates you need to make during the shipping process
- Your check-in process after an order is received
- Follow-ups to any customer support emails
- Timely and effective explanations whenever there are order issues or delays
- How well you touch base with customers around the time of any renewals
When it comes to your customers’ shopping experiences, if you’re to maximise their satisfaction you should ensure their experience is optimised, easy and fast.
However, if you’re to also improve customer loyalty you need to be exceeding your customers’ expectations. But you can only achieve that with a bit more hard work and ideas that will help delight them.
Here’s some pointers to help you with that:
- Train your customer service reps to go above and beyond for customers
- Add some surprise discounts before your customer checks out or by email after they’ve completed a purchase
- Send a free gift with a customer's order
- Check in after the customer receives their order to find out if they have any questions or complaints
- Offer new customer or user onboarding
- Offer free shipping
Reward loyal customers
If you’re to consistently improve, particularly with regards to customer loyalty, you need to be able to reward good behaviour.
So, if a customer frequently buys from you or generates new customers for your business, you need to be able to reward them in some way. This is why if you don’t have them already, you need to set up a strong rewards program for return customers and a customer loyalty program for customers who spread the word about you to their friends and family.
Use metrics to improve your business
While we’ve discussed a fair number of metrics already, it’s important to recognise that CSAT and NPS aren’t the only metrics available to help improve your business. You can keep a closer eye on the health of your business by thinking about your wider customer journey and measuring your after-sale impact too.
For example, if through monitoring and measuring your email marketing campaigns you can see they’re generating more sales, you may mark this as a new opportunity for improving your customer loyalty.
Whatever stage you’re at, remember that benchmarking your customer experience is a critical part of keeping a business scaling and moving forward. So, if you are not already doing so, you need to be creating surveys to measure CSAT and NPS for your business.
If you can do this, you will be on the right pathway to maximising customer satisfaction and long-term customer loyalty.