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How to measure customer satisfaction and loyalty to improve business performance?

Buttle, (2013), conceptualized that customer satisfaction, loyalty and business performance are all interlinked with one another. Corroborating Buttle, (2013), Hill and Alexander, (2017) stated that:

….profit can be traced back to customer satisfaction which, in turn, is related to employee loyalty (p22).

However, it is important to know how customer satisfaction and loyalty is related to the performance of business operations. It is evident from the fact that it is less expensive to get business from an old customer than from a new one. Customer satisfaction, customer loyalty, and customer retention is directly related to the operational performance of a business. In addition, customer satisfaction and loyalty also help measure business performance.

Customer loyalty and satisfaction helps measure business performance
Customer loyalty and satisfaction helps measure business performance

Customer satisfaction is a measure of how business’ total product or service performs in relation to customer requirements. In other words, customer satisfaction is a measurement about customer’s perseverance on the performance of the service provider or the product supplier (Hill and Alexander, 2017). Customer loyalty, on the other hand, is the attitude of the customers towards the likeness and being dedicated to the services or products of a business. Customer loyalty is the measurement of the customer’s commitment to a business and its services (Hill and Alexander, 2017). Business performance is defined as the efficient use of manpower and other resources to create unique value to retain its (Hill and Alexander, 2017).

Methods to measure customer satisfaction

The most common way of quantifying customer satisfaction is to compare their perception of experience with their expectations. Businesses use the expectations-disconfirmation model of customer satisfaction to measure customer perseverance (Buttle, 2013). If customer expectation remains underperformed then it is a negative disconfirmation and customers remain dissatisfied. Positive disconfirmation occurs when perception exceeds expectation. The customer might be pleasantly surprised or even delighted. In this way, businesses assume that customers have expectations and that businesses are able to judge their performance. It is important to find out customer expectation and then measure it with business performance and with the competitors (James, 2007).

Expectations-disconfirmation model of customer satisfaction for business performance
Expectations-disconfirmation model of customer satisfaction for measure business performance

Customer expectations, however, rely on the business’ most recent communications, brand image, communication from other customers, online reviews and information, and customer’s previous experiences (James, 2007). These aspects act as inputs for the business, and thereby create and shape each consumer’s level of expectations of value for the businesses. Expectations of each consumer will generally vary to some extent, based on their individual exposures to the various communications, their level of purchase involvement, and their previous experiences (Buttle, 2013). On the other hand, the values of customers remain motivated by:

  • Overall product or service quality.
  • Interaction and relationships with customers and staffs.
  • Service experience and process.
  • Value for money.
  • Creation of image and social status or brand status.

Methods to measure behavioural customer loyalty

There are two major approaches to define and measure loyalty;

  • behaviour and,
  • attitude (Buttle, 2013).

Businesses measure behavioural loyalty by reference to customer purchasing behaviour. In this regard, loyalty is expressed in continued patronage and buying. On the other hand, businesses measure attitudinal loyalty by reference to components of attitude such as beliefs, feelings and purchase intention (Geçti and Zengin, 2013). Customers who have a stronger preference for, involvement in, or commitment to a supplier are more loyal in attitudinal terms.

The most loyal remain shown by those who have high scores on the three behavioural variables (Geçti and Zengin, 2013):

  • regency of purchases (R),
  • the frequency of purchases (F) and,
  • the monetary value of purchases (M).

The variables are measured as follows;

  • R-time elapsed since last purchase
  • F-number of purchases in a given time period
  • M-monetary value of purchases in a given time period

An instance of using the model and calculation formula to find the loyalty of the customers is presented in the figure below.

RFM measures of behavioral loyalty for business performance
RFM measures of behavioral loyalty for business performance

Methods to measure attitudinal customer loyalty

Since, attitudinal loyalty is measured on the basis of the beliefs, feelings and purchasing intention of the customers, businesses use Dick and Basu’s model (Buttle, 2013). According to the model, there are four forms of loyalty for relative attitudinal strength and repeat purchase behaviour.

Dick and Basu model for customer loyalty to measure business performance
Dick and Basu model for customer loyalty to measure business performance

Loyal are those who have high levels of repeat buying and a strong relative attitude. Spurious loyal have high levels of repeat purchase but weak relative attitude. Customer’s repeat purchasing remain explained by, inertia, high switching costs and indifference (Alhaddad, 2015). Latent loyalty exists when a strong relative attitude is not accompanied by repeat buying. This shows evidence of weakness in the company’s distribution strategy, the product or service not being available when and where customers want.

KPI that helps to evaluate business performance

These methods of measures from customer loyalty and satisfaction help in measuring the financial, customer, process and learning and growth (Hill and Alexander, 2017). In addition, customer-related KPIs that help to evaluate business performance for a CRM implementation include;

  • customer satisfaction levels,
  • retention rates,
  • acquisition costs,
  • number of new customers acquired,
  • average customer tenure,
  • customer loyalty (behavioural or attitudinal),
  • sales per customer,
  • revenue growth,
  • market share
  • and share of customer (wallet).

References

  • Alhaddad, A., 2015. A structural model of the relationships between brand image, brand trust and brand loyalty. International Journal of Management Research and Reviews5(3), p.137.
  • Buttle, F., 2013. Customer Relationship Management Concepts and Technologies. 2nd edn. Burlington: Elsevier. doi: 10.1017/CBO9781107415324.004.
  • Geçti, F. and Zengin, H., 2013. The relationship between brand trust, brand affect, attitudinal loyalty and behavioral loyalty: A field study towards sports shoe consumers in Turkey. International Journal of Marketing Studies5(2), p.111.
  • Hill, N. and Alexander, J., 2017. The handbook of customer satisfaction and loyalty measurement. Routledge.
  • James, O., 2007. Evaluating the expectations disconfirmation and expectations anchoring approaches to citizen satisfaction with local public services. Journal of Public Administration Research and Theory19(1), pp.107-123.
  • Ramanathan, U., Subramanian, N., Yu, W. and Vijaygopal, R., 2017. Impact of customer loyalty and service operations on customer behaviour and firm performance: empirical evidence from UK retail sector. Production Planning & Control28(6-8), pp.478-488.

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