Customer satisfaction is valued highly in almost every commercial organization. Especially large firms spend an enormous amount of money on customer satisfaction programs. Therefore, an important question is: What are the benefits of customer satisfaction for the supplying company?
A common assumption is that satisfied customers are more loyal in the sense that they stay in a longer relationship with the supplier. However, marketing research has proven that this linkage is not always so strong and that it largely varies by customer segment and industry. Therefore, vendors and service providers should not rely on such effect, also because the stand-alone value of customer loyalty is not very clear as I will outline in one of my future posts.
A much clearer benefit of customer satisfaction seems to be a positive effect on willingness to pay and price sensitivity (per item but also in terms of overall spending).
So, if customer satisfaction has a price-related value, the question then is: What influences customer satisfaction?
Product quality
Well, one important driver in both consumer and business settings is product or service quality. In addition, for business customers the following attributes related to vendor performance have an impact on customer satisfaction:
Sales representative performance
This includes the ability of sales representatives and account managers to address customer issues, to understand key strategic issues of the customer, to know the customer business processes, to be easily reached, and to provide information on current market conditions. Interesting here is, that a longer relationship between the account manager and the customer has an additional positive effect and can compensate for weaker performance in the other areas.
Product line
This relates to the breadth of the product line portfolio and the ability to deliver a comprehensive solution.
Responsiveness
This means the time between an addressed inquiry or issue and the response by the sales representative, the time to resolve issues, and the ability to provide quote responses in time.
Delivery
This relates to the vendor’s ability to deliver the solution in the agreed time and quality. It also includes the degree of matching committed and delivered functionality and features as well as the ability to provide flexible delivery options.
Revenue and margin
For cloud product vendors additionally important, but not crucial, criteria for customer satisfaction are the revenue and margin that your product generate for the customer (who in this case acts more as a channel partner).
Another two key findings are:
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Negative performance has a greater impact on overall satisfaction than does positive performance
- The link between customer satisfaction and willingness to pay is non-linear, so that from a certain point on increasing satisfaction does not translate into higher willingness to pay
The combination of these two suggest to focus more on avoiding customer dissatisfaction than on investing too much in customer satisfaction. To maximize overall satisfaction, attribute performance should be optimized, not maximized. For any given factor, negative performance should be eliminated first before focusing on positive performance. Also, it is important to always monitor customer satisfaction, so you can react early enough and balance your measures.
Since you want exploit higher willingness to pay also for higher prices, you need to create customer satisfaction already in the pre-sales phase as well. For that it is very important to both enable the customer to trial your product or service before the actual purchase and to have an excellent product presentation highlighting all the benefits without setting false expectations.
References:
Linking Customer Management Effort to Customer Profitability in Business Markets, Douglas Bowman and Das Narayandas, Journal of Marketing Research, Nov. 2004
The Effects of Customer Satisfaction, Relationship Commitment Dimensions, and Triggers on Customer Retention, Anders Gustafsson, Michael D. Johnson, and Inger Roos, Journal of Marketing, Oct. 2005
Do Satisfied Customers Really Pay More? A Study of the Relationship Between Customer Satisfaction and Willingness to Pay, Christian Homburg, Nicole Koschate, and Wayne D. Hoyer, Journal of Marketing, April 2005
Satisfaction is Nice, But Value Drives Loyalty, William D. Neal, Marketing Research, 1999
Do Satisfied Customers Buy More, Kathleen Seiders, Glenn B. Voss, Dhruv Grewal, and Andrea L. Godfrey, MSI Working Paper, 2005
© Stephan Hesslich
