Why Customer Satisfaction is Important (6 Reasons)

Customer satisfaction is a marketing term that measures how products or services supplied by a company meet or surpass a customer’s expectation.

Customer satisfaction is important because it provides marketers and business owners with a metric that they can use to manage and improve their businesses.

In a survey of nearly 200 senior marketing managers, 71 percent responded that they found a customer satisfaction metric very useful in managing and monitoring their businesses.

Here are the top six reasons why customer satisfaction is so important:

• It’s a leading indicator of consumer repurchase intentions and loyalty
• It’s a point of differentiation
• It reduces customer churn
• It increases customer lifetime value
• It reduces negative word of mouth
• It’s cheaper to retain customers than acquire new ones

1. It’s a leading indicator of consumer repurchase intentions and loyalty

Customer satisfaction is the best indicator of how likely a customer will make a purchase in the future. Asking customers to rate their satisfaction on a scale of 1-10 is a good way to see if they will become repeat customers or even advocates.

Any customers that give you a rating of 7 and above, can be considered satisfied, and you can safely expect them to come back and make repeat purchases. Customers who give you a rating of 9 or 10 are your potential customer advocates who you can leverage to become evangelists for your company.

Scores of 6 and below are warning signs that a customer is unhappy and at risk of leaving. These customers need to be put on a customer watch list and followed up so you can determine why their satisfaction is low.

See how satisfaction provides so much insight into your customers?

That’s why it’s one of the leading metrics businesses use to measure consumer repurchase and customer loyalty.

2. It’s a point of differentiation

In a competitive marketplace where businesses compete for customers; customer satisfaction is seen as a key differentiator. Businesses who succeed in these cut-throat environments are the ones that make customer satisfaction a key element of their business strategy.

Picture two businesses that offer the exact same product. What will make you choose one over the other?

If you had a recommendation for one business would that sway your opinion? Probably. So how does that recommendation originally start? More than likely it’s on the back of a good customer experience. Companies who offer amazing customer experiences create environments where satisfaction is high and customer advocates are plenty.

This is an example of where customer satisfaction goes full circle. Not only can customer satisfaction help you keep a finger on the pulse of your existing customers, it can also act as a point of differentiation for new customers.

3. It reduces customer churn

An Accenture global customer satisfaction report (2008) found that price is not the main reason for customer churn; it is actually due to the overall poor quality of customer service.

Customer satisfaction is the metric you can use to reduce customer churn. By measuring and tracking customer satisfaction you can put new processes in place to increase the overall quality of your customer service.

I recommend you put an emphasis on exceeding customer expectations and ‘wowing’ customers at every opportunity. Do that for six months, than measure customer satisfaction again. See whether your new initiatives have had a positive or negative impact on satisfaction.

Related: 15 tactics to reduce customer churn

4. It increases customer lifetime value

A study by InfoQuest found that a ‘totally satisfied customer’ contributes 2.6 times more revenue than a ‘somewhat satisfied customer’. Furthermore, a ‘totally satisfied customer’ contributes 14 times more revenue than a ‘somewhat dissatisfied customer’.

Satisfaction plays a significant role in how much revenue a customer generates for your business.

Successful businesses understand the importance of customer lifetime value (CLV). If you increase CLV, you increase the returns on your marketing dollar.

For example, you might have a cost per acquisition of $500 dollars and a CLV of $750. That’s a 50% ROI from the marketing efforts. Now imagine if CLV was $1,000. That’s a 100% ROI!

Customer lifetime value is a beneficiary of high customer satisfaction and good customer retention. What are you doing to keep customers coming back and spending more?

Learn more about customer lifetime value:

• Customer Lifetime Value For Beginners (4 Step Guide)
• 5 Strategies To Increase Customer Lifetime Value

5. It reduces negative word of mouth

McKinsey found that an unhappy customer tells between 9-15 people about their experience. In fact, 13% of unhappy customers tell over 20 people about their experience.

That’s a lot of negative word of mouth.

How much will that affect your business and its reputation in your industry?

Customer satisfaction is tightly linked to revenue and repeat purchases. What often gets forgotten is how customer satisfaction negatively impacts your business. It’s one thing to lose a customer because they were unhappy. It’s another thing completely to lose 20 customers because of some bad word of mouth.

To eliminate bad word of mouth you need to measure customer satisfaction on an ongoing basis. Tracking changes in satisfaction will help you identify if customers are actually happy with your product or service.

6. It’s cheaper to retain customers than acquire new ones

This is probably the most publicized customer satisfaction statistic out there. It costs six to seven times more to acquire new customers than it does to retain existing customers.

If that stat does not strike accord with you then there’s not much else I can do to demonstrate why customer satisfaction is important.

Customers cost a lot of money to acquire. You and your marketing team spend thousands of dollars getting the attention of prospects, nurturing them into leads and closing them into sales.

Why is it that you then spend little or no money on customer retention?

Imagine if you allocated one sixth of your marketing budget towards customer retention. How do you think that will help you with improving customer satisfaction and retaining customers?

Here are some customer retention strategies to get you thinking:

• Use blogs to educate customers
• Use email to send special promotions
• Use customer satisfaction surveys to listen
• Delight customers by offering personalized experiences

Measure satisfaction to see how happy your customers really are

Lee Resource Inc. found that for every customer complaint there are 26 other unhappy customers who have remained silent.

That is an alarming statistic. Most companies think they are the best and they have no unhappy customers. The reality is, 96% of unhappy customers don’t complain. In fact, 1Financial Training Services found that most simply just leave and never come back.

What are you doing to measure customer satisfaction and identify unhappy customers?

Customer satisfaction plays an important role within your business. Not only is it the leading indicator to measure customer loyalty, identify unhappy customers, reduce churn and increase revenue; it is also a key point of differentiation that helps you to attract new customers in competitive business environments.

I hope this blog post has shed light on why customer satisfaction is so important to the success of your business.

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