Definition of Customer Satisfaction
A nice, easy-to-remember customer satisfaction definition is:
- Customer satisfaction is a consumer’s perception of how well an organization has delivered on their communicated value proposition.
The key points to note about this definition are:
- Consumer Perception: At its core, customer satisfaction is about how the consumer perceives the product or service. This perception is influenced by a variety of factors, including past experiences, personal needs, and the influence of peers and advertising.
- Expected Value vs. Delivered Value: Customer satisfaction hinges on the balance between what the consumer expects (expected value) and what they actually receive (delivered value). This comparison is not just about the tangible aspects of a product or service, but also encompasses the overall experience, including customer service, ease of use, and emotional gratification.
- Communicated Value Proposition: The role of the organization is crucial in shaping consumer expectations through their communicated value proposition. This includes all the promises and claims made by the company regarding their product or service, such as quality, price, benefits, status, and service. The alignment between these communicated promises and the actual experience is what drives customer satisfaction.
Please note that these issues are discussed further in the detailed model section.
Therefore, in simple terms, when considering this definition of customer satisfaction, it is easy to see why it is so important to many firms – because it indicates how well the firm is delivering on their promises to its target market.
Formal Definition of Customer Satisfaction
If you need a more academic (formal textbook) definition (as I like to use definitions, like above, that are easy to understand and remember), the following is Oliver’s definition:
- Satisfaction is the consumer’s fulfillment response. It is a judgment that a product or service feature, or the product or service itself, provided (or is providing) a pleasurable level of consumption-related fulfillment, including levels of under- or over-fulfillment.
In this definition, the key words to focus upon are “judgment” and “fulfillment” – that is, the consumer judges how well the product or service fulfilled their needs.
Judgment: Satisfaction involves a cognitive judgment process. Consumers actively judge and evaluate their experiences based on various factors, including prior expectations and perceived value.
Fulfillment: Fulfillment is about the degree to which the consumer’s needs and desires are met by the product or service. This includes not just meeting basic expectations but also the emotional and psychological satisfaction derived from the experience.
Oliver’s definition highlights that customer satisfaction is not just a passive reaction but an active evaluation process where consumers assess the extent to which a product or service has fulfilled their consumption-related needs and desires, including any instances of under- or over-fulfillment.
Why Customer Satisfaction Matters
Understanding this concept of customer satisfaction is vital for firms as it provides a direct insight into how well they are meeting their target market’s expectations.
High customer satisfaction indicates successful delivery on promises, leading to customer loyalty, positive word-of-mouth, and potentially increased market share. In contrast, low satisfaction levels can signal the need for improvements in product quality, customer service, or marketing strategies.
Customer satisfaction is a crucial element in business for several reasons:
Repeat Business and Customer Loyalty: Satisfied customers are more likely to return and purchase again. They develop loyalty to a brand or a company, which is far more cost-effective than acquiring new customers. Repeat customers often spend more over time and are more likely to try a company’s other offerings.
Word-of-Mouth Marketing: Satisfied customers are likely to recommend a business to friends and family. Positive word-of-mouth is a powerful marketing tool. It not only enhances the company’s reputation but also acts as a trust signal for potential new customers. In an era where consumers increasingly rely on reviews and personal recommendations, the impact of word-of-mouth is substantial.
Competitive Advantage: In markets where products and prices are similar, customer satisfaction can be a key differentiator. Companies that excel in satisfying their customers can stand out from the competition, attracting more customers and potentially commanding a price premium for their perceived higher value.
Customer Insights and Improvement: Customer feedback, a component of measuring satisfaction, can provide valuable insights into areas needing improvement. Understanding customer needs and experiences helps in refining products and services, enhancing quality, and improving customer service.
Reduced Churn and Increased Customer Lifetime Value: Satisfied customers are less likely to switch to competitors. This reduced churn rate increases the customer lifetime value – the total revenue a business can expect from a single customer account. Higher lifetime values translate to sustained revenue over time.
Business Health and Financial Performance: There’s a strong correlation between customer satisfaction and business performance. Satisfied customers can lead to increased sales and market share. Moreover, companies with high customer satisfaction scores often have higher stock prices and can weather economic downturns more effectively.
Emotional Connection and Brand Reputation: Customer satisfaction helps in building an emotional connection with the brand. Emotional connections can foster brand loyalty and advocacy, significantly enhancing the brand’s reputation and standing in the marketplace.
Reducing Negative Feedback and Crisis Management: Dissatisfied customers are more likely to share negative experiences with a larger audience, especially on social media. By focusing on customer satisfaction, companies can reduce the incidence and impact of negative feedback, which is crucial in an online world where bad news can spread quickly and damage a brand’s reputation.
In summary, customer satisfaction is not just a nice-to-have metric; it’s a core business strategy that impacts nearly every aspect of a company’s performance and long-term success. It’s a vital indicator of customer preferences and expectations, market position, and overall health of the company.
How CSAT is Formed
The Disconfirmation Model of Customer Satisfaction (CSAT) is a widely used framework that explains how customer satisfaction is formed. It’s based on the comparison between customers’ expectations and their actual experience with a product or service. Here’s an outline of this model:
- Pre-Consumption Expectations: This step involves the expectations customers have before they purchase or experience a product or service. These expectations are formed based on various factors, including past experiences, personal needs, advertising, brand reputation, and word-of-mouth.
- Actual Product/Service Experience: After the customer has experienced the product or service, their actual experience comes into play. This experience might be influenced by the quality of the product or service, customer service interaction, overall functionality, and the fulfillment of needs or wants.
- Expectation vs. Experience (Disconfirmation): Disconfirmation occurs when there’s a gap between what was expected and what was experienced. There are three types of disconfirmation:
- Positive Disconfirmation: This happens when the experience exceeds expectations. The product or service is better than what the customer anticipated, leading to high satisfaction.
- Confirmation: This occurs when the experience meets the expectations. The product or service is exactly as expected, resulting in a neutral or satisfactory feeling.
- Negative Disconfirmation: This takes place when the experience falls short of expectations. The product or service is worse than expected, leading to dissatisfaction.
- Perception and Interpretation: How customers perceive and interpret this gap (disconfirmation) greatly influences their level of satisfaction. Even if the performance is objectively the same, individual customer perception can vary, leading to different satisfaction levels.
- Post-Consumption Satisfaction or Dissatisfaction: Based on the type of disconfirmation experienced, customers will either feel satisfied (positive disconfirmation), neutral (confirmation), or dissatisfied (negative disconfirmation). This satisfaction level then influences future behavior, such as repeat purchase, brand loyalty, and word-of-mouth.
- Feedback Loop: The model also considers the feedback loop where customer satisfaction or dissatisfaction informs future expectations. If a customer is satisfied, their expectations might increase for future experiences. If they are dissatisfied, they might lower their expectations or seek alternatives.
In essence, the Disconfirmation Model of CSAT emphasizes that customer satisfaction is a dynamic and subjective process, determined by how well the actual product or service experience aligns with pre-existing expectations.