Customer Loyalty vs Customer Satisfaction

Customer loyalty and customer satisfaction can often be confused for being the same business metric. At first glance, they seem to measure the same thing: how your customers enjoy doing business with you.

While they might seem similar, there are actually key differences between them that make tracking both critically important.

So what are those differences? How do you both measure and improve customer satisfaction and customer loyalty?

What is customer satisfaction and how is it measured?

Customer satisfaction (CSAT) is a key performance indicator that many support teams track. It measures your customers’ happiness with your company, services, and products.

CSAT is a flexible metric, and many companies use it to gauge customer satisfaction at a specific point in time—like after someone contacts your support team.

You’ve probably seen CSAT surveys hundreds of times. They typically involve a question like, “How satisfied were you with your recent support interaction?” You reply by selecting a number between 1-5. To calculate CSAT, you count up all of your satisfied scores (those who selected a 4 or 5), divided by the total number of responses, then multiply by 100.

What is customer loyalty and how is it measured?

If you’re loyal to something or someone, you give them your consistent and ongoing support and attention. You choose them over others.

Where CSAT is a specific metric with a widely accepted formula, customer loyalty is more of a concept. Every business that relies on subscription or recurring revenue wants to understand how loyal their customers are. Loyal customers mean higher retention rates and more repeat purchases. Loyal customers are also more likely to refer you to their friends and family members.

There isn’t one specific way to gauge customer loyalty, but Net Promoter Score (NPS) is one of the most popular ways to measure it.

The standard NPS question is simple: “How likely are you to recommend us to a friend or family member?”

Respondents pick a number on a 0-10 scale (with 10 being the most likely to recommend you to others). They’re then grouped into buckets based on their selection:

• Promoters.  These customers give you a 9 or a 10 and are your most loyal supporters. These are your avid fans.
• Passives. These customers give you a 7 or 8. These people are satisfied with your brand and offerings but are less likely to rave about you to people they know.
• Detractors. These customers give you a 0-6 rating. They may not be satisfied with your product and are more likely to churn or try out other solutions. They’re your least loyal customers.

Which metric is more important?

Customer satisfaction and customer loyalty are both vital for modern businesses, and every company should measure both. If you can consistently deliver satisfying experiences to your customers, it should lead directly to customer loyalty.

The majority of customers will stop doing business with you after repeated negative experiences. And while a great customer service team can turn around negative experiences, creating negative experiences will absolutely make customer retention more challenging.

More often than not, customer loyalty and customer satisfaction go hand-in- hand.

How do you improve customer satisfaction?

Improving customer satisfaction is often easier than improving customer loyalty. This is because customer satisfaction revolves around specific moments or experiences. If you can hone in on those moments in time and create a better experience for your customers, you’ll eventually see your CSAT score increase.

Deliver great customer service

Customer service should not be considered a cost of doing business but rather a benefit your customers receive when they do business with you. Great customer service brings a huge ROI to modern businesses.

Here are a few examples:

• 68% of consumers say they are willing to pay more for products and services from a brand known to offer good customer service experiences. (HubSpot)
• If the company’s customer service is excellent, 78% of consumers will do business with them again after a mistake. (Salesforce Research)
• After more than one bad experience, around 80% of consumers say they would rather do business with a competitor. (Zendesk)

There are plenty of proven methods for delivering great customer service. If you want to scale your customer service  quickly, outsourcing to an experienced company like Peak Support makes it easy.

Set clear expectations

A hallmark of customer satisfaction is clear expectations. Donald Miller, author of Building a Storybrand, says “Human beings are drawn to clarity. They are repelled by confusion.”

Set clear expectations with your customers.

If it’s going to take a couple of days to resolve their issue, be upfront about that. If there’s nothing you can do, be honest. If you make a promise and can’t deliver on it, clearly explain why and proactively communicate any other options that exist.

All of these things help your customers understand that they are in good hands. It shows that you haven’t forgotten about them.

Work to exceed those expectations

Once you’ve set clear expectations, do your best to exceed them whenever possible. Exceeding expectations creates unexpected moments of delight for your customers.

In a world of mediocre customer service, exceeding expectations enables you to stand out.

Amazon is a great example of exceeding customer expectations (at least in some ways).

For instance, think about their Kohl’s partnership. They partner with Kohl’s stores to make returns free and seamless. As a customer, you don’t even have to repackage your Amazon return when returning it via Kohl’s. You simply drop it off and get a confirmation slip. Amazon processes your refund a few minutes later before they technically even get the product back into their warehouse.

Many ecommerce stores are working to make customer returns easy, but it’s hard to top that experience.

How do you improve customer loyalty?

There are many different things you can do to help increase customer loyalty over time.

Empathize with your customers.

Sandy Rogers, former SVP of Corporate Strategy at Enterprise Rent-A-Car says, “The biggest factor in customer loyalty is empathy.” Focusing on customer empathy enabled Rogers to increase NPS scores at Enterprise from 67% to 80% during his time with the company.

Empathizing with your customers serves two big purposes:

• It helps you connect with your customers.  64% of consumers want to feel connected with brands. They don’t just want your product; they want to be part of something bigger.
• It shows you understand the problem your product solves for your customers. When you empathize with your customers, you are effectively saying “I understand.” When your customers feel understood, they trust you with their time, money, and loyalty to solve the problem they need to fix.

When you connect with and understand your customers, they are more likely to stay loyal.

Create a loyalty program

If you want customers to show their loyalty, why not reward them for it?

Create a customer loyalty program that rewards your best customers for either sticking with you long-term or performing certain actions. A long-term reward could be as simple as giving a discount on a monthly subscription if they sign up for yearly renewal instead of monthly.

Loyalty and rewards programs are everywhere. That’s because they work.

A great example of a rewards-based customer loyalty program is the Starbucks Rewards program. Starbucks is a leader in the customer loyalty program space. They reward purchases with stars that you can use for free drinks, food, and at-home coffee products.

The Starbucks rewards program not only drives loyalty (customers want to keep buying to get their stars) but also increases sales and encourages experimentation. Starbucks regularly gives out bonus stars for fulfilling different requirements. For example, you could receive 50 bonus stars for ordering any drink 4 days in a row, which drives direct revenue by encouraging repeat purchase. They also tend to offer bonus stars for trying newly released drinks, which helps customers find new favorites and further drives loyalty.

Create an outstanding customer experience

Gartner defines Customer Experience (CX) as “the customer’s perceptions and related feelings caused by the one-off and cumulative effect of interactions with a supplier’s employees, systems, channels or products.”

In a Gartner study, they found that “CX drives over two-thirds of customer loyalty, outperforming brand and price combined.”

CSAT can help you identify and fix broken moments in your customer journey, but it’s also important to look at the overall experience you’re creating for customers. Where is there friction you can eliminate? Where are there pain points which you haven’t yet solved?

Your customer experience will never be finalized. It’s always evolving. But every little improvement you can make in your customer experience helps to drive the loyalty that Gartner’s study references.

Customer loyalty and satisfaction are vital

Every business wants both satisfied and loyal customers. But the only way to get these outcomes is to make strategic investments in your customer experience.

At Peak Support, we help companies deliver great customer service as they scale. Contact us today for more info!