Don’t overestimate your customers' satisfaction

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📝 Context

Topic: Customer Experience
For: B2C. Can be tested for B2B
Research date: June 2016
Universities: Michigan State University, Indiana University, University of Maryland

You’re the managing director of a digital agency. You’ve grown exponentially this year and are super happy about your team’s performance. You feel confident, this has been the best year so far. Surely your long-term retainer clients are happy. 

Except…

At the time of renewing their contracts, many have started churning, and it seems to be getting worse. 

What happened? You really thought they were happy.

Science says, it’s very likely you overestimated your customer satisfaction.

P.S.: One proven way to have a closer relationship with your customers is for your organization to have a Chief Marketing Officer (CMO), and this has real consequences.

An analysis of 1604 public firms’ performance over 12 years found that those with CMOs performed ~15% better than firms without one.

📈 Recommendation

Use rigorous and various methods to understand your customer satisfaction and avoid being biased. For example:

• If you’re an ecommerce, run surveys on your website, ideally at different stages of your customer journey

• If you’re a service-based business, schedule regular client check-ins (e.g. informal chats during meetings)

• Anonymous emailed questionnaires, monitoring reviews, and online sentiment analysis are all helpful methods

Make sure you always have both qualitative (e.g. open-ended questions) and quantitative data (e.g. NPS score) to ensure your analysis is objective. Pay special attention to the key drivers of satisfaction (e.g. product/service quality, assistance & communication).

🎓 Findings

• Managers consistently overestimate how satisfied their customers are, underestimate their complaints, and misunderstand what drives that satisfaction.

• As part of an analysis of 70,000 customer surveys from the American Customer Satisfaction Index and 1,068 manager responses from 97 large firms, researchers found that managers, compared to what customers actually said:

  • Overestimated customer satisfaction levels by an average of 4.1%  

  • Overestimated how high customers’ expectations of their products were by 3.9%, and perceived value by 2.9%

  • Overestimated customers’ intentions to repurchase by 4.9%

  • Underestimated the number of customers who had raised complaints by 30%

• They also found that managers didn’t understand what drives customer satisfaction and loyalty, they:

  • Underestimated the impact of quality on customer satisfaction by 31.6% and by 65.3% on how valuable customers saw the product

  • Underestimated how relevant customer satisfaction was on reducing complaints by 57.5%

🧠 Why it works

• It is hard to trace how effective companies’ investment in measuring and improving customer satisfaction is. Our evaluation of metrics such as customer satisfaction is not objective, but is impacted by our biases.

• When we are in a managerial position, we’re prone to the “rosy bias”. We are overly optimistic about our own performance and less harsh about negative consequences.

• So even if we have the data available, we don’t interpret it correctly.

• This makes us see customer satisfaction and attitudes more positively and underestimate negative sentiment.

📈 Custom science-based insights for your organization

One often overlooked area of increasing customer satisfaction is before your service even takes place. By making targeted tweaks, you can drastically improve how much people enjoy the actual experience.

Today, the International Spa Association launches The Science-based Playbook for Creating Spa Visit Anticipation which we created for their members to address exactly this topic (with 33 peer-reviewed studies and exclusive insights from 8 leading researchers).

Interested in something similar? You can reach out here if you’re interested in science-based insights to:

• Establish thought leadership in your market

• Share exclusively with your customers, or

• Engage potential customers

We regularly do these projects for leading organizations, from Wharton to Mars and Wise, in a broad range of industries (e.g. AI, tech, services, FMCG).

✋ Limitations

• The study showed that managers often misunderstand customer attitudes but did not check why.

• The study focused on large companies, managers in smaller companies might have a clearer understanding of customer satisfaction thanks to a closer relationship.

• Only US companies were analyzed, it’s likely but wasn’t tested that this same dynamic exists across different countries.

👀 Real-life example

Loom measures part of its customer satisfaction through emails. They send feedback emails to users and even segment them based on behavior (e.g. they ask why someone has stopped recording looms).

❌ Issue: Though they do ask for feedback, their surveys could be used to generate higher spending and reduce churn, but they’re not currently optimised to do so.

✅ Solution: Loom could slightly tweak their survey strategy to increase satisfaction and future customer spending. For example, they could:

• Start their questionnaires with an open-ended question about what they liked the most, in a B2B experiment this increased spending by up to 32.9%.

• For long-term clients who complete the survey, they could provide loyalty rewards to reduce churn.

• Send emails from personal accounts, and sign them. This will make the experience feel more personal and increase satisfaction.

🔍 Study type

Market observation (analysis of 70,000 American Customer Satisfaction Index customer surveys on Fortune 500-type companies in 2009 and survey of 1,068 senior managers, directors, and VPs from 97 companies collected in 2010)

📖 Research

Do managers know what their customers think and why? Journal of the Academy of Marketing Science (June 2016)

🏫 Researchers

• G. Tomas M. Hult. Michigan State University

• Forrest V. Morgeson III. American Customer Satisfaction Index.

• Neil A. Morgan. Indiana University.

• Sunil Mithas. University of Maryland.

• Claes Fornell. CFI Group.

Remember: This is a scientific discovery. In the future it will probably be better understood and could even be proven wrong (that’s how science works). It may also not be generalizable to your situation. If it’s a risky change, always test it on a small scale before rolling it out widely.

🎁 Bonus trivia

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🎓 It took me, a PhD analyst, and a marketing pro 12 hours to accurately turn this 18 page research paper into this 3min insight. 

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