When the CEO of a major retailer says that satisfying its customers? needs will provide the platform for the company?s future success and that ?the results of our independent surveys show an encouraging improvement in customer satisfaction levels?, red flags regarding the ultimate effectiveness of CRM should immediately be hoisted for everyone to see.

Many companies build customer satisfaction, and customer satisfaction objectives, into their mission and vision statements and into their stated strategic objectives. There are two reasons for this. One is because many senior executives, unfortunately, still continue to believe that customer satisfaction and customer loyalty are identical concepts. The second is that well-respected market research companies still use customer satisfaction elements in evaluating the effectiveness of customer relationships and CRM programs, and they have convinced their clients that optimal satisfaction is a valid measurement and state of being with customers. There is a fundamental difference between customer satisfaction and customer loyalty, however, especially where both supplier mindsets and performance metrics are concerned.

While it?s both an exaggeration and a superficial reflection to state, as one business author did, that ?customer satisfaction is worthless, customer loyalty is priceless?, satisfaction might, in the abstract, be considered a lower level rung on the ladder of customer loyalty attainment. Though there may be some tenuous relationship between satisfaction and loyalty (particularly in situations where there is little direct customer-supplier interaction), satisfaction metrics are generally very poor predictors of customer loyalty.

Satisfaction will measure attitudes, a predominantly transitory, passive, and benign state for a customer, reflecting a relatively low threshold of their involvement with a company. It also looks at past impressions, rather than current state. Achieving true advocacy as a result of a customer loyalty program, or other customer-focused efforts and initiatives, means that the customers believe one or more elements of the scheme have created desired value. Customers can tell a supplier about performance, value and loyalty ? if they are asked about it - and then a relationship between these aspects of supplier involvement can be determined when their in-depth responses are evaluated.. The objective here is to link beliefs, inherent in performance, and the actions and behaviors associated with likely future purchase and recommendation.

Most customer satisfaction research techniques, especially those with weighted indices, will struggle to reveal the relationships between the elements of loyalty programs and real customer loyalty. In the United States, J. D. Power and Associates, most notably, has creatively parlayed executives? need for ?scorecardism?, publicly showing superiority over competitors, by creating a series of satisfaction index studies, and then announcing the winners (and often allowing those winners to incorporate their good results into advertising programs and copy points). While Power is most known for automobile industry satisfaction indices, they have also developed them for rental cars, home builders, credit cardholders, cable satellite TV, and local telephone service, among others.

Power?s Sales Satisfaction Index has wide acceptance by auto dealerships though some users have, for years, found its value as an owner loyalty barometer questionable at best. As a senior executive at an automotive market research firm noted:
?Current measurements such as the Consumer Satisfaction Index do not sufficiently explain loyalty and defection. The top five manufacturers have about the same CSI from year to year.?

The penultimate satisfaction index in the United States, however, is the American Customer Satisfaction Index (ACSI), a purported national economic indicator of evaluations of quality of goods and services from companies and government agencies. Originated by the National Quality Research Center of the University of Michigan in 1994, and co-sponsored by the American Society for Quality, it covers 40-45 percent of the Gross Domestic Product. The ACSI develops a national index, indices for seven sectors of the economy, 40 industries, and 200 individual companies and agencies. Results are published annually, among other places, in FORTUNE Magazine.

In recent years, despite huge spending on CRM programs, there has been a strong tendency for the national ACSI to decline. It can be argued that slower economic growth, increasing consumer requirements for speed of delivery, and the like, are contributing to the lower ACSI scores; but, in reality, there are a myriad of factors impacting service perception, quality, and value. Perception is the result of tangibles (time, cost, consistency, completeness, accuracy, etc.) and intangibles (reputation/equity, relationship, problem-solving, etc.) involved in products and services, and they are different, industry to industry, as well as having different weights in the overall consideration of performance.

For airlines, as an example, performance is hampered by congested airports, staff training levels, food quality, baggage handling, an antiquated air-traffic-control system, late departures, cancelled flights, late arrivals, and the limited airline choice in many airports. Yet, two airlines ? Continental and Southwest ? consistently score well in the ACSI, and both are profitable. They have concentrated on providing as reliable and strategically differentiated service as possible within the performance constraints described.

Telecommunications is another industry where steady declines in customer satisfaction have occurred. Problems ? billing, directory service, ?slamming?, and service outages ? are the biggest contributors; and the industry seems to have done relatively little to make changes. In addition the telecommunications industry has, in large part, a competitive strategy of offering short-term user value through various customer incentives, ignoring the longer relationships which customers desire, and encouraging switching between competitors.

So, with the abundance of satisfaction measurements and indices around ? and, very prevalent in on-line research tools as well ? and the many approaches to customer satisfaction indexing available, to what extent will they help us understand how the performance of customer loyalty schemes leverages customer loyalty? Unfortunately, as noted above, not very much. One major study among senior executives has shown that only 2% could identify increases in profitability as a result of documented increases in customer satisfaction metrics.

If your company has developed a CRM, customer service, or loyalty program, how will you know if it really works? Will you look for higher revenue and lower customer churn in the short-term, and conclude that you have succeeded? Or will you seek to strategically understand and monitor the impact of your program on customers and their perception of value? And if you take this latter approach, how will you choose to do the monitoring?

Keep in mind that the essence of measurement actionability is interpretation of customer-perceived value. Value is significantly more than merely understanding the relationship between price and performance. Price is but one dimension, or attribute, of value. Value is the delivery of tangible and intangible benefits and solutions, as the customers see it. Tangibles include accuracy/precision, design, completeness, reliability, timing ? and price. Much of what is tangible go into what is frequently termed ?quality.?. Intangibles principally include relationship and emotional elements, such as service, communication, trust, empathy and brand image. Although customers generally consider and include most, if not all, of these elements in making purchase/supplier decisions, the weights of each component, tangible and intangible, may differ substantially customer to customer.

We believe that there is a useful, reliable, and disciplined set of metrics and a measurement protocol any company can use to identify their program?s effectiveness and also determine what improvements or modifications can be made.

Begin by measuring performance and delivery of the program, which is far more rigorous in nature than satisfaction. Since we have found that any rating less than the highest may indicate a level of attrition, or loyalty breakdown (so that we also rarely use mean data in our analyses), we also seek the verbatim, or anecdotal, reasons behind those ratings as well as any areas of customer complaint (previously expressed or unexpressed). To effectively prioritize program, and other operational and performance, factors driving customer loyalty, we believe research should contain the following elements:

Attribute performance
Attribute importance
Competitive attribute performance
Best performed attribute/attribute most needing improvement
Overall performance, and performance change experienced period to period
Likelihood to repurchase or continue purchasing, as well as anticipated level of purchases and reasons for low intent level
Likelihood to recommend, and reasons for low intent level
Complaints, expressed and unexpressed

Other valuable information, such as customer demographics, new or modified loyalty program element reaction, and response to new concepts and processes, can also be obtained.

The tangible and intangible elements, or attributes, of performance should be defined, as much as possible, by customers themselves to optimize meaning and clarity. Attribute definition, in the customers? terms, is done through prior qualitative research.

Finally, our research invariably includes one or more cells of client staff. We ask them to respond to overall performance, elements of attribute performance and importance, complaints, loyalty, and recommendation the way they think customers would. From this information, we can make determinations about the cohesiveness of company culture in support of customers, and identify areas of desirable staff training or process modification. Plus, the mere act of participation, and having information shared with them after the research is completed, helps to build staff morale and a sense of involvement.

A key feature of our research is that it produces a set of action-oriented predictive, easily interpreted visual models which can be used to identify which attributes leverage customer loyalty, which most need to be improved, which are expected or one-dimensional, and which require more focused communication to be considered important by customers. From time to time, we have also created indices for our clients; however, they are loyalty indices rather than satisfaction indices. They most frequently carry balanced weights of overall performance, likelihood to repurchase, and likelihood to recommend. For some clients, we have also included likelihood to be the primary supplier.

These three (or four) metrics, we feel, are at the heart of any successful loyalty program; and, in addition to the leading-edge loyalty modeling we provide, offer a great deal of guidance with regard to strategy development and refinement. Notice, as well, that ? similar to all other areas of customer research we conduct ? we do not measure satisfaction at all; and we certainly do not include any satisfaction measures in our indexing. Satisfaction is at least a distraction, and more often an outright irrelevancy, as we seek to optimize customer loyalty.

One American marketing research firm has developed what they term a ?secure? customer index, but it includes an overall satisfaction measure as one of its foundation elements. Because the correlation between customer satisfaction and customer loyalty has proven to be so low and so inconsistent, we believe that the worth of such an index is compromised and diminished as a result.

We have utilized such loyalty indices to provide assistance and support in many industries and functional areas. Indeed, if a client is about to establish a new customer loyalty scheme or upgrade the elements of its service proposition (quality levels, guarantees, time specifics, contact and communication, etc.) our research will be very targeted and focused on the overall performance, loyalty and recommendation impacts of those initiatives.

Establishing a customer loyalty index, or CLI, before those changes are made can serve as a benchmark, rather than a scorecard, and a barometer for the effectiveness of programs and process modifications. In one instance, for example, we conducted strategic customer loyalty research for a home products retailing chain, and then created a customer loyalty index for them around overall service, future purchase intent, and likelihood to recommend scores. This was done prior to their introduction of a well-defined customer loyalty scheme.

The scheme involved the chain?s best customers, identified by the variety of products and services purchased, level of expenditure, and the frequency of store visits. They received special vouchers, a priority customer care service line, private sales events, and special financing offers. Training of sales assistants and department managers in providing these customers with exemplary customer service, plus active direct response communication with these customers were also key features.

Research was conducted again following the launch and roll-out of the scheme, and we were able to help determine, on a segment by segment basis, where the program was most effective and where it needed to be refined. Because we also obtained verbatim customer responses on an attribute-by-attribute and overall program performance basis, the research provided added depth and dimensionality to the decision-making.

Our research concluded that, while other incentives were attractive, extra attention and value created in the stores, particularly with regard to time and staff effectiveness, were the principal loyalty drivers. With this insight, we helped develop new training targeted at empowering staff in helping customers. This led to the creation of new sales assistant categories, in which selected staff were given extensive training in attitude and interpersonal skills with customers. These staff members are also eligible for special reward and recognition for outstanding service. Also, we participated in store layout modification so that products were grouped more logically, and we worked with the company?s IT group to streamline the check out process.

The result has been significant improvement in the Customer Loyalty Index scores, sales among key customer groups, and amounts spent per visit. In addition, the chain has vaulted ahead of competitors on every performance category; and loyalty-impacting complaints have dramatically declined.

A major multi-industry consumer and business-to-business customer study conducted several years ago concluded that, in a company where optimum satisfaction is the objective, customer processes will remain status quo, at best, with no forward movement. If a company is extolling its approach to, and relationship with, customers as total satisfaction, guaranteed satisfaction, satisfaction or your money back, 100% satisfaction, or the like, and utilizing outmoded metrics and relationship monitors such as a Customer Satisfaction Index, two things can be assured: they will never understand how their customers define value in supplier performance, and they will always be vulnerable to a competitor that possesses this insight.