Customer Satisfaction vs. Customer Loyalty

By: Ellen Linkenhoker

Customer Loyalty = Satisfaction + Experience (+ well designed incentive programs)

When you think about retaining customers (especially as a marketer), there are a lot of phrases that come to mind: satisfaction, loyalty, experience, retention, journey and others. So where do you focus? How do these concepts work together? Why are they important? These are all questions we’re going to tackle below.

Customer Satisfaction Definition

Customer satisfaction is the measure of how happy a customer is with a product, service or experience. Traditionally this means a B2C relationship, but around here ‘customer’ can be a loose term meaning anyone you’re interacting with, like: partners, distributors, reps, employees, customers—anyone you’re reliant upon to either drive your business forward or bring in revenue.

This type of measurement is usually done through a survey asking the customer to share how they feel about an interaction or purchase with your company/brand. This could take the form of a sliding scale (quantitative) or an open-text response (qualitative). We’ve also seen some brands use NPS scores, sentiment measurements and reviews to benchmark where their satisfaction ratings are.

Why Is Customer Satisfaction Important?

This is a pretty standard measurement for most brands—but WHY are we all measuring it? Are we benchmarking to purely have something to measure up against? Why is this important?

It helps you control your brand image

Measuring and tracking customer satisfaction will help you identify both happy and unhappy customers. This is GREAT news for you!

Finding happy customers allows you to try and turn them into an advocate for your brand. Perhaps they could leave you a positive review, refer a friend, or share their experience with your brand later on.

Finding unhappy customers is also good for business. You can reach out and make it right. Oftentimes these customers can turn into your biggest advocates. Everyone loves a good turnaround story. I’ll regale you with an example:

A friend of mine a few years ago decided to purchase a new face wash. She started using it and was just having terrible issues with her eyes! They were scratchy and always felt like there was something in them. Turns out her new face wash was getting those little scrubby pearls into the eye area and causing irritation. So she writes a review in a tizzy that she was having this problem with their face wash and it was causing her serious discomfort—she told them she was NOT happy with their product. You know what the company did? They wrote her a letter! Enclosed was a sincere note from their product manager and the money she spent to purchase her face wash and a p.s. encouraging her to find something that worked better for her.

Talk about wow! She also went on to tell this story repeatedly to anyone who would listen—about how this brand was so considerate and willing to make things right (even though she wasn’t using their product anymore!). THAT is the power of finding unhappy customers through satisfaction measurement and turning a poor experience into a positive story—one worth sharing.

Customer satisfaction for your brand boils down to word of mouth. Both from your happy customers and unhappy customers, but you get to choose the narrative. How you respond dictates everything. You wouldn’t have any of this insight without first measuring and tracking customer satisfaction.

It helps you identify areas of improvement

You probably saw this benefit coming after that anecdote above, but customer satisfaction measurements are also a great way to find product, service, and experience improvements. By listening to your unhappy customers you can build a better product (or service or experience).

Listen to what those people are telling you, evaluate what they’re saying to determine if updating or solving their issues would meet the needs of many vs. a few, and then prioritize those updates accordingly.

You can then respond and tell them you listened to their feedback. This creates a cycle of positive reinforcement where they have been rewarded for interacting with your brand.

Cue the slow clap… we’re now winning at the marketing game.

It can increase your revenue

As if that wasn’t enough, this unassuming metric can be one of the best ways to capitalize on reviews and testimonials.

These votes of confidence from real people weigh heavily into decisions other potential customers are making about your product and your competitors’ products.

And it’s supported by the numbers:

Reviews make 71% of customers more comfortable purchasing a product (3D Cart)
92% of B2B buyers are more likely to purchase after reading a trusted review (G2 Crowd and Heinz Marketing)

You can also charge more for premium service, because 55% of customers are willing to spend more money on a guaranteed good experience. Once you prove you have customer service worth paying for (through your reviews, testimonials and word of mouth) your reputation is worth its weight in gold.

Ultimately, customer satisfaction leads to good customer experience which leads to…customer loyalty!

Related: Customer loyalty is essential for building a successful business. Take a look at five ways you can continually earn customer loyalty.

Which brings us nicely into the next portion of our article.

Customer Loyalty Definition

In its strictest definition, it means being faithful—or steadfast in affection and allegiance.

In our definition, customer loyalty means a preference and willingness to buy from a specific brand or seller. Most commonly measured by repeat purchase, size of spend and word of mouth (advocacy). It’s important to note the slight difference in customer loyalty versus brand loyalty.

This is best shown by an example:

I use a very specific brand of hair products (and have for years). I also ONLY buy these products from my hair stylist. Could I buy these products online? Sure. But will I? No.

So who owns my loyalty? Is it my hairstylist or the brand of hair products?

This is a great example of customer loyalty (to my hair stylist) and by extension brand loyalty (to the brand of products).

I do have preference and affinity for the brand (I’m a repeat purchaser and my transaction size is greater than average), but this relationship is created through my trust and interactions with my hair stylist. She is representing this hair product brand and is recommending it to her clients.

My loyalty is to our relationship—because let’s be honest, if she recommended an incredible new product to me at our next appointment, you know I’d try it.

This is one of the dilemmas brands face regularly when they sell through a channel. They are trusting their reputation and brand in the hands of their partners. And this doesn’t just play out in the salon; think insurance, grocery stores, gas stations, franchises, dealerships—I challenge you to find a brand you prefer where part of your loyalty if you really think about it is to the person or store selling it.

Now, there are plenty of brands selling directly to consumers (all hail the internet age!) They have it a little easier because they can essentially combine customer loyalty and brand loyalty because they are both to the customer.

It can sometimes look a little like this:

Notice that the same brand can have different loyalty outcomes in the channel because of the purchase experience. Customers may leave unsatisfied which in turn can taint their view of your brand.

This extra layer of interaction causes a complication in measuring and maintaining consistent experiences and satisfaction levels in customer loyalty.

Selling through a channel raises customer loyalty questions like:

Who is truly earning the loyalty?
How do you impact loyalty when your brand is in the hands of someone you do or don’t employ (for better or worse?)
How do you ensure customer satisfaction?

Enter: The Loyalty Program

The Impact of Customer Loyalty Programs

There are just some aspects of customer loyalty that are out of your control, but the good news is that well placed incentive and loyalty programs can create valuable impact in both satisfaction and loyalty.

In my experience (and backed by the DECADES of knowledge at ITA Group working with Fortune 1000+ companies,) these well-placed programs are best done at three levels. At least to get the biggest impact. We’ve certainly seen things work that aren’t operating in all three levels—but this is a best practice.

At the highest level create a program with your partners/channel/reseller/distributor owners. In the middle level create a program for the feet on the ground, the reps, people, and of course hair stylists in front of your customers/end-users. And at the bottom level, directly with your end-user/customer.

The program being built between you and the partner owners and their employees is what we like to call the push/pull method. In order to reach the people who are working directly with your desired end-customer, you first have to get buy-in from the partner owners who are paying their wages.

I won’t get too deeply into this (this method deserves its own article,) but essentially you need to create an incentive program that creates value and reward for the owners in exchange for them giving you access to the mindshare and time of their people.

Then, once you have access to the people in front of your customer, create an incentive program that motivates them to support and advocate for your product. Otherwise known as driving loyalty! Provide them with the things that will help them build faith and affection for your brand.

The last level of the three is the loyalty program I think most people are familiar with—the one created for the consumer. These include the behaviors you want them to take and the rewards you’re offering to them in return. To me, these programs are called loyalty programs, but this is really a misnomer. These are truly an incentive program, offering you a chance to create more interactions with your customer. Giving you more opportunities to create satisfaction, positive experiences, and in turn influence customer loyalty. The programs alone don’t drive loyalty.

There is no question that loyalty programs have value and drive revenue (lots of it when they’re designed correctly), but they’re a tool to be leveraged.

They help you influence loyalty and create opportunities to provide a positive experience and measure satisfaction. Which brings us to one more piece of the puzzle we need to cover.

The other word threading its way throughout this entire article: EXPERIENCE.

Customer Satisfaction + Experience = Loyalty

The customer experience is so tightly woven into the outcome of customer satisfaction and ultimately loyalty that we can’t wrap this up without at least touching on it.

To define customer experience is simple: every interaction a customer has with your brand or company. It’s everything—even the things you can’t control.

Customer satisfaction measures only one or a few of these interactions at a time (usually). Customer experience is harder to measure. This is almost an intangible that spans across all departments in an organization and sprawls out into the world. Their world. The customers’ world.

There are some interesting perspectives out there that argue the customer experience is out of a brand’s control, completely up to how others are defining it through reviews, testimonials and word of mouth. I think this is partially right. To me, experience has three pillars:

The Customer’s Perspective. This is the ultimate source of truth. This is what the customer brings to the table. What they value. What they have experienced previously. Their risk tolerance (willingness to pay, switch, try something new). The combination of these things creates a foundation for which they will make all decisions.
The External Voice. These are the spheres of influence, anonymous review leavers, the testimonials, the recommendation requests, the people and partners who are representing your brand/company.
The Brand/Company Actions. The interactions you can influence, the messages you share and the value proposition you put out to the world. But don’t forget that actions speak louder than words. Your actions are the things people will remember, talk about and come to expect out of your brand. Don’t disappoint your customers.

These three pillars create the foundation for a customers’ experience. It is what they will measure you against and make decisions based upon. Control what you can, embrace what you can’t, and take action where you might be able to influence the narrative.

Learn more about the impact, measurement and where to go from here with customer experience by reading this article, “Who Owns Customer Experience.”