I am amazed at how often I run into companies that don’t understand their customers. In my previous post, I discussed the issue of a Fortune 20 company that completely missed the mark in their marketing & sales, and was paying the price in terms of severe downward price pressure, hugely dissatisfied customers, and appalling customer defection rates.

Fred Reicheld wrote a piece in 2006 entitled, “The top 10 reasons you don’t understand your customers” that describes the critical reasons why customer satisfaction surveys are inherently flawed. I’ve adapted his list to my own as follows:

There are too many questions

I worked with one company that had upwards of 80 questions on their customer satisfaction survey. Another had 30+ questions for a relatively simple transaction. As I wrote in my recent newsletter,

Last month I had occasion to speak with a small company that had been doing a regular customer loyalty study for a while. However, as I looked at their data, I realized that they were crippled and flying blind.
Customer feedback systems should be powerfully insightful and revealing, yet in my experience, they’re often diluted, lacking the specificity needed to drive intelligent responses, giving insufficient weight to your most valuable customers, or worst of all, never show significant improvement due to lack of accountability

I recently wrote in a whitepaper entitled, “5 Steps to Maximizing Customer Loyalty” that many satisfaction surveys I’ve seen lack specificity of purpose. They are diluted by marketing, engineering, and other groups hoping to squeeze in “just 1 or 2 questions” as long as something is going out to the customers. In this fashion, surveys get bloated and lack focus.

What’s worse yet? Look at the implied costs you are incurring for this survey: If you had 100,000 survey respondents that took approximately 10 minutes per survey (about 30 questions), at an average hourly rate of $100/hour, you would be asking your customers to spend a total of $1.6 million just to complete the survey. If you went all out with an 80-question survey that took 28 minutes, the implied cost would be more than $4.5 million. At this rate, you surely cannot afford to survey your own employees. While the cost is spread out over 100,000 customers, you are still asking them to spend $45 each to respond to your survey, which, if you did it 4x/year, is nearly $200 per respondent. That’s prohibitive.

The wrong customers respond

Depending on whom you’re surveying, you may be polluting your customer insight before you even begin. Clearly, those with an axe to grind or who are otherwise dissatisfied customers are more likely to respond to surveys in order to “give it to you with both barrels.” As with most any survey, selection bias can overrun the results. In addition, lower levels in B2B organizations may self-select much more prevalently than the more senior levels. These levels are vastly different in their purchase priorities and value drivers. Thus, if you are interested in understanding the decision-making process of senior management, a customer satisfaction survey most likely isn’t going to be the right way to assess customer needs.

Companies fail to take action

While not specifically mentioned by Reicheld, this is a huge issue. Countless times I’ve studied customers and presented specific issues that need to be addressed to improve customer relationships, only to have no action taken whatsoever. Customers are told at the beginning of the process, “You’re feedback is very important to us,” only to feel ignored when they fail to see any changes in the issues they raised. Asking questions of customers and failing to take action is more damaging to customer relationships than never asking in the first place!

Satisfaction doesn’t correlate with customer purchase behavior

There have been numerous articles written lately about customers claiming to be very satisfied defecting to a competitor. How can this be? While there may be many possible reasons, there is one that stands out: Customer satisfaction surveys tend to measure smoothness of transactions, not a likelihood of future purchase. I may be satisfied with my purchase of a piece of software from a vendor, but next week I may discover a different software package or even the same package at a lower price from a different vendor. Bruce Temkin of Forrester Research has been championing the cause of creating an overall customer experience as a bridge with real loyalty, rather than focusing on a pure transactional customer relationship.

Manipulation wrecks credibility

Reicheld told the story of automakers scheduling “satisfaction” calls asking if everything is ok just before J.D. Powers called to assess customers’ satisfaction with their new purchase. He also writes about the dealers’ efforts to game their internal rating system by showing pictures of the satisfaction surveys filled out with the top ratings. My favorite is the phrase I saw in a sleazy Toyota dealership, “If you can give us a perfect score, please fill out the card.” Some dealers and service departments will even “buy” the top satisfaction scores with free oil changes, floor mats, etc.

With every survey, someone will find a way to game the system, wrecking the results and inadvertently rewarding bad behavior.

Bottom line? Customer satisfaction surveys shouldn’t be your first choice for understanding customers. Instead, you should focus your initial efforts on the following steps:

1. Segment your customers to separate the best from the worst (ignore the middle for now)
2. Speak directly with your best customers to ask them why they buy, what they value, and how your products and services benefit them
3. Spend some time analyzing the results. What makes your best customers the “best”? What are the characteristics that will help you find more just like them?
4. Before you go any further, immediately address any customer dissatisfiers and rescue any relationships that may be in jeopardy
5. Create a Value Communications Map that Identifies customer value drivers–those “hot buttons” or critical purchase drivers that influence the most profitable sales, and the ways in which your products and services address each hot button
6. Determine proof statements for each value driver, whether they be ROI calculations, targeted customer testimonials, “what-if” statements, cost estimates, etc.
7. Reframe your marketing and sales efforts using the Value Communications Map as a framework to base all of your communications around
8. Identify & pursue any newly discovered opportunities within existing clients that may have been overlooked in the mad rush towards revenue.
9. Clarify and evaluate any newly discovered product/service or new market opportunities resulting from your customer visits
10. Repeat as necessary to cycle through the important customers

By following these steps, you’ll cement your relationships, gain invaluable insight into the minds of your customers, and focus your company on those issues that truly matter to your customers. In so doing, you’ll end up driving top-line revenue, bottom line margin while at the same time developing significantly more loyal customers.