How well do your customers treat you? (page 1 of 4)

When it comes to understanding and servicing their customers, many businesses could be sitting on a gold mine. While investing in costly surveys and focus groups to measure customer satisfaction, they ignore a wealth of customer information, streaming in daily, from multiple channels.

Companies strive to answer every single email, phone call and online query from clients, but never actually examine the wealth of collective customer feedback right in front of them about emerging market trends, often-cited problems or product preferences. If this raw data was understood as useable intelligence and shared across the enterprise, it would be worth its weight in gold.

For businesses that want to achieve or increase profitability, gaining a deeper understanding of customer needs, interests and concerns makes good business sense. Industry studies show that it is five to seven times more expensive to acquire a new customer than to retain an old one.

And in terms of strategic value, the installed customer base is a repository of knowledge, which is of immeasurable service to product development, marketing and sales, financial planners and support organizations.

Moreover, in today's business climate, as new business opportunities grow scarcer and harder to land, many firms recognize that their survival depends on keeping existing customers satisfied and identifying cross-sell and up-sell opportunities. In fact, many companies are rolling out services designed specifically to up and cross sell to their install base.

But they presume that they know what their customers expect and want based on unreliable surveys and intuition. How can an organization measure customer wants, needs and satisfaction more reliably?

Traditional methods, such as customer satisfaction surveys, rarely produce the hard data or insights companies need to pinpoint problem areas and affect change. Surveys are broad-based, multiple-choice questionnaires that can be completed quickly. Unless extremely dissatisfied with the service, most customers will answer positively.

The chief flaw of the surveys is the emphasis on high scores. When surveys are the barometer of customer satisfaction, and are scrutinized at the highest management levels, they become like self-fulfilling prophecies - companies obtain the answers they want.

An extreme example of this is tasking a field sales force to audit its own accounts, and then tying the results to an incentive. With both their livelihood and reputations at stake, sales representatives seek out friendly sources, while avoiding those with legitimate complaints. This is not an egregious practice - it's human nature.

As the 17th Century French writer François, Duc De La Rochefoucauld noted, "Few people have the wisdom to prefer the criticism that would do them good, to the praise that deceives them."

For companies that put stock in surveys, the findings can be confusing or even misleading. High marks do not necessarily translate into future sales or customer retention. According to research by Bain & Company's Loyalty/Retention practice, 60% to 80% of customers who defected to a competitor gave "satisfied" to "very satisfied" ratings to the previous vendor.

And in national dealership surveys, it is not uncommon for a car manufacturer to receive high approval ratings from nine out of 10 customers, while their repurchase rate remains below 50%.

Owing to this reality gap, a new idea has emerged to predict customer retention.