Customer satisfaction – the loyalty quandary
Author: James Walker & Michael Hill
“A happier customer is a more loyal customer”. We’re all familiar with the concept, but when it comes to putting figures behind it, we scratch our heads and no clear numbers are produced. Respected consultancy firms and even the White House have told us that happiness matters, but does it?
At Resolver, we have a unique perspective. We provide consumers with an independent tool that lets them raise issues with thousands of businesses, allowing us to capture unbiased feedback from consumers at the end of their experience. As part of this journey, we have asked consumers to tell us how satisfied they are with a business, how easy they found it to engage with that business, and what they were offered as an outcome. This has provided a rounded view of consumer satisfaction – but not of loyalty or customer churn.
To answer the killer question once and for all, we went back to consumers in the mobile industry three months after their issue was resolved.
We asked if they had churned, remained loyal, or would consider churning, cross referencing that data with a number of other key metrics (including response time and resolution time) – and we can now reveal seven key findings from our research.
Consumers care about different things at different times
Consumers rank issues differently depending on their stage within their contractual lifecycle. An issue such as customer services is less important at the beginning of a contract than at the end of the contractual term. When the consumer has the ability to switch from an organisation they are judging the quality of their experience more than when locked into a contract.
"Consumers care more about issues they can control"
Increasing complainant satisfaction, increases customer loyalty
If you increase customer satisfaction, you deliver better retention – but by how much? Our research has demonstrated a substantial link between the two.
"A 10% increase in customer satisfaction delivers a 13% increase in loyalty"
More than 50% of the customers surveyed who had churned or were likely to churn, had given a Net Promoter Score (NPS) score of between zero to three. Customers with an NPS score of between four and six still represented 30% of the dataset, with 11% of customers surveyed giving an NPS score of seven or more. There is a strong link between a customer’s satisfaction with an outcome and their future loyalty. As expected, where a consumer has an NPS score of less than two the probability of churn within the next three months is 60% – and over 20% of customers who haven’t churned after three months still consider themselves likely to do so.
13% of customers with an NPS score of zero had escalated their case to the alternative dispute resolution during the resolution process – compared with those customers with an NPS score of eight or above, of whom just 2% escalated their case to the alternative dispute resolution. The typical market escalation rates for cases (outside of Resolver) is 4% to 5%. Consumers with an NPS score of greater than six at the point of outcome are less likely to escalate their case.
Escalation to the alternative dispute resolution is an indicator of the resolution gap (the gap between the consumers expectation and the business’ offer) rather than what will be the outcome. If the consumer is dissatisfied with the business’ offer then they will escalate their case for the support and assistance.
Financial compensation does not increase satisfaction
The cynical view is that loyalty can be bought – and we know companies that attempt to do this. By offering customers a modest financial reward in return for accepting resolution immediately, some companies will then not record the complaint to keep complaint numbers low. This practice is short-sighted – not only is a business not learning from the issue, but they’re creating a compensation culture.
The main focus is on resolving the customer’s problem effectively. Customers do not set out wanting compensation – only the impact of an issue or the effort required to resolve it drives a customer to ask for compensation. Customers with an NPS score of zero to three had been offered compensation/gesture of goodwill, where there was a genuine issue, of £71 compared with £53 for an NPS score of six to eight.
"A higher NPS score is seen in cases with a lower payment"
Businesses are offering higher financial payments where they face a more serious issue. Resolver has analysed all complaints within the telecoms sector and found that the number of ‘entities’ for low NPS cases are higher. Entities are specific words (or groups of words) found in complaints, sector-specific issues and vulnerabilities (financial, health- or device-related). It is clear from our research that consumers with serious issues do not feel that the company is making enough effort to resolve their issue – even when a financial gesture has been made.
Prompt resolution improves satisfaction and loyalty
Faster resolution timescales lead to improved satisfaction and loyalty. Cases where the customer was retained had an average resolution timescale of less than 20 days. This compared with 22 days for those that were considering to churn, and over 30 days for those that had already churned.
Put simply, the longer the case goes on, the lower the satisfaction of the customer. The resolution timescale is more important than the response timescale. The reduction in timescales between customers retained and those that have churned was on average 3 days.
Resolver asks customers to give us insight into how they feel when they raise a case, during the process and when they close their issue. It is clear that where the customer’s feelings have increased the most, they are at their most likely to stay with the organisation. However, the difference in improvement compared with customers who have churned is not significant. Based on a scale of 10, those who retained increased by 2.2 and those who churned increased by 1.4. Those that are intending to churn increased in satisfaction by only 0.8.
We feel that emotional change across a customer journey is limited. However, the lower level of improvement in satisfaction for those intending to churn is a strong indicator that their issue was not fully resolved – and that the dominant reason for retaining is that they are currently locked into a contract.
Resolution outcomes make a difference
A customer’s NPS score aligns with their satisfaction. 26-40% of customers who would score their outcome with an NPS score of less than three, feel that their issue is fully resolved. This moved to over 50% of those customers giving an NPS score of five – and over 73% of those customers giving an NPS score of eight.
"96% of consumers with an NPS score of eight feel their issue is fully resolved or mostly resolved"
Over 66% of those customers who gave an NPS score of zero feel that their issue was unresolved or partially unresolved, reducing to 17% of those giving an NPS score of five, while over 30% of customers giving that NPS score felt their issue was mostly resolved. For customers giving an NPS score of eight or over, under 15% of customers felt their issue was partially resolved. The partially resolved category is the category where there is the most significant margin for error. The consumer may feel that their issue is partially resolved – but they may still not consider it to be delivered to their satisfaction.
Disloyalty has a cost
The mobile phones sector has low barriers against churn, meaning that unless a consumer is mid-contract they can churn between mobile operators with low effort and low impact. The market has shown low levels of customer satisfaction (according to the UK Satisfaction Index), with the second lowest satisfaction levels of any UK market. For post-paid churn agreements, the churn rate is between 5% and 32% depending on the operator.
The data we analysed was captured over a three-month period, with feedback gathered from consumers on their loyalty after the raising of an issue or complaint with companies. Over three months, the churn rate was 34%. In addition, another 18% of consumers said they intended to churn after three months. If we assume that 80% of these actually churn, then the churn rate from consumers raising issues is 48%.
According to OFCOM the number of complaints to mobile operators per annum is 4% of their customer base. We know this rate will often be higher driven by organisational specific issues and this can rise to 8% to 16%. Based on a mobile operator having 10 million customers.
- 4% complaint rate equates to £38 million of churn from complaints
- 8% complaint rate equals £76 million of churn from complaints
- 16% complaint rate equals £153 million of churn from complaints
The typical cost of being able to resolve a customer issue benchmarks at below £50 including goodwill gestures but excludes the cost of the alternative dispute resolution process. Also, no account has been taken for the time it takes to replace a lost customer and therefore a fallow period has not been accounted for. On this basis of a £200 acquisition cost, the cost of retaining a customer is commercial no brainer.
“Keeping a current customer is worth four new customers”
Indeed, it seems increasingly important that businesses take time to resolve issues and to make customers feel loved.
According to Gartner by 2020, 85% of customers will manage their relationship with a company without ever interacting with a human. Consumers will experience automation during many of the interactions they may have with a company, but complex queries and problems will still require human handlers. Therefore, consumers will be increasingly judge and trust companies based on their ability to resolve problems and complaints. Our research has clearly demonstrated that problem and complaint resolution are important indicators of consumer loyalty and have a direct influence upon churn rates. Get complaint handling right and you will retain your most unhappy customers but also reduce your customer acquisition costs.
Our research into loyalty also gave some interesting insight into the role of ADR (Alternative Dispute Resolution) schemes. The focus should be on using data, insight and intelligence to help business to improve services and deliver better outcomes. The preventative role of supporting businesses to be better will become more essential than resolution.
It is clear that there is significant value in the role of an independent mediator/Ombudsman in the resolution process delivering consumer redress. In our evidence to the All-Parliamentary Governmental Group (APGG), we highlighted the fact that Ombudsmen help consumers but more can be done to help businesses to improve. The Ombudsman role is to help to build better markets, the knowledge of the Ombudsman is key in delivering this. Therefore the role of the Ombudsman should be compulsory in key sectors and from what we have seen there is no value in competition between ADR providers in a sector such as telecoms.
Resolver is the independent consumer brand that helps consumers trust in businesses to deliver the best possible resolution. Our focus is on helping consumers get the right outcomes, ensuring that businesses retain their customers. We help to deliver better outcomes – and our clients are achieving more positive resolutions where cases pass through Resolver. Resolver is recognised as an independent brand by over 17% of UK consumers and has helped resolve over £2 billion.
Resolver trusted consumer brand is focused on helping consumers and businesses to rapidly resolve issues and to retain loyalty. Our clients consistently see better NPS results than their competitors delivering not just loyalty but reduced issues and improved resolution timescales with over 650 organisations using our services to support better outcomes.
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