The Role of Customer Delight in Achieving Loyalty

Timothy L. Keiningham

Douglas R. Pruden

and Terry G. VavraJune 2004 • © 2004 Ipsos Loyalty

© 2004, Ipsos Loyalty • June 2004

About Ipsos Loyalty

Ipsos Loyalty is a global, specialized practice dedicated to helping companies improve business performancethrough customer satisfaction management, customer relationship management, and employee climatemanagement. Ipsos Loyalty provides a state-of-the-art approach to customer-driven business perform-ance through a modular suite of innovative research tools that provides an integrated framework toidentify complex global business solutions. Ipsos Loyalty is an Ipsos company, a leading global survey-based market research group.To learn more, visit www.ipsosloyalty.com

Authors

Timothy L. Keiningham, Senior Vice President and Head of Consulting

Douglas R. Pruden, Senior Vice President and General Manager

Terry G.Vavra, Chairman Emeritus

Design and Illustrations

Barbara Day, Ipsos North America

Production

Roland Clifford, Ipsos North America

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A Chain of Events

While businesses have customer loyalty permanently on their corporate dashboards,let’s remind ourselves that loyalty is not an end in itself, but rather an intermediatebusiness goal that helps achieve greater success. Businesses attempt to build loyalty among their customers to move their outcomes further along a progressionthat we call the Satisfaction-Profit Chain.

On the Chain, customer loyalty is the step immediately preceding business profitability. But there are steps before loyalty: how a business conducts itself (functional performance) and customer satisfaction. While loyalty is currentlycommanding substantial attention, we should remind ourselves that it is driven by customer satisfaction. Consider this, customer loyalty is actually an outcome;satisfaction can be considered the input. In our modern businesses we onlycontrol inputs. Inputs are the only things that we can manage! But managementrequires that we are able to accurately measure the satisfaction we ‘deliver’.As many concerns have sadly discovered, measuring satisfaction accurately is farfrom easy! In this paper we’ll share a philosophy and an approach we’ve developed which solve many of the problems inherent in conventional customersatisfaction measurement and management.

An Epidemic of Ineffective Customer Satisfaction

Surveying the landscape of customer satisfaction, one would have to conclude thatfar too few satisfaction programs have actually improved customers’ satisfactionwith the sponsoring business! In this respect CSM (customer satisfaction measure-ment) has generally failed its promise. This failure is especially evident, on a macro perspective when examining national satisfaction ‘barometers’ like theAmerican Customer Satisfaction Index. Over a six-year period of intense customersatisfaction activity (over $800,000,000 spent annually on customer satisfaction in the United States), the satisfaction of American consumers has neverthelessfailed to increase!

© Ipsos-Insight 2004

The Satisfaction-Profit Chain

Market Shareand Profits

CustomerRetention

AttributePerformance

Satisfaction

The Role of Customer Delight in Achieving Loyalty • © 2004, Ipsos Loyalty

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As principals at Ipsos Loyalty, we have created a new approach to customer satisfaction that yields demonstrable improvements in customer loyalty. Our approachis drawn, in part, from our 2001 book, The Customer Delight Principle,(Keiningham & Vavra). In the book and our practice we’ve identified many flaws in the conventional practice of CSM; in this article we’ll focus on just one, the improper or inadequate analysis of satisfaction data.

Exploring The Problem

Most customer satisfaction programs treat the data they collect as if the underlyingrelationships were completely linear. Nothing could be farther from the truth!Customer satisfaction data is really non-linear and asymmetric.This means traditionalanalyses can be terribly misleading. Our Customer Delight CurveTM shows theway corporate performance and customer satisfaction are really related.

Source: American Customer Satisfaction IndexTM

© Ipsos-Insight 2004

0

10

20

30

40

50

60

70

80

Six-Year Trend in ACSI Scores

2002 2001 2000 1999 1998 1996

Trend in ACSI Scores

Year

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The challenge is to acknowledge the non-linear relationships inherent in the Satisfaction-Profit Chain. Functional performance (how the business conducts itself)is non-linearly related to the satisfaction customers experience; satisfaction isnon-linearly related to the evoked loyalty. We must adopt analytical proceduresthat respect this non-linearity. Simplistic analyses that ignore the true nature of the underlying relationships yield scenarios in which observed changes in satisfac-tion and loyalty will generally fall far short of those that might have been anticipated.(Most firms operate in a central region of the Delight Curve, a region we call the Zone of Mere Satisfaction. This is a highly inelastic zone in which improvements inperformance are rarely accompanied by proportionate increases in satisfaction.)

On either side of this central zone, satisfaction’s response to changes in performanceis much more dynamic, creating two very elastic regions in the Delight Curve.The first zone, starting at the origin, we call the Zone of Pain. In this region thebusiness is performing sub-optimally causing substantial dissatisfaction among its customers. Any improvement in performance, no matter how small, raises satisfac-tion levels.We’ve labeled the far right side of the curve the Zone of Delight.Here customers are in euphoria, their every need and wish seems anticipated andsatisfied. In this region, increases in performance will also trigger larger than proportional increases in satisfaction.

It is critical that a business understand where it lies on its own Delight Curvegiven its current level of performance. Without this understanding, the businesswill lack a realistic anticipation of the consequences of its improvement activities – ROI will be difficult to prove. A naive analysis of CSM findings causes yet another breakdown, improvement programs that are difficult to implement and are probably misdirected.

The Delight Response Curve

Level of Customer Satisfaction

Impa

ct o

f Loy

alty

Dissatisfied Merely Satisfied Delighted

Zone of Pain

Most firms’ improvement efforts move customers along the Zone of Mere Satisfaction Zone of Delight

© Ipsos 2004

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The Solution; Delight Analysis

Our Delight AnalysisSM solves these two problems.The first step is to determinethe shape of a firm’s individual Delight Curve, and where it currently lies on the curve. That is, how many of its customers are in pain, how many are merely satisfied, and how many are delighted. Customers in pain are at risk; they won’tremain as customers long. Customers in pain aren’t interested in being delighted,they’re primarily interested in relief from the pain they experience whenconducting business with the firm. First and foremost the points of pain need to be removed. Merely satisfied customers are vulnerable to outreach from competi-tors. There is no reason for them to remain as customers in the face of a compellingoffer. Their departure is documented in numerous lost customer surveys.While a business may think of them as satisfied, they are marginal customers atbest. Delighted customers are the only true enduring assets a business possesses.And they are worth far more than their actual purchases because of the positiveword-of-mouth they spread for the business.

Priorities for an intelligent improvement program ought to be dictated by how abusiness’s customers are distributed across the Delight Curve. A properly formulatedplan should first focus on removing customers from pain, by eliminating or atleast minimizing customer experiences we call points of pain. Once these problemsare eliminated or substantially reduced, then, and only then, can improvementefforts be directed towards escalating customers from mere satisfaction to delight.

The second step in Delight Analysis is to identify how to most effectively improveperformance. Delight Analysis recognizes that not all performance attributes(monitored in a CSM program) exert equal weight in generating overall satisfaction.We believe that there are two types of attributes: those that merely maintain satisfaction, and those that are capable of creating delight. Satisfaction maintainingattributes are often the basics of a category; Does a bank process checks accurately?Does a retailer have stock on its shelves? Frequently satisfaction surveys are over-loaded with these “tickets to entry”. This is because in creating the satisfactionsurvey operational areas are frequently asked to submit questions they’d likeanswered.Their ‘knee-jerk’ reaction will be to identify the basics of their operationor product. But it is almost always the case that these basic functionalities can bemeasured more efficiently by internal metrics (quality control statistics, inventoryreports, etc.) than by burdening customers to verify operational basics.

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What are often too sparsely represented on satisfaction surveys are delight creators – issues that can elevate customers to delight and in so doing differentiatean enterprise from its competitors. Identifying delight creators is more difficult.But the opportunity they offer is substantial. Delight creating attributes are oftenleading indicators of customers’ shifting requirements or evolving needs.They either are born within a category or may be transferred over from practices in another sector.

The chart below shows these two sets of drivers as we commonly depict them.This two-way bar chart shows the differential impact of each activity measured onalleviating pain or on creating delight. The bars on the left show each attribute’srelationship to curing pain. The longer the bar, the greater the relationship topain.The bars on the right show each attribute’s similar ability to deliver delight.Almost always different issues will be associated with pain than are related todelight.Again the message should be clear; eliminate points of pain before strivingto elevate customers to delight!

Our division of attributes into these two classes is supported by the ideas of other theorists including: Kano; Oliver; and Anderson and Mittal.With this dualperspective, Delight Analysis identifies two sets of key drivers. A more realistic and manageable “roadmap for improvement” comes from this two-step process.

Source: Keiningham, Timothy L. and Terry G. Vavra (2001) The Customer Delight Principle. Chicago: Contemporary Publishing (American Marketing Association). © Ipsos-Insight 2004

Drivers of Pain and Delight

1.5 1.0 0.5 0 0.5 1.0 1.5

Can solve problems in one call/visit

Importance to Curing Pain Importance to Creating Delight

Clearly communicates the required information

Have confidence in advice given by advisor

Makes you feel like a valued customer

Provides right amount of information and assistance

Driver Weights

Impact in Maintaining Satisfaction Impact in Creating Delight

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The Importance of Guiding Improvement

All too often CSM programs fail to guide or mentor improvement. Not so with Delight Analysis! When a satisfaction maintaining attribute is inadequatelyperformed, customers are placed in pain.

The guide for improvement will be a quadrant or importance-performance grid.However, Delight Analysis yields a special quadrant chart, one with two planes.The first plane directs activities to eliminate points of pain and is always executedfirst. The second plane identifies the opportunities to create delight. This uniquequadrant chart guides the two-step improvement process.

© Ipsos-Insight 2004

Impo

rtanc

e (W

eigh

ted

Corre

spon

ding

to O

vera

ll De

light

)

Percent Delighted (Excludes Missing)

5

6

Pain and Delight Quadrant Charts

0.51

0.34

0.46

0.30

0.1727.0% 10.0% 0.0%

39.0% 58.0%

High ImportanceLow Performance

1. Priorities for Curing Pain

2. Priorities for Creating Delight

Low ImportanceLow Performance

High ImportanceLow Performance

High ImportanceHigh Performance

Low ImportanceHigh Performance

Low ImportanceHigh Performance

Percent Dissatisfied (Excludes Missing)

Impo

rtanc

e (W

eigh

ted

Corre

spon

ding

to O

vera

ll Di

ssat

isfac

tion)

Attribute 11

1

1

Attribute 22

2

2

Attribute 33

3

3

Attribute 44

4

Attribute 55

5

Attribute 66

6

Attribute 77

7

7

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Proof of the Process

Our Delight Analysis is no idle speculation. Our clients have subjected it to rigorous scrutiny. In a B2C retail environment, we’ve been able to place a dollarvalue on a delighted customer as compared to a merely satisfied customer.The chart below shows the incremental spending that delighted customers deliverover merely satisfied customers. When you can evaluate the benefits of movingcustomers from merely satisfied to delighted, you have clear proof of the value,and you have an identifiable limit for your spending to achieve an ROI.

© Ipsos-Insight 2004

Delighted Customers Spend More

$ A

nnua

l Pur

chas

e Le

vels

Merely SatisfiedCustomers

Delighted Customers

Impactof Delight

All Customers

$ X

$ Y

$ Average

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We will almost always attempt to link satisfaction ratings with individual customerbehavior. But when our client doesn’t have the information available, we can nevertheless validate our model based on future purchasing intentions. In a B2Bengagement, delighted customers were five times more likely to plan onrepurchasing than merely satisfied customers (See Chart 6).

More recently, we’ve investigated the impact of delight on share-of-wallet.Again, delighted customers allocate a greater share of their spending than merelysatisfied or dissatisfied customers. In many of these cases we’ve had the luxury of longitudinal data and the ability therefore to monitor customer spending overtime. Not only do delighted customers spend more in a particular instance, butover time they increase their reliance and dependence on the firm delightingthem, making them true assets for the enterprise. And by increasing the percentageof customers who are delighted, businesses will improve their sales and ultimatelytheir profit performance.

Delighted Customers Allocate More of Their Spending

Overall Satisfaction Level

Shar

e of

Wal

let

00

5

10

15

20

25

654321 7 8 9

At the point of delight, there is an exponential increase in share of wallet

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© Ipsos 2004

© Ipsos-Insight 2004

Definitely would recommend/buy

Likelihood to Repurchase

Would you recommend/buy again?

Merely Satisfied DelightedDissatisfied

60%94%

22%

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Our idea of striving for delight works, but it’s hardly new. The father of the qualitymovement, W. Edwards Deming, over half a century ago urged manufacturers toimprove the quality of their goods by observing,“It will not suffice to have customersthat are merely satisfied!”

For further information the reader is referred to:

The Customer Delight Principle, Timothy Keiningham and Terry Vavra, New York:McGraw-Hill and the American Marketing Association, 2001. ISBN 0658010042.Also available at www.ipsos-loyalty.com

The Role of Customer Delight in Achieving Loyalty • © 2004, Ipsos Loyalty

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North America

Europe

Latin America

Asia-Pacific

Middle East

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