I want to start a conversation regarding the use of customer satisfaction as the metric of choice in judging the efficacy of organizational efforts and why value is more appropriate. In doing so, I will use a couple of blogs – this first blog focuses on the difference between the two concepts.
The conventional wisdom within the Six Sigma community, as judged by much of the written discourse, is that customer satisfaction is the appropriate strategic measure. For example, in defining Lean Six Sigma, Michael George says the following:
Lean Six Sigma is a methodology that maximizes shareholder value by achieving the fastest rate of improvement in customer satisfaction, cost, quality, process speed, and invested capital (Lean Six Sigma, p.7).
This statement does not conform to the empirical evidence that exists regarding customer satisfaction and outcome measures such as market share and ultimately shareholder value. Customer value is a central component of Six Sigma Marketing. It represents more than just the core of the discipline, it is the controllable output of Six Sigma Marketing that generates revenues and market share.
The proper place to start understanding value and satisfaction and the distinction between the two, is by defining the two concepts. Value is the relationship between the quality of a product or service and the price that the customer pays to obtain that product or service. For example, value would dictate the choice of a quality beer costing $1 over that of an equal quality beer costing $2. This brings us to the first proposition regarding value – it involves a cognitive calculus of the interaction between quality and price. It is a thinking decision – one that requires an evaluation.
Satisfaction, on the other hand, is an emotional response. The customer feels satisfied, the customer doesn’t think satisfied. Satisfaction equates to happiness. If we are satisfied with our purchase experience we are happy. This is reflected in a recent ASQ workshop entitled, “Keep your current customers happy” – a workshop on customer satisfaction. Many decisions, especially in B2B buying situations are not emotional but cognitive. They involve an evaluation of alternatives.
Going back to our simple beer example, we can make the following statements about value and satisfaction. Once we have paid for and consumed the beer, we can determine whether we were happy with our purchase and experience. This is a reactive response. Value on the other hand is a proactive response. Six Sigma Marketers can determine what beer drinkers value in a beer – its taste elements, its packaging, its availability, its image, etc. and of course, the price they are willing to pay for all of the different quality components. We can determine the relative importance of these quality components leading to the creation and delivery of a beer with a dominating value proposition all responsive to a targeted product/market.
Too often the concepts of satisfaction and value are used as if they were synonyms. This is incorrect since they represent two distinct dynamics associated with the buying decision. We buy on value and repurchase based on the satisfaction of the value we received. Again, value is a proactive metric – one that informs decisions regarding the traditional marketing mix (price, product, promotion and distribution) while satisfaction is a reaction in response to our value proposition. In this, value is a strategic measure while satisfaction is a transactional measure best used in post purchase situations to evaluate how responsive the enterprise is to the market’s definition of value.
How many of you are measuring satisfaction instead of value? If you are like many of the respondents in a recent isixsigma survey, satisfaction is still the measure of choice (18% to 9%). It is no small thing to change entrenched ideas. The conventional wisdom yields gradually and haltingly. More and more organizations however, are challenging the “contented customer theory of marketing” and turning to customer value. Customer value is a foundational concept of Six Sigma Marketing as well as the strategic metric that drives a fact based, data driven methodology.
In the next blog I will talk about the relationship between satisfaction and measures such as revenue and market share growth.