01.18.2009
Based upon our 26 years conducting actionable customer satisfaction research for the electrical distribution industry this article will address: - Why customer satisfaction is your most important company measurement.
- Why your customer satisfaction survey process must be an objective, structured, continuous process.
- The key factors most important in determining whether your customers continue to do business with you.
Most Important Measurement
We at FCG have been involved in the measurement of customer satisfaction during the last 26 years. I have been fortunate to work with many well respected, leading independent electrical distributors in conducting their customer satisfaction research including Springfield Electric Supply Co., Western Extralite, The Hite Company, Granite City Electric Supply, Summit Electric Supply, and Electric Supply, Inc. Additionally, during 2008 the leading distributor of electrical products worldwide, Rexel selected us to do their customer satisfaction research.
Customer satisfaction is your determining factor for sustainable profitability. If customers are not satisfied, they will find other distributors that will meet their needs. Poor Customer Satisfaction Index (CSI) ratings are a leading indicator of future decline even if current financial health indicators are positive.
Winning companies view the current economic downturn as an opportunity to gain market share. They conduct customer satisfaction studies annually to identify what their customer values and how they are currently performing. They then execute specific actions to provide their customers with more value earning them more business.
For electrical distributors whom we have continuously tracked customer satisfaction measurement annually, we find one common denominator – they achieve continuous, sustainable competitive advantages. We have found through our electrical distribution research that maximizing customer satisfaction will increase sales, improve profitability, and grow market share.
We are now in the midst of a prolonged economic downturn, the likes of which none of us have ever witnessed. Most electrical distributors are immersed in cost cutting strategies, which will likely have a negative impact on customer satisfaction as employees are laid off, deliveries are reduced, etc.
Look at the cost cutting measures that the U.S. airline industry has undergone and the concurrent downward spiral in airline customer satisfaction. Yet Southwest Airlines is ahead of all other US airlines in customer satisfaction with a Customer Satisfaction Index (CSI) rating of 79% during 2008. Unlike the other airlines, Southwest did not reduce aircraft, cut back on flights, raise ticket prices, charge for a second checked bag, etc. The entire airline industry recorded a dismal poor 62% CSI rating versus Southwest’s 79%. As a result, Southwest continues to grow and remains the industry leader in profitability. Southwest Airlines is the lone bright spot in the U.S. airline industry due to their strategic approach to lead the industry in customer satisfaction.
Customer Satisfaction Index (CSI) rating is derived by adding the number of Excellent (rating = 5) and Very Good (rating = 4) scores and dividing by the total number of responses to obtain a CSI percentage.
Whereas Southwest Airlines achieved a 79% CSI rating during 2008, our leading electrical distributor clients achieved between 72-74%. These electrical distributors concurrently achieve high ROTA (Return on Assets).
Like Southwest Airlines, smart electrical distributors will seize this economic upheaval as a great opportunity to take market share from their competition by achieving higher levels of customer satisfaction while those around them provide lower satisfaction levels.
Both the airlines and electrical distribution navigate in mature industries. Are you going to be a Southwest Airlines electrical distributor that garners high customer satisfaction and results in continued sales growth, improved profitability, and sustainable competitive advantage? Or are you going to be among the dinosaur “legacy” carrier electrical distributors that only focus on cost cutting measures during 2009 and is the recipient of declining customer satisfaction?
Measurement Process
Customer satisfaction is a formalized, objective tool for accurately measuring how your customers rate your people, your customer service processes, and how you compare to your competition by customer type (primary, secondary, tertiary), by market (contractor, industrial, institutional, etc.) and by branch location..
The primary intention for customer satisfaction is to collect information on how an organization is performing in the eyes of its customers and what specifically needs to be changed for customers to give the company more business.
Both mail surveys and online surveys are effective quantitative customer satisfaction measurement tools. Quantitative research produces statistically reliable information that can be generalized to a larger population.
Mail surveys are a quantitative research data collection method in which respondents’ complete questionnaires on paper and return them via the mail. We enclose a self-address business reply envelope and a one-dollar bill as an incentive to complete and return mail surveys. Offering an incentive is very important. Research results show it will typically lift response rates by 10-15%. Survey research also indicates that even a one dollar bill as an incentive garners a better response rate than an entry for a sweepstake drawing.
Mail surveys are best used when the electrical distributor’s target population is very well defined and easy to mail to with a contact name, company name, and company address. Our average electrical distributor response rate with mail surveys is 39.7%. According to the Journal of Business Logistics average mail survey response rates are 14%.
Online surveys are best used when the electrical distributor’s target population is internet savvy and an email list is available. Online survey responses are faster than mail survey responses. Our average response rate with online surveys is 23.1%. We believe the lower response rate is indicative that online surveys do not provide the cash in hand incentive of mail surveys.
Customer satisfaction surveys should be sent to all your active customers and your results should be analyzed by customer type, by market, and by branch location.
We are used by leading electrical distributors because they recognize we provide the following value as a third-party research firm:
- Our user-friendly customer satisfaction survey ensures a higher response rate.
- As a third-party, we are able to protect identities so customers are assured confidentiality and therefore respond candidly and honestly.
- Customer Satisfaction Indexes (CSI) is benchmarked against 34 other distributors.
- Our survey results are summarized and evaluated accurately and objectively with a detailed action plan to increase customer satisfaction and grow sales revenue by branch location.
Most Important Measurement Factors
An industry’s key success factors (KSF) are competitive factors that most affect an industry member’s ability to prosper in the marketplace.
To be successful here are three KSF that drive electrical distributor customer satisfaction:
- Friendly, Responsive & Knowledgeable Service Providers including person who answers the phone, counter salespeople, inside salespeople, outside salespeople, warehouse & delivery people, credit people, etc. Knowledgeable.
- Order Fulfillment Process that provides High Order Fill Rates, High Order Accuracy Rates, and On-Time Delivery.
- Prices that are Competitive, Consistent, and Accurate.
At a minimum your customer satisfaction survey design must include questions that rate these three KSF.
At some electrical distributors we have recently found that they have conducted their own customer satisfaction surveys. They reported high levels of customer satisfaction but declines in sales and profits. Upon closer observation we discovered that they were polling only their best customers and that these customers were not providing candid feedback because they were reluctant to deliver bad news and not do it anonymously.
It’s not the Measurements. It is what you do with the Measurements!
Taking specific actions to improve upon any low customer satisfaction ratings or competitive disadvantages by customer type, by market, and by branch location is the most critical step. Your specific customer satisfaction improvement action plans provide your customers with more value and will earn you more business from your competition.
Customer satisfaction is your largest source of sales growth, profit, and sustainable competitive advantage. If customers are not satisfied, they will find other companies that will meet their needs. Poor CSI ratings are a leading indicator of future decline even if current financial health indicators are positive.
The greatest opportunities abound when your competition is running for cover and waiting out this economic storm. Now is the optimal time to enlist a third-party research firm to objectively determine what your customers’ value most, how you are currently performing, and what specific actions you must take to gain more business.