Customer Satisfaction Index

The customer satisfaction index tells a company how satisfied a customer is. It is calculated based on the total user base and refers to the proportion of satisfied customers that a business has. Customer satisfaction scores recorded on a scale at an absolute level do not always help in a significant manner. However, when tracked over time or when compared to competitive scores, the index can help the business benchmark itself and devise the right strategies. Also, when tracked at an individual level, a company can react in real-time when a customer's satisfaction index hits a certain threshold.

There are various ways in which this index is calculated based on the model that you are following. Most marketers use satisfaction scores, intention to continue, level of perceived differentiation and intention to recommend as factors that go into the calculation of the index.

High levels of customer satisfaction lead to reduced price sensitivity, lower chances of switching to competition, increased number of referrals and repeat purchase. This can be linked to higher revenues from the customer along with reduced costs leading to better customer profitability.

Example Use of the Customer Satisfaction Index

• A retailer can offer discounts or products to customers with low satisfaction rates
• A hotel determine which factors attribute to low satisfaction scores
• A bank can drill down to the customer level and interact personally with a important but dissatisfied customer
• A telephone company can offer discounted services to customers whose loyalty is a stake due to a unsatisfactory experience

Marketers can look at individual customer satisfactions scores and create alerts when a low customer satisfaction score is received. This can allow them to react immediately and take steps to ensure that the customer is retained. This last minute ditch to save the customer can save the company thousands of dollars. At an aggregate level the customer satisfaction index can be used to benchmark the company against competition. The overall scores help in prioritizing budgets across the various departments and parameters that need improvement. Lastly, customer satisfaction index can be used t segment customers into various groups in order to decide the specific marketing strategy for each.

If you know the specific factors that have gone into calculating the customer satisfaction index, you will know what you need to do to take corrective action. With the knowledge about the specific aspect that you need to work on, you can create retention strategies to ensure that you do not lose customers. For example, if the customer satisfaction index is low because the customers are seeing your product or service as a ‘me too’ then you need to ensure that you create some sort of differentiation (real or perceived) in the minds of the customers.

To see our list of customer analysis examples and the top 10 customer metrics businesses should track visit our Customer Analysis Examples page.