Many of us use the terms “customer satisfaction” and “customer loyalty” interchangeably, but in fact they are distinct concepts. Research shows that while satisfaction is important, it does not equate to loyalty. Companies must focus their efforts on building and keeping repeat business rather than just on pleasing customers. And while the two efforts go hand in hand, building loyalty is a separate and different process.

The illusion of satisfaction surveys

Customer satisfaction surveys can give companies a false sense of security, and wiser organizations are beginning to discover that satisfied customers (patients, clients, buyers) aren’t necessarily good customers.

The reason? Satisfaction surveys are not predictors of actual purchase behavior. Although your customers are satisfied, they may not always give you their repeat business. Some studies suggest that even satisfied customers are up to six times more likely to defect to the competition than very satisfied customers. Loyal customers, on the other hand, won’t leave, even for a more attractive offer.

In that sense, satisfaction surveys typically reflect what people say, while loyalty evaluations reveal what they actually do. Customer satisfaction surveys are important for measuring attitudes about your products or services. But assessing customer loyalty requires evaluating actual behavior – specifically, the act of repeat purchases despite competitor offers.

Certainly, customer satisfaction surveys are valuable tools for any organization. After all, loyalty is the result of very high satisfaction levels sustained over a long period of time. But while satisfaction surveys provide vital information about quality and service, they only offer a snapshot of where your organization stands at the moment. To know what your future holds, you need customer loyalty measurements. Without loyal customers, a competitor can eventually carry away your market.

Calculating loyalty

Organizations that care about long-term profitability also care about loyalty. Your current customer base is your best source of future revenue, and your customers’ loyalty is an important indicator of their future buying habits.

Companies that do recognize the significance of loyalty often don’t go deep enough to address it. Such companies take perfunctory steps – for example, offering rewards programs under the assumption that such programs will automatically reinforce loyalty. Instead, it’s more important to incorporate loyalty strategies as a fundamental part of your business management process. Organizations that do so successfully rely on a data-driven approach to loyalty development.

The most logical place to begin examining loyalty behavior is with sales data. Purchase dates, purchase amounts, and the types of products or services purchased can all be used to create customer behavior profiles.

Profiles make it easier to identify customers whose loyalties may be at risk. For instance, if a customer has placed a routine order with your company every quarter but begins to decrease either the volume or the frequency of his purchases, that customer’s loyalty could be in jeopardy. Your quick access to this information can alert you in time to aggressively address the potential loss of a loyal customer.

In addition to serving as early warning tools, a variety of sophisticated profile practices are available to help formulate predictors about your customers’ future activities. They can predict defectors and the amount of revenue you stand to lose as well as identify customers who are the best candidates for purchasing more or more often, helping to predict potential revenue increases.

It’s also important to identify what issues impact your customers’ loyalty. By determining the influence factors, you’ll be able to properly focus your business priorities on addressing and leveraging them.

And don’t forget the competition. Benchmarking or comparing your performance and customer relationships with those of your main competitors is a smart practice. Such information can give you the advantage in understanding what attracts and keeps loyal customers and what prevents or hampers loyalty.

Longevity through loyalty

Good loyalty measurements are forward-looking tools no organization can afford to overlook. Considering that loyal customers generate more profit than simply satisfied ones, it’s an investment some experts say yield as much as a tenfold return.

Turn your accounting records into valuable marketing intelligence, and investigate an aggressive system for predicting and protecting your customers’ loyalty levels.