Is a satisfied customer a loyal customer? Not necessarily so says the author of two books on CRM, who in this article makes the important point that satisfied customers can defect but customers who have a strong relationship rarely do.

While many companies invest a great deal of money in building close relationships with profitable customers, their efforts are often unsuccessful because they fail to incorporate two important tools. The first tool is a method for setting relationship objectives and measuring the firm’s progress toward achieving them; the second is a strategic, integrated plan for managing customer relationships. Companies often do not know what good relationships should look like, how to form them, or how to measure them. Little wonder, then, that customer relationship management (CRM) initiatives often fail to deliver the desired returns on investment.

Instead of measuring the customer relationship, many companies focus on researching customer satisfaction. This is a good start, but customer satisfaction data do not sufficiently describe a customer relationship or serve as a predictor of loyalty. Companies also have to consider customer behaviour and profitability in order to successfully manage individual customer relationships. In respect to profitability, all attributable costs should be applied to each customer. Some examples are customers who communicate through more expensive channels, such as in person or via call centres, versus customers who use lower-cost channels such as the internet; customers who are slow payers versus those who pay quickly; and customers who return merchandise frequently or tie up the company’s time with long conversations versus those who are less time-intensive and problematic.

This article describes approaches that companies can use to develop a comprehensive picture of each customer relationship. They work equally well for companies that sell goods and services to businesses, public-sector organizations and consumers, although changes will be required to reflect differences in markets and buyers.

Customer satisfaction measurement is not sufficient to describe a relationship

Companies have been measuring how customers perceived them for a long time, with the help of tools such as Usage and Attitute surveys. The introduction of Total Quality Management offered more direct methods for researching customer satisfaction, largely as a basis for process re-engineering. More recently, some organizations have developed methods to measure aspects of customer loyalty in addition to customer satisfaction.

The Customer Satisfaction Index continues to be the most common measurement of customer attitudes. CSI is determined from market research that incorporates elements such as:

  • Determining the purchase decision-makers and influencers (both for business-to-business goods and services, and consumer products);
  • Assessing and weighting the relative importance of the decision-makers (of considerable importance to suppliers of goods and services to business customers);
  • Establishing decision-makers’ perceptions of the main attributes of satisfaction;
  • Weighting the relative importance of these attributes by purchase decision-maker;
  • Scoring the performance of the supplying organization in respect of these weighted attributes; and
  • Multiplying performance ratings by weighted attribute rankings to arrive at an index.

Data are typically presented in an importance-and-performance matrix like the one in Diagram 1. This matrix is often seen as a portfolio of opportunities to help the company prioritize its actions. Most companies concentrate on the area showing weak satisfaction scores for attributes that are also most important to customers. In Diagram 1, this box is shown with a star.

Many organizations do not pay much attention to the other boxes in the matrix. For example, some companies in advertently lower their profitability by over-investing in attributes that do not matter much to customers. Other organizations fail to build upon their standout performance in a particular attribute, and therefore miss out on opportunities to achieve distinctive positioning or new sources of revenue.

Even after undertaking an assessment and putting remedial action plans into place, many companies experience little improvement in customer satisfaction or, worse still, high defection rates of their most valuable customers. The first problem is that customer relationships are not sufficiently described by customer satisfaction measures; the second is that customer relationships cannot be prescribed by customer satisfaction measurements alone.

Specifically, customer satisfaction measures usually do a poor job in the following areas:

  • Predicting the level and nature of customers’ purchasing behaviours;
  • Prioritizing satisfaction scores according to how important the respondent is to the company;
  • Understanding customers’ rising expectations customers of all suppliers;
  • Identifying customers most at risk of switching to a competitor;
  • Providing a competitive context for customer attitudes and behaviours within the company’s traditional definition of its industry and from non-traditional sources of competition, such as those enabled by the internet and digital convergence;
  • Assessing the factors that produce deeper bonds and a greater market share;
  • Understanding the company’s progress in relation to the main drivers of the customer relationship; and
  • Linking profitability, behaviours and attitudes at the level needed to manage customer behaviours, whether for individuals, customers clustered according to their behaviours, or market segments.

CSI was never intended to describe the nature and quality of the customer relationship. Since many firms have lacked an appropriate research methodology to measure their relationships directly, they have been unable to describe the impacts of CRM investments.

Companies measure attitudes and performance

Some companies have begun to measure customer attitudes and associate the data with customer behaviours, typically the performance of customers as measured by profitability. The presentation of data can occur in a matrix similar to that described in Diagram

2. This may lead companies to focus on improving the attitudes of their most profitable customers and/or improving the profitability of those customers where they enjoy positive attitudes. Other actions may also be indicated, such as whether to continue investing in relationships with unprofitable customers.

Such a measurement-and-presentation approach is an important advance over customer satisfaction measurement if it matches each individual customer’s attitudes with the performance results of their behaviours. This overcomes a problem that exists in some companies where customer satisfaction measures are aggregated into clusters of customers without connecting the data to the results of customer behaviours.

Although the approach described in Diagram 2 is a better guide than customer satisfaction on its own, some challenges remain. The following are examples:

  • The company may seek to change customers’ attitudes when there are a number of other, often internal, factors to address. These issues can include how the organization relates to its customers and respects the individual. One computer company that undertakes customer satisfaction studies enjoys high scores with end-customers but weaker scores with its dealers. No surprise. The company refers to its dealers as “box pushers.” Genuine respect for the other party is almost always necessary for superior relationships.
  • This approach may not provide clear answers for management wanting to investigate and address the factors that underpin some of the attitudinal scores, such as what they should do if customers say they want “better” or “more friendly” communications from the company.
  • This method may not pay sufficient attention to dimensions of importance other than customer profitability-strategic value, for example.
  • One way to address some of these challenges is to expand on this assessment and focus more specifically on the customer relationship.

Measure customer relationships directly

Methods now exist that enable companies to measure directly the relationships they have with consumers, business customers and distribution-channel intermediaries.

Before this measurement can be planned, an important question should be answered: “What is a relationship?” Answering this question is essential if the company hopes to measure the right things and to measure them right. Every company and consultant has their own view of a relationship. Here is mine:

“A relationship between businesses and customers is the interplay of values, attitudes, behaviours and results that brings customers and the company together collaboratively, preferentially and continually in the pursuit of new and mutual value.”

In short, relationships between customers and organizations are concerned with mutuality and how each party sees the other in their respective future. This suggests that measurements should be developed from both the customer’s and the company’s points of view. On the one hand, a company is unlikely to have a profitable and durable relationship with a customer who does not see the value in having a relationship. Similarly, a customer who looks to a company for more than what a company is capable of delivering is bound to be disappointed. In an example common to several industries, a company selling computer printers recently tried to persuade dealers and business customers that they should value the firm’s “solutions,” even though many of them simply wanted a low-cost product. The company did not differentiate its dealers and customers to determine where to concentrate on a “solution” benefit and where other dimensions should receive more attention. In a consumer example, people who chose a credit card because of the points they could redeem on the purchase of a new car were disappointed when the program was cancelled and they lost their discounts. The consumer was looking to the car company for a lifetime association, but the car company could not honour the relationship it had initiated.

One measurement approach that seeks to assess the mutuality of relationships balances customer-centricity with organizational performance. It goes deeper than the approach described by Diagram 2, focusing on the attitudes of individual customers (and/or clusters of customers) and their importance to the company.

Measuring customer attitudes

Some companies use research methodologies and software to arrive at the key attributes that drive each customer relationship. Other firms prefer to explore relationships using focus groups with consumers grouped according to their behaviours rather than their demographics. Others conduct personal interviews with the purchase decision-makers and influencers in businesses and public-sector organizations. In my experience, whichever approach is adopted, attributes can typically be aggregated into three main categories that yield a comprehensive description of the customer relationship. These categories are:

  • Satisfaction and alignment
    This category incorporates customer satisfaction research and examines customer perceptions of the extent to which the organization’s existing processes are aligned with their requirements. From the customer’s perspective, key processes relate to information provision, communications, interactions and transactions.
  • Trust and values
    As important as customer satisfaction is, so too is the trust the customer places in the company and its brands. This trust is associated with the customer’s perception of the organization’s credibility in respect of the firm’s people and knowledge, communications, technologies and processes, and its ability to assume responsibility as a full-service supplier for all the customer’s requirements. Trust is closely associated with profitability because it affects customer retention, share of customers’ expenditures, referrals to other customers, accelerated product testing and adoption, and even the boundaries for new products and services. For example, a trusting customer is more likely to buy insurance from a bank new to the insurance arena.
    In addition, customer attitudes regarding the values of the company and its people should be assessed. For example, customers need to feel that a bank’s core values are consistent with a place where people choose to deposit, borrow and invest money. These are idealized values, not customers’ perceptions of themselves. Quite often there is a difference between the two!
  • New value
    A relationship deepens when new value is created and shared. The attributes in this category relate to how the organization involves the customer in new value creation. The assessment can explore attributes associated with collaboration, planning and innovation.

The research then assesses the disposition of customers toward the attributes, and compares the firm’s performance against those competitors that the customer considers to be primary substitutes for the company and its products and services. The data are often presented according to whether the customer is positive, neutral or negative toward the firm vis-à-vis its competitors.

Sometimes, presentations not only provide customers’ perspectives of the company but also their perspectives of those competitors that represent a target opportunity or threat for the firm. This is most appropriate where the customer deals with more than one supplier. Comparisons can sometimes be made with best-practice companies that may not be direct competitors but supply the customer with similar classes of goods, such as maintenance, repair and overhaul supplies. Many companies also set out to assess the relationships that prospects have with specific competitors as part of a competitor targeting initiative.

Assessing the importance of customers

Most of the methods for assessing the importance of customers start by reviewing their profitability. In many companies, this is a more complex task than considering product or service margins, which often do not include much more than revenues and the direct costs of goods and labour. Some firms now apply other costs to each customer, such as financing costs to reflect invoice payment history, selling costs to describe account management, investment of sales time and product returns, and various other costs such as customer contacts with a call centre.

After considering customer profitability, companies reflect on issues such as strategic customer value and the potential to increase customer revenues and profitability, for example, by advancing the customer through a relationship life cycle. The company considers whether customers should be retained or developed, based on aspects such as their buying patterns and the scope of products and services that they are purchasing. In other words, companies assess their best, average and worst customers.

Reviewing the results

Results can be reviewed in a manner similar to that described in Diagram 3. One axis describes customers’ positive, neutral or negative attitudes toward key dimensions of the relationship, ranked according to their importance. The other axis presents the company’s best, average and worst customers. This type of presentation method guides the company in deciding whether specific attributes need generalized attention for all customers, whether some customers can be more effectively served in respect of many attributes, or a combination of the two. A weighting process provides a relationship index, with sub-indexes for specific attributes and customer types, in much the same way as a customer satisfaction index is calculated.


A customer-centric company wanting to hear the voice of each customer must first develop a frame of reference to ensure that their listening can indeed lead to deeper relationships. This article has described selected approaches some businesses use or could use to frame their assessment of relationships with business customers, public-sector organizations and consumers. While every business has different contexts and markets, and should use different approaches to relationship measurement, the central ideas presented here remain generally applicable. Part of the challenge will be to fund the investment in relationship measurement. If the costs seem daunting, companies could start by measuring relationships with their most important customers and channel partners. Although sampling distances the company from developing individual relationships, it can assist the firm in selecting proxy customers from behavioural clusters, and then provide illustrative guidance for the cluster as a whole.

This article takes the view that customer relationship measurement is more important than measuring customer satisfaction because satisfied customers often defect, but customers who have strong relationships rarely do. In many firms, the opportunity remains to measure customer relationships more directly than is now the case. By associating this measurement with each customer and their individual importance, firms can decide where to apply resources to achieve the best business impacts. Then, measurements can be integrated into integrated and strategic customer relationship plans. Until companies have relationship measurements and plans in place, investments in CRM technologies and processes may never produce the desired return on investment.