Satisfaction doesn't mean loyalty, study confirms

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By: Wise Marketer Staff |

Posted on June 3, 2005

The communications services industry is coming up short in its efforts to earn the loyalty of enterprise customers, largely because customer satisfaction does not ensure customer loyalty, according to the Walker Loyalty Report for Communications Services.

Not all satisfied customers can be truly loyal. That's one of the conclusions of the new 'Walker Loyalty Report for Communications Services' that studied how companies were earning the loyalty of their enterprise customers in each of five industry sectors (wireless service, wireless handsets, internet service providers, local voice, and long-distance voice). According to the report, not one of the five industry sectors studied can claim that even half of its enterprise customers are truly loyal, despite all of the sectors registering customer satisfaction scores of at least 75%.

Satisfaction hurdle
"Satisfaction is a low hurdle," said Jeff Marr, Walker Information's vice president of consulting services. "There's a significant drop from customer satisfaction results to the comparative percentages of truly loyal customers. Measuring satisfaction doesn't tell you much about a customer's intentions and future behaviour."

Within each sector, the study breaks down customers into four categories:
·  Truly loyal,
·  Accessible,
·  Trapped, and
·  High risk.

What makes them loyal
According to Marr, truly loyal customers not only have positive attitudes toward their providers but also intend to keep buying or increase their purchases from current providers. "In an industry facing the ongoing effects of convergence, consolidation, churn, and rapidly changing technologies, earning the loyalty of enterprise customers is a major challenge, especially since these customers vote with their feet," Marr explained. "It can be all too easy to get lulled into a sense of complacency by focusing purely on customer satisfaction."

Executive Vice President Phil Bounsall added: "Customer loyalty absolutely correlates to hard, tangible business outcomes. Companies that have more loyal customers seem to have competitive advantages that impact financial results and other key performance metrics, including shareholder value."

Leaders and laggards
The report identified sector- and company-level results that benchmark brands against competitors, along with details of the measures, attitudes, and experiences that drive customer loyalty, while also naming the companies that are Loyalty Leaders in each sector. Right across the industry, the Loyalty Leaders significantly outperform the Loyalty Laggards.

The average annual revenue growth rate of Loyalty Leaders over a three-year-period exceeds the comparable rate of Loyalty Laggards by 20 percentage points, and the three-year average operating margin of Loyalty Leaders is 22 percentage points higher than the comparable financial result for Loyalty Laggards. The percentage of change in stock price over five years is 34 percentage points higher for Loyalty Leaders than for Loyalty Laggards.

Wireless outperforms landlines
The also report found that only 41% of enterprise customers are truly loyal to their wireless service providers. The wireless sector outscored all of the landline service sectors (internet service providers, local voice and long-distance voice) in earning the loyalty of its enterprise customers. However, only one wireless service provider, Verizon Wireless, distinguished itself as a Loyalty Leader.

The percentage of high-risk customers within the sector was 31% - a figure that is consistent with the sector's churn percentage. High-risk customers have low commitment and typically do not intend to keep doing business with their current providers.

Hardware trumps service
The wireless handset manufacturers did the best job of earning the loyalty of their enterprise customers. An industry-leading 46% of enterprise customers are truly loyal to their handset brands. The percentage of high-risk customers was 27%, the lowest of all sectors studied. The report indicates that wireless enterprise customers are more loyal to their handset brands than to their wireless service providers.

"These findings could be the wireless service providers' worst nightmare if they indicate a shift in preference to the mobile handset OEMs," said Iain Gillott, president of iGillottResearch, who served on an expert panel that reviewed the findings. "However, if the wireless carriers align with the right handset manufacturers and start paying better attention to the practices that drive customer loyalty, this could be a great opportunity for them."

Handset winners
The handset brands identified as Loyalty Leaders were:
·  Blackberry/RIM,
·  Motorola,
·  Nokia, and
·  Sony Ericsson.

Not surprisingly, Motorola, Nokia, and Sony Ericsson are all ranked among the sector's top five market share leaders. Blackberry/RIM, although accounting for significantly fewer units in use, is the market share leader in its product category. Albert Lin, director of research for American Technology Research (another of the industry experts who reviewed the study) concluded: "The probability for cell phone unit sales to continue surprising experts for a third consecutive year remains very high."

Internet wars
Only 38% of enterprise customers are truly loyal to their internet service providers (ISPs). Although less than four out of ten ISP customers are truly loyal, the sector outperformed the more mature local voice and long-distance voice sectors. Loyalty Leaders in the ISP sector included BellSouth, Verizon, and Time Warner.

"Even in a highly commoditised sector like ISP there are ways to drive loyalty. This study shows that it can be done," said Sheryl Kingstone, programme manager for Yankee Group, who reviewed the findings.

Local voice lags behind
Being more than 100 years old, local voice service may be the most mature sector in the industry - but the results of the study suggest that time spent managing regulated market areas without competition isn't the way to learn what drives customer loyalty.

Only 34% of the sector's enterprise customers are truly loyal, making it the least successful in the industry in terms of earning customer loyalty. The report concludes an equal portion of the sector's customer are trapped, a designation indicating they intend to keep buying but are likely to switch providers if the right opportunity presents itself. In the study, not one company within the local voice sector qualified as a Loyalty Leader.

Long distance newcomers
With only 35% of its enterprise customers found to be truly loyal and an industry-worst of 32% at high risk, the long-distance voice sector also faces the challenge of earning loyalty in a competitive environment that increasingly positions its service offering as a bundled element in a packaged suite of communications solutions. Two relative newcomers to the long distance space, BellSouth and Verizon, qualified as Loyalty Leaders. None of the traditional long-distance brands were so recognised.

Walker Information is a customer loyalty management firm that helps clients earn consumer loyalty and improve business performance. Walker's loyalty programmes combine technology with practical reporting to provide actionable data to help companies better understand their customers. The company also conducts business research in the areas of employee loyalty, corporate philanthropy, and business ethics.

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