Todd Hollander Market Research

We have all heard the old adage that a dissatisfied customer will tell an average of X customers about a poor experience, while a satisfied customer will tell only Y customers. The numbers for X and Y vary from one source to another, but one thing remains constant: X is always greater than Y (generally on the order of a 2 to 1 ratio).

While most marketers accept the premise that dissatisfied customers are more prolific than satisfied customers, the statistics commonly cited were derived in the mid-1990’s, before:

• The proliferation of many mass communication technologies such as email, text messaging, and weblogs.
• Big Box retailers such as Home Depot, Wal-Mart, and Costco.
• eBay

Thus, the generally accepted disparity between the communications of satisfied and dissatisfied customers almost certainly understates the number of people who receive these messages and begs for a bit of updating. Specifically…

1. The internet (especially websites, email, and blogs) allow dissatisfied consumers the opportunity to share their frustrations with unprecedented numbers of people. Prominent examples include YouTube videos of an America Online customer’s anguished attempt to cancel service and a Comcast Technician caught sleeping on a customer’s couch. It is now common for such customer service nightmares to be served up to hundreds of thousands of people via the internet.
2. The larger the market share for a given company, the less their sales tend to be affected by negative word-of-mouth. How else could companies such as Microsoft and Wal-Mart be so reviled by so many but remain so profitable?
3. Conversely, companies with smaller market shares (i.e., more competition) bear a significantly higher risk of being permanently disabled by negative word-of-mouth. This explains why JetBlue airline’s CEO recently used YouTube to address a significant lapse in customer service.
4. eBay’s customer feedback system has totally shattered the concept of how many consumers are likely to receive feedback about retailers. With the seller’s customer feedback rating prominently displayed on each of their listings, eBay sellers with low customer feedback ratings find it difficult to stay in business. In fact, many eBay buyers will not purchase from someone who is not listed as a “PowerSeller,” a title awarded to those who maintain a consistently high volume of sales with a minimum of 98% positive feedback from their eBay customers. (See “How Customer Satisfaction Drives Sales & Profit - The eBay Example.”)

The implications are clear:

• Today’s consumers have the ability to share their negative opinions about your company with an unprecedented number of people (hundreds, thousands, even millions more than the number possible a decade ago).
• Monopolies such as Microsoft and Big Box retailers like Wal-Mart are less affected by negative word-of-mouth than companies with smaller market shares, higher prices, fewer locations, and lower availability of goods.

The bottom line: If your company does not enjoy a monopoly on the market and is trying to grow market share, you should be obsessed with customer satisfaction. If you aren’t, your customers will know. And they will tell lots of others.

This entry was posted on Tuesday, March 13th, 2007 at 6:06 pm and is filed under Customer Satisfaction. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.