Customer satisfaction index

Customer satisfaction is one of the most widely used non-financial KPIs. In commercial organisations it is often treated as an indicator of future performance: customers whose experience meets their expectations may be more likely to stay or repurchase. The index summarises how well the organisation is delivering products and services from the customer’s point of view.

When to use it

• Answer the key performance question: “How well are we satisfying our customers?”
• Assess this KPI within the Customer perspective.
• Plan data collection, formula use, reporting frequency, and data-source requirements for this KPI.
• Compare results against the targets, benchmarks, examples, or trend guidance available for this KPI.

Origins

National customer-satisfaction indices were pioneered by Claes Fornell, beginning with the Swedish Customer Satisfaction Barometer and followed by the American Customer Satisfaction Index, created at the University of Michigan with the American Society for Quality and CFI Group. These models use several survey indicators and statistical weighting to estimate an underlying satisfaction construct rather than relying on one question.

What it is

Perspective: Customer perspective.

Key performance question: How well are we satisfying our customers?

Research has repeatedly shown that acquiring customers is generally more expensive than retaining suitable existing ones. Keeping current customers satisfied can therefore support stronger relationship economics, although satisfaction should never be assumed to guarantee loyalty.

Public organisations also need to understand satisfaction even without a direct profit motive. Service users increasingly compare public delivery with strong private-sector experiences, and dissatisfaction can lead elected officials to demand visible, auditable and comparable improvement targets.

The most useful managerial output is the gap between current delivery and customer expectations. That evidence shows leaders where intervention is needed and whether changes improve the customer-facing experience.

How to use it

Measurement

Data collection method

Combine quantitative and qualitative research. Periodic surveys can ask for overall satisfaction on a performance scale from 1, very dissatisfied, to 5, very satisfied. Short transactional surveys immediately after a service can use rating scales, yes/no questions and open comments to capture the experience while it is fresh.

Focus groups and interviews provide richer explanations of what shaped the rating. Use them alongside quantitative tracking so that management sees both the direction of change and its cause.

Formula

A customer satisfaction index, or CSI, combines the attributes believed to determine satisfaction. Because attributes do not contribute equally, weight each one according to its importance and calculate a single summary score with an interpretable range. The American Customer Satisfaction Index combines measures including expectations, perceived quality, perceived value, complaints and loyalty.

Frequency

Collect transactional evidence continuously where practical, review aggregated scores quarterly and accompany the number with qualitative explanation. An annual benchmark study can support external comparison, but it should not be the only signal.

Source of the data

Use customer surveys, interviews, complaints, reviews and service-interaction feedback.

Cost/effort in collecting the data

Large externally administered surveys can be expensive and are often run annually. Focus groups also require recruitment and facilitation. Short, well-timed surveys—such as the compact questionnaires used in hotel rooms—cost less and can still provide actionable evidence.

Target setting/benchmarks

Use industry and cross-industry services only when the method, population and timing are comparable. The ACSI, launched in 1994, provides benchmarks across industries including automobiles, household appliances, hotels, airlines and telecommunications.

The UK Customer Satisfaction Index covers 13 sectors, including banking, automotive services and public services.

Example

The ACSI illustrates how to construct and operate a satisfaction index. It combines professional telephone interviews with econometric modelling. Interviewers collect responses from randomly selected, screened customers of participating organisations.

Researchers then apply a causal or structural-equation model to estimate latent components such as expectations, overall quality and perceived value, as well as the relationships among them. Each organisation receives an ACSI score: a weighted average of three proxy questions on a 0–100 scale. Any result from 0 to 100 is possible, though observed scores have generally ranged from the low 50s to the high 80s. The same three satisfaction questions and standard scale make cross-company comparison possible despite small industry-specific questionnaire differences.

The index covers more than 200 companies across 43 industries and 10 economic sectors. Data are collected on a rolling quarterly schedule and replace observations from 12 months earlier, then are weighted to produce the national score.

The three questions use different 1–10 scales. Their current wording is available at www.theacsi.org.

An organisation can include those or similar questions in its own survey to support approximate comparison with corporate and industry benchmarks, provided it preserves the 0–100 convention.

Top practical tip

Balance satisfaction with the economics of delivering it. Exceptional service that costs more than the relationship can support is not sustainable; define which improvements matter to customers and how they affect cost, retention and value.

Top pitfall

Do not treat a satisfied customer as a guaranteed loyal customer. A competing technology or more attractive offer can make the current product obsolete even when users remain happy with it.

A single annual survey is also too vulnerable to one-off events and cannot reveal a trend. Combine periodic benchmarks with ongoing transactional and qualitative evidence.

Further reading

American Customer Satisfaction Index. www.theacsi.org

UK Customer Satisfaction Index. www.instituteofcustomerservice.com