Editor’s note: Alan Dutka is president of NSRC, a Cleveland research firm.  Lauren Wagner is manager, client relations at NSRC.

Business success in today’s competitive environment requires that the seller adopt the customer’s point of view. A successful product or service must satisfy the customer’s increasingly demanding requirements. Two major reasons for initiating customer satisfaction and loyalty research are 1) to clearly understand the perspectives of the customer and 2) to generate the information required to take necessary corrective action.

Corrective action often results in tactical changes. These changes are based on the company’s achievement with regard to a series of critical performance attributes that influence satisfaction and loyalty. A well-designed research project will transcend tactical issues and also provide the basis and justification for proactive strategic improvements. Among the most important strategic issues are problem notification and resolution.

A company will dramatically increase customer satisfaction and loyalty when it adopts the following strategy:

1. Don’t create problems for customers.

2. Proactively notify a customer if a problem does occur.

3. Resolve the problem quickly and decisively.

The successful implementation of this strategy is difficult. NSRC’s research indicates that between 40 and 50 percent of a company’s customers have experienced at least one problem during any six-month period. Proactive notification of the problem is provided in about 60 percent of the cases. Only about half of the problems are resolved to the customer’s satisfaction.

Minimizing customer problems is not easy. The process of acknowledging and rectifying problems may require a culture change within the company. Research must provide the evidence and justification that this effort will lead to a dramatic increase in customer satisfaction. Our firm’s customer satisfaction and loyalty research process captures information about the number of problems arising in business transactions, the amount of proactive notification of problems and the number of problems resolved.

A representative example is used in this article to show the critical importance of the three-step process of minimizing problems, notifying the customers of problems as they occur and quickly resolving problems. The example is based on a recent telephone interviewing project. A total of 2,301 customers of a transportation/shipping company were interviewed. Overall satisfaction was measured on a 5-point scale (1 = very dissatisfied and 5 = completely satisfied).

Problems create more problems

Table 1 and Figure 1 illustrate how the average satisfaction score changed as the number of problems increased. Customer satisfaction declines dramatically as the number of problems experienced increases from zero to three. The differences at each step are statistically significant at the 99.99 percent confidence level. A plateau is then reached. Adding a fourth or fifth problem decreases the average satisfaction score, but not by an appreciable amount. As the number of problems increases beyond five, the satisfaction score deteriorates completely.

Here are a few actual customer comments regarding the relationship between satisfaction, loyalty and problems:

“The reason I gave them a poor rating is because of the kind of mistakes that they make. It’s critical that those things don’t happen. Mistakes happen because people don’t pay attention.”

“The problems are widespread. It comes down to paying attention to the customer’s needs.”

“Fix the problems or we’re out of here. We won’t use them anymore.”

“If you want to continue doing business with me, someone needs to do something about all of these problems; otherwise, I’ll be taking my business elsewhere.”

“To increase my satisfaction, you should pay more attention to customers. Put effort into understanding the problem and not turning away from problems.”

“It really made me mad. When the company shows up after 5:00 p.m., I have to pay my guys overtime so they will stay and load up the truck. I was here until 8:00 p.m. one time myself. We call ahead and give them a plenty big enough window that they should be here on time.”

The shipping industry is plagued by numerous potential problems. Customers in another industry may exhibit less tolerance for problems. Table 1, however, illustrates a general pattern that is repeatable in many industries. The deterioration as problems are created and the number of problems needed to reach the plateau will differ depending on the nature of the industry.

Proactive notification is critical when a problem occurs

If a problem does arise, proactive notification of the situation is expected. For customers experiencing at least one problem, the average satisfaction score when proactive notification of the problem was given was 4.1601. When no proactive notification was offered, the average satisfaction score dropped to 3.6566. This huge difference in satisfaction is statistically significant at better than the 99.99 percent confidence level.

Table 2 and Figure 2 illustrate how average satisfaction scores increase as problem notification is implemented. For example, the average satisfaction score for customers with exactly one problem was 4.2884 when proactive notification was given and 3.9708 when no notification was provided. The difference is statistically significant at the 99.99 percent confidence level.

Customer satisfaction scores are always greater, regardless of the number of problems, if proactive notification is given. The differences in Table 2 are all statistically significant with a confidence level of at least 95 percent.

Here are representative comments from customers discussing the need for adequate problem notification and how it effects satisfaction and loyalty:

“The number one issue is that they should call me if there is a problem. My customer should not be calling me and telling me what the problem is.”

“If they are going to be later dropping off a shipment, it would be nice if they would notify me, so that I don’t have to pay people overtime to sit around and do nothing. They never call to say they are going to be late. I mean, at least have the decency to call me and notify me.”

“They don’t contact me when there is a problem. I can handle most of the problems that come up. I just want some respect from the company.”

“The issue of proactive notification needs work. They don’t notify us when something is going wrong or what’s being done to fix it.”

“We’re the last to know about a problem and we should be the first one to know. This has to change if they want to continue with our business.”

Problem resolution positively impacts customer satisfaction

Customers expect problems to be resolved. Table 3 and Figure 3 illustrate how average satisfaction scores increase as the number of resolved problems increases. For example, the 585 customers who experienced exactly one problem are divided into two groups: those whose problem was resolved and those whose problem was not resolved. The average satisfaction score is higher when the problem was resolved (4.2392) when compared to the average when the problem was not resolved (4.0966). This difference is statistically significant at the 98 percent confidence level.

As the number of problems increases, the direction of average satisfaction is consistent as the number of resolved problems increases. The changes are not always statistically significant because of small sample sizes associated with a large number of problems. On the other hand, the change from resolving two problems to resolving three problems when three problems are experienced (3.6250 vs. 4.1429) is statistically significant at the 94 percent confidence level even with relatively small sample sizes (16 and 14).

A few comments illustrate the relationship between satisfaction, loyalty and problem resolution:

“I won’t complain because they take care of all the problems right away.“

“The satisfaction score is low because they do not really know how to deal with problems.”

“My satisfaction would be higher, but they do not solve problems in a timely fashion.”

Avoid and resolve problems

This research clearly demonstrates the value of both avoiding problems and proactively resolving problems when they do occur. As would be expected, customer satisfaction scores are significantly higher when no problems occur. Reality is that problems do occur, even in the best organizations. This research reveals that a substantial comeback in customer satisfaction is possible, but only if problems are resolved quickly. By listening to its customers, a company can learn both what problems exist and at what rate they are resolved. The positive impact of proactive problem resolution is good news for companies striving to maintain a base of loyal customers.