Suppose you ask two people, Dick and Jane, whether they are satisfied with their economic situation. Each has the same exact net worth of $2 million, so an economist would say that from an economic standpoint they should be equally happy.
But what if three months ago Jane’s net worth was $1 million, while Dick was worth $3 million? Are they equally happy today? Of course not. Jane is very happy, while Dick is depressed.
I have just quickly illustrated of one of the implications of “prospect theory,” a behavioral economic idea developed more than 20 years ago by Daniel Kahneman and Amos Tversky to explain how human beings make what often appear to be irrational economic decisions.
Without going into detail, one of the important principles of prospect theory is that people evaluate their economic prospects in relative terms. How happy you are with your prospects today depends on how happy you used to be, how happy you think you ought to be, and how happy you think others are.
And this is highly relevant to understanding a company’s voice-of-customer program, because whatever satisfaction or dissatisfaction you detect in your customers today is based on each individual customer’s prior expectations.
Claes Fornell, founder of the American Customer Satisfaction Index (ACSI), reports that before field testing the ACSI, his team scoured literature on customer satisfaction in order to ensure that they captured just the right kind of variables. According to Fornell, “Although there was no consensus on how to measure customer satisfaction, three facets showed up over and over. The most common had to do with the confirmation or disconfirmation of prior expectations. Another was the idea of comparing a company’s product to a customer’s ideal version of the product—regardless of whether or not such a product even existed. The third facet was the cumulative level of satisfaction when all interactions, the customer’s total experience over time with the company, were taken into account.”
In other words, to paraphrase Charlie Munger, Warren Buffett’s iconoclastic sidekick, the secret to a truly satisfied customer is similar to the secret to a truly satisfying marriage: low expectations.
A customer will be satisfied with your product only if their own subjective expectations have been met. But this means that when a customer’s expectations go up, his or her stated satisfaction will actually decline, even if there’s been absolutely no change in the objective quality of the product or service.
And the fact is that customer expectations, in general, are a constantly rising tide. Your customers compare the experience you deliver to the expectations set by experiences they’ve had with Amazon, JetBlue, Apple, or American Express. (Note: The TeleTech Customer Experience Benchmark Report quantifies some of the gaps that result).
This means you can’t simply maintain your position by continuing to do what you’ve always done. If you remain static, your customer satisfaction scores—whether you measure them in terms of ACSI, NPS, or just some kind of very-happy-to-very-unhappy score—will inevitably decline.
No matter what your business is, no matter what kind of industry or category you dominate today, you simply will not maintain your position over time without actively working to improve your customer experience, because the rising tide of customer expectations will soon submerge your satisfaction scores.
And as the pace of technological change continues to accelerate, you can expect to have to improve your customer experience faster and faster, just to keep your head above water. ?
