Every organization that relies heavily on customer feedback grapples with the same general issue. Executives recognize that customers are more likely to be loyal when they receive a high quality product accompanied by excellent service. Yet, everyone also acknowledges that there is a significant investment in improving product and service. At what point does the investment in improving customer satisfaction cost more than it brings in return? What level of customer satisfaction represents an appropriate target? In other words, what is a reasonable expectation for improving customer satisfaction scores?

In any given situation, there are several possible relationships between customer satisfaction scores and profitability. The first possibility is that no relationship exists at all. This may be the case in certain 'hostage' situations where a consumer has no choice but to buy a particular product or service, even though he or she holds no emotional loyalty. An example might be choosing a particular airline that represents the only alternative for direct flights to a certain destination. Another example might be choosing a rental car company with which your employer has formed a contractual relationship. In this circumstance, customer satisfaction is a less relevant predictor of profitability in the short term, although there may an impact in the long term if circumstances were to change and a competitive option were introduced.

In most situations, however, it is far more likely that one of the following depicted relationships exists between the customer experience and profitability:

In Scenario 1, there is a linear relationship between profit and satisfaction scores, suggesting that hotels and restaurants with higher guest satisfaction scores are those that consistently show higher profits. In reality, however, this relationship usually is not as clear cut. Scenario 2 is a more likely situation where guest satisfaction is associated with higher profitability up to a certain point. Beyond this point, there is a leveling off effect, where driving a better guest experience is no longer associated with higher profitability. Scenario 3 is the situation that creates the greatest concern for users of customer experience research. At some point, there is an inverse relationship between guest satisfaction and profitability. In this case, investment into improving the guest experience beyond a certain point costs more than it brings in return.

So, what are some practical steps to determine "How High is Up?" Here are some suggestions:

1. Conduct a competitive satisfaction study. Customer satisfaction research is often conducted in a vacuum in which there is no competitive context for determining a 'good,' 'bad' or 'average' satisfaction score for a particular category. For example, an appropriate guest satisfaction score for Ritz-Carlton will be different than for Motel 6. Syndicated satisfaction studies are sometimes conducted for this very purpose. The only difficulty with these syndicated studies is that the sample size for any given competitor may be quite small and not necessarily representative of that brand's entire customer base. In any case, however, sponsoring a competitive study to examine either guest satisfaction within the competitive universe or within a specific competitor is a good way to get some kind of reading on how your brand is comparing to the competition, as well as the amount of investment you need to make into the guest experience.
   
   
2. Study the specific units within your organization that are the most profitable. Another strategy is to identify the specific hotels, restaurants, branches, etc. within your entire organization that are the most successful financially. How are they performing on guest satisfaction relative to those that are the least successful? Identify the top and bottom 10%-25% and compare and contrast them on customer experience scores. Make sure, however, that you identify enough units in each category that the results are not inappropriately influenced by factors such as location, local competitive set, proximity to a highway or major attraction, or anything else that is completely independent of the guest experience.
   
   
3. Use non-linear statistical techniques to determine the linkage between satisfaction and profitability. For companies that employ statisticians and modelers, or who work with outside partners that provide this expertise, consider alternative ways of modeling the data. Typically, bi-variate correlation, multiple regression, or some other type of linear modeling technique will be employed when attempting to link one variable to another. Since the relationship between satisfaction scores and profitability is likely to be non-linear, traditional statistical analysis is likely to underestimate the relationship between the two. Maritz employs a statistical technique called MARS (Multiple Adaptive Regression Splines) analysis that identifies points at which the functional relationship between satisfaction and profitability changes. MARS is somewhat constrained in that it usually requires at least several hundred data points (units) that are fairly uniform in nature in order to produce a generalizable result. A company such as McDonalds would be an ideal type of company on which to conduct MARS analysis, whereas a small hotel company with widely varying property types would not be a candidate for this type of analysis. There are other quadratic models, however, that still might be able to identify these non-linearities in the data and help establish an appropriate target for guest experience scores.

Once an appropriate target is agreed upon, the next goal is to reduce the amount of variability around this target number. Many companies are adopting Six Sigma strategies for this very purpose. If a particular hotel or restaurant is greatly exceeding the brand target, it should be affirmed for its efforts to please customers, while at the same time encouraged to re-evaluate the money it is spending toward achieving this goal. Units scoring close to the target should be recognized for appropriately delivering product and service to its customers. Those scoring slightly or far below the target should receive the proper amount of remediative attention.

The purpose of this article is not to discourage hotels and restaurants from delivering great service to their customers, but rather to navigate their way through the difficult balance of delivering their company's brand promise while controlling costs. The ultimate goal is not to drive up customer satisfaction while going broke, but rather to manage the customer experience as an important aspect of creating a profitable venture.

Rick Garlick | Dr. Rick Garlick is Director of Consulting and Strategic Implementation for the Maritz Hospitality Research Group. He has worked with many of North America’s leading hotel chains including Hyatt, Marriott, and Starwood to translate research findings into actionable solutions with the goal of driving organizational growth and profitability. He is also an integral part of Maritz’ international leadership team guiding its employee engagement measurement and training program.

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