Think you know your customer? Maybe not.

Every manager knows that happy customers mean better business. But despite decades of in-depth research, elaborate customer satisfaction monitoring systems, and extensive customer service support teams, managers still struggle to understand their customers’ desires and needs, leading them to make misguided decisions that can hurt their business.

From misinterpreting data to undervaluing what drives purchasing decisions, our research shows managers get more wrong about customers than they get right.

Managers think they know their customers

Managers might want to think twice about how well they understand their customer. Even some highly confident managers don’t understand all the levels and drivers of customer satisfaction.

In the aggregate and on average, the managers we surveyed significantly underestimated their customer’s propensity to complain, and thereby failed to address the customer’s complaints. Additionally, they overestimate their customers’ satisfaction and loyalty while misunderstanding what drives both customer expectations and perceptions of value.

With the importance most companies place on customer feedback, how can these misunderstandings be so widespread? Managers should look to the type of feedback they’re measuring, to start. Not all feedback is useful (no matter how pretty those 5 stars on Yelp appear).

For example, what does having a high average review score tell you about your customer? Many managers make the mistake of blissfully accepting a positive review, but either don’t take the time or don’t have the data to understand why the customer gave them a particular rating. When implementing customer feedback monitoring systems, managers should emphasize specifically catered feedback that will provide relevant insights into their product and service decisions.

The data has the answers, but you still don’t

Implementing a customer satisfaction monitoring system – such as market research or consumer data collection and analysis — to evaluate customer feedback and communicate the data throughout the organization is a solid first step in understanding customer satisfaction and motivations. However, for many organizations, these systems often don’t live up to their potential. There are two reasons for this:

  1. Some managers aren’t exposed to the data these systems collect.
  2. Some managers receive the data, but they misinterpret and misunderstand it.

Both cases result in frustrated customers, falsely confident managers, and ultimately, the loss of business. Monitoring systems only work if managers have access and training to accurately interpret the data.

Additionally, to extract all the benefits from monitoring systems, managers should inspect the current extent and nature of their customer perception level to help minimize any manager-customer disconnects. This baseline will uncover the holes in understanding and facilitate more informed decisions to close them.

Once managers understand where lapses in data and interpretation are occurring, they can take corrective actions that make sense for their business, and ultimately, for their customers.

Going beyond what the customer wants

Understanding what your customer wants is the first step, but to truly bridge the gap in manager-customer misunderstanding, managers need to take it a step further. Beyond what your customer wants, why do they want what they do?

In many oversaturated and competitive markets, like retail, simply knowing what your customer wants isn’t enough anymore. There are five, 10, even 100 other firms selling the same exact product or service for a better price. And yet, the more expensive option might sell better and produce more satisfied customers.

Why? Lower prices are not the deciding factor in winning over the customer. Instead, quality drives customer satisfaction and loyalty, along with perceived value and customer expectations. So before scrambling to stay competitive in the short-term by reducing prices, managers need to take the time to find out why the customer feedback says what it says.

Learn from Netflix’s mistake. In 2011, Netflix CEO Reed Hastings pushed for a premature split between hard copy DVDs and the company’s new streaming service — a move that resulted in 800,000 fewer subscribers and more than a 25 percent stock plummet. The split not only divided customers, but required them to pay for both services separately. Turns out, the new business model combined with the price increase was enough to warrant a “no” from the “Are you still watching?” prompt.

Hastings apologized a few weeks later, admitting he was overconfident in the push to streaming and assumed that the divide had already been presented to customers via feedback platforms (clearly, it had not), and that the price increase wouldn’t come with backlash (wrong again).

Following this misinterpretation, Hastings made a swift recovery by focusing on why the remaining customers were interested in streaming services over DVDs, leading to an amazing comeback in 2012 that’s held up through today.

Making the change

Winning over customers is about more than implementing fancy monitoring systems and simply relying on the data without context; it’s also about understanding the customer’s desires and needs, and — as a manager — checking your ego at the door.

With the plethora of data available today, it’s easy to misinterpret information and direct precious resources to well-intentioned but needless tasks. To avoid making this mistake, it’s time for managers to reassess data, determine key drivers of customer satisfaction as well as complaints, and fix gaps in interpretation and information sharing. If managers make the effort now, they’ll have happier customers — and better bottom lines — in the long run.

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