Customer Satisfaction Drives Sales and Customer Loyalty Even in Retail Recession

Overstock, Apple, and Circuit City Prove Customer Satisfaction Beats Discounts

Despite its everyday clearance prices, additional "Red Line Deals," and $2.95 shipping, Overstock's web traffic decreased by 16% this holiday season. Coincidentally, or not, Overstock had the third lowest customer satisfaction rating of the 40 major online retailers studied. Overstock's customers are dissatisfied despite its low price offerings, and they're avoiding the website in droves.

While this particular customer survey was focused on e-commerce, the connection between customer satisfaction and retail success is clear for traditional retailers as well. Apple saw a 19% increase in web visitors, is planning to open 30 or more new stores in 2009, and coincidentally, or not, has overall customer satisfaction ratings that far exceed any of its direct competitors.

On the other side of the satisfaction spectrum, in 2008 Circuit City saw a 21% decrease in holiday web traffic, was delisted from the New York Stock Exchange, closed 100 stores, and filed for Chapter 11 bankruptcy. Last year Circuit's City's overall customer satisfaction was the worst compared to its direct competitors, and could have been viewed as a predictor of future failure. Or perhaps its simultaneously low customer satisfaction ratings and poor performance are just a coincidence.

Retailers in all channels would do well to heed the warning. While pricing seems to be the main consideration for fearful consumers, it is still not the only consideration. A hyperfocus on pricing to the exclusion of other aspects of good retailing will result in a diminshed customer experience, decreased satisfaction, and eventually, the loss of reputation, the devaluation of brand, broken loyalties, and, as we will observe repeatedly in 2009, complete business failure.

Good pricing alone still doesn't take the place of good retailing.