Larry Freed of ForeSee: A Hard Lesson in Satisfaction

Satisfaction is king and if you don’t believe that, look to Netflix.  If you fail to take customer satisfaction into consideration, if you don’t give your customers a great experience, they don’t come back.  It’s really that simple.  And surprisingly, price won’t necessarily bring them running back to you in droves either. These are some of the surprising findings from the ForeSee-E Retail Satisfaction Index that Brent Leary explores with Larry Freed of ForeSee in this interview.

Larry Freed of ForeSeeSmall Business Trends: Can you tell us a little bit about Foresee?

Larry Freed: We started ForeSee back in 2001 and found out that we are not really good about timing our first data customer, which was the week after 9/11, but very early on it really helped us as a company established what was really important to our company, which was to make sure that we are providing a great value to our clients, and also to a great extent that is what our business is all about, it is about helping companies measure customer satisfaction and overall customer experience.

Small Business Trends: You recently released the “ForeSee-E Retail Satisfaction Index for the US Holiday Season.” What is the Satisfaction Index?

Larry Freed: What this Index showed and what we really looked at was the largest 40 online retailers. Then we surveyed the customer experience using ForeSee, and it is also the same technology that drives the American customer satisfaction Index.  It is an approach for measurement of customer satisfaction that has been vetted out by many people before us, and really showing it to be the number one accurate measurement of customer satisfaction.

We have been doing this study since 2005 during the holiday season, and we have seen a pretty interesting trend. The score this year was 79 on a scale of 0 to 100 looking across those 40 retailers and that is a good score. That is actually the highest score we have seen in this Index, and keeping it in perspective that customer expectations rise over time. In other words, the experience that we expect when we visit an online retailer today is a lot greater than the experience that we expected two years ago.

The fact that we have seen scores rise over time, in spite of those rising expectations, it is actually a good sign.

Satisfaction is not simple to measure.  It is very complicated to measure.  But when we think about the simple definition of satisfaction, it is really a combination about what you get and what you expect. The rising expectations, traditionally will have a downward pressure on satisfaction.  We expect more every year on the Internet. In the case here, we find that the retailers generally have done a very good job in stepping up to those rising expectations and have actually seen the score go up over time.

Small Business Trends:  I see in the report you say a one point change in revenues generated on the Web.

Larry Freed: Right. It is really to look at what impact improving satisfaction is going to have financially. It is going to have that impact, because it is going to cause existing customers to come back and buy more. It is going to cause them to recommend you to others, and it is much easier to keep your customers satisfied and keep them coming back than to have to replace them every time they are back in the purchase cycle.

Small Business Trends: You break customer satisfaction down into four elements: merchandise; functionality; content and price. Where do those four rank in terms of how you make up that customer satisfaction score?

Larry Freed: When we look at that data, we look at each individual company.  Within those four quadrants, or four categories, we want to see how they are doing in each of those areas. How are they doing in terms of merchandise?  How are they are doing in terms of price? Content has to do with the information about the product. The functionality has to do with the capabilities that they have.

So by looking at those individual elements, we get a better understanding of how companies are doing individually within those areas.  Not only to know how well they are doing, but also to understand what impact improving those areas will have on improving satisfaction and also the consumers’ behaviors.

Price is the lowest scoring element of the four. Yet what is the impact going to have on satisfaction? What we mean by that is, if we improve price, we will not understand what impact or lift it is going to have on improving satisfaction if the resulting future behaviors are likely to purchase and then to recommend and return.  While satisfaction had the lowest price it also had the lowest impact.  Which meant we were going to get a lower return on our investment from lowering the price than we would from, as an example, improving the content or functionality of merchandise.

Merchandise was looked at across the aggregate of these 40 and was actually our highest priority element. In other words, it had the highest impact if we were going to improve the merchandise. In this case, we are talking about the appeal that the merchandise has to the consumer.  The variety that the product offered and the availability of the products and what they were looking for. That is going to have the biggest impact and so we were able to not only qualify how well somebody is doing each of these areas, but understand where to allocate your resources.

Small Business Trends: Lets talk about some of the results, Amazon and Netflix.

Larry Freed: Amazon has been one of the leaders in terms of E-Commerce from very early days of their existence. We started this measurement in 2005 and this is the first year that Amazon and Netflix have not been one and two. They traded spots a couple of times, but they have always been the top two. Amazon has continued to do well; their scores have been 88%, the highest score in retailer in our study.

Netflix had a little bit of a different story. They dropped to a 79% from an 86% last year, which was an eight percent drop and they are kind of in the middle of the pack now. Not a total surprise if you have been watching the news and seeing what is going on. Netflix has had some big challenges with their customer base in changing the programs. They were talking about spinning out different companies so they can have one doing streaming and one doing the delivery of the rentals.  Customers did not like that. Netflix did not listen to the customers.  They tried to address that and apologize a bit.  But it is going to take a while for them to earn back the trust and confidence of their customer base.

Small Business Trends: Who were some of the other companies to fall on the list?

Larry Freed:  GAP was down five points to 73% to and Overstock was down four points to a 72%.  That put both companies at the bottom of our list. Now, keeping it in perspective, they are still two of the 40 largest online retailers and what the satisfaction score is telling us is that their future prospects are probably not as good as their past history has shown.  And unless they can turn that around and do a better job of satisfying their customers, they are going to have some challenges.

For each of the companies, the driving triggers of what is going to make and break their satisfaction is going to be different. These two companies are ending up with pretty poor satisfaction scores in comparison to where they were last year.

Small Business Trends: If you could offer advice to smaller retailers and online retailers, what is the lesson that they could learn and take way?

Larry Freed: Make sure that you listen to your customers and make sure that you understand the importance of satisfying them. It is not just about this one transaction, it is about the future transaction that is going to come.  If they have a great experience they are going to come back and buy more. If they have a bad experience they are going to be gone forever and your cost of acquisition will start to have a big impact on your business in a negative way.

The second thing is that while consumers were not thrilled with the prices, they also said it is not the area that is going to most incent them to buy more and be loyal.  They would rather see improvements in the merchandise and the information about the products and the functionality of the website improved.  Those are going to have a big return on investment and are going to have more of an impact on changing their behavior.  This is the first time we have seen that behavior since 2007.

The third thing is that when focusing on your customers, you have got to decide really what is going to be the key strategies for your business and make sure that those are lining up with those customer expectations. Part of your marketing and advertising needs to reinforce those expectations that you are going to deliver on. If you advertise yourself as the lowest provider and you are not, you are going to dissatisfy customers. If you advertise free shipping but there are all of these conditions you have got to meet in order to get free shipping, then you are not going to satisfy them. The key is to live up to the expectations that you are setting up with your customers.

Small Business Trends: Where can people learn more about the study and about what you guys do?

Larry Freed: They can come to our website which is, and we would love to be able to talk to those people more and they explain how this can help them.

This interview is part of our One on One series of conversations with some of the most thought-provoking entrepreneurs, authors and experts in business today. This interview has been edited for publication. To hear audio of the full interview, click the right arrow on the gray player below. You can also see more interviews in our interview series.

This is part of the One-on-One Interview series with thought leaders. The transcript has been edited for publication. If it's an audio or video interview, click on the embedded player above, or subscribe via iTunes or via Stitcher.

Brent Leary Brent Leary is the host of the Small Business Trends One-on-One interview series and co-founder of CRM Essentials LLC, an Atlanta-based CRM advisory firm covering tools and strategies for improving business relationships. Brent is a CRM industry analyst, advisor, author, speaker and award-winning blogger.