Customer satisfaction is a customer-based way of measuring a firm’s performance by
assessing whether perceived benefits of a product or service meet or even exceed customers’
expectations. It has been often assumed that satisfied customers are good for business.
However, is a satisfied customer a profitable one?
Connection between customer satisfaction and spending behaviours has been found to
be weak. It turns out that “changes in customers’ satisfaction levels explain less than 1% of the
variation in changes in their share of category spending.” Good real-life examples are Walmart
and McDonalds, which both score lower satisfaction levels than their big competitors but have
the largest market shares in their industries. This can be explained by their broader customer
appeal. This means that their customers are more diversified, therefore it is more difficult to
satisfy everyone’s needs, but at the same time their market share is bigger.
Providing customer satisfaction can be costly to a company. One way to satisfy a
customer is to provide them with a high quality product or service or keep improving the ones
already existing. It might, however, turn out that costs incurred in product development are
higher than the benefits received from a slight improvement in customer satisfaction.
There are however also positive links between customer satisfaction and profitability.
If not by increasing sales revenues, customer satisfaction can be a factor contributing to
lowering of some costs. A strong connection has been found between customer satisfaction and
loyalty – which ensures more customers repurchasing in the future. Therefore the costs of
attracting new customers are lowered. Moreover, reduced price elasticity can be observed with
satisfied and loyal customers. This means they are less sensitive to price changes and therefore
increase their profitability.
High customer satisfaction has a positive influence on the company’s image. One of the
ways prospective customers find out about the existence and quality of the products or services
offered is through the businesses’ current customers. Satisfied ones are more likely to engage
in a positive word of mouth and in this sense they are profitable, since more customers means
more sales.
In conclusion, the connection between customer satisfaction and profitability is not so
clear as it might be superficially assumed to be. On the contrary, there is a number of arguments
against that assumption. In my opinion, however, it is important to find the right balance. Even
though customer satisfaction is definitely not the only or the most important variable
influencing a business’ profitability, it is still important for a company to take into consideration
customers’ needs and provide customer value as a way of achieving corporate goals.