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This article was published on December 17, 2020

How to balance customer satisfaction and profitability

Focus first on customer segmentation

How to balance customer satisfaction and profitability

“The better you treat customers, the more likely they are to come back and recommend your services, increasing the profit,” some might say. However, the world isn’t black-and-white, and when it comes to business strategies, there’s more to this than a seemingly obvious causal connection. 

Different circumstances require different strategies 

On the one hand, an entrepreneur would prefer to run a highly profitable business with a low customer satisfaction rate than vice versa. On the other hand, levels of positive customer experience tend to decrease globally, as companies deliver better services and users get accustomed to these new standards almost instantly. 

I’ve found the core ‘balance’ to be driven by the business owner’s goals. If an entrepreneur aims to make money quickly, they won’t be concerned about customer satisfaction much, whether they deliver a promised level of services or meet deadlines. 

If a person provides a one-time in-demand service, they don’t have to care about customer satisfaction. It may be unethical, but it is feasible. As soon as such a company is out of items or their service becomes irrelevant, the business is out of customers as well.

Those convinced that customers are going to return no matter what don’t invest much in customer satisfaction either. For example, vendors that offer the lowest prices on the market know for sure that there is a client segment ready to endure poor service if it is compensated in terms of price.

Therefore, we can draw a pyramid with a low quality of service delivery at the bottom and high level at the top. It doesn’t matter whether we speak about items for personal use or B2B services – it’ll be the same pyramid. And the quality of services that is at the core of customer satisfaction is inversely related to it. 

Customers invest in the experience, and they are aware of it

The more a customer is ready to pay, the higher level of service they expect to get. When we compare the purchase of a used car and the purchase of a luxurious car, technically, the processes don’t differ much. And still, people expect to get a totally different level of experience and attitude in each case because of the prices they pay. 

In the latter case, a vendor has to create an atmosphere that becomes an added value – a personalized approach they tend to call “unforgettable experience.” 

People in the middle segment, as a rule, are more or less satisfied with the level of services they receive. This audience may have some suggestions on improvements, but they don’t demand anything extraordinary.

In general, customer satisfaction always comes first

If we are speaking about the majority of businesses, customer satisfaction, for sure, comes before profit. The cost of retaining customers is always lower than attracting new ones. If a person is happy, they will be back and spend more money. They may recommend you to the others willingly or in exchange for the benefits a loyalty program offers. 

If you focus solely on making a profit instead of paying attention to the experience and quality the company delivers, building long-term relationships will be complicated, if not impossible. In a perfect case, you should aim to provide a bit better service than people expect, encouraging them to come back for more. 

So there comes another question: for who do we work? 

That’s when one more variable comes in: customer’s paying capacity that lies at the heart of customer segmentation. 

In practice, the story of the balance of customer experience and profit is closely linked to the abovementioned market segmentation, which, in its turn, is based on payment capacity. And in this case, it is not about respect or disrespect – it’s about maths. 

Price, quality, and service are all the variables in the formula of customer satisfaction. Their value changes depending on the circumstances, but the correlation remains constant: all are more or less equal. 

The high quality of products/services that comes with high customer satisfaction is highly-priced. Change the italic text to ‘low’ or ‘average,’ and you’ll get the rest of the basic formulas. If one of these elements is not synchronized with the rest, it affects either profit or customer satisfaction rates.

To sum up 

Profitability is key to a leading business. A company has to make a profit to exist. To keep business sustainable, you need to determine the correct price to quality correlation. 

Unfortunately, high quality with premium service for a low price is not a feasible strategy, rather a utopia. Meanwhile, low quality with high price is a strategy that won’t work out in the long term. 

So if you aim to find the balance between customer satisfaction and profitability, I suggest you start with studying customer segmentation. Learn who your audience is, what they need, how much they can afford to pay, and what their priorities are.

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