Customer Satisfaction VS. Profit
I was reading the other day about how some airlines in the United States with lower customer satisfaction scores had made more profit in comparison to competitors with higher customer satisfaction scores. The article was written a while back (2015), but it doesn’t change the fact that increase in customer satisfaction will not necessarily mean increase in profit.
Customer will always weigh the purchasing decision between price to be paid vs. value to be received.
Air travel is a perfect example.
The price to be paid in air travel contains the following factors
– airline reputation
– time and duration of flight/s
– space issues on-board
– customer service touch points
– on-board meals
that customers may evaluate between the airlines.
The value to be received in air travel contains the following factors
– airline reputation – meeting expectations, brand promise
– time and duration of flight/s – depart and arrive as scheduled
– airports – quick ground handling and no lost luggage
– space issues on-board – the requested or paid extra space received
– customer service touch points – online, offline, on-board success
– on-board meals – as advertised, requested or ordered
– freebies – as advertised
Let’s assume we have to book a flight, and we have already narrowed the options down to two. The other flight is 50€ cheaper but the airline has a worse reputation, and the duration of flight is 3 hours.
Which one do we choose…?
What if the duration of flight is 6 hours and the difference in the airfare is 100€…?
What if the duration of flight is 9 hours and the difference in the airfare is 150€…?
If we start questioning the value to be received concerning the 9 hour flight with the airline that has a cheaper rate and worse reputation, we might want improve our odds that everything goes as advertised by purchasing the more expensive flight. On the other hand, we might take our chances with the shorter three hour flight and save 50€.
CUSTOMER SATISFACTION, PRICE AND PROFIT
As mentioned in the opening sentence, high customer satisfaction does not necessarily guarantee greater profit in comparison to lower levels satisfaction, it might even be vice versa as pricing will always play a decisive role.
I believe there are two factors to be considered.
The first is to find the crucial pricing point (€) in which the customer is willing to choose your product and/or service over the competition. This is particularly important if the competitors’ have stronger brand recognition, and/or they are slightly a head in customer satisfaction.
The other is to aim for high customer satisfaction, in this context…what if the competitors’ production cost will go up or your production cost will come down, narrowing the price difference. The end user / consumer / customer is most likely going to choose 9 out of 10 times the product and/or service with better reputation.
Booking a hotel room is probably the best example of how customer satisfaction score will be the deciding factor (for most of us) when the decision have to be taken between two properties sharing similar features, location and price.