Profit vs. Customer Satisfaction
If you're customers are not satisfied, you won't have to worry about profits. They will leave you for another company who will meet their needs. It's just as important that your employees are satisfied. If you treat them right, they will insure your customers are treated the same way. Solving pain points for customers should take the pressure of pricing and lead to higher margins
Profit is very important, but there can be no profiting from an unsatisfied customer, because the reputation of every company lies in the hands of customers. Even though there might not be an immediate sale, the value built through customer satisfaction will definitely bring long term profit through equity built from excellent reputation.
How you weigh profit vs. customer satisfaction in a business relationship completely depends on how valuable that customer is to you and your future. I am a big believer that you always take care of your customers as they will be your biggest revenue source via referrals and recommendations down the line. However, there does come a time when some relationships are simply not worth the amount of capital you are expending to maintain that relationship. When that happens, it is time to cut the cord and focus on those relationships that, when cultivated, will produce great results.
Agree with what people have said so far.
Two key General Trends to keep in mind:
- It is commonly understood that customers today have more choices i.e.in most markets they have more options to choose from than ever before.
- At the same time perceived 'switching barriers', the inconveniences of changing supplier, are going down in many industries [technology and evolving business practices are facilitating it]
A third point:
3.Multiple research studies have proven that it is UPTO ~20 times more expensive to acquire a new customer than it is to keep an existing one. (without taking away from the other point made by business model innovation and blue-ocean evangelists that Explosive growth comes from understanding the need of and tapping into NON-customers)
Committed customers have been shown to demonstrate a number of beneficial behaviours, for example committed customers tend to:
- Buy more often. .
- Try new products that you may launch
- Recommend / Refer you. Another key benefit - loyal customers can become your most effective marketing tool (far more trustworthy than salesmen in the eyes of other customers) and they're free.
- Come to you. A key benefit of establishing a good level of customer loyalty is that you don't have to sell to them, they will come to you when they need a product or service,
The key to these is the establishment of trust based on good service, reputation and image i.e. ultimately called customer satisfaction
In short, other than fly-by-night operators Or one-off factors like scarcity/urgency, high profits can’t be divorced from the idea of high customer satisfaction
It is more a question of long term versus short term profits in the B2B relationship. In the case of a relationship of a major client of course you are going to forego the profits of a smaller event in exchange for the long term relationship ( plus sales and profits). For example if you have a ten year relationship providing a product for a company like Apple, and you have to forego the profits for one product/service to preserve the long term relationship ( and profits) with them you do it. It’s all about the big picture.
In a recurring B2B revenue business, customer satisfaction absolutely comes first. Each customer is a revenue stream, and the health and profitability of that stream is dependent on customer satisfaction, often across many contact points. It is not unusual that during the customer life cycle that there will be periods of time when a customer becomes unprofitable for various reasons. A satisfied customer provides equity needed to nurture an account back to profitability.
In a non-recurring B2B business, customer satisfaction drives success stories, which drives new customers. Equally important.
I learned in the beginning of my career from my mentor that each sale or deal you make should be a win-win situation. And this tip is working great for me so far. If you want to be in the business for long, you have to think of customer satisfaction. I don't think if there is any doubt about it. Even if you are looking for a short-term profit, your customer should be satisfied.
No profit is never more important than patient satisfaction. If you don't have a satisfied patient base then your profits will be short lived and temporary. However if you have satisfied pts you can grow your metrics from there. It is never easy to do both but always essential for the success and longevity of any owner/operator/business. Moral of the story is if you have happy patients that is the base of which you build your profit....everything else will come. You cannot start the other way around.
Profit or customer satisfaction, which is more important?
For a business, profit is more important. One would rather run a highly profitable business with low customer satisfaction (E.g. Telecom) than run one that is generating unsustainable loses while enjoying high customer satisfaction.
For a customer, of course, customer satisfaction is more important. One would obviously want to be treated in a more satisfying way, while dealing with others.
But often times, both these concepts are synergistic. The more capitalistic a market is, the more competition there is resulting in more demand for customer satisfaction. In such conditions, a company can be profitable only if it offers high customer satisfaction.
And since we don't live in a world filled exclusively with either businesses or customers and since both are required for each to survive, we should be trying to promote both profit and customer satisfaction, choosing based on the role we play in each transaction. Openly demanding more profit or more customer satisfaction.
I personally do not believe in short term relationships. It would be nice to sell at list price but it would probably be a one time sale at great margin! We are always conscious of what our competitors prices are and we sell to be competitive and make the most profit possible. If you are establishing a relationship profit may have to be lower to get in the door. After you prove your product is better and so is your service the customer will then pay more. It is always a balancing act as your competitors will always be at your heals.
The common saying "Consumers are god" will be wrong, if a long-term relationship with the consumer can not be build. Business will make profit only when consumers are around. Keeping the consumers throughout the life cycle of product/brand is a very difficult job. Consumer satisfaction and profit goes hand in hand. If consumers are happy with offerings of the product, consumers are ready to pay. Therefore, it is better to focus on the product quality and offering that consumer need (think consumer first) before thinking about making profit. As Mike rightly said it a Balancing Act between profit and consumer satisfaction.
Intelligent consumers are almost immune to marketing now. There's a quote I use a lot in my innovation and invention work, it goes...
We used to make people want things, now we make things people want.
I think this beautifully sums up the customercentric business/product/service design era.
I also highly recommend reading Clay Christensen's new book 'Competing against luck'.
His 'Jobs to be done' theory is simply brilliant.
Only in a "hit-and-run business" customer satisfaction would not play a role to maximize the profit. And even here customer satisfaction became relevant, as we are living in times of social media. Unsatisfied clients are much more communicable than satisfied ones and will comment on Facebook, Twitter, Amazon, eBay or other relevant platforms.
To maximize the client satisfaction companies do not need to offer the best product or service, but an adequate one. The quality should be on the same level, as the potential buyer would estimate it; in an ideal situation the it would be a little bit higher.
I love this topic. Here is why; Companies get into business to make profit, Customers want to be satisfied by their vendors, both want to squeeze value from the equation.
In my opinion (i'm sure not the first or only one to have it), customers seeking cheaper prices for a better product or service, drives the industry to think & act differently.
This breaktrough thinking is what has changed the way we live today - Henry Ford bring automobile ownership mainstream with the Model T, Tesla making electric cars mainstream...
I think that customer satisfaction is the prerequisite to have profits. What someone needs to consider is that satisfied customers do not guarantee profits and cash flow without a proper strategy and tactics that will aim to make to company not only the best partner for its customers but also best investment for its investors. I think that defining the unique selling proposition and mission of the company, doing a proper market segmentation and aligning the available resources around this are among the critical first steps.
Another point, I'd like to make is while customer satisfaction is a key to making profits, it is not the only key. Customer Segmentation [on a regular basis] is critical and tailoring the service levels for different segments is another element.
Else monies will get frittered away and profitability will be negatively impacted in the blind search for 100% customer satisfaction.
And another aspect to keep in mind is the potential viral spread of customer opinion in this 'social media crazy' world - especially bad opinion spreads faster. So even with those so-called unprofitable segments, an organization has to be careful in the manner of handling customer complaints.
No easy answers!
Companies operate because they want to make profit. Customer satisfaction is important because it ensures long & short term profit. However, companies must consider a few things before fine-tuning their strategies:
- Maintaining high level of customer satisfaction can be expensive. While the common wisdom is to go for customer satisfaction at any cost, companies have to be careful as that might bring down profit. One way to make sure that cost of customer satisfaction doesn't outweigh revenue generated from that customer is to keep a close eye on the customer lifetime value.
- Customer satisfaction is about managing expectations. From every product, be it a B2B or B2C, consumers expect some basic features. In most cases, there are 2/3 features which buyers look at before making a decision. The minimum requirement from companies is to meet customer expectations for those features. So, instead of changing a lot within a product or company, the business should identify 2/3 features which customers value the most and try to exceed expectations on those.
Obviously, customer satisfaction is more important than profit. After all, satisfaction usually leads to a customer returning and buying more. Repeat, loyal customers tell other people about their experiences, and they may well pay a premium for the privilege of doing business with a supplier they trust.
Whilst the purpose of customer satisfaction research is to improve customer satisfaction and loyalty, so often B2B customer surveys sit collecting dust. Worse than that, customers have generously given their time to assist in the survey believing that some positive action will take place. Their expectations will have been raised. The process of collecting the data can seem easier than taking action to improve satisfaction levels.
In any customer loyalty research there will be quick fixes – actions that can be taken today or tomorrow that will have immediate effect. In the longer term, cultural changes may well be required to improve customer satisfaction and customer loyalty, and that is more difficult.
based on my experience in management consulting with close to 30 y of experience we can deliver both customer satisfaction and profit from our customer engagements ,this is where repeated business comes from ,yes it does requre more brain power .long night and working on weekends and lots of talking and explaining but at the end when work is well done it does make me personally very happy and proud
As an author, I just introduced an e-book, Common Drug Related Terms and Acronyms. available online at Amazon Books ((https://www.amazon.com/dp/B078WD4WSC) .
It was a relatively simple and easy process, very helpful advice, etc. that made the experience worthwhile continuing the B-2-B relationship with Amazon.
Finding ways to establish a mutually beneficial relationship has always been a challenge or a eureka moment when you find a true partner.
In my considered opinion, customer will not think about profit of producer, rather he will choose different organizations where product is comparatively of good quality and eco frieldly and suitable for him to get in less price. However profit and consumer satisfaction are inter related to each other, so that organization can improve its marketing and earn more profit, if they look in to consumer satisfaction by providing good quality product in less price.
Interesting seeing this question after a recent tweet I made on LL Bean. While the tweet was more about B2C, it has B2B relevance.
Most know by know that LL Bean has done away with lifetime warranty and recently they cancelled a project on "personalization via IoT," which in my view was another example of short-sighted profit focus over long-term customer data mining. I was very surprised that LL Bean actually responded to my tweet and that a few other people chimed in disappointed at LL Bean.
What does all this have to do with B2B? The exact same scenario can apply in B2B - companies should view their customers from a lifetime value perspective (as stated earlier in this discussion) and be sensitive to doing things that can be interpreted as being less customer-friendly. For example, instead of halting their lifetime warranty, did LL Bean explore different channel options as a way to implement this? Shift the ownership of this to partners as a win-win? LL Bean makes more margin for ecommerce deals (assuming their implementation and systems make this a true statement) so how about looking at channels (e.g. retail) and shift responsibility there? Would the retailer embrace this? They might if they could promote buying from them as a way to preserve that lifetime warranty.
The same general concept, looking to channels, might also have helped with their personalization via IoT project...shared gain.
The subject "Profit vs. Customer Satisfaction" and "Is profit more important than customer satisfaction in a B2B relationship?" are very important thing in business world and market as well as they are inter related to each other. No one can survive without support of other term.
In my opinion Customer satisfaction with less profit is possible when there is competitors in the market. If the product is available in market and is with high demand at that time without customer satisfaction high profit may be taken.
But is common process it is no so easy to take high profit without customer satisfaction when material of high quality is plentifully available in market. If company shall show monopoly without caring customer and competition, it is sure that company will be closes.
Therefore it is absolutely required to look in to market need, customer satisfaction and position of competitors and there after we can only think about profit. That does not mean that company shall neglect to its profit. If there shall be no profit company shall no develop or survive. Therefore profit with customer satisfaction and market competition and market need of quality product is absolutely required for adequate management to have a better business entity.
Looks like you opened a can of worms Dr. Jeffs, replies are interesting, a few somewhat scattered off the underlying
I would like to share my input regarding:
Is profit more important than customer satisfaction in a B2B relationship?
So without trying to read too much into the question and everybody has their own definition of 'profit' and in what context is relevant; profit in terms of having the same profitability percentage providing a product/service to another business as you would to regular customers (are we considering comps, discounts, perks, corporate rates, ect.) and when we say 'satisfaction', are we referring to the satisfaction that a business expresses in receiving a favorable price point versus being satisfies with all goods & services rendered minus a B2B rate. Off the bat, lets assign 'satisfaction' as a given, a constant irregardless of B2B, regular customers, first time customers, that life-long customer and as such, whatever is the quality standard for our services, then that is what everybody receives (of course we fill in the gaps to have all demographics of the customer base' buy ensuring a service that is personable making the customer feel appreciated-thats showmanship)
I encounter this frequently first hand as a business owner & operator of our family business of Personal Chef Services specializing in Onsite Taco Grill Cart & Buffet Party Event Services. I have almost the same percentage of Businesses seeking my services as private parties and initially this has been a challenge. I had your exact question thinking I had to provide a business a special rate (as they view me as the 'wholesaler' of the good & services that they are passing onto their employee parties, customer appreciation days, business grand openings, real estate opening, back to school night, city facility functions, ect) and even since my business customer were actually acquiring my services as a treat for a third not being a direct revenue source for asides from the intangible benefits. Furthermore having just launched my business barely 2 years ago, I jumped into a higher quality network offering a higher service standard but at lower price point to build my customer base. So, essentially giving lower pricing to a business almost was not even breaking even and at time into the red.
Then I remembered the words of my culinary career mentors...from a non-profit director, she stated that even a non-profit must draw a profit, to be profitable in order to continue to provide the charitable service- it doesn't mean to turn in a perfect Profit & Loss Statement/Cash Deposits or whatever accounting system you measure profitability; but to stay in business.
Therefore my strategic action plan now entails the following (I hope this might bring you relief if you are challenged with making your business contacts feel 'special' and yet stay profitable and making your regular customers not feel like they don't get the same treatment because they are just an 'individual'
- First and foremost, we do not allow ourselves to be placed in a situation where we do not have the time, resources, finances and product to service our customers to the quality standard of our brand. In other words, I get calls from businesses that just want something quick, cheap and just to put out for their employee party or business affair- I won't do it and not because there is no money in it or the cost but because the service I render is a direct reflection upon and our brand reputation because someone will ask for the business card of the caterer and upon seeing my product, that person will be disinterested. And this also reflects upon the business as well and has actually
created better B2B business for me aligning our catering business with quality conscious business who are willing to
spend and expect a higher standard.
We use showmanship that works for our customer base...the customer who is always calling us does pay the same price as a new first timer but we know all the pet peeves of our regulars, we know their personal preferences and make their service feel really personable because it is. Fortunately my customer many are in million dollar homes and live well, its not about the money, its all about being there for them. For my first timers, I express my gratitude in 'proving to them and showing them that we can champion their service' and for the appropriate businesses, I can waive the state required tax and not expect any gratuity and that in itself compensates for the lower price. But its your showmanship where to discover the perks, bells & whistles you can provide to each business customer to make them feel appreciated and a personable service-sometimes with a simple but sincere, warm-hearted thank you and name acknowledgement. Unfortunately it sometime challenging to have your hired employee feel the same way as you do with your business customers but some coaching or finding ones who care is very possible.
It seems this is not an either-or question. To have a successful business, we need both. Assuming the business enterprise is viable then satisfied customers will lead to profit. There is so much complexity in the market we need to be cognizant of many different processes and functions.
I learned a long time ago that People + Process = Business Results. Focus on meeting and exceeding customer requirements (wowing the customer) and business results (profits) will follow. That said, one must ensure pinpoint accuracy in defining customer requirements, expectations and the competitive landscape. Implement those strategies with a direct link to elevating customer satisfaction and retaining base customers and keep a close eye on analytics to ensure expected business results.
5 months ago
FedEx has a philosophy...People-Service-Profit. They have a track record to prove it works. If you depend on repeat business and you are not the only game in town then service must be a priority. Profit is a reflection of what has happened...history. It can be utilized to look at what needs to be fixed, but it should not be fixated on or used as a way to justify slashing. It should be used to learn. When the P&L and balance sheet becomes so important that a business forgets what made them stand out in the marketplace and why customers were drawn to them in the first place that business is in trouble. It is a sign of deterioration. Of course you need a profitable business model, but you also need customers...satisfied customers.
The argument isn't either/or.
You need both to stay--and to thrive--in business.
In my opinion, the smartest tactic is to DESIGN your operation to deliver value to your customers through the experience you give them. Then ENGINEER the experience to produce a profit for the business (without killing the experience in the process ;-)
PS: Going in the other order (profit first), it's difficult to achieve a higher-value experience because, well, there's no resource left to experiment with.