Company Profit Chain: Satisfaction, Loyalty, Retention and Profits

22nd November 2020 1 By indiafreenotes

The service-profit chain model tries to link all the components required to make an organization successful. According to this model, a company that performs well in one aspect and poorly in another will eventually develop problems that affect the entire organization. This working model highlights the importance of the links between quality management, a good work force and exceptional service to the customer.

The service profit chain dissects the levers that translate good service into profitability. The outcome of quantifying and understanding these levers for the companies that have done it is an increased focus on empowering employees.

Improving Service Profit Chain Levers

  1. Create a customer feedback loop

With the service profit chain, the ultimate measure is customer loyalty. To get there, organizations should focus on creating satisfied customers by providing great value. This is easy to understand, but of course not easy to do.

Understanding what customers value is difficult for two reasons. First, unless you’re a small startup, it’s difficult for leaders to stay in close, direct contact with customers. The larger the organization, the more complicated this becomes. The second reason is that customers aren’t actually very good at explaining what they want and why. If we just listened to our customers verbatim, we’d likely miss many important opportunities to provide more value.

To deal with these challenges (and in addition to other measures such as NPS). It is believing it’s best to use frontline employees to create a customer feedback loop. Frontline employees can be trained to understand how to translate customer feedback into useful input and the right tools and processes can provide structure that’s more actionable at scale.

  1. Create an employee feedback loop

Frontline employees are critical to a great customer experience. In the service profit chain, this translates to empowering employees to do their jobs well and increasing their motivation to provide great service. Similar to customer feedback loops, creating a feedback loop for frontline employees is key to unearthing the problems that hurt productivity, satisfaction and ultimately loyalty.

According to the service-profit chain model, a connection exists between high profits, customer loyalty and satisfaction and employee productivity and satisfaction. The application of this model first considers profits generated by the loyalty of a customer. Under this model, the customer’s satisfaction directly impacts the customer’s loyalty. This satisfaction results from the value the customer receives from the company’s satisfied and productive employees. Employee satisfaction results from the support of upper management that understands the needs of both the employees and the customers.

Customer Satisfaction Drives Customer Loyalty

Customer satisfaction does not equal customer loyalty. In order to gain customer loyalty, the customer has to perceive value for money spent. The service-profit chain model recognizes that a customer becomes loyal through this perceived value. Since customer expectations constantly change, the organization must recognize and support these changes.

Value

Value means different things to different people. Many individuals associate value with an emotional aspect of the purchase based on experiences. For example, a company can create a well-priced product that has exceptional guarantees. However, a customer might not consider this product valuable enough to become a loyal customer. This is on of the reasons why advertisers use different campaigns for the same product. People respond to stimuli differently based on emotions and experiences.

Employee Productivity Drives Value

The workforce of a company can helps to drive the company’s profits. When an organization has engaged, productive and highly satisfied employees, the organization will have a higher chance of succeeding. Many types of businesses from service businesses to manufacturing businesses sell products to customers. If the business’s employees have a good working knowledge of the product, the employees have a better ability to service and satisfy customers. Product knowledge comes from both experience and longevity with a company. New employees typically cannot relate to customers as effectively as employees with years of experience working for the company. The service-profit chain model recognizes that employee retention directly impacts customer satisfaction.

Value Drives Customer Satisfaction

Customers today are strongly value oriented. But just what does that mean? Customers tell us that value means the results they receive in relation to the total costs (both the price and other costs to customers incurred in acquiring the service). The insurance company Progressive is creating just this kind of value for its customers by processing and paying claims quickly and with little policyholder effort. Members of the company’s CAT (catastrophe) team fly to the scene of major accidents, providing support services like transportation and housing and handling claims rapidly. By reducing legal costs and actually placing more money in the hands of the injured parties, the CAT team more than makes up for the added expenses the organization incurs by maintaining the team. In addition, the CAT team delivers value to customers, which helps explain why Progressive has one of the highest margins in the property-and-casualty insurance industry.

Employee Productivity Drives Value

At Southwest Airlines, the seventh-largest U.S. domestic carrier, an astonishing story of employee productivity occurs daily. Eighty-six percent of the company’s 14,000 employees are unionized. Positions are designed so that employees can perform several jobs if necessary. Schedules, routes, and company practices such as open seating and the use of simple, color-coded, reusable boarding passes enable the boarding of three and four times more passengers per day than competing airlines.

Role of CRM in driving customer satisfaction

CRM plays an important role in driving customer satisfaction. Satisfied customers are profitable to a firm not only because they are likely to make repeat purchases but also because they promote the firm through words of mouth. Thus, CRM improves the firm’s market share by bringing in more customers. However, proper implementation of CRM is a must for customer satisfaction. CRM prescribes that in order to satisfy the customers, first of all it is important to understand the customers. Customers should be very well understood for their tastes, attitudes, preferences and decision-making factors. This helps the firms in identifying their target customers. No firm can ever cater to all the customers satisfactorily so identification of target market is a pre-requisite.

Next, the marketing mix should be aligned to the target market’s demands to maximize their satisfaction. CRM provides for effective company-customer communication so that the firm’s marketing mix can be tailored to suit the target market. This also helps the firm to trace customers’ changing preferences and anticipate future demand so as to design future offerings according to it.  However, no matter how superior marketing mix a firm offers, there is always a scope for customer grievances. Therefore CRM also requires that if there are any customers’ complaints and grievances, these should be handled properly. This helps in securing the customers’ trust in the firm and also develops a bond between the firm and customers. CRM is a continuous process and requires regular efforts. The marketplace is highly competitive today and customer satisfaction is the only key to survive. The customers, therefore, should be treated as assets and must be valued forever.

Retention and Profits

Customer retention is a key aspect that all businesses should strive for, and yet not enough understand just how important it is to foster relationships with long-term buyers. Too many business owners don’t think beyond acquiring customers or keeping their existing ones.

Unlike acquisition, customer retention is harder to achieve. Converting new customers to loyal consumers requires personalization, smart targeting, and proper implementation. Thankfully, there are tools that can help you do these things, and more.

A customer relationship management (CRM) platform is one of the best customer-centric tools on the market that will help redefine the way you interact with your buyers.

So, why is CRM considered the best customer retention tool? With functions like lead scoring, email marketing, and analytics, decision making is easier and customer service becomes more streamlined. These things result in improved customer experience, which can convert buyers into long-term consumers.

Why Customer Retention Matters

Customer retention is the art of keeping existing customers and increasing their lifetime value by becoming their go-to source on goods and services. To outsiders, it might seem like acquiring new customers is more crucial than keeping old ones. After all, getting a new customer means acquiring someone new who can spend on your business.

While that’s technically true, you have to remember that customer retention and customer acquisition provide different values.

Acquiring new customers isn’t so straightforward – you are likely spending some of your resources on ads and marketing campaigns in order to target new leads and convert them to new users or buyers.

On the other hand, existing customers cost zero resources in exchange for their business. Think about it this way, if your average ad spend comes down to $100 per customer, a buyer who purchases your product or service for $200 will have an initial value of $100. If this customer buys goods and services worth another $200, they would have repaid their acquisition costs and given you $300 in profits.

Acquisition VS Retention: Which One Is Cheaper

Businesses can spend anywhere from a couple hundred to thousands of dollars on ads, which could drive some new traffic and revenue into your business.

As effective as this strategy may seem, keep in mind that profit and revenue aren’t essentially the same thing. If you’re not careful, your company could end up spending more than what the average customer is worth when acquiring new customers.

Customer retention isn’t just about saving on ads. Here are other reasons why you should consider making this your new top priority:

  • Long-term customers tend to spend an average of 67% more than they did during their first year. Existing customers will eventually trust you more and keep coming back for related products and services. In the long run, they’ll start buying products or services that had nothing to do with their initial purchase, increasing their overall lifetime value.
  • Loyal customers remain loyal for a long time. In a survey, 77% of customers said they remained in business with a company for more than 10 years. If a majority of your customer base consists of existing customers, you’ll have a consistent revenue stream while saving on acquisition costs.
  • Long-term buyers not only increase their own value but attract new buyers. Customers with an emotional relationship with a brand not only have a 306% higher lifetime value but are 71% likelier to recommend the brand with friends and family.
  • Retaining customers is one of the easiest ways to increase profits while cutting down costs. At least a 5% increase in customer retention leads to a 25% increase in profit.

Customer Retention Challenges

Creating a customer strategy isn’t straightforward, otherwise more businesses would be doing it. It all begins with knowing what the common roadblocks are.

Retention strategies differ depending on your industry, business size, and customer base, but the common issues that increase customer churn more or less remain the same:

1) Terrible Customer Service

Bad customer service is the quickest way to lose existing customers. Whether it’s unanswered inquiries or rude customer reps, bad customer service can easily convince your buyers to look the other way.

In such a saturated market, buyers won’t have a hard time replacing your company with another one that has better customer service. In fact, customer service is so important that some buyers base their decisions on interactions with the company alone. A survey reveals that 72% of customers remain loyal with a brand because of friendly reps. That’s not all; a whopping 93% of buyers are likely to make repeat purchases with the same brand following a great customer experience.

On the other hand, good customer service isn’t just about being nice to your customers. Your representatives’ ability to actually provide knowledgeable, helpful solutions, while being time-efficient are two hallmarks of amazing customer experience.

2) No Improvements on Products and Service

This is especially true for B2Bs. Over time, your customers will start looking for more complex solutions as they start to develop more comprehensive needs. If you don’t evolve with your customers, there will eventually be other businesses that can offer what you can’t.

Good customer service isn’t just about adding new value. Most of the time, customer retention can be improved simply by listening to what they’re saying based on goods and services that already exist.

Customer testimonials are a great way to measure customer loyalty. Using social media, polls, and email marketing campaigns, you can gauge customer satisfaction and understand how they perceive your service. If you have these channels open but still fail to provide improvements, your customers will eventually feel like you aren’t listening to them and move on with another provider.

3) You Don’t Show Appreciation

Customers want a dynamic relationship with businesses. This means that buyers want to work with businesses who know what they’re worth. If you’re offering a loyal customer of more than two years the same discounts and deals you’re offering a new buyer, your existing customers won’t feel appreciated, which may cause them to feel a little bit neglected.

Appreciation isn’t just about rewarding them, either. At the very least, some form of engagement between your brand and the customers is needed to sustain the relationship. If your interactions are strictly transactional, your customers won’t develop an emotional attachment to your brand, making it harder to convert them into loyal customers.

The Role of CRM In Customer Retention

Customer retention is a multifaceted aspect of sales. There are so many factors that go into customer loyalty, which is exactly what makes it overwhelming.

Thankfully, there are tools that make managing relationships with customers easier. Nowadays, most customers are expecting personalized, targeted service, and it’s difficult to do that without the appropriate tools to make customer support more seamless.

A customer relationship management (CRM) software is a tool that can help you manage relationships with clients and stay on top of each person’s interaction with your business. This way, fostering relationships and converting individual customers to local buyers becomes more manageable.

Core Functions of a CRM

A CRM platform is a powerful tool for driving customer loyalty. Here are the common functionalities of a CRM software:

  • Lead Management: Lead management might be the most valuable aspect of CRM for most organizations. Too often, companies can have hundreds or thousands of unused leads that aren’t properly organized or categorized, simply because no one had the time to manage it. With CRM’s lead management functionality, you can better engage with the leads you already have rather than continuously collecting new leads to be further left unused.
  • Email Integration: CRM acts as a complete platform, allowing marketing teams to plan, schedule, create, and send out entire email marketing campaigns through the platform itself. This means a single platform can contain all the data the team might need, and also enable them to send emails with that data integrated on the platform in place. No more jumping back and forth from one app to the next.
  • Forecasting: Need to find out what your customers might need more of tomorrow? Forecasting with the use of CRM tools allows teams to forecast or predict what might be the next best steps in their overall strategy. Predictive analytics through analysis of historical data and potential trends lets your team get the most out of your CRM efforts, giving your business the best opportunities to grow.
  • Customer Service Automation: Real-time, responsive, and immediate customer service is no longer a feature these days; it’s an expectation that customers expect from the best companies out there. CRM equips your organization with the customer service automation tools it needs to compete with the best and to maximize customer retention and satisfaction, through quick responses and immediate answers.