Explain customer value, customer satisfaction, and customer profitability.

Customer value is the amount of benefits that a customer gets from buying a product. If the benefits received or experienced are high as compared to the cost of the product, we say Customer Value is high. For example, in recent years, there have been new entrants in the mobile market where companies like Xiomi, LeEco, Micromax, Vivo, etc. offer the same benefits that a premium device from a reputable brand like Samsung offers but at a lower price. Similarly Motorola entered the Indian market with its Moto G models by promising better benefits at a lower price.

Customer value is the difference between-
i) the value that a customer gains from owning and using the product, and
ii) the costs of obtaining the product.

Customer value doesn’t ends at delivering a high quality product but it is a continuous process and includes after sales services associated with the product. These are warranties, free repairing for a certain period, easy access to service centres, buy back options for an upgraded product, efficient delivery of different services, etc.

Customer satisfaction(CSAT) is achieved when a product meets or exceeds the expectations of the customer. This concept is abstract and considers factors like quality of the product, its price, quality of the associated services like delivery, product availability, ambience of the store, warranties, guarantees, repairs, access to service centres, behaviour of staff, etc.

Customer Satisfaction instils in the employees at all levels in the organisation the importance of customer satisfaction for the survival as well as success of the business.

CSAT is carried out in the form of surveys and customers are often called to rate the product and the service. In today’s competitive environment, customer satisfaction drives the business. Organisations focus on achieving highest customer satisfaction scores. In the outsourcing industries, like BPO, there are many instances where the clients have terminated their contract with a certain company, and given the business to other company when the CSAT scores from customers were not satisfactory for a certain period.

Customers are usually asked to rate the product and the service on a 5 point scale where 5 is the highest rating and 1 is the lowest.

Customers who give a rating of 5 are considered to remain loyal and give more business to the organisation by
– Buying more of company’s products and
– Influencing people in their social circle by talking favourably about the company and its products.

On the other hand, customers who rate the product or service as 1 are unlikely to give business again to the organisation and will switch to a product from a competitor. Furthermore they will discourage another prospective buyers around them by giving negative reviews.

In today’s internet age, people often update product reviews on social media, blogs, etc. A positive remark will gain new customers and add to the businesses profits. And a negative review will dent into the businesses image and profits.

Therefore, Customer Satisfaction is a very important indicator of the health of a business and necessary actions should be taken to ensure complete customer satisfaction.

A customer can have an unrealistic demand of price reduction. To retain that one or few such customers, an organisation cannot reduce the overall price of the product if it is not profitable. Wherever possible act on the customers inputs and try to make changes. If one customer is unhappy with a price of a magazine, the organisation can reward the customer for the long term relationship by extending the subscription for free for few months.

This concept is linked to Customer profitability. A profitable customer is an individual, household or a business that continues giving revenue to the organisations which is much higher than the overall costs of attracting, selling and servicing that customer. This is a measurement of an individual customer satisfaction which many organisations overlook. It is the emphasis on the business that the customer will give in long term and not because of one sale.

A customer can have an unrealistic demand like a price reduction. Wherever possible act on the customers inputs and try to make changes. Basis the customer profitability, the organisation should take a decision for the company’s long term goal realisation.

It has been proved that a loyal customer is responsible for 30% to 70% of sales and even higher profit margins (The Economist, December 3rd-9th 2016, Singapore; page 57).