Are customer satisfaction and profitability linked?

[David Hartman]

I voted "not sure" since I can think of scenarios that support either stand.

As an example: If I were responsible for a so call "fly-by-night" business, I might be satisfied selling a sub-par product, or service, at a price high enough to assure me a high return on my investments, but low enough to encourage customers. Then after a period of time when my customers have determined that my shoddy product/service was a bad investment, I might chose to move on to another location and begin my ruse once again. If this were my planned MO, have I not been profitable without customer satisfaction?

On the other hand, if I'm interested in a long-term commitment with my customer base then providing continued satisfaction may contribute to my continued prosperity/profitablity.

 

[ralphsulser]

Re: What is the 'Link' and what does it mean? What's your point?

Mike, the only problem I have with that is when competition not only decreases profits, it drives some out of business.

I had an experience like this. We made the best quality product, and our customer's told us that also. However, foreign competition penetrated our market by selling the same products for less that it cost us to make it.
Even though their quality was much less, the customers opted for reduced price and basically wiped us out of the market. This was a strategy by the foreign competitor to do this to us, and our domestic competitors. Eventually our corporate headquarters just decided to sell off our faculity and exit the market. So..we all went looking ofr new jobs.

 

[Mike S.]

Joe and Ralph,

I have seen competition issues like you mention -- in fact my industry and company faces this problem as well, mainly from China and Taiwan. But what is there to do about it? We cannot (or do not want to) IMO eliminate competition -- such would create more problems than solutions. Tariffs are a bad word it seems. And consumers want low prices.

 

[Mike S.]

I voted "not sure" since I can think of scenarios that support either stand.

As an example: If I were responsible for a so call "fly-by-night" business, I might be satisfied selling a sub-par product, or service, at a price high enough to assure me a high return on my investments, but low enough to encourage customers. Then after a period of time when my customers have determined that my shoddy product/service was a bad investment, I might chose to move on to another location and begin my ruse once again. If this were my planned MO, have I not been profitable without customer satisfaction?

On the other hand, if I'm interested in a long-term commitment with my customer base then providing continued satisfaction may contribute to my continued prosperity/profitablity.

DD -- Good thoughts there.

A couple points to ponder if I may:

In the first scenerio, why move to another location after a time? Because unhappy customers are finally cutting your profits, right? Hmmmm.... And, could you perhaps reverse this trend by increasing customer satisfaction?

Yes, I agree you might be profitable for awhile with poor customer satisfaction. We've all agreed on that, I think. But can you also not say the same thing -- that you can be profitable for awhile with poor yields, or with poor accounting, or poor leadership, or poor design, or poor anything else that might effect or be linked to profits. This fact does not mean therefore that nothing is linked/associated with profits! No, IMO. Finding some exceptions to the general "rule" does not IMO invalidate the correlation/link/association, all it says is that it is not a 100% cause-and-effect. But what is?

 

[Kevin Mader]

Mike,

A great question to pose to the group. I've gone back an forth with my thoughts on where I stand. I agree with many of the thoughts here.

Time in my mind is a big factor. I was happy to see Craig C. bring this up in a couple of his posts. Reading Ralph's post, I began wondering further about this and if there is a lagtime effect. Would this/does this complicate matters?

I was also thinking along the lines of the effect of Motivation on the ability to do good work. I think that through many of our discussions here, we've decided that Motivation is likely a catalyst to Quality, but not a necessary ingredient. Surely, a motivated worker with the right skills and ability would routinely out produce an unmotivated worker of equal skill and ability. But not always. Is satisfaction a catalyst to profitability?

Profitability is linked to margin and sales. Sales are linked to need, value and satisfaction. To Mike's point, while Profitability and Customer Satisfaction may not be inexorably linked, they are linked. My vote was that they are linked, but some of you haven't made it easy for me to stick to my guns on this.

Great discussion everyone! I look forward to more!

Regards,

Kevin

 

[RoxaneB]

Profitability is linked to margin and sales. Sales are linked to need, value and satisfaction. To Mike's point, while Profitability and Customer Satisfaction may not be inexorably linked, they are linked. My vote was that they are linked, but some of you haven't made it easy for me to stick to my guns on this.

I agree with you, Kevin. I voted for a link but reading over this thread has made me second-guess that selection. However, I've decided to remain firm in my choice for a few reasons.

• I do feel that there is a link, albeit not always direct
• The link's strength and visibility will vary from company to company taking into account factors such as management style, time, resources, product/service, technology, etc.
• The use of the word "link" does seem to imply a positive relationship between the two subjects, but this is not always the case in reality (as demonstrated in the pizza shop example) - a link, be it positive or negative, is a link nonetheless.

 

[Joe Cruse]

Joe and Ralph,

I have seen competition issues like you mention -- in fact my industry and company faces this problem as well, mainly from China and Taiwan. But what is there to do about it? We cannot (or do not want to) IMO eliminate competition -- such would create more problems than solutions. Tariffs are a bad word it seems. And consumers want low prices.

The ONLY thing to do is to focus on making a higher quality product, as cheaply as is humanly possible, along with giving great service behind the product. Continually strive to improve efficiencies and lower your other costs as much as humanly possible.

And then wait out the competition.

If you can survive until the customer gets sick of the poor quality of your cheaper competitors, they will eventually come back.

Beware! Some come back long enough to fix a quality problem, and then return to that $.03/lb cheaper competitor at the drop of a hat.

If you've optimized your processes to the max, and your product and service quality is outstanding, many times you may still win out over cheap, foreign competition. You are closer to the customer, you know them better, and your product is better. these are your selling points. And some of your customers may get burned enough by the cheap stuff to give up on the bargain bin and come back to a quality producer.

Our company has seen all the above happen in the last few years. We've been able, so far, to wait out the foreign competition, and have good customers come back to us because of quality, reliability, service, and logistics. Most of our domestic competition was unable to wait it out that long, and we saw some of them go under, unfortunately. Some of our bigger volume customers go back and forth with us and cheap competition too.

Back to the topic; I do believe a link (some degree of correlation) exists between profitablity and customer satisfaction. I don't know if I'd call it a causal relationship though.

Joe

 

[Marc]

Customer Satisfaction: A Gimme

I guess I come round to this:

According to the poll results thus far, folks here believe they are linked . At the same time I see the same mantra: "...there is no 'direct' correlation to profitability...".

OK - so they're technically 'linked'. Yet there is no correlation to Profitability. This tells us what? I mean, really....

My problem comes back to the "ISO 9001 will save you and do I have a Deal for you!" issue.

This thread was, obviously, initiated to promote the view that addressing customer satisfaction will increase the bottom line. I have made my view known: Ummm, well, I guess so! But it's not everything and it alone will not make much of a difference.

What I would like to see is some folks giving some facts (data) to show that by increasing Customer Satisfaction they increased their bottom line. Hopefully this will include a history (data wise) some measure of Customer Satisfaction.

I maintain companies have personalities and that for the most part Customer Satisfaction is relatively constant. The data does support this.

I also maintain that, in a company where increasing Customer Satisfaction CAN be shown to be a significant factor in increasing their Bottom Line, that company must have had their heads up their butts for a LONG time (if not to begin with)... I mean, really... Is there a company out there (with the possible exception of MickeySoft) that EVER thought that Customer Satisfaction was NOT a significant issue? This is NEW?

Now - to the bottom line: This thread is a Poll thread. If Customer Satisfaction was NOT a significant issue (cannot be correlated to profitability, for example), but is linked (heck, every system in every company is 'linked' in one way or another), what is this thread about? What does it matter if they are linked but there is no correlation?

 

[Claes Gefvenberg]

Re: Customer Satisfaction: A Gimme

I also maintain that, in a company where increasing Customer Satisfaction CAN be shown to be a significant factor in increasing their Bottom Line, that company must have had their heads up their butts for a LONG time

True, but on the other hand it's not all that uncommon to find heads in that location...

Anyway, let's look at the extremes:

1. All your customers are completely satisfied - It couldn't harm your quest for profitability, right?

2. All your customers regard you as an abysmal supplier - Will you stay profitable?

/Claes

 

[Marc]

Re: Customer Satisfaction: A Gimme

True, but on the other hand it's not all that uncommon to find heads in that location...

Anyway, let's look at the extremes:

1. All your customers are completely satisfied - It couldn't harm your quest for profitability, right?

Let's look at the reality. Can a company ever 'completely' satisfy all customers?

Theory is great. The problem is reality.

I heard all this during the QS 9000 days. Customer Satisfaction. Then came "What is your definition of Customer Satisfaction?" Oh, golly... 5% price decrease every year, a rebate for any material cost decreases with no increase in part price when your material costs increase, read our mind?

To me it's a head game.