A grocery delivery startup experienced an increase in customer ratings from 4.1 to 4.7, while booking numbers, visitor traffic, and funnel steps remained the same as in the previous financial year. The objective is to assess how this improvement in ratings might impact the company’s profits.
Options: Go Up, Go Down, Remained Same, Can't Say
In this scenario, although customer satisfaction has improved (as reflected in the higher ratings), key operational metrics such as bookings, visitor numbers, and funnel steps have remained unchanged. To understand the effect on profits, we can consider the following factors:
Lower Inbound Customer Support Calls: Satisfied customers are less likely to face issues, which in turn reduces the number of support or complaint calls. This reduction in support calls can decrease the operational costs of running the business, as fewer resources are needed for customer support.
Retention and Loyalty: Happier customers are likely to continue using the service, lowering churn rates and boosting lifetime customer value. This would mean lesser cost in attracting new customers.
Several industries face similar situations where one metric goes up resulting in different metrics going up or down.
Telecom Providers: A telecom company improves customer satisfaction, resulting in fewer technical support calls and reduced customer service costs. Even if customer acquisition remains flat, cost reductions can enhance profitability.
Software as a Service (SaaS): A software company increases user satisfaction through bug fixes and product improvements, reducing the need for support. This cost reduction leads to increased profit, even if the number of users remains the same.
Food Delivery Services: A food delivery app improves restaurant partner and customer satisfaction, leading to fewer complaints and inquiries. This drop in operational costs can boost profit margins.
When customer satisfaction improves, reflected in higher ratings or positive feedback, businesses can often experience reduced operational costs, such as fewer customer complaints or support needs. Even if sales or customer acquisition remain unchanged, this cost efficiency can lead to increased profitability. Focusing on enhancing customer experience can therefore improve the bottom line, not just through revenue growth, but by optimizing resource use and reducing overheads.
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