Choose between market share or customer satisfaction- not both

Why increasing market share decreases customer satisfaction-StratoServeIf you have satisfied customers – you would feel that word of mouth including social media should help get more market share. “It’s all about happy customers” …..Well that is not true.

Based on data for 200 companies between 1994- 2006 for 800,000 customers from the American Customer Satisfaction Index (ASCI) there are some interesting results. Rego,Morgan and Fornell (2013) compute the market share corresponding to customer satisfaction and prove pretty convincingly that increased market share leads to lower customer satisfaction and vice versa.

If you are looking for market share, be ready to sacrifice some customer satisfaction.

If you are looking for increasing customer satisfaction, be ready to sacrifice market share.

Caveat: Unless you are ready to expand your product offerings – and ready to deal with the management challenges of a multitude of product lines…

So why does this strange stuff happen?

The root cause is that as you have more customers their needs become fragmented. The catch all “one shampoo” does’nt work too well for market segments that are looking for “anti-dandruff” shampoo , shampoo for “dry hair” etc. The solution to keeping up with customer satisfaction as market share grows is to segment customers according to similar needs. Then you can put customer service teams around these segments and address their needs. This is easier to do with smaller customer numbers in B2B markets and can be harder in mass consumer markets. Besides customer service teams, think of the massive challenges in management. Having a 100 or 1000 ice cream flavors that have low volumes mean a lot to do in supply chain and manufacturing. Also each new product needs advertising support and expenses.

Now consider the opposite i.e. your customer satisfaction is rising. Why would your market share decrease if you don’t increase your product range? Because if you become really good at satisfying some customers then your product has a great  appeal among the customers in that market segment which has the best product-market fit.

To feel better about lower customer satisfaction, track your customer satisfaction with respect to your nearest competitor, the authors suggest. If it’s easy for a customer to switch from your product to your competitors  products, so long as your customer satisfaction rates are better than your competitors – you are fine. In most low cost consumer products, eg. shampoos  its easy to switch from one brand to another if you are unhappy with your  current brand. In complex and expensive durable goods you don’t tend to change your washer-dryer unless you have good reasons to do so. Similarly, in B2B markets a clunky software system is hard to change. There are too many things tied to that system and too much training has gone into getting the staff to finally use that system. That is why new system makers focus so much on user experience, training and support.

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