11 Essential Reasons Why Good Customer Service Is Important

what rating would you give to your customer service and how important is it for you

Customer service – everybody knows what it is, but very few acknowledge its importance in making their business grow.

And we completely understand!

Not every business has the funds to allocate to their customer relations department. Even a well-funded start-up may have to prioritize spending more on product development, marketing, or financing over customer service, given the current competitive business scenario.

But here’s the fact that entrepreneurs often ignore – it is easier to retain customers than gain new ones. And without a dependable service team providing total customer satisfaction, turning those one-time buyers into evangelists for your brand can prove to be insanely difficult.

Since a lot about ‘business’ involves developing and nurturing relationships, you need to have a one-on-one connection with your customer. They need to be able to feel confident and secure enough to consult you about their problems, knowing that you’ll be able to solve them.

Having a stellar customer service team is necessary if you want to come out on top in today’s changing business environment. A business environment in which the customers have the first and last say.

In this guide, we’re going to give you 11 reasons why customer service is crucial.

customer satisfaction is of great importance for any business

Why is customer service so important?

Since communication is the thread that binds all relationships, it can be hard for a business to prosper without proper channels of communication with their customers. Aside from helping retain more customers, a team of trained individuals can extract more invaluable information that can propel business growth.

Keeping customers happy should be the primary goal of every business as that will help build a loyal customer base. And as a result of that, the company will get more referrals, more testimonials, and reviews that can serve as case studies.

Not to mention that happy customers are also less sensitive to price increases and more often than not, understanding when the service is not up to par. Word of mouth marketing is still one of the best marketing methods. And having satisfied customers is guaranteed to land you new, warm leads that are better than what your salespeople can get.

Still wondering why you should look more into customer service? Well, keep on reading to know!

1. Acquiring new customers is expensive relative to retaining existing customers

A bird in the hand is worth two in the bush!

If you have heard this phrase before, you know that prioritizing customer retention over acquisition is a wise decision, both strategically and financially. The reason is two-fold:

  • Customer retention is beneficial immediately and in the long run.

  • Customer acquisition has become much more complicated in recent years.

It has been observed that an increase of 5% in customer retention can translate to a 25% increase in profit. Think about it, if you had to choose between a new brand and one you have already tried and tested, wouldn’t you go for the latter? Statistics show that customers are willing to spend upwards of 67% for brands they have used before.

When it comes to customer acquisition, companies have to deal with continuously increasing marketing expenditures without a proportionate increase in sales, thereby leading to lower margins. And due to the diminishing trust of customers for new products, your efforts to acquire new buyers may not bear fruit.

There is much more to understand about customer acquisition. Businesses often rely on useful metrics like Customer Acquisition Cost (CAC) and Lifetime Value (LTV) to CAC to know how feasible it is to acquire new customers.

To cut a long story short, customer acquisition can be 5 to 25 times more expensive than customer retention.

2. Customer service and company growth go hand-in-hand

You need not know rocket science to understand that a brand derives a lot of benefits when its customers are happy. It was found that 86% of customers are willing to pay almost 25% more to get a better experience. So, it is safe to say that the revenue growth of a company can be directly linked to the level of customer experience.

business representative having a positive conversation with customer

If you were to draw a comparison between stagnant or declining businesses with growing companies, you would most likely find one key difference. Growing enterprises are roughly 21% more likely to emphasize on customer service than their stagnant or declining peers.

But how does customer service impact company growth to such a significant extent? In a study conducted in Malaysia, a direct relation was established between increase in revenue and increase in the quality of customer services.

Here’s where it gets a bit tricky and companies often misinterpret the relation. When we talk about customer service in relation to company growth, we are not talking about customer satisfaction only. What propels the growth of business is customer loyalty, which encompasses satisfaction.

You should focus on meeting and exceeding your customers’ needs consistently to retain them. You might be surprised to see the chain reaction it triggers, ultimately resulting in company growth.

3. There can be no brand loyalty without customer service

Can customer service affect customer satisfaction and loyalty? The answer is a resounding yes, and it has been so for a long time. In a study conducted in 2011 in Turkey, it was found that customer services can explain nearly 14% of the variance in customer satisfaction and 12.5% of the variance in customer loyalty. And those numbers have only increased ever since.

Trust is a prerequisite for loyalty. If your customers cannot trust you to provide quality products and services, they have no reason to be loyal to your brand. With rising competition in every industry, customers have better bargaining power as they have the option to choose from several brands providing top-notch products.

If you want to gain a competitive edge in such a cut-throat competitive environment, you have to go one step further to ensure a positive customer experience. If your customers feel connected to your brand through the customer service personnel, be rest assured that they will be loyal to you in the foreseeable future.

Brand loyalty is important for businesses that aim to capture a considerable market share. A happy customer will not only return to your brand, but also bring others to try your products.

4. Organic marketing made easy

One of the best things you can accomplish through top-notch customer service is establishing an emotional connection with the customers. Ensuring a memorable customer experience can have a multiplier effect.

According to a survey, 65% of customers will probably share a negative experience, while only 25% will talk about a positive experience. Companies often make the mistake of eliminating negative experiences by ensuring that customers get what they expect. But would you (as a customer) remember a brand if it is just what you expected it to be?

good versus bad customer satisfaction

It all boils down to creating an impact by delivering an experience that they remember. What if your customers get more than they expect? That would count as an experience they will not forget anytime soon and most likely tell others about it. Word of mouth marketing is the best way to convert prospective customers into evangelists for your brand.

No matter how lavish your marketing budget is, your advertisements and promotions will not affect prospective customers as much as a simple referral from their friends and family. A report states that 92% of customers trust suggestions from family and friends more than any other type of advertising.

5. Pathway to new opportunities

Having an outside-in approach to customer service can lead to new opportunities for your company. Happy customers play a pivotal role in a company’s long-term success. One of the benefits of excellent customer service is goodwill. The industry recognizes and rewards companies that keep customers at the helm of every decision.

You can expect to form several strategic alliances and partnerships on the grounds of reliable customer service. People want to be associated with a brand that is loved by customers. We cannot quantify these opportunities or confirm the exact time that they will crop up, but you can rest assured that they will arrive!

To be able to generate new leads and make the most of potential opportunities, companies should focus on streamlining their customer service department. You want effective communication between your employees and customers. The Value-Irritant matrix is one of the measures you can rely on for doing this.

Incorporating successful customer experience programs can be a challenge. Frontline empowerment and leadership action of customer service employees is needed to cause a paradigm shift to customer-centric business ideals.

6. Employees reflect customer sentiments

The biggest hindrance faced by companies on the road to excellent customer service is the considerable gap between awareness and action. And bridging that gap is what has set some companies apart from the rest. After all, knowing the importance of customer service and implementing plans and policies for it are entirely different.

Customer service employees need to be trained adequately so that they may convey the expectations, sentiments, and grievances (if any) of customers in the best possible manner. Another aspect you need to focus on is employee satisfaction. A happy customer service employee transcends organizational boundaries to serve customers in a wholesome way.

It has been observed that nearly 87% of employees who feel respected and appreciated are more likely to work very hard for the customers. Even if an employee is not as happy with the job as they would like, they will work for customer satisfaction. But that would be only out of professionalism rather than intrinsic motivation.

Another key aspect that needs to be addressed is employee turnover. You would not want your best customer service employees to quit and switch to another employer, right? It is imperative that the employees who communicate directly with your customers feel appreciated and want to serve in your organization.

a woman is celebrating positive results that impact her business growth

7. Better and more consistent sales

Better customer service equates to better sales, both directly and indirectly. When your customers have a pleasant experience using your products, they are willing to spend more on repeat purchases. Moreover, in the case of a customer grievance, a speedy redressal is the best way to win their trust and loyalty.

We have talked about the Lifetime Value (LTV) of a customer. It is the total revenue you can expect to generate from a customer. Customer-centric companies reap the benefits of significantly higher LTVs.

Irrespective of the specific industry you operate in, recession and market volatility can adversely affect your revenue. The most effective respite in such adverse scenarios comes in the form of loyal customers. Turbulent market conditions push new brands into obscurity and sometimes, out of business.

Companies with a loyal customer base find it easier to survive when the going gets tough, thanks to somewhat consistent revenue. Empirical evidence suggests that companies tend to get the benefit of the doubt from loyal customers even when overall market conditions are unfavourable.

The bottom line is that companies with a larger number of loyal customers will most likely face negligible problems relative to others in times of economic recession.

8. Poor customer service can be costly

To validate the importance of excellent customer service, let’s take a look at the problems that may arise in its absence. The topmost reason because of which customers switch to a competitor brand is a feeling of unappreciation. Because of this, American companies have lost many billions of dollars each year.

sad customers because of negative experience with a business

Another reason for customers to switch to a new brand is that they feel more relevant and their needs are satisfied in a better way. So, you can understand that losing a customer can have long-term adverse effects on your business. A study found that it takes 12 good experiences for a customer to make up for one unresolved bad experience.

Some statistics that reflect the inherent cost of poor customer service are:

  • 71% of customers in the USA end business relationships due to bad experiences.

  • 61% of customers around the world switch to a new brand after one poor customer service experience.

  • $338.5 billion is the total cost of poor customer service per annum in 16 major countries of the world (other than the USA).

  • US Businesses lose an estimated $83 billion each year due to poor customer service.

You can learn more about the cost of poor customer service here.

9. Customers are in a better position

Customers command a louder voice and exercise more control than ever before. In a study, customer service professionals agreed to various aspects that validate this claim:

  • 88% agree that customers have higher expectations than before.

  • 89% agree that customers are more likely to express positive as well as negative experiences.

  • 76% agree that customers are more informed than before.

Due to a wide range of options, only one out of 26 unhappy customers will communicate about their negative experience, and the others will simply switch to another brand. But don’t let that dishearten you! It was observed that 70% of customers who had negative experiences in the past were willing to go back to a brand if their problems were resolved.

If your business is getting smarter and more informed, so are your customers. The orthodox mentality of “If I sell it, people will buy it” does not work anymore. In fact, it has been observed that the majority of customers prioritize service quality over cost.

54% of customers will likely be ready to try a new brand for better customer service. 51% of customers are willing to increase their spending if they know that a company offers excellent customer service. 27% of customers will end existing business with a brand due to poor service.

10. Customer service conveys the mission and values of the company

The mission and vision of your company must coincide with customer satisfaction. Without customers to buy your products and services, the whole company would be rendered redundant. Inculcating robust customer service goals into your policies and making sure that your brand represents a holistic, customer-centric ideology can convey a strong and positive message.

The customer service personnel in your company form a direct communication chain with your customers. While you have a clear picture of your company’s goals and policies, your customers don’t. Rather than letting them assume what your brand represents, your customer service employees can inform them about it.

Since customer service plays such a crucial role in the overall functioning of a growing business, it is important that you calculate and monitor some customer satisfaction metrics. If your customers see that you are conducting surveys, monitoring metrics, and collecting feedback to improve their experience, it convinces them that your brand keeps customers as its numero uno priority.

We recommend incorporating a customer service vision that may be separate from the overall mission, vision, and values statement. It can help outline the exact customer service standards your employees need to adhere to. Letting customers know that you understand their importance is one of the best ways to win their confidence and trust.

11. Customer service personnel offer crucial insights

The top management of any company has a lot to take care of. Decision-making for product innovation, marketing, material procurement, fund allocations, and budgeting are just some of the crucial aspects of their job profile. You cannot expect them to be fully aware of the customers’ expectations and experiences.

Some companies rely on customer surveys to get an insight of the customer perspective. But we strongly recommend having a more direct and inclusive means of getting vital customer information. Your customer service employees can answer various questions to help you improve the overall customer experience.

In fact, without an efficient customer service department, it can get challenging to establish a direct connection with and gain valuable feedback from your customers. Proper training of customer care representatives is a must because poor interactions with customers can be a deal breaker for you.

receiving feedback for your customer service is crucial for improvement

Some of the key attributes that need to be addressed to ensure optimal customer service quality include:

  • Time taken to respond (social or live chat and email)

  • Number of interactions taken to resolve an issue

  • Time to resolution

  • Customer feedback on interaction with service personnel.

Final Thoughts

Marketing myopia will only take your company so far! Customer service is no longer an overlooked department in an overarching organizational framework. It is fast expanding to become more in line with “customer experience,” in terms of involvement of the entire company to ensure customer satisfaction.

We have listed out all the essential reasons for the undeniable importance of excellent customer service. What does customer service mean to you? The answer should coincide with “Customer always comes first!”

Till next time!