Cash Flow
2 mins read

Debt affects customer satisfaction

It is not uncommon for early stage SME businesses to fall into marketing debt. This commonly occurs when the company, which relies on sales to stay afloat, underfunds its marketing campaign. As a result the health of the corporation starts to fail.

The debt and marketing relationship

During the initial stages of start-up, most businesses are driven by sales, with a focus on breaking even and recuperating financial losses incurred in those early days. By the time most new companies start to look at their marketing campaign, the debt that may have grown as a result of an un-strategic marketing plan, they are already in the throes of debt.

What makes things tricky is that it is often a catch 22 situation for businesses.

A study was recently conducted on how business debt affects customer satisfaction and the findings, which were presented by The American Marketing Association, showed that companies with a lot of financial leverage, or debt in relation to its value, were inclined to spend less on advertising.

This in turn, led to a decrease in customer satisfaction.

Tackle your debt

It is evident that companies who find themselves with high debt need to take heed of their financial situation. There are various ways in which you can deal with your debt:

– Pay bigger instalments on your credit card: This will obviously see the amount of your debt reduced in a shorter period of time, ultimately saving you on interest rates.

– The ‘debt snowball’ method: This requires you to first make the minimum monthly payments on all your debts then to direct any leftover cash flow to debt with the smallest balance. Once this has been paid off you move to the next lowest debt and so forth.

– The ‘debt avalanche’ method: Similar to the ‘debt snowball method’ this concept sees you pay off debt with the highest interest rate first, moving your way across to the lowest interest rate debt.

– Consolidate debt with a balance transfer: A balance transfer credit card allows you to move your existing credit card balances to a new card that offers low, or no interest rates for a stipulated period of time, after which the interest rate will then revert to the industry standard. This method allows you to save by paying low interest rates.

Food for thought

Referring back to the study, which appeared recently in the Journal of Marketing and looked at how debt affects a company’s value and customer satisfaction, authors noted “a high amount of leverage increases a high risk of bankruptcy, which can make it difficult for companies to realize the full value of a satisfied customer base in the future.”

What businesses can learn from this study is that an increased financial leverage, or higher debt, could result in marketers of companies realizing the opportunities and value that comes with customer satisfaction.

The study noted that, “without that understanding, chief marketing officers are likely to overestimate the value implications of their marketing expenditures that help maintain and increase customer satisfaction.”

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