Question

Based on studies, what improvement in profitability could we see if we reduced customer defection rates by 5% per annum?

Options:
a) 2-3%
b) 5-7%
c) 10-12%
d) No Significant Impact

Answer 1

Reducing customer defection rates by 5% can significantly increase profitability, with empirical evidence suggesting increases between 25% to 95%. The answer options provided do not fully capture this potential impact.

Step-by-step explanation:

Based on studies, a reduction in customer defection rates by 5% per annum can lead to an improvement in profitability. While the exact figure can vary depending on the industry and specific company circumstances, it is commonly accepted in business literature that such a reduction can have a significant impact. Empirical studies, including work by Frederick Reichheld, suggest that decreasing customer defection rates by 5% can increase profitability by anywhere from 25% to 95%, depending on the industry. This would suggest an answer falling outside the options provided, indicating perhaps a misconception in the multiple choice answers or an expectation of a nuanced discussion rather than a strict numerical response.