When did you last ask your customers what they thought of your business, and then actually made changes based on what they said? 

A field experiment my colleagues* and I conducted with hundreds of small businesses in Rwanda produced some findings worth paying attention to. We found that systematically seeking customer feedback from just a small subset of customers and acting on it increased monthly revenues by 62 percent and profits by 54.5 percent. 

What's interesting is how acting on feedback has an impact beyond the customers who provide it, and what that means for how businesses should engage with customers.

It's the learning that matters most

For our study, published in the Marketing Science journal, we ran a field experiment with 274 business recruited across retail and service sectors in the greater Kigali region of Rwanda. Our year-long experiment was deliberately low-tech and scalable, designed to be something small businesses could realistically sustain.

First, we provided each firm with a smartphone and a basic app to collect customer contact details. The firms were divided into two groups: treatment and control. The treatment group was given templates to collect customer feedback. The template had just two questions: how customers rated their purchase experience and what they'd suggest for improvement. 

These business owners were asked to seek feedback from a randomly-selected subset of their customers. The control group of firms received the smartphone and app to collect customer contact details, but no feedback templates or prompts for seeking feedback from any of their customers. 

The results uncovered two ways customer feedback affects business performance. The first is straightforward. When you ask customers for their opinion, they feel valued and remember your business better, and are therefore more likely to come back. This "solicitation effect", as we call it, is substantial: Customers who were asked for feedback showed a 19.9-percent higher heavy-aided (i.e. respondents are given multiple identifying details about a firm to see if they can remember it) recall rate and spent 27 percent more than the untapped customers of the same firm.

The second mechanism is less obvious but more important. When firms made changes based on the feedback, such as tweaking their product line-up, opening hours and order delivery as suggested, everyone benefits. This is a win for the firm. 

In fact, in our study, changes made by feedback-seeking firms had a significant impact on the untapped customers who were never asked for their feedback. These customers showed 38.2-percent higher recall rate and spent 77.4 percent more compared to customers of the control firms. We call this the “learning effect”. 

This suggests something important about the value of customer feedback. Most businesses approach it as a relationship management tool, which isn’t wrong, but it misses the bigger opportunity: discovering what's lacking or even broken in your business and fixing it.

Small effort, big impact

Our study focused on small and medium-sized businesses in Rwanda that had been operating for roughly a decade. And yet putting a proper feedback system in place still reaped substantial revenue and profit improvements. This suggests that most of us probably understand our customers less well than we think we do. 

Our study uncovered another counterintuitive aspect of feedback-seeking. We randomised the number of customers each firm should contact – 70 percent or 30 percent. Firms that sought feedback from 70 percent of their customers didn't perform significantly better than those who surveyed only 30 percent. 

While both groups substantially outperformed businesses without feedback systems, more feedback didn't mean much better results. For these small businesses, getting monthly feedback from 10 to 12 customers on average was enough to identify areas for improvement.

This matters for how businesses design feedback programmes. The instinct is often to maximise coverage by surveying as many customers as possible, collect as much data as possible, and measure response rates. But if the goal is learning and improvement, a smaller random sample appears to work just as well.

Back to basics

The real takeaway from our study is about how much room for improvement exists in most businesses, even established ones.

For entrepreneurs and business strategists, before optimising your operations or refining your positioning, ask yourself: Do you know exactly what your customers want? Have you asked them directly? And have you done anything with the answers?

For owners and executives of established businesses, the question is similar. If your firm has been operating for years without a systematic way to gather and act on customer feedback, or has feedback processes whose findings go unheeded, what might you be missing?

Based on our research, quite a lot. Sometimes the most valuable business insights merely requires companies to go back to the basics, which many mistakenly forsake for complicated marketing or promotions. What your customers want may just be your listening ear and follow-up action. Before trying anything fancier, start here.

*Stephen J. Anderson, Texas A&M University; Pradeep K. Chintagunta, University of Chicago; and Naufel Vilcassim, London School of Economics and Political Science.