BMO6630 – Business Research Methods

Structured abstract

This structured abstract will review the topic of ‘customer satisfaction’ through the research of Rust and Zahorik, Keiningham et al, Odunlami et al and Angelova and Zekiri.

Brief summary of the theory and progression in the field (i.e., how has the theory developed since first proposed?)

In the formative years of marketing, where there was a shift in focus to customer satisfaction, there were no clear methods to determine how customer satisfaction values affected the company’s bottom line. In order for any organization to understand how to allocate resources to improving customer satisfaction, Rust and Zahorik (1993)believed that there is a need to demonstrate the quantitative impact of customer satisfaction on observable financial measures. That is, management should be able to pinpoint to specific financial figures which bear the effects of increased customer satisfaction. Rust and Zahorik assert that only when observable financial measures can be drawn up, can management properly allocate resources to programs aimed at improving customer satisfaction.

Rust and Zahorik were of the opinion that customer satisfaction could easily translate to customer retention if product and service companies could target specific satisfaction measures. For example, if a customer was satisfied with the way his/her service calls were answered, it could lead to brand loyalty for the customer and thus customer retention for the organization. The authors found that improvements in market shares of any one organization were a relatively direct result of increased customer retention which stemmed from customer satisfaction. The shift from offensive to defensive marketing also saw a shift in increasing focus on customer satisfaction instead of a customer’s consumption power.

The paper concludes that profitability of customer satisfaction can be measured on a small scale through the effective identity of satisfaction elements that affect the ultimate profitability. However, further research needs to be conducted and new mathematical models developed to utilize on a much larger scale.

Common themes/findings across the four articles.

Authors of all of the abovementioned articles understand and recognize that there is a connection between customer satisfaction and profitability. However, the exact relationship between the two significant factors vary from one article to the other. For example, Rust and Zahorik’s focus is not on the relationship itself but how to measure that relationship so as to improve its significance. Authors from across all of the articles are aware that organizations, especially service-driven companies will benefit greatly from identifying factors of customer satisfaction as this analysis will allow them to streamline operations and add value for customers where it matters the most.

Angelova and Zekiri believe that satisfied customers form the foundation of a profitable business because once a customer is satisfied, it logically leads to repeat purchase, subsequent brand loyalty and positive word of mouth marketing. The authors believe that all of these factors combined add to improving a company’s bottom line.

Different themes/findings across the four articles.

Although authors from across the four articles agree that customer satisfaction is linked to company profitability, the direction of that relationship is certainly debatable. Rust and Zahorik understand that customer satisfaction leads to profitability, but their paper is keenly focused on finding out the magnitude of the contribution made by satisfied customers to the bottom line. Rust and Zahorik believe that the sooner this value becomes calculable, the sooner management will begin to take customer satisfaction seriously and a significant contributor to a firm’s overall success. Rust and Zahorik’s paper was published at a time when markets were seeing a shift from defensive marketing to offensive marketing.

Keiningham et al (2014), however, strongly assert that highly satisfied customers do not necessarily lead to a better financial performance in the corresponding period. They studied that customer satisfaction only contributes to 1% of the variation in the company’s market return. This means that satisfied customers do not necessarily lead to a better financial performance. Keiningham et al cite an example where a financial services company discovered that a group of its ‘highly satisfied’ customers were those who were the least profitable.  And therefore, they believe that high satisfaction is a strong negative indicator of future market share.

Odunlami et al and Angelova & Zekiri stand on the other, more conventional side of this debate and assert that customers who are satisfied with a  company’s products or services will keep coming back therefore adding to the firm’s profitability. They believe that in an increasingly competitive market, customer attraction and customer retention can only come in the form of increased customer satisfaction.

Study limitations and how these differ across the various study designs (quantitative, qualitative).

Rust and Zahorik’s (1993) research paper employs a mathematical framework to determine the value of customer satisfaction. In a pilot study of a city’s retail banking market, researchers aggregate individual-level loyalty to market share. There is a consensus among the authors that the framework utilized by them is only applicable and effective when sampling size is relatively smaller and it is their hope that similar frameworks be developed for larger samples.

Keiningham et al uses qualitative secondary data to determine that higher customer satisfaction does not necessarily translate into increased profitability at the bottom line. A similar method of qualitative research has been used by Odunami et al who also use a mix of primary and secondary research. The limitations of such research is that values for certain variables, i.e. ACSI questionnaires are highly subjective. Customer satisfaction variables have firm roots in emotion, which clearly come into play when discussing impacts of customer satisfaction on profitability.

Future research directions proposed in the articles.

The research paper written by Rust and Zahorik clearly implores future researchers to build on their individual loyalty measures and utilize a mathematical framework for significantly larger sample sizes. It is their belief that customer satisfaction is an increasingly important part of the company’s market worth and that until managers can realize and understand tangible results, they will not invest in this area of service business.

Keiningham et al underlines the important negative relationship between customer satisfaction and profitability of the firm. However, the authors take care to not completely undermine customer satisfaction and admit that in the some cases and particular industries it is an essential component to the entire organization.

The qualitative study of Odunlami et al and the quantitative study of Angelova and Zekiri, both come to the same conclusion that profitability is greatly affected by customer satisfaction and that firms should strive to add value so as to increase customer satisfaction and subsequent customer retention.

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References

Angelova, B, and Zekiri, J 2011, ‘Measuring Customer Satisfaction with Service Quality Using American Customer Satisfaction Model (ACSI Model)’, International Journal of Academic Research in Business and Social Sciences, vol. 1, no. 3.

Keiningham, T, Gupta, S, Aksoy, L, Buoye, A 2014, ‘The High Price of Customer Satisfaction’, MITSloan Management Review.

Odunlami, IB, Olawepo, GT, and Emmanuel AT 2013, ‘Effect of Customer Satisfaction on Organizational Profitability, Using an Organization in the Food and Beverage Industry’, International Journal of Management Sciences, vol. 1, no. 5, pp 159-166.

Rust, R and Zahorik AL 1993, ‘Customer satisfaction, customer retention and market share’, Journal of Retailing, vol. 69, no. 2.