The importance of customer satisfaction in service organisations

The aim of this essay is to explain the importance of customer satisfaction in service organisations. Clear meaning of the customer satisfaction has been provided along with the causes and results from the effective implementation. J. Heskett’s “service-profit chain” model has been used in order to understand the relationships between profitability of a service organisation with customer satisfaction and loyalty and the outcomes of this relationship. Examples has been illustrated based on the first five case study from Lovelock’s book “Services Marketing: A European Perspective” (See appendix 1). Furthermore the identification of methods and techniques of customer satisfaction measurement has been illustrated. Finally techniques and strategies for customer satisfaction improvement have been discussed.

More and more service organisations nowadays recognise that customer satisfaction is crucial for business success. Additional, understanding and anticipating what customers want and require for the future, has led service organisations scrutinising for possible service features and managerial factors that will enable them to stimulate a positive response and astonish their customers. However, a question has been raised of which service attributes and qualities are decisive for the satisfaction of the customer and which features merely prevent dissatisfaction (Matzler et al., 1996) .

Various model have been developed attempting to clarify the meaning of customer satisfaction, what causes it and what results from it. J. Heskett et al. has developed the service-profit chain (appendix 2), which establishes relationships between profitability, customer loyalty and employee satisfaction, loyalty and productivity . Moreover, Kano’s (1984) model of customer satisfaction (appendix 3) distinguishes between three types of product requirement, which influence customer satisfaction in different ways when met. Must-be requirements, one-dimensional requirements and attraction requirements (Matzler et al., 1996). Furthermore, in his journal “Customer satisfaction and the internal market: Marketing our customers to our employees”, Nigel F. Piercy re-examines the belief that customer satisfaction lies at the heart of all the endeavours of all organizations by analysing the internal and external customer satisfaction, internal and external quality of service and the relationship between internal and external markets (Piercy, 1995) .

Although the models, mentioned above, have been useful materials for understanding the concept and meaning of customer satisfaction, for the purpose of this essay more attention will be given on J. Heskett’s “service-profit chain” model, as little emphasis has been given to the service organizations by the other two models which have been concentrating more on customer satisfaction in relation to tangible products (i.e. Cars, PCs, etc.). However, there are companies that their core products are tangible such as “Sullivan’s Motor World” but at the same time there are services that support these products (supplementary services) such as after sales support and service and there is a need to be studied also, as they are part of the organisation’s overall process and will affect the customers’ opinion for the company.

As it can be seen in appendix 2 there are several links in the service profit chain that have to be carried out effectively in order to bring about in generating customer satisfaction. The factors that have to be considered in each link along with their results either positive or negative will cause either customer satisfaction or dissatisfaction. For example, beginning from the first link, the internal service quality, and referring to “Sullivan’s Motor World” case study, it can be realized that the lack of the appropriate workplace design in the service department along with the lack of new sophisticated computer systems made the service work process time consuming and hard in contributing to the overall image of the company. Scarcely customers are becoming satisfied if the working environment does not contribute the most to employee satisfaction.

For that reason, if Mrs Costa was not satisfied with her job, colleagues, working environment and the bank as a company, she would not handle Mr Mahaleel’s problem with such professionalism. Employees feeling enthusiastic about their job not only communicate this feeling both verbally and non-verbally, but are also eager to work hard towards satisfying their customers (Van Looy, 1998). The basic rationale of generating positive internal quality in services organisations depends on the overall management perspective which should guide decisions by managing the quality as an integral part of the whole organisation and developing and reinforcing its personnel to commit their selves to company’s goals and strategies.

The effective management of the internal service quality will in turn increase employee satisfaction and thus reducing employee turnover. “Estimates suggest that separation, replacement and training costs are 1.5 to 2.5 times annual salary for each person who quits (Solomon, 1988), which means that the departure of a middle manager usually costs an organization around $75,000 (Dalton et al., 1993)” . These figures, however, only begin to illustrate the value of retaining loyal employees. Long-tenured employees develop personal relationships with customers. “These relationships are the foundation for a reinforcing cycle of positive interactions between employees and customers (Reichheld, 1993; Reichheld and Sasser, 1990; Schlesinger and Heskett, 1991)” . Employees who perceive relationships with customers provide better service. Customers who receive better service express fewer complaints and thereby create fewer problems for employees. Employees in turn react more favourably to encounters with customers as they are satisfied and these reactions result in better service and low level of employee turnover, which again leads to higher customer satisfaction.

Employee satisfaction sequentially will mean that employee retention and loyalty accelerates with consequential benefits as far as service standards are concerned. Where employees remain in the organisation for several years, customers can experience continuity and at the same time the firm spends less on recruitment, selection, training and service familiarisation. In “Euro Disney: an American in Paris” case study there has been mentioned a problem of employee turnover and retention, which was not effectively handled and affected several problems to the company’s management. It is quite difficult for Euro Disney to expect from those employees who interact with the customers face-to-face to be retained and consequently be productive when they are not satisfied with their working conditions.

Something unmanageable can cause this kind of problem as the weather but employee’s needs and wants must be fulfilled as well, in order to be productive and for that reason the notion of employee as customer has been previously developed. For example, Berry (1981) states that whether managing customers or employees “the central purpose remains the same: the attraction of patronage through the satisfaction of needs and wants” (Rust et al.). In both cases individuals and organizations are involved in exchange. The nature of what is exchanged may vary, but the importance of satisfying needs and wants remains constant, meaning that the management of employees is often similar to the management of customers.

In turn, employee retention and loyalty will result to the outcome of efficient productivity by employees. Positions must be designed so that employees can perform several jobs if necessary. For example from “Benihana comes to London” case study can be understood that the effective scheduling programme along with the reservation system and the layout of the restaurant have helped outlet’s management to enhance productivity with the best way and at the same time to keep customers satisfied. The appropriate and integrated implementation of the links in the service profit chain mentioned above will result to the external service value for the customer meaning that all the functions must be operated in a manner that the overall service concept will give the ultimate image of the company.

Singapore Airlines can be considered as the company with one of the best-integrated service concepts that influence the ultimate image of the company to their customers. For example the contemporary airplanes updates, SIA employees’ philosophy and service culture with the appropriate training and recruitment as well as supportive tools and encouraging job design facilitate the company’s efforts in producing the most suitable external service value for its customers which will influence the feelings and attitudes of their customers towards its services either positive or negative. This will determine if our customer is either satisfied or dissatisfied.

So far, the factors that cause customer satisfaction in a service organisation have been examined with the illustration of a number of examples for a better understanding. Creating a satisfied customer by offering a superior external service value, the organisation can gain a number of benefits including customer loyalty, company’s profitability and growth.

It used to be thought that the differences in behaviour between customers who are “very satisfied” and the customers who are merely “satisfied” would be almost unnoticeable. In reality the differences are truly significant and if are not implemented with the write manner the implications for the organisation that is complacent would be catastrophic. The customer who is merely “satisfied” is between seven and ten times more likely to move to our competitors than a customer who is “very satisfied” (CIM study text, 2002). For that reason Xerox puts its effort to create the so-called “Apostles”, customers so satisfied that they convert the uninitiated to a product or service and avoid creating “Terrorists” customers so unhappy that they speak out against o poorly delivered service at every opportunity.

Terrorists can reach hundreds of potential customers and with the word of mouth even discourage them to try the service (Heskett et al.). It is the “very satisfied” customer who is genuinely loyal to the company and will repurchase the product. According to CIM study text if the organisation makes a mistake or delivers unusually poor service it is the “very satisfied” customer that will forgive the organisation arguing that the mistake or the poor service was an unfortunate aberration, which will soon be corrected.

Operating since the late 40s SIA has achieved to create loyal customers by stressing the importance of the company’s customer philosophy and service culture. The underlying principle that the customer comes first was carried out through at all levels of the organisation all these years. The endeavours of SIA to create loyal (lifetime) customers has led the organisation to achieve high profits as “the lifetime value of a loyal customer can be astronomical, especially when referrals added to the economic retention and repeat purchases of related products” . Naturally when an organisation achieves high profits through lifetime and satisfied customers, growth inevitably follows.

Having examined the service profit chain model it can be concluded that the corporate culture within the organisation will affect the production of superior external service that will lead the company to the maximisation of its profits through the customer satisfaction. However, a common concern has been developed the last decade of how the customer satisfaction can be measured. According to B. Van Looy et al. the level of customer satisfaction is the result of a customer’s comparison of expected service quality with perceived service quality. If the overall service quality meets customer’s expectation than the company has created a satisfied customer but also if the service quality exceeds the expectations, the service organisation has just created a delighted customer.

However measuring the service customer’s satisfaction levels is still one of the most subjective and difficult parts for management. According to Lovelock et al. a survey research instrument called SERVQUAL has been developed by Zeithaml and her colleagues based on the premise that customers can evaluate a firm’s service quality by comparing their perceptions of its service with their expectations. “Although SERVQUAL has been widely used by service organisations, doubts have been expressed with regard to both its conceptual foundation and methodological limitations” .

Furthermore there are some marketing research techniques that can be carried out in order for the company to measure the customer satisfaction. Focus groups can facilitate the company to acquire information on changes in customer tastes and requirements and reasons of using its services resulting to the fulfilment of these factors for the creation of a satisfied customer. Also focus groups attempt to uncover the underlying motivations behind consumers’ opinions, attitudes, perceptions and behaviour (Baines & Chansarkar, 2002) helping the service manager to identify the attribute and qualities that make the customer satisfied i.e. the perceived service quality.

On the other hand projective techniques and depth interviews might be costly and time consuming for the company resulting though to a more coherent connotations. Also service organisations that operate in an ever-changing environment can proceed to sophisticated quantitative methods such as observation and retail shop audit and to carry out continuous surveys monitoring the service customer’s satisfaction level. Conducted properly, customer satisfaction measurement can provide a wealth of information directly related to an organisation’s strategic plan. Improperly conducted, such measurement do little more than provide interesting but not very useful information.

In order for a service organisation’s managers to improve the customer satisfaction a number of techniques and strategies must be considered for further planning of maintaining and enhancing the customer satisfaction. As it has been discussed earlier there are a number of links in the service profit chain, which have to be implemented together effectively, in order to cause customer satisfaction. For that reason service organisations have to adapt a corporate service culture that will help all the links in the model work together effectively and in an integrated manner. A well-known and well-understood vision should be provided to employees explaining them what the organisation is trying to achieve. Employees should respect everyone’s contribution as well as the customer. Through an honest and open approach of the every day work, the contribution will arrive easier and the solution of the problems will be responded promptly. In order to keep employees in a certain manner the need of a successful, valuable and passionate leader is needed who will be open to suggestion, face direct the customer and understanding the front-line employees.

Furthermore initiatives must be encouraged especially for the front line employees when dealing with customers. This can be achieved by the appropriate recruitment, training and enhancement of relationships of employees. Moreover the dedication of a company to team work can be observed as another tool of improving customer satisfaction. “For example in SIA, the 6,600 crew members are divided into teams, with a team leader in charge of about 13 people who are rostered to fly together as much as possible” . Furthermore companies can make use of a mixture of financial and non-financial reward systems, usually linked to various performance measures but with the focus on customer satisfaction as the key goal.

However, all the above were strategies and techniques for the appropriate implementation of the links that cause customer satisfaction. Also it has to be mentioned some strategies that will increase customer satisfaction. Reward programmes for customers are frequently programmes regarded as being cheap promotional tools, short-term fads which give something for nothing (Van Looy, 1998). Also Van Looy identifies another strategy called: the learning-relationship strategy in which the company learn about the specific characteristics and requirements of individual customer and then capture these data for use as needed. This can be achieved with the today’s advanced technology and the building of database that enable organisations to customise their services.

Finally, management need to consider the importance of customer satisfaction in service organisations. Successful organisations, irrespective of nature or size, have one thing in common – the loyalty of their customers. Organisations that spend time, effort and money on anticipating and fulfilling customers’ needs and requirements will undoubtedly reap the benefits from loyal customers by enhancing customer satisfaction. However management should not put all its efforts in keeping customer satisfaction, as this will be generated by the overall service concept that the company provide to the customer. Certainly the customer has to be in employees’ mind all the time reminding them that they are there because there is a customer who is willing to pay.

Appendix 1

The five case studies that have been used for the illustration of examples in this essay.

1.”Benihana Comes To London – Module’s Handbook p.21

2.”Sullivan’s Motor World” – Lovelock et al., Services Marketing: a European Perspective, p. 98-102

3.”Euro Disney: an American in Paris” – Lovelock et al., Services Marketing: a European Perspective, p.103-118

4.”Mr Mahaleel Goes To London” – Lovelock et al., Services Marketing: a European Perspective, p255-256

5.Singapore Airlines – Lovelock et al., Services Marketing: a European Perspective, p. 257-268

Appendix 2

Appendix 3

Kano’s Model of Customer Satisfaction

Source: Matzler et al., How to delight your customer, Journal Of Product & Brand Management Vol.5, No. 2, 1996

REFERENCES

1.C. Lovelock et al., Services Marketing: A European Perspective, 1999, Prentice Hall.

2.B. Van Looy et al., Services Management: An Integrated Approach, 1998, Pitman Publishing.

3.CIM Study Text, The Marketing Customer Interface, 4th Edition, 2002, BPP Publishing.

4.P. Baines & B. Chansarkar, Introducing Marketing Research, 2002, Willey.

5.Heskett et al., Putting the service-profit chain to work, Harvard Business Review, March-April 1994.

6.Matzler et al., How to delight your customer, Journal Of Product & Brand Management Vol.5, No. 2, 1996.

7.N. F. Piercy, Customer Satisfaction and the internal market: Marketing our customers to our employees, Journal of Marketing Practice: Applied Marketing Science; Volume 1 No. 1; 1995.

8.”The satisfaction and retention of front line employees”, R. T. Rust, G. L. Stewart, H. Miller, D. Pielack, International Journal of Service Industry Management, 1996.

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