Customer Satisfaction

The Concept and Relevance of Customer Satisfaction

Graphics courtesy of feedierOpens in new window If one wants to elucidate the phenomenon of customer retention, it is first necessary to come up with a clear, conceptual definition of the notion of satisfaction. In order to be able to retain customers, companies must be able to satisfy the needs and desires of their customers. The English word satisfaction stems from the Latin, from the words “satis” (enough) and “facere” (to make).

In light of these early findings, one can say that customer satisfaction is all about “doing enough for the customer” (Rust, Zahorik & Keinigham, 1996, p. 229). In its general use, the concept of satisfaction indicates psychological states such as well-being, happiness, and contentment.

To achieve a customer’s satisfaction, it is necessary to be aware of his expectations, and to be knowledgeable of what he likes and does not like. It is not uncommon for companies to hold the satisfaction of a customer to be self-evident, or for them to exactly know their level of satisfaction.

A low rate of complaint is very often rashly equated with customer satisfaction. However, this is frequently a misconception. Experience shows that only about four percent of all unsatisfied customers complain; the other 96 percent keep to themselves, deciding to switch companies (Wilson, 1991, p. 134).

Some impressive research results and empirical values, coming from various fields, concerning the economic affect of customer satisfaction, will be brought together in the following section. They show the importance, meaning and benefit of customer satisfaction for a company.

Examples from various fields:

• It is about 600 percent more expensive to get new customers than to keep the existing ones.

• With satisfied customers the chance is about 300 percent higher that they will stay, than it is in the case of unsatisfied customers.
• The chance that very satisfied customers will become the best form of advertising for a company is almost as high as 100 percent.
• 95 percent of annoyed customers will stay loyal, if the problem can be solved within five days.
• 75 percent of customers who switch to the competition do so because of being disturbed by poor service quality.
• 25 percent of customers who switch to the competition do so because of being bothered by inadequate goods or too high of a price.
• Over 30 percent of American service provider expenses originate in improvement expenditure.
• Over 30 percent of annual sales revenue is forgone due to the correction of errors by the average American company.
• Every percentage point of sustained customer satisfaction amounts to a 7.25 percent climb in the return on investment (ROI).
• If the customer rejection rate is reduced by five percent, thereby enhancing customer commitment, this amounts to a 28 – 85 percent increase in profit.

Customer Satisfaction Viewed According to a Theoretical Model

In its classical definition,

The Kano modelOpens in new window can be used in order to determine which product and service features are expected as part of the basic offering, and which features help to pleasantly surprise the customer, which increases customer satisfaction.

Objectively measurable customer satisfaction results, therefore, from an inner process of comparison between:

• The personal needs, wishes, and expectations of customers on the one hand (the ‘should’ factor) and;
• The perceived quality of products and services on the other hand (the ‘is’ factor).

From that the following relationship can be derived:

The ‘Should’ Factor (Level of Standard)

The should factor (also known as should service) is understood to be the sum of ideas and expectations with regard to a product or company service, (like for example, friendly and helpful salespeople, informed advice, reasonable price, high quality, a long guarantee period, etc.).

The should factor is influenced by the following factors (Rapp, 1995, pp. 31 – 32):

• Personal Needs
  The expectations regarding a company’s service are strongly influenced by the individual standards of varying customers (a customer who uses his PC for working at home has different standards than a customer who uses his PC for multimedia purposes).
• Extent of Experience
  All of a customer’s prior experiences create an important basis for their expectations concerning a company’s service (a customer who has worked a lot with different PCs has different expectations than a non-professional).
• Direct Communication Regarding the Company’s Service
  Direct communication by the company via public media or private communication is a decisive factor with regard to the customer’s expectations (a customer expects definite service features which have been promised in advertisements and by salespeople).
• Indirect Communication Regarding the Company’s Service
  Indirect communication includes word of mouthOpens in new window between friends and acquaintances, communicating concerning a spectrum of service via independent media.
  
  For example, consumer organizations which provide an independent product/service rating service, like the German consumer safety group known as Stiftung WarentestOpens in new window, or like Consumer ReportsOpens in new window in the Untied States), or communication stemming from the competition regarding the same or a comparable company service.

In the end, the actual experience of a product is evaluated on the basis of expectations. The should factor represents the standard of comparison for evaluating a product. The standard of comparison that a customer’s expectations are based on is not always the same. One can differentiate the following standards:

• Expected Performance
  That which the customer can expect based on prior experience. This standard of comparison is made up of experiences with the same or similar products (also with other brands).
• Desired Performance
  What the customer ideally imagines. The optimum standard of comparison is being used here.
• Minimum Tolerable Performance
  This is the minimum that a customer can expect.
• Adequate Performance
  What the customer sees as being reasonable, and which can be achieved according to reasonable means.
• Product Type Norms
  Normally present level of standard. According to this standard of comparison the normal or the typical is expected.

• Best Brand Norms
  The level of standards that are present with the best choices currently being offered.
• Comparison Level
  Experience with similar products, or knowledge of those that other consumers have received. Here the relationship between costs and benefits is decisive.

There is no general answer as to which standard of comparison a customer will apply. The complex structure and dynamic quality of people’s expectations make generalizations impossible.

As legendary economists John Kenneth Galbraith has said, ‘There is certainly no absolute standard of beauty. That precisely is what makes its pursuit so interesting.’ (Galbraith, 1967, p. 221). For this reason, the standard of comparison can take on various forms, according to each individual and according to each situation.

The ‘Is’ Factor (Perception)

The is factor (also known as is service) characterizes the actual, perceived experience of the customers in their use or consumption of the product. It is only with the help of this factor that the customers can establish whether their expectations have been fulfilled.

For the customer, the perceived service is of paramount importance. Here it is crucial to establish that the reality of the good or service which is being sold is not the only consideration; all services, features, and warranties which are bound up with it should also be encompassed.

In order to assess the firm’s ability to meet the is factor for its customers, there is a need to view the entire product and service experience through the eyes of the customer.

Homburg and Rudolp (1998, p. 41) differentiate between the objective and subjective service.

Therefore, as a result of a varying level of standards, an individually perceived product-service results. Only by appropriately orienting the business toward the satisfaction of the needs of the customers will a firm be able to understand what the majority of its customers’ desire.