Defining and Measuring Customer Satisfaction Chapter 11 Defining and Measuring Customer Satisfaction

Chapter Objectives Define customer satisfaction and understand the benefits associated with satisfied customers. Appreciate various methods for measuring customer satisfaction and discuss the limitations of customer satisfaction measurements. Discuss factors to consider when investing in customer satisfaction improvements. Understand the many factors that influence customer expectations. ©2011 Cengage Learning. All rights reserved.

Opening Vignette: ratemyprofessor.com This website provides the means for students to rate their satisfaction with their professors. Contains over 10 million ratings of over 1 million instructors from 6,000 colleges and universities. www.ratemyprofessor.com ©2011 Cengage Learning. All rights reserved.

Recipe for Customer Service Disasters Skyrocketing inflation Price competition ensued (price wars) Labor shortages Automation Customers are tougher to please ©2011 Cengage Learning. All rights reserved.

Technical Assistance Research Program (TARP) The average business does not hear from 96% of its unhappy customers For every complaint received, 26 customers actually have the same problem The average person with a problem tells 9 or 10 people. 13 percent will tell more than 20 ©2011 Cengage Learning. All rights reserved.

Technical Assistance Research Program (TARP) Customers who have their complaints resolved tell an average of 5 people Complainers are more likely to do business with you again than non-complainers 54-70% if the complaint is resolved at all 95% if the complaint is resolved quickly ©2011 Cengage Learning. All rights reserved.

What is Customer Satisfaction / Dissatisfaction? Expectancy Disconfirmation Model Confirmation Negative Disconfirmation Positive Disconfirmation = Perceptions Expectations < Perceptions Expectations > Perceptions Expectations ©2011 Cengage Learning. All rights reserved.

Benefits of Customer Satisfaction Positive word-of-mouth Purchase more frequently Less likely to be lost to competitors Insulated from price competition Positive work environments ©2011 Cengage Learning. All rights reserved.

Figure 11.2: The Customer Service Hall of Fame % of Respondents who rated the Company’s Service as “Excellence” USAA (insurance provider) 56.5% 2. Trader Joes (food retailer) 50.6% 3. Netflix (movie retailer) 45.8% 4. Amazon (online retailer) 43.0% 5. Nordstrom (fashion retailer) 42.2% 6. Publix (food retailer) 41.5% 7. Whole Foods (food retailer) 40.5% 8. Apple (electronics retailer) 39.6% 9. Costco (general retailer) 37.9% 10. Southwest Airlines (air carrier) 36.7% Source: http://articles.moneycentral.msn.com/smartspending/consumeraction guide/10-companies-that-treat-you-right.aspx?slide-number=10 accessed 10 June, 2009. ©2011 Cengage Learning. All rights reserved.

Figure 11.3: The Customer Service Hall of Shame % of Respondents who rated the Company’s Service as “Poor” AOL (online service provider) 44.8% 2. Comcast (cable provider) 41.3% 3. Sprint Nextel (phone company) 40.5% 4. Capital One (financial service) 34.7% 5. Time Warner Cable (cable) 32.0% 6. HSBC (financial service) 31.8% 7. Qwest (phone company) 31.6% 8. Abercrombie & Fitch (retailer) 31.4% 9. Bank of America (financial) 28.5% 10. Citigroup (financial services) 28.4% Source: http://articles.moneycentral.msn.com/smartspending/consumeraction guide/the-customer-service-hall-of-shame-2009.aspx accessed 10 June, 2009. ©2011 Cengage Learning. All rights reserved.

Figure 11.4: Eight Key Attributes of Reputation Most Admired Companies Innovativeness Charles Schwab, Herman Miler 2. Quality of management General Electric, Omnicom Corp 3. Employee talent Goldman Sachs, Cisco Systems 4. Financial soundness Microsoft, Intel, Cisco Systems 5. Use of corp. assets Berkshire Hathaway, Cisco, GE 6. Long-term investment value Microsoft, Home Depot, Cisco 7. Social responsibility McDonald’s, DuPont, Herman Miler 8. Quality of product/services Omnicom Group, Philip Morris, UPS Source: Geoffrey Colvin, “America’s Most Admired Companies,” Fortune, 141, no. 4 (February 21, 2000), 110. ©2011 Cengage Learning. All rights reserved.

Benefits of Customer Satisfaction Surveys Provides a formal means of customer feedback Conveys a caring message to customers Used to evaluate employee performance Merit and compensation reviews Employee training programs Comparison against competition Provide information for advertising ©2011 Cengage Learning. All rights reserved.

Measuring Customer Satisfaction Indirect Measures sales records, profits, customer complaints Direct Measures The Scale of 100 Approach Federal Express’ original approach (score = 83) The “Very Dissatisfied/Very Satisfied” Approach The Combined Approach Benchmark ©2011 Cengage Learning. All rights reserved.

Figure 11.6: FedEx’s “Hierarchy of Horrors” wrong-day delivery right day, late delivery pick-up not made lost package customer misinformed by FedEx billing and paperwork mistakes employee performance failures damaged packages ©2011 Cengage Learning. All rights reserved.

Understanding Customer Satisfaction Ratings Virtually all self-reports of customer satisfaction possess a distribution in which a majority of the responses indicate that customers are satisfied and the distribution itself is negatively skewed. Customer satisfaction ratings are fairly high. ©2011 Cengage Learning. All rights reserved.

Conceptual Distribution of Satisfaction Measurements Figure 11.7: Conceptual Distribution of Satisfaction Measurements Conceptual Distribution of Satisfaction Measurements High dissatisfaction High satisfaction Source: Robert A. Peterson and William R. Wilson, “Measuring Customer Satisfaction: Fact and Artifact,” Journal of the Academy of Marketing Science 20,1 (1992), p. 61. ©2011 Cengage Learning. All rights reserved.

Figure 11.8: Sampling of Satisfaction Results Sample Percentage Satisfied HMO enrollees 92 Buick (GM) 88 Google 86 British Airways customers 85* Sears’ customers 84* Apple 84 FedEx Medical care Whirlpool 83 Shoes/students 83* Source: v* Robert A. Peterson and William R. Wilson, “Measuring Customer Satisfaction: Fact and Artifact,” Journal of the Academy of Marketing Science 20,1 (1992), p. 61. http://www.theacsi.org/ accessed 23 September, 2009. ©2011 Cengage Learning. All rights reserved.

Factors Influencing Customer Satisfaction Ratings Customers are genuinely satisfied Response bias Data collection method personal vs. non-personal Question form satisfied vs. dissatisfied ©2011 Cengage Learning. All rights reserved.

Figure 11.9: Responses By Question Form Response Category “Satisfied” “Dissatisfied” Very Satisfied 57.4% 53.4% Somewhat Satisfied 33.6% 28.7% Somewhat Dissatisfied 5.0% 8.5% Very Dissatisfied 4.0% 9.4% Source: Robert A. Peterson and William R. Wilson, “Measuring Customer Satisfaction: Fact and Artifact,” Journal of the Academy of Marketing Science 20,1 (1992), p. 65. ©2011 Cengage Learning. All rights reserved.

Factors Influencing Customer Satisfaction Ratings Context of the Question general question prior to specific question Timing of Question recent vs. past purchase Social Desirability Bias Mood ©2011 Cengage Learning. All rights reserved.

Customer Satisfaction: How Good is Good Enough? Should a firm invest $100,000 to attempt to improve ratings from 95% to 98%? Depends Upon: satisfaction ratings of other firms dollar investment needed relative to the impact on the bottom line by increasing market share number of time periods needed to recoup the investment opportunity costs associated with other uses of the firm’s funds ©2011 Cengage Learning. All rights reserved.

Criticisms of Customer Satisfaction Research Focus is on current needs only Focus on registered complaints Focus on global attributes Fails to involve employee viewpoints Customers may not know what they want ©2011 Cengage Learning. All rights reserved.

Types of Customer Expectations Predicted service Perceived service superiority Adequate service Probability expectation Minimum tolerable expectation Desired service Ideal expectation Perceived service adequacy ©2011 Cengage Learning. All rights reserved.

Figure 11.13: The Zone of Tolerance Expected service Desired service Zone of tolerance Adequate service Source: Valerie A. Zeithaml, Leonard L. Berry, and A. Parasuraman, “The Nature and Determinants of Customer Expectations of Service,” Journal of the Academy of Marketing Science 21,1 (1993), pp. 1-12. ©2011 Cengage Learning. All rights reserved.

Figure 11.14: Factors Influencing Expected Service Explicit service promises Advertising Personal selling Contracts Other communications Enduring service intensifiers Derived expectations Personal service philosophies Implicit service promises Tangibles Price Personal needs Expected service Transitory service intensifiers Emergencies Service problems Word-of-mouth Personal “Expert” (Consumer Reports, publicity, consultants, surrogates) Desired service Perceived service alternatives Zone of tolerance Past experience Self-perceived service role Adequate service Predicted service Situational factors Bad weather Catastrophe Random over- demand Perceived service Source: Adapted from Valerie A. Zeithaml, Leonard L. Berry, and A. Parasuraman, “The Nature and Determinants of Customer Expectations of Service,” Journal of the Academy of Marketing Science 21,1 (1993), pp. 1-12.

Copyright © 2011 Cengage Learning. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2011 Cengage Learning. ©2011 Cengage Learning. All rights reserved.