How can e-Business improve customer satisfaction?

Case Studies in
the Financial Service Industry

Introduction
Customer satisfaction is an important element of competitive quality. Firms strive to identify
customer requirements and develop strategies that allow them to meet or beat the service level
provided by their competitors [8]. Four decades ago, Levitt [24] stated that: “customer satisfaction is
the ultimate goal of every business.” With increased competition from new products and delivery
channels, Levitt’s observation becomes increasingly relevant.

Research shows that when customers are satisfied, they become loyal. Loyalty has been defined as:
“long-term commitment to repurchase involving both repeated investment and favorable
relationship” [7]. Loyal customers often develop an emotional attachment to a brand they are happy
with. Emotional affinity makes customers more willing to pay a higher price for their preferred
brand, making it relatively price inelastic [33]. Companies can use customer satisfaction and loyalty
programs as bases to help support the strategic profitability goal [35]. Having loyal customers
reduces operating costs as less needs to be spent on advertising and marketing, product/services
become much less price elastic, and the positive word-of-mouth by the existing customers brings
new potential customers.

Recognition of the importance of customer loyalty is leading to many changes in the organizational
practice of enterprises. Firstly, changes are made with regards to the provision and sharing of
information. Firms are making information more available to customers. In Fortune 1000 firms, by
1990, over 50 percent of the employees were directly involved with customers [23]. Secondly,
companies are involving customers more in decision-making processes, even giving them the
opportunity to provide their input also with regards to production and design. Thirdly, firms are
adapting to the changing customer needs and conditions. The focus now is not only on Return On
Investment (ROI) but also on customer awareness [39]. Finally, especially in the service sector,
customers are being viewed as important potential co-producers. Managers are placing an
increasing emphasis on listening to the customers and identifying them as the drivers of overall
satisfaction. In this new economy, businesses can no longer effectively compete on just product,
price, promotion, and distribution, but must also compete on product quality, product choice,
payment options, reaction speed, delivery policy, information services, and their will and ability to
adapt to special cases and differing customer demands. Old economy tactics are no longer sufficient
to keep current customers satisfied or to attract new ones [1]. Customer satisfaction is key to
business success and is linked to an organization’s market capitalization and profitability [31]. Today,
for many firms incorporating customer satisfaction has become a primary goal.

But how can improved customer satisfaction be achieved in our modernizing economy? Electronic
commerce (eBusiness) is the newest means of trying to improve business and making it more
customer oriented. Reaching the customer faster, at the right moment with the right information
seems to be the ‘magic’ of the 21st century. Customers want to shop in their homes, and sellers
need to provide them with opportunities to do so. Reaching customers through the Internet seems
to have become the way to maximize their satisfaction.
Integrating the supply chain using information technologies can result in many advantages. The
faster and smoother information flows from supplier to manufacturer and finally to the customer,
the better the flow of goods and services, the happier the customer, and the lower the cost. Quick
delivery of ordered goods or services will result in another satisfied customer. Sending an order
through Electronic Data Interchange (EDI)- directly from the customer to the manufacturer- will save
a lot of time and costs and reduce errors. For example, the ability to check one’s bank or insurance
balance on-line can save a trip to the bank.

But what are the advantages derived from improved information flows such as those described
above? The trade literature seems to imply that cost saving is the main advantage. But, might
improved customer satisfaction provide an equal or greater advantage with long-term implications
for corporate success? Many companies are implementing new eBusiness initiatives simply because
they think it is something they should be doing [13]. Some are hoping to improve customer
satisfaction and thereby to retain customers and attract new ones. But, many do not know what
customers want, or even whether eBusiness can improve customer satisfaction. This research aims
to answer such questions. In particular it aims to investigate whether the use of eBusiness to
optimize the information flow in business processes in the value chain, results in higher customer
satisfaction. Additionally, it aims at finding how eBusiness can affect customer satisfaction, what
aspects of eBusiness improve it, and what aspects detract from it. Knowledge of the
advantages/benefits of eBusiness, allows managers to decide which products, processes, or services
to provide electronically. Moreover, it allows them to design eBusiness services carefully so as to
minimize possible negative effects and maximize the positive ones.

In order to be able to find out whether customer satisfaction had been improved/detracted, some
indication criteria is required. The criteria variables or components of customer satisfaction have
been researched and found in the literature. Those were later grouped into ten categories and are
identified as the ‘elements of customer satisfaction’. The following section explains each element
and its impact on customer satisfaction. Additionally, it describes the effect eBusiness can have on
each of the elements and hence, on customer satisfaction. The subsequent section introduces the
research questions and presents the methodology used to investigate the elements. Next, the
results of two case studies used to investigate the determinants of customer satisfaction with
eBusiness are presented. Finally, conclusions are set forward and recommendations to managers
and other researchers are offered.

Elements of customer satisfaction and the effect of E-Business on

them
A review of the literature research identifies ten elements of customer satisfaction and the effect
eBusiness can have on them. This section identifies and explains the impact on customer satisfaction
of each element identified.

Customer Relationship
Building a good relationship with the customer is one of the key elements of customer satisfaction.
Research shows that empathy plays an important role when dealing with customers [33]. Addressing
the customer by his name, knowing what he purchased lately and offering new products to his taste,
makes him feel important and that the business has thought about him and his needs. Firms have
adopted numerous service-quality and relationship-building initiatives designed to give customers a
reason to do business with them [16]. Customer Relationship Management (CRM) is a business
strategy that is mainly based on IT and designed to optimize profitability, revenue, and customer
satisfaction by closely monitoring and improving relationships with the customer. Today’s CRM
strategies are a business model unto themselves, ensuring that companies focus on customers
[10][12].

Service & Support (customer service)

Studies investigating customer satisfaction of purchasing on the web often conclude that poor
customer service is the main reason customers decide not to purchase online. One initiator says:
“one of the great fallacies in selling on the Internet is that customers serve themselves” [37]. But
they don’t want to have any less service than they received in the real world. EBusiness sets higher
expectation for support: people expect a 24-hour (e-mail) response. Moreover, customers expect
the company to know what they did online, even if they just logged off a few minutes earlier.

eBusiness initiatives can have a great impact on customer satisfaction by improving planning and
collaborating between suppliers and customers ensuring a more responsive supply chain. In
addition, eBusiness can improve response to change; today’s systems provide the ability to convert
customer order immediately into manufacturing requirements. eBusiness can cut out the
middleman and get the supplier to deliver directly to the customers.

Value for money

Today’s customers face a large variety of products and brand choices, prices, and suppliers.
Consumers buy from the firm that they believe offers the highest value for money. They compare
the actual value they receive in consuming the product to the value expected, and this affects their
satisfaction and repurchase behavior [21]. Porter proposed the value chain as the main tool for
identifying ways to create more customer value. Under the value chain concept, a company should
examine its costs and performance in each value creating activity to look for improvements. One
way to make those improvements and reduce production costs is to shorten this value chain [21].
The use of B2B eBusiness can play a crucial role in shortening this chain. Many tools exist to improve
the product development cycle, to manage inventory and order to payment processes, and to
improve customer service. All of the above can contribute to creating a greater value for money to
the customer.

Speed
eBusiness can potentially have a significant effect on the speed of delivery of a service. With
eBusiness, processes become independent of time of day and geographical location. Integrated
systems offer an opportunity to reduce process time and optimize organizational decisions.
eBusiness can reduce internal and external coordination time and lower market transaction times. It
can also cut out unnecessary administrative steps resulting in faster communications and
timesavings. Shared information leads to tighter integration and improved coordination between
departments and firms [28].
Nevertheless, at times online customer service is incapable of handling all orders, something that
can have major drawbacks. [6]. For example, consumer investors are becoming dissatisfied with
content-based investments sites, as they find them too slow; hence, customer loyalty has been
decreasing steadily since the summer of 2000 [25]. Furthermore, 20 percent of online customers
have had unsatisfactory experiences such as late deliveries, billing errors, delayed refunds and
others [2]. However, eFulfilment products have the potential to eliminate these problems and
reduce the time from order to delivery [2].

Privacy & security

The elements privacy and security, as well as reliability and availability, which are addressed later,
are inter-related elements of customer satisfaction and potential dissatisfiers. If one of them does
not function properly, it may result in a dissatisfied customer despite proper functioning of the other
two. Security is an especially important dissatisfier as once an appropriate level of security is
reached, further improvements do not increase satisfaction. But, if security is ever breached, there
can be serious dissatisfaction [15].

Recent studies have shown that security is the primary concern of consumers keeping them away
from transacting business on the Internet [4]. The value of information systems and dependence on
them, make them increasingly attractive targets for those who wish to disrupt, destroy, steal,
defraud, misuse, or spy. Such attacks may be mounted by pranksters, criminals, competitors,
terrorists, hackers, or (most commonly of all) irritated employees [34]. Sixty percent of the Fortune
1,000 admit that they have fallen victim to hackers [11].

Reliability
A quality product or service must have an acceptable amount of reliability; that is: “the
product/service must perform its intended function over its intended life under normal
environmental and operating conditions”[14]. Most consumers are reluctant to buy digital goods
and services online because they do not have enough information to be confident with their
purchases. According to a Gomez study, one of the reasons that many customers purchase travel
‘offline’ is the unreliability of the on-line service when making a reservation. However, if a service
proves to be reliable, then customers will use it and be satisfied [27].

Availability
Availability of a product or service measures the extent to which a consumer can buy it when he
wants to. For financial services, lack of availability can be highly dissatisfying. During the “Black
Monday” stock market crash (October 19th, 1987), many of the most popular stock trading Web
sites and online financial information resources suffered ‘traffic-related meltdowns’ [30]. Many
customers with on-line accounts found themselves unable to trade and attributed much of their
financial loss to the unavailability of services.

EBusiness can have a positive impact on availability. With eBusiness, processes become independent
of time of day. Geographical differences also play a lesser role and eBusiness can assure 24x7
availability. The availability of on-line investment and brokerage services is especially important in
the financial industry. Stock brokers need to make decisions very quickly and implement their
decisions on the stock market immediately.

Access to Information
Access to information educates customers to help them make better decisions and assists
transactions through a network of retailers committed to delivering quality service and savings [5].
Practice shows that when implementing eBusiness in the financial area, customers will repay in
greater loyalty when they are given access to account information [19]. A tracking program can
enhance the customer’s experience by offering on-demand access to shipment information, as well
as updates about the estimated time of arrival and the last reported shipment location. Access to
information can also be a great advantage when dealing with suppliers as customers. Quick and easy
access to arrival time and shipping location is vitally important to those customers with just-in-time
practices and provides tighter inventory management [26].

Predictability
Predictability is one of many key performance indicators that are vital to achieving customer
satisfaction. When customers expect a delivery of a product on a certain date, and receive it later or
earlier than they expected, it creates dissatisfaction [29]. When price and performance are
consistent, expectations have an absorption effect on performance and satisfaction; when price and
performance are inconsistent, expectations have no effect on performance and satisfaction[36].

One major way in which eBusiness can improve predictability is by allowing customers access to
processes information to track the delivery of their product.. eBusiness can also impact ‘price
predictability’. At present, the vast majority of eBusiness service providers offer pricing parameters
based on the number of transactions exchanged or the value of those transactions. By structuring
fees on a flat basis, companies can provide customers a predictable price for their products and
services [9].

Quality of product/service
Quality of service or a product, is defined as designing, implementing, and continuously adapting
systematic activities to providing efficient, value-added outcomes that are important to a wide range
of customers [23]. In other words, the quality of a product (what can also be a service) that is
expected by the customer. A PIMS study that followed 2600 business units from 1972 to 1993 found
that the most important single factor affecting performance is the quality of products and services
relative to those of the competition [38]. Reportedly, dissatisfaction with the quality of service is
responsible for more than 70% of customers’ defections in the financial services [18].

eBusiness technologies can support design, production and customer support services to provide a
more accurate service or product. An integrated system can be used to control multiple business
processes better than separate decentralized systems, and can therefore provide a higher quality
product [32]. When a product or service is developed, a set of standards for quality planning and
control can also be developed. These standard tests can be then implemented using IT by setting
control variables. Those variables can be accurately tested using IT [32].
eBusiness applications sometimes overestimate customers’ computer ability [17]. Thus, when
designing a site, it is important to take into consideration the information the customers will need in
order to complete a transaction. The quality of service can increase as customers have the
opportunity to learn more about ‘how’ to use such services (e.g. gain usage skills about the internet)
and not only about the service they were initially interested in.

Summary
Table 1 below summarizes the advantages and disadvantages of eBusiness found in the
literature:

Customer The elements eBusiness advantages eBusiness disadvantages

satisfaction Customer CRM software can predict Some customers can complain
element relationship what to offer a customer and about impersonal relationship
thus strengthen the as it is only computer based
relationship
Service & On-line support can increase Customers may become
support efficiency and provide on-line frustrated if email response is
solutions slow and when there is lack of
personal attention
Value for eBusiness can eliminate many eBusiness can have large
money steps in processes and cut out infrastructure costs and can
the middleman, this can cause higher production costs
reduce costs and price, thus, and therefore reduce value
higher value for money
Speed eBusiness can speed up all For physical goods, eBusiness
information flows and is usually slower than going to
transactions a store. Due to network/server
failure, some customers can
complain of long response time.
Privacy & UserID/Passwords, Firewalls, Information is a very sensitive
security encryption, server form of data, giving access to
segregation, application this data can raise the security
controls, authentication issue. Customers may not trust
servers can all contribute to a the security of the digital
secure eBusiness initiative transmission or of the
information storage
Reliability A good satisfaction rate can If a service is not doing what
be achieved when a service is one expects and, for example,
provided and when systems transactions are not reliable, or
perform as they should. network/server failure,
customers will not use it.
Availability eBusiness can be very useful Due to network/server failure,
when service is available at all eBusiness can cause a great
times deal of dissatisfaction when
service is not available.
Access to eBusiness can be used to let Expectations can be too high.
information customers access their
accounts 24/7 People forget their passwords.

When systems go down, access

to information is minimized.
Predictability Customers can see their own Giving customers the possibly
accounts and transactions on- to know what to expect can be
line, can make sure they know good, but eBusiness can raise
what to expect customers’ expectations and
thus have a negative effect
Quality of eBusiness technologies can eBusiness applications
product/service support design, production sometimes overestimate
and customer support services customers’ computer ability. If
to provide faster and more customers are having
accurate service. difficulties, they would be
unsatisfied.
Table 1 – summary of pros and cons of eBusiness