Total Quality Management & Business Excellence

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Important drivers for customer satisfaction – from

product focus to image and service quality

Jacob Hallencreutz & Johan Parmler

To cite this article: Jacob Hallencreutz & Johan Parmler (2021) Important drivers for customer
satisfaction – from product focus to image and service quality, Total Quality Management &
Business Excellence, 32:5-6, 501-510, DOI: 10.1080/14783363.2019.1594756

To link to this article: https://doi.org/10.1080/14783363.2019.1594756

Published online: 21 Mar 2019.

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Total Quality Management, 2021
Vol. 32, No. 5, 501–510, https://doi.org/10.1080/14783363.2019.1594756

Important drivers for customer satisfaction – from product focus to

image and service quality
Jacob Hallencreutz* and Johan Parmler

EPSI Rating Group, Stockholm, Sweden

In today’s volatile market economies, economic and social benefits of the competition
must be evaluated from various financial and non-financial aspects. Among these
aspects, Customer satisfaction measurements are recognised as the non-financial
performance indicator that is the most widespread. A high level of customer
satisfaction is argued to lead to stronger company image, protection of current market
share, increased customer loyalty, decreased customer complaints and strengthened
financial performance. Thus, understanding the drivers behind how customer
satisfaction evolves over time is therefore crucial. This paper presents a longitudinal
quantitative study based on customer perception data from the Swedish market
research consultancy Svenskt Kvalitetsindex AB. A PLS-SEM analysis is performed
to unravel how important latent variables drive customer satisfaction over time. Study
findings indicate that it has been a paradigm shift during the last decade – product
quality is substituted by service quality as one of the most crucial drivers for
customer satisfaction throughout industries and societal sectors. The study findings
suggest a need for new principles, practices and tools to enhance internal customer
centricity and strengthen satisfaction and loyalty.
Keywords: customer perception; customer satisfaction; customer loyalty; image;
expectations; value; product quality; service quality

Introduction
We live in a world of uncertainty and rapid change. In today’s volatile market economies,
economic and social benefits of the competition must be evaluated from various financial
and non-financial aspects (Iveroth & Hallencreutz, 2015). As technology development is
fast, combined with increased globalisation and changing customer demands, firms need per-
formance measurements with the ability to capture past, present, as well as future performance
(Bititci, Garengo, Dörfler, & Nudurupati, 2012; Taticchi, Tonelli, & Cagnazzo, 2010). It has
long been argued that the increased importance of intangible assets in firms lead to challenges
when relying solely on financial performance measurements, as these do not adequately
capture the value of intangible non-financial assets such as brand awareness, customer satis-
faction and loyalty (Birch-Jensen, Gremyr, Hallencreutz, & Rönnbäck, 2018).
Questions about value creation for customers and other stakeholders have for long been
widely discussed in the quality management domain, se for instance Bergman and Klefsjö
(2012), Crosby (1979), Deming (1986, 1993), Eklöf and Westlund (2002), Feigenbaum
(1951), Foley (2005), Juran (1999) and Oakland (1999). Bergman and Klefsjö (2012) sum-
marise this discussion by stating that quality management should fundamentally be seen as
a constant endeavour to fulfil and preferably exceed, customer needs and expectations at the
lowest cost. Thus, it is fair to say that most quality theories state that customer satisfaction is

*Corresponding author. Email: jacob.hallencreutz@epsi-rating.com

© 2019 Informa UK Limited, trading as Taylor & Francis Group

502 J. Hallencreutz and J. Parmler

a core quality aspect and success factor in all industries and societal sectors and as such, it
needs to be understood, measured and managed.
Customer satisfaction measurements are also recognised as an important indicator for
future financial importance and is the non-financial performance indicator that is the
most widespread (Bititci et al., 2012; Eskildsen, Westlund, & Kristensen, 2003; Fornell,
Johnson, Anderson, Cha, & Bryant, 1996; Stern, 2006). A high level of customer satisfac-
tion is argued to lead to stronger company image, protection of current market share,
increased customer loyalty and decreased customer complaints. Further it is also argued
to have a positive effect on financial results (Fornell et al., 1996; Kristensen & Westlund,
2003; Eklöf, Hellström, Malova, Parmler, & Podkorytova, 2017, 2018). Thus, the under-
standing on how customer satisfaction evolves over time is crucial.
During the last years there has been an increasing use of customer satisfaction measure-
ments. This development is reinforced by trends such as globalisation, and servitization
(Arvidsson, 2011; Bititci et al., 2012; Birch-Jensen et al., 2018). It is also seen that these
evaluations have gained importance in terms of consumer orientation, innovativeness,
equality in income distribution, efficient use of resources in different societal sectors.
According to Eklöf et al. (2017, 2018) customer-based measures are useful as indicators
of companies’ future performance and should be incorporated even more into corporate
decision-making processes.
Trustworthy and manageable customer satisfaction measurements require robust
measurement systems and different concepts have evolved during the last decades.
Sweden was the first nation to establish a national index for customer satisfaction in 1989
(Fornell, 1992). Other nations which have developed national indices are Norway (Andreas-
sen & Lindestad, 1998), Denmark, (Martensen, Kristensen, & Gronholdt, 2000) and the US
with the American Customer Satisfaction Index (ACSI) (Fornell et al., 1996). The European
Performance Satisfaction Index (today known as the EPSI Rating initiative) was first initi-
alised in 1997 by the EC (European Commission) and the Pan-European quality organis-
ations EFQM (European Foundation for Quality Management), EOQ (European
Organization for Quality) and IFCF (International Foundation of Customer Focus) (Eklöf
& Westlund, 2002). The EPSI Rating initiative provided a system to collect, analyse and dis-
seminate information about image, preferences and perceived quality as well as satisfaction
and loyalty of customers, employees and other stakeholders to commercial entities, govern-
mental bodies and other organisations. Today, EPSI Rating Group is a renowned European
market research consultancy owned by the Swedish Institute for Quality (SIQ). The Group
conducts annually harmonised customer satisfaction surveys for several industries and
societal sectors in an increasing number of European countries.
In a volatile business environment, it is crucial to understand how customer perception
evolves over time and that is what this study aims to investigate and discuss. The study is
built on Swedish data from the above mentioned EPSI Rating Initiative covering the years
2005–2017. The analysis, using EPSIs measurement model, focuses on causal analysis
derived from structural model elaboration and thorough empirical studies to estimate
numerical relationships between latent variables (image, expectations, service and
product quality) and result variables (customer satisfaction and loyalty).

Methodology and data

Structural Equation Models (SEM) (Bollen, 1989; Kaplan, 2000) include a number of stat-
istical methodologies meant to estimate a network of causal relationships, defined accord-
ing to a theoretical model, linking two or more latent complex concepts, each measured
 Total Quality Management 503

through a number of observable indicators. The basic idea is that complexity inside a
system can be studied considering a causality network among latent concepts, called
Latent Variables (LV), each measured by several observed indicators usually defined as
Manifest Variables (MV).
The PLS (Partial Least Squares) approach to Structural Equation Models, also known as
PLS Path Modelling (PLS-PM) has been proposed as a component-based estimation procedure
different from the classical covariance-based LISREL-type approach. (Tenenhaus, 2008).
PLS Path Modelling aims to estimate the relationships among blocks of variables,
which are expression of unobservable constructs. Essentially, PLS-PM is made of a
system of interdependent equations based on simple and multiple regressions. Such a
system estimates the network of relations among the latent variables as well as the links
between the manifest variables and their own latent variables. The European Performance
Satisfaction Index (EPSI) developed such a model for analysing customer satisfaction from
an adaptation of the Swedish Customer Satisfaction Barometer (Fornell, 1992). In this
model, seven interrelated latent variables are introduced, see Figure 1, and is based on
well-established theories and approaches in customer behaviour.
The latent variables on the left-hand side are to be seen as drivers for explaining custo-
mer satisfaction and loyalty. Main causal relationships are indicated by the arrows. A set of
manifest variables is associated with each of the latent variables. This structure is the foun-
dation of the EPSI model. The entire model is important for determining the main result
variable, being customer satisfaction.
Image relates to the brand name and what kind of associations the customers get from the
product/brand/company.
Customer expectations relate to the prior anticipations of the said product in the eyes of the
customer. Such expectations are the result of active company/product promotion as well as
hearsay and prior experience from the product/provider.
The perceived quality concept includes two parts (“product” and “service”). With the “product”
component is meant the quality of the product as such (in the eyes of the customer), while
“service” relates to associated service like guarantees given, after sale service provision, avail-
ability, engagement, reception etc.
Perceived value concerns the “value-for-money” aspect as experienced by the customer. It is
here seen to be affected by perceived quality as well as by expectations.
Customer satisfaction is measured by three standard items, overall satisfaction, fulfilment of
expectations and how well do you think “your provider” compares with your ideal provider.

Figure 1. The EPSI model.

504 J. Hallencreutz and J. Parmler

Perceived loyalty relates to repurchase, word-of-mouth and recommendation.

When deploying the model, data collection is done mainly through computer assisted
telephone interviews (CATI) based on a structural questionnaire as outlined in Appen-
dix. Respondents are asked to rate all variables between 1 and 10. The model then
transforms the output to index values between 0 and 100. A customer satisfaction
score above 75 indicates a high level of satisfaction while a score below 60 indicates
customer dissatisfaction. Respondents may also leave open comments for further text
analysis.
In this study, focus lies on the network of the latent variables. Since the used data is a
combination of several industries and years the analysis will not pay any attention to the
measurement model or the specific manifest variables. Hence, the data is gathered on
latent level assuming they are known. Optionally, a full model estimation would have
been preferred but since the measurement model might differ between years and industry
this will be cumbersome. Appendix presents some general or common manifest variables
used in the majority of the EPSI studies.
The data used in this study is collected from the Swedish operation of EPSI Rating
Group known as Svenskt Kvalitetsindex; 4,69,825 customer interviews covering the
years 2005–2017 including values on all latent variables in the EPSI model have been
used in the model analysis. The model analysis covers the following broad-based industries
including both private and corporate customers (Figure 2):

1. Banking
2. Insurance (life and non-life)
3. Telco (mobile operators, broadband and Pay-tv).
4. Energy (trade, distribution and heating).

The analysis has been executed as follows:

Figure 2. Customer indices over time, based on in total 4,69,825 interviews.

 Total Quality Management 505

1. A gross compilation of the result variable ‘customer satisfaction’ is derived from the
interviews is presented for the studied period providing an index trend.
2. The data on latent-level is used to estimate the path in the network of latent variables
3. From the estimation the total effect between drivers and the result variable customer
satisfaction is calculated for each year following the steps:
a. Gather customer survey data on latent-level from selected industries.
b. Estimate the inner model and calculate the total effect and relative importance
on
i. Image to Customer satisfaction
ii. Product quality to Customer satisfaction
iii. Service quality to Customer satisfaction
iv. Perceived value to Customer satisfaction
c. Normalise each of the total impacts in step b. by making the sum of b.i to b.iv
equal to 1.
d. Step a. to c. is iterated over time.
4. The results are presented as relative impact scores. Hence, the relative impact from
the network of latent variables on the target variable, customer satisfaction, is calcu-
lated. Higher value indicates higher importance.

The figure below presents an estimated inner model for year 2007. The path coefficients
are used to calculate the total effect and relative importance by the steps above. This pro-
cedure is repeated for every year studied (Figure 3).

Results and findings

The chart below presents the general customer satisfaction trend between 2005 and 2017.
The data is a compilation of the studied industries (Figure 4).1
Following findings can be noted

Figure 3. PLS structural equation modelling to estimate the impact of latent variables.
506 J. Hallencreutz and J. Parmler

Figure 4. The general customer satisfaction trend derived from the studied data.

1. The overall customer satisfaction index had a positive trend between 2005 and 2010
for the studied industries.
2. The highest level of satisfaction is noted in 2010.
3. From 2010 the trend is negative with a slight recovery 2017.

The figure below presents the analysis of the relative importance of each of the latent
variables considering the impact on customer satisfaction. The following findings can be
noted (Figure 5):

1. The latent variable Image has in all years been the most important driver. The trend
in the recent years is slightly negative but still high in impact.
2. Product quality was stable until 2010 but the importance of this latent variable has
been reduced significantly since then.
3. Service has increased significantly over the last 10 years and is now one almost
equally important as image/brand.
4. The variable value for money has been low on the importance-scale but has increase
slightly over the last two years.

Discussion
Four major observations can be articulated and discussed based on the study findings:

1. Customer satisfaction in the measured Swedish industries has decreased since

2010. The root causes call for further research but based on discussions with
senior executives and research fellows it can be assumed that Swedish consumers
have become more conscious, critical and demanding during the last decade.
Trust in companies and institutions seems to have weakened since the financial
crisis 2009–2010. Questions about sustainability, social commitment, business
 Total Quality Management 507

Figure 5. The latent variables relative importance on customer satisfaction over time.

ethics and conduct today influence the choice of conscious customers more than
before. It can also be seen that customers’ purchasing behaviours change as social
media interaction and digital networking grows. The aspect of Loyalty (i.e. the
will to stay, buy more and recommend to others) is also changing and calls for a
redefinition. Consumers of today are ‘unfaithful’ – they may be satisfied with a
product or service delivery but try other options anyway. This implicates that a sat-
isfied customer not necessarily is loyal in a traditional sense. Ways to define and
enhance customer loyalty need to be further researched.
2. The importance of brand image is sustained. Since the latent variable ‘Image’
remains strong over time it can be concluded that intangible assets (such as brand
awareness, trust and reputation) do have a sustained impact on customers perception
– positively as well as negatively. Consumers are enlightened, conscious and purpo-
seful. Aspects such as social responsibility, sustainability, ethics and conduct are
critical and have been so for a long time. In a digital world, the average customer
is also strongly affected and influenced by (social) media newsfeeds about different
brands. Today, bad publicity may ruin a brand in seconds.
3. Product quality aspects have less impact on customer satisfaction. Perhaps the most
important and critical research finding from a practitioner’s viewpoint is the trend
showing the diminishing importance of product quality as a driver for customer sat-
isfaction. Instead, this latent variable is substituted by service quality covering
‘softer’ aspects such as customer relations, availability, engagement and reception.
This finding could perhaps serve as a ‘wake up call’ for many organisations, focus-
ing mainly on product characteristics and technology investments in the era of digi-
talisation, instead of servitization and customer relations. New products, gadgets,
508 J. Hallencreutz and J. Parmler

special features, cool apps, advanced internet interfaces or ‘things’ in general seem
to have a very volatile effect on customer satisfaction.
4. Service quality breeds customer satisfaction. As mentioned, the data reveals that the
variable ‘service quality’ has a greater impact on customer satisfaction than ‘product
quality’. The shift took place in 2012 and since then the gap has widened. Thus, it is
high time to focus on the customer end of the supply chain. Open comments about
service quality evolves around lack of ‘closeness’ and personal relations. Decoding
these open comments further tells us that being close to customers’ needs, being per-
sonal and local (geographically close) and being close to customers’ core values pro-
foundly drive customer satisfaction. Another fundamental and perhaps obvious
service quality aspect is also to proactively provide swift responses to shifting cus-
tomer needs, demands and expectations. Moreover, as technology streamlines many
services the elusive phenomenon of ‘being different’ also stand out as an important
customer satisfaction enhancer. Further research is needed to dig deeper into these
service quality dimensions.

In conclusion, this study strengthens the importance of understanding information not

only on customer satisfaction per se, but rather on how customer satisfaction drivers evolve
over time. This longitudinal quantitative study unravels a paradigm shift in the studied
industries during the last decade – product quality is substituted by service quality as
one of the most crucial drivers for customer satisfaction. This calls for a focus shift,
especially in a time of rapid change driven by globalisation and new technology. But a
focus shift from product deliveries to service deliveries holds new challenges. Services
from all societal sectors are soon available around the clock via digital platforms. They
are literally just a smartphone away. Never before have service providers had the potential
to be close to customers through new technology. Customer (big) data also provides oppor-
tunities to understand and meet different customer demands, needs and expectations with
customised services. But despite these conditions, many consumers still perceive ‘digitali-
sation’ as something complex and unreliable rather than available and simple. Therefore,
service providers have never been perceived as distant as today. The digital customer inter-
faces are available around the clock, but the sense of a personal relationship seems to be
lacking. This is a ‘digital paradox’; services come closer, but the gap to personal
(human) interfaces widens. All these findings call for new principles, practices and tools
to enhance internal customer centricity and strengthen satisfaction and loyalty in the era
of digitalisation. Technology is for sure an enabler and digitalisation is without a doubt a
brute force in all societal sectors. But it does not seem to sustain customer satisfaction
and loyalty.
Finally, more research is needed to extend these findings to a European context as
well as strengthening the understanding on how to deploy non-financial performance
measurements to provide reliable indications for future financial performance. A shift
towards a more balanced integrated approach recognising the increasing value deriving
from firms’ intangible assets such as brand image and customer perception seems to
be a way forward in times of change. The EPSI model may provide useful insights on
that way.

Disclosure statement
No potential conflict of interest was reported by the authors.
 Total Quality Management 509

Note
1. More information on different studies can be found at www.kvalitetsindex.se and www.epsi-
rating.com.

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Appendix.

Latent variables Manifest variables

Image (a) It can be trusted in what it says and does
(b) It is stable and firmly established
(c) It has a social contribution for the society
(d) It is concerned with customers
(e) It is innovative and forward looking
Customer (a) Expectations for the overall quality of ‘your mobile phone provider’ at
Expectations the moment you became customer of this provider
(b) Expectations for ‘your mobile phone provider’ to provide products
and services to meet your personal need
(c) How often did you expect that things could go wrong at ‘your mobile
phone provider’
Perceived Product (a) Overall perceived quality
Quality (b) Technical quality
(c) Range of services and products offered
(d) Reliability and accuracy of the products and services provided
Perceived Service (a) Customer service and personal advice offered
Quality (b) Quality of the services you use
(c) Clarity and transparency of information provided
Perceived Value (a) Given the quality of the products and services how would you rate the
fees and prices that you pay for them?
(b) Given the fees and prices that you pay, how would you rate the quality
of the products and services offered?
Customer Satisfaction (a) Overall satisfaction
(b) Fulfilment of expectations
(c) How well do you think ‘your provider’ compares with your ideal
provider?
Customer Loyalty (a) If you would need to choose a provider how likely is it that you would
choose ‘your provider’ again?
(b) How to you usually talk about your provider. In a negative or positive
way?
(c) If a friend or colleague asks you for advice, how likely is it that you
would recommend ‘your mobile phone provider’?