Understanding Customer Satisfaction

Customer satisfaction (CSat) is generally considered the most important

marketing metric.

Customer satisfaction is a fundamental concept in modern marketing. In many organizations,

customer satisfaction is considered the most important marketing metric, primarily because it

is considered a key driver of customer loyalty and bottom-line financial performance.

In most cases, customer satisfaction is more important to service firms (as opposed to

manufacturers). This is because service firms (which also include retailers) usually

have direct contact with the end customer, usually via sales people, service staff, call

center staff and so on.

Customer satisfaction is generally considered a less important issue in the manufacturing

sector as these types of firms typically sell their products through distribution channels

including retailers.

five important aspects of customer satisfaction are

a) How customer satisfaction is constructed (that is, the disconfirmation model of

customer satisfaction),

b) The benefits of customer satisfaction, and

c) Suitable tactics to improve customer satisfaction.

d) The limitations of customer satisfaction as an effective marketing metric,

e) How customer satisfaction can be measured, and

f) How customer satisfaction levels evolve over time.

To start the review of understanding customer satisfaction it is important to understand its

construction in the mind of the consumer. Please note the word “customer”, which clearly
indicates that the consumer has had at least one purchase encounter with the firm. And also

remember that customer satisfaction is in the mind of the consumer, it is their perception,

rather than reality.

Disconfirmation model of customer satisfaction

As can be seen, customer satisfaction is a derived outcome, where the customer compares the

value that they believe they received against the level of value that they expected to receive

prior to the purchase.

A nice easy way to think about this is by using a personal example. If you were expecting a

$100 gift for your birthday and you only received $50, you would be disappointed

(dissatisfied). But if you were only expecting $10 and received $50, you would be delighted

(highly satisfied). As you can see, in this example you received $50 in both instances, but it

was your initial level of expectation that heavily contributed to your level of satisfaction.
 Key Benefits of Customer Satisfaction in Marketing

Customer satisfaction is a fundamental concept addressed in all marketing textbooks and

many organizations consider it the most important marketing goal, because it should deliver

ongoing customer loyalty and resultant enhanced profitability. But there are actually many

more benefits of customer satisfaction, as shown and discussed in the following table:

1. Increased customer loyalty: Satisfied customers are more likely to stay with the firm for a

longer period, which can significantly increase sales revenue and profitability over time.

2. A strong competitive switching barrier: Existing customers will be less interested in

competitive offers.

3. Higher amount of average purchases: The firms will generally gain a greater share of

customers’ purchases in that product category. Typically satisfied customers will increase

their purchase quantity over time.

4. Increased word-of-mouth (WOM): Satisfied customers are more likely to recommend the

brand, product or firm to their family, friends, and social media connections.

5. Lower promotional expenditure is required: As a steady flow of new customers should be

generated from word-of-mouth referrals, reducing the need to generate new customers from

various promotional activities.

6. More stable sales revenues (cash flows): This occurs from the combination increased

customer loyalty, the competitive switching barrier and enhanced new product successes.

7. Increased opportunity for product/service recovery: Service recovery refers to a firm

(usually a service firm) being able to fix a problem/complaint for a customer in order to keep

the customer satisfied. This is more likely to happen as satisfied customers are more likely to

approach the firm for a solution.

8. Stronger staff-customer relationships: Many service firms pursue strong customer

relationships as a key part of their marketing strategy. Clearly relationships are stronger and

more productive when working with satisfied customers.

 9. Reduced price sensitivity: Satisfied customers value the overall experience and product of

the firm and are less concerned with price in their overall assessment.

Simple Model of Customer Satisfaction Benefits: As shown in the model, the key benefits of

customer satisfaction includes greater customer loyalty, reduced price sensitivity, enhanced

positive word-of-mouth and increased share of customer – which all adds up to increased long-

term profitability.

Simple Model of Customer Satisfaction Benefits

As can be seen, there are quite a number of strong reasons why customer satisfaction is often

actively pursued in a firm. Many of these reasons have a direct impact on the firm’s bottom-

line financial performance. In addition, many of these factors are interrelated and help

reinforce each other. For example, strong and positive word-of-mouth helps drive new

customers, which increases sales revenue streams and profitability. But strong and positive

word-of-mouth also enables the firm to reduce (or get more impact from) its overall
promotional budget, which in turn reduces marketing costs and helps deliver enhanced

profitability.

Introduction to the Disconfirmation Model of Consumer Satisfaction

Essentially customer satisfaction is the consumer’s evaluation of how well the firm (usually a

service firm) has lived up to its promises. As outlined in the general discussion of customer

satisfaction, consumers compare their initial expectations of likely value against their

perception of the actual value they received when they purchased or consumed the product or

service. Because consumers are comparing two aspects (prior expectations to actual

delivery), they are essentially confirming (or disconfirming) how well the organization has

delivered. In services marketing textbooks, this process is described as the Disconfirmation

Model of Customer Satisfaction.

 Customer Satisfaction is highly related to pre-purchase expectations.

Inputs to Expectations of Value: The customer’s expectations have been built over
time by a variety of inputs (as shown in the top left of the model), which are:

 The firm’s most recent communications (mainly advertising and

promotional deals),
 The firm’s brand image (which is the aggregate of its long-term
communication efforts),
 Word-of-mouth (WOM) communication from other people (possibly
also including salespeople),
 External media reports, online reviews and information, and
 The customer’s previous experiences with the firm.
The organization has significant control over the first two inputs (communications and brand

image) and, therefore, attempt to build strong, positive but realistic expectations of the firm

and its offerings to potential customers (that is, its target market). Their effectiveness in this

regard is impacted by the quality and consistency of their communications program, as well
as by their total level of promotional spend and their share-of-voice relative to their direct

competitors.

Customer Satisfaction (CSat) and Customer Value are Different Concepts in Marketing

Customer satisfaction and value are both fundamental concepts in the understanding of

marketing. It is important to note that while they are highly interrelated, they also operate

independently. Essentially, value is when a consumer perceives that they will get a good deal

from the company, brand, product or service. To put this in more marketing terms, the

consumer will see value when the benefits they expect to receive exceed the expected costs

and effort involved in acquiring the product. Therefore, as potential customers (that is, the

target market) will be attracted to the offering if they perceive that the benefits exceed the

cost (which equals value), the ability of a firm to be able to offer good value is paramount to

its success in generating ongoing new customers. This means that value is a pre-purchase

assessment of the product by the consumer. If a consumer perceives that the product brand or

service offers very little value based on their pre purchase assessment OR if they perceive

that it offers less value than a competitive offering, then the consumer will not buy that

particular item.

Customer satisfaction, on the other hand, occurs after the consumer has become a customer.

That means they have purchased the product or have had dealings with a service firm with.

Customer satisfaction is their assessment of how well that value was delivered – that is, did

they get the value that they expected to receive?

In terms of the buyer decision process, this customer satisfaction assessment occurs in the

post-purchase phase. Therefore, the difference between customer satisfaction and value is

that one is a pre-purchase assessment and the other is a post-purchase assessment; as shown

in the following model.

 Understanding the SERVQUAL Model

 SERVQUAL (or RATER) Model: Parasuraman, Valarie A. Zeithaml and Len Berry

invented the SERVQUAL model and published it in 1988. This model is also

referred to as the RATER model, which stands for the five service factors it measures,

namely: reliability, assurance, tangibles, empathy, and responsiveness. As is indicated

by the name of this model, SERVQUAL is a measure of service quality. Essentially it

is a form of structured market research that splits overall service into five areas or

components.

The SERVQUAL model features in many services marketing textbooks, usually when

discussing customer satisfaction and service quality. It was developed in the mid

1980’s by well-known academic researchers in the field of services marketing,

namely Zeithaml, Parasuraman and Berry. Note one of their original journal papers

has been uploaded by a university.

 Designed for Service Firms: The SERVQUAL model was initially designed for use

for service firms and retailers. In reality, while most organizations will provide some

form of customer service, it is really only service industries that are interested in

understanding and measuring service quality. Therefore, SERVQUAL takes a broader

perspective of service; far beyond simple customer service.

One of the drivers for the development of the SERVQUAL model was the unique

characteristics of services (as compared to physical products). These unique

characteristics, such as intangibility and heterogeneity, make it much harder for a firm

to objectively assess its quality level (as opposed to a manufacturer who can inspect

and test physical goods). The development of this model provided service firms and

retailers with a structured approach to assess the set of factors that influence

consumers’ perception of the firm’s overall service quality.

  Service Quality: What exactly is service quality and how do we measure it? This is

an extremely tricky question, and the SERVQUAL questionnaire can help us answer

it. Service quality, while being interrelated with customer satisfaction, is actually a

distinct concept. Service quality is the consumer’s assessment of overall delivery and

value of the firm, which the SERVQUAL model splits into five main categories as

discussed in the next section.

It is very difficult for firms to thrive, in a cut-throat business environment. One of the

ways of differentiating yourself is through your service quality. Service quality can

make or break any brand. Even if you have got the best product in the market, you

need to back it up with an excellent service. High-quality service helps in the success

of firms. Service quality is extremely important for firms that deliver services to their

clients. It can increase customer satisfaction levels as well as it can help the firms

achieve higher loyalty and profits (Minh et al., 2015). Service quality can be an

indicator of what is going right or what is going wrong with your organization

Service Quality= Perception of service- Expectation of service

Service quality is rendered as low, when perception of service is lower compared to

expectation and on contrary, service quality is rendered as high, when perception exceed the

expectations.

 SERVQUAL’s Five Dimensions: As later suggested by the original developers of

the SERVQUAL model, the easy way to recall the five dimensions are by using the

letters of RATER, as follows:

R = Reliability

A= Assurance

T = Tangibles

E = Empathy
R = Responsiveness

According to the original academic journal article:

 Tangibles is about physically visible aspects such as physical facilities

(cleanliness of washroom, waiting lounge and drinking water facility),

equipment, appearance of personnel, physical environment and

communication materials used.

 Reliability is the firm’s ability to perform the promised service accurately and

dependably. (The ability to execute the promised service accurately and in a

time bound manner.)

 Responsiveness is the firm’s willingness to help a customer and provide

prompt response to (customer issues) customer need. (Ability to respond to

customer queries and resolve their problems.)

 Assurance means knowledge and courtesy of employees and their ability to

gain trust and confidence of service seekers.

 Empathy means caring and individualized attention paid to customers by a

specific firm.

The five dimensions of SERVQUAL

 Example of SERVQUAL model in a hospital scenario

Dimensions Expectation Perception

Reliability

 Respond within time frame

 Reassuring when problem arise
 Dependable
 Service delivered at promised time
 Accurate records

Assurance

 Employees are trustworthy

   Customers feel safe in dealings
  Employees are polite
 Employees have support to do their job well

Tangibles

 Up to date equipment
 Visually appealing facilities
  Well-dressed employees
  Facilities consistent with the industry

Empathy

 Firms Provide individualized attention.

  Employees provide individualized attention.
  Employees understand customer needs.
 Employees have the best interests of the customer in
mind.
 Operate at convenient hours.

Responsiveness

 Inform customers when service occur

 Prompt service from employees
 Employees willing to help
 Employees respond to requests

Service Quality (SQ)= Perception of service (P)- Expectation of service (E)

Service quality is deemed low when perception of service is lower compared to expectation

and on contrary, service quality is high, when perception exceed the expectations. The model

of service quality identifies five gaps that may cause customers to experience poor service

quality.
This approach provides the service provider the basis for comparison of service quality levels

between the competing companies, the difference between expected and service quality of

each firm and the ability to drill down to the questionnaire to find out whether the specific

firm is performing below or above customers’ expectations.

 SERVQUAL’s 22 Questions: When the SERVQUAL model was originally

developed and researched it consisted of 22 questions under the five RATER

dimensions. Like any piece of academic research, there is always debate and

modifications over time of the appropriate factors/questions to use. Please keep in

mind that 97 factors were originally considered and only the ones that were helpful

(able to discriminate between firms) remained in the model.

Below is a table (and a diagram at the bottom) containing the 22 questions originally

used to construct the SERVQUAL model. There are several issues to note about the

structure of the SERVQUAL questionnaire:

 About half the questions are posed as a negative question (as highlighted in

the below table). This approach was used because it is a more appropriate

research design for developing and validating scales,

 The questionnaire was split into two components. The first asked what level of

service quality consumers expected from a firm in that service category (for

example, banking, credit cards, repairs and maintenance and telephone

companies) and then they asked the service quality of specific firms.
In the early stage of the development of SERVQUAL’s 22 questions, a much broader range

of questions and factors were considered. Some of the additional factors included

communication, courtesy, credibility, understanding customers, and access. Through the

research and validation process, it was determined that a smaller set of five dimensions was

more reliable as a research tool. As a result, a number of the above additional factors were

aggregated into the dimensions of assurance and empathy.

 SERVQUAL’s Two Parts of the Questionnaire: The SERVQUAL questionnaire is

split into two main sections:

i) Respondents are asked about their expectations of the ideal service firm in

that service category. In this case, the questions would be reworded to state a

particular industry, such as banking, or hotels, or education. There is no reference

to a specific firm at this stage; instead, respondents are asked about the ideal firm
 to deal with. This is done to frame expectations for that service category and to

establish a benchmark for comparison. By working through the RATER elements,

it can be seen that there would be significant differences in expectations across

service industries. For example, for banking firms, assurance would be important,

for medical firms, empathy would be important, and for hotels, tangibles would be

important.

ii) Respondents are then asked about the service quality delivered by specific

firms in that industry (Perception): This approach provides the researcher with:

 A comparison of perceived service quality levels between competing

firms,

 The difference between expected and delivered service quality for each

firm, and

 The ability to drill down to the 22 questions to determine where a specific

firm is performing above/below expectations or competitor quality levels.

 SERVQUAL Questionnaire:

Main Factor Dimensions / Question Area

Tangibles 1. Up-to-date equipment
2. Physical facilities are visually appealing
3. Employees are well-dressed/neat and professional
appearance
4. Appearance of the physical facilities is consistent with the
type of service industry
Reliability 1. The firm meets its promised time-frames for response
2. The firm is sympathetic and reassuring when the customer
has problems
3. They are dependable
4. They provide their services at the times promised
5. They keep accurate records
Responsivenes 1. They shouldn’t be expected to tell customers exactly when
s the service will be performed, negative
2. It is not reasonable to expect prompt service from
employees, negative
 3. Employees do not always have to be willing to help
customers, negative
4. It’s OK to be too busy to respond promptly to customer
requests, negative
Assurance 1. Employees should be trustworthy
2. Customers should feel safe when transacting with
employees
3. Employees should be polite
4. Employees should get adequate support from the firm to do
their job well
Empathy 1. Firms should not be expected to give each customer
individualized attention, negative
2. Employees should not be expected to give each customer
individualized attention, negative
3. It is unrealistic to expect employees to fully understand the
needs of the customer, negative
4. It is unreasonable to expect employees to have the best
interests of the customer at heart, negative
5. Firms should not necessarily have to operate at hours
convenient to all customers, negative

You will note that some of the above questions have been framed as negative points

(which have been indicated above as negative). This was part of the original research

design and was undertaken is to help develop a more robust scale, rather than

indicating consumer preferences. In each case (question), the firm would be generally

looking to improve all aspects of its service quality.

In particular, the SERVQUAL model is designed to help service firms identify areas

of service weakness in order to implement improvement strategies. Ideally, it also acts

as an early warning system, as the model can be used to track service quality over

time, providing long-term trends, performance benchmarks and the early

identification of deterioration in specific service areas.