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Customer satisfaction and business performance: A firm-level analysis

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DOI: 10.1108/08876041111107032

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 Customer satisfaction and business
performance: a firm-level analysis
Paul Williams and Earl Naumann
School of Business and Management, American University of Sharjah, Sharjah, United Arab Emirates

Abstract
Purpose – This study aims to examine the relationships between customer satisfaction and a variety of company performance metrics at the firm-level
of analysis.
Design /methodology/approach – The primary research method used in the study was a longitudinal analysis of series of quarterly surveys of
customer attitudes, in relation to various company performance metrics of one large Fortune 100 company. The data were collected over a five-year
period and were analyzed with several statistical tests of association.
Findings – It was found that there are significant, and moderate-to-strong associations between satisfaction levels and a firm’s financial and market
performance. More specifically, there are strong links between customer satisfaction, and retention, revenue, earnings per share, stock price, and
Tobin’s q.
Research implications/limitations – The main implication of this study is that the longitudinal findings demonstrate a strong consistent link
between customer attitudes and financial performance at the firm level. The study is clearly limited to one firm, from one industry sector, but offers
future researchers a wealth of replication opportunities.
Originality/value – Numerous experts have noted that marketing needs to document the financial impact of marketing activities. Unlike most studies
in this area, this study investigated these associations at the firm level, rather than at the aggregate or industry level where some relationships are
potentially masked. The study also investigated the links between satisfaction and financial performance in the business-to-business services sector,
rather than in business-to-customer services. Finally, the firm provided access to large samples of real customer attitude data over a five-year period,
rather than from a cross-sectional study.

Keywords Customer satisfaction, Customer loyalty, Financial performance, Stock markets, Stakeholders

Paper type Research paper

An executive summary for managers and executive marketing academics and practitioners could improve
readers can be found at the end of this article. marketing. Brown (2005, p. 1) suggested that, “marketing
scholars should position their contributions to business in
general.” Possibly, the best way to do this is to document the
Introduction impact of marketing actions on business and financial
Marketing academics have recently put more emphasis on performance (Webster, 2005). The Marketing Science
how various marketing activities and metrics affect the Institute also placed the measurement of the financial
bottom-line financial performance of the firm. This may impact of marketing as a top priority (Lehmann, 2004), and
include positive outcomes such as revenue growth, market Srivastava et al. (1998) suggested that marketers must learn to
share, or increases in stock price (Aksoy et al., 2008; speak the financial language of senior executives. This is
Anderson et al., 2004; Bernhardt et al., 2000). Unfortunately, exactly what we demonstrate in this paper.
most marketing researchers have tended to focus on studies Previous research has explored the link between customer
that measure attitudes, perceptions, and opinions of attitudes and business performance broadly (Anderson and
customers without necessarily linking these to actual Sullivan, 1993; Bernhardt et al., 2000; Kerin et al., 1990;
customer behaviors and subsequent financial outcomes Morgan and Rego, 2006; Reichheld and Teal, 1996;
(Webster, 2005). Reichheld and Sasser, 1990). The general consensus is that
In 2005, Bolton solicited essays from marketing scholars to higher customer satisfaction leads to higher levels of
address this issue (Bolton, 2005). The invited marketing repurchase intent, customer advocacy, and customer
scholars addressed the challenges, opportunities, and retention (Anderson and Sullivan, 1993; Bolton and Drew,
imperatives for improving marketing thought and practice. 1991; Lam et al., 2004; Mittal and Kamakura, 2001). In turn,
Specifically, Bolton asked the scholars for suggestions for how higher satisfaction and loyalty leads to improved revenue,
profitability, and cash flows (Ittner and Larcker, 1998;
The current issue and full text archive of this journal is available at Heskett et al., 1994; Reichheld and Teal, 1996). The net
www.emeraldinsight.com/0887-6045.htm effect is that these relationships then lead to positive outcomes
on the firm’s stock price and market valuation (Aksoy et al.,

Journal of Services Marketing

25/1 (2011) 20– 32 Received December 2008
q Emerald Group Publishing Limited [ISSN 0887-6045] Revised May 2009
[DOI 10.1108/08876041111107032] Accepted July 2009

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 Customer satisfaction and business performance Journal of Services Marketing
Paul Williams and Earl Naumann Volume 25 · Number 1 · 2011 · 20 –32

2008; Fornell et al., 2006; Gruca and Rego, 2005; Anderson 2001; Morwitz and Schmittlein, 1992). However, other
et al., 2004; Srivastava et al., 1998). researchers have questioned the use of repurchase intentions
Most of these studies have been conducted at the macro as a surrogate of actual customer behavior (Bendapudi and
level of analysis, using aggregate data from large databases Berry, 1997; Ganesh et al., 2000; Jones and Sasser, 1995).
such as the American Customer Satisfaction Index and They have noted that many customers with high satisfaction
published financial data from public databases from and/or repurchase intentions ultimately defect, and,
Compustat. While these types of studies make significant conversely, some customers with low satisfaction and
contributions and are excellent for theory development, repurchase intent often stay with a supplier. Both of these
senior executives typically want to see the financial benefits at outcomes are contrary to the satisfaction-repurchase
the firm level, specifically for their own company or division intentions main effect, suggesting complexity that
(Bernhardt et al., 2000). researchers should explore.
The firm that is the subject of this study is a large, Fortune Repurchase intentions have been conceptualized in a variety
100 firm that has several business units. The primary focus of of ways. Some have conceptualized repurchase as a single
this research is on B2B services, the largest unit in the firm in question, and some have conceptualized the repurchase
terms of customers and revenues. However, the firm also has construct as a combination of questions. The most common
manufacturing operations. A more complete description will conceptualization is a combination of repurchase intentions
be provided subsequently. This paper examined the and willingness to recommend (Chitturi et al., 2008). They
relationship between customer satisfaction, and other argue that repurchase intentions is an indicator of subsequent
attitudinal measures, with a variety of company performance repurchase behavior, while willingness to recommend is an
metrics at the firm level. Specifically, we investigated the effective indicator of the customer’s attitudes toward the
inter-relationships between: company. Therefore, the following hypotheses include the
.
customer attitudes (overall satisfaction, repurchase intent, following constructs: overall satisfaction, repurchase intent,
willingness to recommend); and willingness to recommend, and we expected these
.
financial performance measures (total revenue, revenue attitudinal measures to be strongly correlated with one
growth at the account level, net-operating profit, earnings- another. Based on this literature, the following hypotheses are
per-share); and proposed:
.
market performance measures (stock price, price-earnings H1. Customer satisfaction will be positively related to
ratio, Tobin’s q). actual customer retention, actual revenue per account,
Before discussing these issues in detail, it is necessary to and actual revenue growth per account at the firm
review the body of research that identifies expected level.
relationships and outcomes. H2. Customer satisfaction, repurchase intentions, and
willingness to recommend will be positively related to
each other at the firm level.
Theoretical background
Customer satisfaction and loyalty outcomes Customer satisfaction and financial performance
A large body of research has found a strong, positive The links between customer satisfaction and financial
relationship between customer satisfaction and repurchase performance have drawn some recent attention in the
intentions (Anderson and Sullivan, 1993; Bolton, 1998; academic literature. Srivastava et al. (1998) suggested that
Boulding et al., 1993; Mittal and Kamakura, 2001; Oliver, high customer satisfaction leads to an acceleration of cash
1980; Zeithaml et al., 1996). However, the relationship flows, an increase in the volume of cash flows, and a reduction
between satisfaction and actual loyalty behavior is less clear, in risk associated with those cash flows. Gruca and Rego
and confounding relationships occur between satisfaction, (2005) also found that increases in customer satisfaction lead
intentions and actual behavior (Rust et al., 1995; Ganesh et al., to increases in cash flow and a reduction in risk associated
2000). In the same regard, researchers have found that when with those cash flows. Others have also found a positive
examining the direct effects between satisfaction and loyalty relationship between customer satisfaction and overall
intentions, the two constructs do not always correlate revenues (Anderson and Sullivan, 1993; Kerin et al., 1990;
positively with financial performance (Loveman, 1998; Loveman, 1998; Reichheld and Teal, 1996; Reichheld and
Silvestro and Cross, 2000). There are a number of reasons Sasser, 1990).
for such lack of clarity and confusion. The increased revenues can be attributed to customers
The strength of the satisfaction – repurchase intention buying additional products and services from a supplier
relationship can vary by type of product purchased (Anderson and Sullivan, 1993; Bolton et al., 2000; Fornell,
(Chandon et al., 2005), nature of the relationship between 1992; Fornell et al., 2006; Reichheld and Sasser, 1990;
supplier and customer (Lemon et al., 2002; Reinartz and Seiders et al., 2005). The increased revenue could also be
Kumar, 2005), and supply chain strategies (Rust et al., 2004). attributed to a supplier receiving an increased share of wallet
Some have found that the satisfaction– repurchase intention from satisfied customers (Cooil et al., 2007; Keiningham and
relationship evolves over time (Mittal et al., 1999). While Perkins-Munn, 2003). Increased cash flow can be caused by
these studies have generally found a significant relationship less price sensitivity among satisfied customers who are willing
between satisfaction and repurchase intentions, a good deal of to pay more (Homburg et al., 2005; Reichheld and Sasser,
variation in this relationship remains unexplained. 1990). Additionally, increased revenue could come from the
Several studies have found that repurchase intentions can acquisition of additional customers. Profitability is also
predict actual loyalty behavior (Bolton, 1998; Bolton and affected as higher levels of retention and customer
Lemon, 1999; Kalwani and Silk, 1982; Mittal and Kamakura, satisfaction lead to higher future revenues (Rust and

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 Customer satisfaction and business performance Journal of Services Marketing
Paul Williams and Earl Naumann Volume 25 · Number 1 · 2011 · 20 –32

Zahorik, 1993; Rust et al., 1995) and reduced costs of (2008) found customer satisfaction was a valuable intangible
operations (Reichheld and Teal, 1996; Srivastava et al., 1998). asset that generated positive returns. They suggested that
The satisfaction-profit chain is another useful model to firms with higher levels of customer satisfaction and positive
better understand the expected relationship between changes in customer satisfaction will outperform other
satisfaction and financial performance (Heskett et al., 1994; companies in the stock market. Similarly, Gruca and Rego
Anderson and Mittal, 2000). The model argues that attribute (2005) and Srivastava et al. (1998) contend that increased
performance (e.g. service quality) leads to greater customer satisfaction leads to accelerations of cash flow, increased cash
satisfaction, which leads to higher levels of customer flow, less volatility of cash flows, and increased residual value
retention, which in turn leads to higher profits. Anderson of the business. They contend that this reduces the perceived
and Mittal (2000) further contend that while there are a risk associated with those cash flows, and, jointly, these
number of studies that have found a strong, positive increase stock price. Gruca and Rego (2005) have also found
relationship in this chain, it must be noted that the that customer satisfaction leads to significant cash flow
relationship is asymmetric and non-linear. For example, growth and reduces the risk associated with future cash flow,
Heskett et al. (1994) found that loyalty was far higher for thus reducing the cost of capital. Specifically, high satisfaction
“delighted” customers (those giving a top box rating) than for leads to more stable revenue flows with less uncertainty and
merely “satisfied” customers (those giving a second box less variation. The net impact is felt on the company market
rating). value and stock price.
At the aggregate level, there appears to be strong evidence Using a portfolio approach, Fornell et al. (2006) examined
that customer satisfaction is positively linked to loyalty, the relationship between the American Customer Satisfaction
revenue, and profitability. Logically, highly satisfied customers Index (ACSI) and the stock price of the included firms. They
will be more loyal and, hence, stay longer and spend more. found that firms with higher satisfaction levels on the ACSI
Over this longer customer life expectancy, customers will also outperformed the stock market as a whole over time.
increase their expenditures annually as highly satisfied Fornell et al. (2006) cited a significant body of literature that
customers should have a higher annual revenue and has found links between customer satisfaction and economic
profitability than less satisfied customers (Anderson et al., performance in general (Anderson et al., 1994, 2004; Bolton,
2004; Bernhardt et al., 2000). While this relationship between 1998), but they acknowledge that there is less knowledge
customer satisfaction and a variety of positive consequences about whether this economic performance translates into
are well documented, there is apparently little research that securities pricing and investment returns.
has empirically validated this link at the firm level. Rather than simply examining stock price, some have used
Related to revenue and net income, earnings per share the Tobin’s q statistic as a proxy for a firm’s value (Wolfe and
(EPS) is a commonly used financial performance metric. EPS Sauaia, 2003). A firm that creates a market value greater than
is simply the total profit divided by the weighted average the replacement cost of assets is viewed as a better value
number of common shares outstanding. Therefore, customer (Lewellen and Badrinath, 1997). Since it is based on the
satisfaction should also be positively correlated with changes current and expected future revenue streams, the Tobin’s q
in EPS. Based on this literature, we expect overall satisfaction statistic is more forward looking than just current stock price
to be positively related to total revenue, net income and (Anderson et al., 2004). Therefore, we will examine the
earnings per share, at the firm level: Tobin’s q statistic as well as stock price.
H3. Changes in customer satisfaction are positively related Another commonly used financial performance indicator of
to changes in total revenue at the firm level. a firm’s overall value is the P/E ratio. A P/E ratio is a measure
H4. Changes in customer satisfaction are positively related of the stock price relative to annual earnings per share.
to changes in net income at the firm level. Normally, annual earnings are calculated as earnings over the
H5. Changes in customer satisfaction are positively related previous 12-month period. However, P/E ratios can also be
to changes in earnings per share at the firm level. forward looking and be based on expected earnings. Stocks
with higher forecast growth and earnings will tend to have
higher P/E ratios. Since P/E ratios are based on actual and
Customer satisfaction and stock price expected earnings, changes in P/E ratios should be positively
The relationship between customer satisfaction and stock correlated with changes in customer satisfaction (Ittner and
price and other market value indicators have attracted some Larcker, 1998). Based on this literature, we have developed
research attention (Aksoy et al., 2008; Anderson et al., 2004; the following hypotheses:
Gruca and Rego, 2005; Srivastava et al., 1998). Two
H6. Changes in customer satisfaction are positively related
commonly used value indicators are the price earnings ratio
with changes in stock price at the firm level.
(P/E) and the Tobin’s q statistic. A Tobin’s q is the ratio of the
H7. Changes in customer satisfaction are positively related
market value of the firm’s assets to their replacement costs.
with changes in the Tobin’s q statistic at the firm level.
The main reasons for the positive relationship between
H8. Changes in customer satisfaction are positively related
satisfaction and value indicators are that higher customer
with changes in the P/E ratio at the firm level.
satisfaction tends to increase the benefits gained from
customer loyalty (customer retention, less complaints, more The goal of this article is to bridge the gap between marketing
cross-selling, revenue growth). This, in turn, leads to longer- scholarship and marketing practice. Specifically, a large body
term improved financial performance for the firm. Therefore, of research documents the positive consequences of high
it seems logical that these benefits will positively impact stock customer satisfaction at the aggregate and industry level of
prices and company valuation indicators. analysis. However, virtually none of this research addresses
Several studies have found that customer satisfaction and the firm-level effects of customer satisfaction. Specifically, we
market measures of the firm are positively related. Aksoy et al. will show how a Fortune 100 firm embraced improving

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 Customer satisfaction and business performance Journal of Services Marketing
Paul Williams and Earl Naumann Volume 25 · Number 1 · 2011 · 20 –32

customer satisfaction with the goal of making the industry, customer satisfaction was an important competitive
improvement financially worthwhile. This firm has applied tool. Based on a separate, blind competitive profile, the firm
virtually every cutting-edge issue in customer satisfaction, in our study had the second highest “top box” satisfaction
customer value management, customer relationship score and the second highest “top two” satisfaction score in
management, complaint handling, and customer loyalty to the industry. Therefore, the firm was near the top of this
ensure it continuously focused on the customer for future highly competitive industry.
success. This customer focus appears to have yielded tangible The specific timing of our study is important. The
financial results. longitudinal study presented here spans the 2001-2002
recession. While not as severe as the current recession, the
Methodology previous recession was significant. Our results show the value
of high satisfaction in a down economy. Specifically, the
The firm service unit described here outperformed the other business
The firm in this study is a Fortune 100 firm based in the USA. units within the company and other competitors during the
Like most large firms, it consists of a number of semi- last recession. Unfortunately, we could not extend our study
autonomous business units, all serving business-to-business through 2008. The executive who provided the data for our
(B2B) markets. The firm has both manufacturing and service study left the company, and we had access to data only
business units. Service business relationships were formalized through 2004.
by service contracts with customers. Service contract revenue
was the largest single revenue stream in the company. For the Research design
purpose of the satisfaction study described here, data were The present study used a longitudinal analysis to explore the
collected from one of the business units with approximately relationship between customer satisfaction and company
80,000 service contracts at any given time and generating performance, using a framework similar to Bernhardt et al.
about three billion dollars annually (approx 65 percent of (2000). In their study a longitudinal analysis of satisfaction
company total). This particular business unit was the largest and performance was conducted for a national chain of
within the firm in terms of operating revenue, and it was the fastfood restaurants over a 12-month period. A positive and
largest business unit in terms of the number of customers. significant relationship was found between customer
Under the leadership of the CEO, all units of the company satisfaction and company performance using their time-
shared a common commitment to satisfying customers. series data. It was hoped that the use of a longitudinal
Improving customer satisfaction was one of three key framework over multiple time frames would help us to gain
strategic goals for the company. There was a customer insights beyond those cross-sectional studies normally offer
satisfaction component in the Balanced Scorecard (Rust and Zahorik, 1993; Zeithaml et al., 1990).
performance evaluation of senior executives. Customer Zeithaml et al. (1990) argued that until satisfaction is
satisfaction was also a performance evaluation component examined from a long-term perspective, the real importance
for many managers throughout the corporation. We of customer satisfaction might not be fully appreciated.
acknowledge that we do not have data for all business units. Although cross-sectional studies are invaluable in
However, the data collected from the business unit studied demonstrating the general relationships between the
here are considered representative of other business units in variables, they can often mask the true relationship between
the firm, and are also reflective of the overall company as it the constructs in question due to a range of situational or
had a common commitment to improving customer environmental factors affecting the firm at a particular point
satisfaction across all business units. in time. Over time, the effects of these factors are mitigated to
Prior to 1997, each portion of the company had different some extent. In addition, the effects of a satisfaction
methods for determining customer satisfaction levels. There improvement campaign are not felt for some time as there is
were different data-gathering methodologies, different often a time-lag for the benefits of the initiatives to be realized
wording of questions, different measurement scales, and by the firm. Cross-sectional studies do not factor in these
different frequencies of administering surveys. Unfortunately, time-lags on the relationships between the main variables (van
this methodological divergence made it impossible to make der Weile et al., 2002). As such, longitudinal approaches that
performance comparisons across business units. A new involve satisfaction and financial performance data are needed
customer satisfaction director was hired to manage this to provide more managerial evidence at the firm level.
process. One of his first actions was to standardize the The analysis was conducted from the data collected from
customer satisfaction methodologies across the company, one business unit within the firm. It was collected each
requiring that each business unit migrate to a new, uniform quarter from telephone interviews with a random sample of
company-wide methodology. This standardization enabled customers. The customers were interviewed at the midpoint
comparisons of quarterly data for many of the business of their annual contract to allow time for service recovery
divisions in the firm, including the business unit in this study. when necessary. The ideal respondent was a key decision
The specific type of service was facilities management maker or a person with a major influence in vendor selection
services, the maintenance of large facilities. The major decisions, and was identified at the initiation of the contract.
companies in this industry include firms such as Siemens, The respondents were often the main point of contact
Honeywell, Trane, Carrier, York, etc. All of these firms between the customer organization and the service provider.
manufactured their own brands, but also maintained all These people were considered well-qualified to comment on
brands of equipment. The service contract business the satisfaction levels of the customer regarding the service
significantly exceeded manufacturing revenues. Hence, provider’s performance. The analysis was conducted over a
service contracts were sought after aggressively by all players five-year period with a range of items measured quarterly to
in the industry. Because of the competitive nature of the assess customer satisfaction levels. These metrics were then

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 Customer satisfaction and business performance Journal of Services Marketing
Paul Williams and Earl Naumann Volume 25 · Number 1 · 2011 · 20 –32

linked to a variety of customer behaviors and to actual categories. The top-two score is the most commonly used
financial data from the firm. metric for measuring satisfaction levels in a firm (Morgan
et al., 2005; Myers, 1999). In this study, the top-two
Analytical techniques satisfaction score was tracked over time, and the
Some of the analyses that were used were simple cross proportion of respondents in these categories were
tabulations. Overall satisfaction scores were examined with recorded for subsequent analysis.
respect to actual customer loyalty, total revenue at the .
Repurchase intentions. Customers were asked to rate their
account level, and revenue growth at the account level. The likelihood of contract renewal with the firm. We also
contract renewal rates for each level of satisfaction were measured the intended level of contract renewal on a five
calculated by examining which customers renewed their point scale of “definitely will – will – might or might not
service contracts. For example, each person that had – will not – definitely will not”. Five represented the
indicated that they were “very satisfied” on a customer highest score and one represented the lowest score. Again,
satisfaction survey was examined later to see if they had a top-two score was calculated for the proportion of
renewed their service contract. Retention rates were responses in the definitely will renew and will renew
calculated for each satisfaction level. Likewise, revenue per categories.
account was calculated for each satisfaction level. And .
Willingness to recommend. Customers were asked to rate
revenue growth was calculated by determining the their willingness to recommend the firm to others. We also
percentage change, year to year for each satisfaction level. measured willingness to recommend on a five-point scale
These analyses were conducted by examining a sample of of “definitely would – would – might or might not –
slightly over 3,000 customers who had completed a customer would not – definitely would not”. A top-two score was
satisfaction survey in the previous year. also calculated for the proportion of responses in the 4
For other data analysis, a number of longitudinal analyses and 5 categories.
were done. For the links between satisfaction, repurchase .
Revenue. Published overall operating revenue for the
intentions, and willingness to recommend, we conducted a company at the end of each quarter was sourced through
correlation analysis for the data collected in the same time Compustat. Account level total revenue was sourced
period – time period t. For the links between satisfaction and through internal company records. Account level revenue
financial performance and market performance, we correlated growth was also sourced through internal company
the satisfaction scores at time period t, with the financial and records.
market measures as at time period t þ 1. We lagged the .
Contract renewals. The account level retention rates were
financial data by one quarter since it takes some time for calculated from internal company records.
changes in customer satisfaction to be impacted at the firm .
Net income. Published net income (profit) available to
level of performance (Bernhardt et al., 2000). Similarly, since shareholders for the company at the end of each quarter
it may take time for changes in customer attitudes to be was sourced through Compustat and Annual Reports.
reflected in stock price, we lagged the market data by one . Earnings per share. Published earnings per share for the
quarter. We actually chose a one-quarter lag as that provided company at the end of each quarter were sourced through
the best fit for most analyses. We first experimented with the Compustat and Annual Reports.
same time periods, and then one, two, and three quarter lags. .
Price earnings ratio. Published price-earnings ratio for the
A one-quarter lag produced the strongest correlations. company at the end of each quarter were sourced through
Compustat
The measures .
Stock price. Published stock price for the company on the
A number of performance measures were collected over the last business day of each quarter was sourced through
five-year period, either from the quarterly survey data or from Compustat.
the published financial literature available in the company .
Tobin’s q. The Tobin’s q statistic is the ratio of the market
reports and Compustat. A number of single-item scales were value of the firm’s assets against the replacement value of
used for the customer attitudes questions because of the need those assets. It is widely used as a proxy for the firm’s
for the company to keep the questionnaire short and to value from an investor’s perspective and as a forward-
improve response rates. While the use of single-item rather looking measure of the firm’s economic performance
than multi-item scales can be criticized due to the obvious (Tobin, 1969). A Tobin’s q value greater than 1.0 is
compromise on construct validity, the simplified scales were generally considered a good investment opportunity (Lang
considered appropriate by the researchers because they were et al., 1989). A modified version of Tobin’s q was used for
consistently used over a long period of time, were easy to this analysis based on its use of a simplified balance sheet
understand, and were easy to utilize. This compromise has (Chung and Pruitt, 1994). It is difficult to accurately
been justified in similar studies (Bernhardt et al., 2000; calculate the market value of all assets, particularly by an
Peterson and Wilson, 1992), but should be addressed by outsider to the firm. Therefore, the use of the market
future researchers who wish to add more empiricism to the value of outstanding shares is commonly used as a
research. The measures used in the present study included: surrogate measure. Accordingly, the following formula
.
Customer satisfaction. Customers stated their degree of was used:
satisfaction on a five-point scale. The response categories
were “very satisfied-satisfied-neither satisfied nor Market value of outstanding shares þ long 2 term debt
:
dissatisfied-dissatisfied-very dissatisfied”, with 5 Book value of assets
representing very satisfied and 1 representing very
dissatisfied. A “top-two” score was calculated as the All of the attitudinal measurement scales used had five
proportion of responses in the satisfied and very satisfied response categories. Since the use of five point scales

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 Customer satisfaction and business performance Journal of Services Marketing
Paul Williams and Earl Naumann Volume 25 · Number 1 · 2011 · 20 –32

generates ordinal data and categorical data, the non- positive relationship between satisfaction and actual customer
parametric statistical analysis included the use of retention, actual revenue, and actual revenue growth is
frequencies, proportions and appropriate correlation supported. This finding supports those who contend that true
coefficients. The frequency of interest, top-two scores, was customer loyalty resides in top box and top two scores of
calculated by combining the top box and second box rating. customer satisfaction. H1 was supported.
The use of means and standard deviations was statistically
inappropriate. While many researchers violate statistical Customer satisfaction and other attitudinal measures
theory by computing means and standard deviations for We examined the relationship between customer satisfaction
categorical data, we chose not to do so. We aimed to limit our levels and both repurchase intentions and willingness to
analysis to insightful descriptive analysis, to enable future recommend. A description of the data is presented in Table II,
researchers to follow up on our observations. highlighting the relative top two (TT) scores for each of the
attitudinal measures and at the bottom of the table a
Results correlation analysis.
A correlation analysis was conducted between the TT
Descriptive statistics satisfaction scores, the TT repurchase intention scores, and
Prior to conducting the longitudinal analysis for the study, a TT willingness-to-recommend scores for the 19 quarters of
series of preliminary crosstab analyses were done in data. As noted earlier, the TT score is the most commonly
consultation with the firm. First, defection rates were used customer satisfaction metric in the industry (Morgan
calculated for each level of satisfaction from a sample of just et al., 2005). It was also the primary evaluative criteria for
over 3,000 customers who had participated in a customer customer satisfaction in this firm. Therefore, we used TT
satisfaction survey in the previous year. From company
internal records, we evaluated whether the account was still
active one year later. To be active, a contract had to have been Table II Correlation between satisfaction levels and loyalty intention
renewed. Second, the average revenue per customer, as metrics
indicated on the renewed contract, was calculated. The Customer Recommend Repurchase
contract revenue was broken out by the various satisfaction satisfaction intent intent
levels. Third, for all those customers who had renewed a Date n TT TT TT
contract, the new contract and previous contract were
compared to determine revenue growth at the account level. Q1 Y1 379 80.2 79.9 79.7
The average revenue growth per account was then calculated Q2 Y1 369 81.5 82.4 82.7
for each satisfaction level. The data for these analyses are Q3 Y1 350 82.3 83.0 77.9
presented in Table I. Q4 Y1 640 84.5 84.1 84.0
For this firm, customer retention rates were strongly related Q1 Y2 476 87.8 83.4 85.7
to satisfaction levels. Of the customers who had indicated that Q2 Y2 962 87.5 82.6 82.4
they were very satisfied on a previous survey, 94 percent had Q3 Y2 495 90.5 86.6 85.5
renewed their service contract. Of the satisfied customers, 86 Q4 Y2 655 88.2 84.5 81.1
percent had renewed their service contract. There was a Q1 Y3 534 91.4 84.7 85.5
dramatic drop in customer retention rates for each lower level Q2 Y3 994 80.5 75.0 80.5
of satisfaction. Just as with retention rates, revenue per Q3 Y3 706 85.9 77.2 83.2
account varied significantly across satisfaction levels. Those Q4 Y3 949 90.4 83.3 85.6
customers who were very satisfied had average contract Q1 Y4 686 90.2 84.4 84.5
revenue of $18,000, and satisfied customers had an average Q2 Y4 642 90.1 83.5 83.9
contact revenue of $14,000. There was again a substantial Q3 Y4 686 91.4 86.6 86.7
drop in revenue per account for each lower level of
Q4 Y4 635 91.9 88.3 87.9
satisfaction. Total revenue per account was also strongly
Q1 Y5 628 91.8 89.3 90.5
related to the relative satisfaction level. Finally, revenue
Q2 Y5 858 91.8 85.6 85.8
growth exhibited a similar pattern. Very satisfied customers
Q3 Y5 693 93.5 85.3 87.8
had a year-to-year increase of 16 percent in contract size,
Correlation SAT (TT) 0.74 * 0.82 *
while satisfied customers had an increase of 7 percent. The
lower satisfaction levels produced little or no revenue growth Note: *Significant at the p , 0:05 level
per account. Therefore, for H1, the results suggest that a

Table I Descriptive statistics on satisfaction, retention, and revenue

Customer retention (average) Revenue per customer (average) Revenue growth (average)
Satisfaction level (%) ($) (%)
Very satisfied 94 18,000 16
Satisfied 86 14,000 7
Neither 62 10,000 2
Dissatisfied 17 7,300 0
Very dissatisfied 3 7,200 0

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Paul Williams and Earl Naumann Volume 25 · Number 1 · 2011 · 20 –32

scores to see the relationship between satisfaction and the dimensions of financial performance at the aggregate industry
other global metrics. level (Anderson and Sullivan, 1993; Kerin et al., 1990;
There is clearly a strong, positive, and significant Loveman, 1998; Reichheld and Teal, 1996; Reichheld and
relationship between top-two satisfaction scores and the top- Sasser, 1990). This study adds to this body of literature by
two scores of the customers’ willingness to recommend the finding strong positive associations between satisfaction scores
company (correlation ¼ 0:74) as well as with the top-two and financial performance at the individual firm level.
scores for the customers’ intention to renew the contract However, as shown in Figure 1, there is clearly a seasonal
(correlation ¼ 0:82). H2 is thus supported that overall component to earnings per share. The winter has a depressing
satisfaction, repurchase intent, and willingness to effect on earnings, probably due to increased costs associated
recommend will be positively related to each other at the with cold weather.
firm level of analysis. This is consistent with a large amount of
literature that links satisfaction levels and customer loyalty Relationship between satisfaction and stock market
intentions (Anderson and Sullivan, 1993; Bolton and Drew, performance
1991; Lam et al., 2004; Mittal and Kamakura, 2001). While it To test H6, H7, and H8, a variety of analyses were conducted.
is acknowledged that the correlation analysis does not Specifically, we examined the relationship between changes in
demonstrate causal links between the variables, the satisfaction and changes in stock price, Tobin’s q, and P/E
consistently high correlation among these metrics over 19 ratio for the individual firm. The stock price was selected as
quarters is notable. Most studies that examine the linkages the daily high trading price for the last business day of each
among customer attitudes do so with cross sectional data quarter. The Tobin’s q statistic was calculated for each
gathered at a single point in time from the same respondents. quarter. The P/E ratios were taken from published financial
Our results confirm the cross sectional results by examining sources. The results are shown in Table IV.
the relationship longitudinally with independent samples. There is clearly a strong, positive, and significant
relationship between top-two satisfaction scores and the
Relationship between customer satisfaction and market performance of the firm. In particular, there was a
financial performance strong correlation between top-two satisfaction scores and
We next analyzed the customer satisfaction top-two scores stock price (0.78) and Tobin’s q (0.75). There is also a
with a number of financial performance measures in the firm. moderate to strong relationship between the satisfaction
Since the firm’s business performance is unlikely to change scores and the price-earnings ratio (0.43). All these
immediately with changes in customer attitudes, we allowed associations are significant at the p , 0:05 level of
for a time lag of one business quarter for the results to show significance. Therefore, H6, H7, and H8 are all supported.
(Bernhardt et al., 2000). The data for financial performance The strong relationship between customer satisfaction and
were for the quarter after the customer satisfaction scores. As stock price and other market value indicators supports a
stated previously, we actually experimented with various time number of studies into this area (Anderson et al., 2004; Gruca
lags, but found the strongest correlations with a one-quarter and Rego, 2005; Srivastava et al., 1998).
lag. In addition we wished to protect the identity of the firm Keeping in mind that the data in Table IV span the previous
under analysis, and we thus present relative growth rates to a recession, the results are revealing. The Dow Jones was off by
base year and quarter instead of the actual financials of the 12 percent during our study period. The firm in our study
company. The percentage changes indicate to magnitude of improved stock price by 103 percent, more than doubling in
change from the base year. For example, the top two customer value. Hence the firm’s stock price significantly outperformed
satisfaction score improved by 17 percentage points over the the market, even in a difficult economy.
19 quarters. Simultaneously, total revenue for the firm grew We also explored the relationship between satisfaction
56 percent, net income grew 183 percent, and earnings per growth rates and Tobin’s q a little further. We tracked the
share grew 101 percent. The summary of findings is presented Dow Jones Index over the same time period, to use as a
in Table III. control to see if the relationship between satisfaction and the
It can be seen that there is a strong, positive, and significant firm’s financial performance was distorted by general market
relationship between satisfaction scores and revenue at the movements. The low correlation between the firm’s stock
firm level (0.73). Therefore, H3, a positive relationship market performance and the Dow Jones average was non-
satisfaction and total revenue, is supported. There is also a significant. The firm’s satisfaction scores appear to be
moderate relationship between satisfaction and net income unrelated to movement of the Dow Jones average. The
(0.33). Thus, H4, a positive relationship between satisfaction firm’s customer satisfaction scores are strongly and positively
and earnings per share, is also supported, although the related to the firm’s stock price. It appears that the high
relationship is much weaker. The addition of costs to the customer satisfaction levels were a buffer against general
financial equation of profitability may explain the reason for economic influences affecting the market. A graphical
this. Costs fluctuate significantly year to year, and may illustration is shown in Figure 2.
confound the interpretation of this statistic. That said, There is one aspect of the graph in Figure 2 that should be
customer satisfaction is more likely to directly impact discussed. The 19 quarters of data used in this study span
revenue and sales, than costs. There is also a moderate to the 2001-2002 recession. This firm, like others in a
strong relationship between satisfaction and earnings per recessionary period, was under intense pressure to reduce
share (0.57). Thus, H5, a positive relationship between costs in order to maintain profitability. During Q1-Yr 3
satisfaction and earnings per share, is also supported. The (period 9 in the graph), the firm laid off over 5,000
information is presented graphically in Figure 1. technicians – the people who provide much of the service to
These results are consistent with a number of studies that customers. This slowed the response time to customer
have found a link between satisfaction levels and various requests significantly. This sudden change in service response

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 Customer satisfaction and business performance Journal of Services Marketing
Paul Williams and Earl Naumann Volume 25 · Number 1 · 2011 · 20 –32

Table III Correlation between satisfaction levels and financial performance

Customer satisfaction growth Revenue growth Net income growth Earnings per share growth
Date (%) (%) (%) (%)
Q1 Y1 0 0 0 0
Q2 Y1 2 1 211 2 11
Q3 Y1 3 1 125 11
Q4 Y1 5 3 20 3
Q1 Y2 9 7 0 21
Q2 Y2 9 9 39 36
Q3 Y2 13 8 102 42
Q4 Y2 10 12 22 19
Q1 Y3 14 11 17 12
Q2 Y3 0 22 80 73
Q3 Y3 7 21 103 88
Q4 Y3 13 20 44 38
Q1 Y4 12 27 35 29
Q2 Y4 12 38 95 87
Q3 Y4 14 39 134 115
Q4 Y4 15 48 70 106
Q1 Y5 14 53 63 47
Q2 Y5 14 57 130 107
Q3 Y5 17 56 183 101
Correlation (lag 1 quarter) 0.73 * 0.33 * 0.57 *
Notes: *Significant at the p , 0:05 level; all growth rates are presented relative to the base year – Q1Y1

Figure 1 Satisfaction and financial performance – growth (percent)

may have lead to the sharp drop in TT satisfaction scores. renewals. Both the average total revenue per account and the
The customer satisfaction scores did not recover for several average revenue growth rate per account increased as
quarters. satisfaction scores increased. All three of these benefits were
at the account level of analysis. At the firm level of analysis,
customer satisfaction was positively related to earnings per
Discussion
share, revenue, net income, stock price, Tobin’s q, and price
It appears that there are many benefits flowing from increased earnings ratios. Clearly, satisfaction levels are linked to a
customer satisfaction levels. Higher satisfaction scores lead to variety of financial and market performance metrics at the
higher levels of customer retention, in our study, contract firm level of analysis.

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Paul Williams and Earl Naumann Volume 25 · Number 1 · 2011 · 20 –32

Table IV Correlation between satisfaction levels and market performance

Customer satisfaction growth Stock price growth Tobin’s q growth P/earnings ratio growth Dow Jones Index growth
Date (%) (%) (%) (%) (%)
Q1 Y1 0 0 0 0 0
Q2 Y1 2 24 22 213 25
Q3 Y1 3 25 25 26 27
Q4 Y1 5 27 26 220 26
Q1 Y2 9 12 2 218 214
Q2 Y2 9 29 11 211 29
Q3 Y2 13 17 2 1 223
Q4 Y2 10 44 13 11 213
Q1 Y3 14 58 20 5 210
Q2 Y3 0 46 12 19 220
Q3 Y3 7 37 7 16 234
Q4 Y3 13 43 7 3 227
Q1 Y4 12 31 2 27 230
Q2 Y4 12 53 6 29 222
Q3 Y4 14 69 12 212 219
Q4 Y4 15 107 27 2 29
Q1 Y5 14 111 26 8 210
Q2 Y5 14 91 19 20 29
Q3 Y5 17 103 19 13 212
Correlation (lag 1 quarter) 0.78 * 0.75 * 0.43 * 0.01
Notes: *Significant at the p , 0:05 level; All growth rates are presented relative to the base year – Q1Y1

Figure 2 Satisfaction and market performance – growth (percent)

By examining data longitudinally over 19 quarters, we longitudinal analysis is essential to fully understanding the
demonstrated the stability in the relationship between impact of customer satisfaction levels. This is consistent with
customer satisfaction and company performance metrics the findings of Bernhardt et al. (2000).
over time, including periods of strong economic growth and The firm in this study had stressed the importance of being
periods of recession. This approach makes the findings more customer focused by having improved customer satisfaction
robust and reduces the possible variance that may occur in a as a strategic goal. All managers were evaluated, at least
cross-sectional study conducted at a single point in time. The partially, on customer satisfaction levels. This lead to a
strongest correlations were with satisfaction in one quarter comprehensive, organizational focus on improving satisfaction
and financial metrics a quarter later. This suggests that levels in all strategic business units of the firm. One of the key

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 Customer satisfaction and business performance Journal of Services Marketing
Paul Williams and Earl Naumann Volume 25 · Number 1 · 2011 · 20 –32

strategies to improve customer satisfaction was through company and we no longer had access to the customer data.
continuous process improvement. During the five-year time As an FYI, the firm did a 2:1 stock split, followed by another
period studied here, the firm began a Six Sigma process two years later, followed by a further increase. During the
improvement initiative which had two major goals. One goal 2008 recession, the stock price decreased 42 percent, about
was to improve customer satisfaction through improved the same as the stock market as a whole. However, if you had
service delivery. Individual questions on the satisfaction bought stock at the beginning of our study, the return through
survey were aligned with the processes that created each 2009 would have been about 80 percent.
performance metric. Thus, customer feedback was a key
driver of process improvement. This included all processes
that affected service delivery. Limitations and directions for future research
To illustrate, the firm used multivariate statistical
techniques to model the key drivers of customer This study has some limitations that must be considered. The
satisfaction. Based on beta weights in their structural firm studied here operated in a specific industry, B2B
models, quality of relationship, establishing and maintaining services. The business relationships tended to be rather long
fast, accurate two way communication, innovativeness of term. A similar study in a different industry where supplier-
products, account reps staying in touch, and performing work customer relationships are more independent transactions,
completely were among the “key drivers” of satisfaction. The might find different results. These results need to be validated
firm implemented specific customer relationship management in a variety of industries. We also examined the customer
efforts with certain key accounts. The account reps were satisfaction data for one very large business unit in the firm
evaluated on frequency of customer contact and the and contrasted this with the financial and market data for the
customer’s view of communication. The technicians were entire firm. We acknowledge that there are possible
evaluated on being able to resolve problems completely on a confounding effects and other significant influences possible
single visit. The engineers were evaluated on customer’s before any inferences can be drawn about the relationships
evaluation of their products. The service provider’s personnel highlighted in this study. Thus, the customer data and
were evaluated and rewarded on meeting the customer’s financial data were at two different levels, business unit and
expectations on the key drivers of satisfaction. Therefore, corporate.
significant efforts were made throughout the organization to While we contend that the business unit was representative
improve customer satisfaction. of the firm’s commitment to customer satisfaction, and it was
The second goal of the Six Sigma initiative was to reduce the most significant business unit in terms of customer
waste and costs of each process. By improving the efficiency numbers and revenue, the study is limited to descriptive
of internal processes, the firm simultaneously improved analysis only. Unfortunately, we did not have access to
customer satisfaction and reduced process costs. This customer data for the entire firm. We did know that the entire
reduction in cost probably also contributed to the organization shared a common commitment to improving
improvement of earnings per share and stock price. customer satisfaction due to the strategic goals of the firm.
Increasing customer satisfaction occurred while process That said, while the customer data was only partial for all
costs decreased. customers, we felt that it was representative. Indeed, the
Some have contended that achieving high customer strong correlations between customer satisfaction and various
satisfaction may have a high cost associated with it performance metrics seem to support our belief. We also
(Homburg et al., 2005). They suggest that a firm might contend however that our access to a range of confidential
want to focus on achieving high satisfaction among high-value attitudinal measures for the business unit is rare in marketing
customers and settle for lower satisfaction among less valuable
research. This approach makes a valuable contribution to the
customers. The results found here suggest that may be an
body of knowledge as the firm-level data reported was
inappropriate strategy. The increased longevity and increased
consistent over 19 quarterly time periods. There could be a
revenue from very satisfied customers suggests that very
number of other factors that influence financial performance
satisfied customers would tend to grow much faster into
such as competitive intensity in the industry, health of the
valuable accounts over time. Perhaps alternative strategies
could include converting neutral or dissatisfied into industry, supply chain issues, and cost structures in the firm.
“satisfied” ones, and converting “satisfied” customers into Controlling for these types of variables while examining
“very satisfied”. The likely impact on loyalty, financial satisfaction and financial performance might be useful. Our
performance and stock price is positive. study focused only on customer attitudes.
Brown (2005) and Webster (2005) and others have noted In conclusion, this study has laid the foundation for future
that marketing academics need to link customer metrics with researchers to explore these relationships using more
business and financial performance. By studying a single firm, experimental research designs. The strong associations
we have demonstrated how customer measures can be linked found over a five-year period appear to indicate that the
to financial performance in a number of ways. While variables studied here have significant and enduring
executives find aggregate industry studies interesting, relationships. We have demonstrated that customer
executives are most interested in determining the financial satisfaction results can be linked to the language of
impact of marketing in general, and customer satisfaction, in executives, financial performance metrics. The limitations of
particular. one study in one industry sector in one firm are
acknowledged, but adding a time-series analysis at the firm
Epilogue level, which verifies a significant amount of literature
We would have liked to have extended the analysis through conducted at the macro-level of analysis, should open many
the current recession. However, our key contact left the opportunities for future researchers.

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 Customer satisfaction and business performance Journal of Services Marketing
Paul Williams and Earl Naumann Volume 25 · Number 1 · 2011 · 20 –32

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examination of the service profit chain in retail banking”, satisfaction and business performance”, Managing Service
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Further reading
“Understanding firms’ customer satisfaction information
usage”, Journal of Marketing, Vol. 69 No. 3, pp. 131-51. Guay, W.R. (1999), “The sensitivity of CEO wealth to equity
Morwitz, V.G. and Schmittlein, D. (1992), “Using risk: an analysis of the magnitude and determinants”,
segmentation to improve sales forecasts based on Journal of Financial Economics, Vol. 53 No. 1, pp. 43-71.
purchase intent: which ‘intenders’ actually buy?”, Journal Lambert, M. (2000), “Issues in valuation”, Merrill Lynch
of Marketing, Vol. 29, November, pp. 391-405. Report, May 9, pp. 10-12.
Myers, J.H. (1999), Measuring Customer Satisfaction: Hot Zeithaml, V.A. (2000), “Service quality, profitability, and the
Buttons and Other Measurement Issues, AMA, Chicago, IL. economic worth of customers: what we know and what we
Oliver, R. (1980), “A cognitive model of the antecedence and need to learn”, Journal of the Academy of Marketing Science,
consequences of satisfaction decisions”, Journal of Vol. 28 No. 1, pp. 67-85.
Marketing Research, Vol. 17, September, pp. 46-9.
Peterson, R.A. and Wilson, W.R. (1992), “Measuring
About the authors
customer satisfaction: fact and artifact”, Journal of the
Academy of Marketing Science, Vol. 20 No. 1, pp. 61-71. Paul Williams holds a PhD in Marketing from the University
Reichheld, F.F. and Sasser, W.E. Jr (1990), “Zero defections: of Western Australia. He is currently an Associate Professor of
quality comes to services”, Harvard Business Review, Vol. 68, Marketing at the American University of Sharjah in the
September/October, pp. 105-11. United Arab Emirates. His main research interests lie in the
Reichheld, F.F. and Teal, T. (1996), The Loyalty Effect: The interrelationships between customer satisfaction, service
Hidden Force behind Growth, Profits, and Lasting Value, quality, customer loyalty and customer value in different
Harvard Business School Press, Boston, MA. services contexts. Paul Williams is the corresponding author
Reinartz, W. and Kumar, V. (2005), “The management of and can be contacted at: awilliams@aus.edu
customer loyalty”, Harvard Business Review, Vol. 80 No. 7, Earl Naumann received his PhD from Arizona State
pp. 86-95. University. He is currently Professor of Marketing at the
Rust, R.T. and Zahorik, A.J. (1993), “Customer satisfaction, American University of Sharjah. His research interests focus
customer retention and market share”, Journal of Retailing, on how organizations can improve customer satisfaction and
Vol. 69 No. 2, pp. 193-215. loyalty.
Rust, R.T., Lemon, K.N. and Zeithaml, V.A. (2004), “Return
on marketing: using customer equity to focus marketing Executive summary for managers and executives
strategy”, Journal of Marketing, Vol. 68 No. 1, pp. 109-27.
Rust, R.T., Zahorik, A.J. and Keiningham, T.L. (1995), This summary has been provided to allow managers and executives
“Return on quality (ROQ): making service quality a rapid appreciation of the content of the article. Those with a
financially accountable”, Journal of Marketing, Vol. 59, particular interest in the topic covered may then read the article in
April, pp. 58-70. toto to take advantage of the more comprehensive description of the
Seiders, V., Grewal, D. and Godfrey, A.L. (2005), research undertaken and its results to get the full benefit of the
“Do satisfied customers buy more? Examining moderating material present.
influences in a retailing context”, Journal of Marketing,
Vol. 69, October, pp. 26-43. There is a consensus that higher customer satisfaction leads to
Silvestro, R. and Cross, S. (2000), “Applying the service higher levels of repurchase intent, customer advocacy, and
profit chain in a retail environment”, International Journal of customer retention. In turn, higher satisfaction and loyalty
Service Industry Management, Vol. 11 No. 3, pp. 244-68. leads to improved revenue, profitability, and cash flows, the
Srivastava, R.K., Shervani, T.A. and Fahey, L. (1998), net effect being that these relationships then lead to positive
“Market-based assets and shareholder value: a framework outcomes on the firm’s stock price and market valuation.
for analysis”, Journal of Marketing, Vol. 62 No. 1, pp. 2-18. Most of these studies have been conducted at the macro
Tobin, J. (1969), “A general equilibrium approach to level of analysis, using aggregate data from large databases
monetary theory”, Journal of Money Credit and Banking, such as the American Customer Satisfaction Index and
Vol. 1 No. 1, pp. 15-29. published financial data from public databases. While these
van der Weile, T., Boselie, P. and Hesselinks, M. (2002), types of studies make significant contributions and are
“Empirical evidence for the relationship between customer excellent for theory development, senior executives typically

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 Customer satisfaction and business performance Journal of Services Marketing
Paul Williams and Earl Naumann Volume 25 · Number 1 · 2011 · 20 –32

want to see the financial benefits at the firm level, specifically significantly exceeded manufacturing revenues. Hence,
for their own company or division. service contracts were sought after aggressively by all players
In “Customer satisfaction and business performance: a in the industry. Due to the competitive nature of the industry,
firm-level analysis” Paul Williams and Earl Naumann studied customer satisfaction was an important competitive tool.
a large, Fortune 100 firm that has several business units. Based on a separate, blind competitive profile, the firm in the
Focusing primarily on B2B services, the largest unit in the study had the second highest “top box” satisfaction score and
firm in terms of customers and revenues, they examined the the second highest “top two” satisfaction score in the
relationship between customer satisfaction, and other industry. Therefore, the firm was near the top of this highly
attitudinal measures, with a variety of company performance competitive industry.
metrics at the firm level. Specifically, they investigated the The firm in this study had stressed the importance of being
inter-relationships between: customer focused by having improved customer satisfaction
.
Customer attitudes (overall satisfaction, repurchase as a strategic goal. All managers were evaluated, at least
intent, willingness to recommend). partially, on customer satisfaction levels. This led to a
.
Financial performance measures (total revenue, revenue comprehensive, organizational focus on improving satisfaction
growth at the account level, net-operating profit, earnings- levels in all strategic business units. One of the key strategies
per-share). to improve customer satisfaction was through continuous
.
Market performance measures (stock price, price-earnings process improvement. During the five-year time period
ratio, Tobin q.) (A Tobin’s q statistic is a ratio of the studied, the firm began a Six Sigma process improvement
market value of the firm’s assets to their replacement initiative that had two major goals. One was to improve
costs.) customer satisfaction through improved service delivery.
Under the leadership of the company’s CEO, all units shared Individual questions on the satisfaction survey were aligned
a common commitment to satisfying customers. Improving with the processes that created each performance metric.
customer satisfaction was one of three key strategic goals. Thus, customer feedback was a key driver of process
There was a customer satisfaction component in the Balanced improvement. This included all processes that affected
Scorecard performance evaluation of senior executives. service delivery.
Customer satisfaction was also a performance evaluation The second goal of the Six Sigma initiative was to reduce
component for many managers throughout the corporation. waste and costs of each process. By improving the efficiency
Before 1997, each portion of the company had different of internal processes, the firm simultaneously improved
methods for determining customer satisfaction levels. There customer satisfaction and reduced process costs. This
were different data gathering methodologies, different reduction in cost probably also contributed to the
wording of questions, different measurement scales, and improvement of earnings per share and stock price.
different frequencies of administering surveys. Unfortunately, Increasing customer satisfaction occurred while process
this methodological divergence made it impossible to make costs decreased.
performance comparisons across business units. Some have contended that achieving high customer
A customer satisfaction director was hired to manage this satisfaction may have a high cost associated with it. They
process. One of his first actions was to standardize the suggest that a firm might want to focus on achieving high
customer satisfaction methodologies across the company, satisfaction among high-value customers and settle for lower
requiring that each business unit migrate to a new, uniform satisfaction among less valuable customers. The results found
company-wide methodology. This standardization enabled here suggest that may be an inappropriate strategy. Perhaps
comparisons of quarterly data for many of the business alternative strategies could include converting neutral or
divisions in the firm. dissatisfied customers into “satisfied” ones, and converting
The specific type of service was facilities management “satisfied” customers into “very satisfied”. The likely impact
services, the maintenance of large facilities. The major on loyalty, financial performance and stock price is positive.
companies in this industry include firms such as Siemens,
Honeywell, Carrier, York, etc. All of these firms (A précis of the article “Customer satisfaction and business
manufactured their own brands, but also maintained all performance: a firm-level analysis”. Supplied by Marketing
brands of equipment. The service contract business Consultants for Emerald.)

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