Linking Customer Satisfaction to Service Operations and Outcomes

Organizations have traditionally managed services by manipulating engineering and operational attributes and observing market outcomes. In recent years, customer satisfaction ratings have become an important component in this process. Hence, managers are keenly interested in the effect of service changes on customer satisfaction, customer behavior and revenues. This chapter develops a framework that describes the theoretical relationships among service operations, customer assessments and market outcomes. It also discusses the methodological and managerial issues that tend to arise during an investigation of these relationships. Then, three case studies are described: a model of aggregate customer complaint behavior, a model of perceived service quality and a model of customer satisfaction with a specific service encounter. They are used to illustrate how the effects of service changes can be examined by estimating statistical models based on company records and survey data. The advantages and disadvantages of different approaches are outlined. Linking Customer Satisfaction 1 Organizations have traditionally managed service delivery processes by manipulating "objective" features that are typically measured by engineering or operational records, such as the answer time of customer service representatives, repair clearing intervals, minutes of system down time, or noise metallic readings on telephone cables. These measures share one characteristic in common; they are calculated by machinery and staff situated within the organization. As such, they can be described as "internal" measures of the service delivery process. This nomenclature distinguishes them from "external" measures that originate from customers, such as satisfaction or complaint data, purchase transactions, sales volume and revenues. Initial customer satisfaction efforts by many service organizations tend to focus on tracking customer survey ratings over time or benchmarking them against competitors' ratings. Customer satisfaction ratings become -in effect -a goal in their own right. However, when organizations attempt to incorporate the "voice of the customer" into the service delivery process, they quickly discover a need for diagnostic information that predicts how service changes will affect customer satisfaction, revenues and profits. Customer satisfaction ratings become one element in a loop that links service operations and outcomes. (See Figure 1). Consequently, organizations become interested in the relationship between service operations -primarily characterized by internal measures -and market outcomes -primarily characterized by external measures. ------------Figure 1 here ------------Managers become interested in the relationships between internal and external measures because they would like to: (1) predict how service changes will affect customer satisfaction and (ultimately) revenues or profits (2) diagnose low customer ratings or (3) use customer ratings to evaluate the effectiveness of personnel and organizational units. For example, suppose a service organization surveys Linking Customer Satisfaction 2 customers and finds that perceived waiting time has an important influence on customer satisfaction ratings (e.g., Clemmer & Schneider, 1989). The manager of a customer service center is likely to ask the following kinds of questions: Will a decrease in average answer time (i.e., the average number of times the telephone rings before a representative answers) decrease average perceived waiting time? If not, what will be the impact of altering other features of the service delivery process, such as the speed of the computerized order entry system? How will these changes affect customer satisfaction ratings, costs and revenues? This chapter discusses how customer' assessments of services can be linked to service operations and outcomes. The first section develops a theoretical framework by addressing the following questions. 1. What are the key constructs that characterize customers' assessments of services? 2. What are the antecedents of customers' assessments of services? 3. How should key constructs, such as customer satisfaction and service quality, be measured? 4. What are the relationships among customer perceptions, customer dis/satisfaction, perceived service quality and value, customer purchase intentions and loyalty? 5. What are the linkages between service operations and customers' assessments of services? 6. What are the linkages between customers' assessments of services, purchase behavior and revenues? The second section discusses how this theoretical framework can be applied to practical problems. Three case studies are described: a model of aggregate customer complaint behavior, a model of perceived service quality and a model of customer satisfaction with a specific service encounter. These examples illustrate how the links among customer assessments of services, service operations and outcomes can be investigated by estimating the statistical relationships among internal and external measures. The strengths and weaknesses of different approaches are discussed. Theoretical Framework Conceptualization of Customers' Assessments of Services Linking Customer Satisfaction 3 Most research in services marketing has relied on two key constructs to characterize customers' assessments of services: customer satisfaction and perceived service quality. Research on customer satisfaction/dissatisfaction (CS/D) has focused on the customer's assessment of a specific transaction involving a product or service (Holbrook & Corfman, 1985; Olshavsky, 1985). In contrast, research on service quality has examined the customer's assessment of the overall excellence or superiority of a service (Zeithaml, 1988). However, CS/D and customer attitudes about services are intrinsically related. In a dynamic framework, the customer's satisfaction with a specific service encounter depends on pre-existing or contemporaneous attitudes about service quality (Anderson & Sullivan, 1992; Cronin & Taylor, 1992) and the customer's post-usage attitudes depend on satisfaction (Bitner, 1990; Bolton & Drew, 1992). These relationships have been explained by a variety of theories (Oliver, 1981; Inman & Dyer, 1992). Perceived service value and purchase intentions are useful constructs to link customers' assessments of services to their purchase behavior -and ultimately company revenues. Several studies find that consumer satisfaction is positively related to re-purchase intentions (e.g., Anderson & Sullivan, 1992; Bearden & Teel, 1983). Both Bitner's (1990) travel story experiment and Cronin and Taylor's (1992) survey research showed that service encounter satisfaction and perceived service quality are positively related to behavioral intentions. Bolton and Drew's (1992) study of small business customers indicated that perceived service value is positively related to behavioral intentions. LaBarbera and Mazursky's (1983) longitudinal study supports the role of satisfaction in influencing purchase intentions and behavior. Application Issues. Companies typically link customer assessments to service operations and outcomes through programs that track average customer ratings on key survey questions over time. In this context, the conceptualization of the above constructs -particularly the subtle distinction between CS/D and perceived service quality -can be useful (if somewhat confusing) to managers. For example, since CS/D focuses on a specific transaction, customer satisfaction measures tend to be sensitive to service Linking Customer Satisfaction 4 changes. Hence, if the goal of the program is to detect the effects of service improvements or failures in a timely fashion, managers should track customer satisfaction and its ingredients. (Managers have found control charts useful in tracking how company actions have impacted survey ratings.) In contrast, attitudes about service quality tend to change slowly over time (Bolton & Drew, 1991a). Hence, if the goal is to compare the performance of different organizational units -where employee compensation or incentives may be tied to changes in results -managers should probably track perceived service quality or a less volatile index. Antecedents of Customers' Assessments of Services CS/D is considered to be a function of disconfirmation arising from discrepancies between prior expectations and actual performance (Cardozo, 1965; Oliver, 1980; Olshavsky & Miller, 1972; Olson & Dover, 1976). Favorable disconfirmation (when performance exceeds expectations) can positively affect satisfaction. Expectations and perceptions of performance levels can affect CS/D directly, as well as indirectly via subjective disconfirmation (Tse & Wilton, 1988). Other antecedents of CS/D with products or services are customers' attributions about unexpected events (e.g., Folkes, 1984; Bitner, 1990), their perceptions about the fairness (i.e., equity) of the exchange process (e.g., Hupertz, Arenson & Evans, 1978; Oliver & DeSarbo, 1988; Oliver & Swan, 1989), mood or affect (e.g., Westbrook, 1987) and usage frequency and situation (Ram & Jung, 1991). Oliver (1989) argues that there are at least five different consumption modes that give rise to satisfaction. Different affect descriptions are appropriate for different modes, and different antecedents operate for different modes. The latter notion is consistent with studies that indicate that expectations, performance evaluations and subjective disconfirmation do not necessarily have independent, additive effects for every product and service (e.g., Churchill & Surprenant, 1982). For example, customer expectations about continuing services, such as public utilities, may be passive. Linking Customer Satisfaction 5 Parasuraman, Zeithaml & Berry (1985, 1988) conceptualized perceived service quality as a "gap," similar to disconfirmation, between expectations and perceptions of performance. In their fra