Thursday, February 13, 2014

A Basic Assumption of Customer Satisfaction Reconsidered

One of the basic assumptions that have been considered sacrosanct is high levels of customer satisfaction lead to increased market share.  Some recent research suggests that there this assumption may not be universally true.  The research was published in September, 2013 Journal of Marketing titled “Reexamining the Market Share-Customer Satisfaction Relationship”.  The authors are Lopo L. Rego, Neil A. Morgan and Claes Fornell.  The authors have found “a consistently significant negative market share – customer satisfaction relationship.”

Some points of interest made by the authors are: (i) Customer satisfaction is generally not predictive of a firm’s future market share, but (ii) Market share is a strong negative predictor of a firm’s future customer satisfaction.

The research suggests that as companies grow larger their customer satisfaction lessens.  Success generally leads from an aggressive “take care of the customer policy” to a bureaucratic, procedurally structured organization that establishes a policy to have the “highest level of customer satisfaction in the industry benchmark.”  While these might appear to be the same, one is “customer focused” and the other is “system focused”.    

From this perspective there is a paradox that appears; namely, high customer satisfaction may influence growth in market share but as companies grow and systematize their customer interface, satisfaction may decline and ultimately have little or no effect or impact on market share.

The bottom line is that size, bureaucracy, policies and procedures can take the energy out of a customer relationship.  As a company grows, it must be aware that the customer relationship can be diminished when the individual customer is not as important as the metric of customer satisfaction.


Wim Rampen said...

The results of the research sounded counter intuitive at first, but now I've chewed on it for a while I think it makes perfect sense. It is much harder to grow Customer Satisfaction when you are already a large company.. Large companies usually have many Customers and it is not that easy to satisfy all of them.

Smaller companies that are growing (fast) will have difficulty keeping up high satisfaction scores, for they are onboarding many new Customers, not only causing growth pains but at the same time introducing the above effect.

Maybe a follow-up research could establish whether it is possible to outgrow competition with (below) average industry sat-scores..

Thx for posting this though-provoking piece!

Wim Rampen

Haim Toeg said...

Overall this premise makes a lot of sense, and I am looking forward to reading the article once I can find a free version somewhere.

However, the point that the decline in customer satisfaction is exclusively due to "bureaucracy, policies and procedures". There are a few other variables at play that help the company cater to an increasingly larger segment of the market, the cost being satisfaction of individual customers. First and foremost is the need to support an increasing variety of customers, environments and requirements in order to grow. This adds complexity and slows the company down, but allows it to scale as opposed to becoming a bespoke product workshop.

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Barton Wilson said...

Customers in general have an impact on the business’ market share. And as I understand, the study shows that costumer service can only directly affect a company’s market share up to a certain point in its growth. Since that topic suggests a company’s capability to submit to their customer’s satisfaction, further accreditation of a higher standard should be acquired by companies who are in the verge of growing their firm, in order to maintain a good relationship with their customers, and attain a probable higher volume of market share. Anyway, thanks for sharing this information with us, Bill. Good day!

Barton Wilson @ Isa Registrar

Kent Gregory said...

Setting higher standards would definitely increase a company’s market share – given that it’s implemented correctly. And the transition would be smoother if the company is audited beforehand by trusted experts, so that proper adjustments could be made over time. Anyway, thanks for sharing your thoughts on the matter. Good day!

Kent Gregory @ ARMATURE Corporation


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