Best Practice for Customer Satisfaction in Manufacturing Firms

In recent years, changes in the business environment have made it harder for firms to maintain long-term sales growth and profitability levels. Global competition has increased dramatically. A larger selection of products and services is available to the same set of buyers, with little growth in overall markets. Thus satisfied customers are important to companies because, on average, approximately 70 percent of all sales derive from repeat purchases. Firms can no longer maintain volume or profits by seeking out new customers (an offensive strategy); they must adopt a defensive strategy that focuses on keeping current customers as loyal purchasers of the firm’s goods and/or services.1

At the same time, articles in the popular press and the U.S. government itself may be sensitizing consumers to the issue of customer satisfaction. Purportedly “unbiased” publications such as Consumer Reports widely publicize comparisons of performance and overall customer satisfaction for many different products and services. Automobile advertising routinely quotes customer satisfaction figures to sway purchase decisions. The U.S. government may also sensitize consumers to this issue; almost one-third of the points for the Malcolm Baldrige National Quality Award, administered by the National Institute of Standards and Technology, are based on customer satisfaction.

Whether or not customers are truly becoming more demanding, these changes have made companies focus strategically on delivering increased customer satisfaction. A growing body of evidence suggests that customer satisfaction is linked to improved firm performance, confirming the appropriateness of this strategy. An analysis of the Strategic Planning Institute’s profit impact of marketing strategies (PIMS) database finds that companies that rated themselves as delivering high levels of service quality dramatically outperform, in terms of reported profitability and market share, those firms that admit to delivering lower levels of service quality.2 Researchers have found strong positive relationships between customer-rated levels of overall customer satisfaction and ROI, economic returns, and market value.3

We undertook a small-sample field investigation to identify what constitutes customer satisfaction (CS) best practice in firms reputed to focus on CS as a primary corporate strategy. We wanted to understand:

  • Why best-practice firms decided to focus on CS.
  • How firms implemented CS.
  • What enables best-practice firms to focus on a CS strategy.
  • What the current CS best practices are.
  • What the emerging CS practices are.

Based on our study, we forecast which way CS best practices are likely to go.

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References

1. C. Fornell, “A National Customer Satisfaction Barometer: The Swedish Experience,” Journal of Marketing 56 (1992): 6–21.

2. R.D. Buzzell and B.T. Gale, The PIMS Principles (New York: Free Press, 1987).

3. E.W. Anderson, C. Fornell, and D.R. Lehman, “Economic Consequences of Providing Quality and Customer Satisfaction” (Cambridge, Massachusetts: Marketing Science Institute Working Paper # 93–112, 1993);

R.T. Rust, A.J. Zahorik, and T.L. Keiningham, “Return on Quality (ROQ): Making Service Quality Financially Accountable” (Cambridge, Massachusetts: Marketing Science Institute Technical Working Paper # 94–106, 1994); and

D.A. Aaker and R. Jacobson, “The Financial Information Content of Perceived Quality,” Journal of Marketing Research 31 (1994): 191–201.

4. Anderson et al. (1993); and

E.W. Anderson, C. Fornell, and D.R. Lehman, “Customer Satisfaction, Market Share, and Profitability: Findings from Sweden, Journal of Marketing, January 1994, pp. 178–192.

5. Fornell (1992);

A. Griffin and J.R. Hauser, “Voice of the Customer,” Marketing Science 12 (1993): 1–27; and

J.R. Hauser, D.I. Simester, and B. Wernerfelt, “Customer-Satisfaction Based Incentive Systems” (Cambridge, Massachusetts: MIT Sloan School of Management, International Center for Research on the Management of Technology Working Paper, 1993).

6. Companies identified in this article are not firms that were interviewed by the team. They are merely used as examples to support particular points.

7. The definitions of the differentiations between these two constructs are summarized from Anderson (1994), a conversation with Eugene Anderson, and the comments of an anonymous reviewer. Because the firms do not discriminate between these constructs, the term CS in this article refers to both.

8. Fornell (1992).

9. V.A. Zeithaml, L.L. Berry, and A. Parasuraman, “The Nature and Determinants of Customer Expectations of Service” (Cambridge, Massachusetts: Marketing Science Institute, Report # 91–113, 1991).

10. Fornell (1992).

11. Rust et al. (1994).

12. Since the turn of the century, process specialists have routinely split processes into subsidiary actions, where each subprocess can be performed independently. Theoretically, this led to management efficiencies due to economies of motion, task specialization, and increased control over the workforce. In reality, it led to less control over the outputs of the total process.

13. Hauser et al. (1993).

14. Anderson et al. (1993, 1994).

15. Rust et al. (1994).

16. E.H. Schein, Organizational Culture and Leadership (San Francisco: Jossey-Bass, 1985); and

R.M. Kanter, The Change Masters (New York: Simon & Schuster, 1983).

Acknowledgments

The authors wish to thank Arthur Andersen & Co. for financial support in gathering the data. Abbie Griffin also gratefully acknowledges support from the University of Chicago’s Graduate School of Business.