What Really Makes Customers Happy?

Which is more important to customers: delivering the right product or service, or eliminating problems in that product or service?

According to a working paper titled “The Impact of Reliability and Customizability on Customer Satisfaction for Goods Versus Services,” the answer depends on what the customer is buying. The authors, Michael D. Johnson of the University of Michigan's School of Business Administration and Lars Nilsson, a Ph.D. candidate at Linköping University in Sweden, discovered that although customer satisfaction depends on both meeting customers' needs and doing so in a trouble-free way, the relative importance of customization and reliability changes dramatically depending on whether the company is delivering goods or services.

For service businesses, especially, it turns out that reliability (eliminating “things gone wrong”) is more important than customization (fitting customer needs perfectly). That seems to challenge the conventional wisdom that a service company's ability to customize its service to individuals is a primary driver of value, and it's a strong indicator that service businesses shouldn't abandon initiatives to improve internal processes as they strive to meet customer needs.

Johnson and Nilsson studied five years of data (1994 through 1998) on 188 companies from the American Customer Satisfaction Index. They segmented companies into four groupings: those that deliver pure goods, core goods with services, core services with goods, and pure services. Reliability seemed least important in the pure-goods category, which is dominated by consumer nondurables. That may be partly because many defects have previously been taken out of core products, so reliability is already quite high. Given such high-quality standards, manufacturers may be able to shift investment away from continued incremental improvements in product reliability.

That may not hold true in the service sector. “The problem is that services are fundamentally different,” says Johnson. “The service ‘factory’ is just an operations nightmare, if you think about all the things that can go wrong.” That could include employees not showing up or a customer arriving in a bad mood. “You can't get Six Sigma performance in a service operation.” For service companies, quality and reliability require an ongoing effort.

That's not to say that service businesses can afford to forget their customers. Rather, the goal is to find a balance between reliability and customization. “While it's true that the greater variability in services may make reliability more important,” comments Roland T. Rust, a professor of marketing at the University of Maryland's Robert H.