Service Quality and Customer Satisfaction by Ken Bernhardt Regents' Professor Robinson College of Business, Georgia State University Atlanta Business Chronicle - May 27, 2005 The most comprehensive measure of customer satisfaction is the University of Michigan's American Customer Satisfaction Index (ACSI) which studies satisfaction levels at approximately 200 companies in 41 industries by surveying 65,000 consumers annually. According to the most recent quarterly survey, the ASCI fell sharply for the second consecutive quarter. Rising energy costs have affected both consumers and companies. With more constraints on their ability to spend, consumers have become more demanding of companies to provide them with good value. At the same time, companies are cutting costs to protect their earnings. The combined effect has been to reverse 3 years of gains and produce significant declines in perceived service quality and customer satisfaction. Changes in customer satisfaction levels are important predictors of future retention, loyalty, sales, and profits. A look at a few industries is revealing. Satellite TV first began being measured in 2001, and it has had a significant lead over cable TV companies in the ASCI since then.  Today almost one-quarter of U.S. households with pay television use satellite service. Both DirecTV and EchoStar had record numbers of new subscribers in 2004. Conversely, in the first half of last year, the cable industry lost subscribers for the first time since the 1950's. One of the biggest drops in satisfaction this past year was in the newspaper industry. Thus, the recently reported drop in circulation for newspapers across the country is not surprising.  In the airline industry, scores declined last year but not for every company. Southwest Airlines, Continental Airlines, and the smaller companies (mostly budget carriers including AirTran) scored much higher than the other airlines. These airlines have also been the leaders in profitability, demonstrating a positive relationship between customer satisfaction and profitability (or lack of thereof). In the express delivery industry, both UPS and FedEx are very highly rated by consumers. By focusing on the total supply chain, these companies have become much more important to their customers, increasing their satisfaction and loyalty. This has led to consistent increases in profitability for both these companies. So, if service quality and satisfaction is so important, how should you measure how your organization is doing on these dimensions? The first thing is to understand the relationship between service quality and customer satisfaction. The key to this is the difference between customers' expectations and the service level they perceive they received from the marketer. If their expectations are exceeded, the service quality is very high and the customer is very satisfied. If the expectations are met, the service quality is good and the customer is satisfied, and if the expectations are not met, then the service quality is low and the customer is dissatisfied. This is why we often hear companies talking about their objective being to meet or exceed customer expectations. If the real goal is to exceed these expectations, then it is important to understand how expectations are formulated. A substantial amount of research in a number of industries has been done over the past 20 years by researchers supported by the Marketing Science Institute. They found four things that determine customer expectations: past experience (most important when there is past experience), word of mouth, need level, and what the company has promised in its communications to the customer. Think of a fine dining experience. If you have eaten at the restaurant, the past experiences are important, but often one has to rely on what they have heard from others. If one is celebrating an important occasion or taking a customer to dinner, the expectations are increased. Finally, if they were assured of a 7:30 pm reservation, they expect to be seated within a very few minutes of that time.  Unfortunately, many organizations assume they know what consumers' expectations are rather than doing research to learn about the expectations. I have often seen situations where managers assume consumers want the same things they do (or what their spouses or kids want) and are wrong. If you don't know (accurately) what they want, there is a low probability that you will meet or exceed their expectations. Secondly, even if managers know what consumers want, they often don't make the investments necessary to deliver this level of service. I suspect that my cable company knows that I want them to answer the phone when I call or at least to have a short time on hold, but somehow that doesn't happen. Another important gap is the difference between what level of service companies actually deliver and what they promise in their advertising and promotion materials (the "over promise gap").  Initiating mechanisms for consumers to complain is one way companies can understand how they are doing vs. their customers expectations.  Regular customer satisfaction tracking is another. The Marketing Science Institute recently reported on a study that explored the impact of surveying customers on subsequent buying behavior. It turns out that customers who participate in satisfaction surveys subsequently increase their purchasing behavior at both the product category and brand levels. While one would expect those reporting low satisfaction to reduce their purchasing, this did not happen. The researchers hypothesize that the process of asking consumers their opinions communicates that the firm values and cares about their customers, resulting in the participants being less likely to defect. The implication of this effect is that the surveys can result in revenue gains. It is possible that this could result in the economic effects of the survey offsetting much or all of the surveys' costs. The findings from this research should remove one of the biggest objections to measuring customer satisfaction, the cost of doing the survey. So what's your excuse now?