The Impact of Service Quality on Customer Satisfaction - Research Paper Example

? Service Quality of In today’s globalized world characterized by very fast pace, open markets and the huge shiftof the information technologies, the world has become a small village and anyone can reach anywhere he wants, this in turn created a fierce atmosphere of competition whereas a product differentiation is becoming harder due to imitation and low cost production in emerging economies. The magic key in today’s market became Service Quality; this concept is widely spreading and became highly weighted customer priority. Maintaining high service quality is a competitive edge for any firm; companies now are very much concerned with that concept investing and focusing on the service quality to maintain the differentiation and survive in the new global world. Customer satisfaction is the outcome felt by those who have experienced a company’s performance that met or exceeded their expectations. Some researchers highlighted the importance of customer satisfaction and do see that customer satisfaction has a positive effect on organization’s profitability. Evidence also shows the positive connection between customer satisfaction, loyalty and retention. Customer loyalty refers to a deeply held commitment to re-buy a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior. The aim of this research is to study the impact of service quality on both customer satisfaction and customer loyalty and the overall effect on business and profitability. Chapter One: Introduction 1.1 Problem Statement This research studies the impact of service quality on customer satisfaction which in turn affects the overall business performance and accordingly the overall organizational profits and its market value. 1.2 Importance of the study In today’s dynamic market, competition has become very tough and the product no more became the competitive advantage, in contrast the service quality became the driver of today’s business and what differentiates organizations as today’s customer became more sophisticated and much more knowledgeable with access to global markets and information, accordingly, customer satisfaction became the center of attention and organizations heading more and more towards a customer centered perspective 1.3 Research Questions Does service quality really matter? What kind of competition exists in today’s marketplace? What is customer satisfaction? Can it be measured? Does customer satisfaction lead to customer loyalty? What is the relation between quality of service and customer satisfaction? How can customer satisfaction impact the business performance and company value? Chapter Two: Service quality 2.1 Service Quality in a Nutshell Service quality is a concept that defines the relationship between expectations and performance of a business. It is based on the knowledge that a company with high quality of service will fulfill the needs of the customer while retaining their economic competitiveness (Jean, 2000). Economic rivalry is increased by the improvement in the quality of service. This objective may be attained by comprehending and developing the operational methods, recognizing the problem swiftly and categorically creating an authentic and dependable service delivery measures and assessing the satisfaction of customers and other performance output. In other words, service quality is a term that is applied by a company’s administration to define the success in service. It replicates at every service delivery. Customers draw their anticipations from their previous experiences, adverts and from word of mouth (Anand, 2010). Universally, consumers contrast the service obtained with anticipated whereby in case the former is underachieved compared to the latter the consumers get dissatisfied. 2.2 Is Service Quality that Important? One of the significant parts of the quality management is giving the customer service required. The business has faith in giving extraordinary levels of service to customers are as vital as the quality of products. In support of this dedication, the business creates numerous efforts with the objective of improving on the service delivery. By guarantying service quality, the business assures its customers to finish projects on time and according to the budget provided (Prince and Simon, 2009). As such it conducts a customer agreement that defines the least standards that consumers of its division can expect to acquire. This agreement comprises of the promise that the company will compensate the client if it does not deliver a particular service in time. The business might also finish a plan, design and create service, in which a customer can opt to merely take it and accept it unconditionally. The business might also operate an intensive customer fulfillment study on a monthly basis. In a nutshell service quality is very important for any business because it defines the direction or the course the business takes in meeting its main objectives (Luo, Homburg, &Wieseke, 2010). 2.3 Service Quality Measures Service quality measures comprise of measuring both objective and subjective processes. In both scenarios, there is normally some element of satisfaction of customers which is being evaluated. Consumer contentment is an indirect measure of quality of service. Objective processes may be portioned into secondary processes and primary processes (Meyer & Schwager, 2007). Whereby during primary processes, passive customers establish test periods of service or service periods of an active customer are monitored. In the secondary processes, measurable aspects like number of complaints by customers or the quantity of goods returned are evaluated with an aim of making deductions about the service quality (Bogomolova, 2011). 2.4 Service Quality and Competition In most industries, competitive advantage is determined by the quality of service provided by every company. A customer will choose to buy a product or service from one type of business based on the kind of satisfaction obtained from their previous purchase (Mazzeo, 2003). Ratings by customers have a strong impact on organizational success or failure. These shifts focus to employees regarding their ability to satisfy consumers’ anticipations. Besides, when the ratings go down they give an indication that the profitability and sales revenues of the company in rivalry is in jeopardy. It is important for competing firms to efficiently manage quality of service. In so doing, the firms are required to be reliable, putting in place efficient measures of satisfaction by the customers (Aghion, et al., 2005). Chapter Three: Customer Satisfaction 3.1 Customer Satisfaction in Definition Customer satisfaction is a concept that is normally applied in marketing as a dimension of how services and goods distributed by a business fulfill the customers’ anticipation. It is described as the number of customers or a portion of the entire customers whose reported encounter with a business’ product or service meets or surpasses a particular goal of fulfillment. In a survey that was conducted of about 200 senior managers of marketing, 71% reported that they perceived customer satisfaction metric as very vital tool in executing and evaluating their businesses (Matsa, 2011). It is viewed as the main indicator of performance in a business as it forms part of the balanced scoreboard. In an aggressive marketplace where business rivalry for consumers is higher, satisfaction of customers is perceived as a chief differentiator and has highly been a key aspect of strategy by a business. 3.2 Customer Satisfaction Index The American Customer Satisfaction Index is a sign that gauges the satisfaction of customers across all sectors of the economy of the United States. It is declared by the American Customer Satisfaction Index which is a private firm found in Ann Arbor in Michigan (Johnson et al., 2001). The company conducted an interview of approximately 80,000 Americans yearly and inquired about their contentment with the products and services they had consumed or used up. The probable respondents are scrutinized before the interview to ascertain involvement of consumers of a broad-range of company-to-customer goods and services, inclusive of the durable products and services, federal state services, local government services and non-durable goods. The outcome from the collected data was analyzed and given out to the community on an annual basis. The index has been applied by researchers, state agencies, investors, corporations, consumers, market analysts and industry trade associations (Manimaran, 2010). 3.3 The Power in Customer Satisfaction There is power in customer satisfaction where assessing employee and satisfaction of customers and their measures fosters the comprehension of the entire company. This has the ability to create a competitive advantage that is sustainable for the company. The employee-consumer profit structure is determined by the level of satisfaction the consumer gets from the services offered by the employee. Full performance signs can be executed by use of the satisfaction of customers and employees which fosters the business to drive the firm’s financial performance through setting of targets for employees and customers. A satisfied customer as mentioned earlier will always come back for more goods while a less satisfied customer might destroy the image of the business through negative publicity (Kranton, 2003). 3.4 Customer Satisfaction Leads to Customer Loyalty Satisfaction of customers and loyalty are crucial aspects of a sustainable business development and profitability. Customer loyalty and satisfaction is especially vital due to a constrained new growth ventures. However, higher satisfaction and loyalty of customers has the potential of having a wider effect on a business which enables the business to attain lower selling costs, improvement in the repetitive purchasing from the current consumers, developed equity of brand or premium price (Reichheld &Sasser, 1990). It also helps the business to retain the supply sales rate which ensures a quick dispatch of fresh goods and services. Besides, satisfaction of customers’ needs and expectations may lead to loyalty through leveraging of speed in marketing skills to entice new clients and establish plenty of referrals for obtaining new accounts as well as increasing on the productivity of employees retention and contentment (Wirtz & Chung Lee, 2003). 3.5 Are Loyal Customers Profitable? Loyalty is significant to any form of business set up. Customers who are loyal stay on for a number of years, dedicate a higher share of their cash to the business and by word of mouth recommend the business to their friends. Loyalty of customers, in simple terms fosters the driving of profits (Kumar et al., 2010). However, majority of businesses fail to comprehend one thing in their business operation that loyalty does not at all times compare to profits. As a matter of fact many firms are not well conversant on how to identify and motivate the type of consumer loyalty that’s essential and worth having. Most companies have normally the wrong definition of customer loyalty. According to studies conducted among various firms, numerous firms have held a common belief in regard to loyalty of customers. Numerous deductions have been made regarding the essence of loyalty on profitability and business success (Baumann, Burton & Elliott, 2005). Most firms have a wrong description of what amounts to a company’s most loyal and attractive customers. Many administrators go after these consumers by mistake in the perception that they are the key to large profits and many of the customers whom majority of these firms view as loyal are not profitable consumers at all costs. To be viewed as loyal, it must not be enough for a consumer to have a feeling of closeness to a business, or to merely attach to the connection. It must also stipulate particular performance or conduct in shopping behaviors on the part of the consumer. Many of the measures of corporations for loyalty of customers emphasize on feelings alone. However, the research reveals that understanding the ways in which customers feel about a business is not a good sign of the nature in which they will behave towards the business (Horner, 2002). Chapter Four: Effect of Service Quality on Customer Satisfaction 4.1 The Interdependent Relation between Quality and Customer Satisfaction Consumers view the optimistic drive and determination of satisfied employees gives an efficient service in relation to service quality. In turn, they develop into more satisfied and loyal stakeholders to the business. The fundamental aspects that connect employee satisfaction to that of the customers are honest and positive attitude of the employee which can be illustrated using generalizations obtained from various case studies. Employees who are satisfied with the business for a longer time period provide excellent return on any venture such as recruitment, teaching, rise in pay and perquisites that are given to them (Wirtz & John, 2000). The higher returns may emanate from a consistent application of the firm’s particular tacit information that disappears when the staffs exit the business and from the high trust the consumers will inject into the business if a stable employee stands for it. The connection between customer satisfaction and employee satisfaction demonstrates that wok satisfaction improves when the consumers are served by the employee gives appreciation of their efforts, in addition to the internal recognition by the colleagues and managers. This implies that service firms must create effective channels of communication that gives feedback to customers for both complaints and appreciation signs to staffs. The connection between satisfaction of employees and customers is a complicated one which requires numerous models to be used in its verification (Sharma & Gadenne, 2008). 4.2 Service Quality Impact on Customer Satisfaction Satisfaction of customers is a critical subject to achievement in any form of business either conventional or online. Satisfaction of customers is more crucial in online firms given that the consumers call for a high product quality and in case they are not satisfied, it is easy for them to pull out to a different website and quit those firms for good (Hart, 2007). The online firms require identifying the customer needs for a satisfactory level. Some measures of satisfaction of customers comprise of number of clicks required to locate what is required, the nature of information they require, reaction time and speed of the website page. Quality of service has developed as one of the important aspects in differentiating products and services. Quality of service is a vital gadget to gauge satisfaction of customers (Harris et al., 2011). There is a near connection between quality of service and satisfaction of customers. Satisfaction of customers can be safeguarded by giving the services and products with super quality or high quality. Chapter Five: Relating Service Quality and Customer Satisfaction to Business 5.1 The Impact of Customer Satisfaction on Business Performance Studies have shown that a customer who is satisfied is more likely to re-buy, which results into more sales revenue and share in the market. Even though there is proof that satisfaction of customers boasts the financial performance, its immediate impact on the market share has been in doubt. Various researchers have contended that satisfaction of customers does not essentially guarantee repeat purchase when for instance rivals provide better promotions. As the frequent purchasing inspired by the good cognitive attitude unto the distributor is fundamentally an aspect of customer loyalty, satisfaction of customers is with time considered as the initial step, but not an effective state for making customer maintenance and share in the market (Forbes, 2008). In addition, acquisition of customers is a costly and difficult affair for firms which call for significant venture, effort and time; hence retention of customer has evolved into a main concern for companies which are highly emphasizing on tactically creating a firm foundation of loyal customers as opposed to concentrating on finding new customers (Morgeson, et al., 2011). In reality, it has been established that customer retention is more profitable for businesses rather than venturing a large sum of money attracting new customers. In fact, Customer retention is an intrinsic consequence of customer loyalty which has optimistically been connected to the financial performance signs as market share and profitability (Friend, Hamwi & Rutherford, 2011). 5.2 The role Customer Satisfaction plays towards achieving business excellence As businesses develop and mature, their number of customers and experience in fulfilling their needs also develop. The name of the product may also connect to the use the customer attaches to it. As a matter of fact as long as consumers are repetitively contended with their products, the action of approaching the brand of the company to satisfy a particular task develops into a habit (Mitra & Golder, 2007). Habitual buyers and consumers are also important for one or more reasons. They are the origin of the word of mouth advert. According to research satisfaction of customers with a brand result to more buying from same and new customer hence they show their fulfillment in the product or even recommend it to their friends and have them try it. On the contrary, a dissatisfied customer will speak ill of the product to their friends thus the customer is the major advertiser of the product when he or she uses it and appreciate it (Fazio, 2000). Consumers who are contended finally become totally saturated and hence no longer need the good to be improved as it has been before. This consumer starts to lose taste and ceases becoming a regular purchaser for the business (Bar-Isaac, 2005). As the firm seems to shift up the market, majority of the lower-end consumers do not continue. These customers seem to turn the earlier firm’s products to usual improvements. The earlier firm also permits these consumers to go as they have drifted preference to higher end consumers (Dubrovski, 2001). 5.3 Customer Satisfaction and Profits Customer satisfaction maximization creates a vital input to profit maximization even though other elements like control of costs, production and strategy of marketing also influences it. Customer satisfaction maximization helps increase the chances for repetitive sales to consumers, while minimizing the costs of marketing and sales. Satisfaction of customers is essential in improving the loyalty among the customers, minimizing the necessity to assign marketing budget to obtain fresh customers (Brady, Voorhees & Brusco, 2012). Contended customers may also recommend the business’ products and services to other essential consumers, improving on the probability of increasing on the sales revenue and eventually the profits. Chapter Six: Conclusion and Recommendations 6.1 Conclusion From the discussion above it is vital to deduce that service quality and customer satisfaction are two concepts that cannot be separated. Without efficient service quality the customer will not be satisfied. On the other hand, as mentioned in the discussion, the power of customer satisfaction determines the direction in which the consumer will shift as far as competition is concerned. Therefore companies or business exert their energy in delivery quality service with an aim of maintaining the customers and consequently the sales revenue and profitability. The business must be in a position to offer quality services better than the close rival to reduce the threat of competition from superior products. 6.2 Recommendations Customers who are satisfied have an indirect influence on the sales revenue and profitability when they share their views with the customers. 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