Factors influencing Customer Satisfaction and Customer Loyalty
Factors influencing Customer Satisfaction and Customer Loyalty
Customers of the organization are those who buy the products and / or services provided by the organization. In other words, customers are stakeholders of the organization who afford payment in exchange for the offer provided to them by the organization with the aim of fulfilling a need and to maximize satisfaction. Sometimes the term customer and consumer are confusing. A customer can be a consumer, but a consumer is a customer is not necessary.
The success of the organization depends on the satisfaction of its customers. For a successful organization, customers come always ‘first’ and then the profit. An organization, which is successful in satisfying its customers, remains in the top position in the market. The organization, which considers the customer satisfaction as the key component in its marketing strategy, expands its market value and market base. Customer satisfaction is a measure of how products and services of the organization meet or surpass customer expectation. If the product or service performance falls short of the expectations, the customer is dissatisfied. On the other hand, if performance matches expectation, the customer is satisfied. If performance exceeds expectations, the customer is highly satisfied which is generally referred to as customer delight.
Customer satisfaction is not a matter of morals but of common sense. If customers are not satisfied, they find another organization which satisfies their needs, and what satisfy a customer is the quality of the products and services. Hence, it is essential that the organization develops a relationship with all its customers to ensure that they feel that their needs are important to the organization and are being met. After all, a satisfied customer becomes a loyal customer.
Customer satisfaction is a term which needs considerable attention and interest of the organization because of its importance as a key element of the organizational strategy, and goal for the organizational activities especially in the present day competitive environment. Customer satisfaction is the fulfilling the customers’ needs and this goal is met when the products and the services of the organization is providing a pleasurable level of fulfillment and emotional response. Satisfaction of the customers with the products and services of the organization is considered as the most important factor leading towards the competitiveness and success of the organization. It is critical for the organization, as it has an impact on the profits.
Customer satisfaction is defined as the customer’s response to the evaluation of the perceived discrepancy between prior expectations and the actual performance of the products or services after their consumption. The satisfaction is in relation to the customer’s feelings of pleasure or disappointment which results from comparing the product’s perceived performance or outcome with the expectations. In addition, the satisfaction is the pleasure derived by the customer from the consumption of the products and or services offered by the organization. It indicates the state of being happy with the organization.
Customer satisfaction is an important factor for the organization to understand the satisfying of the customers about what they need and want. Pleasurable means that fulfillment increases pleasure or reduces annoyance or anxiety. Fulfillment is determined by the customers’ expectations. Moreover, if the perceived performance of the products and services does not meet customer expectations, the likely result is dissatisfaction. The level of satisfaction or dissatisfaction is reflected from perceptions and attitudes from previous experiences, and can also influence the purchase intentions of the customers.
Customer satisfaction is actually how customer evaluates the ongoing performance of the organization. It is the customer’s reaction to the state of satisfaction, and customer’s judgment of satisfaction level. The ability of the organization to create high degree of satisfaction is crucial for product differentiation and developing strong relationship with customers. Customer satisfaction is very important in the present day competitive environment.
Customer satisfaction makes the customers loyal to the organization. It helps the organization to build long and profitable relationships with their customers. Though it is expensive to generate satisfied and loyal customers but that proves profitable in a long run for the organization. Hence, it is in the interest of the organization that it concentrates on the improvement of the quality of the products and services and charge appropriate fair price in order to satisfy the customers which ultimately helps in retaining the customers.
It is a normal phenomenon that the products and services offered by the organization and the price it charges actually determine the level of satisfaction among its customers, than any other measure. Customer’s involvement is also important as when a customer considers the product important and invests time to seek information then it ultimately enhances the satisfaction level. Customer satisfaction is a significant element in the marketing of the products and services for the organization since understanding and satisfying customers’ needs and wants can cause increased market share from repeat purchases and referrals. Overall contentment felt by the customer results from the ability of the product and service to fulfill the customer’s desires, expectations and needs in relation to the product and service.
Customer satisfaction is rated highly as a strategic end in and of itself, as it affects customer retention and organizational profits directly. The satisfaction can influence the organization by repurchase, purchase of more products, positive word of mouth by sharing of the positive experiences with others, and willingness of customer to pay more for the organizational products and services. The organization is likely to lose market share and customers besides getting bad publicity, if it fails to satisfy customers as effectively and efficiently as its competitors are doing.
There is a positive correlation between quality and customer satisfaction. Satisfied customers are bound to come back if they are impressed by the product and service the first time round. In fact they are bound to spread the word round by telling their friends and relatives about the particular product or service which has impressed them thus realization of accumulation of many customers and in the long run customer satisfaction. For this reason, it is important for the organization to spend more resources to nurture and sustain customer loyalty by increasing the number of satisfied customers.
In the present day environment, customer satisfaction has assumed greater importance than before. The globalization of competition, saturation of markets, and development of information technology have enhanced customer awareness and created a situation where long-term success is no longer achieved through optimized product price and qualities. Instead, the organization is to build its success on a long-term customer relationship. As per a study, it can cost as much as six times more to win a new customer than it does to keep an existing one. Also, it is possible for the organization to increase profit substantially, if it is successful in reducing the migration of its customers. The increase and retention of loyal customers has become a key factor for the organization for its long-term success.
However, as the organization management tries to implement the concept of customer satisfaction and / or retention of the customer in the organization, employees working with customers are to regard customer satisfaction as the goal and objective of the organization. The employees interacting with customers are in a position either to increase customer satisfaction, or put it at a risk. Employees in such positions are hence to have the skills to respond effectively and efficiently to the customer needs.
Customer satisfaction brings many benefits. Satisfied customers are not price sensitive, buy additional products, are less influenced by competitors, and stay longer with the organization. Although customer satisfaction is important, it is not necessary for the organization that all the customers are equally satisfied. There can be many customers whose satisfaction is less important, such as those the organization is not able to serve or who are not profitable. On the other hand, there are customers whose satisfaction is crucial for the survival of the organization, and hence the goal is always to be to satisfy these customers.
The organization is to be aware of how well or badly its customers are treated. It is quite often that the customers rarely complain, and when someone does, it is generally too late to retain that customer. One important component in the concept of satisfaction is the complaint management. In one of the study, it has been found that encouraging customers to complain has increased their satisfaction, and this has especially in the case of the most dissatisfied customers. The complaint management not only results in customer satisfaction, but also leads operational improvement and improved financial performance for the organization.
In order to effectively gain an advantage over competitors, customer satisfaction is to be measured and evaluated regularly. Identification and measurement of the factors affecting satisfaction level are relevant due to the fluctuating nature of the highly competitive market. With insight on consumer satisfaction levels, the organization is in a position to maintain the growth and gain a larger market share in comparison to its competitors.
Customer loyalty
Customer satisfaction and loyalty represent a top priority of the organizational success and profit. Satisfaction does not automatically lead to loyalty it needs a step by step process. Steps are described as customers going through different phases such as awareness, exploration, expansion, commitment, and dissolution. Customer loyalty can be considered to be a by-product of customer satisfaction. The satisfaction of organizational customer leads to customer loyalty. Customer loyalty increases significantly when satisfaction accomplishes a certain level and at the same time customer loyalty declines automatically if the satisfaction level drops to a certain point. Moreover, highly satisfied customers are tending to be more loyal than the customers who are merely satisfied. Overall, it is clear that there is a significant positive relationship between customer satisfaction and customer loyalty. Customer loyalty leads to an increase in both sales and profitability.
It is worth noting that customer satisfaction is not the only one in building relationship strength but environmental factors such as market concentration can also affect the longevity of the relationship. Hence, in the present day environment, there is an increasing interest in relationship strategies where the focus is evidently on building customer satisfaction and loyalty. Further, the priority goal of the organization is profitability and one way to achieve this is to gain and maintain loyal customers. If the organization invests resources to enhance customer loyalty without focusing on profitability, it can lead to failure in the long run.
Customer loyalty, the main consequence of customer satisfaction, has been defined and measured in many various ways. In one of the definition, the customer loyalty is defined as a deeply held guarantee to re-buy or re-patronize a favoured product or service consistently in the future, despite issue influences and marketing efficiency having the potential to cause changing behaviors. In another definition, the customer loyalty is the relationship a customer maintains with the seller after the first transaction. Customer loyalty is also considered to be the general feeling of satisfaction felt by a customer as a result of purchase encounters and it need not be based on previous transactional experience.
Customer loyalty becomes important the organization when it results in purchase behaviour. Firstly, it is much less expensive to retain current customer than it is to seek new ones. Secondly, loyal customers are more likely to mention past service experiences positively than non-loyal customers, creating a potential for word-of-mouth advertising at no extra cost to the organization. Lastly, it secures the relationship between customer and service provider which means loyal customers spend more time and money with the organization. The development of the customer loyalty has four-phases namely (i) cognitive loyalty which means that the product attribute information valuable to the consumer intimates that one product is preferable to its alternatives, (ii) affective loyalty which means that a liking or positive attitudes toward the brand has developed on the basis of cumulatively satisfying usage occasions, (iii) conative loyalty (behavioural intension) which means that the customer’s expressed future buying intension, and (iv) action loyalty which means the motivated intensions in the previous loyalty states is converted into actions.
Customer loyalty has several distinct dimensions. The forerunner of customer loyalty is customer satisfaction, and the consequence of customer loyalty is the organizational performance. Using this perspective, customer loyalty is perceived as future intention-to-repurchase and commitment which reflects the cognitive and satisfaction associated with loyalty. The relationship between customer satisfaction and loyalty is shown in Fig 1.
Fig 1 Relationship between customer satisfaction and loyalty
Factors affecting customer satisfaction
Customer satisfaction is very important for the organization since it is a vital consideration to create and keep a competitive advantage in the present day competitive environment. There are some well establish determinants which influences the customer satisfaction such as expectations, disconfirmation of expectations, performance, affect, and equity. Customers are said to be satisfied when actual performance outcome exceeds expectation (positive disconfirmation), and dissatisfaction arises when expectation exceeds performance outcome (negative disconfirmation). As the assessment of satisfaction is expected to be based on a wide array of matters, there can be possibly numerous factors of customer satisfaction as the extent underlying satisfaction measurements are inclusive rather than precise.
Further, there can be variations in the purchasing criteria among various customers consisting of diverse groups. Some customers can treat reliability and the product brand loyalty to be key factors, while some other customers can treat organizational image and quality as vital. In addition, the frequency, reliability, convenience and responsiveness are service quality variables which are considered important in customer satisfaction. Quality is normally considered as consistently doing the right thing right. It is a complex process to measure consumer perception of service quality.
Customer behaviour refers to the selection, purchase, and consumption of products and services for the fulfillment of the customer requirements. There are different phases involved in customer behaviour. Initially, the customer finds the needs and then goes for the selection and budgets the commodities and takes the decision to purchase. Product quality, price, service, customer emotion, personal factors, situational factors, a perception of equity or fairness, product features are some of the factors which influence the customer satisfaction. On the other hand, several factors like mentioned in the Fig 2 influence the purchasing behaviour of the customer.
Fig 2 Factors influencing the purchasing behaviour of the customer
Customer satisfaction is measurable, but it is dynamic and can evolve over time and it is influenced by a variety of factors. There are a large number of factors which can have influence on the customer satisfaction. Also, the quality of the products and services and the marketplace has storing relationship to the customer satisfaction. Some of the factors which are considered very important in general perspective and which can impact positively or negatively on customer satisfaction are described below.
Factors which impact on customer satisfaction can be divided into two broad categories namely (i) supplier behaviour, and (ii) supplier’s product and service performance. Supplier behaviour includes how the management and employees of supplier behave with the customers. Factors indicate supplier’s response, service and compliant handling are dependent on the attitude and skills of the supplier’s human resource. The supplier behaviour belongs to the product itself that depends on the capabilities of the supplier and the skills of its employees. It shows the engineering and technology developed or acquired by the supplier.
There are some aspects of products and services which worry a customer. For example, efficiency and performance can affect customer satisfaction in a way that if a product is having a defect which cause break downs during its use or it requires expert attention more frequently and hence it can create a kind of irritation for the customer apart from the financial loss. Some of the common factors (both human and product related) which can impact on customer satisfaction are given in Fig 3.
Fig 3 Customer satisfaction influencing factors
Customer satisfaction is influenced both by the human related factors consisting of (i) response, (ii) service, (iii) commitment adherence, (iv) complaint management system, (v) customer importance, (vi) orientation, and (vii) attitude and the product related factors consisting of (i) performance, (ii) efficiency, (iii) management requirement, (iv) life span, (v) price, (vi) appearance, (vii) customer friendly features, (viii) quality, (ix) technology, and (x) trouble free operation.
Customer satisfaction is generally altered by perceived value. Even satisfied customers are unlikely to be as a customer in for a long time if they feel that they are not getting the best value for the money they are spending. The perceived value directly affect satisfaction due to the perception of the utility received. Perceived value is conceived as the consumer’s evaluation of the utility of perceived benefits and perceived sacrifices.
Another set of influencing factors for the customer satisfaction include (i) previous experience, (ii) personal recommendation, (iii) personal needs, (iv) marketing communications, and (v) level of the involvement in the purchase. Various studies have shown that customer satisfaction depends upon expectations and expectations shape satisfaction, so these studies explain these factors which ultimately impact on customer satisfaction. For example, one of the study states that the above mentioned five factors are the key factors which influence a customer expectations. The study also suggests that most important of these factors are the customers’ past experience of the services and what other people say about it. It is revealed that satisfaction is very high when information content of the market communications is enriched and when the customers knowledge of the product is enhanced by the communication.
Efficiency and fulfillment is closely linked with the service quality. Hence, for efficiency and fulfillment the service quality is needed to be analyzed from different aspects. Such an analysis normally indicates that the requirement fulfillment has relatively great effect on the customer satisfaction. Efficiency and fulfillment both have positive effects on the customer satisfaction.
The service quality is recognized as a forerunner for the customer satisfaction. Saying about customer satisfaction with respect to quality, it has been expressed as whether it is products or services, depends upon the service quality customers require and what has been promised with them to deliver to. Without a doubt, the customer’s overall satisfaction with a particular level of service and perceptions of service quality are interrelated and in many cases highly correlated.
Normally, it is not possible for an organization to be able to put all appropriate features in the products and services. There are always being some positive and negative features in the product and human behaviour which can affect customer satisfaction. The higher the positive feeling, the more satisfied a customer feels. The organization is required to figure it out to increase this positive feeling. It is to identify the factors generating positive feelings and make a strong attempt to strengthen them. At the same time, it is also to look for the negative factors and try to eliminate them in order to enhance customer satisfaction.
The factors which satisfy the customers or the factors which impact the customer satisfaction strongly are not easy to predict. It is, thus, necessary to target some customers and then work out factors which seem important and address them appropriately.
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