CUSTOMER SATISFACTION, MARKET SHARE, AND PROFITABILITY - FINDINGS FROM SWEDEN

Are there economic benefits to improving customer satisfaction? Many f irms that are frustrated in their efforts to improve quality and custo mer satisfaction are beginning to question the link between customer s atisfaction and economic returns. The authors investigate the nature a nd strength of this link. They discuss how expectations, quality, and price should affect customer satisfaction and why customer satisfactio n, in turn, should affect profitability; this results in a set of hypo theses that are tested using a national customer satisfaction index an d traditional accounting measures of economic returns, such as return on investment. The findings support a positive impact of quality on cu stomer satisfaction, and, in tum, profitability. The authors demonstra te the economic benefits of increasing customer satisfaction using bot h an empirical forecast and a new analytical model. In addition, they discuss why increasing market share actually might lead to lower custo mer satisfaction and provide preliminary empirical support for this hy pothesis. Finally, two new findings emerge: First, the market's expect ations of the quality of a firm's output positively affects customers' overall satisfaction with the firm; and second, these expectations ar e largely rational, albeit with a small adaptive component.