CUSTOMER SATISFACTION, PRODUCTIVITY, AND PROFITABILITY - DIFFERENCES BETWEEN GOODS AND SERVICES

There is widespread belief that firms should pursue superiority in bot h customer satisfaction and productivity. However, there is reason to believe these two goals are not always compatible. If a firm improves productivity by ''downsizing,'' it may achieve an increase in producti vity in the short-term, but future profitability may be threatened if customer satisfaction is highly dependent on the efforts of personnel. If so, there are potential tradeoffs between customer satisfaction an d productivity for industries as diverse as airlines, banking, educati on, hotels, and restaurants. Managers in these types of service indust ries, as well as goods industries in which the sen ice component is in creasing, need to understand whether or not this is the case. For exam ple, if efforts to improve productivity can actually harm customer sat isfaction-and vice-versa-the downsizing of U.S. and European companies should be viewed with concern. It follows that developing a better un derstanding of how customer satisfaction and productivity relate to on e another is of substantial and growing importance, especially in ligh t of expected continued growth in services throughout the world econom y. The objective of this paper is to investigate whether there are con ditions under which there are tradeoffs between customer satisfaction and productivity. A review of the literature reveals two conflicting v iewpoints. One school of thought argues that customer satisfaction and productivity are compatible, as improvements in customer satisfaction can decrease the time and effort devoted to handling returns, rework, warranties, and complaint management, while at the same time lowering the cost of making future transactions. The second argues that increa sing customer satisfaction should increase costs, as doing so often re quires efforts to improve product attributes or overall product design . A conceptual framework useful in resolving these contradictory viewp oints is developed. The framework serves, in turn, as a basis for deve loping a theoretical model relating customer satisfaction and producti vity. The model predicts that customer satisfaction and productivity a re less likely to be compatible when: Ij customer satisfaction is rela tively more dependent on customization-the degree to which the firm's offering is customized to meet heterogeneous customers' needs-as oppos ed to standardization-the degree to which the firm's offering is relia ble, standardized, and free from deficiencies; and 2) when it is diffi cult (costly) to provide high levels of both customization and standar dization simultaneously. To move forward from the model's propositions to the development of testable hypotheses, we argue that services are more Likely than goods to have the preceding characteristics. Hence, tradeoffs between customer satisfaction and productivity should be mor e prevalent for services than for goods. Although this classification is not precise-many services are standardizable and many goods have a service component-it has the advantage of allowing an initial test of the propositions. The empirical work employs a database matching custo mer-based measures of firm performance with traditional measures of bu siness performance, such as productivity and Return on Investment (ROI ). The central feature of this database is the set of customer satisfa ction indices provided by the Swedish Customer Satisfaction Barometer (SCSB). The SCSB provides a uniform set of comparable customer-based f irm performance measures and offers a unique opportunity to test the s tudy's hypotheses. The findings indicate that the association between changes in customer satisfaction and changes in productivity is positi ve for goods, but negative for services. Ln addition, while both custo mer satisfaction and productivity are positively associated with ROI f or goods and services, the interaction between the two is positive for goods but significantly less so for sen ices. Taken together, the fin dings suggest support for the contention that tradeoffs are more likel y for services. Hence, simultaneous attempts to increase both customer satisfaction and productivity are likely to be more challenging in su ch industries. Of course, this does not imply that such firms should n ot seek improvements in both productivity and customer satisfaction. F or example, appropriate applications of information technology may imp rove both customer satisfaction and productivity simultaneously. The f indings should provide motivation for future research concerning the n ature of customer satisfaction and productivity, as well as appropriat e strategy and tactics for each one. It is worth emphasizing that this is an issue that is not only important today, but certainly will beco me even more important in the future. As the growth of services contin ues and world markets become increasingly competitive, the importance of customer satisfaction will also increase. To compete in such a worl d, firms must strike the right balance between their efforts to compet e efficiently and their efforts to compete effectively.