Customer Satisfaction, Market Share, and Profitability: Findings from Sweden

TLDR

The study examines whether improving customer satisfaction yields economic benefits, as firms increasingly question the link between quality, satisfaction, and returns. The authors aim to investigate the strength of the link between customer satisfaction and economic returns, demonstrating its benefits through an empirical forecast and a new analytical model. They propose that expectations, quality, and price shape customer satisfaction, which in turn drives profitability, and test these hypotheses using a national satisfaction index and accounting measures such as return on investment. Quality improves customer satisfaction and profitability, and the authors’ forecast and analytical model confirm these economic benefits; however, higher market share may reduce satisfaction, while customers’ expectations of quality positively influence satisfaction and are largely rational with a small adaptive component.

Abstract

Are there economic benefits to improving customer satisfaction? Many firms that are frustrated in their efforts to improve quality and customer satisfaction are beginning to question the link between customer satisfaction and economic returns. The authors investigate the nature and strength of this link. They discuss how expectations, quality, and price should affect customer satisfaction and why customer satisfaction, in turn, should affect profitability; this results in a set of hypotheses that are tested using a national customer satisfaction index and traditional accounting measures of economic returns, such as return on investment. The findings support a positive impact of quality on customer satisfaction, and, in turn, profitability. The authors demonstrate the economic benefits of increasing customer satisfaction using both an empirical forecast and a new analytical model. In addition, they discuss why increasing market share actually might lead to lower customer satisfaction and provide preliminary empirical support for this hypothesis. Finally, two new findings emerge: First, the market's expectations of the quality of a firm's output positively affects customers’ overall satisfaction with the firm; and second, these expectations are largely rational, albeit with a small adaptive component.