ImageStream Internet Solutions, Inc. is a privately held company in its 9th year of operation. ImageStream engineers, manufactures, and distributes Linux-based routing products for network and Internet applications. ImageStream products are used by Internet service providers (ISPs), governments, schools, and businesses in more than 75 countries around the world. As ImageStream moves toward its next decade, market forces require it, like most high technology companies, to be fast and responsive. The company faces constant change in demands and needs along with the pressures of mission creep in the face of limited resources. It is against this backdrop that ImageStream started its ISO 9000:2000 certification process. This process requires not only the implementation of quality processes, but measurement of their efficacy as well.
ImageStream conducts key manager meetings twice monthly, and a company-wide review on a semi-annual basis. During these managerial and company reviews, the senior executives identify key metrics driving the success of the company’s mission, including those metrics that would benefit most from significant improvement. This proposal outlines the use of a customer satisfaction survey and seeks to answer the management question: What is the current customer satisfaction with the level and type of customer service provided by ImageStream? The study will explore the conceptual framework of service quality, the positive and negative impacts of service quality on ImageStream, and the effect of favorable and unfavorable customer intentions on perceived quality using survey research. Armed with the statistical analyses outlined below, the operations management team will identify current trends in customer satisfaction in a proactive attempt to resolve to any issues.
Background and Literature Review
The study and development of customer service techniques and customer retention management programs has blossomed into its own industry. This increasing focus on customer satisfaction is not surprising, given the positive correlation between happy customers and successful companies illustrated in countless marketing research studies. This study will outline the relationship between customer satisfaction with service and customer retention at ImageStream. To support the findings, we will conduct an empirical study focusing on the relationship between perceived service quality and customer intentions.
Weinstein and Johnson (1999) recommend that companies like ImageStream should spend “75% of its marketing budget on customer retention strategies” and to strengthen these relationships. Once customers commit to a product platform, and the longer they use and deploy that platform, the more profit ImageStream can realize. Longstanding, satisfied customers will generally continue, or often increase, purchasing, require less operational and customer service support, and be more willing to pay price premiums to remain with the company–all without incurring new customer acquisition costs (Pine, Peppers, and Rogers, 1995). This paper will analyze how ImageStream’s service relationship with its customers produces customer behaviors indicating whether or not a customer will remain an ImageStream customer. The methodology used will follow Zeithaml, Berry and Parasuraman’s study on this topic (1996).
Since replacing lost customers requires new customer acquisition costs, customer retention should be a fundamental performance measure for ImageStream’s executive staff and a key component of the company’s incentive programs (Zeithaml et al., 1996). According to the American Management Association, acquiring a new customer can require five times the investment needed to keep an existing customer (Weinstein et al., 1999).
Customer service, not surprisingly, has been researched extensively: from the conceptual framework of service quality, to the positive and negative impacts of service quality, to the effect of favorable and unfavorable customer intentions on perceived quality. We review these concepts in recent literature, and investigate an empirical study focusing on the relationship between service quality and customer behavioral intentions (Zeithaml et al., 1996).
Zeithaml, Berry and Parasuraman (1996) offer a conceptual model of service quality. The researchers postulate that the quality of customer service will determine whether a company retains its customers or loses them to defection. Zeithaml, Berry and Parasuraman (1996) highlight seven key points:
1.Customer defection has a negative relationship with an organization’s profitability.
2.Retaining current customers costs less than acquiring new ones.
3.Customer retention should be a fundamental component of incentive programs.
4.Companies must advertise not only to attract new customers, but to replace lost customers.
5.Advertising, promotion, and sales costs are required expenses when attracting new customers.
6.In general, at the beginning of a customer/vendor relationship, the customers do not generate a profit for the company. Zeithaml, Berry and Parasuraman estimate that acquisition cost recovery can take as long as four years.
7.Positive customer assessments of service quality lead to positive behavioral intentions, strengthening the relationship between the customer and the company. Negative assessments, on the other hand, create unfavorable customer behavioral intentions. The unfavorable conditions weaken the customer/vendor relationship.
Based on their research and observations, Zeithaml, Berry and Parasuraman (1996) believe that expressed or observed behavioral intentions can indicate whether or not customers will remain with an organization.
Reinartz and Kumar (2000) challenge Zeithaml, Berry and Parasuraman’s assertions that customer retention always leads well-managed companies to profitability. Reinartz and Kumar (2000) argue that long-term customers are not always the most profitable customers, and dismiss research assuming that loyalty equates with profitability as a gross oversimplification. Reinartz and Kumar (2000) contend that managers should not automatically assume increased lifetime spending, decreased costs of service, and decreased price sensitivity for long-term retained customers. Reinartz and Kumar (2000) go further in also disputing the idea that long-term retained customers require lesser marketing investment by companies.
Their research concluded that long-term customers often have inactive purchasing periods unrelated to their retention by an organization (Reinartz and Kumar, 2000). During these dormant periods, these customers are at best a break-even proposition for organizations, and often consume marketing and service resources resulting in net losses during periods of inactivity. Reinartz and Kumar (2000) found that short-term customers may be as significant to customers as longtime clients.
Other research indicates that organizations struggling with a single approach to satisfy all customers can end up with “inefficient and inappropriate levels of service” (Cohen, Cull, Lee and Willen, 2000). Cohen, Cull, Lee and Willen (2000) conclude that organizations must customize their service to meet each customer’s individual needs.
Superior service generates favorable behavioral intentions in customers, including increased future spending, acceptance of price premiums, “word of mouth” referrals, and, ultimately, customer retention (Zeithaml et al., 1996). Research suggests that most employees have a “true customer orientation” in that they understand their customers’ needs, and possess empathy and respect for their customers (Bitner, Booms and Mohr, 1994). Quality service builds customer faith in the organization, and “is essential for maintaining competitive advantage” (Berry, Parasuraman and Zeithaml,
1994). Since quality customer service can generate positive behavioral intentions, quality service strategies are effectively profit strategies for organizations.
Research illustrates this link between service and profitability, as Keaveney (1995) found that customer defections can cost an organization future revenue stream. As customers’ intentions toward a company improve, the results include new customers, increased business with existing customers, fewer lost customers, and added pricing power (Berry et al., 1994). Berry and Parasuraman (1997) stress the creation of customer feedback channels as a component of quality service. Listening and responding to the customer’s needs in a quality way has a “direct effect on the quality of service provided” (Berry and Parasuraman, 1997). This focus on customer feedback drove the purpose of this series of papers.
Evidence, such as Keaveney’s study, highlighting the role customer loyalty plays in making an organization more profitable makes it imperative that companies quickly and proactively address concerns, complaints and other unfavorable behavioral intentions among their customers (Tax, Brown and Chandrashekar, 1998). Tax, Brown and Chandrashekar’s point also applies in a comparative sense as well. Organizations can potentially provide satisfactory service that nonetheless lags other competitors’ service offerings. In these cases, customers may defect because of the attraction of comparatively superior service offerings from a competitor. Managers of service departments and service companies must recognize this comparative measure, and realize that some customers will defect even when they are satisfied with a former provider (Keaveney, 1995).
Customers display favorable intentions such as praising the company, expressing a preference for the company to the company or to other consumers, continuing and/or increasing purchasing volumes, paying price premiums, and making recommendations to others based on their satisfaction with the company (Zeithaml et al., 1996). Satisfied customers stay loyal to an organization longer, pay less attention to competitive products, exhibit less price sensitivity, offer service improvement or expansion ideas to the organization and cost less to service over time than new customers (Weinstein et al., 1999).
When dissatisfied, customers display unfavorable intentions such as expressing an eagerness to leave the organization, decreasing purchase patterns, voicing complaints to the vendor, complaining to others, or taking legal action against the organization (Zeithaml et al., 1996). When customers do leave an organization, many choose to do so quietly with the intention of “getting even by making negative comments” to others about the organization (Tax and Brown, 1998).
Since defecting customers can impact current and future revenue streams, properly identifying dissatisfied customers and understanding why customers defect can be valuable tools in improving customer retention management programs. Companies must implement strategies to overcome potential customer defections. Retention efforts should begin as soon as organizations acquire new customers. The organization should proactively attempt to learn and address customer needs and resolve any complaints or concerns quickly (Weinstein et al., 1999).
Weinstein et al. (1999) suggest several ways to build loyalty and increase favorable behavioral intentions in customers. They suggest that organizations could embed sales staff at the offices of their best customers, participate in their customer’s events or promotional efforts, interview their customer’s customers, conduct retreats with major customers to share best practices and to train customers on company products and services, develop a preferred customer pricing strategy, reward customers for referring new business, solicit feedback on product development roadmaps, and even partner with key accounts on industry research projects (Weinstein et al., 1999).
Among the most popular assessments tools of service quality is SERVQUAL, an instrument designed by Berry, Parasuraman, and Zeithaml (1994). Through numerous qualitative studies, they evolved a set of five dimensions ranked consistently by customers as central to service quality, regardless of the service industry. Berry, Parasuraman, and Zeithaml (1994) defined these dimensions as:
*Tangibles: the appearance of physical facilities, equipment, personnel, and communication materials;
*Reliability: an ability to perform the promised service dependably and accurately;
*Responsiveness: a willingness to help customers and provide prompt service;
*Assurance: the knowledge and courtesy of employees and their ability to convey trust and confidence; and
*Empathy: the caring, individualized attention the firm provides its customers.
Based on the five SERVQUAL dimensions, the researchers also developed a survey instrument to measure the gap between customers’ expectation for excellence and their perception of actual service delivered. The SERVQUAL instrument helps service providers understand both customer expectations and perceptions of specific services, as well as quality improvements over time (Berry, Parasuraman, and Zeithaml, 1988). Analysis of customer responses to a SERVQUAL questionnaire presents numerous potential practical implications for companies and their customer service teams.
We will conduct a study of all ImageStream customers (the “population”) by e-mailing or mailing a questionnaire to companies listed in ImageStream’s internal records. The study will take less than one month to complete. We will contact all customers and direct them to the on-line survey, and follow up with customers who have not responded after two weeks. We will end the study after four weeks, and expect 25%-30% participation. We base this estimate on the response rate of similar studies mentioned above. A response rate of at least 10% will yield a significant sample, enabling us to make conclusive findings and recommendations.
We identify three determinants of customer satisfaction with ImageStream: service quality, solution quality, and price (through a measure of perceived value). Data on customer satisfaction, service quality, solution quality and price will be collected through the attached questionnaire survey. The questionnaire adapts the SERVQUAL instrument developed by Berry, Parasuraman and Zeithaml (1998) and uses a combination of Likert-scaled, dichotomous and unstructured questions.
The use of both bipolar Likert/dichotomous and unstructured questions allows us to benefit from the strengths of both quantitative and qualitative research. The use of quantitative questions allows us to obtain a high degree of reliability and validity using the scientific method, and enables others to more easily repeat or replicate our study. The qualitative questions provide background for customer responses, and help to identify any underlying issues highlighted by the quantitative research. Triangulation, in this case the combination of qualitative and quantitative methods, allows us to overcome the weakness of using only one research technique.
We do not assume that there is only one reality and believe that different research methods will reveal different perspectives. Using quantitative and qualitative triangulation allows us to use different sets of data, different types of analyses, different researchers, and/or different theoretical perspectives to study customer service.
The quantitative question results will provide data that we can subject to complex statistical analyses. We will combine the quantitative question responses to determine central tendencies and dispersion of the data, including measures of mean, standard error, median, mode, standard deviation, variance, kurtosis, skewness, and range. We will analyze the results of each question and of the study as a whole.
Based on the results of the analysis above, we will develop regressions to identify potential relationships between past service experiences, perceived quality, future purchasing behavior, and loyalty. A possible research design for the regression analysis follows.
H1: There is a positive correlation between the level of superior customer service and positive future customer behavior.
H2: There is a negative or no correlation between the level of superior customer service and positive future customer behavior.
H3: There is a positive correlation between the level of inferior customer service and negative future customer behavior.
H4: There is a negative or no correlation between the level of inferior customer service and negative future customer behavior.
Using these results, we can make conclusions about the management problem defined above. Development of these findings will include the use of anecdotal evidence from the qualitative questions in the survey. We will use the responses to the qualitative questions to support the quantitative findings, and to highlight key issues not covered by the quantitative portions of the survey.
Following Zeithaml, Berry and Parasuraman (1996), we believe that a positive relationship exists between quality service and positive customer behavior as defined above. Additionally, we believe that our research will show that favorable customer behavioral intentions will be higher among customers experiencing no service problems. Customers who have experience problems, but received service to resolve them will show the next highest level. Customers with unresolved service problems will show the least favorable behavioral intentions.
Customer service and its effect on customer retention in an organization is a growing area of research, and one that is vital to maintaining quality at ImageStream. This paper examined customer retention and defection from an organization in the context of customer service quality, exploring four areas:
1.A conceptual framework of how service quality affects particular customer behaviors and the consequences for ImageStream, establishing the purpose for this study,
2.Empirical studies that focused on the relationship between service quality and customer behavioral intentions,
3.A triangulated quantitative and qualitative survey to study perceived service levels among ImageStream customers,
4.Follow-on research based on the survey results and statistical analysis, including a summary of expected findings
Customer retention branches off into many other significant areas such as value-added services, supply chain relationships, use of information systems to service customers better, and very importantly perceived and expected performance.
Organizations have a chance to learn from their customers. The more customers teach the company the more effective it becomes at providing exactly what they want and the more difficult it is for competitors to lure them away from the organization (Pine II et al., 1995). Learning about customers is what this whole retention topic is about. The customers tell the organization what to do to keep them. The strategy is for the organization to learn how to listen and respond.
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