Customer Satisfaction and Word of Mouth

EUGENE W. ANDERSON

Do dissatisfied customers engage in more or less word of mouth than satisfied customers? There is theoretical and empirical support for both possibilities. To better understand this issue, the authors developed a utility-based model of the relationship between customer satisfaction and word of mouth. The hypothesized functional form-an asymmetric U-shape-cannot be rejected based on data from the United States and Sweden. In addition, the estimation results based on the two samples are similar, suggesting that the proposed relationship is generalizable. The findings also indicate that although dissatisfied customers do engage in greater word of mouth than satisfied ones, common suppositions concerning the size of this difference appear to be exaggerated.

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Customer Satisfaction and Price Tolerance

EUGENE W. ANDERSON

This study investigates the association between customer satisfaction and willingness-to-pay or price tolerance. The goal is not only to determine whether the association between customer satisfaction and price tolerance is positive or negative but also to gauge the degree of association. The Swedish Customer Satisfaction Barometer provides the data. The empirical analysis indicates a negative association between the level of customer satisfaction provided by the firm and the degree of price tolerance exhibited by its customers. However, a positive association is found between year-to-year changes in the levels of customer satisfaction and price tolerance.

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Relating Online, Regional, and National Advertising to Firm Value

SHRIHARI SRIDHAR, FRANK GERMANN, CHARLES KANG AND RAJDEEP GREWAL

Firms spend billions of dollars on advertising every year but remain uncertain about allocation across various advertising vehicles. Allocation decisions are even more complex as online advertising has proliferated and consumers’ media usage patterns have become more fragmented. To determine advertising effectiveness, the authors group firms’ advertising vehicle choices into three theoretically grounded and empirically verified smaller subsets: national, regional, and online advertising. Subsequently, they assess how the three advertising vehicles independently and jointly affect firm performance. Using 12 years of data covering 662 manufacturing firms, the authors find that while national, regional, and online advertising each have a positive and significant main effect on firm performance, each advertising vehicle weakens the effectiveness of the respective other two advertising vehicles (e.g., a 1% increase in online advertising increases firm performance by .32% but also decreases national [.15%] and regional [.03%] advertising effectiveness). A battery of robustness checks triangulates this result. Although all three media vehicles contribute to net increases in performance, the authors discuss the need to strategically integrate them to maximize combined effectiveness.

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Customer-Centric Org Charts Aren’t Right for Every Company

JU-YEON LEE, SHRIHARI SRIDHAR AND ROBERT W. PALMATIER

The new conventional wisdom on corporate structure is that companies can do better by organizing themselves around customer groups. The logic sounds compelling: A customer-centric structure, as the approach is known, can help a company understand its customers better, develop deeper relationships with them, and improve customer satisfaction. Some 30% of Fortune 500 firms, including Intel, Dell, IBM, and American Express, are already on board, and the numbers are growing all the time.

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The Satisfaction Profit Chain

CARLY FRENNEA, VIKAS MITTAL AND ROBERT A.WESTBROOK

The Satisfaction Profit Chain (SPC) is a theoretical framework that helps link attribute-level perceptions, overall customer satisfaction, customer intentions/behaviors, and financial outcomes. This chapter reviews existing empirical research in this area and provides guidance and recommendations for future research. It is intended to be helpful to managers and academics who are interested in understanding how customer satisfaction — a focal construct — is embedded in the context of its antecedents and consequences.

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Customer Satisfaction: A Strategic Review and Guidelines for Managers

VIKAS MITTAL AND CARLY FRENNEA

Superior customer satisfaction provides a clear strategic advantage and an inimitable resource for a firm—particularly in today’s complex and often uncertain markets. Two decades of academic research has quantified the impact of customer satisfaction on a number of beneficial customer behaviors and consequent financial performance. It is clear that firms that manage their customers as well as costs realize greater financial returns compared to firms who ignore customer satisfaction.

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