Customer Satisfaction and Service Quality: A Literature Review

Introduction

The interest of the present research is the relationship between service quality and customer satisfaction and their influence on business continuity and sustainability. The researcher will explore the recent literature on these topics to define the key concepts and the relationship between them. The selected literature will help the researcher to obtain a theoretical background on the subject of research interest and determine the directions for the present study. While discussing service quality and its relation to customer satisfaction, the author of this research will explore the SERVQUAL model that will be used to rate the service quality of the company. The selected literature will review the major features of this model and provide the rationale for choosing it.

Conceptualization of Service Quality

High quality of service has become a strong competitive advantage in the present-day customer-centric market, especially for companies, the business of which involves solely the provision of services. Services are activities that organizations perform for their customers, and they possess such characteristics as intangibility, inseparability, heterogeneity, and perishability (Huang, Lee, and Chen, 2019). It means that services are nonmaterial and unique; they cannot be stored for future sales, and their provision cannot be separated from their consumption. The quality of service is inseparably connected with customers’ experiences received from the service.

Researchers often define service quality as the consumers’ evaluation of the services they obtain (Liu, Lee, and Hung, 2016). Another widely used definition of service quality characterizes this concept as “the gap between customers’ expected and perceived quality of service” (Huang, Lee, and Chen, 2019, p. 1451). It implies that customers always have certain expectations regarding the services that they are going to receive, and they compare their experiences after being provided services to those prior expectations. According to this definition, service quality is high when it exceeds clients’ expectations and low if it fails to meet them.

Service quality comprises three dimensions, each of which affects the overall clients’ perception of the service. They include the “what,” which is referred to as physical or technical quality, the “how” or service environment of functional quality, and the image of service in the minds of customers (Prakash, 2019). Thus, customers form their judgments of the provided service based on what tangible benefits they receive as a result of the service, and how the service is delivered to them.

Despite the intangible nature of services, researchers have developed various models to assess service quality. One of the widely used instruments for evaluating service quality is the SERVQUAL model created by Parasuraman and his colleagues. This framework estimates the gap between consumers’ expectations and the perception of services (Bhatt and Bhanawat, 2016). If the gap is large, it is evidence of poor service quality (Bhatt and Bhanawat, 2016). The model uses five dimensions that constitute service quality: “tangibles, reliability, assurance, responsiveness and empathy” (Bhatt and Bhanawat, 2016, p. 267).

Tangibles are equipment, staff, the appearance of facilities, and information materials (Bhatt and Bhanawat, 2016). Reliability means that the company is able to provide services reliably and exactly as it promised (Bhatt and Bhanawat, 2016). Responsiveness refers to the readiness to help customers; assurance is the knowledge, trustworthiness, and politeness of the staff, and empathy means paying individual attention to customers (Bhatt and Bhanawat, 2016). Generally, 22 items are allocated among these five dimensions, thus forming the SERVQUAL scale used for conducting customer surveys and computing gap scores (Prakash, 2019). The obtained results are then analyzed to determine service quality.

The SERVQUAL model is used in a variety of industries concerned with the delivery of services. Scholars have applied it to such business fields as hospitals, banking, hospitality, and fast food industries, internet retailing, higher education, and department stores (Bhatt and Bhanawat, 2016). Although some researchers note the overlap among such dimensions as empathy, responsiveness, and assurance, the model has been proved to be valid and has become a popular tool among practitioners and academics (Bhatt and Bhanawat, 2016). The SERVQUAL model also connects service quality with customer satisfaction.

Customer Satisfaction

Under the conditions of intense competition among businesses, organizations have to pay close attention to the degree to which customers are content with the services they provide. Bhatt and Bhanawat (2016) argue that if customers are content with the received service, they will share their experiences with up to ten other people. However, dissatisfied clients will impart their complaints to up to twenty people (Bhatt and Bhanawat, 2016).

It implies that individuals are more inclined to share negative experiences with others, which makes it critical for businesses to prevent customer dissatisfaction. Customer satisfaction can be defined as a psychological state of satisfaction that results from obtaining value from a purchased product or service (Liu, Lee, and Hung, 2016). Just as service quality, customer satisfaction depends on the difference between the expected value of goods or services and the actual perceived value (Liu, Lee, and Hung, 2016). If products or services fail to meet customer expectations, it leads to customer dissatisfaction. On the contrary, meeting or exceeding customer anticipations results in customer satisfaction.

Customer satisfaction plays a vital role in the growth and expansion of business. It is important because it leads to repurchase intention and forms the brand image of a company (Huang, Lee, and Chen, 2019). Satisfied customers are likely to repeat their purchases and inform others about their positive experiences, thus improving the company’s financial standing (Basari and Shamsudin, 2020). Discontented clients, on the contrary, will not repeat their buying experience even if the company spends much money on marketing (Basari and Shamsudin, 2020). Furthermore, if clients are content with provided goods or services, they are more likely to be converted into loyal customers (Liu, Lee, and Hung, 2016).

At the same time, it is more profitable for organizations to retain existing customers rather than attract new ones (Basari and Shamsudin, 2020). Studies show that offering products and services to existing clients results in a 60-70% success rate while approaching new customers leads to only a 5-20% success rate (Basari and Shamsudin, 2020). Therefore, companies should place customer satisfaction on the agenda to increase their competitiveness and improve the financial situation.

There are multiple ways in which organizations can achieve customer satisfaction. First of all, products and services should meet customer expectations (Basari and Shamsudin, 2020). Secondly, companies should choose ethical ways of running their business, which means that they should not promise more than they can deliver, change the terms and conditions or charge inexplicable fees (Basari and Shamsudin, 2020). Thirdly, since customers appreciate positive experiences, companies should ensure that their employees communicate with clients properly. Recently, organizations have shifted toward human-to-human relationships with customers, regarding clients not as entities for gaining profits but as humans (Basari and Shamsudin, 2020). Such an approach places customers in the center of the business and increases customer satisfaction.

Customer Turnover

Customer turnover, also known as customer churn, is the opposite of customer loyalty. Customer turnover refers to the situation when consumers stop using services or buying goods from one company and start doing business with another firm (Mahajan, Misra, and Mahajan, 2017). It can be active or passive, intentional or non-voluntary, incidental or rotational (Mahajan, Misra and Mahajan, 2017).

For example, non-voluntary termination of service use can result from customers’ temporary traveling or moving abroad (Banda and Tembo, 2017). Deliberate churn may be caused by high prices, poor quality, billing errors, etc. (Banda and Tembo, 2017). However, the major reason for customers’ discontinuation of using services or buying goods is dissatisfaction with the quality (Banda and Tembo, 2017). Since customer turnover is undesirable for most industries, companies should manage this issue and direct their efforts toward customer retention.

Business Continuity

For sustainable growth and development, companies should make sure that they are able to run their business under unfavorable conditions and rapidly recover from emergencies. Business continuity is the concept that refers to an organization’s capability of functioning in difficult situations and addressing potential threats (Kim and Amran, 2018). Both natural and man-made disasters lead to negative economic consequences, including increased unemployment, infrastructural damage, unstable markets, and other losses (Kim and Amran, 2018). To assess potential risks before, during, and after a disaster, organizations develop business continuity plans (Kim and Amran, 2018).

They aim at protecting organizational assets, staff, data, technology, supply chain, and reputation (Kim and Amran, 2018). Without protective measures, companies are likely to suffer significant losses in the case of an emergency.

Sometimes, researchers use the term “business continuity” to denote the ability of a business to survive the intense rivalry, maintain its financial standing, and foster further growth. In this sense, the main focus of an organization is its customers because, without them, no business can exist (Basari and Shamsudin, 2020). As a rule, the profits of the company serve as an indicator of the company’s success and help the business to run day-to-day operations and expand (Basari and Shamsudin, 2020). Hence, customers can be regarded as the driver for business continuity.

The Relationship between Service Quality and Customer Satisfaction

The literature suggests that service quality and customer satisfaction are strongly interrelated. Service quality is one of the factors that affect customer satisfaction, along with price and personal recognition (Liu, Lee, and Hung, 2016). However, service quality is more significant than price since poor quality has been proved to scare away customers more frequently than high prices (Basari and Shamsudin, 2020). Generally, service quality is considered a precursor of customer satisfaction (Liu, Lee, and Hung, 2016). It implies that at first, a company delivers the service of some quality, and after that, the consumer assesses the perceived value of the service. It leads to either customer satisfaction if the service meets customer expectations or dissatisfaction if it fails to do it.

Multiple studies have confirmed the positive relationship between service quality and customer satisfaction. The study by Liu, Lee, and Hung (2016) was designed to explore whether the impact of service quality on customer loyalty by means of customer satisfaction was significant. They conducted a survey featuring 197 respondents to test their hypotheses. The survey was related to the fast-food industry in Taiwan. The findings demonstrated that service quality had a large positive impact on satisfaction, which, in its turn, had a considerable positive effect on customer loyalty (Liu, Lee, and Hung, 2016). The practical implication of this study is that companies should improve service quality to outpace customer expectations, thus enhancing customer satisfaction and loyalty.

Another study focused on determining the relationship between service quality and customer satisfaction in the B2B segment. Huang, Lee, and Chen (2019) applied the SERVQUAL model to estimate service quality in the technology service industry in Taiwan. The research findings were consistent with those of the previous study. Researchers found out that all five constituents of service quality positively influenced customer satisfaction (Huang, Lee, and Chen, 2019). The results also showed that brand recognition strengthened the impact of service quality on customer satisfaction (Huang, Lee, and Chen, 2019). Thus, this study confirms that the higher the quality of service is, the more satisfied the clients are.

One more research was conducted using the SERVQUAL model to evaluate customer satisfaction. Bhatt and Bhanawat (2016) aimed at assessing the customer satisfaction level in retail units in Udaipur, India. The researchers conducted a questionnaire, the results of which showed which of the selected hypermarkets satisfied customers and which of them caused dissatisfaction. The implication of this study is that it confirms that the SERVQUAL model is appropriate and convenient for evaluating customer satisfaction.

The Relationship between Business Continuity and Customer Turnover

The recent literature on the association between business continuity and customer turnover is scarce. If one understands business continuity as the ability of an organization to prevent and address threats, then the lack of a business continuity plan may lead to customer turnover in the case of a disaster. It may happen because the company will not be ready to provide high-quality service during and after an emergency, thus leading to customer dissatisfaction and refusal to continue using the services of this company.

If one uses the other definition of business continuity, the relationship between business continuity and customer churn changes. Customer turnover has a negative influence on the performance of organizations. It leads to the loss of brand value, revenues, and market share and increases the costs needed to regain lost customers (Banda and Tembo, 2017). Studies show that customer churn negatively affects the company’s profitability and market share (Mahajan, Misra and Mahajan, 2017).

On the other hand, the profits that a company gains from its retained customers tend to increase over time since loyal customers become insensitive to price and are ready to pay more (Mahajan, Misra, and Mahajan, 2017). Research findings indicate that service providers can raise their profits by 100% if they decrease customer turnover by only 5% (Mahajan, Misra, and Mahajan, 2017). These results suggest that companies should reduce customer churn in order to enhance their business continuity.

Conclusion

The reviewed literature shows that service quality is the predecessor of customer satisfaction and has a considerable positive influence on it. Service quality is generally understood as the gap between customer expectations and actual experiences after receiving the service. High service quality exceeds consumers’ expectations and leads to customer satisfaction. Failure to meet clients’ expectations results in customer dissatisfaction, which is often the cause of customer turnover.

The selected literature indicates the negative impact of customer turnover on business continuity since the loss of clients leads to decreased profits and increased costs. The reviewed studies also confirm that the SERVQUAL model is appropriate for measuring service quality. Therefore, the researcher will use this model to rate the service quality of the company and verify the findings of the reviewed literature concerning customer satisfaction.

Reference List

Banda, P. K., and Tembo, S. (2017) ‘Application of system dynamics to mobile telecommunication customer churn management’, Journal of Telecommunication, Electronic and Computer Engineering, 9(3), pp. 67-76.

Basari, M. A. M. D. and Shamsudin, M. F. (2020) ‘Does customer satisfaction matters?’, Journal of Undergraduate Social Science & Technology, 2(1), pp. 1-15.

Bhatt, A. K. and Bhanawat, D. S. (2016) ‘Measuring customer satisfaction using SERVQUAL model – an empirical study’, International Journal of Trend in Research and Development, 3(1), pp. 267-276.

Huang, P.-L., Lee, B. C. Y. and Chen, C.-C. (2019) ‘The influence of service quality on customer satisfaction and loyalty in B2B technology service industry’, Total Quality Management & Business Excellence, 30(13-14), pp. 1449-1465.

Kim, L. L. and Amran, A. (2018) ‘Factors leading to the adoption of business continuity management (BCM) in Malaysia’, Global Business and Management Research: An International Journal, 10(1), pp. 179-196.

Liu, W.-K., Lee, Y.-S. and Hung, L.-M. (2016) ‘The interrelationships among service quality, customer satisfaction, and customer loyalty: examination of the fast-food industry’, Journal of Foodservice Business Research, 20(2), pp. 146-162.

Mahajan, V., Misra, R. and Mahajan, R. (2017) ‘Review on factors affecting customer churn in telecom sector’, International Journal of Data Analysis Techniques and Strategies, 9(2), pp. 122-144.

Prakash, G. (2019) ‘Understanding service quality: insights from the literature’, Journal of Advances in Management Research, 16(1), pp. 64-90.

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NerdyTom. (2022, February 11). Customer Satisfaction and Service Quality: A Literature Review. Retrieved from https://nerdytom.com/customer-satisfaction-and-service-quality-a-literature-review/

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