Professional Documents
Culture Documents
) A National Customer
Satisfaction Barometer:
The Swedish Experience
Many individual companies and some industries monitor customer satisfaction on a continuai basis, but
Sweden is the first country to do so on a national level. The annual Customer Satisfaction Barometer
(CSB) measures customer satisfaction in more than 30 industries and for more than 100 corporations.
The new index is intended to be complementary to productivity measures. Whereas productivity basically
reflects quantity of output, CSB measures quality of output (as experienced by the buyer). The author
reports the results of a iarge-scale Swedish effort to measure quality of the total consumption process
as customer satisfaction. The significance of customer satisfaction and its place within the overall strategy
of the firm are discussed. An implication from examining the relationship between market share and
customer satisfaction by a location model is that satisfaction should be lower in industries where supply
is homogeneous and demand heterogeneous. Satisfaction should be higher when the heterogeneity/
homogeneity of demand is matched by the supply. Empirical support is found for that proposition in
monopolies as well as in competitive market structures. Likewise, industries in general are found to have
a high level of customer satisfaction if they are highly dependent on satisfaction for repeat business. The
opposite is found for industries in which companies have more captive markets. For Sweden, the 1991
results show a slight increase in CSB, which should have a positive effect on the general economic
climate.
Journal of Marketing
6 / Journal of Marketing, January 1992 Vol. 56 (January 1992), 6-21
This article reports the CSB development and in- most Swedish industries is such that price is not the
dustry results from the first three years in Sweden. most effective competitive weapon. Means of com-
Background and a brief description of some of the petition that reduce price elasticities among repeat
macroeconomic issues involved are followed by a dis- buyers are therefore becoming increasingly important.
cussion of how customer satisfaction relates to the A high level of customer satisfaction may be such a
overall strategy of the firm. That is the context within means.
which the validity of CSB is examined. The annual CSB is a nationwide gauge of how well
Though the notion is controversial, substantial lit- companies (and industries as a whole) satisfy their
erature suggests that market share leads to profitabil- customers. Similar to a productivity index, it mea-
ity (see Buzzell and Gale 1987 for a review). Cus- sures economic performance. The difference is that
tomer satisfaction also is believed to lead to profitability productivity refers to quantity (output per factor)»
(Business International 1990). However, it is far from whereas CSB refers to quality (from the customer per-
certain that market share and customer satisfaction spective). Obviously, any nation would like increases
themselves are positively correlated. In fact, the op- in both. However, if quality is costly (say, in terms
posite could well be the case. The circumstances un- of the manpower factor), a gain in one may imply a
der which there is a negative relationship between the loss in the other. It is too early to speculate on the
two is discussed as the basis for a proposition about nature of that tradeoff, but it seems reasonable to as-
the levels of CSB in different industries. sume that a weak growth in productivity is not nec-
The impact of customer satisfaction for repeat essarily detrimental if it is offset by increases in qual-
business and customer loyalty is not the same for all ity. According to the OECD Productivity Index, both
industries. Loyal customers are not necessarily satis- Japan and (West) Germany are below the average pro-
fied customers, but satisfied customers tend to be loyal ductivity level for developed countries. Nevertheless,
customers. Aside from satisfaction, there are other they are countries with a positive balance of trade,
means of customer retention. Customer switching bar- strong economy, and reputation for quality products.
riers comprise a host of factors that also bring about High quality leads to high levels of customer retention
retention. Hence, all companies are not equally af- (for a review, see Steenkamp 1989), which in tum are
fected by customer satisfaction, but virtually all com- strongly related to profitability (Reichheld and Sasser
panies depend on repeat business. 1990).
To understand the meaning of CSB as an eco- Consider the effects of changes in the currency ex-
nomic indicator and its significance for the individual change rates as an example. Increases in the yen do
business firm, let us first examine the macro con- not seem to have as strong a negative effect for Jap-
cerns, the relationship between satisfaction and mar- anese products as an equivalent price increase for, say,
ket share, and the impact of customer switching bar- American products. A nation whose industry gener-
riers. After a discussion of those issues, the objectives, ates high levels of customer satisfaction is probably
method, and results of CSB are presented. better protected against cost increases as well as for-
eign competition.
Background The Micro Level
Figure 1 is an overview of the micro context of CSB
The Macro Level in terms of the sources of revenue. Here, overall busi-
As in other Western economies, many industries in ness strategy is composed of two parts, the offense
Sweden face the combined difficulties of increasing and the defense. Virtually all firms employ some
international competition, slower growth rates, and combination of offensive and defensive strategy—the
offense for customer acquisition and the defense to
mature markets. As a result, fewer new customers are
protect the present customer base (Fomell and Wer-
being pursued by an increasing number of suppliers.
nerfelt 1987, 1988). Traditionally, much more effort
Under those circumstances, a large share of the firm's is devoted to acquiring customers than to their reten-
resources must be devoted to the present customer base. tion. The annual expenditure on advertising and sales
How can that base be maintained? How can it be pro- promotion in the U.S. alone is well over one trillion
tected from (foreign and domestic) competition? An- dollars. Though much of the advertising portion is di-
other effect of an increasingly competitive environ- rected to present customers, most such expenditures
ment is rising pressure on price. The cost structure in are for the offense. In the face of slow growth and
highly competitive markets, however, a good defense
Schixil. In Japan, preliminary work is underway- Again, the Swedish is critical. When company growth is accomplished at
nitxiel is the pmUtiype. The Norwegian paijecl is coordinated by the
Norwegian Schtxil of Management with Johan Rtws and Fred Seines the expense of competing firms (i.e., by capturing
as program directors. For a feasibility study that reviews various ap- market share), firms with weak defenses are the first
proaches to developing a national index, see NERA ( 1991 ). Business to suffer. In many cases the attention paid to the de-
International (1990) also includes a description of ihe Swedish model.
BUSINESS
Customer
STRATEdY Market Share Satisfaction
. f ,1
\ Typically Low growth or Low growth or
employed in saturated saturated markets
OFFENSE DEFENSE markets
(NEW CUSTOMERS! (PRESENT CUSTOMERS) Strategy type Defense
Offense
Focal point Customers
Competition
INCREASE CAPTURE BUILD INCREASE
Measure of Share of market Customer retention
MARKET MARKET SHARE SWITCHING
BARfllERS
CUSTOMER
SATISFACTION success relative to rate
competition
Behavioral
objective Buyer switching Buyer loyalty
fense has been too slow or insufficient. The result is faction strategy. Both strategies often are used under
typically an erosion of the customer base. Witness what the same market conditions, low growth or saturated
has happened in banking and the steel industry, and markets—that is, when there is little prospect for
to companies that make automobiles, cameras, tele- company growth without taking business away from
vision sets, food products, machine tools, radial tires, competitors.
computer chips, and medical equipment. Capturing market share is an offensive strategy;
Defensive strategy involves reducing customer exit creating customer satisfaction is defensive. Success
and switching. The objective of defensive strategy is and failure in market share are evaluated in relation
to minimize customer turnover (maximize customer to competitors. For customer satisfaction, success and
retention), given certain cost constraints (see Fomell failure are evaluated primarily by changes in customer
and Wemerfelt 1987, 1988 for an analytical treat- retention. In other words, the behavioral objective for
the offense is patronage switching; for the defense it
ment), by protecting products and markets from com-
is loyalty. Costs, as a result, are typically higher for
petitive inroads. One way of accomplishing that ob-
the offense, because more effort is necessary to create
jective is to have highly satisfied customers. To change (switching) than to maintain status quo. Clearly,
understand CSB in a micro context, let us return to a successful defense makes competitors' offense even
Figure 1 to examine a major approach of the of- more costly.
fense—building market share—and discuss how it re-
lates to a major approach for the defense—customer Several of the major consulting firms that pre-
satisfaction. scribed some form of market share strategy a few years
ago are now promoting strategies for customer satis-
faction (Business Week 1990). The argument is that
customer satisfaction leads to profitability—the same
Market Share and argument that was used for market share. However,
Customer Satisfaction as indicated in Table 1, the two strategies are dras-
Beginning in the 1970s and spurred by two very in- tically different. If they both lead to increased prof-
fluential publications (one by the Boston Consulting itability, what is the relationship between market share
Group 1972; the other by Buzzell, Gale, and Sultan and customer satisfaction? Understanding that rela-
1975), the pursuit of market share became a key part tionship is critical for firms that now change their
of management strategy. In popular simplifications, overall strategy, as well as for understanding the role
the maximization of market share was held to be a of CSB as an index.
way to maximize profits. So widespread was the prac- Paradoxically, one can show that the relationship
tice that a majority of the leading U.S. firms em- between market share and customer satisfaction can
ployed some form of market sbare strategy in the be- be negative. That will be the case when market de-
lief that it would lead to greater profitability (Haspeslagh mand is heterogeneous and supply homogeneous
1982). Market share maximization was claimed not (standardized). Theoretically, the relationship can be
only to serve the individual firm, but also to improve demonstrated with a location (address, ideal-point)
a country's economy in terms of productive efficiency model. That type of model commonly is used in anal-
(Henderson 1979). yses of utility and choice. It also brings new insights
In Table 1, the fundamentals of a market share into the study of customer satisfaction.
strategy are outlined in relation to a customer satis- Consider a distribution of customers with different
The Effect on Loyalty sitive to satisfaction. Not surprisingly, the police force
is much less dependent on how it treats its "cus-
Just as price elasticity varies among firms and indus- tomers" (citizens reporting a crime) to "secure repeat
tries, so does "customer satisfaction elasticity." Clearly, business." Most of the other monopolies are also less
it is very important to determine how sensitive the sensitive to customer satisfaction than industries in
present customer base is to satisfaction, in view of the competitive market structures.
current business emphasis on quality, one may well In view of the possibility of competition for the
get the impression that quality and customer satisfac- telephone company in the near future, respondents were
tion are equally important for all firms. That is not asked about the hypothetical case of having alterna-
the case. Customer satisfaction is more important (for tives available today. As a result, the coefficients for
loyalty) in some industries than in others. that industry are exaggerated if interpreted for the mo-
Figure 3 depicts the effect of CSB on customer nopoly case. The same holds for the pharmacies, which
loyalty. The vertical axis measures CSB for 1990; the also may face competition in the future.
horizontal axis measures the unstandardized coefficient^ v Interestingly, the industries with low elasticities
that relates CSB to loyalty. With one exception (tele- are those in which one would suspect switching costs
vision broadcasting), the industries seem to be "ra- to be high (police, postal services, telephone services,
tionally structured" in the sense that those highly af- and business insurance). In contrast, switching bar-
fected by customer satisfaction also have high CSB riers for automobiles, food, charter travel, and per-
scores. Personal computers, food products, automo- sonal computers are probably less powerful. Com-
biles, charter travel, and mail order are all very sen- panies in those industries are highly dependent on
customer satisfaction for repeat business.
'As in covariance structure analysis, the metric of the latent variable
is indeterminate- PLS standardizes to a mean of zero and a variance Summary
of one. To make comparisons across industries and time, unstandar-
dized coefficients were obtained by multiplying the structural coef-
To sustain and improve the welfare of their citizens,
ficient (for the combined sample 1989 and Í990) by the ratio of the all nations depend on intemational trade. For small
mean standard deviations for the relevant variables. countries, without an abundance of natural resources,
Industry 1989 1990 1991 19B9 1990 1991 1989 1990 1991 1989 1990 1991 1989 1990 1991
Airlines ,67 .63 .51 .11 .18 .22 .23 .38 .28 .01 .1 ,01 .49 ,48 .39
Automobiles .48 .51 .51 .23 .18 .19 .51 .47 .49 -.05 -.04 -,04 .36 ,34 ,36
Banks, business .7 .76 ,7 .1 .04 ,1 .39 ,41 ,36 -,13 .09 -06 .54 .59 .54
Banks, public .68 .68 .69 .05 .08 ,06 .53 .52 .59 -.05 -.04 -,01 .49 .5 ,51
Charter travel .75 .73 ,76 ,03 .09 .06 .54 .53 .52 ,03 .03 -.002 .57 .58 ,61
Clothing, retail ,59 .47 ,58 ,19 .28 .45 ,45 .38 .42 -,02 .08 .06 .48 .42 ,48
Computer mainframes ,51 .65 ,57 ,11 .07 .11 ,37 .43 .37 .01 .14 .03 .31 .45 ,37
Department stores ,5 .49 .59 ,34 .22 .24 .17 ,35 ,36 .02 .02 .13 .48 .38 .53
Food processing .11 .71 .68 na na na .59 ,57 .58 .03 .01 .02 .52 .5 .46
Furniture ,49 .56 ,64 .26 .16 .18 .32 .5 .56 .01 .04 .04 .4 .42 .54
Gas companies ,43 ,52 .49 .37 .24 .3 .38 .38 .29 ,05 .06 .03 .45 ,44 .43
Insurance, business .72 ,75 .72 .08 .08 ,12 .37 .32 .4 -,1 -.19 -.08 .57 .61 ,58
Insurance, property .7 ,79 .78 0 .03 ,05 ,42 .54 .45 .01 -.06 -.03 ,49 ,63 .62
Life Insurance, public .7 ,68 .75 0 .13 ,08 ,42 ,38 .35 ,01 -.06 -04 ,49 ,55 .61
Mail order na .66 ,71 na .09 ,04 na ,53 ,48 na -.04 .06 na .48 .52
Newspapers na .5 ,55 na .31 .26 na .41 .28 na -.01 .02 na ,52 .52
Personal computers ,64 .61 .55 .05 .12 .22 .48 .46 .46 09 12 .15 .42 42 .43
Pharmacy na .62 .54 na .22 ,23 na .3 .2 na -.08 -.05 na ,57 .48
Police .52 .67 11 ,3 .04 .03 .13 .15 .27 -,13 -.22 -.03 .45 ,47 .61
Postal service.
business ,64 75 ,69 .06 .07 ,12 ,32 .31 .4 -,1 -.13 ,04 ,43 ,59 ,55
Postal service, public ,59 .61 ,72 ,13 .19 .11 ,2 .17 .19 -17 -.05 -29 .4 ,53 ,59
Railroad .61 ,7 .6 ,02 .13 ,19 ,5 .42 .39 ,02 .14 .16 .38 .56 .5
Shipping na ,73 ,69 r>a .08 .13 na .47 ,37 na -.03 -.01 na .57 .55
Supermarkets .57 ,64 .57 ,3 .19 .27 ,38 .44 ,52 .08 .07 ,15 .53 ,55 .52
Telecommunications.
business .74 ,74 .72 ,07 .09 ,08 .32 .29 ,37 -,17 -,01 -,03 58 ,61 ,56
Telecommunications.
public .59 .64 .67 .14 .17 ,2 ,38 .27 ,38 -.1 -,12 -.07 .41 ,53 ,59
Television
broadcasting ,6 ,74 .63 .31 ,14 ,21 ,63 .66 .48 na na -.02 .55 ,68 ,55
'P - performance. S ^ satisfactior» (i,e„ CSB), E -- expectations, L - loyalty, V = voice (i,e,. complaints).
it is even more critica! to do well in foreign markets about 100 firms in more than 30 industries from an-
and to defend domestic markets. Obviously, devel- nual survey data that are used as input into a multiple-
oped countries must increasingly rely on knowledge- equation system. High levels of validity and reliability
intensive industry and cannot compete well on price are demonstrated. In a micro context, the impact of
or labor costs (Lindbeck 1988). Nevertheless, most (1) customer switching barriers and (2) the relation-
analysts agree that high levels of productivity are es- ship between customer satisfaction and company mar-
sential. ket share leads to a proposition about the levels of
However, many industrial nations do not expect CSB in different industries. Specifically, the conten-
great improvements in productivity. Instead, they must tion is that heterogeneity/homogeneity of demand and
concentrate more on quality production. When quality supply is largely responsible for major differences in
is recognized by the buyer, it is reflected in customer CSB across industries. The results indicate that in-
satisfaction. That is why a national index of customer dustries selling homogeneous products to a homoge-
satisfaction is not only a complement to productivity neous market or differentiated products (services) to
indices at the macro level, but also a complement to a heterogeneous market typically had higher CSB than
traditional measures of business performance at the other industries.
micro level. Products and services that provide high With the caveat that absolute numbers are some-
customer satisfaction are less vulnerable to competi- what difficult to interpret in the absence of a longer
tion. They have a higher proportion of repeat business data series and comparisons with other countries, the
and higher gross margins. results suggest that customers in Sweden are not overly
After Japan, Sweden had the fastest GDP growth satisfied with many of their products and services.
per capita in the world during 1870-1960. Since 1970, However, the recent trend appears to be slightly up-
the country has slipped in relation to other nations. In ward—especially for some of the state monopolies
an effort to promote quality and increase customer ori- (which seem to gear up to meet possible deregula-
entation within its industries, Sweden has developed tion).
a new economic indicator, the Customer Satisfaction To be competitive in world markets, a company
Barometer. This article reports on the first three years must invest in productivity as well as in the quality
of its application. of what is produced. Before quality can be improved,
CSB estimates levels of customer satisfaction for it must be measured. Measurement is a prerequisite
CSB 1990
80
• pharmacist
70 • b«nha-p
a lood
polio«
J ^.
50
Ivlavlilon broidoaillng*
40
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8
Loyalty Coefficient
where: X = expectations.
Appendix B
CSB Results 1989 to 1991
CSB Leading Firms
REFERENCES
Anderson. Eugene W. and Mary W. Sullivan (1990), "Cus- Components of Survey Measures." Public Opinion Quar-
tomer Satisfaction and Retention Across Firms," working terly, 48. 409-42.
paper, School of Business Administration. University of and John P. Robinson (1988), "Measures of Sub-
Michigan. jective Well-Being." Ann Arbor: Institute for Social Re-
Andrews. Frank M. (1984). "Construct Validity and Error search, University of Michigan.