Research and concepts An index method for measurement of customer satisfaction

Ingrid Fecikova
The author Ingrid Fecikova is a Lecturer at the Technical University of Koice, Slovakia. s Keywords Customer satisfaction, Measurement, Customer retention, Customer loyalty, Profit Abstract Customer satisfaction (CS) has become an important issue for commercial and public service organisations. Companies win or lose based on what percentage of their customers they can keep. Success is largely about retention of customers, which again depends on CS level. It would be a great help to be able to comprehensively measure the quality of product and service, by relating the measures of quality to real customer behaviour. Some companies get feedback about CS through the percentage of complaints, some through non-systematic surveys, again some do not measure CS at all, because ``the system would not add anything useful and is very time-consuming''. Give three managers in the same company the same objective: to improve CS, however it may be measured, and they will come up with three distinctly different and incompatible plans. CS requires a number of ingredients, all of which need to be considered. Aims to develop and simplify measurement systems by using a general formula that makes quantitative measurement of CS possible. Considers four important aspects that have a negative or positive influence on profitability related to CS. Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0954-478X.htm
The TQM Magazine Volume 16 . Number 1 . 2004 . pp. 57-66 # Emerald Group Publishing Limited . ISSN 0954-478X DOI 10.1108/09544780410511498

Introduction
In an atmosphere of heavy competition it is dangerous to be a non-customer oriented company. Most markets are very competitive, and to survive, organisations need to produce products and services of very good quality that yield highly satisfied and loyal customers. Establishing and achieving customer satisfaction is a main goal of business nowadays, because there is very clear and strong relationship between the quality of product, customer satisfaction and profitability (Figure 1). Satisfied customers are more likely to return to those who have helped them, and dissatisfied customers are more likely to go elsewhere next time. The key to organisational survival is the retention of satisfied customers. Loyalty of customers is a function of satisfaction, and loyal customers: . spend more on your products and services; . encourage others to buy from you; and . believe that what they buy from you is worth what they pay for it. The result is optimized long-term profit. If companies want to achieve customer satisfaction, they must measure it, because ``you can not manage what you cannot measure'' (Ho, 1995). Market research techniques to measure customer satisfaction include: . customer satisfaction survey methodologies; . focus groups to study customer satisfaction issues; . standardised packages for monitoring customer satisfaction; and . various computer software. There are some problems with typical customer satisfaction measurement techniques such as focus groups, survey methodologies and customer satisfaction software. These include: . analytical concerned with techniques, formal procedures, systems, and so on; . behavioural concerned with the attitudes, beliefs, perceptions, motivation,
This paper was elaborated in the frame of solution of investigation task VEGA No.1/9404/02 ``Research of methods of implementation an accepted risk of machinery in the stage of its constructing''.

57

An index method for measurement of customer satisfaction

Ingrid Fecikova

The TQM Magazine Volume 16 . Number 1 . 2004 . 57-66

Figure 1 Dependence between quality, satisfaction and profitability

commitment and resulting behaviour of the people involved in the process; and organisational concerned with the organisational structure, information flows, management style and corporate culture, i.e. the context in which the process is conducted (Piercy, 1996).

The starting points for effective customer satisfaction measurement are the following questions: (1) Who is our customer? (2) What does his/her satisfaction include, what does it mean? (3) What do we thus need to measure? (4) How do we measure it?

1. Start with the customers

Accurate information about customers enable us to provide products or services which match their needs. There are two kinds of customers for processes within an organisation: external and internal. External customers are the customers in the marketplace, whereas internal customers are the customers within the corporation, the employees of the corporation. If the critical step in building a customer satisfaction measurement system is finding the right customers, the second most critical is the right employees. The satisfaction of internal customers (below the term employee is used) and external customers is seen as a cause-andeffect relationship (Reichheld, 1996). Employee satisfaction is the source of excellent quality, because if the the organisation satisfies the needs of its internal customers, it is also enabling its internal customers to perform their tasks and the network of organisation units are more adapt to work effectively together to achieve customer satisfaction. Problems with employee satisfaction (turnover of employees, etc.) lead to problems with customer satisfaction. The satisfaction of internal customers is thus one of the basic conditions to satisfy the external final customers on the market (Figure 2). This is the reason why managers need to think about the costs and benefits of socially responsible and ethical behaviour. These things can help to form a good relationship between managers employees and the firm customers (Hekelova, 1999). This is also a main problem with customer satisfaction. The managers are usually oriented towards early and easy (but shortterm) financial profit and underestimate the role of satisfaction of their subordinates for 58

Why measure?
Customer satisfaction is the key factor determining how successful the organisation will be in customer relationships (Reichheld, 1996), therefore it is very important to measure it. Total quality management (TQM) is based on the idea of customer satisfaction a management approach of an organisation centred on quality, based on the participation of all its members and aiming at long-term success through customer satisfaction and benefits to all members of the organisation and to society (ISO 8402). The achievement of true customer satisfaction involves: . customer oriented culture; . an organisation that centres on the customer; . employee empowerment; . process ownership; . team building; and . partnering with customers and suppliers. There are several benefits for quality to be found via market research, particularly in measuring the satisfaction levels of current customers, determining customer needs for product development, and analysing customer retention and loyalty. To better manage customer satisfaction, firms spend millions on effectively tracking the methods that guarantee customer satisfaction, because the quantitative measurement of customer satisfaction is a great help for comprehensively measuring the effect of product quality on customer behaviour.

An index method for measurement of customer satisfaction

Ingrid Fecikova

The TQM Magazine Volume 16 . Number 1 . 2004 . 57-66

Figure 2 The circle of satisfaction

achieving external customer satisfaction and profitability (Figure 2). This is a disadvantage because managing internal customers is usually easier than managing the external customers. There is a positive correlation between external customer satisfaction and: . lower stress of employees; . opportunities for development and training; . working conditions; and . loyalty of employees. There is negative correlation between external customer satisfaction and turnover of employees (Adsit et al., 1996, pp. 62-75). Loyalty of employees depends on: . daily leadership: motivation through their own performance; . top management: communication of their expectations to the individuals; . development of the competencies: giving feedback of employees' performance, job efforts, opportunity for development and improvement and becoming more competent; . corporation and people retention; and . working conditions. Suppliers with too many customers suffer headaches: if they want to develop customer relationships they should reduce the number of customers, or they will never be able to spend the time and effort needed (Wiesserman, 1996). A critical dimension in building a set of measurement statistics is the number of customer segments that need to be tracked separately. There is usually a small percentage of customers whose business creates most of the profit for the 59

companies and it is advantageous for the companies to concentrate their measures on this small group of highly profitable customers. In this case it is necessary to arrange them into a hierarchy of importance for determination of the right customers whose satisfaction the company should work on (see Table I). The first group of external customers is very significant for the company, because it is strategic and important for the profit of the company and provides cash flow and results. The top management is very significant because it influences the culture in the company, the beliefs of employees, it leads the employees and communicates to them the aims of the company. It needs to understand what customers value and to communicate their understanding to employees. And it is true that managers, who met employee satisfaction also maintain customer satisfaction. In this case:
For managers it is necessary to think about the costs and benefits of the socially responsible and ethical behaviour. These things can help to form a good relationship between managers employees and the firm and customers.

Important here is: ``different satisfaction measures for different customers''.

2. What does ``satisfaction'' mean?

Organisations have to know how satisifed customers feel. The word satisfaction is central to many definitions and in a marketing context it is used to have many ``specific'' meanings: . satisfaction is merely the result of ``things not going wrong''; . ``satisfying the needs and desires of the consumer'' (Besterfield, 1994); . satisfaction-as-pleasure; . satisfaction-as-delight (Kanji and E Sa Moura, 2002, pp. 13-17); and . customer evaluations of the quality of goods and services (www.theacsi.org). The most common interpretations reflect the notion that satisfaction is a feeling which results from a process of evaluating what was received against that expected, the purchase decision itself and/or the fulfilment of needs/want. The perception of the word ``satisfaction'' influences the activities which we conduct to

An index method for measurement of customer satisfaction

Ingrid Fecikova

The TQM Magazine Volume 16 . Number 1 . 2004 . 57-66

Table I External customers Very important customers the customers with the greatest share of profit Important customers the customers with quite a high share of profit Not important customers the customer with a low share of profit Internal customers Top management ``white collar'' Middle management ``white collar'' Floor workers ``blue collar''

achieve it. If we think of satisfaction as ``things not going wrong'', the company goal will be to reduce the number of complaints. But the number or percentage of complaints can be an indicator of customer dissatisfaction. The company must reduce the number of complaints in order to eliminate dissatisfaction, but it is only one, necessary but not sufficient in itself, condition for true customer satisfaction. To attain true customer satisfaction the companies need to achieve quality not only by eliminating the causes for direct complaints but they need provide their products with excellent, attractive quality provide the delight to the customer (Figure 3).

3. What we need to measure?

Many organisations identify the level of customer satisfaction through: . the number of product support problem calls; . the number of direct complaints by phone, e-mail, etc.; and . the number of returned products and the reason for their return, etc. (Werth, 2002). I think that this is the measurement of customer dissatisfaction (no satisfaction) and offers a

possibility for the elimination of falls, not a possibility for product development and product innovation. Organisations can collect and analyze appropriate data, which will provide relevant information relating to real customer satisfaction. It is important to measure the right things, i.e. what is really important for the customers. There is the possibility of wrong specifications or misinterpretations of what a customer actually wants (Kekale, 2001) (the gap between what companies think customers probably want and what customers really want). Criteria for the measurement of customer satisfaction must be defined by the customer. Many organisations determine the criteria for measurement internally, but ``suppliers'' rarely have an accurate understanding of customer priorities (Hill, 1996). It is a problem with measuring the performance dimensions that are not critical drivers of value to the customers (value in the eye of customers, not in the eye of organisations). The solution for this problem, to provide real insight into the market needs, is to filter out irrelevant information and concentrate on the few dimensions that really matter. A convenient tool for the validity of companies prevailing hypotheses of customer

Figure 3 Correlation between customers' expectations and customer satisfaction (CS)

60

An index method for measurement of customer satisfaction

Ingrid Fecikova

The TQM Magazine Volume 16 . Number 1 . 2004 . 57-66

demands is pre-study. The principle of the method is described in Figure 4. For evaluation of information, which we will achieve by pre-study, we can use the histogram. The histogram shape shows how some questions in the questionnaire were understood by respondents. For example: no-rectangular distribution means misunderstanding a question, etc. After a simple pre-study the companies can find support for their assumptions and simultaneously create a new, more effective, questionnaire. If we have a set of customer demands and expectations we can translate them into technical product features by using, e.g. the QFD methodology. Very important also is determining the specific features, which means a limited number of critical measures in order to avoid information overload.

The following four key questions need to be answered in designing an effective set of questions or a questionnaire: (1) Will the respondent have the information/knowledge needed to answer the questions? (2) Will the respondent understand the questions? (3) Is the respondent likely to give a true answer? (4) Will the formulation of the question bias the response? (For example: distribution of responses for each question is reported by histogram: no-rectangular distribution shows that the formulation of the question is not clear or that the questionnaire was filled by an incompetent person.)

4. How to measure?
Any method that gathers customer feedback is good, but for effective measurement, we need to find appropriate methodology (description processes and measurement scales). The alternative methods to use include questionnaires (by post, by e-mail), direct interviews, telephone interviews, marketing research, comparison with competitors (benchmarking) and so on. The validity and relevance of the data gathered through these methods also varies. The main problems are: . How to ensure the questionnaire will be filled in by a person who is competent to respond? . How to ensure the answers are truthful? . How to practically conduct professional customer satisfaction and loyalty surveys that can provide valid and reliable data for making decisions to effect improvements?
Figure 4 The principle of pre-study

Main determinants: importance and satisfaction

We measure value because it is important, but we also need to know how important it is. It is not enough to determine customer needs, but also to identify their relative importance: How important are the ``right things''? the level of importance of the features of product, what kind of quality the customers really want. Furthermore, based on the importance of the matter, we can structure the needs into a hierarchy of primary, secondary and tertiary needs in order to correctly determine customer satisfaction with the features that really matter. This is the only way to find out how satisfied customers really are. The primary needs are strategic ones, because there is a strong influence to purchase decisions of users. The top five to ten needs give the strategic direction for customer satisfaction. The secondary needs are tactical, to their nature, while the tertiary usually only provide the details. (There is, however, some correlation between the needs.) The surveys often ask the customers to answer all questions in questionnaire with ratings on e.g. a Likert-type five-point scale (e.g. very satisfied, satisfied, neutral, dissatisfied, very dissatisfied). But what do the customers really think when they state they are ``neutral'' or ``very dissatisfied'' on a satisfaction 61

An index method for measurement of customer satisfaction

Ingrid Fecikova

The TQM Magazine Volume 16 . Number 1 . 2004 . 57-66

questionnaire? We know that completely satisfied customers are much more loyal than merely satisfied and there is positive correlation between loyalty and profit (Stauss and Neuhaus, 1997, pp. 236-49). If we want to retain a high level of customer satisfaction (and then customer loyalty) we need to obtain, first, high customer contact and customer focus (Contact with customers is very important and a powerful force in creating local subcultures that can appropriately interact with the customer value.) Second, we need good management of the network organisation and the product platform. Third, there should not be any clash of cultural norms between who manage and who is managed. Contact with employees and customers maintaining and building the relationship are thus key quality measures. Fourth, we need to identify opportunities to enhance the relationships with all or at least the key customers. There is still one problem in measurement of customer satisfaction: the gap between ``importance of satisfaction issue'' and ``satisfaction with the product'' dimensions. Very often this is the reason of decreasing profit. The important features of the products are features that influence positively and very strongly the purchase decision making. Sometimes there is a very visible and high customer satisfaction but with the features of product that are not very important, but the company thinks the customers are happy. This situation is explained in Figure 5. Definition of ``leadership factors'' for measurement of customer satisfaction provides an accurate measure of customer satisfaction which can be monitored from year to year.
Figure 5 Correlation between importance and satisfaction

Leadership factors define the area where customer satisfaction needs to be improved to maximise loyalty.

There are various methods (various approaches) for (to) the measurement of customer satisfaction
1 The index of satisfaction This is multiplied by its corresponding weighting factor to produce weighting scores (according to Bhave, 2002) (see Table II). So we can say (by this) that the satisfaction of the customer is (for one concrete respondent) 81.80 per cent. The overall satisfaction index for the organisation will be the average of every respondent's individual satisfaction index. 2 The indicator of a customer satisfaction level ICS This indicator can be watched in cases where the company carries out customer satisfaction measurement routinely. Afterwards we may create a ratio (Hazes, 1998): Ircs ICS 100 %; Iocs where: Ircs is the real value of the customer satisfaction index which is used as a tool of routine customer satisfaction measurement; and Iocs is the optimum value of such an index. The positive trend asked: ICS increasing towards to 100 per cent value. 3 Methodology for measurement of customer satisfaction This is used by ACSI (see Figure 6).

62

An index method for measurement of customer satisfaction

Ingrid Fecikova

The TQM Magazine Volume 16 . Number 1 . 2004 . 57-66

Table II Importance score Stability Price Design Sum Figure 6 9 8 6 Weighting factor 0.39 0.35 0.26 Satisfaction score 8 10 6 Weighted score 3.12 3.50 1.56 8.18-81.80 (%)

Here satisfaction is linked to consequences as defined by customer complaints and customer loyalty measured by price tolerance and customer retention.

Construction: a measurement formula

With this formula (Figure 7), we can determine ``the right things to do'' (areas or product dimensions important for customer satisfaction by determining: (1) Level of importance of the product dimension using an evaluation scale from 0 to 10 where 0 means not important, 10 most important. (2) Level of satisfaction, using the same scale: 0 dissatisfaction, 10 ultimate satisfaction.
Figure 7

(3) Type of customer using an internallydecided coefficient, e.g. based on levels of customer importance. (4) Type of validity of the method using some coefficient from the level of validity yet to be decided, for example: . structured interview ``face to face'' 1.00 (100 per cent validity); . interview by telephone 0.70 (70 per cent validity); and . questionnaire by e-mail and by the post 0.40 (40 per cent validity) . . ., etc. Example: we do a survey for customer satisfaction with chairs and use the e-mail questionnaire (see Figure 8). Each of the features we display in the diagram with boundaries have various ``tolerance bands''. For the first group of customers there is smallish tolerance if we compare it with the

63

An index method for measurement of customer satisfaction

Ingrid Fecikova

The TQM Magazine Volume 16 . Number 1 . 2004 . 57-66

Figure 8 Diagram of features

tolerance for the third group of customers, because of their higher importance for receiving profits in the organisation. It is a relationship with segmentation of the market. We can see that for each group of external customers there are different important dimensions of the product. The aim of the company is ``to achieve high profit'' and because of this the managers of the company 64

must be oriented especially towards the first group of customers (50 per cent share of the gain). The company also needs to be oriented towards the product dimension of technological stability. It is in this example that the most important dimension has a very strong influence to purchasing decisions of users and there are at the moment discrepancies between importance and satisfaction (high importance,

An index method for measurement of customer satisfaction

Ingrid Fecikova

The TQM Magazine Volume 16 . Number 1 . 2004 . 57-66

low satisfaction II quadrant in Figure 5) hence the result is a negative number. The group of customers is strategically important and the method used has relatively high validity. If we are thinking about the second group of customers (30 per cent share of profit) we can see the discrepancy by the feature ``stability'', high satisfaction and quite low importance. Stability is (see Figure 6) situated beyond ``light and dark limits'', meaning problems. For the third group of external customers the price is the most important dimension, but their share of the profit is not very high and in this case they are not very strategic customers. Maybe, if the company meets the expectations and demands of the strategic customer group, some time in the future the price will be the next main dimension for development.

translated into measures of what the company must do internally to meet its customer expectations. In this case the managers should be focused on the customer demands which means: . a commitment to satisfy customers; . an integration of customer satisfaction in a firm's goal and vision; . a knowledge of customer needs and expectations; . usage of customer feedback in new product design; . monitoring of customer satisfaction; . responsiveness to customer complaints; and . a high and continuous level of interaction with customers. Finally, by monitoring customer satisfaction we need to systematically realise and to consider concrete situations (actual conditions) of the company. It should be general enough because of its application for each industrial sector. There is a need to: (1) Identify the customer: the strategic point of view of customer satisfaction measurement is recognition of internal and external customers. The critical dimension is the number of customer which we need to evaluate separately: key customers, not very important customers, etc. (2) Realise pre-study for determination of the critical features of the product, for avoiding irrelevant information, it is a tool for validation of hypotheses (created by the organisation) about customer demands, it is a tool for achieving feedback from the market. (3) Design an effective questionnaire for achieving competent information. (4) Design the most suitable method for monitoring customer satisfaction, ``the right method for the right customer'' (unique questionnaire for unique respondents). (5) Evaluate the questionnaire, which includes suitable statistical methods with consideration of four important areas (level of importance, level of satisfaction, type of customer, type of method). (6) Ensure feedback. Measurement plays an important role in (Oakland, 1998): 65

5. Conclusions
The prevailing approach to the business might be called the profit theory of business. But profits alone are an unreliable measure because it is possible to report a short-term earning by liquidating human resources or other capital. Understanding not only technical features but also the enabling factors that support their acceptance and integration into the organisation (for example: human resources, culture) help the companies to survive in a competitive market and ensure continual improvement and profit. The aim of customer satisfaction measurement would be to build the base for a scorecard linking the various components of the business together in a relationship that can be quantified in cash-flow terms. Both the newly-implemented process improvements and current services should be evaluated on the basis of human resources, in terms of customer satisfaction outcomes and the supporting operating systems that resonate through all disciplines of the organisation. The result is the satisfaction of both external and internal customers. Measurement is the business idiom relationship (Reichheld, 1996), because it shapes the attitudes and behaviour of a business organisation while creating the basis for effective management. Customer-based measures are important but they must be

An index method for measurement of customer satisfaction

Ingrid Fecikova
.

The TQM Magazine Volume 16 . Number 1 . 2004 . 57-66

identifying opportunities for improvement (quality costing); comparing performance against internal standards (process control and improvement); and comparing performance against external standards (benchmarking).

The result of customer satisfaction measurement provides significant information for modern management processes and a warning signal about future business results (Edvardsson and Gutafson, 1999). This enables an understanding of how customers perceive the organisation, whether the performance meets their expectaction, identifies priorities for improvement, benchmarks the performance of the organisation against other organisations, increases profits through improved customer loyalty.

Kanj, G. and E Sa Moura, P. (2002), ``Kanji's business scorecard'', Total Quality Management, Vol. 13 No. 1, pp. 13-27. Kekale, T. (2001), ``Quality and product safety'', available at: www.uwaa.fi/~tke/Quality Oakland, J.S. (1998), Total Quality Management, Butterworth, Heinemann, Oxford. Piercy, N.F. (1996), ``The effects of customer satisfaction measurement: the internal market versus the external market'', Marketing Intelligence & Planning, Vol. 14 No. 4, pp. 9-15. Reichheld, F. (1996), The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value, Bain & Company, Inc. Harvard Business School Press, Boston, MA. Stauss, B. and Neuhaus, P. (1997), ``The qualitative satisfaction model'', International Journal of Service Industry Management, Vol. 8 No. 3, pp. 236-49. Werth, J. (2002), ``Customer satisfaction measurement, complying with the ISO 9001:2000 requirement'', available at: www.iso-900-2000.com Wiesserman, F. (1996), Customer Intimacy: Pick your Partners, Shape your Culture, Win Together, Knowledge Exchange, Santa Monica, CA.

References
Adsit, D., London, M., Brook, S., Crom, S. and Jones, D. (1996), ``Relationship between employee attitudes, customer satisfaction and departmenal performance'', Journal of Management Development, Vol. 15 No. 1, pp. 62-75. Besterfield, D.H. (1994), Quality Control, Prentice-Hall, Englewood Cliffs, NJ. Bhave, A. (2002), ``Customer satisfaction measurement'', Quality and Productivity Journal, Symphony Technologies Pvt Ltd, Erendavane, India. Edvardson, B. and Gustafsson, A. (1999), The Nordic School of Quality Management, Studentlitteratur, Lund. Hazes, B.E. (1998), Measuring Customer Satisfaction, ASQ Quality Press, Milwaukee, WI. Hekelova, E. (1999), Kvalita Inovacia Prosperita, Vol. III No. 1/2, Technical University of Kosice, Kosice. Hill, N. (1996), Handbook of Customer Satisfaction Measurement, Resource Center for Customer Service Professionals, Western Springs, IL. Ho, S. (1995), TQM An Integrated Approach, Kogan Page, London.

Further reading
Bradley, G.T. (1994), Managing Customer Value, The Free Press (a division of Simon & Schuster Inc.), New York, NY. Kondo, Y., Higashi, T. and Takyo-Ku, S. (2001), ``Customer satisfaction: how can I measure it?'', Total Quality Management, Vol. 12 No. 7/8, pp. 867-72. Martensen, A. and Gronholdt, L. (2001), ``Using employee satisfaction measurement to improve people management an adaptation of Kano's quality types'', Total Quality Management, Vol. 12 No. 7/8, pp. 949-57. Parker, C. and Mathews, P. (2001), ``Customer satisfaction: contrasting academic and consumers' interpretations'', Marketing Intelligence & Planning, Vol. 19 No. 1, pp. 38-44. Sureshaudar, G.S., Rajendran, C. and Anantharaman, R.N. (2002), ``The relationship between management's perception of total quality service and customer perception of service quality'', Total Quality Management, Vol. 13 No. 1, pp. 64-88.

66