Porter′s Five Forces Analysis

CUSTOMER SATISFACTION AND LOYALTY

Literature Review I

Customer Satisfaction

RIEBER Anna Katharina

BBA6001 Business Development and Strategy

Glion Institute of Higher Education

H643, Ed Schofield

10/02/2021

CUSTOMER SATISFACTION AND LOYALTY

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Statement of Authorship

“I confirm that this work is my own. Additionally, I confirm that no part of this coursework,

except where clearly quoted and referenced, has been copied from material belonging to any other

person e.g., from a book, handout, another student. I am aware that it is a breach of GIHE

regulations to copy the work of another without clear acknowledgement and that attempting to do

so renders me liable to disciplinary procedures. To this effect, I have uploaded my work onto

Turnitin and have ensured that I have made any relevant corrections to my work prior to

submission.”

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Table of Contents

1. Introduction………………………………………………………………………………..4

2. Current Literature……………………………………………………………………….5-7

2.1 Achieving Customer Satisfaction…………………………………...…………….5

2.2 Measuring Customer Satisfaction………………………………………...……….6

2.3 Impact on Organisational Performance…………………………….……………..7

3. Conclusion…………………………………………………………………….…………..8

4. APA References………………...…………………………………………………………9

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1. Introduction

Customer satisfaction is seen as a psychological concept, where the feeling of happiness and

fulfilment is derived from products and services (World Tourism Organization, 1985, as cited in

Pizam et al., 2016). This has a significant impact on organisational success, particularly in the

hospitality industry. The most used theory to evaluate customer satisfaction is the expectancy

disconfirmation theory (Oliver, 1980, as cited in Pizam et al., 2015). Blanchard and Galloway

(1994, as cited in Radojevic et al., 2015) emphasise that consumers evaluate firms’ offerings based

on their pre-purchase expectations and value perception. Value corresponds to perceived quality

in relation to price and acquisition costs. Pizam et al. (2015) explain that if consumers expectations

are fulfilled or exceeded, they are satisfied, which is known as positive disconfirmation. In case of

unfulfillment or differences between expectations and outcomes, customers are dissatisfied, also

referred to as negative disconfirmation.

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2. Current Literature

2.1 Achieving Customer Satisfaction

Current literature has emphasised the importance of customer satisfaction for corporate survival

(Ko, 2021; Pizam et al., 2016; Radojevic et al., 2015; Sun & Kim, 2014). Sun and Kim (2014)

point out that in today’s competitive environment only customer-oriented organisations, that

differentiate themselves, are able to attract and satisfy clients. However, achieving satisfaction

remains one of the biggest challenges, especially in the hospitality industry. Reuland et al. (1985,

as cited in Pizam et al., 2016) explain that hospitality experiences consist of products and services.

Consequently, they can be evaluated based on material products, employee behaviour and the

environment. Therefore, functional and performance-delivery elements are crucial to meet

customers’ expectations (Sun & Kim, 2013). Overall, a clear understanding of consumers’

requirements and value perception is essential to understand how quality is defined. Radojevic et

al. (2015) argue that necessary factors to satisfy customers in hospitality involve location, security,

hotel facilities and reputation. However, Pizam et al. (2016) demonstrate that satisfaction attributes

are situation specific and cannot be generalised. Customers have individual needs and

expectations, explaining why different satisfaction levels result from the same experience.

Radojevic et al. (2015) add that the intention to travel, length of stay, price and star classification

are significant attributes in guests’ value perception. Consequently, Vavra (1997, as cited in Pizam

et al., 2016) suggests organisations to focus on the needs of specific target segments. This helps to

improve service quality and build trusting relationships, ensuring maximum consumer satisfaction.

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2.2 Measuring Customer Satisfaction

Measuring customer satisfaction is of growing interest, as it determines product and service quality

and gives insights in what consumers value, require and identify (Grigoroudis & Siskos, 2010, as

cited in Sun & Kim, 2013). Radojevic et al. (2015) believe that star ratings are a good predictor of

how well expectations are met, as it reflects the overall quality of service and hotel facilities.

However, Pizam et al. (2016) state that satisfaction surveys and online ratings are the most

commonly used measurements to determine customers’ value perception. Positive, negative,

unfair or even manipulated reviews significantly impact a company’s reputation and influence

other clients’ attitudes and purchasing behaviour. Sun and Kim (2013) argue that consumers are

generally less motivated to voice positive feedback, as they expect to be satisfied from any product

or service. However, Ko (2021) emphasises that negative experiences are more impactful for

organisations, as dissatisfied customers can either stop purchasing or start spreading negative

word-of-mouth (WOM). Therefore, firms should seek continuous feedback and aim to minimise

complaints, instead of focussing on customer satisfaction only.

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2.3 Impact on Organisational Performance

By employing the American Customer Satisfaction index, Sun and Kim (2013) found out that

customer satisfaction is linked to firms’ financial performance. Ko (2021) and Radojevic et al.

(2015) agree that satisfied clients boost a company’s performance by improving shareholders

value, future cash flows, brand reputation and market position. Sun and Kim (2013) add that

consumer satisfaction directly influences sales, as it encourages WOM recommendations,

customers repurchase intention and loyalty. Especially in the service industry, where services

cannot be experienced before purchase, positive WOM is a vital and inexpensive marketing tool

to attract new clients (Luo, 2009, as cited in Ko, 2021). Naumann (1995, as cited in Pizam et al.,

2016) suggests that it costs five times more time, money and resources to attract a new consumer

than to retain an existing one. Nevertheless, the effectiveness of customer satisfaction is

increasingly questioned. Sun and Kim (2013) emphasise that especially in hospitality, companies

need to heavily invest in training and upgrading facilities to achieve higher satisfaction levels. This

indicates why customer satisfaction can influence a firm’s revenue positively but does not

necessarily increase its profits. Consequently, Ko (2021) suggests managers to compare

investment costs to the potential benefits achieved through increased satisfaction.

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3. Conclusion

To conclude, customer satisfaction is at the core of every hospitality organisation. Understanding

consumers situation specific needs and expectations is essential to maximise perceived value

(Radojevic et al., 2015). Satisfaction levels can be measured through surveys and online reviews

(Pizam et al., 2016). Especially dissatisfied clients impact companies’ reputation negatively,

explaining why firms should aim to reduce complaints first (Ko, 2021). However, satisfied

consumers are linked to positive WOM, reduced costs and loyalty, boosting organisational

performance (Sun & Kim, 2013). Nevertheless, costs associated with increased customer

satisfaction must be carefully evaluated to maximise profit (Ko, 2021).

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4. APA References

Ko, C.H. (2021). Exploring how guest satisfaction and complaints effect on hotel performance.

International Journal of Organizational Innovation, 13(3), 180-190.

Pizam, A., Shapoval, V., & Ellis, T. (2016). Customer satisfaction and its measurement in

hospitality enterprises: a revisit and update. International Journal of Contemporary

Hospitality Management, 28(1), 2-35.

https://doi.org/10.1108/IJCHM-04-2015-0167

Radojevic, T., Stanisic, N., & Stanic, N. (2015). Ensuring positive feedback: Factors that

influence customer satisfaction in the contemporary hospitality industry. Tourism

Management, 51, 13-21.

https://doi.org/10.1016/j.tourman.2015.04.002

Sun, K. A., & Kim, D. Y. (2013). Does customer satisfaction increase firm performance? An

application of American Customer Satisfaction Index (ACSI). International Journal of

Hospitality Management, 35, 68-77.

https://doi.org/10.1016/j.ijhm.2013.05.008

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Literature Review II

Customer Loyalty

RIEBER Anna Katharina

BBA6001 Business Development and Strategy

Glion Institute of Higher Education

H643, Ed Schofield

10/02/2021

CUSTOMER SATISFACTION AND LOYALTY

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Statement of Authorship

“I confirm that this work is my own. Additionally, I confirm that no part of this coursework,

except where clearly quoted and referenced, has been copied from material belonging to any other

person e.g., from a book, handout, another student. I am aware that it is a breach of GIHE

regulations to copy the work of another without clear acknowledgement and that attempting to do

so renders me liable to disciplinary procedures. To this effect, I have uploaded my work onto

Turnitin and have ensured that I have made any relevant corrections to my work prior to

submission.”

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Table of Contents

1. Introduction…………………………………………………………………...………….13

2. Current Literature………………………………………………………….……..…..14-16

2.1 Achieving Customer Loyalty …………………………………………..…….14-15

2.2 Benefits of Customer Loyalty………………………………………………...15-16

3. Conclusion……………………………………………………………………………….17

4. APA References………………...………………………………………….…………….18

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1. Introduction

In today’s competitive market, where companies offer identical or comparable products and

services, organisations depend on its loyal customer base (Aksoy, 2013, as cited in Kandampully

et al., 2015). Therefore, customer loyalty, consisting of attitudes and behaviours, is crucial for

organisational success, specifically in the hospitality industry (Day, 1969, as cited in Watson et

al., 2015). Hammond et al. (1996, as cited in Kim et al., 2015) explain that behavioural loyalty is

linked to consumers purchase frequency and repurchase tendency. Attitudinal loyalty is measured

by customers commitment to repurchase, support and give recommendations (Oppermann, 2000,

as cited in Kim et al., 2015). Therefore, Oliver (1997, as cited in Kim et al., 2015) claims that

strong positive attitudes encourage clients to rebuy products without considering competitors

offerings.

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2. Current Literature

2.1 Achieving Customer Loyalty

Current literature has emphasised the importance of customer loyalty for businesses (Kandampully

et al., 2015; Kim et al., 2015; Watson et al., 2015). Watson et al. (2015) argue that customers’ trust

is crucial to build long-term relationships. Trust is achieved when consumers are convinced that

the company is reliable to provide consistent good quality. Kandampully et al. (2015) believe that

businesses must update their products and strategies to stay competitive and build trusting

relationships. However, Lafley and Martin (2017) argue that novelty is not exchangeable with

familiarity. People are creatures of habit and like to buy what they know. Therefore, companies

should implement new features without losing their old identity. Moreover, Kandampully et al.

(2015), Kim et al. (2015) and Watson et al. (2015) emphasise that only satisfied customers are

willing to repurchase and give recommendations. This explains why customer satisfaction is an

important determinant of loyalty. Lafley and Martin (2017) add that every time a product is

purchased and evaluated satisfactory it gains a competitive advantage. Therefore, behavioural

loyalty is particularly affected by customer satisfaction (Kim et al., 2015). To create attitudinal

loyalty, consumer engagement and delight are essential. In contrast to satisfaction, where clients

receive what they expect, delight occurs when customers are pleasantly surprised (Oliver et al.,

1997, as cited in Kim et al., 2015). Kandampully et al. (2015) confirm that positive emotions,

created through memorable experiences and personal interactions, lead to greater brand connection

and encourage consumers to stay in the relationship.

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However, Lafley and Martin (2017) claim that not all products and services create emotional

connections. Consequently, airlines and hotels have loyalty programs to force customer loyalty.

Kandampully et al. (2015) agree that loyalty incentives are incapable of gaining long-term loyalty,

as they fail to understand consumers’ behaviour and expectations. However, it appears that

successful hotel companies, like Marriott, have a reason to invest heavily in their loyalty programs,

consisting of millions of members. Watson et al. (2015) and Kim et al. (2015) reveal that

organisations use loyalty incentives to reward customer behaviour, enhance perceived value and

boost brand image. This encourages effortless repeat patronage and habitual purchasing.

2.2 Benefits of Customer Loyalty

Kandampully et al. (2015), Kim et al. (2015) and Watson et al. (2015) confirm that customer

loyalty contributes to firms’ profitability. Well-nurtured relationships lead to reduced customer

acquisition costs, lower price sensitivity, increased willingness to pay and share of wallet. Share

of wallet indicates how consumers divide their purchases across competing firms (Xie & Chen,

2014, as cited in Kandampully et al., 2015). This is important, as customers express polygamous,

not monogamous loyalty (Kim & Lee, 2010, as cited in Kandampully et al., 2010). Generally,

loyal customers have a higher life-time value, as they repurchase more frequently and spread

positive word-of-mouth (WOM). However, Lafley and Martin (2017) question the importance of

loyalty, as financial returns relative to loyalty-building efforts often disappoint. Watson et al.

(2015) found out that attitudinal loyalty has a weaker effect on organisational performance, as

clients might be unable to give financial support. Behavioural loyalty has a stronger impact, as

frequent purchasing directly increases companies’ revenue.

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However, Lafley and Martin (2017) believe that those benefits are short lived. Repurchases are

often caused by situational constraints, including lack of alternatives and habits, indicating that

customers are not truly loyal to the brand (Henderson et al., 2011, as cited in Watson et al., 2015).

Overall, Watson et al. (2015) underline that achieving customer loyalty is a primary marketing

goal. Especially in the hospitality industry, where services cannot be tested prior to purchase,

consumers WOM has a powerful influence. Kandampully et al. (2015) underline that social media

has shifted power to the customer, increased the importance of C2C interactions and limited the

influence of traditional marketing. Moreover, customers function of producing value has shifted

to the role of brand co-ownership. Consequently, brand ambassadors are most valuable, as they

create a network of potential clients and support a business by spreading positive WOM.

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3. Conclusion

To conclude, the competitive environment has intensified the importance of customer loyalty to

achieve long-term competitive advantage. The customer as a brand ambassador has become the

most important driver of organisational success (Kandampully et al., 2015). Especially in the

hospitality industry, true loyalty cannot be created by loyalty programs, but with relational

strategies, including trust, satisfaction, engagement and delight. Overall, organisations should aim

to capture attitudinal and behavioural aspects of loyalty to benefit from positive WOM and succeed

financially (Watson et al., 2015).

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4. APA References

Kandampully, J., Zhang, T. C., & Bilgihan, A. (2015). Customer loyalty: a review and future

directions with a special focus on the hospitality industry. International Journal of

Contemporary Hospitality Management, 27(3), 379-414.

https://doi.org/10.1108/IJCHM-03-2014-0151

Kim, M., Vogt, C. A., & Knutson, B. J. (2015). Relationships among customer satisfaction,

delight, and loyalty in the hospitality industry. Journal of Hospitality & Tourism

Research, 39(2), 170-197.

https://doi.org/10.1177/1096348012471376

Lafley, A. G., & Martin, R. L. (2017). Customer loyalty is overrated. Harvard Business

Review, 95(1), 45-54.

Watson, G. F., Beck, J. T., Henderson, C. M., & Palmatier, R. W. (2015). Building, measuring,

and profiting from customer loyalty. Journal of the Academy of Marketing

Science, 43(6), 790-825.

https://doi.org/10.1007/s11747-015-0439-4