EFFECTS OF CUSTOMER SERVICE ON CUSTOMER LOYALTY AND
SATISFACTION
Name
BUSI 3004 - Entrepreneurship for Small Business
Walden University
2022
1.0 Introduction
This research endeavours to examine customer retention and defection from an organization
in the context of customer service quality. Customer retention has become an enormous issue
for organizations desiring to remain or become profitable.Weinstein & Johnson (1999a)
recommend that at least 75% of an organization’s marketing budget be spent on customer
retention strategy and strengthening these relationships. The longer customers are retained in
an organization, the more profitable the organization becomes because of increased customer
purchasing behavior, decreased organizational operations costs, customer referrals,
willingness of customers to pay price premiums, and reduced customer acquisition costs for
the organization (Pine II, Peppers, & Rogers, 1995). This research will analyze how customer
service can produce customer behaviors that can indicate whether a customer will remain or
defect from an organization (Zeithaml, Berry & Parasuraman, 1996).
Since replacing lost customers comes at an elevated cost, customer defection should be a key
performance gauge for senior management and a fundamental component of incentive
programs (Zeithaml et al., 1996). Retention is important because it can cost five times more
to obtain a new customer than to keep an existing one as researched by the American
Management Association (Weinstein et al., 1999b). The purpose of this paper is to explore
the topic of customer service and how it relates to defection and retention in an organization.
1.1Background of the study
Good customer retention is vital to any organization because a slight reduction (5%) in the
customer defection rate has a disproportionately positive effect on profitability (depending on
the cost of acquisition, ranging between 25 and 80%!). Companies with high retention also
grow faster. However, customers can only be retained if they are loyal and motivated to resist
competition. When customers are merely satisfied with the service they receive they may still
"walk".For customer satisfaction to be high, promises and expectations must be met. This
involves the organization's ability to understand customer expectations and to do it right the
first time (DIRTF). The ability to deal with problems as they arise is a key ingredient to
success. Also, the organization needs to consider complaints as a gift! Customer service is the
overall activity of identifying and satisfying customer needs. Giving customer’s service may
mean giving them excellent service once, e.g. providing refreshment and a place to sleep for a
busy traveler on a journey. More often it refers to the whole process of meeting customer
needs time and time again and giving them a better service than they expected. Enterprise is
committed to delivering exceptionally high standards every time. The goal of the company is
to exceed customer expectations. Customer service will absolutely make or break your
business. There are two things that businesses can compete on, price and service. A company
that chooses to compete on price will find itself locked in a continual battle with others who
run sales and lower prices because price shoppers have traditionally shown no loyalty. This
means the company that bases its future on offering the lowest price will lose a large part of
its customer base to the next company that can beat its prices, (Coye, 2004,).
The company that chooses to provide the best customer service can assure itself of customer
loyalty and thus, profitability. On the other hand, poor customer service can doom a company
quickly. Circuit City is a perfect example. When they replaced their experienced,
knowledgeable sales associates with lower paid, lower motivated, less trained associates,
customer service (and satisfaction) suffered a mortal blow. They were never able to recover
from that, Hamer (2006).
As the competitive environment becomes more turbulent, the most important issue the sellers
face is no longer to provide excellent, good quality products or services, but also to keep
loyal customers who will contribute long-term profit to organizations (Tseng, 2007). To
compete in such overcrowded and interactive marketplace, marketers are forced to look
beyond the traditional 4Ps of marketing strategy, which are not longer enough to be
implemented for achieving competitive advantage. Therefore, relationship marketing has
become an alternative means for organizations to build strong, ongoing associations with
their customers. As a part of marketing strategy, relationship marketing seek to acquire and
retain customers by providing good quality customer services, and therefore has become one
of the keys to success in acquiring strong competitiveness in the present markets, because of
its implications for access to markets, generation of repeat purchase, creation of exit barriers,
and the view that it benefits all parties (Andaleeb, 1996). Poor levels of customer service can
cause you to lose even the most forgiving of customers. Consumers tend to do business with
a company because it’s convenient, it’s a habit, or they’re looking for particular product or
service that’s hard to find elsewhere. Even these stalwart customers can be turned away by
inferior levels of service, Hamer (2006
This paper is an explanatory research that tries to find out what attracts the customers to
Nakumatt Supermarket Ltd. Nakumatt Supermarket Ltd is a supermarket that offers
everything under one roof. Besides, the customer satisfaction index in Kenya for the retail
sector states that Nakumatt Supermarket has actually gained more popularity among its
consumers .This can be evidenced in branch networks and regional presence. Is it the
strategically convenient location of their stores or the range of products that they offer, or is it
the price discounts that they offer or is it their customer services or is it the smart cards and
shopping points? Or is it a sublime mix of the aforementioned factors in the right proportions
that attracts the customers? The supermarkets are booming now despite the credit crunch and
it cannot do so without customer patronage. This means that not only are the customers
satisfied but they are also coming again and again for their purchases. Hence Nakumatt
Supermarket Ltd exhibits traits of both customer satisfaction and retention. By offering the
right marketing mix strategies, the supermarket is able to hold on to their customers. In other
words their strategies are able to do efficient customer retention
1.2Statement of the research problem
Kenya's population is surging at an increasing rate creating demand for retail stores. There is
also a sharp' increase in retail stores in Kenya to meet the increasing demand of consumer
products. This trend has made the provision of quality service critical and is now a major
strategy of the retailers marketing plan. The need to retain customers has made the stores-
customer loyalty critical. Thirty years ago, the three families whose interaction and
competition would shape the face of Kenya’s retail business were hardly noticeable. Every
retailer tries to differentiate its product or service offering from its competitors to gain
customers. The customers are the sole reason for companies to exist as without any needs to
fulfill there will be no need to provide any product or service. Hence customers play a very
central role for the success of any supermarket. It is of the utmost importance that the
customers are satisfied and customers are retained by the companies so that they came again
and again thereby providing a steady flow of sales for the organisation (Kotler, 1997). Herein
comes the concept of satisfying the customers. However is satisfying customers the only
thing? Say that a consumer is satisfied with a particular supermarket but does it guarantee the
fact that the customer will return again to the same supermarket? (Spreng et al., 1995). Thus
we are gradually beginning to see that satisfaction and retention are two different aspects
altogether (Lowenstein, 1995). Researchers have observed that most of the customers go for
shopping to different supermarkets but they still have one “lucky” store which is their
“primary” store to which they always return and hence give their patronage (Rhee and Bell,
2002). This means that the customers are either satisfied with their “primary” store or are
lacking alternatives or might be stationed pretty far from any convenience stores. Whatever
the reason, the researcher intends to dig a little further. This research intends to find out about
the factors that satisfy customers and cause them to return to their “primary” store thereby
cementing retention in favour of the company.
1.2 Objectives of the study
I. To establish the factors that contribute towards customer satisfaction and retention in
Nakumatt Supermarket
II. To find out what makes customers visit the supermarket again and again
III. To find out the preference of the consumer
1.3Research Questions
I. What factors contribute towards customer satisfaction and retention?
II. What makes customers visit the supermarket again and again?
III. What are the customers preference?
1.4Scope of the study
The scope of this study is to find out what actually attracts the customer to the supermarkets.
It intends to also elucidate the areas where these supermarkets can improve in order to grab
more market share, by retaining the customers, as it will have the findings of the consumer's
mindset. Nakumatt Supermarket Ltd(Nakumatt Holdings) has branch networks across the
country and beyond and is therefore not feasible to visit all the branches; Hence the
researcher narrows the area of research geographically by restricting the research to
Nakumatt Nyanza,Kisumu. This store of Nakumatt Ltd is taken into consideration
strategically as it is easy for the researcher to travel to the store and meet the customers.
Critical thinking on behalf of the researcher is the key to the success of this project. This
research has a few limitations. The research produces findings that work in Nakumatt
Nyanza. The researcher does not guarantee that the same results will hold good in other
Nakumatt stores as their modus operandi might be different. The location and the area play a
vital role and this research has been narrowed down using very strict geographic screening. It
is important to understand the customer preferences in all the Nakumatt stores and the
researcher is unable to do this on account of lack of funds. This piece of work is dependent
on the primary data that will be obtained from the consumers who visit the stores and their
reluctance in responding to the questionnaires will prove to a big hindrance. Care must be
taken to record the experiences and the feelings of the customers in as much as verbatim as
possible in order to do away with the interviewer and interviewee bias (Saunders et al., 2006)
1.6 Justification of the study
One day the researcher had gone shopping with a few friends. They went to a particular
supermarket and the researcher observed a big queue inside the store for checking the
purchases out. Disappointed at the long queues at the tills and even the self checkout tills,
they thought to try out another supermarket. They went to another supermarket and were
greeted with the same story. The researcher observed that there were long queues at all the
major supermarkets. It was not the season for gifts neither was it a period in the day when it
should be busy. Speaking casually with one of the in-store people the researcher found out
that usually it is always busy. Given the present scenario of recession, the long queues at the
tills and the crowd that throngs the supermarkets, who will say that recession is in? This
interested the researcher and intrigued him so much that he wanted to demystify this
phenomenon as to why people take the pains of waiting in long queues and still shop at the
supermarkets. What is so special that these supermarkets have to offer? The product ranges in
the supermarkets are extensive and so are the stores that they chose to open. Does it mean
that the location of the stores play an important role towards forming customer retention? Or
is it the customer service that scores? Or is it the price that rules at the end of the day as far as
the consumer is concerned? The researcher intends to find out what factors contribute
towards customer satisfaction and eventually lead to customer retention. The study will also
enable us to understand what the customers' needs and expectations are. This research will
tell us what the present day consumers expect from companies enabling the companies to
know what the consumers want so that they can focus on the feasible areas in order to grab
more market share.
1.7 Conceptual framework
Customer service
Customer service (CS) refers to the combination of activities offered by retailers. If taken
seriously, CS is presented with the intention of enhancing service quality, so that customers
perceive the shopping experience as more pleasant and even rewarding (Howardell, 2003;
Levy & Weitz, 2001: 586, 587; Woodruff, 1997; Zikmund & d’Admico, 2001:331). For the
purpose of this study, CS is interpreted in terms of the four elements of the marketing mix
namely, product, place, price, promotion, and three additional elements (added to the
marketing mix by Booms & Bit-ner, 1981), namely people, processes and physical evidence,
to include the widest possible spread of possible influencing variables. CS is further
considered as a means-to-end process where all the inter-actions/“moments of truth” are
interrelated in terms of a total experience. It is assumed that good CS revolves around getting
all the elements of the process right to prevent failure because of an apparent weakest link
(Rhee & Bell, 2002; Woodruff, 1997).
Customer Loyalty
The loyalty is defined by Richard L. Oliver as a commitment forming profoundly about being a steady
customer (patronizing) or purchasing again in the future the preferred product or service. So
loyalty will provide a repetitive buying of the same product or service despite the marketing
efforts or situational effects (Oliver; 392). If a customer without being under the marketing efforts
such as the influence of applications by the rival companies and the situational affects, the stimulants
directing to purchase, great communication activities, purchase recurrently and always from
the same manufacturer, that customer would have been the loyal customer of the retailer.
Customer loyalty is defined under three approaches such as behavioral loyalty, attitudinal
loyalty, and composite loyalty in the marketing literature (Bowen, Chen; 213).
Customer satisfaction
In the sense of the customer, the satisfaction is a meeting the needs degree at the end of a purchase (Oliver; 34).
The satisfaction is an evaluation about how much could the retailer meet or exceed customers’ expectations
(Levy, Weitz; 105). The comparison of expactation and performance in post purchase stage
determines thesatisfaction level of customers. Customer satisfaction is a result of the comparison
process between expectations and perceived service
Mperformance. Customer satisfaction is measured by “Disconfirmation Theory”.
Disconfirmation theory is the comparison of the performance level after using the product or service with
the expectation level before using theproduct or service as better or worse. If the product or service
is worse than expected (Expectation>Performance) “negative disconfirmation”, if betterM
(Expectation<Performance)“positive disconfirmation”,and if as
expected(Expectation=Performance) “confirmation” must be occurred(Oliver, Rust, Varki; 315).
Customer satisfaction occurs in the situation of “confirmation” and “positive
disconfirmation”. In “negative disconfirmation” situation there is dissatisfaction. Customer
satisfaction will be provided if a product or service meets the customers’ expectations. This is
the situation of “positive disconfirmation”. If the perceivedMperformance of a product or
service is under the customers’ expectations, a product or service can not satisfy the customer. This is
the situation of “negative disconfirmation”. If the perceived performance of a product or
service and the expectations before using a product or service are equal there is formed
customer satisfaction. This is the situation of “confirmation”.
M Independent variable Dependent variables
Customer Service
Source: Author 2013
Accountability
anduureresponsiveness
Accountability
Customer satisfaction
Customer loyalty
Performance
Innovation and
information technology
Good reputation
Quality customer service
