University of Otago

Superior Service Quality can be a Success Factor

by

Kathrin Mössler

Companies today are faced with a highly competitive environment. For this reason it has become a challenge to differentiate a company′s product from that of competitors, to maintain and/or expand the customer base, increase outcomes, and ultimately to enhance firm performance. Creating a product (good or service) that is unique in the eyes of the customer is becoming increasingly difficult. In order to achieve this goal, the company has to develop a good strategy. Reducing costs, and offering lower rates, or other pricing options may be only a partial answer. Meeting customer expectations for quality of service will also be an important key factor to maintain customer loyalty or to lure in new customers.

First of all it is necessary to explain what is meant by "service quality". In this essay, the term will be regarded as perceived service quality from the consumer point-of-view (which can be completely different from the objective quality of a service). "Service quality" refers to a consumer′s overall impression of a company, including its services and offerings (Parasuraman, Zeithaml and Berry 1988). In literature it is often conceptualised as a customer′s subjective attitude of a firm′s inferiority or superiority (Rust and Oliver 1994). Moreover, it can also be described as a ratio between a firm′s performance (perceived by customers) and expectations (of these customers) (Christopher 1992).

Secondly, the notion of "enhanced firm performance" must also be explained. There is no single criterion for service firms on which to measure the performance of a company (Fitzsimmons and Fitzsimmons 1998). Enhanced firm performance, understood in this essay refers to an increase in profitability (i.e. increase of absolute profit, higher profit margins), or in net income as a percentage of sales, however, it can also refer to market indicators, such as augmented sales growth, market share, and market stability. The following may also be included: lower marketing expenditures, increased customer base, higher customer loyalty, lower employee turnover and more motivated personnel.

In this essay I will outline the arguments that support the opinion that increasing service quality results in enhanced firm performance, and then show under which circumstances an increase in service quality can fail to improve firm performance. I will then conclude with a summary of the main arguments, my opinion on this matter, and a discussion of directions for further research.

A lot of companies nowadays, are increasing their service quality to achieve competitive advantage. Nowadays, simply servicing customers is not sufficient to be successful. If a company wants to hold on to customers and market share, or even increase its customer base or its market indicators, its staff must deliver superior service quality and customer satisfaction with every client contact (service encounter). It is important to note that any business can sell the same product and many can offer a lower price, but to imitate good service is not that easy. Therefore, more and more companies are now relying on service, as it is one of the most controllable features that differentiates a firm’s product from the competition, and achieves competitive advantages. Berry1 found that “great retailers never stop with a strong merchandise offering; they add compelling value through superior service”. In addition, “Buzzel and Gale (1987) found that quality strongly related to return on investment and that companies with greater than normal market share growth typically offer superior customer service compared to companies with average or poorer market share growth” (McColl, Callaghan and Palmer 1998, p. 418).

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