Measuring Service Quality at the Customer Level

An Analysis of South Tyrolean Service Companies

Master's Thesis, 2015

76 Pages



Table of Contents

Table of Contents ... I

Table of Figures ... III

Tables ... III

Table of Formulas ... III

Abstract ... 1

1 Introduction ... 3
1.1 Problem Statement ... 3
1.2 Research Question ... 4
1.3 Concept of Knowledge ... 4
1.4 Delineation ... 4

2 Quality Management ... 5
2.1 Quality Management as Part of the Service Innovation Process ... 5
2.2 The Importance of Quality Management in Service Companies ... 7
2.3 The Significance of Customer Satisfaction in Quality Management ... 8

3 Subjective Methods to Measure Customer Satisfaction ... 11
3.1 Measuring Customer Satisfaction ...12
3.2 Measurements for Customer Satisfaction ...12
3.3 Event-oriented Methods ...14
3.3.1 Sequential Event Method (Service Blueprint) ... 15
3.3.2 Critical Incident Technique ... 18
3.3.3 Critical Path Analysis ... 21
3.3.4 Root Cause Analysis ... 22
3.4 Feature-oriented Methods ...23
3.4.1 Multi attributive Approach (SERVQUAL) ... 24
3.4.2 Decomposition Approach (Vignette Method) ... 28
3.4.3 Willingness to Pay Approach ... 29
3.4.4 Penalty Reward Factors Approach ... 30
3.5 Problem-oriented Methods ...30
3.5.1 Problem-Detecting Method ... 31
3.5.2 Frequency Relevance Analysis for Problems ... 32
3.5.3 Complaint Analysis ... 33

4 Methodological Design ... 36
4.1 Service Companies in South Tyrol ...36
4.2 Object of Study ...36
4.2.1 Selection of Companies and Experts ... 37
4.2.2 Evaluation of the Interviews ... 39
4.3 Documentation of Results ...39
4.3.1 Relationship between Company and Customer ... 40
4.3.2 Frequency of Customer Satisfaction Analysis ... 40
4.3.3 How Companies Measure Customer Satisfaction ... 41
4.3.4 Quality Increase through Satisfaction Analyses ... 45
4.3.5 Applied Approaches ... 46
4.3.6 Event-oriented Approaches ... 46
4.3.7 Feature-oriented Approaches ... 47
4.3.8 Problem-oriented Approaches ... 49

5 Findings and Conclusion ... 52
5.1 Response to the Research Questions ...52
5.1.1 Research Question 1 ... 52
5.1.2 Research Question 2 ... 55
5.1.3 Research Question 3 ... 56
5.2 Conclusion ...57

References ... A

Appendix ... H


The free market economy and its burgeoning competitiveness provide the customer with increasing decision-making power and, consequently, his or her wishes tend to be included in the service process. This master’s thesis aims to analyse the subjective customer-oriented approaches for measuring service quality. To strengthen the theoretical results with empirical regional data, South Tyrolean companies from different service sectors have been interviewed through semi-structured discussions about quality management. The aim is to determine whether the methods proposed by the relevant theory are used in practice, whether it is useful to implement them, and if the output of a satisfaction analysis is reflected in time, effort, and costs.

Die freie Marktwirtschaft und der damit einhergehende zunehmende Wettbewerb führen dazu, dass der Kunde über immer mehr Entscheidungsmacht verfügt und dass dessen Wünsche daher in den Dienstleistungsprozess miteinbezogen werden sollten. Aus diesem Grund verfolgt die vorliegende Masterarbeit das Ziel, die kundenorientierten, subjektiven Qualitätsansätze zur Messung von Dienstleistungsqualität zu analysieren. Um die theoretischen Ergebnisse mit empirischen, regionalen Daten zu untermauern, wurden Südtiroler Unternehmen aus den verschiedensten Dienstleistungssektoren mittels eines semi-strukturierten Interviews zum Thema Qualitätsmanagement befragt. Dabei soll analysiert werden, ob die Methoden, die die Theorie vorschlägt, auch in der Praxis eingesetzt werden, ob es sinnvoll ist, diese einzusetzen und ob sich der Output einer Kundenzufriedenheitsanalyse in Zeit, Aufwand und Kosten widerspiegelt.

La libera economia di mercato, accompagnata da una concorrenza in crescita, fa sì che il cliente abbia sempre più potere decisionale e che i suoi desideri vengano di conseguenza inclusi nel processo di emanazione del servizio. Questa tesi di laurea magistrale ha per obiettivo la valutazione dei metodi soggettivi per misurare la qualità dei servizi orientati al cliente. Per avvalorare i risultati teorici con dati empirici regionali, sono state intervistate aziende Alto Atesine operanti in vari settori, tramite una discussione semi-strutturata sulla gestione della qualità. L’obiettivo è di illustrare se i metodi presentati nelle teorie siano effettivamente utilizzati nella pratica e, altresì, se sia utile utilizzarli e se l'output si rifletta sul tempo e sui costi.

1 Introduction

Your most unhappy customers are your greatest source of learning.
(Bill Gates, Microsoft)

Customer satisfaction and the way companies measure it is becoming increasingly important in today’s economy. Companies operate within a complex economic system, and are continuously exposed to changes and to new kinds of competition. The fast development of new technologies means that customers are getting more price-sensitive, look towards personal products, and have individual requirements. On the other hand, new products and services can be provided more easily due to the fast technological progress, and companies are therefore forced to look towards new strategies and technologies. Empirical evidence shows that the relationship between companies and customers is conflicting and limited to negotiations about price, quantity, and delivery terms. For this reason, companies have to adapt other relational approaches to reinforce steady and long-term relationships with customers and to let them be part of the innovation service or product process. (Rajola 2003, 91)

1.1 Problem Statement

The importance of customer satisfaction has increased substantially in recent years. Recently, many companies have invested considerable resources in the systematic growth of customer satisfaction. For many companies, it has been proven that satisfied customers increase customer loyalty and assure a company’s long-term economic success. Nevertheless, there are also many doubts about the measures undertaken to increase the customer satisfaction. Investments in customer satisfaction do not always provide the expected output. (Homburg & Bucerius 2003, 55) It is not a simple task to identify customer wishes and assessments, as they are seldom directly accessible to a company. Furthermore, such investments do not necessarily mean that a customer is satisfied, and will choose a given company in future. Therefore, it is necessary that a company learns to evaluate the customers’ expectations properly. This phenomenon is explained in the English literature with the term “voice of customer,” which has gained a special resonance, and is commonly used to explain the importance of customer involvement in the service process. (Jammernegg & Kischka 2001, 10)

1.2 Research Question

Considering the increasing significance of analysing and meeting customers’ wishes and expectations, the goal of this piece of work is to identify the ways that are suggested in theory and in practice in order to measure customer satisfaction.

The questions, which are going to be treated in this context, are the following ones:

· Which methods can be applied to define service quality between customer and company? Are the methods suggested in theory also effective in practice?
· What are the benefits of measuring service quality and which critical points should be taken into consideration when measuring customer satisfaction? Do the procedures diverge from industry to industry?
· Is the output of a satisfaction analyses reflected in time, effort, and costs? How should a company proceed to have satisfactory results?

1.3 Concept of Knowledge

The first part of the thesis provides background information. The work starts with the definition of “service quality management” as a part of the service process in service companies. “Total quality management” includes measures that analyse customer satisfaction within service companies: there are objective and subjective measures to analyse customer satisfaction. Subject of the thesis are the subjective methods, which can be subdivided into three categories: event-oriented, feature-oriented and problem-oriented. Each category has particular methods that are explained more precisely.

The second part is an empirical study based on expert interviews carried out in different companies. This part shows which methods are implemented in South Tyrolean companies in order to measure the degree of satisfaction of customers and, how failures can be detected and complaints are handled. Finally, the methods that are suggested in theory, and those implemented in practice, are compared and the findings presented.

1.4 Delineation

The topics of this thesis only involve customer-related subjective approaches to measure service quality. Objective methods and company-oriented measures are not part of this thesis.

2 Quality Management

This section provides background information about quality management as a part of the service innovation process. It is analysed how important it is for service companies to implement an effective quality management, and how significant it is to have a long-term customer satisfaction management that fosters customer loyalty.

2.1 Quality Management as Part of the Service Innovation Process

The service industry has an increasingly important role in many countries’ economies. (Parasuraman et al. 1988, 12) In a global competitive environment, delivering service and product quality is considered an essential strategy for success and survival. The increasing competition fosters many businesses to adapt measures to differentiate themselves from their rivals. It is difficult to quantify service quality, as it is a function of divergent customer perceptions and is influenced by market conditions, measurements, and interpretations. For this reason a standardised and commonly agreed-upon definition does not exit. The heterogeneity of services makes it problematic to formulate a consistent description about service quality that is applicable to all service industries. (McCollin et al. 2011, 705)

As shown in Table 2.1–1 the service innovation process is subdivided into four parts: analysis, planning, implementation, and control phase. The core of the management process is the marketing strategy, which serves to understand the economic goals of the company in an efficient way. The marketing process consists of consecutive phases, which are not independent from each other, but rather show interdependences. (Hinterhuber & Matzler 2004, 41)

The component of the service process, which is highlighted in this thesis, is the planning phase. A subgroup of the planning phase is total quality management. The performance measures of total quality management are the company orientedmeasures and the customer-oriented measures. The customer-oriented-measures can be subdivided into objective and subjective categories.

Figure 2.1–1 represents the relationship between the service innovation process, total quality management, and methods to measure service quality at the customer level.

Table 2.1–1: Innovation Process
Tables are not displayed in this preview.
Source: Meffert & Bruhn 2012, 113.

Figure 2.1–1: Service Quality as a Part of the Service Innovation Process
Figures are not displayed in this preview.
Source: Own representation 2014.

2.2 The Importance of Quality Management in Service Companies

A key strategy to succeed in a competitive environment is to deliver high service quality. While indicators such as durability and number of defects can measure the quality of goods, services are characterised by intangibility, heterogeneity, and inseparability of production and consumption. This abstract construct of service quality makes it difficult to deduce objective measures. (Parasuraman et al. 1988, 12)

“Quality” derives from the Latin word “qualitas,” which means the appearance, value, and performance of an object or a service. The Deutsche Gesellschaft für Qualität (German Society for Quality) describes quality as “the entirety of quality characteristics of a product or service, activity that relates to their capability to fulfil given requirements”. (Bruhn 2003, 27)

Bruhn defines quality as the ability of a supplier to offer a service that corresponds to customer expectations. It is defined as the sum of characteristics, which are affordable to meet a specific requirement. (Bruhn 2000, 29) The DIN ISO rule describes quality as the totality of features and characteristics of a product or a service, which refers to the capability to fulfil given requirements. The requirements arise from the use of the product or the goal of the activity by accounting for the realisation possibilities. (DIN 55350 2008 cited from Martini 2008, 24) Other authors define quality as “fitness for use” (Juran 1988, 28), or as the “conformance to requirements” – rather than "goodness, or luxury, or shininess, or weight". (Crosby 1979, 17)

Nevertheless, a definitive term for “quality” does not exist, as it is defined from a subjective point of view: from the final customer. For this reason, it is helpful to combine comprehension of product- and customer-oriented quality to measure overall service quality. (Bruhn 2003, 31)

The central tasks of service quality management are to maintain a constant high service quality, and to fulfil heterogeneous customer expectations. (Armistead & Clark 1992, 156)

In recent years, there have been many attempts to improve service quality. For this reason, many customer retention programs and complaint management techniques have been created and developed in order to optimise the processes. (Bruhn 2003, 32-33). Companies are striving to become more customer centred: the customer has to be set at the centre of a company’s choices and decisions. Personnel, technology and systems should be used to increase the customer’s fidelity in the company.

Service providers must meet the expectations of their customers to achieve customer satisfaction. It is a fundamental task of service companies to analyse customers’ service expectations, as this is a prerequisite of customer retention management. Companies are seen as service providers and as suppliers of solutions. (Rajola 2003, 92 et seq.)

In practice, intensive quality efforts do not necessarily lead to increased customer loyalty and economic success. Not all quality measurements obtain a proportional increase of customer satisfaction and not all enhancements of customer satisfaction induce increased customer loyalty and revenue maximization. At the same time, a quality operation does not always lead to an efficiency improvement, and to a proportional progress of failure avoidance. It is attested that at a certain point, quality measures are no longer profitable. This means that from a certain point, a quality enhancement generates only a small revenue increase and trivial cost reductions. (Bruhn & Georgi 1999, 9)

2.3 The Significance of Customer Satisfaction in Quality Management

Unless you have 100 % customer satisfaction … you must improve.
(Horst Schulze, Ritz Carlton)

An effective customer relationship management is one of the most substantial developments in the marketing evolution since the 1960s. It enables a true integration of marketing, sales, and service functions to clarify company priorities, and to permit resource planning in a more cost-efficient way. (Burnett 2001, 3) To control the new discipline of the “emotional economy”, business leaders have to think about customer needs and requirements and to structure their businesses around them. Frequently, customer requirements are specified in functional terms: Did the product have any defects? Did it have manufacturing tolerances and parameters? Was it delivered on time?

Satisfaction is a decisive factor in establishing a lasting relationship. Companies that do not enjoy a dominant market position based on distinctive and unique competences are liable to lose the customers they have already acquired. (Nadin 2001 cited from Rajola 2003, 105) Moreover, a company can only gain a competitive advantage in the long run if it constantly develops new products and services as each market success will be copied immediately. (Dambmann & Westerhaus 2003, 389)

Customer loyalty involves defining the conditions that lead the customer to continue choosing the same company in future. Loyalty is the key element for a long-lasting relationship, even if prices are higher than those of the competitors. If customers decide to stick to a brand, they will focus more on the value for money ratio and decide to purchase also other products offered by the same company (cross-selling). (Rajola 2003, 106)

Customer satisfaction can be seen as a dynamic process, since the service expectation is not constant. If the company does not adapt its level of performance to its aspiration level, there will be a gap between expectation and perception. This gap can subsequently lead to customer disloyalty and churn. (Stock-Homburg et al. 2008, 4)

A satisfied customer, indeed, is generally considered to be a valuable company asset and idea generator for new solutions. The customer will be willing to increase orders and to make recommendation to other customers. The experience attests that satisfied customers tell up to three other potential customers about their contentedness. On the contrary, unsatisfied customers tell up to ten other potential customers about their discontent. (Geffroy 2000, 70)

It is, in fact, easier to maintain existing customers rather than trying to acquire new ones. A long-lasting relationship helps to avoid management and administration costs, and contributes to a constant growth and turnover rate. (Rajola 2003, 107) Furthermore, satisfied customers tend to be less price-sensitive and will not break off a long-lasting relationship if there is an increase in price of less than 5 %. It has been proven that satisfied customers accept products that are up to 9 % higher, and do not compare them with competitors’ prices. (Schneider 2000, 40)

However, not all companies are keen on implementing a loyalty program, as their short-term corporate policy is based on maintaining a large number of customer and a quick turnover. (Hall 1999, cited in Rayola 2003, 107)

Figure 2.3–1 represents the circle of customer retention in quality management. Through a better fulfilment of customer expectations, an increased customer satisfaction can be achieved. Satisfied customers have a higher tendency to disseminate positive mouth-to-mouth advertising and therefor a higher increase in revenues is expected. An extensive quality management may increase the efficiency of internal processes and strengthen the failure avoidance. As a consequence, costs could be reduced and revenues increased. (Bruhn & Georgi 1999, 3 et seq.)

Figure 2.3–1: Customer Retention in Quality Management
Figures are not displayed in this preview.
Source: Bruhn & Georgi 1999, 9 et seq.; Own representation 2014.

A customer-relationship is endangered if the customer has already reflected once or more about terminating the relationship. From this point, the degree of the relationship deteriorates and is frequently accompanied by negative mouth-to-mouth dissemination. Therefore, a retention program has to focus on two aspects: the intact relationship and the customer churn rate. (Michalski & Bruhn 2003, 247)

A challenge of service companies is the increasing self-confidence of the customers. There is a high tendency of the clients to tell negative experiences to others. This can lead to image losses and damage the company. (Tomczak et al. 2000, 417)

Table 2.3–1 shows some numbers about the economic effectiveness of a long-term customer satisfaction management.

Table 2.3–1: Economic Effect of Customer Satisfaction
Tables are not displayed in this preview.
Source: Töpfer & Mann 1999; Meyer & Dornach 1995, cited in Jammernegg & Kischka 2001, 61.

A study represented in Table 2.3–2 outlines the positive impact on performance indicators of a customer-orientated corporate philosophy. The study was carried out in 1995, but remains relevant for today’s industries. The economic sizes (e.g. return on equity, return on sales, cost reductions) of a customer-oriented company are on average five percentage points higher than those of an average company.

Table 2.3–2: Performance Indicators
Tables are not displayed in this preview.
Source: Bothe 1995, cited in Manfred & Bruhn 1999, 5.

Excerpt out of 76 pages


Measuring Service Quality at the Customer Level
An Analysis of South Tyrolean Service Companies
Free University of Bozen-Bolzano
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Qualitätsmanagment, Marketing, Dienstleistungsqualität, Servicemanagement;, Customer Satisfaction, South Tyrol, Service Quality, Management;, Kundenzufriedenheit;, Methoden zur Messung der Kundenzufriedenheit
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