Superior Service Quality can be a Success Factor
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. Berry 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).
The reasons that companies provide their customers with a high service quality standard are numerous. In a nutshell, researches have proved that service quality has positive impacts on performance. As stated by McColl, Callaghan and Palmer (1998), most quality improvement programs implemented by firms resulted in improved operational efficiencies and consequently in lower costs. It has been proved, that the return on investment for companies that impress their customers with value added service, can be staggering.
Beyond direct profitability, there is even more value to a company through superior customer service. As “empirical research in both service quality and service satisfaction affirms the importance of customer/employee interactions in the overall quality and/or satisfaction with services” (Bitner, Boom and Tetreault 1990, p. 72), employees need to be trained to meet the customers requirements. With the help of training, employees will get more skilled in service provision and therefore be able to perform bigger and more important tasks in the service process. They will get more responsibility. So called “staff empowerment” is very important for a firm when it is seeking to provide superior services (McColl, Callaghan and Palmer 1998). It can lead to enhanced job satisfaction and motivation, which produces job loyalty, productivity, and as a result, increased performance. Success, developed with a stronger sense of self-esteem, provides employees with a greater sense of purpose, commitment and a career goal. Allowing staff to participate more in providing customer service and giving them more responsibility results in a greater sense of commitment. Quality employees, that are satisfied and motivated, can be retained for a longer period of time and grow with the company. Retaining satisfied and skilled employees is much less expensive than finding and training new employees, which also makes this strategy cost effective. The same is true for customers. “It costs five times more to find a new customer than to retain an existing one” (McColl, Callaghan and Palmer 1998, p. 418). Therefore, firms should do everything to retain their existing customers, which is only possible when the customers are satisfied with the service that the firm offers. Satisfied customers usually stay longer, buy more, return more often, repurchase, are prepared to pay higher prices, accept prices increases more easily and recommend the company and its service to friends, family and others after a pleasant experience (word of mouth) (Anderson, Fornell and Lehmann 1994). This builds a good future business. When customers are satisfied, they are more loyal to the firm, which is very positive, as high customer loyalty produces high profits (McDougall and Levesque 2000). In order to satisfy customers, increasing service quality is a good idea, as researchers found that service quality has a positive impact on customer satisfaction and ultimately on profitability (Anderson, Fornell and Lehman 1994). In addition, the results of the study by Mc Dougall and Levesque (2000) have proved that “perceptions of service quality affect feelings of satisfaction which, in turn, influence future purchase behaviour” (p.401).
Increasing service quality -if not performed with care- can be a costly, and consequently an extremely risky undertaking. In general, improving service quality involves high costs. According to Christopher (1992), the higher the service level, the higher the costs of service for the firm. A good strategy needs to be developed. Care must be taken when hiring or recruiting personnel (Fitzsimmons and Fitzsimmons 1998), and staff need to be trained extremely well when improving service quality. Achieving quality service takes a serious commitment from every employee in the firm. Creative, dedicated, enthusiastic service professionals, who routinely make business decisions, and satisfy the firm’s customers are the foundation of superior service (McColl, Callaghan and Palmer 1998).
Parasuraman, Zeithaml and Berry (1985) identified four potential shortfalls with the service organization that may lead to a gap between what customers expect and what they receive:
(1) The firm does not know what its customers expect.
The managers do not understand the customers’ needs and what they want to get from the service, and therefore those needs cannot be fulfilled.
(2) The firm specifies service quality standards that do not reflect what the management believes to be the customers’ expectations.
The managers know what their customers expect, but they cannot establish specifications that enable them to satisfy their clients.
(3) Service performance does not match specification.
There are guidelines that tell the service providers how to perform the service so that the customers will be satisfied, but in fact, the service is not performed in the way specified.
(4) The firm does not provide the service level promoted.
The service company can advertise a guaranteed service performance to their clients, which might lead them to purchase its service. The promises given through promotion create a certain expectation towards the service offered. If the promises fail to meet the customers’ expectations, a huge gap can be created.