Customer Satisfaction and its Impact on the Costs of Selling

Category: Marketing Seminar
When: 16 October 2018
, 12:15
 - 13:30
Where: Campus Westend, RuW 1.201
Speaker: Dr. Leon Gim Lim (Tilburg University)

Lim Leon Gim, Kapil R. Tuli, Rajdeep Grewal

While firms often place high importance in satisfying their customers, reducing costs is also of upmost concern. Surprisingly, despite the extensive research on customer satisfaction, its relationship with costs remains unexamined. Accordingly, the authors investigate this impact by focusing on a firm’s future cost of selling (COS), a key cost consideration for marketing managers. The authors argue that higher customer satisfaction equips firms with enhanced knowledge about their customers, thereby generating opportunities for them to lower their future COS. To explore the boundary conditions of this effect, the authors draw on the Motivation-Opportunity-Ability theory to propose a contingency framework that focuses on three key facets that can influence this relationship: firms’ financial resources (financial leverage), strategic focus (capital intensity and diversification) and operating environments (industry growth). Using almost two decades of data comprising of 1,162 observations from 115 firms, the authors find that on average, higher customer satisfaction significantly lowers future COS. This effect is weaker for firms that have higher financial leverage or higher capital intensity but stronger for firms that are more diversified or are in industries with higher growth.

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