Customer Service and Satisfaction: Competitive Advantage and Beyond

By Bazan, Stanley | New England Journal of Entrepreneurship, Summer 1998 | Go to article overview

Customer Service and Satisfaction: Competitive Advantage and Beyond


Bazan, Stanley, New England Journal of Entrepreneurship


This article examines how excellence in customer service and satisfaction can be a major source of competitive advantage and profits for small businesses. The costs and causes of poor service and satisfaction are discussed and special emphasis is given to the value of the lifelong customer. Methods to pursue the goal of completely satisfying customers 100 percent of the time are examined. Leadership, aggressive problem solving, problem-solving teams, and assessment of customer service are among the topics reviewed.

In 1987, Time magazine ran a cover story entitled "Why Is Service so Bad?" In 1988, -Bonnie Jansen of the U.S. Office of Consumer Affairs lamented that consumers are "sick and tired of being battered around; they're sick of getting poor service all the time."1 Numerous articles on customer satisfaction and service appeared in publications like Harvard Business Review in the early 1990s and study upon study revealed that customers across a wide variety of industries reported low levels of customer service and satisfaction.

Most recently, joint studies by the University of Michigan Business School and the American Society for Quality Control reveal that customer satisfaction and service continue to be problematic in the U.S. economy.2 According to these studies, overall levels of customer satisfaction have fallen in two out of the past three years and customers were less satisfied in 1997 with supermarkets, department and discount stores, hotels, and fast-food-type restaurants than they were in 1996.

Given the notion that the single most important ingredient in the success of a new venture is the customers and that customer satisfaction and service are among the most important factors affecting a business unit's performance,4 it is clear that satisfying the customer must be a primary objective of entrepreneurs. In fact, 71 percent of small business owners feel that customer service and satisfaction is an area in which small companies can beat their big company rivals.5

Customer service and satisfaction represent a major source of competitive advantage for entrepreneurs because a properly focused small business is flexible and responsive enough to infuse the goal of completely satisfying its customers 100 percent of the time into all its employees and into every facet of its operations. Competitive advantage is defined in this article as the reason why a consumer would choose your business over another which provides similar goods or services.

This article begins by exploring the costs of customer dissatisfaction as well as some major sources of dissatisfaction and poor service. Next, a number of ways to achieve competitive advantage through excellence in customer satisfaction and service are reviewed. Goal setting, leadership, aggressive problem solving, problem-solving teams, and the assessment of customer service and satisfaction are also addressed.

Economics of Customer Dissatisfaction

A first step in pursuing competitive advantage through excellence in customer satisfaction and service is to fully understand the consequences of failure in these critical areas. The impact of poor service and satisfaction go far beyond the loss of a single sale, an unpleasant phone call, or a formal letter of complaint, and can have far-reaching impact on a firm's revenues and profits.

The direct financial impact of losing a customer can be astounding. For example, if your firm loses one customer per week for one year and these customers spend $20 per week at the business, you will lose $26,520 in revenues over the course of the year. If these customers spend $50 per week, lost revenues total $66,300; if they spend $100 per week lost revenues in this scenario total $132,600. Losing one customer per week who spends the relatively paltry sum of only $5 per week for a period of one year would also yield a total loss of $6,630.

The impact of losing a customer forever is also staggering when the economic value of a lifelong customer is considered. …

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