Literature review For service delivery to be effective, and for companies to understand how important their clients are

to them, an understanding must be reached between what is expected of the company from a customer perspective, and the level to which the company is meeting this expectation. Szwarc (2005:xi) states that there are two themes that must run parallel to each other when delivering a quality service. Customer-centric organisations understand the relationship between customer satisfaction, loyalty and profits. Staff should also understand how to use market research to provide a competitive edge. Furthermore, Szwarc (2005:xi) is of the opinion that it is evident that there is no simple management model or research technique that will provide a clear and error-free answer as to what drives customer satisfaction and customer loyalty. The second theme, according to Szwarc (2005:xi), is that market researchers have the business tools that can enable organisations to fully understand their customers perceptions, attitudes and behaviours. The rewards of utilising these tools are being able to equip staff to deliver a quality service and secondly to enable the business to function as an organisation that is customer-centric. This chapter will identify key elements pertaining to customer satisfaction, by highlighting how an organisation can channel its efforts by focusing on customer satisfaction and loyalty. A brief study of the more common management theories about customer satisfaction and loyalty will be conducted. Furthermore, the SERVQUAL theory and the gaps that exist will be explained. Finally Customer Relationship Management (CRM) and the first is that staff in marketing will be explained, with particular reference to satisfaction. Customer Satisfaction and Loyalty Epictetus, a Greek philosopher is cited by Szwarc (2005:3) as saying that what is of greatest concern is not the way things are, but rather the way people think they are. It is essential that an organisation understands and values the satisfaction of customers needs. It is probably one of the most difficult tasks to execute, yet it is vital to the existence of any organisation. Furthermore, it is important to understand, and measure how satisfied customers are with products and services they organisation. receive from the The only manner of measuring this,

according to Szwarc (2005:3), is to obtain feedback from customers about their experiences when dealing with the organisation. Throughout this study, the words organisation and company will be used interchangeably, to eliminate the confusion between the two concepts. The principle of customer satisfaction applies to both the organisation and company. Customer loyalty according to Buttle (2004:21), has two major approaches in its definition. One is based on behaviour, while the other relates to attitude. purchasing behaviour where it is Behavioural loyalty is measured by reference to customer expressed in terms of continued patronage and buying. What needs to be identified is if the customer is still active, and secondly, if the organisation has maintained their share of customer spending? Attitudinal loyalty is measured by reference to components of attitude, such as beliefs, feelings and purchasing intention. Those customers, who have a stronger preference for involvement in or commitment to a supplier, are the more loyal in attitudinal terms. From a practical point if view, Buttle (2004:21) is of the opinion that the behavioural definition of loyalty is attractive because sales and profits derive from actions, not attitudes. An attitudinal approach can help managers to understand what needs to be done to build high levels of customer commitment that are resistant to competitor actions. However, it is not clear from this comparison whether attitude precedes behaviour, or vice versa. Business performance can be measured in many ways. The current trend has been away from simple short-term financial measures such as Return on Investment (ROI) or earnings per share. Leading companies are moving towards a more rounded set of performance indicators, such as Key Performance Indicators (KPI), the latter which identifies four sets of linked key performance areas namely, financial, customer, internal and learning and growth. The meaning of customer satisfaction It has been said that measuring customer satisfaction cannot be very difficult. Some people believe that you are either satisfied with the service you receive or you are dissatisfied. then you are satisfied, if you do not you are dissatisfied. Szwarc (2005:4) states that if it was that easy, then obtaining peoples opinions about how satisfied they are with products and services they organisation should be a relatively straightforward matter.

Customer satisfaction according to Schiffman & Kanuk (2004:14), is the individuals perception of the performance of the product or service in relation to his or her expectations. As noted earlier, customers will have significantly different expectations of exactly the same product. If you get what you want, receive from the concept of customer satisfaction can be expressed as a function of customer expectations. A customer, whose experience falls below expectations, will be dissatisfied. The opposite reaction is experienced if a customers expectations are exceeded (Schiffman & Kanuk, 2004:15). Customer satisfaction according to Buttle (2004:21) is a pleasurable fulfillment response. Furthermore, Buttle (2004:21) is of the opinion that, customer satisfaction is the customers fulfillment consumption experience, or some part of response to a it. Dissatisfaction is an unpleasurable fulfillment response. The experience, or some part of it component of the above definition allows the satisfaction evaluation to be directed at any or all elements of the customers experience. This can include the product, service, process and any other components of experience. Customer satisfaction is defined as a result of a cognitive and affective evaluation, where some comparison standard is compared to the actual perceived performance. If the perceived performance is less than expected, customers will be dissatisfied. On the other hand, if the perceived performance exceeds expectations, customer will be satisfied. Customer satisfaction is a critical issue in the success of any business system traditional or online. In a turbulent commerce environment, in order to sustain the growth and market share, companies need to understand how to satisfy customers, since customer satisfaction is critical for establishing long term client relationships (Paterson et al., 1997). To understand satisfaction, we need to have a clear understanding of what is meant by customer satisfaction. Kotler (2000) defined satisfaction as a persons feeling of pleasure or disappointment resulting from comparing a products perceived performance (or outcome) in relation to his or her expectations. When customers become satisfied about the value that is offered and sometimes his or her expectation is met and exceeded, can generate many benefits for a firm. Positive word of mouth from existing and satisfied customers sometimes can translate into more new customers to the firm. Also, satisfied current customers often buy more products more frequently and are less likely to defect to competitors than are dissatisfied customers. Firms that have high degree of

customer satisfaction, also seem to have the capacity to shield off competition particularly price competition. According to Drucker (1954), the principle purpose of a business is to create satisfied customers. Increasing customer satisfaction has been found to lead to higher future profitability (Anderson, Fornell, and Lehmann 1994), lower costs related to defective goods and services (Anderson, Fornell, and Rust 1997), increased buyer willingness to pay price premiums, provide referrals, and use more of the product (Reichheld 1996; Anderson and Mittal 2000), and higher levels of customer retention and loyalty (Fornell 1992; Anderson and Sullivan 1993; Bolton 1998). Increasing loyalty, in turn, has been found to lead to increases in future revenue (Fornell 1992; Anderson, Fornell, and Lehmann 1994) and reductions in the cost of future transactions (Reichheld 1996; Srivastava, Shervani, and Fahey 1998). All of this empirical evidence suggests that customer satisfaction is valuable from both a customer goodwill perspective and an organizations financial perspective. According to Kotler (2000) it is important to measure customer satisfaction regularly through survey to determine customers level of satisfaction. He said this is because firms may think that they are getting a sense of customer satisfaction through customer complaints. However, in reality, 95 percent of dissatisfied customers do not make any complaint and they just leave. As a result it is important for firms to make it easy for the customer to complain. About 54 to 70 percent dissatisfied customers who usually complain, will continue to do business again with the organization if their complaints are taken care of and resolved. Influencing factors on quality of service Everyday each and every customer is faced with situations that can affect their views of a particular product or service, in particular as emotional and rational factors shape opinions. Furthermore, the opinions and experiences of others who are viewed as advocates help shape these opinions. In addition, opinions are influenced by the sensory experiences and the service received from other companies. Competitors may exist in the market, some customers will devote their loyalty to a specific organisation, as every customer has a choice to use or not use a product or service. These choices are often guided by advertising and other messages that are

sent to the customer through the communication channels used by companies. The analogy can be drawn that customer satisfaction relates to how customers view an organisations products or service in light organisations products or services. important for perception of their Even though strong of their experiences with a particular Lovelock (1996:32) observes that customer behaviour and experiences are inter-linked. If customers need to be physically present during service delivery, then they must enter the relevant service factory and spend time there, while the service is being performed. In many instances, they will be expected to become active participants in the creation and delivery of the service. Even if they only need to come to the service site to drop off or pick up an item which is in need of service, they still have to spend time travelling to and from the site and wait for service. Customer loyalty Developments in the 1990s have had a significant impact on how companies viewed their customers (Szwarc 2005:9). What many companies failed to realise, is that in the 1980s, customer satisfaction was not necessarily a reflection of what customers were feeling positive about their organisations. It was rather that they were not feeling negative about them. In the 1980s, fewer choices were made available to customers and as a result many companies were able to gain market share, as the customer had no reason to defect from the company. If the companies had thought about why many of their price promotions were successful in attracting new customers, they may have realised that whatthey were gaining were not necessarily new customers to the market, but exiting customers who were switching brand loyalty and allegiance. Customer loyalty, as explained by Arnould, Price & Zinkham (2004:783) is a deeply held commitment to re-buy or re-patronise a preferred product or service. As a result, loyalty includes both readiness to act (repeat purchase) and resistance to alternatives. For organisations, loyalty leads to an increase in profits, more predictable sales and profits, and a positive word-of-mouth. High overall satisfaction protects firms from a reduction in loyalty after poor performance in a particular instance. Loyalty leads to a continued patronage, and companies should be interested in generating and maintaining customer loyalty. Although clusters of consumers claim that they find a good brand and stick with it, this does not translate into consistent re-purchase rates.

Arnould et al. (2004:784) are further of the opinion that relational strength may lead consumers to ignore competitive alternatives. Consumers may remain loyal even when it is difficult to do so. When people are moderately satisfied with a product, they may switch since there are so many brands of the same type available, and satisfaction is not enough to ensure continued patronage. Customer satisfaction and loyalty result in increased profits During the past two decades there has been a growing support for the fact that there are clear tangent planes between having committed (loyal) customers and profits. (2005:12) believe that Johnson and Gustafsson cited by Szwarc through creating an integrated customer measurement and management system focusing on quality, customer satisfaction and loyalty, organisations will ultimately be able too see an improvement in their bottom-line financial performance. The cited authors argue that quality, customer satisfaction and loyalty do not work independently of each other. They are part of a whole that needs to be measured and managed in a holistic way, with a clear understanding of the customer experience at the heart of the system. To achieve this, Johnson and Gustafsson (2000:4) as cited by Szwarc (2005:13), believe that an organisation needs to continually pursue three activities, namely: Gather customer information about the product and service features that customers value, and understand the more abstract consequences and benefits these attributes provide and the personal values they serve. Spread that information through the organisation. Use the information to maintain, improve or innovate in products, services or processes so as to increase satisfaction, loyalty and profitability. Lovelock (1996:250) further states that the first step in developing effective measures is to understand the cause-and-effect relationships of a system. The primary mission of a loyaltybased company is to deliver superior value to customers. Success or failure in this mission can clearly be measured through customer loyalty, which is best quantified by the customer retention rate or share of purchases, or both.

Customer loyalty according to Lovelock (1996:250), has three second- order effects, namely: Revenue grows as a result of repeat purchases and referrals. Costs decline as a result of lower acquisition expenses and from the efficiencies of serving experienced customers. Employee retention increases because job pride and satisfaction increases.

The above second-order effects in turn create a loop that reinforces customer loyalty and further reduce costs as hiring and training costs shrink and productivity increases. Lovelock (1996:250) is of the opinion that the third-order effect comes into play when costs go down and revenues go up, the result being increased profits. Unless managers measure and monitor all of these economic relationships, they will default to their short-term, profit-oriented accounting systems, which tend to focus only on the second- and third- order effects. Focussing on these symptoms instead of on the primary mission of delivering superior value to customers, often lead to decisions that will eventually reduce value and loyalty. Measuring value delivery The third step in the formulation of a strategy for delivering value to the customer according to Cant, Brink & Brijball (2006:37) is value measurement, which also can be executed through CVM. Value measurement can also be achieved using the measurement instrument, the Balanced Scorecard (BSC). The BSC represents an instrument that evaluates the performance of an organisation not only by concentrating on financial issues, but also by including non-financial measures such as consumer satisfaction, employee satisfaction and innovation. The BSC can also be used as an instrument to measure the long-term value creation process in an organisation. Furthermore, the BSC can also be focused more specifically on the consumer. In so doing, the organisation is required to align its core consumer outcome measures namely consumer satisfaction, consumer loyalty, consumer retention, consumer acquisition and consumer profitability.

Service Quality Quality service does not occur by itself. It is not a work-ethic that one anticipate exists in every person who occupies front-line staff positions. Furthermore it is not something that one expects all the employees of an organisation must have. It requires certain specific management action. More specific, for customer service to be successful, it must be managed successfully. This means that if an organisation is going to accomplish success in the delivery of quality service, whether it delivers a service or manufacture and sell products, the entire customer service process must be effectively managed (Martin, 2002:2). According to Martin (2002:10), the perspective of the organisation varies from the way the organisation views its organisational flow and the way the consumer views the organisations command. The traditional view has the CEO at the top of the organisation, with commands passing down to the different departments. The way the customer views service is exactly the opposite. The customer is in contact with the person(s) at front-line (first contact) status. The customer seldom sees the CEO or the manager of the organisation, and perhaps rightly so. Service excellence starts with the staff who are in direct contact with the customers and services their needs first. Only when situations are beyond the control of the front-line staff will they need to refer to the supervisor or in some cases directly to the CEO. It is a challenge for service organisation managers to think of this as an upside-down organogram. The reality is that this is the way the customer views the organisation. At a large marina restaurant there is usually a forty-five minute wait for a table. When guests check in at the front desk, they are provided with a small vibrating pager. This allows guest to stroll the marina area and shops without worrying about missing their call for seating (Martin, 2002:25). This situational example indicates how important each customer is to the specific restaurant. Some restaurants do not even care if their patrons do not arrive for their reservation, yet this restaurant offers an additional service, at very little cost to them and at no cost to the client. This type of service serves as an indication that the customer is top priority to the restaurant. Although the use of technology is important to any organisation (as with the case above where a pager is used), personal service is a vital dimension of quality customer service that deserves the understanding and appreciation of every organisation. If customers are ever to

receive the level of service they demand from organisations, the organisation must first understand their expectations. If the organisation does not understand such expectations, customers will continue to receive the same average to poor service that has become so evident in the industry. The fact remains that customers are the lifeblood of any business (Martin 2002:50). As a result, it is important to show them how appreciated their patronage is to the organisation. Most customers immediately recognise when they are being treated rudely, abruptly or indifferently. Oddly enough, as Martin (2002:50) explains, warmly. few people are immediately conscious of Instead, customers gradually being treated realise service providers are pleasant and people-oriented. The first clue is usually when the customer enters the front door. When customers walk in and feel the positive energy, they experience the feeling of being welcome and valued. Unfortunately, there is no specific way of measuring this feeling. There are no tangible elements that can be used for certain, to get a specific response. A customers positive reaction to a hospitable atmosphere is usually a direct result of service providers who are relating to customers in the performance of their duties. The quality of service delivery generates a positive atmosphere whereby the person delivering the service exhibits a positive attitude, by using appropriate verbal skills and demonstrating quality service behaviours.(such as taking orders, invoicing customers and delivering products efficiently and error-free.) One of the most effective ways of identifying what service quality is, is to conduct research into this complex, yet rewarding study. If suppliers can grasp the core of the service quality element, they will reap reciprocal rewards.