Xueming Luo & Christian Homburg
Executive Summary
Although there is significant evidence that customer satisfaction is an important driver of firm profitability, extant literature has largely neglected two intermediate outcomes of customer satisfaction: a firm’s advertising and promotion efficiency and its human capital performance. On the basis of longitudinal analyses of large-scale secondary data from multiple sources, the authors find that customer satisfaction boosts the efficiency of future advertising and promotion investments. This finding can be explained by the possibility that customer satisfaction generates free word-of-mouth advertising and saves subsequent marketing costs. In addition, customer satisfaction has a positive influence on a company’s excellence in human capital (employee talent and manager superiority). Finally, the authors investigate the moderating influence of market concentration on both relationships.
This study offers some helpful managerial implications. First, the results suggest that firms with higher levels of customer satisfaction should use this performance metric for attracting and retaining employees and managers of high quality—the fundamentals of a company’s human capital excellence. Although the use of a customer satisfaction index in personnel recruiting is not yet common in business, this index can be powerful. The finding of an expanded positive influence of customer satisfaction on employee talent in low-concentrated markets suggests that firms should (1) proactively publicize their superior satisfaction ratings and (2) extensively use this metric in their human resources recruiting, compensation, and retention programs, especially in low-concentrated markets when facing fierce competition. Indeed, because customer satisfaction leads to human capital excellence, human resources managers have a good reason to pay attention to the firm’s customer satisfaction index.
Furthermore, the authors suggest that companies should carefully monitor their marketing communication efficiency relative to competition and relate these analyses to customer satisfaction benchmarks. If a firm with superior customer satisfaction values is not more efficient in terms of marketing communication than its competitors, it is likely that the firm’s communication management has potential for efficiency improvement. This implication is especially important in industries in which firms spend a considerable percentage of their revenues on marketing communication. Thus, this implication would be more relevant for consumer goods firms than for firms in business-to-business marketing.
Finally, the results of the study should be valuable for marketing managers in their dialogue with chief financial officers. Because there is a strong push for marketing accountability in the corporate world, the finding that customer satisfaction increases advertising and promotion efficiency provides a strong argument for marketing managers in front of chief financial officers. That is, customer satisfaction can also help save future marketing money. Thus, marketers should approach top executives and seriously question relentless cost cutting on programs that aim to increase customer satisfaction and loyalty. Indeed, better customer satisfaction may enable the firm to consume fewer future resources and achieve better efficiency; that is, improving customer satisfaction helps generate more future sales at a given level of advertising and promotion costs or save future marketing communication costs at a given level of sales.
Biography
Xueming Luo is Assistant Professor of Marketing in the College of Business Administration at the University of Texas at Arlington. His research focuses on econometric modeling, strategic marketing, and international marketing/business. His work has appeared in academic and practitioner journals, such as Journal of Marketing, Journal of Marketing Research, Journal of the Academy of Marketing Science, International Journal of Research in Marketing, Journal of International Marketing, Journal of Business Research, Journal of Advertising Research, Industrial Marketing Management, and Journal of Consumer Psychology.
Christian Homburg is Professor of Marketing and Chair of the Marketing Department at the University of Mannheim, Germany. He also serves as director of this university’s Institute for Market-Oriented Management. He holds master’s degrees in Business Administration and Mathematics and a PhD in Business Administration from the University of Karlsruhe, Germany. He also holds a habilitation degree from the University of Mainz, Germany. His research interests include market-oriented management, buyer–seller relationships, and business-to-business marketing. He has published in Journal of Marketing, Journal of Marketing Research, Strategic Management Journal, Journal of the Academy of Marketing Science, and International Journal of Research in Marketing. He is also the founder of Professor Homburg & Partners, an internationally operating management consulting firm.
Journal of Marketing, Vol. 71, No. 2, April 2007
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