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Customer satisfaction has a statistically and economically significant negative effect on a firm’s future cost of selling that depends on the firm’s strategic focus and flexibility, and its operating environment.
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Principles, Core, and Intro to Marketing Mgmt; Brand management, Marketing strategy,
Full Citation:
Lim, Leon Gim, Kapil R. Tuli, and Rajdeep Grewal (2020), “Customer Satisfaction and Its Impact on the Future Costs of Selling,” Journal of Marketing.
Article Abstract:
Although scholars have established that customer satisfaction affects different dimensions of firm financial performance, a managerially important, but overlooked aspect is its effect on a firm’s future cost of selling (COS), i.e., expenditures associated with persuading customers and providing convenience to them. Accordingly, this study presents the first empirical and theoretical examination of the impact of customer satisfaction on future COS. The authors propose that while higher customer satisfaction can lower future COS, the degree to which a firm realizes this benefit depends on its strategy and operating environment. Analyzing almost two decades of data from 128 firms, the authors find that customer satisfaction has a statistically and economically significant negative effect on future COS. While the negative effect of customer satisfaction on future COS is weaker for firms with higher capital intensity and financial leverage, this effect is stronger for more diversified firms and for firms operating in industries with higher growth and labor intensity. The authors also find that these effects may vary across two components of COS, cost of persuasion and convenience.
Special thanks to Kelley Gullo and Holly Howe, Ph.D. candidates at Duke University, for their support in working with authors on submissions to this program.
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Leon Gim Lim is Assistant Professor of Marketing, Tilburg University, The Netherlands.
Kapil R. Tuli is Lee Kong Chian Professor of Marketing, Singapore Management University, Singapore.
Rajdeep Grewal is Townsend Family Distinguished Professor and Area Chair of Marketing, Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC.