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A LITERATURE REVIEW OF SERVICE QUALITY AND

CUSTOMER SATISFACTION
Akram Jashireh
Department of Management and Accounting, College of Humanities , Islamic Azad university of Hamedan Branch ,Hamedan, Iran
jashireh4186@gmail.com
Alireza Slambolchi
Faculty Member of Management and Accounting, Islamic Azad University Hamedan Branch , Hamedan,Iran
alireza.slambolchi@gmail.com
Houshang Mobarakabadi
Faculty Member of Management and Accounting, Islamic Azad University Hamedan Branch , Hamedan,Iran
h.mobarakabadi@gmail.com

ABSTRACT

Customer satisfaction is one of the essential factors for the success of a company.
To achieve the high customer satisfaction, companies must know when and how
their customers are satisfied about the products and services.
Satisfaction is a vague and complex term, when we constrain ourselves to the
domain of user product relationships. The literature is equipped with numerous
diverse definitions for satisfaction.
Customer satisfaction is a compelling issue because in the service industry
customer retention is more important than attracting new customers. Retaining
customers has a stronger impact on company profit than does attracting new
customers. Therefore, companies, so as to maximize profits in the long term,
should strive for zero defection through customer satisfaction. The key terms for
this study are customer satisfaction, service quality, and consumer behaviour.

Key words: Service Quality, Customer Satisfaction, Consumer behavior

INTRODUCTION

For decades, it has been a common belief that success in the marketplace was dependent upon organizations‟
ability to create satisfied customers (Arnold et al., 2005; Parasuraman et al.,1985; Reichheld and Sasser, 1990;
Rust and Zahorik, 1992, 1993). In fact, early scholars argued that the creation of a satisfied customer was the
fundamental core of businesses (Drucker, 1973).
Consistent with this argument is the fact that one of the central themes of the marketing concept is delivering
products and services that satisfy customer needs (Howard and Sheth, 1969; Kohli and Jaworski, 1990). In
return, satisfied customers are expected to exhibit behaviors that are favorable to the company, such as future
patronage and making recommendations to others.
Because of the recognized importance of customer satisfaction, it has been a topic that has generated substantial
attention among academicians. Emphasis on customer satisfaction often stems from the thought that keeping
current customers is much less expensive than attempting to attract new customers. Evidence of this appears in
a study of the financial service industry which suggests that increasing customer retention rates by just 5
percent may increase profits from 25 to 80 percent (Reichheld and Sasser, 1990).
In addition to customer retention (Bolton, 1998), scholars have produced impressive evidence of the favorable
effects of customer satisfaction on various behavioral intention indicators, such as repeat purchase (Szymanski
and Henard, 2001), willingness to recommend to others (Homburg et al., 2005), loyalty (Anderson and
Sullivan, 1993), and profitability (Anderson et al., 1994; Bernhardt et al., 2000).
Despite strong evidence for the positive effects of customer satisfaction on behavioral intentions (Anderson and
Sullivan 1993; Bolton 1998; Szymanski and Henard 2001), researchers also identified situations in which the
correspondence was found to be low (Jones and Sasser, 1995; Mittal and Kamakura, 2001; Reichheld, 1996;
Strauss and Neuhaus, 1997). Numerous studies have shown that many customers who switch are often satisfied
with their prior brand experience, with overall switching among satisfied customers across many industries

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approaching 80% (Jones and Sasser, 1995; Keaveney, 1995; Oliver, 1999; Reichheld, 1996). For example,
Jones and Sasser (1995) found that a “satisfied” customer may switch because he or she tends to be indifferent,
holding no special preference or commitment to the provider of the service. Likewise, Reichheld (1996) pointed
out that car manufacturers in the USA consistently report levels of customer satisfaction in excess of 90%,
however repurchase intentions are about 35%. Blackwell, Miniard, and Engel (2006) captured the tone of
practitioners‟ explanation of the contradictory findings, stating “…businesses have begun to realize that simply
satisfying customers may not be enough…rather, they should strive for „customer delight‟…” (p. 214).
Corporate America, in particular, has begun to embrace this new philosophy, which suggests that merely
satisfying customers is inadequate (Keiningham and Vavra, 2001; Kumar and Iyer, 2001; McNeilly and Barr,
2006; Oliver et al., 1997). Organizations are now aiming their attention, as well as their resources, to
understanding how they can move beyond simply satisfying their customers, to delighting them. Recent
attention in the satisfaction literature has focused on the delight construct for its potential to influence
behavioral intentions (Chitturi et al., 2008; Loureiro and Kastenholz, 2010; Oliver et al., 1997).

LITERATURE REVIEW

Customer satisfaction

Customer satisfaction, as noted by Tahir, Waggett and Hoffman (2013), is “a customer's perspective based on
expectation and then subsequent post purchase experience”. In other words, it is an evaluation of products or
services‟ quality level that meets or exceeds the customer expectations. The term customer satisfaction has been
on the markets for a long time. In fact, many researchers and academicians emphasized that it is a key element
for a company‟s success in the market as well as a crucial factor for company‟ssurvival as it has a positive
effect on company‟s profitability. (Novikova, 2009; Angelova and Zekiri, 2011) It cannot be denied that a
satisfied consumer has a tendency to buy more than a less satisfied one. In a highly competitive market,
customer satisfaction is, indeed, a crucial key that builds strong and long-term relationships between the
customers and the firm. The measure of customer satisfaction, therefore, has become a vital concern for many
companies and services providers to achieve such success. (Mohammad, 2012)

Customer satisfaction is thought to be a precursor to behavioral intentions. Scholars have produced impressive
evidence of the favorable effects of customer satisfaction on various behavioral intention indicators, such as
repeat purchase (Szymanski and Henard, 2001), retention (Bolton, 1998), willingness to recommend to others
(Homburg et al., 2005), loyalty (Anderson and Sullivan, 1993), and profitability (Anderson et al., 1994;
Bernhardt et al., 2000). Equally impressive results have also been found in healthcare research. Satisfied
patients are more likely to comply with medical treatment regimens (Williams, 1994; Ahorny and Strasser,
1993) heal faster (Kincey et al., 1975) and are more likely to utilize services in the future (Baker, 1990). It is
therefore an important business success strategy (Anderson et al., 2004; Yoon and Uysal, 2005).
Satisfaction is considered to be a global evaluation of a consumer‟s experience with a product or service
offering. Global evaluations of service experiences has been described as a cognitive evaluation of the sum total
of satisfactions with the individual elements or attributes of all the products and services that make up the
experience (Tse and Wilton, 1988; Pizam and Ellis,1999). Oliver (1980) described satisfaction as a cognitive
state resulting from cognitive evaluations between expectations and perceived performance.

One of the most important goals of any organization is retaining and satisfying current and past customers
(Pizam & Ellis 1999, 326-339). If environmentally friendly products need to be considered or purchased by the
customers then they have to perform satisfactorily compared to conventional products and achieve consumer
satisfaction on key attributes such as functional performance, quality and price (Ottman 1995, 29;
Schlegelmilch at all. 1996, 35-56; Wong, Turner & Stoneman 1996, 263- 281.; Roy 1999). Customers purchase
goods and services with prepurchase expectations about anticipated performance (Oliver 1980, 460-469).

There is an increasing tendency to view satisfying customer as going beyond providing just a technically
superior product or service, i.e., defect reduction and continuous improvement programs. Quality is also as such
defined by the customer‟s perception, not by the service provider. However, it should also be born in mind that
even if the first person who is considered as a customer is the buyer (end user), there are several other people
who need to be considered as customer for the reason that their involvement in the production and distribution

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of the service or product, or project (LR Ireland, 1992, 123-124) affects the quality of the service. Generally,
customers may be of:

 Product/service end users- users expectations such as ease of use, safe operation, reliable products,
durable goods, and easily maintained products, etc. which all together enhances better functional performance
and or greater ease of use compared to other competing products/services.
 Boss (senior management) - the project director expects the project manager to effectively and
efficiently undertake the work, including keeping informed every stakeholder as to its progress and potentials
that could affect its success and relationship with customers, etc.
 Project team members- the team expects professional leadership of the project manager, safe work
environment, clear directions pertaining to work, training for new works, and appropriate rewards for superior
performance. Of course, the team members also expect loyalty from the project manager to shield them from
outside interference with their work.
 Functional organization-involves an expectation of efficient use of assigned resources (human,
material, financial, information, etc.)

 Vendors/suppliers- Vendors and suppliers have a vested interest in providing parts, components, and
materials to the project meeting the quality requirements. These customers have expectations of proper
specification practices by project personnel and prompt payment upon delivery.
 Society- a special interest groups and is the guardian of such general areas as the environment and
public safety. The issues addressed by society include environmental pollution of rivers and streams,
maintenance of a natural habitat, etc.
How well a company addresses each and every requirement of these groups of customers determines the new
product/service‟s success in the market. Therefore, companies should consider customers as their important part
of gaining improved quality of service.

Consumer behavior: Customer decision-making

An individual‟s behaviour is not independent from other‟s thoughts. Indeed, people are influenced by many
opinions as well as attitude of people around them. (Eroglu, 2014). Solomon et al. (2013) defines the term
consumer behavior as a study of individuals or groups and products that help to shape their identities. Another
definition of consumer behavior is “the dynamic interaction of affect and cognition, behaviour, and
environmental events by which human beings conduct the exchange aspects of their lives”. (Bennett
1995).Consumer decision-making goes through three stages, including the prepurchase stage, the service
encounter stage, and post-purchase stage(Lovelock, Wirtz and Chew, 2008; Tsiotsou and Wirtz, 2014). Figure 1
shows each stage of the model.

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Figure 1. The Three-Stage Model of Service Consumption (Content adopted from Lovelock, Wirtz and Chew,
2008; and Tsiotsou and Wirtz, 2014)

The pre-purchase phase comprises a set of factors and activities (Tsiotsou and Wirtz, 2014). In this phase, the
four steps of behaviour are listed, beginning with awareness of need, information search, evaluation of
alternatives, to make a decision on whether to buy a service. Consumers are triggered by a need arousal. They
are then motivated to start searching information to find solutions for the need. There are several ways for
consumers to gather information, such as seeking information from friends, family or using the Internet to
compare services, reading reviews and ratings from trusted or good reputation websites,etc. (Boshoff, 2002;
Lovelock and Wirtz, 2008;Tsiotsou and Wirtz, 2014). Several alternatives may come to consumers mind and
they evaluate these alternatives. After the process of evaluating, customers ready to make a final purchase
decision and move on to the next phase: the service encounter.
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The service encounter stage is a period of time when consumers interacts directly with a service company
(Lovelock and Wirtz, 2008). As stated by Tsiotsou and Wirtz (2014), “service encountersare complex process”
that can shape customers‟ expectations (Coye, 2004), satisfaction, loyalty, repurchase intentions and word-of-
mouth behavior (Bitner, Brown and Meuter, 2000). After service encounter stage, the next stage is post-
purchase, or the postencounter stage. In this stage of the service consumption process, customers evaluate the
service performance they have experienced and compare it with their prior expectations. On one hand, if their
expectations are not met or exceed, the customers are likely to be dissatisfied with the service. On the other
hand, they are likely to be satisfied when the expectations are met. In addition, customers‟ behavioural
responses of a satisfied customer are different from a dissatisfied one. When customers are satisfied, they may
purchase the service again, remain loyal or make recommendations to their friends, etc. Conversely, when
customers are less satisfied, they may complain about poor service quality, lose trust, exhibit negative word-of-
mouth, switch service provider, etc. (Lovelock and Wirtz, 2008)

Consumer behavior is the study of how individual customers, groups or organizations select, buy, use and
dispose ideas, goods, and services to satisfy their needs and wants. The company that really understands how
consumers will respond to different product features, prices and advertising appeal has a great advantage over
its competitors. There-fore, companies and academics have researched heavily the relationship between
marketing stimuli and consumer response. Their starting point is the stimulus–response model of buyer
behavior shown in Figure 2. This shows that marketing and other stimuli enter the consumer‟s „black box‟ and
produce certain responses. Marketers must figure out what is in the buyer‟s black box. Marketing stimuli
consist of the four Ps: product, price, place and promotion. Other stimuli include significant forces and events in
the buyer‟s environment: economic, technological, political, and cultural.

Figure 2. Black Box model of consumer buying behavior.

Figure 3. Factors influencing behavior.

Consumer purchases are influenced strongly by cultural, social, personal, and psychological characteristics, as
shown above in Figure 3. For the most part, marketers cannot control such factors but they must take them into

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account. Cultural factors exert the broadest and deepest influence on consumer behavior. The marketer needs to
understand the role played by the buyer‟s culture, subculture, and social class.
A consumer‟s behavior is also influenced by social factors, such as the consumer‟s small groups, family, and
social roles and status. Because these social factors can strongly affect consumer responses, companies must
take them into account when designing their marketing strategies. A buyer‟s decisions are also influenced by
personal characteristics such as the buyer‟s age and life-cycle stage, occupation, economic situation, lifestyle,
and personality and self-concept. Finally a person‟s buying choices are further influenced by four important
psychological factors: motivation, perception, learning, and beliefs and attitudes.

Service quality

In today‟s constantly changing business environment, providing a superior service quality, through an adequate
and a strong focus on customer (Chiara G., 2007), is one of the key factors enabling firms to gain a lasting
competitive advantage in winning the market. For this, nowadays marketers, according to R. Ladhari (2011),
are trying to focus more on a continuous monitoring and evaluation of service quality, involving various
innovative offerings and service developments, which have a direct influence on customers‟ service
experiences. Because, for instance, better service quality increases perceived service value and satisfaction;
improves the service provider's customer retention and financial performance; and also enhances a firm's
corporate image. (Nguyen and Leblanc, 1998)

Service Quality: refers to (Patrick P. et. al 1996, pp. 62), the „„difference between customers‟ expectations for
service performance prior to the service encounter and their perceptions of the service received. Service quality
theory (Oliver, 1980) predicts that clients will judge that quality is low if performance does not meet their
expectations and quality increases as performance exceeds expectations. Accordingly, customers‟ expectations
serve as the foundation on which service quality will be evaluated by customer. In addition, as service quality
increases, satisfaction with the service and intentions to reuse the service increases.‟‟
Quality has become a part of our daily lives. It has received high attention by many firms and customers. While
customers keep looking and expressing their desires for quality products or services, firms consider quality as a
key strategy to develop products and services in order to gain competitive advantages (Ali,2013).
Service quality is antecedent to customer satisfaction (Parasuraman, Berry & Zeithaml 1994, 111-125; Caruana
2002, 811-830). Perceived service quality is a result of individual service encounter between the service
provider and the customer, during which the customer evaluates quality and develops satisfaction or
dissatisfaction (Bitner et al. 1990, 71-84). The pre-purchase expactations formed by the customers are
influenced by intrinsic and extrinsic cues related to a practicular experience of previous experiences and other
related information sources (Gould-Williams 1999, 97-118). It is difficult to reassure the customers regarding
the functional performance of the environmentally friendly products due to the past failure of many of these
products (Davis 1993; Ottman 1999, 21).
Customers‟ perceived service quality varies from one to another due to different aspects of service quality.
Service quality is judged by the customers, and it depends on how the customers approach the service, because
the starting point of using a service is the basis of their perceptions. Quality of a service is achieved when a
service provider satisfies or exceeds their consumers expected service, which consequently leads to customer
satisfaction. Early conceptualization of service quality was developed and popularized by Christiaan Grönroos
(1982). In his model, the overall perception of service quality is presented as the final result of an evaluation
process, in which the consumer compared their expectations of quality and their experiences of quality. The
Grönroos‟s model of functional and technical quality is illustrated in Figure 4.

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Figure4. Technical and functional quality mode (Grönroos, 1984)

Grönroos (1982) argues that service quality, as recognized by consumers has three dimensions; they are a
functional dimension, a technical dimension and company image. Functional quality answers the question
“how” the service is provided to its customers, while technical quality focuses on “what” service is delivered to
its customers. “How” can be referred in terms of process quality, which means the evaluation during the service
performance, and “what” is related to output quality, meaning the evaluation after the service performance. The
third factor, image, is formed by technical and functional quality and is likewise affected by some external
factors, such as word-of-mouth, marketing communication, pricing, and customer needs, etc. Moreover, it
creates favorable attitudes to the service providers. Accordingly, measuring service quality should include these
attributes in order to attain high predictive validity of service quality. (Rahma, Khan, and Haque, 2012)

Generally, the different literatures define service quality in the following ways:

 An outcome of evaluation process (Grönroos, 1984), and differences in that customers make
comparison (Parasuraman et. al, 1988) of their expectation with their perception of the service received;
 The overall impression of consumers towards the superiority or inferiority of an organization and its
services (Bitner, 1990).

Service quality can be both (Grönroos, 1982) technical quality- involves what the customer is actually receiving
from the service, and functional quality- involves the manner in which the service is delivered.

Marketing research studies resulted in a general agreement that firms providing high service quality have a
competitive advantage, and often are more profitable .

Customer value

Customer value is broadly defined by Zeithaml (1990) as ”the customers overall assessment of the utility of a
product based on perception of what is received and what is given”. Perceived value is a direct consequence of
perceived quality as well as of price based transaction and acquisition utilities (Jayanti & Ghosh 1996, 5-25;
Zeithaml 1990). Perceived is a direct antecedent of a purchase decision (Zeithaml 1988).

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Customore value is formed during the service experience or process due to the inseparable characteristic of the
service product (Lemmink, Ruyter & Wetzels 1998, 159-177). The value model consists of three dimensions
(Mattson 1991), extrinsic (where use of articular service can be used as a means to a specific end) (Halbrook
1994, 21-71), insrinsic (the emotional evaluation of a service) and systemic (relationship between what one
wants and what one gets) (Hirschman & Halbrook 1994, 21-71).

Price

Customer satisfaction is directly proportional to price, with higher levels of customer satisfaction increasing
acceptance by the customer for higher prices (Anderson 1996, 265-274). If a customer is satisfied with a
product then a slight increase in price will not affect their level of satisfaction (Kalwani & Yim 1992, 90-100).
Sometimes the quality of service may be good but the net or marginal value may be rated poor if the price of the
service is perceived to be too high, otherwise knows as value for money approach. (Rust & Oliver 1994, 1-19).
Perceived price has a significant positive effect on perceived value in the lodging industry . Perceived price
exerted a significant negative influence on perceived customer value (Oh 1999, 67-82.). Perceived prices are
generally based on imperfect and incorrect information, especially in the early stage of an evaluation process
(Erickson & Johansson 1985, 195-200).

Customers’ Behavior and Marketing Strategies

Fishbein developed a „„multiattribute attitude model‟‟ to better explain and understand the way customers
behave in relation to the introduction of new product. The model is used to predict the behavior and attitude of
customers by focusing on their beliefs towards multiple products and/or brand attributes. It is understood that
that the „evaluations of salient beliefs cause over all attitude‟, i.e., customers prefer to like products with „good‟
attributes and dislike products with „bad‟ attributes.
The model further explains that the strength of the customers‟ brand or product belief is affected by customers‟
past experiences where belief about product attributes/consequences to be stronger when based on actual uses
of the product. Therefore, beliefs based on direct experience tend to have greater impact on the overall attitudes
toward a product thus marketers try to induce potential customers to actually use the products (eg. Providing
free trials of prepayment meter…). Whereas, unlike to experience based beliefs, beliefs from mass advertising
or conversations with sales person tend to be weaker.
Generally, the model, (Peter and Olson 2008, pp.139), helps in exploring customer behavior and is also much
easier to be used in research. Marketers can use the model to understand their customers, indentifying which
attributes are the most important-salient, diagnosis their marketing strategies for the subsequent change and
adjustment in strategies, and understanding situational influences for the reason that situational factors can
affect the type of beliefs to be activated from memory and make purchase decision in those particular
situational settings.

CONCLUSION

The goal of this study was to gain more knowledge about decision making processes and Customer
satisfaction.Consumers are actors on the marketplace stage. Consumers, in general, can be referred as
individuals who purchase or consume products and services.

A product is anything that can be offered to satisfy a need or want which includes experiences, persons, places,
organizations, information and ideas (Kotler, 1997). Customer‟s choice of product depends on a combination of
product attributes that best meets their needs based on dimensions of cost, value and prior satisfaction (Kotler
1997)
.
Customer satisfaction or dissatisfaction is a judgment made after considering the qualities and benefits of the
product as well as the price and efforts borne by the customer to obtain them. Every customer does not have the

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same level of satisfaction out of the same hospitality experience since each customer has different needs,
objectives and past experience.

Customer satisfaction is a frequent term and most studied areas in marketing, and the importance of it has been
proven by many researchers over the years. Customer satisfaction has been bringing many undeniable benefits
for firms and organizations, such as positive worth-of-mouth advertising or referrals, increased sales volume
from repeated purchases, failure cost reduction, sustainable advantages from customer loyalty and repeat
patronage, competitor isolation and many more.

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