EFFECTS OF CUSTOMER INTERACTION ORIENTATION ON CUSTOMER SATISFACTION AND FIRM PERFORMANCE: A LONGITUDINAL STUDY

Abstract

Interaction Orientation (IO), a firm-level strategic orientation developed by Ramani and Kumar (2008), consists of four dimensions: (1) Customer concept - a firm-wide belief that sees the individual customer level as the examination unit and starting point of all company’s activities; (2) Interaction response capacity - the firm’s competency to respond to different customers using multiple means in a timely manner; (3) Customer empowerment - the extent to which a firm encourages customers to share information with the firm or with other customers; and (4) Customer value management - the capacity to keep an overview of how much revenue each customer generates, facilitating an efficient resource allocation. Current research states that IO represents a source of competitive advantage and leads to higher financial and non-financial performance. Past studies have only focused on cross-sectional data. However, a strategic orientation is a deeply embedded and gradually progressing organizational characteristic and, in order to establish a cause-effect relationship with performance, a longitudinal design is needed (Noble, Sinha, & Kumar, 2002). This study is the first to analyze the effects of IO longitudinally, including 247 SP Short, Broberg, Cogliser, & Brigham, 2010; Zachary, McKenny, Short, & Payne, 2011). A sentence-by-sentence coding procedure was implemented (Keusch, Bollen, & Hassink, 2012;), where each sentence was examined for evidence of the four IO dimensions. We relied on multisource secondary data for performance indicators and on the American Customer Satisfaction Index (ASCI) for measuring customer satisfaction. We included the effects of competitive intensity and market turbulence, as well as several control variables: past performance of the firm, firm age, firm size, as well as industry specific effects. The results confirm the short and long term benefits of implementing IO, including higher financial performance and increased customer satisfaction, especially in a turbulent market. This study lays the foundation of a new approach for measuring IO in a longitudinal setting and using objective financial performance indicators.