The Cost of Customer Satisfaction: A Framework for Strategic Cost Management in Service Industries

Abstract

Customer satisfaction has long been considered a milestone in the path towards company profitability. Although it is widely acknowledged that customer satisfaction leads to higher and more stable revenues, the relationship between customer satisfaction levels and the costs that the company incurs in producing and delivering customer services has received far less attention, and the research results vary significantly across sectors. In fact, there seems to be little guidance for linking company costs to the key elements involved in providing customer satisfaction in services, thereby diminishing the ability of a company to manage its activities accordingly. In this paper, we propose and test a framework to analyse and manage the relationship between company costs and customer satisfaction in service industries. Based on a case study from the tourism industry, we show how service components can be used as a key medium to link customer satisfaction to the cost of service production and delivery. In doing so, we provide guidance for identifying specific sources of customer satisfaction and assessing their cost, thereby extending to service industries previous research on strategic cost management.