Investigating the Strategic Influence of Customer and Employee Satisfaction on Firm Financial Performance

Abstract

The ability to demonstrate the impact of marketing action on firm financial performance is crucial for evaluating, justifying and optimizing the expenditure of a firm's marketing resources. This presents itself as a formidable task when one considers both the variety and potential influence of marketing activity. We propose a hierarchical Bayesian model that allows us to formally study the financial impact of a variety of marketing activities, including those that operate on different time scales. We illustrate our approach in a services context by integrating data from three independent studies conducted by a large national bank. Our model allows customer and employee satisfaction to influence firm profitability by moderating the conditional relationship between the bank's operational inputs and its proclivity to produce revenue. We demonstrate the utility of our approach through a series of marketing policy counterfactuals.

Keywords: Bayesian Estimation, Endogeneity, Services Marketing, Customer Satisfaction, Resource Allocation

JEL Classification: C11, M3, C33