The Customer May Not Always Be Right: Customer Compatibility and Service Performance

63 Pages Posted: 23 Feb 2018 Last revised: 13 Jul 2019

See all articles by Ryan W. Buell

Ryan W. Buell

Harvard Business School

Dennis Campbell

Harvard University - Accounting & Control Unit

Frances X. Frei

Harvard Business School

Date Written: July 12, 2019

Abstract

This paper investigates the impact of customer compatibility – the degree of fit between the needs of customers and the capabilities of the operations serving them – on customer experiences and firm performance. We use a variance decomposition analysis to quantify the relative importance of customer, employee, process, location, and market-level effects on customer satisfaction. In our models, which explain roughly a quarter of the aggregate variance, differences among customers account for 96-97% of the explainable portion. Further analysis of interaction-level data from banking and quick service restaurants reveals that customers report relatively consistent satisfaction across transactions with particular firms, but that some customers are habitually more satisfied than others. A second set of empirical studies provides evidence that these customer-level differences are explained in part by customer compatibility. Customers whose needs, proxied by differences in demographics and product choices, diverge more starkly from those of their bank’s average customers report significantly lower levels of satisfaction. Consistently, banks that serve customer bases with more dispersed needs receive lower satisfaction scores than banks serving customer bases with less dispersed needs. Finally, a longitudinal analysis of the deposit and loan growth of all federally insured banks in the United States from 2006-2017 reveals that customer compatibility affects a firm’s financial performance. Branches with more divergent customers grow more slowly than branches with less divergent customers. Institutions serving customer bases with more dispersed needs have branches that exhibit slower growth than those of institutions serving customer bases with less dispersed needs.

Keywords: Service operations, customer compatibility, satisfaction, profitability

Suggested Citation

Buell, Ryan W. and Campbell, Dennis and Frei, Frances X., The Customer May Not Always Be Right: Customer Compatibility and Service Performance (July 12, 2019). Harvard Business School Accounting & Management Unit Working Paper No. 16-091; Harvard Business School Technology & Operations Mgt. Unit Working Paper No. 16-091. Available at SSRN: https://ssrn.com/abstract=3128468 or http://dx.doi.org/10.2139/ssrn.3128468

Ryan W. Buell (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan Hall 429
Boston, MA 02163
United States
617-496-6918 (Phone)

HOME PAGE: http://www.hbs.edu/rbuell

Dennis Campbell

Harvard University - Accounting & Control Unit ( email )

Soldiers Field
Boston, MA 02163
United States

Frances X. Frei

Harvard Business School ( email )

Soldiers Field Road
Morgan Hall 411
Boston, MA 02163
United States

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