Quantifying the Link between Employee Engagement and Customer Satisfaction in the Car Rental Industry

34 Pages Posted: 8 Aug 2018 Last revised: 15 Aug 2018

See all articles by Ahmed Khwaja

Ahmed Khwaja

Yale School of Management; University of Cambridge - Judge Business School; Yale University - Cowles Foundation

Nathan Yang

Cornell University

Date Written: August 15, 2018

Abstract

In the retail service industry, employee engagement may play an important role in customer relationship management, as employees often interact directly with customers. This paper investigates the link between employee engagement and customer satisfaction. We analyze this potential link using a unique data set from a large car rental company. Our analysis accounts for the possibility that employee engagement is endogenously determined. To address potential endogeneity of employee engagement, we make use of instrumental variables based on location and time varying employee composition. Our analysis confirms that there is a positive effect of employee engagement on customer satisfaction, which can in turn increase customer loyalty. The causal link between employee engagement and customer satisfaction is especially important, as our analysis using LASSO (for variable subset selection) highlights that customer satisfaction is among the most important predictors of customer loyalty. Ultimately, our findings have implications not just for customer targeting but also firm resource allocation decisions regarding employee motivation.

Keywords: Car Rental Industry, Customer Relationship Management, Customer Satisfaction, Employee Engagement, Instrumental Variables, Supervised Learning Methods, Service Management, Retail Value Chain, Retail Strategy

JEL Classification: M31, M54

Suggested Citation

Khwaja, Ahmed and Khwaja, Ahmed and Yang, Nathan, Quantifying the Link between Employee Engagement and Customer Satisfaction in the Car Rental Industry (August 15, 2018). Available at SSRN: https://ssrn.com/abstract=3213659 or http://dx.doi.org/10.2139/ssrn.3213659

Ahmed Khwaja

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Nathan Yang (Contact Author)

Cornell University ( email )

Dyson School, Warren Hall
360E
Ithaca, NY 14853-6201
United States
6072551590 (Phone)

HOME PAGE: http://dyson.cornell.edu/faculty-research/faculty/ncy6/

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