Customer Satisfaction and its Impact on the Future Costs of Selling

Abstract

Although scholars have established that customer satisfaction affects different dimensions of firm financial performance, a managerially important, but overlooked aspect is its effect on a firm’s future cost of selling (COS), i.e., expenditures associated with persuading customers and providing convenience to customers. Accordingly, the current study presents the first empirical and theoretical examination of the impact of customer satisfaction on future COS. The authors suggest that while higher customer satisfaction can lead to lower future COS, the degree to which a firm realizes this benefit depends on its strategy and operating environment. Analyzing almost two decades of data from 128 firms, the authors find that customer satisfaction has a statistically and economically significant negative effect on future COS. While the negative effect of customer satisfaction on future COS is weaker for firms with higher capital intensity and financial leverage, this effect is stronger for more diversified firms and for firms operating in industries with higher growth and labor intensity. The authors also find that these effects may vary across different components of COS.

Keywords: capital structure, customer satisfaction, cost of selling, industry effects, marketing-finance interface, organizational resources, strategic flexibility, strategic intent

JEL Classification: L, M