Customer Satisfaction and its Impact on the Future Costs of Selling

Posted: 11 Mar 2019 Last revised: 14 Apr 2020

See all articles by Leon Gim Lim

Leon Gim Lim

Tilburg University

Kapil R. Tuli

Singapore Management University - Lee Kong Chian School of Business

Rajdeep Grewal

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Date Written: March 11, 2020

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

Suggested Citation

Lim, Leon Gim and tuli, kapil r and Grewal, Rajdeep, Customer Satisfaction and its Impact on the Future Costs of Selling (March 11, 2020). Available at SSRN: https://ssrn.com/abstract=3331251 or http://dx.doi.org/10.2139/ssrn.3331251

Leon Gim Lim

Tilburg University ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 3181 (Phone)

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/l.g.lim/

Kapil r Tuli

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Rajdeep Grewal (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

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