Companies with lots of competitors know that a high level of customer satisfaction is crucial for their profits. It leads to growth in sales via, for example, customer loyalty. But companies holding a monopoly, such as the Dutch water company or NS (Dutch Railways), may not have an incentive to satisfy customers as loyalty is guaranteed. However, they would also be well-advised to aim to satisfy their customers to the best of their abilities, according to marketing researcher Abhi Bhattacharya of the University of Groningen. He discovered a beneficial effect on profits for monopolies too, as satisfied customers lead to a reduction of costs in the utilities sector. A pathway which has been unexplored in literature exploring the effects of satisfaction.
Bhattacharya is the first person to research the exact relationship between customer satisfaction and the future financial performances of companies in a monopolistic market, such as water and gas companies, electricity grid operators and Dutch Railways (NS). His results will be published in the renowned Journal of Marketing Research of the American Marketing Association.
Companies with a monopoly position are not held accountable via customer satisfaction: they have no competitors and their prices are subject to government regulations. ‘According to economic theory, this must mean that above a certain level, customer satisfaction can no longer lead to more profits,’ observes Bhattacharya. ‘However, based on marketing theory, we demonstrate that a higher level of customer satisfaction can lead to more profits, even in heavily-regulated markets.’
This is due to cost reductions: ‘Customer service needs less time to deal with satisfied customers than with unsatisfied customers, for example,’ the researcher explains. Staff costs are not only reduced in the customer service department as a result of customer satisfaction; Bhattacharya found that the same holds true for direct costs relating to distribution and (sales) administration. ‘Working on satisfying customers increases efficiency, and lower costs of sales, thus leading to more profits for the company.’
The research was conducted with data from American utility companies, but can be applied to all monopolistic sectors around the world, according to Bhattacharya. ‘My most important recommendation to managers of companies with a monopoly, also in the Netherlands, is to invest in a high level of customer satisfaction. We provide them with tools for a substantiated customer satisfaction strategy. Our results are also of interest to policy makers who are looking into regulating or de-regulating markets. They may look to use to satisfaction as a regulatory tool.’
For further information about the research, please contact Abhi Bhattacharya:
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