How public utility companies profit from satisfied customers as well
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.
Dealing with unsatisfied customers
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.’
Tools for customer satisfaction strategies
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.’
More information
For further information about the research, please contact Abhi Bhattacharya:
Last modified: | 30 January 2023 1.41 p.m. |
More news
-
02 May 2024
Johan Remkes te gast in podcast Leiderschap in Onzekere Tijden Live
Oud-minister en oud-informateur Johan Remkes is op 15 mei te gast in de Podcast Leiderschap In Onzekere Tijden. In de liveopname van de podcastaflevering gaat hij met FEB-hoogleraren Janka Stoker en Harry Garretsen in gesprek over de huidige...
-
29 April 2024
The Maddison Project: New 2023 Update Illuminates Origins of Modern Economic Growth
In a new update of the renowned Maddison Project Database, economic historians shed new light on the genesis of modern economic growth.
-
29 April 2024
Guido Berends and Hylke Dijkstra win FEB Research Awards 2023
The awards for best PhD thesis and best graduate of the research master were presented at the annual PhD conference held on April 18. Guido Berends won the Best PhD Thesis Award 2023 and Hylke Dijkstra won the Research Master Graduate Award 2023.