Improving the distributors’ satisfaction
Firm X
By
Niels Bron
University of Groningen
Improving the distributors’ satisfaction
Firm X
Author:
Niels Bron
Student Master Marketing Management
Student number: 1425781
University:
University of Groningen
Faculty of Management and Organisation
Landleven 5
9700 AV Groningen
Supervisor:
Drs. J. Berger
Second supervisor:
Drs. A. Hunneman
Preface
Proudly I present my Master thesis for the Master Marketing Management of the University of Groningen. This Master thesis investigates the distributors’ satisfaction of Firm X. For almost every organization it is essential to satisfy all customers in the channel. The last few months were intensive and instructive for me, a period I look back on to with pleasure.
Obviously, it is usual to thank particular persons in the preface for their support, contribution and strains. First of all, I want to say many thanks to the senior management of Firm X for their openness, time and useful information. I have much appreciation for the fact that I have gotten the opportunity to perform my Master thesis for the great multinational Firm X.
Moreover, I want to thank my supervisors Mr. J. Berger and Mr. A. Hunneman of the University of Groningen, for their great support.
Niels Bron
Table of contents
Chapter 1 Research design Firm X ...7
1.1 Introduction ...7
1.2 Context of the problem ...7
1.3 Management decision problem...8
1.4 Marketing research problem ...9
1.5 Theoretical framework………..…12 1.6 Conceptual model ...27 1.7 Research questions………30 1.8 Research design ...31 1.9 Academic value ...34 Chapter 2 Firm X...35 2.1 Introduction ...35 2.2 General background...35 2.3 Firm X ...35
Chapter 3 Sampling: design and techniques ...37
3.1 Introduction ...37
3.2 Sampling design ...37
3.3 Statistical techniques ...38
Chapter 4 Expected level and perceived distributors’ satisfaction ...39
4.1 Introduction ...39 4.2 Research design ...39 4.3 Results ...40 4.3.1 Word-of-mouth...40 4.3.2 External communications ...42 4.3.3 Past experience ...42 4.3.4 Personal needs ...43 4.3.7 Product tangibles ...47 4.3.8 Reliability ...48 4.3.9 Responsiveness ...49 4.3.10 Accessibility/ flexibility ...50 4.3.11 Empathy...51 4.3.12 Assurance...53 4.3.13 Professionalism/ skills ...54
4.3.14 Minimum order quantity (MOQ’s)...55
4.3.15 Stock rotation...56
4.3.16 Price protection...59
4.3.17 Complaints procedure...61
4.3.18 Importance ...62
Chapter 5 Distributors’ satisfaction about competitors...66 5.1 Introduction ...66 5.2 Research design ...66 5.3 Literature review...66 5.4 Identification of competitors ...67 5.5 Quantitative results ...69 5.5.1 According to Firm X...69 5.5.2 According to distributors ...70
5.5.3 Comparison between Firm X and distributors:...72
5.6 Qualitative results ...72
5.6.1 Bureaucratic organization...72
5.6.2 Supply chain ...72
5.6.3 Product range ...72
5.6.4 Web-services ...73
5.6.5 Marketing and sales ...76
5.7 Conclusions ...76
Chapter 6 Responsibility per department ...78
6.1 Introduction ...78
6.2 Research design ...78
6.3 Results ...78
6.4 Conclusion ...79
Chapter 7 Organizational structure ...80
7.1 Introduction ...80
7.2 Research design ...80
7.3 Theoretical review and results ...80
7.4 Conclusions ...88
Chapter 8 Conclusions and recommendations ...89
8.1 Introduction ...89
8.2 Research variables ...92
8.3 Distributors’ satisfaction...93
8.3.1 Antecedents of the service quality expectations...93
8.3.2 Service quality expectations and perceived service quality performance ...94
8.3.3 Distributor’s satisfaction in contrast with main competitors...97
8.4 Firm X’s departments ...99
8.5 Organizational structure and management commitment ...100
8.6 Summary...103
Chapter 9 Research limitations and further research ...105
9.1 Introduction ...105
9.2 Research limitations ...105
9.3 Further research ...105
Appendix 1 Organization chart of Firm X ...
Appendix 2 Quantitative survey for distributors ...
Appendix 3 Qualitative survey for distributors’ satisfaction ...
Appendix 4 Quantitative survey for sales, finance and customer service of KMPSE ...
Appendix 5 Qualitative survey expected level of distributors’satisfaction...
Appendix 6 Quantitative survey about management commitment/ organizational structure ...
Appendix 7 Qualitative survey regarding management
commitment/ organizational structure ...
Appendix 8 SPSS results expected and actual level of Distributors’ satisfaction...
Chapter 1
Research design Firm X
1.1 Introduction
This Master thesis describes an approach to improve the distributors’ satisfaction of Firm X. Firm X has an desire to become more market oriented. The local account managers, the customer service department and the finance department are included into this research as the consequence of having direct contact with distributors. The customer service department and the finance department are located in the Netherlands. In the Netherlands is also the sales department located responsible for the Netherlands. The other European countries have their own sales department which is situated in the relevant country.
In the research described in this Master thesis Germany and Great-Britain are involved.
This chapter describes exactly how the research is constructed. In the following chapters is depicted how the research is accomplished. This Master thesis ends with the conclusions and recommendations to increase the distributors’ satisfaction and to become more market oriented. The following parts form the imperative components of this first chapter, respectively the research purpose, management decision problem, market research problem, theoretical framework, conceptual model, research questions, methods of data collection and the academic value of this thesis. These components are described in this chapter to make the overall purpose clear. Additional information can be found in the chapter two concerning organizational issues of Firm X.
1.2 Context of the problem
According to Malhotra (1994), the researcher should analyze the factors that have an impact on the definition of the marketing research problem. These factors, encompassing the environmental context of the problem, include past information and forecasts pertaining to the industry and the firm, resources and constraints of the firm, objectives of the decision maker, buyer behaviour, economic environment and marketing skills of the firm.
An essential part of the environmental context consists of objectives which have to be accomplished. The senior management of Firm X stated a few objectives (Firm X annual report, 2006) which they desire to accomplish with this thesis. These organizational objectives have some degree of overlap. The following five organizational objectives are ultimately translated into a useful research purpose:
- The initial management objective of this research is Firm X’s desire to operate market oriented in the heavy competitive printer market. Firm X wants to use a customer perspective in the long term.
- The second objective is that Firm X wants to measure how effective their customer service department functions.
- The third objective is that Firm X would like to know how the customer service department could support the Marketing & Sales department.
- The fourth objective is that Firm X wants to know how the organizational structure could be organized effectively.
Firm X
These five organizational objectives clarify the reasons for conducting this Master thesis. The focus of the research will be on the distributors who are functioning as a distributing trade between Firm X and dealers/ resellers. In the following figure is the distributor network of Firm X visualized.
Figure 1.1: distribution network Firm X
Malhotra (1994) declares that the formulation of the management decision problem must be based on clear understanding of two types of objectives: the organizational objectives and the personal objectives of the decision makers of Firm X. According to De Leeuw (1990) the research objective shows for whom the research is conducted and which results are expected to serve what purpose. The five objectives mentioned above can be reduced into the following main research purpose:
Formulate recommendations to improve the effectiveness of the customer service department, marketing & sales department and finance department regarding to customer satisfaction of the distributors of Firm X, compared with current competitors.
Resources and constraints:
To formulate a marketing research problem of appropriate scope, it is necessary to take into account both the resources available and constraints of the organization (Malhotra, 1994). The net time for performing this research is approximately three months after finishing the research design. The budget for this thesis is unidentified. But when it is necessary to visit distributors personally, the travel distance and travel time have to be taken into account. The reason for this is that the distributors are scattered over entire Europe. However, constraints should not be allowed to diminish the value of the research to the decision maker of Firm X or compromise the integrity of the research process.
1.3 Management decision problem
According to Malhotra (1994), the management decision problem determines the management problems of the decision makers of Firm X. The management decision problem for this thesis is the following:
What is the customer satisfaction of current distributors concerning the brand Firm X correlated with the customer service department, marketing & sales department and finance department and how could Firm X be more market oriented by improving the customer satisfaction?
It is chosen to measure the attitudes (Emans, 2002) of distributors regarding the brand Firm X
End-user Dealer/ reseller
Distributor Firm X
It is reasonable that distributors develop an opinion due to past experiences about the entire Firm X and not as separate departments. Firm X is operating as the brand of an organization (Aaker, 2000).
Zeithaml and Bitner (2003) define perceived service quality as a global judgment or attitude relating to the superiority of a service. It is widely accepted today that service quality is a multi-dimensional concept. It is chosen to only include the departments which have direct contact with distributors, because these departments influence the customer satisfaction directly. In the conceptual model the antecedents which influence the expected service quality will be included. Furthermore, variables will be included with the purpose of measuring customer satisfaction.
1.4 Marketing research problem
Malhotra (1994:43) defines the market research problem as a problem that entails determining what information is needed in answering the management decision problem and how it can be obtained in the most feasible way. The management decision problem asks what the decision maker of Firm X needs to do, whereas the marketing research problem asks what information is needed. The market research problem for this thesis is the following:
Which variables influence the satisfaction of distributors, how does Firm X perform on these particular variables relative to competitors, to what extent do the measured variables differ from the expected levels (‘gaps’), which departments/ staff are responsible for improving the ‘gaps’ and finally, how can the internal organization be designed to operate more market oriented regarding customer satisfaction?
The marketing research problem is divided into five parts. The following figure (figure 1.2) visualizes the five parts to make the relationships between the parts clear.
Figure 1.2: marketing research problem
The answers on these five parts provide a clear solution to the marketing decision problem. When these five parts are answered it is possible to provide an answer to the management decision problem. The desire to operate market orientated is the overall goal of the marketing
1. Which variables influence customer satisfaction?
2. Measure variables
3. Differences between perceived customer satisfaction and expected level of customer satisfaction
‘Gaps’
4. Which department/ staff is responsible?
The first part of the marketing research problem is concerning the variables which influence customer satisfaction. The literature regarding customer satisfaction will be sufficient in providing these variables. Useful variables will be depicted in the theoretical framework. The conceptual model gives a clear picture which variables will be included in this research. These theoretical variables will be examined with the distributors.
The second part of the marketing research problem describes how Firm X performs on the selected customer satisfaction variables. In the marketing research problem is also mentioned how Firm X performs on the variables relative to competitors. In part three, the measured variables will be compared with the desired levels of customer satisfaction. The desired levels of satisfaction will be defined by the senior management and additional staff of Firm X. The gap resulting from the difference between the desired level and the measured level has to be reduced by the responsible department or staff. This will be done in the fourth part of the marketing research problem. The final step of this research is to describe how the organizational structure can be most favorably designed to improve distributors’ satisfaction.
Figure 1.3: conceptual model Firm X Management commitment Customer service Sales Finance Other departments
‘Gaps’ per department/ staff Possible key delivery processes:
Expected/ desired level of satisfaction Perceived level of satisfaction
‘Gaps’ for improving
Organizational systems Interdepartmental dynamics
Management perception of consumer expectations Translation of perceptions into service quality specifications Service delivery Perceived service quality performance Service quality expectations Perceived service quality Perceived value Customer satisfaction Firm X
Distributor Past experiences Word-of-mouth Personal needs
Competitive behavior Reputation/ credibility Technical quality Functional quality Departmentalization Formalization Centralization Market based reward systems
Acceptance for political behavior
Interdepartmental connectedness
Interdepartmental conflicts
Concern for new ideas of other departments
1.5 Theoretical framework
Research should be based on objective evidence and supported by theory (Malhotra, 1994). Objective evidence is gathered by compiling relevant findings from secondary data and is unbiased and supported by empirical findings. A theory is defined as a conceptual scheme based on foundational statements which are assumed to be true. In this section the theoretical background is projected for this thesis. In the subsequent sections are the following topics depicted, respectively service, distribution network, customer orientation, quality and customer satisfaction and organizational structure. Ultimately, these theories will make clear the conceptual model which is illustrated in the next section.
Service:
Services are of increasingly vital importance to the competitive advantage of firms in situations where the physical product components of the offering to the market do not distinguish one firm from another. In such situations, managing services and understanding how to market the service components of the offering is a key to success at the marketplace (Grönroos, 2000). According to Boyt et al (1997), building customers’ trust is a fundamental prerequisite for success in industrial marketing. Boyt et al (1997) argue that industrial marketing services are the best means to strengthen customers’ confidence and to establish credibility between buyer and seller. Confidence in the service provider is essential because the higher the credence properties of the service, the less likely the customer will understand or make an objective assessment of the quality of the service delivered.
Distribution network:
It is fundamental to describe what the importance and advantages of distributors are for Firm X. Distributors add value for Firm X and dealers/ resellers, which translate as cost reduction and business growth (Mudambi et al, 2003). In the first section of this chapter the distribution of Firm X was visualized.
Central to the competitive advantage of distributors is the ability to consistently provide added value, to manufacturers and dealers/ resellers. The sources of distributor value can be summarized by customer relationship management, productions & operations management and knowledge management. The decision to utilize a distributor is also shaped by past experience, expectations, reputation and the level of trust. Distributors need to communicate how they add value and why businesses should trust and rely on them (Mudambi et al, 2003). Sources of added value to Firm X are visualized below (figure 1.4).
Customer relationship management: Account consolidation (reducing the number of contacts Firm X must make with consumers)
Customer relation building Customer base growth
Production & operations management: Order processing (order taking, order fulfillment, managing logistics and transportation)
Working capital & inventory reduction (through consolidation of cash and receivables)
Trade credit & financing
Sources of added value to dealers/ resellers of Firm X are the following:
Customer relationship management: Supplier consolidation (reduces the number of suppliers the dealers/ resellers has to manage)
Personalized relationships (better understands needs and preferences and are more willing and able to be responsive). Access to larger network (Dealers/ resellers gain access to a larger network of suppliers)
Production & operations management: Order processing
Lead time/ inventory reduction (distributor owing and holding inventory)
Trade credit & financing Knowledge management: Technical product knowledge
Technical process knowledge Global market knowledge Figure 1.5: sources of added value to dealers/ resellers
Level of customer participation:
In relation to the advantages of distributors for Firm X described by Mudambi et al (2003), the level of customer participation obtains important information about the position of distributors. The level of customer participation required in a service experience, varies across services between:
- low,
- moderate and
- high customer participation (Bitner et al, 1997).
The input from the distributors is required to facilitate and support the service performance of Firm X. Related to the research from Bitner et al (1997), this represents the moderate level of participation, which means that distributors input are required for service creation.
Inputs can consist of, but are not limited to information about the following issues: - order quantity,
- stock rotation requests, - price protection requests,
- payment information and feedback,
- marketing claim information and feedback, - price information and
- information on demo units being used and sold.
Distributors must order the correct order quantity as published in the price lists of Firm X, because of the efficiency and effectiveness of the outbound processes from Firm X. Minimum order quantities are being used for printers, options and consumables.
Requests for stock rotation and price protection must be initiated by the customer, as they are responsible for the items they have on stock and must be able to book all claims into their administration. All information requested by Firm X, however, has to be presented.
Payment can only be initiated when Firm X knows which sales manager has made the special agreement, including which products are involved, total quantity of products involved, article numbers, relevant pricing, relevant discount structure and against which conditions the order is being received. Also the claim has to be authorized by either Business Planning or the Manager Sales & Marketing.
Marketing claims are claims related to special actions. For example, when a distributor has stock levels that are too high to justify based upon the through put and are affecting the balance sheet of the distributor, Firm X will initiate a special marketing action together with the distributor to ensure that the turn around time is increased. Also here the distributor is required to facilitate and support the processes of Firm X by providing all relevant information.
It is possible for end-users to order demo printers. A demo printer can be used for a limited time frame, whereby the end user can decide after this time frame to buy the unit involved with an additional discount of 10%. When these end-users decide to keep the demo printers, the entire distribution channel will be supported with an additional discount percentage of 10%. Distributors can only acquire the additional discount when they inform Firm X by means of the correct procedures. The fact that the distributors are aware that they are partially or totally responsible for this part of the process, this will influence their satisfaction, as stipulated by Bitner et al (1997) and by Hubbert (1995).
With his model of five forces of competition, Porter (1980) describes the bargaining power of customers, the bargaining power of suppliers, the threat of new entrants, the threat of substitute products and the competitive rivalry within an industry. The bargaining power of customer can, when strong enough:
- initiate a forced downwards spiral of the sales price, - demand a higher quality
- demand more or a higher level of service,
- and play competitors off against each other (Porter, 1980).
A distributor of Firm X is powerful because it purchases in large volumes and they add value to Firm X as described by Mudambi et al (2003). Distributors also depend on the products of Firm X since the products of Firm X affect the quality of the product range of distributors (Porter, 1980). This theoretical pronouncement has to be confirmed by distributors to uncover what the mutual interdependence is between Firm X and its distributors. Also, resellers demanding products of Firm X which they desire to sell to end-users. Firm X desires to use a pull strategy. According to Alsem (2000), in using a pull strategy the product will be trailed throughout the distribution channels as a result of increasing demand from the customer.
Because of the reasons mentioned above, the relationship between Firm X and its distributors is a relationship that can be characterized as being one of mutual interdependence. A mutual interdependence relationship is a relationship in with the distributor becomes dependent on the solution/ system of Firm X rather than on just the core product. On the contrary, Firm X becomes dependent on the functioning of the distributor (Vitale & Giglierano, 2002). The extent of the mutual interdependence between Firm X and its distributors has to be confirmed by distributors.
Market orientation:
If a firm desires to manage services as an excellent approach, it has to be market oriented (Narver et al, 1990). A business that increases its market orientation will improve its market performance. Market orientation consists on the one hand of the following three behavioral components: customer orientation, competitor orientation, and inter-functional coordination. On the other hand, market orientation consists of two decision criteria, namely long-term focus and profitability. Solutions of this master thesis will also be long term related. For long-term survival in the presence of competition, a business can not avoid a long long-term perspective. Profitability is viewed as a consequence of market orientation. These components will be included in the conceptual model.
Customer orientation is the sufficient understanding of one’s target buyers to be able to continuously create superior value for them. A customer orientation requires that a seller understands a buyer’s entire value chain. A seller creates value for a buyer in two ways: by increasing benefits to the buyer in relation to the buyer’s costs and by decreasing the buyer’s costs in relation to the buyer’s benefits. The competitor orientation means that the seller understands the short-term strengths and weaknesses and long-term capabilities and strategies of both the key current and the key potential competitors. Paralleling customer orientation, the analysis of competitors must include the entire set of technologies capable of satisfying the current and expected needs of the seller’s target buyers. The third behavioral component is interfunctional coordination; the coordinated utilization of company resources in creating superior value for target customers. Any individual in any function in a seller firm can potentially contribute to the creation of value for buyers (Porter, 1985).
Customer orientation:
Attitudes and behavior
The customers feel that the service employees (contact persons) are concerned about them and interested in solving their problems in a friendly and spontaneous way (process-related criteria)
Accessibility and flexibility
The customers feel that the service provider, its location, operating hours, employees, and operational systems are designed and operate so that it is easy to get access to the service and so that they are prepared to adjust to the demands and wishes of the customer in a flexible way (process-related criteria)
Reliability and trustworthiness
The customers know that, whatever takes place or has been agreed upon, they can rely on the service provider, its employees and systems, to keep promises and perform with the best interest of the customers at heart (process-related criteria)
Recovery The customers realize that, whenever, something goes wrong or something unpredictable unexpectedly happens, the service provider will immediately and actively take actions to keep them in control of the situation and find a new, acceptable solution (process-related criteria)
Professionalism and skills
The customers realize that the service provider, its employees, operational systems, and physical resources have the knowledge and skills required to solve their problems in a professional way (outcome-related criteria). The complaint procedure is also included in this category
Reputation and credibility
The customers believe that the operations of the service provider can be trusted and give adequate value for money, and that it stands for good performance and values that can be shared by customers and the service provider (image-related criteria)
Figure 1.6: customer perceived quality (Gronroos, 1990)
The satisfaction concerning lead time and product availability of Firm X could be considered as an element of the reputation and credibility category of Gronroos (1990). Firm X utilizes also special procedures for distributors, such as price protection and stock rotation.
Zeithaml et al (1985) developed a service-quality model (Servqual) with the purpose to identify problems in an organization regarding service levels. This identification of potential problems can lead to clear effective improvements. The subjective perceptions of the customer are central in this model. This model examines organizational barriers to delivering high-quality service performance as measured by customer perceptions and expectations. In figure 1.7 the Servqual-model is visualized. Service encounter satisfaction is defined here within the disconfirmation of expectations paradigm of Churchill and Suprenant (1982). The theory underlying the disconfirmation paradigm is that customers reach satisfaction decisions by comparing service performance with the prior expectations about how the service would or should perform. Each individual customer is assumed to have expectations about how each individual service/ product will perform. These expectations are compared with actual perceptions of performance as the product/ service is consumed. If expectations exceed performance, dissatisfaction will result. When expectations are met, or when performance actually exceeds expectation, satisfaction results. Zeithaml et al (1985) define perceived service quality as the customer’s judgment about a firm’s overall excellence or superiority. This definition suggests that perceived quality is similar to an individual’s general attitude towards the firm (Zeithaml et al, 1985).
The same goes for word-of-mouth communication. The expectations of the customers are influenced by their view of the company, such as image of the organization (Gronroos, 2001). Previous experience with a service also influences the expectations of a customer.
Research of Buzzel et al (1987) shows that the most critical factor affecting an organizational performance is the market-perceived quality of products and services relative to those of competitors. Organizational focus should be on long term customer satisfaction and value instead of short-term financial performance on productivity and efficiency.
Figure 1.7: Servqual-model of Zeithaml et al.
In figure 1.7 the model of Zeithaml (1985) is visualized. The Servqual-model shows five organizational gaps. These gaps determine what the critical factors are in an organization to improve the customer service. Gap one is the difference between customer expectations and management perceptions of customer expectations. Gap two is the difference between management perceptions of customer expectations and service quality specifications. Gap three is the difference between service quality specifications and the service actually delivered. And gap four is the difference between service delivery and what is communicated about the service to customers. The fifth gap, perceived service quality, is defined in the model as the difference between customer expectations and perceptions. This last gap could be measured with the five dimensions tangibles, reliability, responsiveness, assurance and empathy. In figure 1.8 are the definitions of these variables described.
Word of mouth communication Personal needs
Expected services
Past experience
Perceived service
Service delivery External communications to consumers
Translation of perceptions into service quality specs.
Tangibles Appearance of physical facilities, equipment, personnel, communication materials, product price and product quality Reliability Ability to perform the promised service dependably and accurately Responsiveness Willingness to help customers and provide prompt service
Assurance Knowledge and courtesy of employees and their ability to inspire trust and confidence, include courteousness, respect, politeness, professional and honesty. Empathy Caring, individualized attention the firm provides its customers
Figure 1.8: the five dimensions of Zeithaml (1985)
The ‘tangibles’ variable also includes the product quality and product price. According to the model of Zeithaml and Bitner (1996), customer satisfaction is influenced by five variables, namely service quality, product quality, price, situation and personality. Only the components product quality and product price will be included into the conceptual model. ‘Situation’ and ‘personality’ are components which are not of importance for distributors. The ‘assurance’ variable can be replenished with the elements of Natalisa (2003). The dimension of assurance measure the service security on the level of skills and knowledge needed to enable the provision of good services. According to Natalisa (2003), good services include courteousness, respect, politeness, professional and honesty of the service provider to convince the distributor to trust the offered services.
Dabholkar (1995) presents a contingency framework wherein different causal sequences between customer satisfaction and service quality occur under different service situations. By examining the determinants of causality between satisfaction and quality, his framework enhances the understanding of the customer evaluation process. Businesses today are well aware that they must satisfy customers and offer quality services in order to be competitively viable. For several years now service firms have been measuring customer satisfaction and service quality to gauge how well they are meeting customer needs. It is interesting that these measures of customer satisfaction and service quality are often used interchangeably. Different researchers have proposed different conceptualizations of these two constructs and their relationships to each other. Most of these proposed relationships are dependent on the definitions of the constructs themselves (Dabholkar, 1995). Zeithaml et al (1985) visualize customer satisfaction as experiential and service quality as an attitude at the global level, consequently, they propose a causal link from service quality to customer satisfaction. Dabholkar (1995) declares that that for service experiences where cognitions are formed first, the causal link will be from service quality to customer satisfaction. The distributors’ satisfaction in this Master thesis will be measured on the overall distributors’ attitude towards the functioning of Firm X. Cognitions will be formed at first in stead of emotions. Distributors will give their opinion on the basis of previous experience with Firm X.
The service quality models of Gronroos (2000) and Parasuraman et al (1985) have treated relevant factors related to service quality as components of service quality. The majority of the studies that followed have done the same. Service quality is not viewed as a separate construct, but rather the components are summed to obtain an estimate of service quality. Traditionally, researchers had suggested that customer satisfaction with a given service experience would lead to an overall evaluation/ attitude about service quality over time (Bitner, 1997; Oliver, 1981; Parasuraman, Zeithmal, and Berry, 1985). More recently, the opposite view appears to have strong favor. Oliver (1993) first suggested that service quality would be antecedent to customer satisfaction regardless of whether these constructs were measured for a given experience or over time. Several researchers have found empirical support for this model, wherein customer satisfaction is a consequence of service quality.
The conceptual model used in this Master thesis is supporting the disconfirmation process. The disconfirmation model measures both expectations and perceptions and equating service quality evaluation to the difference scores derived from the two measures. Spreng and Olshavsky (1992) believe that the disconfirmation paradigm suffers due to problems with measuring expectations. They argue that a longitudinal field study is needed that measures expectations before the service and both perceptions and measured disconfirmation after the service.
However, the majority of empirical studies conducted to measure service quality have been cross-sectional where both expectations and perceptions were measured after the service had been delivered. This approach assumes that expectations before the service are identical to expectations after the service and does not account for the fact that expectations may change over time or after the delivery of the service. But different researches has not clearly determined whether customers use their original expectations to evaluate what they receive or whether they use their modified expectations (changed as a result of the service delivery or because of the passage of time) as their standard for comparison. Since this Master thesis is measuring the overall distributors’ satisfaction, the presumed differences in expectations and perceptions is supposed in having no direct influence on both the service quality and customer satisfaction.
Dabholkar et al (2000) used Servqual of Zeithaml et al (1985) as an initial concept. Specific items were developed for each factor (reliability, personal attention, comfort, and features) either by modifying the Servqual concept. To be comprehensive, for this Master thesis it is chosen to use the complete Servqual concept of Zeithaml et al (1985) in determining the distributors’ satisfaction.
Garvin (1987) has developed eight quality dimensions for products and services. Garvin proposes eight critical dimensions of quality that can serve as a framework for strategic analysis. The eight dimensions are expressed in figure 1.9.
Performance Refers to the product’s and services primary characteristics Features Refers to the secondary characteristics
Reliability Refers to the degree to which the product functions and how often errors occur Conformance Refers to the degree to which the product fulfils its promise and meets its standards Durability Refers to a measure of product life
Serviceability Refers to the speed, courtesy, competence and ease of repair, the timelines with which service appointments are kept, the nature of dealing with service calls or repairs fail to correct outstanding problems
The dimensions of Garvin (1987) are showing a large amount of overlap with the variables of Gronroos (2000) and Zeithaml et al (1985). The eight dimensions of Garvin (1987) support the conceptual model in the way that service quality is determined through the variables of Gronroos (2000) and Zeithaml et al (1985). The conceptual model is visualized in section 1.4 of this chapter.
The theoretical review gives many essential variables which have a direct influence on the distributors’ satisfaction. The variable “service delivery” will be added to the theoretical variables and will be defined as the offering of the services stock rotation, return-handling and price protection. The variable “service delivery” is supported by the “performance” dimension of Garvin (1987). The performance dimension of Garvin (1987) refers to the characteristics of the delivered service. In this case, the primary characteristics are stock rotation, return-handling and price protection.
The first item is stock rotation. When ordered products of Firm X are not sold within six months, then the distributor has the opportunity to send the products back to Firm X. Excluded from this stock rotation are spare parts and end of life products. The purpose of stock rotation is that distributors have the possibility to hold stock against low risks. Firm X tries to deal with the six month period as flexible as possible. Distributors have always the possibility to send a request for stock rotation.
The second component is return-handling. Return-handling occurs when wrong products are delivered or when delivered products are damaged. The third component is price protection. When Firm X decreases the price of a product which a distributor already bought, then Firm X will disburse the difference between the novel and prior price of the product.
Firm X is also using a minimum order quantity. For some products exists a minimum order quantity because of efficiency reasons. It is necessary to add this element to the interview questions for distributors, because this element will influence the distributors’ satisfaction about Firm X. The minimum order quantity is a service condition of Firm X.
The “service delivery” variable influences both the expected and the perceived service quality in the conceptual model. This is the expected and perceived service quality, perceived by the distributors. The “service delivery” variable is important because the actual operational activities determine the level of distributor’s satisfaction.
In figure 1.10 are the variables summarized which influences the distributors’ satisfaction. These variables will be used in this thesis to uncover the distributors’ satisfaction.
Tangibles Process tangibles and product tangibles. Appearance of facilities, equipment, personnel, communication materials, belong to process tangibles.
Reliability Ability to perform the promised service dependably and accurately Responsiveness/
flexibility
Willingness to help customers and provide prompt service
Assurance Knowledge and courtesy of employees and their ability to inspire trust and confidence Empathy Caring, individualized attention the firm provides its customers
Accessibility and flexibility
The customers feel that the service provider, its location, operating hours, employees, and operational systems are designed and operate so it is easy to get access to the service and so that they are prepared to adjust to the demands and wishes of the customer in a flexible way (process-related criteria).
Professionalism and skills
The customers realize that the service provider, its employees, operational systems, and physical resources have the knowledge and skills required to solve heir problems in a professional way (outcome-related criteria). The complain procedure is also included in this category.
Reputation and credibility
The customers believe that the operations of the service provider can be trusted and give adequate value for money, and that it stands for good performance and values that can be shared by customers and the service provider (image-related criteria).
Service delivery This category includes the actual service delivery of Firm X: stock rotation, return-handling and price protection.
Figure 1.10: variables which influences distributor’s satisfaction
The tangibles consist of the process tangibles. The process tangibles include the elements which influence the process of information exchange between Firm X and its distributors and the technology which is used. Written materials can also be included in this category. With written materials is meant logistical information such as pricelists, terms of delivery, (new) product information, invoices etc.
Quality and customer satisfaction:
First of all, the importance of quality of services to business outcomes is now well established in the academic literature. It has been demonstrated that higher quality results in higher corporate performance (Buzzell and Gale, 1975; Easton and Jarell, 1998) and higher market value of the firm (Hendricks and Singhal, 1997). Moreover, customer satisfaction about service quality leads to better financial returns (Anderson et al, 1994; Hallowell, 1996). According to Hallowell (1996), customer satisfaction is related to customer loyalty, which in turn is related to profitability.
An essential question is what the equilibrium is between perceived service quality and customer satisfaction. First of all, it is fundamental to describe why it is important that distributors have to be satisfied wit the performance of Firm X in general and the performance of the service received from the distinguished departments. Distributors are also operating in a highly competitive market and therefore it is essential that Firm X keeps their current distributors satisfied. Firm X needs its distributors for the fundamental reason of selling the Firm X products to dealers and resellers. On the one hand, Firm X utilizes a pull strategy by having close contacts with existing resellers and dealers.
In figure 1.11 this relationship is expressed between perceived service quality and customer satisfaction. According to Roest (1997), perceived service quality involves the overall discrepancy between a customer’s expectations of a service and the customer perception of performance. It is the same in determining perceived service costs. In figure 1.11 it can be observed that customer’s satisfaction is the result of perceived service quality and perceived service costs. Ultimately, customer satisfaction is a judgment that a product or service feature provides a pleasurable level of consumption-related fulfillment.
Figure 1.11: the nomological net of perceived service quality
According to this model it is clear that the perceived service quality and the perceived service costs have to be measured in determining customer satisfaction. The main focus in this thesis is on perceived quality and not on costs (zero costs). Rust et al (2002) state that firms which adopting a revenue emphasis to manage quality profitability instead of a cost emphasis may reap the greatest rewards. Improved quality through the revenue expansion emphasis drives market share improvements directly through improved customer perceptions, which results in cost reduction that follows from operation efficiencies produced by increased scale. Hence, service costs will be excluded from this thesis. The quality performance exists of the two quality dimensions of Gronroos (2000): the technical quality and functional quality. To measure these quality dimensions the five dimensions of Zeithaml et al (1991) will be used in combination with the Gronroos (1990) model. These include tangibles, reliability, responsiveness/ flexibility, empathy (functional) and assurance (technical). The service quality expectations exist of the relevant components of the Servqual-model, which are personal needs & preferences and past experience. Competition behavior also influences the quality expectations of customers. According to Aaker (1982), the position of a brand implies a frame of reference, which denotes the reference point usually being the competition.
Keller et al (2002) stipulated that brand positioning starts with establishing a frame of reference. The following model (figure 1.12) is relevant for Firm X.
Figure 1.12: nomological net of perceived service quality for Firm X
Organizational structure:
According to Crosby (1994), the reason that companies have problems with quality is because its management does not understand quality and doesn’t have the proper standards for it. These standards are not technical standards; it is just the matter of making sure that they are going to make the customer successful, they are going to make their suppliers successful, and they are going to make their employees successful. And that is what it takes. Therefore, it is essential to include the entire organization into the process of quality offering by Firm X.
The organizational structure of Firm X could be analyzed due to the European Foundation for Quality Management Excellence Model (Sandbrook, 2001). This model is visualized in figure 1.12 and defines purposes and then looking at how those purposes can be achieved. Central to achieving purposes is getting clarity about key delivery and support processes. This model is suitable in the case of Firm X because all relevant departments and staff can be included. Synergy between departments is essential in the model of Sandbrook. The model is centered on the ‘way the work gets done’ for the benefit of the customer.
Product attitude Perceived service quality performance Service quality expectations Perceived service quality Competitive behavior Perceived value Customer satisfaction
The Servqual-model of Zeithaml et al (1991) also contains information regarding organizational performance. The model determines that management perceptions of consumer expectation and the translation of these perceptions into service quality specifications are important for the performance of service delivery. But because in the Servqual-model is not depicting the synergy between distinguished departments, the Quality Management Excellence Model is better fitting the situation of Firm X. Ultimately, the management commitment will be involved in the conceptual model in combination with the EFQM-model of Sandbrook (2001).
Figure 1.13: EFQM Excellence Model
The EFQM Excellence model can be expanded with theory of Kohli et al (1990) regarding market orientation. According to Kohli, the antecedents of market orientation are senior management factors, interdepartmental dynamics and organizational systems. Because the senior management already influences the EFQM Excellence model, this antecedent will not be involved in the EFQM Excellence model again. The interdepartmental dynamics consists of interdepartmental conflict, interdepartmental connectedness and concern for new ideas of other departments. Concern for other’s ideas refers to openness and receptivity to the suggestions and proposals of other staff.
The organizational systems references to organizational structure and consist of the following elements: departmentalization, formalization, centralization, market based reward systems and acceptance of political behavior.
Figure 1.14: EFQM Excellence Model for Firm X
In figure 1.14 are the customer service department, sales department and finance department explicitly mentioned. The other departments are the marketing department, the business development department, the remainder of the operations department, the (technical) support and human resources. These departments do not have any direct contact with distributors. These departments are mentioned in the model because these departments influence the performance of Firm X indirectly.
There exists a link between management commitment and the antecedents of Kohli et al (1990). These antecedents of market orientation are interdepartmental dynamics and organizational systems and can only develop when there exists management commitment in the organization. Management commitment Customer service Sales Finance Customer satisfaction with services Other departments
‘Gaps’ per department/ staff Possible key delivery processes:
Expected ‘gaps’ Perceived ‘gaps’ Gaps for improving Organizational systems Centralization Departmentalization
Market based reward systems
Acceptance for political behavior Formalization
Interdepartmental dynamics
Concern for new ideas of other departments
Interdepartmental connectedness
1.6 Conceptual model
A conceptual model is a set of variables and their interrelationships designed to represent in whole the process (Malhotra, 1994:47). For this thesis, a graphical model is used that provides a visual picture of the relationships between variables. The different theories described in the theoretical framework will be combined in the conceptual model. The theory of Narver et al (1990) forms the underlying theory in developing the conceptual model. This theory described that when a company wants to operate market oriented, it has to focus on customer orientation, competitor orientation and the organizational structure. The customer orientation will develop through combining the theory of Gronroos (1990), Roest (1997) and Zeithaml et al (1991). The organizational structure is described by Sandbrook (2001) and Kohli (1990). The used theories are described in the theoretical framework in section four. The conceptual model configuration is visualized in figure 1.15. In the conceptual model are the essential elements which are important for this thesis depicted. The numbers one till seven corresponds with the research questions which are depicted in the next section.
In section two and three the management decision problem and the marketing research problem are described. The management decision problem determines the management problems of the decision makers of Firm X (Malhotra, 1994) and the marketing research problem determine what information is needed in answering the management decision problem (Malhotra, 1994). With the conceptual model it is possible to answer the marketing research problem. And with this information it is possible to give a comprehensive answer to the management decision problem.
The model is divided into the distributor side and the Firm X side. This separation is made to give a clear image of what can be done to improve the thoughts of distributor and what is possible to improve the organization of Firm X. The distributor and the organization of Firm X are connected through the actual service delivered, and through the external communication to distributors (Zeithaml, 1995). Moreover, the perceived level of satisfaction is confronted in the company of Firm X with the expected and desired level of satisfaction.
The distributor side gives answers on the first and second part of the marketing research problem. The first part ascertains which variables influence the satisfaction of distributors and the second part deals with the performance of Firm X on these variables. As can be seen from the conceptual model, the service quality expectations are determined by past experience, word-of-mouth and personal needs. These variables are the antecedents of the service quality expectations. The external communications of Firm X towards the distributors are fundamental in establishing expectations.
These sub-factors are explained in the theoretical framework in section three. When the perceived service quality is known, the perceived value will guide the degree of customer satisfaction. Both the negative and positive components of the customer satisfaction will be evaluated in the internal environment of Firm X.
The variable ‘competition behavior’ is included in the model since competitor behavior influence on one hand the service quality expectations and on the other hand, distributors will evaluate Firm X relative to its direct competitors (Aaker, 1982; Keller et al 2002).
The Firm X side, as can be seen in figure 1.15, answers the third, fourth and fifth part of the marketing research problem. The third part deals with the differences between the perceived customer satisfaction and the expected level of satisfaction. The differences will lead to ‘gaps’ for improving. The perceived level of customer satisfaction is established on distribution side in figure 2.17. The expected level of satisfaction is determined by the various departments of Firm X. These departments deliver the final service and therefore these departments can make an excellent picture of how distributors will experience the delivered service. Moreover, this expected level of satisfaction is indirectly determined through the senior management. The differences between the expected level of satisfaction and perceived level of satisfaction show how to close these gaps.
The external communication variable is added to figure 1.15 because this variable determines the actual communications to the distributors and influences both the actual service delivery and the service quality expectations. Gronroos (1990) stated that the strong base for keeping good relationships with the distributors is to fulfill the promises made by the company. For the company side, this relates to the three important activities in the company: making realistic promises to distributors, fulfilling the promises while serving the distributors and enabling the front liners and serving system to fulfill these promises. The front liners are the front-office personal who have contact with the distributors. These are the customer service representatives, the financial department staff and the sales department staff of Firm X. Kotler (1994) had discussed the three marketing activities using terms of external marketing, interactive marketing and internal marketing.
The fourth part of the marketing research problem manages which department/ staff is responsible for a particular part of the improving process. The purpose of this improving process is to ultimately increase the customer satisfaction. Each department is capable of increasing the customer satisfaction. It is essential to make departments responsible for satisfaction issues because this is an outstanding step in changing the organizational structure of Firm X and by doing so it is also possible to bring the current satisfaction to a higher level.
Figure 1.15: conceptual model Firm X Management commitment Customer service Sales Finance Other departments
‘Gaps’ per department/ staff Possible key delivery processes:
Expected/ desired level of satisfaction Perceived level of satisfaction
‘Gaps’ for improving
Organizational systems Interdepartmental dynamics
Management perception of consumer expectations Translation of perceptions into service quality specifications Service delivery Perceived service quality performance Service quality expectations Perceived service quality Perceived value Customer satisfaction Firm X
Distributor Past experiences Word-of-mouth Personal needs
Competitive behavior Reputation/ credibility Technical quality Functional quality Departmentalization Formalization Centralization Market based reward systems
Acceptance for political behavior
Interdepartmental connectedness
Interdepartmental conflicts
1.7 Research questions
According to Malhotra (1994), research questions are refined statements of the specific components of the problem. Each component of the problem may have to be broken down into research questions. The numbers in the conceptual model correspond with the numbers of the research questions. These numbers clarify which research question cover a particular part of the conceptual model. The following research questions could be filtered from the problem and the related conceptual model:
1) Which variables influence the satisfaction of distributors of Firm X?
2) What is the expected level of satisfaction of distributors according to the relevant departments of Firm X?
3) What is the perceived satisfaction of distributors of Firm X? 4) What is the distributor’s satisfaction about competitors?
5) Which separate departments are responsible for improving the distributor’s satisfaction?
6) In what manner can the organizational structure be improved to increase the distributor’s satisfaction?
7) To what extent is the management of Firm X committed with customer service delivery and how can this commitment be improved?
These seven questions are capable to give a comprehensive answer to the management decision problem. The next step is determining the research design per question which will answer the separate research questions. The next section makes these seven research questions explicit.
1.8 Research design
Research question 1:
The first research question is formulated as ‘which variables influence the satisfaction of distributors of Firm X?’ This research question is answered in the theoretical review which is described in section 1.5 of this chapter. A descriptive research design is used to answer this research question. The major objective of descriptive research is to describe something (Malhotra, 1994). Primary data and academic literature are used to answer this question. According to Malhotra (1994), primary data are originated by the researcher for a specific purpose of addressing the problem at hand. It is chosen to use qualitative data in the form of in-depth interviews to provide the primary data. The interviews are held with senior management of Firm X and relevant staff. The purpose of this data collection method is to find out which variables are important according to the management of Firm X. These variables are compared with the variables that were filtered from external academic literature. The combination of the primary and academic literature gave a clear and comprehensive answer to this first research question which forms the input for research question two.
Research question 2:
The second research question for this thesis is stated as follows: ‘what is the perceived satisfaction of distributors of Firm X?’ In answering this research question, it is necessary to measure distributor’s satisfaction. Two different measuring methods will be used. The first method is a descriptive research. In-depth interviews will be used. Four distributors will be involved in the in/depth interviews from 2 different countries, namely the United Kingdom and Germany. These countries are the most vital countries for Firm X. The four distributors operate in the same context, although there are some cultural differences between the countries where the distributors are active in. These differences are supposed not to influence distributor’s satisfaction. The final purpose of the in-depth interviews is that the distributors describe the complex opinions about Firm X. It is important to understand what the underlying factors are which determine customer satisfaction. At this moment, Firm X does not exactly know how distributors think about their organization. The underlying reasons are not exactly known despite the fact that Firm X performs an Internet survey every year to measure customer satisfaction. The objective of qualitative research (Malhotra, 1994) is to gain a qualitative understanding of the underlying reasons and motivations. The distributors’ satisfaction will be measured on the overall distributors’ attitude towards the functioning of Firm X. Distributors will give their opinion on the basis of previous experience with Firm X.
Research question 3:
The third research question is: ‘what is the distributor’s satisfaction about competitors?’ To answer this question, in-depth interviews will also be exploited. A descriptive research is also the research method for answering this research question (Malhotra, 1994). Moreover, the same in-depth interviews as for research question two will be used. In investigating the relative behavior of Firm X with its direct competitors, the quantitative research method will confirm measured qualitative pronouncements.
Research question 4:
The fourth research question is formulated as: ‘what is the expected level of satisfaction of distributors according to the relevant departments of Firm X?’ Descriptive research will be used to find a comprehensive answer. The first step is measuring the opinions of staff who work in the three involved departments of Firm X. These three departments are the customer service department, the finance department and the sales department. The relevant employees in the sales department are the account managers who are scattered around the West-European countries. To measure the opinions of the three departments, qualitative research will be utilized in the form of a survey in combination with in-depth interviews.
The second step is interviewing senior staff in the form of in-depth interviews. They know much about distributors as a result of their experience and they have an overall picture of the whole company and several departments. Therefore, interviewing senior management will be a valuable addition to the thesis.
Research question 5:
The fifth research question is ‘which separate departments are responsible for improving distributor’s satisfaction?’ To answer this research question it is necessary to use also descriptive research. A description of the organization is fundamental in understanding which staff members are responsible for a specific part of the delivered customer service. The conclusion of research questions two and four delineate the input in answering the fifth research question. The answers of research questions two and four have to be compared, which results in an answer to the question which separate departments are responsible for improving the distributor’s satisfaction.
Research question 6:
Research question 7:
The seventh research question is: ‘to what extent is the management of Firm X committed with customer service delivery and how can this commitment be improved?’ Descriptive research in the form of in-depth interviews will be utilized in combination with primary data. Primary data are for example a document in which is registered which service levels are most favourable and have to be executed by the various members of the involved departments. Announcements about the distributor’s opinion will be collected through in-depth interviews. Answers on interview questions are always expressions of cognitions and therefore announcements about the distributor’s opinions will be measured (Emans, 2002). The cognitions of the involved members of the three departments, customer service, finance and sales will be measured to investigate what the actual performance is of senior management. Moreover, the senior management is questioned about the management commitment topic. A distinction is made between operational staff and senior management with the reason that both levels will give a comprehensive answer to this final research question.
1.9 Academic value
The academic value of a Master Thesis could be divided into practical relevance and theoretical relevance. Generally, the purpose of a Master thesis is that it provides additional value to current academic literature. From a practical view, the academic value of this Master thesis is that organizations operating in the same branch as Firm X will be able to measure their effectiveness of their customer service by using the conceptual model, which is described and utilized in this report. Another practical application is that the conceptual model of this Master thesis can be utilized for both service companies and manufacturing companies with the ultimate goal to improve the organization structure.
Chapter 2
Firm X
2.1 Introduction
This chapter is describing the organization of Firm X.
2.2 General background
Firm X develops innovative imaging technologies and brings new products to market. They develop technology to offer highest image quality and performance in the market. Firm X also offers a full sales and servicing network covering every need such as laser printers, multi-function peripheries and imaging consultancy.
Firm X is an innovative developer, manufacturer and supplier of document printing solutions. The product line includes color and monochrome laser printers, and associated supplies and accessories for general office, electronic publishing, graphic & design, advanced imaging and home office applications. Due to technological excellence, Firm X brings quality, speed and reliability to laser printing.
The current market is a competitive one. It’s difficult for Firm X to distinguish themselves, because of the homogeneous character of the products. Another important aspect is that all competitors use the same distribution channels.
2.3 Firm X
The “corporate group” consists of finance, operations and human resources. Operations are subdivided into the customer service department and the material department. The customer service department belongs to the operations department and is responsible for the order intake, complaints handling, and gives services like stock rotation, price protection and return-handling. Furthermore, the customer service department controls the minimum order quantities. The customer service department gives also information to the marketing and sales department concerning the ordered and sold products.
The “marketing and sales” department is subdivided into business development, customer relation marketing, product marketing, consumable marketing and marketing communication and PR.
There are approximately 120 genuine distributors of Firm X scattered around Europe, Africa and Middle East and Eastern Europe. These distributors deliver the printers, options and consumables or a combination of these different products. With options is meant the possibility for an additional paper-box, staples function etc. Consumables are those printer parts who the end-user can replace by themselves, like toners.
