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Working Paper | HBS Working Paper Series | 2019

The Customer May Not Always Be Right: Customer Compatibility and Service Performance

by Ryan W. Buell, Dennis Campbell and Frances X. Frei

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Abstract

This paper investigates the impact of customer compatibility—the degree of fit between the needs of customers and the capabilities of the operations serving them—on customer experiences and firm performance. We use a variance decomposition analysis to quantify the relative importance of customer, employee, process, location, and market-level effects on customer satisfaction. In our models, which explain roughly a quarter of the aggregate variance, differences among customers account for 96% to 97% of the explainable portion. Further analysis of interaction-level data from banking and quick service restaurants reveals that customers report relatively consistent satisfaction across transactions with particular firms but that some customers are habitually more satisfied than others. A second set of empirical studies provides evidence that these customer-level differences are explained in part by customer compatibility. Customers whose needs, proxied by differences in demographics and product choices, diverge more starkly from those of their bank’s average customers report significantly lower levels of satisfaction. Consistently, banks that serve customer bases with more dispersed needs receive lower satisfaction scores than banks serving customer bases with less dispersed needs. Finally, a longitudinal analysis of the deposit and loan growth of all federally insured banks in the United States from 2006 to 2017 reveals that customer compatibility affects a firm’s financial performance. Branches with more divergent customers grow more slowly than branches with less divergent customers. Institutions serving customer bases with more dispersed needs have branches that exhibit slower growth than those of institutions serving customer bases with less dispersed needs.

Keywords: customer compatibility; Satisfaction; profitability; Customer Relationship Management; Service Operations; Customer Satisfaction; Banking Industry; Retail Industry;

Language: English Format: Print 63 pages SSRN Read Now

Citation:

Buell, Ryan W., Dennis Campbell, and Frances X. Frei. "The Customer May Not Always Be Right: Customer Compatibility and Service Performance." Harvard Business School Working Paper, No. 16-091, February 2016. (Revised July 2019.)

Related Work

  1. Working Paper | HBS Working Paper Series | 2019

    The Customer May Not Always Be Right: Customer Compatibility and Service Performance

    Ryan W. Buell, Dennis Campbell and Frances X. Frei

    This paper investigates the impact of customer compatibility—the degree of fit between the needs of customers and the capabilities of the operations serving them—on customer experiences and firm performance. We use a variance decomposition analysis to quantify the relative importance of customer, employee, process, location, and market-level effects on customer satisfaction. In our models, which explain roughly a quarter of the aggregate variance, differences among customers account for 96% to 97% of the explainable portion. Further analysis of interaction-level data from banking and quick service restaurants reveals that customers report relatively consistent satisfaction across transactions with particular firms but that some customers are habitually more satisfied than others. A second set of empirical studies provides evidence that these customer-level differences are explained in part by customer compatibility. Customers whose needs, proxied by differences in demographics and product choices, diverge more starkly from those of their bank’s average customers report significantly lower levels of satisfaction. Consistently, banks that serve customer bases with more dispersed needs receive lower satisfaction scores than banks serving customer bases with less dispersed needs. Finally, a longitudinal analysis of the deposit and loan growth of all federally insured banks in the United States from 2006 to 2017 reveals that customer compatibility affects a firm’s financial performance. Branches with more divergent customers grow more slowly than branches with less divergent customers. Institutions serving customer bases with more dispersed needs have branches that exhibit slower growth than those of institutions serving customer bases with less dispersed needs.

    Keywords: customer compatibility; Satisfaction; profitability; Customer Relationship Management; Service Operations; Customer Satisfaction; Banking Industry; Retail Industry;

    Citation:

    Buell, Ryan W., Dennis Campbell, and Frances X. Frei. "The Customer May Not Always Be Right: Customer Compatibility and Service Performance." Harvard Business School Working Paper, No. 16-091, February 2016. (Revised July 2019.)  View Details
    CiteView DetailsSSRN Read Now Related

About the Authors

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Ryan W. Buell
Finnegan Family Associate Professor of Business Administration
Technology and Operations Management

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Dennis Campbell
Dwight P. Robinson, Jr. Professor of Business Administration
Unit Head, Accounting and Management
Accounting and Management

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Frances X. Frei
UPS Foundation Professor of Service Management
Technology and Operations Management

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More from these Authors

  • Case | HBS Case Collection | February 2001 (Revised November 2019)

    Delivery Problems at Arrow Electronics, Inc. (A)

    Andrew P. McAfee, Frances X. Frei and Kerry Herman

    Describes a dramatic decrease in service levels (on-time shipments) from the warehouse network of a large electronics distributor. Students need to analyze the root cause of the problem and propose actions. A rewritten version of an earlier case.

    Keywords: Order Taking and Fulfillment; Problems and Challenges; Business Processes; Distribution Industry; Electronics Industry;

    Citation:

    McAfee, Andrew P., Frances X. Frei, and Kerry Herman. "Delivery Problems at Arrow Electronics, Inc. (A)." Harvard Business School Case 601-131, February 2001. (Revised November 2019.)  View Details
    CiteView DetailsEducatorsPurchase Related
  • Supplement | HBS Case Collection | February 2001 (Revised November 2019)

    Delivery Problems at Arrow Electronics, Inc. (B)

    Andrew P. McAfee, Frances X. Frei and Kerry Herman

    Supplements the (A) case. A rewritten version of an earlier case.

    Keywords: Order Taking and Fulfillment; Problems and Challenges; Business Processes; Distribution Industry; Electronics Industry;

    Citation:

    McAfee, Andrew P., Frances X. Frei, and Kerry Herman. "Delivery Problems at Arrow Electronics, Inc. (B)." Harvard Business School Supplement 601-132, February 2001. (Revised November 2019.)  View Details
    CiteView DetailsPurchase Related
  • Technical Note | HBS Case Collection | June 2019 (Revised November 2019)

    Sustaining Corporate Culture in a Growing Organization

    Dennis Campbell and Tatiana Sandino

    An organization’s culture can be a significant source of sustainable competitive advantage. For the organization, it can attract job candidates who fit and align employees working in different teams around common goals. For employees, a strong culture can generate pride, satisfaction, and purpose. However, a strong organizational culture can easily decay with a company’s growth as new employees join the firm and business units develop cultures of their own. This technical note proposes that the growth a company can sustain while preserving its culture is governed by its ability to attract employees who fit with its purpose and values and to preserve and foster this alignment over time. To achieve this, an effective leader must formally articulate the purpose and values of the company and rely on four management systems that can be collectively thought of as a “North STAR” orienting managers’ and employees’ attention in the intended direction. This note details these organizational capabilities and management systems and describes the steps that successful companies take in order to preserve a strong culture through periods of growth.

    Keywords: Organizational Culture; Growth and Development; Mission and Purpose; Values and Beliefs; Management Systems;

    Citation:

    Campbell, Dennis, and Tatiana Sandino. "Sustaining Corporate Culture in a Growing Organization." Harvard Business School Technical Note 119-109, June 2019. (Revised November 2019.)  View Details
    CiteView DetailsEducatorsPurchase Related
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