Rodney E. Smith
University of Arkansas
William F. Wright
University of Arkansas
Abstract: Recent accounting research suggests that customer satisfaction is a leading indicator of financial performance (e.g., Ittner and Larcker 1998; Banker et al. 2000). However, what are the drivers of customer satisfaction? Why do customers choose one companys products over those of its competitors? Instead of simply considering relationships between customer loyalty and financial outcomes, we simultaneously test causal links from product value attributes to levels of customer loyalty to financial outcomes. For example, our integrated model addresses questions such as What would be the effect of management improving the quality of post-sale service on both a firms level of customer loyalty and its financial performance? We find that these product value attributes differentially impact levels of customer loyalty and explain differences in financial results. Levels of customer loyalty imply relative financial performance in the personal computer (PC) industry; however these relationships are declining over time as relative product prices converge. We indicate implications for the design of management control systems and analysis of financial statements.
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