Improving Customer Satisfaction

Topics: Customer, Inverse relationship, Structural equation modeling Pages: 25 (8096 words) Published: May 30, 2010
International Journal of Hospitality Management 28 (2009) 245–253

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International Journal of Hospitality Management
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Employee satisfaction, customer satisfaction, and financial performance: An empirical examination Christina G. Chi *, Dogan Gursoy
School of Hospitality Business Management, Washington State University, Pullman, WA 99164-4742, United States



Keywords: Service-profit chain Employee satisfaction Customer satisfaction Financial performance Mediation effect of customer satisfaction

The purpose of this study is to examine the relationship between employee satisfaction and customer satisfaction, and to examine the impact of both on a hospitality company’s financial performance utilizing service-profit-chain framework as the theoretical base. Specifically, this study explores four major relationships: (1) the direct relationship between customer satisfaction and financial performance; (2) the direct relationship between employee satisfaction and financial performance; (3) the direct relationship between customer satisfaction and employee satisfaction; and (4) the indirect relationship between employee satisfaction and financial performance. Furthermore, this study examines the mediating role of customer satisfaction on the indirect relationship between employee satisfaction and financial performance. Data for this study was collected from employees, customers and managers of three- and fourstar hotels. Structural equation modeling (SEM) with a two-step approach was utilized to empirically test the proposed hypotheses and the relationships between the constructs. Findings suggest that while customer satisfaction has positive significant impact on financial performance, employee satisfaction has no direct significant impact on financial performance. Instead, there is an indirect relationship between employee satisfaction and financial performance, which is mediated by customer satisfaction. ß 2008 Published by Elsevier Ltd.

1. Introduction Several studies suggest that there is a positive relationship between employee satisfaction and customer satisfaction (Bernhardt et al., 2000; Harter et al., 2002; Koys, 2003; Tornow and Wiley, 1991; Wangenheim et al., 2007). Because of this assumed positive relationship, employee satisfaction has received significant attention from researchers and became a critical issue within the last two decades (Matzler and Renzl, 2007). There is no doubt that employee satisfaction is critical in the service industry because of the nature of the industry (Lam et al., 2001). As suggested by ‘‘the service-profit chain’’ providing employees with a superior internal working environment is likely to lead to satisfied employees who are both loyal to the organization and able to provide the customer with an excellent service experience. Customers will recognize and value the outstanding service offered to them. Over time, they will exhibit loyalty behaviors, such as continued purchasing and increased referrals. These loyalty behaviors will generate both market share and profitability increases for the service firm (Heskett et al., 1994, 1997).

* Corresponding author. Tel.: +1 509 335 7661; fax: +1 509 335 3857. E-mail address: (C.G. Chi). 0278-4319/$ – see front matter ß 2008 Published by Elsevier Ltd. doi:10.1016/j.ijhm.2008.08.003

Because of the assumption that satisfied employees will create satisfied and loyal customers, which will result in higher sales and, therefore, higher financial returns, service companies have been allocating significant resources for employee and customer satisfaction and retention. However, some researchers raise serious concerns about the heavy emphasis placed on both employee satisfaction and customer satisfaction and whether or not they relate to bottom-line performance (Bernhardt et al., 2000; Zeithaml et al., 1990)....

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