Customer satisfaction directly influences a company's sales, margins, and earnings, and companies that track and measure customer satisfaction have a leg up on competition. Getty Images

Back when people flew nonchalantly for business, an unabashed fan of Great Reputation Airline took a flight where almost everything went wrong. First there was a weather delay. Then there was a mechanical issue. The crew was surly, the pretzels stale. Finally, after landing, when she finally made it to baggage claim, her suitcase was MIA.

But instead of complaining on social media, Great Reputation's passenger wrote off the problems to a rare bad day for the airline – which showered her with drink coupons and later delivered her luggage to her hotel.

GRA's response exemplifies customer satisfaction principles outlined in a paper by Rice Business professor Vikas Mittal and former Rice Business doctoral student Carly Frennea. Summarizing the major research about customer satisfaction, the coauthors codified their findings into a checklist for managers.

While most people understand the general concept of customer satisfaction, in business it's a specific term summarizing a consumer's post-use evaluation of the extent to which a product or service met their expectations. Satisfied customers are more likely to buy again, buy more, recommend a business to others and cost less to serve in the future. A satisfied customer doesn't just cut customer-acquisition costs. She can also help a business attract the right customers through online recommendations.

But the most compelling reason to chase customer satisfaction, say Mittal and Frennea, comes from the University of Michigan's American Customer Satisfaction Index, which tracks customer satisfaction ratings of public companies. Decades of studies based on this data show that customer satisfaction and financial performance go hand-in-hand. While the strength of this association can vary, the link is indisputable. "Nowhere else in marketing has the impact of a customer-based metric on a firm's financial performance been so clearly and consistently established," Mittal and Frennea write.

To help make that satisfaction/revenue link a felicitous one, the researchers recommend the five kinds of data managers should collect.

  • Overall customer satisfaction: A summary evaluation of an overall experience.
  • Behavioral intentions: "Loyalty metrics" that measure the likelihood of buying again, recommending to others and intent to complain.
  • Attribute-level perceptions: Evaluating specific product or service features. For a doctor, this may include time spent waiting in the office, quality of care and explanation of diagnosis. For an oilfield services company, this may include product quality, safety, ongoing service and support, billing and pricing.
  • Contextual information: Comparisons to earlier experiences with a firm and against those with competitors.
  • Customer background variables: Includes gender, age and use of competitors' products and services.

Once these data are collected, the researchers say, managers should use statistical analysis that includes all relevant variables (a method known as multiple regression). This allows companies to figure out which variables have the largest association with overall satisfaction, and which have none. For example, a multiple regression might show that the bad effect of dashing customer expectations is stronger than the good effect of exceeding those expectations. The analysis may also reveal that this effect is stronger for ongoing service and support, say, than for pricing and billing. Conclusion: The company should fix problems with ongoing service and support before tinkering with its pricing and billing strategy.

Companies should also share such customer satisfaction insights with employees and incentivize them to make customer satisfaction a top priority, the researchers write.

To achieve this, executives need to see customer satisfaction as a strategic tool, not just a "good-to-have" afterthought. For this:

  • Treat customer satisfaction as a strategic investment and integrate it into the strategic planning process.
  • Don't skimp on the science. Use the most advanced multiple regression models, and now machine-learning technologies, to distinguish the important from the unimportant, and prioritize the important.
  • Using statistical science, link customer-loyalty patterns to actual behaviors such as repurchasing and repeat sales.
  • Remember that your front-line employees are vital and motivate them by linking their performance to the right customer satisfaction metrics.
  • Don't just maximize customer satisfaction. Balance decreasing and increasing returns on satisfaction initiatives. For this, don't rely on "voice-of-customer" based on casual interviews and discussions. Use rigorously designed customer studies that can be statistically linked to financial results.
  • Share! Summarize satisfaction findings in understandable terms and train employees to act on them. Smart companies use this approach to derive their customer-value proposition and focus the company's strategy.

The formula, after all, is a simple one. If customers are a primary source of your company's cash flow, the first variable in your strategy needs to be making them happy.

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This story originally ran on Rice Business Wisdom. It's based on research from Vikas Mittal, the J. Hugh Liedtke Professor of Marketing at Jones Graduate School of Business at Rice University, and Carly Frennea, now an executive at Nike, who received her M.B.A. and Ph.D. at Jones Graduate School of Business.

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CultureMap Emails are Awesome

Houston-based virtual reality startup raises $3.2M in first outside capital round

fresh funding

HTX Labs, a Houston-based company that designs extended reality training for military and business purposes, announced last week that it has raised its first outside capital.

The company has received a $3.2 million investment from Cypress Growth Capital. Founded in 2017, HTX Labs — developer of the EMPACT Immersive Learning Platform — has been granted funding from the Department of Defense as well as grown its client base of commercial Enterprises. The platform uses virtual and extended reality that "enables organizations to rapidly create, deploy, measure, and sustain cost-effective, secure, and centralized immersive training programs, all within engaging, fully interactive virtual environments," per a news release.

“We have been looking to secure outside capital to accelerate the growth of our EMPACT platform and customer base but we hadn’t found the right partner who provided an investment vehicle that matched our needs,“ says HTX Labs CEO Scott Schneider in the release. “We found everything we were looking for in Cypress Growth Capital. They have a non-dilutive funding model that aligns with our capital expectations and have the level of experience that really makes this smart money.

"Cypress has a decade-long track record of success in helping emerging software and services companies achieve scale," he continues. "It is clear that the team’s collective entrepreneurial and operating experience will be of tremendous benefit to us as we focus on expanding our customer base in a very intentional way.”

The fresh funding will go toward growing and scaling the company's operations — both within the current Department of Defense and expansion opportunities into key commercial markets, like heavy industry, manufacturing, and higher education. Additionally, the funding will support increased customer adoption.

“Scott and his team have built an exceptional business that is poised for dramatic growth,” says Cypress Partner Pat McCaffrey in the release. “HTX Labs’ modern, immersive training solution provides clients with a force multiplier for modernizing training and an unmatched ROI.”

Houston's biggest benefactors gift massive $50M to pivotal Rice University institute

big money

Houston’s most generous couple has once again gifted a massive sum to a local institution. Rich and Nancy Kinder’s Kinder Foundation has donated $50 million to Rice University’s Kinder Institute for Urban Research, the organization announced.

The Kinder's generous grant will assist the institute’s focus on what it dubs “inclusive prosperity” — that is, “ensuring that everyone can contribute to Houston's success and share in its opportunities.”

This new grant follows the approximately $30 million he Kinder Foundation previously gifted Rice’s Kinder Institute and its affiliates to facilitate its headquarters.

“Over the past decade, the Kinder Institute has played an integral role in shaping Houston,” said Rich Kinder, chairman of the Kinder Foundation. “However, we can do more to inform and more directly address the challenges our communities face, particularly in the areas of housing, education, economic mobility, health and population research.”

To that end, the Kinders’ funds will ensure the institute can assist its partners regardless of their ability to pay for research. Funds will also help the institute respond to community research needs quickly during times of crisis — such as a catastrophic storm or pandemic — when funds aren’t readily available.

Kinder Institute director Ruth López Turley calls the grant “a gift to all of Houston,” speaking to the institute’s work to improve lives through data, research, engagement and action.

“Inclusive prosperity doesn’t just happen spontaneously,” she noted in a statement. “It requires an explicit effort informed by research. Lots of organizations are working hard to make things better, but most of them have very limited research capacity, and that’s what the Kinder Institute is primed to do.”

Founded in 2010, the institute has evolved into a leader in research, data, and policy analysis of critical issues such as housing, transportation, and education. The institute also releases the familiar Kinder Houston Area Survey, which charts significant changes in the way area residents perceive and understand Houston’s ongoing challenges and opportunities.

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This article originally ran on CultureMap.

Expert: Building Hispanic wealth means investing in Houston

Guest column

Every year at this time ― Hispanic Heritage Month ― we collectively celebrate the economic, cultural, and social contributions of the Hispanic-Latino community to our nation. We honor the work of past generations which have allowed children and future generations to benefit from more opportunities.

As diverse a community as is the world, we strive to build a future where there are no barriers for success, and at Bank of America, we do our part to make an impact by helping build Hispanic-Latino wealth in Houston.

The numbers are clear: The 2020 Census revealed that the Hispanic-Latino population in the United States rose to 62.1 million, making up 18.7 percent of the total U.S. population and accounting for slightly more than half (51.1 percent) of the population growth between 2010 and 2020. Hispanic-Latinos now open more small businesses than any other group in the country and are also the fastest-growing demographic of small business owners across the nation. It is not surprising that Hispanic-Latino economic power continues to rise year after year. According to Nielsen Scarborough, the number of Houston Hispanic businesses have increased 85 percent since 2013.

Investing in business

Investing in Hispanic-Latino wealth means supporting entrepreneurs so they are set up for success. Early-stage funding is critical for the growth of a new business, especially when Hispanic-Latino entrepreneurs are still faced with gaps in financial literacy and business education, funding, and networking opportunities.

According to data from Crunchbase, Latino-founded startups accounted for only 2.1 percent of venture investments in the U.S. last year. This is unjustifiable.

As part of our commitment to advancing racial equality and economic opportunity, we have dedicated $350 million in minority- and women-led companies through capital investment by mission-focused venture funds. Of the funds we have in our portfolio, one in every four are led by Hispanic-Latino managers, providing capital that will help entrepreneurs and small business owners grow their businesses, create jobs, and improve financial stability.

An important element to creating opportunities for Hispanic-Latinos to build wealth, whether as a business owner or an employee, is ensuring that young people recognize higher education as a pathway to achieve success. That means partnering with colleges and universities and investing in job creation, skills-building, and support services for students to do so. Locally, we do this with EMERGE Fellowship and with the University of Houston College of Medicine. When we invest in students, we are investing in future professionals and business leaders who will build Hispanic-Latino wealth and contribute to Houston’s economy and culture. This is something we can celebrate together for years to come.

Investing in sustainable homeownership

Sustainable homeownership provides a lasting investment for future generations and cycles capital into the community. The National Association of Hispanic Real Estate Professionals (NAHREP) recently released data showing an increase in Latino homeownership, from 47.5 percent in 2019 to 48.4 percent in 2021, the highest level since the mid-2000s. Through the Community Homeownership Commitment, which provides low down payment loans and closing cost grants, families can take their savings and turn them into lasting legacies. It is a pillar for families to build wealth.

Here in Houston, we also support organizations that assist with homeownership, like Tejano Center, Avenue CDC, and Houston Habitat for Humanity. Building Hispanic-Latino home equity increases the amount of capital families can use now or in the future helping build our Houston economy.

During the past decade, the rate of Hispanic-Latino economic development has far outpaced rates among non-Hispanics. Supporting and honoring our Hispanic-Latino clients is not just a month-long initiative, it is a long-term, generational investment in America and we are proud to be investing in a stronger economy for Houston now and for years to come.

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Rick Jaramillo is the market executive for Bank of America Houston.