Quality, Satisfaction, and Loyalty in Convenience Stores – Monitoring the Customer Relationship
In today's fast-paced and rapidly changing business environment, monitoring and managing customer relationships is critical. In a highly competitive market, it is increasingly important for organizations to understand their customers' needs and design their offerings to fulfill those needs. One critical component of understanding the customer is to monitor satisfaction with their purchase and consumption experiences. When a customer is satisfied, it increases the likelihood that he or she will remain loyal and build a long-term relationship with the company. Acquiring and maintaining a base of loyal customers increases long-term profitability for the firm.
It should therefore not be surprising that companies in many industries have been interested in measuring whether their customers are satisfied. In the convenience store industry, a number of different firms have attempted to determine the level of their customers' satisfaction using both qualitative research (focus groups and interviews) as well as survey methods. Typically, these studies attempt to derive an overall index of satisfaction, as well as an indication of the degree to which certain aspects of the store (i.e., cleanliness, service, prices, etc.) contribute to the level of satisfaction.
While these efforts are beneficial in helping stores improve their performance, there are two major shortcomings that limit their usefulness. First, indices are only useful to the extent they can be compared. Thus, if my store receives a customer satisfaction score of 8" on a 10-point scale, does this represent excellent, good, or only average performance? For satisfaction indices to be maximally useful, meaningful benchmarks are needed. A second shortcoming is that many of the surveys conducted employ different questions as well as measurement scales making it very difficult to compare one set of stores to another.
A System for Measuring and Benchmarking Customer Satisfaction and Loyalty
In light of these problems, we created the Customer Satisfaction and Loyalty Benchmarking Study" in conjunction with the National Association of Convenience Stores (NACS). The effort has resulted in an overall customer satisfaction and loyalty measurement system that can be adopted by member companies. In developing the system, we were guided by several main goals:
- Base the measurement system on a solid foundation of theory and academic research in order to provide convenience stores with a reliable and valid approach to measuring and monitoring quality, satisfaction and loyalty.
- Provide a system that can be implemented on a store-by-store basis to help identify the key drivers of satisfaction and loyalty. The system allows individual stores to set priorities for quality improvement.
- Provide meaningful benchmarks, including:
a. Other stores within an organization
b. Other stores outside an organization
c. The convenience store industry as a whole
d. Other industries in the ACSI survey (such as grocery stores, department stores, and fast food restaurants)- Develop a comprehensive database on satisfaction and loyalty for the convenience store industry for the purpose of monitoring satisfaction and loyalty trends over time and examining the impact of marketing efforts across firms.
Development of the Customer Satisfaction and Benchmarking System
Developing the Customer Satisfaction and Loyalty Benchmarking System involved two major aspects:
- Construct overall satisfaction and loyalty indices that could be compared and benchmarked with other stores and industries.
- Identify product and service attributes and benefits that drive satisfaction and loyalty with the store.
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In the case of the first objective, the system relied on a well-known and documented customer satisfaction index, the American Customer Satisfaction Index (ACSI), developed by a group of researchers at the University of Michigan Business School's National Quality Research Center (NQRC). The index measures the satisfaction of U.S. household customers with the quality of the goods and services available to them from about 170 companies and 28 industries across seven economic sectors (plus a number of government agencies). The index itself provides a scientifically valid and reliable measure of satisfaction for benchmarking purposes (see Fornell, Johnson, Anderson, Cha and Bryant,1996, for a review of the ACSI methodology and results).
To accomplish the second objective, previous quantitative and qualitative research, which had been conducted by a variety of convenience store firms, was collected and analyzed. In addition, in depth interviews were conducted with a number of convenience store executives. All of this information was then used to develop a lens of the customer" or comprehensive list of satisfaction attributes and benefit categories (Johnson and Gustafsson, 2000). These efforts led to the model presented in Figure 1.0.
According to the model, the various benefits that customers obtain from convenience stores drive their level of satisfaction, which in turn influences the degree of customer loyalty. As shown, satisfaction is modeled as having direct effects on both loyalty and reputation. The effect of satisfaction on loyalty is the degree to which the customers' more recent purchase and consumption experiences affect loyalty. The effect of satisfaction on reputation reflects both the degree to which customers' more recent purchase and consumption experiences enhance a product's or provider's reputation and the consistency of customers' experiences over time. Finally, reputation may have a direct effect on loyalty.
Each of the benefit drivers is the result of a number of more specific product and service attributes. The attributes, organized by benefit category, include:
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Service
Accuracy of checkout, friendliness of employees, attentiveness of employees, grooming and appearance.
Products
Availability, brand names, variety and selection, freshness.
Store Layout
Find what you need quickly, neatness and orderliness of displays, positive feeling/sense of fun.
Cleanliness
Overall value, competitiveness of gas prices, competitiveness of store prices, frequency of sale items.
Safety
Inside the store, outside the store, rest rooms.
Motorists Services
Location, hours of operation, speed and efficiency of employees, availability of parking.
Separate Take Out
Lighting of premises, ability to see inside the store, feeling of safety and security.
Definitions
Accuracy of signs, gauges and meters, ability to pay at the pump, availability of car wash, availability of air and water for vehicles, working operation of equipment.
Satisfaction is measured using three survey measures taken directly from the ACSI survey (overall satisfaction, performance versus expectations, and performance versus an ideal convenience store) while loyalty is measured using two questions (likelihood of repurchase and likelihood of recommending to others). Finally, reputation is measured using two questions (overall reputation and reputation of the individual store or franchisee). All of the questions in the survey are rated on 1 to 10-point scales.
Pilot Study
A pilot study was conducted to provide a rigorous test of the model. In addition, the study provides initial benchmarks for the convenience store industry based on a nationwide representative cross-section of convenience store customers and stores. We used the exact same interview methodology (CATI or computer-aided telephone interviews), sampling procedure, and data analysis techniques as used for the ACSI. This made it possible to benchmark the convenience store industry against other industries monitored with the ACSI.
The Sample
The data were collected in December of 1998. The sample included 1,025 convenience store customers who were selected to be representative of the demographic profile of these consumers. In terms of demographics, 42.4% were male and 57.6% were female. The age range was from 18 to 81 with a median age of 37. The sample was also well distributed across income and education levels.
Initial Data Analysis
In analyzing the data it is important to note that not all satisfaction drivers apply to all convenience stores. In particular, a number of stores do not have separate take out food and others do not have motorist services. In addition, some measures had low response rates either because the consumer's store did not have this feature or because he or she did not use or experience it. In particular, freshness of coffee," cleanliness of bathroom facilities," and availability of car wash" were subject to this problem, where only certain segments of the market experience these attributes. Thus, this first illustrative analysis conducted excluded the motorist services and separate take out drivers and the three measures with low response rates.
Key Findings
Satisfaction and Loyalty Benchmarking
A key goal of the pilot study was to compare or benchmark the convenience store industry in relation to other key industries. A calculation of the ACSI index resulted in a score of 73.34 for convenience stores (based on an index of the three satisfaction measures that is translated to a 0 to 100-point index scale see Fornell et al. 1996). As shown in Figure 2.0, convenience stores perform quite favorably relative to supermarkets (73), department and discount stores (72), fast food restaurants (68) and the Internal Revenue Service (53). The highest rated industry is soft drinks with a score of 83.
Second, a loyalty index was calculated and found to be 85.83. This score is quite high and means that consumers tend to be very loyal to their convenience store. The model results reveal that satisfaction has a strong impact on this loyalty. The impact score of 0.624 suggests that a 10% increase in satisfaction results in a 6.24% increase in customer loyalty.
Customer Satisfaction and Loyalty Across Stores and Segments
Satisfaction scores were also broken down by type of stores and customers. In Figure 3.0, we can see that smaller independent convenience stores as well as a major regional chain have higher customer satisfaction than do a major national chain.
It is also interesting to see that satisfaction is higher among female customers relative to male customers. Further, daily visitor gave the highest satisfaction ratings, while occasional visitors gave the lowest, which is consistent with their behavior. Similar trends are in evidence for the loyalty data (Figure 4.0). The highest loyalty is associated with independent stores as well as female and daily visitors.
What Benefits and Attributes Drive Satisfaction?
In addition to the overall satisfaction ratings, the data for the individual benefit and attribute drivers" of satisfaction were analyzed in order to determine both their impact on satisfaction and loyalty as well as their level of performance. Partial least squares, a causal modeling technique uniquely suited to the estimation of quality and satisfaction models of this type, was used (Johnson and Gustafsson 2000). The estimation results provide perceived performance indices for all of the benefits in the model (as well as the satisfaction and loyalty indices presented above), estimated impact that each benefit has on satisfaction (and other relationships in the model). Thus, the performance index represents an indication of how well the store is doing on a particular attribute or benefit, while the impact score indicates how much this attribute or benefit influences customer satisfaction.
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This information provides key decision-makers with the information they need to make resource allocation and quality improvement decisions. Specifically, by crossing the impact and performance scores, we can identify four key areas into which each benefit or attribute can be placed:
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- Low Impact/Strong Performance. In this category, the store is performing quite well; however, this feature has little impact on customers' satisfaction. Strategically, this represents areas where the store either wants to maintain its performance (in the case of basic or expected benefits) or reduce its investment (in those cases where money was not well spent). Alternatively, the store might target a different market where the attributes and benefits are more important.
- Low Impact/Weak Performance. These are areas where the store is not doing well, but it does not matter because there is little impact on customer satisfaction. Thus, the company should not waste resources in this area.
- High Impact/Strong Performance. In this category, the store is performing well and these factors have a strong impact on customer satisfaction. Thus, these factors represent a competitive advantage for the firm (i.e, their core competencies). It is therefore important that the store maintain or even improve performance on these factors in order to keep this competitive advantage.
- High Impact/Weak Performance. Here the store is doing poorly on factors that have a high impact on satisfaction and loyalty. This represents a real point of vulnerability for the firm as these problems could cause consumers to switch stores. Thus, this cell identifies areas where the store needs to focus its improvements in order to increase performance and customer satisfaction.
The evaluation of high versus low impact and performance is a function of both the absolute levels of the drivers on these dimensions and their levels relative to key benchmarks (such as direct competitors; see Johnson and Gustafsson 2000, chapter six). We illustrate this type of analysis with the national-level data. Figure 5.0 shows an impact-performance chart that includes the seven benefit areas that are applicable across the entire industry. As for satisfaction and loyalty, benefit performance is on a 0-100-point index scale.
At the level of benefits provided to customers, it can be seen that convenience stores are rated highest on convenience and safety and lowest on perceived prices. In contrast, safety, store layout, and prices have the largest impacts on satisfaction and loyalty. Prices and store layouts appear to be two areas where the industry as a whole should improve. In contrast, the actual products in the stores are considered basic or expected. Performance levels and impacts are also available for the attributes that create each of the benefits (not shown). Among the attributes of store layout, for example, creating a positive feeling/sense of fun" is more important to improve (higher impact, lower performance) than is either the orderliness or neatness of the displays" or the ability to find what you need quickly".
It is important to remember that these data are aggregated across a nationwide sample of consumers and stores. The real power of this benchmarking system is the ability to collect and analyze data at the individual store level. Each individual store can collect satisfaction data and engage in priority setting in terms of benefits and attributes. Further each store or firm can compare its performance to the overall national benchmark for convenience stores as well as to other industries.
Priority Setting by Customer Segments
This same procedure for setting priorities can be followed for segments of customers. For example, Figure 6.0 presents the analysis for daily visitors which includes motorist services and separate take-out food.
Safety and cleanliness represent the areas of competitive advantage. The biggest area of competitive vulnerability is separate take-out; performance is relatively low and impact is very high. Thus, daily visitors want to buy meals at their convenience store but feel that performance could be improved.
For weekly visitors (Figure 7.0), convenience and safety are the areas of competitive advantage. Prices and layout are the areas of greatest competitive vulnerability and therefore in need of improvement. Cleanliness and service are also in need of improvement although the level of impact is slightly lower for these two benefits.
Finally for occasional visitors, safety is the main competitive advantage. Layout and prices are the areas of greatest vulnerability and most in need of improvement.
Conclusion and Future Directions
The goal of this paper was to outline a system for measuring customer satisfaction and loyalty in the convenience store industry and to demonstrate how this system can be used to benchmark performance and set priorities for improving store performance. We presented data from a nationally representative sample of convenience store customers and stores to accomplish this goal.
The real power of this system, however, is fully realized when customer satisfaction and loyalty are measured at the individual store level. Therefore, the next step in this project is to implement a nationwide customer satisfaction measurement system for participating stores. In other words, the objective is to apply this system at the individual store level and collect data from as many stores as possible. Each store would then be able to monitor its level of customer satisfaction and benchmark against other stores in the chain, the immediate area, the entire chain, the region, and/or the entire convenience store industry. Further, each store would have the capability to set priorities for improvement in a manner similar to the one discussed above. The impact of these improvements can then be monitored over time. Through the use of technology, this reporting system will be automated such that each store manager can access the system and receive a report at any time s/he desires. Thus this system represents an extremely useful and impactful diagnostic tool for convenience stores.
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Finally, all of the individual store data can be collected and entered into a national database maintained by the National Association of Convenience Stores. This data can then be analyzed at the industry level to identify important trends and changes in customer satisfaction. This data can also be made available to academic researchers who might be interested in exploring basic issues related to customer satisfaction.
References
Fornell, Claes, Michael D. Johnson, Eugene W. Anderson, Jaesung Cha, and Barbara Everitt Bryant (1996), The American Customer Satisfaction Index: Nature, Purpose and Findings," Journal of Marketing, 60 (October), 7-18.
Johnson, Michael D. and Gustafsson, Anders (2000), Improving Customer Satisfaction, Loyalty and Profit: An Integrated Measurement and Management System," San Francisco, CA: Jossey-Bass.
