Important drivers for customer satisfaction – a Swedish crisis reflection

In 2019, the authors of this paper published a study showing a paradigm shift in crucial drivers for customer satisfaction during the past decade (Hallencreutz and Parmler, 2021). The study was built on Swedish data from the EPSI Rating Initiative (Eklöf and Westlund, 2002) covering customer perceptions in banking, insurance (life and non-life), telco (mobile operators, broadband and Pay-tv) and energy (trade, distribution, and heating) over the years 2005–2017. EPSI, formerly known as the European Satisfaction Index, is a well-known adoption from the Swedish Customer Satisfaction Barometer (Fornell, 1992). The EPSI measurement model framework encapsulates the customer experience into five drivers of brand image, customer expectations, product quality, service quality and perceived value, which creates customer satisfaction and loyalty. The study, using EPSIs measurement model, unravelled that that the variable product quality during the past decade has been substituted by service quality as a core driver for customer satisfaction, together with brand image. It showed that both private and business customers in the studied industries in general are enlightened, conscious and purposeful. Aspects such as social responsibility, sustainability, ethics and conduct are critical and have been so for a long time. In a digital world, the average customer has also been strongly affected and influenced by (social) media newsfeeds. Moreover, the study concluded that service quality in practice is about closeness, simplicity and personal relations. Another fundamental service quality aspect shown was the ability to proactively provide swift responses to shifting customer needs, demands and expectations.

However, since that first publication, the world has coped with a global pandemic, and Europe is currently experiencing a humanitarian, political and economic crises caused by a war in Ukraine. Compared to the relatively stable decades after the fall of the Berlin Wall, we now seem to be living in a volatile “new normal”, with one challenge seamlessly followed by the next. This extended period of global instability and insecurity could be called a permacrisis (Collins dictionary, 2022), in the sense that society at large will have to cope with crisis consequences for years to come. The economic impact of the permacrises is structural, not cyclical, so effects will persist over time. This state is also a catalyst for existing societal trends: the necessary reforms to master sustainable transformations will require an ongoing adaptation process, with both winners and losers across continents. The Covid-19 crises was a great wake-up call, because it demonstrated how fragile business is (Sheth, 2020). It created disruption in supply chains both domestically and globally, which has been further deepened during the past years.

This follow-up study focuses on developments in Sweden. The past decade has been characterized by economic stability, and during the pandemic years 2020–2021, the Swedish economy stood relatively strong. However, the GDP growth in Sweden was merely 2.6% 2022, and forecasts indicate a stalemate in 2023. Customers have during the past two years faced economic uncertainty, perhaps most recognizable in the rising inflation, rapid changes in central bank policies and an extended energy demand, which have resulted in major spikes in energy prices (scb.se).

In times of crisis, new trends in consumer behaviour emerge (Loxton et al., 2020). Research shows that customers generally re-evaluate behaviours during crisis. For example, customers are likely to be more stressed and feel like they have lost their sense of control (Herzenstein et al., 2015). There has also been much anecdotal evidence on how a crisis such as a global pandemic impacts an individual’s psyche, but a coherent research effort is still lacking (Kordostrami and Kordostrami, 2021). In addition, previous research shows that individual differences exist in responses to crisis. Thomson et al. (2011) demonstrated that individuals’ cognitive and emotional responses to threatening messages depend on their predispositions, such as whether they see themselves as vulnerable or not.

Thus, it is reasonable to assume that the past years troublesome developments have affected customer behaviours and perceptions in many aspects. Could such changes also be traced in EPSI’s customer perception data?

In this business environment, financial and non-financial performance measurements capturing past, present and future performance seems even more critical than before. Sisodia et al. (2007) documented that companies that take care of multiple stakeholders such as employees, suppliers, community and customers financially outperform as compared to companies that are only shareholder-driven. This symbiotic relationship between different stakeholders will probably become increasingly important as crisis threats now create greater uncertainty for businesses to operate and survive financially.

A critical stakeholder is the customer (Hallencreutz et al., 2020). The quality movement has long been customer-oriented, and aspects of customer focus and satisfaction have been widely discussed for decades, and regarded as fundamental building blocks of different quality management concepts such as Lean and Six Sigma (Bergman et al., 2022). Among the non-financial measurements, customer satisfaction is recognized as the performance indicator that is the most widespread (Birch-Jensen et al., 2018; Bititci et al., 2012; Hallencreutz et al., 2020; Iveroth and Hallencreutz, 2015; Taticchi et al., 2010).

The term customer focus has also been used to describe the desired starting point of organisations’ improvement efforts (Hellsten and Klefsjö, 2000; Sousa, 2003). It is shown that satisfied customers have a positive effect on financial results as well as company image, market shares and customer loyalty (Birch-Jensen et al., 2018; Fornell et al., 1996; Fornell et al., 2016; Kristensen and Westlund, 2003; Eklöf et al., 2017, 2018). Customer satisfaction is also recognized as an important predictive indicator for future financial performance (Bititci et al., 2012; Eskildsen et al., 2003; Fornell et al., 1996; Stern, 2006).

The purpose of this study is to examine crisis effects on customer satisfaction and underlying drivers by adding a new set of data to previous research. The core questions are: are the findings from Hallencreutz and Parmler (2019, 2021) sustained or can new customer demands, needs, expectations and behaviours be traced in the wake of the ongoing crisis?

The original study was completed in 2018, published online in 2019 and in print in 2021 (Hallencreutz and Parmler, 2021). The study findings were further elaborated and discussed by Iveroth and Hallencreutz (2020) and commented by Gremyr et al. (2020) as well as Bergman and Klefsjö (2020).

This new study adds the years 2018–2023 to the data set and reuses the partial least squares (PLS) approach to structural equation models, also known as PLS path modelling (PLS-PM). Essentially, PLS-PM is made of a system of interdependent equations based on simple and multiple regressions. Such a system estimates the network of relations among the latent variables as well as the links between the manifest variables and their own latent variables. In the EPSI model, applied in this and previous study, seven interrelated latent variables are used, see Figure 1, which is based on well-established theories and approaches in customer behaviour (Eklöf and Westlund, 2002).

The latent variables on the left-hand side of the model are to be seen as drivers explaining customer satisfaction and loyalty. Main causal relationships are indicated by the arrows. A set of manifest variables is associated with each of the latent variables. This structure is the foundation of the EPSI model. The entire model is important for determining the main result variable, being customer satisfaction:

The additional data set has been collected mainly through computer-assisted telephone interviews (CATI) based on a structural questionnaire, as outlined in  Appendix. Respondents have been asked to rate all variables between 1 and 10, and the EPSI model then transforms the output to index values between 0 and 100. As previously described and discussed, a customer satisfaction score above 75 indicates a high level of satisfaction, while a score below 60 indicates customer dissatisfaction. Respondents may also leave open comments for further text analysis.

The study aggregates cross-sectional data from several industries conducted by the Swedish operation of EPSI Rating Group known as Svenskt Kvalitetsindex. Focus is on the relationship between the estimated latent variables, and not on examining each industry’s measurement model. The study data comprises 708,542 customer interviews, including both private and corporate customers, covering the years 2005–2023. It includes numerical values on the EPSI model latent variables for the following industries:

• banking;

• insurance (life and non-life);

• telco (mobile operators, broadband and pay-tv); and

• energy (trade, distribution and heating).

The analysis in this study followed the same process as in Hallencreutz and Parmler (2021) and was executed as follows:

1. a gross compilation of the result variable “customer satisfaction” was derived from the total set of interviews is presented for the studied period providing an index trend;

2. the data on latent level was used to estimate the path in the network of latent variables;

3. from the estimation, the total effect between drivers and the result variable customer satisfaction was calculated for each year following the steps:

   • a. gather customer survey data on latent-level from selected industries; and

   • b. estimate the inner model and calculate the total effect and relative importance on:

     • i. image to customer satisfaction;

     • ii. product quality to customer satisfaction;

     • iii. service quality to customer satisfaction; and

     • iv. perceived value to customer satisfaction.

   • c. Normalize each of the total impacts in step b. by making the sum of b. i to b. iv equal to 1.

   • d. Step a. to c. is iterated over time.

4. the results are presented as relative impact scores. Hence, the relative impact from the network of latent variables on the target variable, customer satisfaction, was calculated. Higher value indicates higher importance.

To exemplify, Figure 2 presents an estimated inner model for year 2022. The path coefficients were used to calculate the total effect and relative importance by the steps above. This procedure was repeated for every year studied.

The chart below presents the general customer satisfaction trend between 2005 and 2023. The data is a compilation of the studied industries ^[1].

The following general findings can be noted in Figure 3:

• the customer satisfaction index shows a positive trend 2005–2010;

• customer satisfaction peaked in 2010 but declined till 2016, mainly due to lagging effects from the financial crisis 2008–2009;

• a recovery is seen between 2017 and 2021. Thus, no negative “pandemic effect” can be traced in this data’ and

• a downturn from 2022 is noted, linked to the economic crisis not unlike the dip in 2011.

Figure 4 presents the analysis of the relative importance of each of the latent variables considering the impact on customer satisfaction, with a specific focus on the additional years 2018–2023. The following general findings can be noted:

• the latent variable image has in all years been the most important driver. The trend in the recent years is slightly negative but still the highest in impact despite current crisis. A trusted brand is crucial in uncertain times;

• product quality was stable until 2010, but the importance of this latent variable has been reduced significantly since then. Current crisis has not changed that, although an upturn was seen in 2020–2021, but the relative importance is from 2022 back to pre-pandemic levels;

• service quality has increased significantly over the past ten years, although a downturn can be noted from 2022; and

• the variable perceived value has been low on the importance-scale but has increased significantly from 2022. the relative importance of perceived value (of purchased goods and services) is over time also affected by inflation, which is in line with previous research findings (Jonung and Laidler, 1988). It can be noted that this variable correlates with the Swedish inflation rate during the years of this study (coefficient 0.57).

Based on data presented in this study, previous research and discussions with clients and colleagues, the following reflections can be articulated:

• customer satisfaction in the measured Swedish industries has recovered since 2016 but is currently under pressure. During the past decade, consumers have become more conscious, critical and demanding. Questions about sustainability, social commitment, business ethics and conduct today influence the choice of conscious customers more than before, in all studied industries. This trend was accelerated during the pandemic and further enhanced by the crisis caused by the war in Ukraine, followed by a general global instability. It can also be seen that customers’ purchasing behaviours change as social media interaction and digital networking grows, which is in line with previous research, summarized by Iveroth and Hallencreutz (2020). Speed, simplicity and convenience are key elements. Poor digital platforms cannot be compensated. Consumers and companies will expect a consistent experience across all channels and platforms, in real time. Shopping hey days seem to be over for now, but in general, despite many uncertainties, most organisations in the studied industries have succeeded in both managing a stable basic delivery and responding to changing customer needs, requirements, expectations and behaviours. The customer satisfaction indices are after all relatively stable over time, but it is reasonable to assume prolonged crisis effects in the years to come;

• the importance of brand image is strengthened. Because the latent variable image remains strong, it can be concluded that intangible assets (such as brand awareness, trust and reputation) have a sustained impact on customers perceptions also during periods of crisis. Trust’s importance has also been stressed in previous research (Drewniak and Karaszewski, 2016). Customers are likely to purchase products and services based on specific features of a brand (moorman et al., 1993). In times of uncertainty, people tend to turn to big, stable and strong brands. Customers with one single provider are again more satisfied. Now is not the time for experiments and risk-taking;

• product quality aspects still have less impact on customer satisfaction. product specifications and features seem to have a very volatile effect on customer satisfaction, although a certain positive effect could be noted 2020–2021, mainly due to the relative importance of seamless digital platforms and services during the time of lock down and remote working. Basic features and digital functionality are now fundamental quality aspects in the era of digitalization, but softer service quality aspects still stand out as more important. However, it should be emphasized that this finding differs between industries;

• service quality still breeds customer satisfaction. It has been stated by market researchers that customer satisfaction is mainly based upon the level of service quality provided (lee et al., 2000), and service quality acts as determinant of customer satisfaction (Wilson et al., 2008). This study sustains these statements. The new data tells that the variable service quality has in general a greater impact on customer satisfaction than product quality. The shift took place in 2013, and since then, the gap has remained, although a decline can be noted from 2022. Thus, it is crucial to focus on the customer end of the supply chain also during crises. A fundamental service quality aspect in a volatile business environment is to proactively provide swift responses to shifting customer needs, demands, expectations and behaviours; and

• price is important again. After a period of relative economic stability characterized by low interest rates and low inflation, the Swedish economy is now experiencing a cost explosion, which recalls the economic crisis of the early 1990s. Consequently, the latent EPSI model variable perceived value has gained a greater relative impact on customer satisfaction from 2022, and this variable will most likely remain prominent in future studies, given the economic development.

In conclusion, this study emphasizes the importance of understanding how customer satisfaction drivers evolve over time in different industries and societal sectors, especially during crises. This additional study sustains the paradigm shift in the studied industries – product quality has been substituted by service quality as one of the most crucial drivers for customer satisfaction – although certain crisis effects can be seen such as the relative importance of price and perceived value.

In general, most organizations have coped with the instability and unpredictability that this new era entails. Despite major uncertainties, the studied industries have succeeded in both managing a stable basic delivery and responding to changing customer needs, requirements, expectations and behaviours. The most dramatic development was perhaps within the Swedish energy sector. Loud political debate, threats of electricity shortages, extreme price variation and cost crisis obviously left a mark. In a year like 2022, both the media, neighbours, friends and business acquaintances have influenced the customer experience, as well as the direct contact with the electricity supplier. Customer dialogues in the energy sector have, in some cases, been about pure crisis management, but the situation has been stabilized during 2023, and to some extent, substituted by a debate about grocery prices and provoking profit margins in the banking sector. How will things go forward? Does anyone dare say anything? An educated guess is that society will have to learn to live with political and economic instability and unpredictability for the foreseeable future – the term permacrisis is therefore painfully relevant.

Customer focus has been on the quality management (QM) agenda for decades, and the need for further research on the integration of customer orientation with core business processes has been stressed for long, see for instance Hellsten and Klefsjö (2000). Although the topic has been thoroughly discussed, there is still a gap between academic theories, political rhetoric and actual implementation in practice (Isaksson, 2019). Moreover, it has been argued that quality management tools and practices must be developed to support sustainability considerations from a stakeholder perspective (Siva et al., 2016; Antony et al., 2024). The authors therefore suggest further conceptual work and research on stakeholder management to connect quality management to sustainable development in practice. Our contribution to this development could be to emphasise the need to measure and understand different perspectives on stakeholder perceptions, with a specific focus on the customer.

Lastly, more research is needed to extend these findings to different industries in a European context as well as strengthening the understanding on how to provide reliable indications for future financial and non-financial performance. To recognize the increasing value deriving from firms’ intangible assets while providing flawless deliveries seems to be a way forward in troublesome times.

Table A1