Customer satisfaction has a statistically and economically significant negative effect on a firm’s future cost of selling that depends on the firm's strategic focus and flexibility, and its operating environment

1. From: Lim, Tuli, and Grewal (2020)
Customer satisfaction has a negative
effect on a firm’s future cost of selling
The strength of this effect depends on the firm's strategic focus and flexibility, and its
operating environment.

2. From: Lim, Tuli, and Grewal (2020)
Cost of selling is a critical metric followed by senior managers,
financial analysts, and investors
• Marketing managers are often under the pressure to look for initiatives that achieve desired
product-market outcomes at lower costs
• Reduction in cost of selling is generally viewed as a positive signal  Hence cost of selling is
also closely tracked by investors and analysts
Cost of Selling:
The expenditures incurred by a firm to persuade customers to purchase its
offerings and making it convenient for customers to do so.
Cost of Persuasion Cost of Convenience
• Commissions
• Marketing Expenses
• Advertising Expenses
• Freight-out Expenses
• Bad Debt Expenses

3. From: Lim, Tuli, and Grewal (2020)
Cost of
Selling
Customer
Satisfaction
Cost of Persuasion
Cost of Convenience
• Commissions
• Marketing Expenses
• Advertising Expenses
• Freight-out Expenses
• Bad Debt Expenses
-
Customer satisfaction reduces the future cost of selling of a firm…
How: Satisfied customers respond in several beneficial
ways (e.g., spread positive word-of-mouth and higher
willingness to pay) that enable a firm to lower not only its
expenses for persuading current and potential customers
to purchase its offerings, but also the expenses for
making the purchases more convenient for customers.

4. From: Lim, Tuli, and Grewal (2020)
Research evidence
• 128 publicly-listed US firms featured in the American Customer Satisfaction Index (ACSI)
between 1994 – 2013.
• Overall finding: A one-point increase in customer satisfaction – measured on a 100-point
scale of the ASCI result in a reduction of almost US$130 million in future cost of selling.
Impact depends on
firm’s strategic focus and flexibility
Impact depends on factors in the
operating environment
Diversification Concentrated Industries
Capital intensity Growth Industries
Leverage Labor Intensive Industries

5. From: Lim, Tuli, and Grewal (2020)
The extent of the reduction depends on a firm’s strategic focus and
flexibility, and its operating environment
When Marketing Managers Can Expect Higher Customer Satisfaction to Reduce the
Future Cost of Selling
Cost of Selling
Cost of Persuasion Cost of Convenience
Strategic Focus and Flexibility
Diversified Firms Higher Reduction Lower Reduction
Capital Intensive Firms Lower Reduction –
Leveraged Firms Lower Reduction –
Operating Environment
Concentrated Industries Lower Reduction Higher Reduction
Growth Industries Higher Reduction Higher Reduction
Labor Intensive Industries Higher Reduction –

6. From: Lim, Tuli, and Grewal (2020)
Appendix – Definition of Moderators
Moderator Definition
Strategic Focus
Firm Diversification The breadth of a firm’s offerings
Strategic Flexibility
Capital Intensity
The degree to which a firm relies on capital investments such as
property, plant and equipment for its operations
Financial Leverage The degree of debt that a firm has relative to its total assets
Operating Environment
Industry Concentration The degree of competition in an industry
Industry Growth The rate of growth in demand in an industry
Industry Labor Intensity
The extent to which firms in an industry are reliant on
employees to produce and deliver products and services