Content area
Full text
Abstract: Recent research in accounting advocates nonfinancial measures of company performance, such as customer satisfaction and loyalty, as useful indicators of aspects of firm performance. But what are the drivers of customer satisfaction and loyalty? We provide an integrated causal model of company performance in the personal computer (PC) industry that simultaneously tests links between product value attributes resulting from business process performance, customer loyalty, and financial outcomes. Our results extend prior accounting research (e.g., Banker et al. 2000; Ittner and Larcker 1998) in two directions: (1) by explaining the determinants of customer loyalty, and (2) by clarifying the relation between customer loyalty and measures of financial performance. We report that product value attributes directly and differentially impact levels of customer loyalty as well as prevailing average selling prices. Furthermore, measures of customer loyalty explain levels of relative revenue growth and profitability, and relatively high customer loyalty engenders a competitive advantage in the PC industry.
Keywords: nonfinancial information; balanced scorecard; personal computer manufacturing industry; customer satisfaction; customer loyalty.
Data Availability: All data used in this analysis were obtained from publicly available sources.
INTRODUCTION
When measuring firm performance, Simons (1999, 171) advocates linking profit performance to external markets and assessing performance "from the perspective of major market constituents." Nonfinancial measures, such as customer satisfaction and loyalty, are useful in making this assessment, because of expected cause-and-effect relations between product market performance and financial outcomes (AICPA 1994; FASB 2001a, 2001b; Lev and Zarowin 1999; Lev 2001; Eccles et al. 2001). Recent accounting research suggests that customer satisfaction measures are leading indicators of financial performance (e.g., Ittner and Larcker 1998; Banker et al. 2000). In fact, many argue that customer satisfaction and loyalty are among the most important indicators of long-term financial performance (Kaplan and Norton 1992, 1996, 2001; Jones and Sasser 1995; Heskett et al. 2003; Reichheld 1993, 2001). Yet, current accounting research does not directly and specifically address potential drivers of customer satisfaction. Managers and external stakeholders need to know why customers choose one company's products over the competition to assess the potential impact on financial outcomes.
The objective of our research is to provide a causal model of company performance that simultaneously tests the links between product value attributes, product market attributes, e.g.,...