Thesis on service delivery and customer satisfaction

Essay: Service and customer satisfaction

Services have been studied broadly since 1980s. The idea of involving service value and customer satisfaction has existed for a long time. Studies show that there are connection between customer satisfaction, customer loyalty, and profitability. During a couple of years, there have been studies that have established connection between customer satisfaction and customer loyalty. Many studies also attempt to develop connections between service quality, customer satisfaction, customer loyalty, and effectiveness (Grönroos, 1980) As a word “after sales services” has been used the most too express services which are provided to the customer after the sales have been delivered (Lim, 2011)After sales services creating link between customer expectation and after sales services. After sales service is frequently (Lele & Karmarkar, 1983) referred to as product support activities, meaning, and all activities that support the product centric operation. Finally, after sales service is an approach to allow a constant improvement of product plan and quality (Armistead & Clark, 1992); (Cohen & Whang, 1997); (Thoben, Eschenbächer, & Jagdev, 2001). The awareness of after sales as a source of competitive advantage and business opportunity requires from a predictable product centric view, in which after sales is considered a necessary (Lele, 1997) to customer centric view. Such services are the transport, delivery to customers, the mechanism, the product related training, and advice by the help desk, any repairing service and even the recycling procedure.
Many studies related to customer loyalty, customer expectation since 1990 have been conducted in the area of consumer markets. Such studies have mostly concentrated on relationship marketing, but only a few studies have concentrated on after sales services creating an impact on customer satisfaction. Even though there are many studies in the area of services, after sales services and after sales activities normally have signify an ignored area of the management literature and only a few researchers have paid attention on it. For the most part, issues related to after sales activities and after sales services have been given only limited attention in those studies. On the other hand, after sales services creating an impact on customer satisfaction.
Customer satisfaction survey questions are not designed to measure loyalty, how the customer will perform. In a survey by Deloitte across different industries, it was found that companies set goals for improving customer loyalty were 60 per cent more advantageous and more likely to increase growth plans than companies that did not have such a good strategy. Most managers assume that there is a positive connection between customer satisfaction and customer expectation. According to the researchers, in more than 70 per cent of business cases, price ranked among the most important factors that customers were not satisfied with.
One of the reasons could be the difficulty to exactly and consistently measure customer satisfaction. The customers in general fill the surveys about satisfaction level through after sales services. There are different ways of inflating satisfaction ratings, including the formation of questions, timing of the measurement, and the mood of the respondent. Since customers are likely to overvalue their satisfaction in these surveys, the consistency of satisfaction surveys as predictors of repeat purchase can be questioned.
After sales services has been used in the most companies ,which describe services that are provided to the customer after the products have been delivered (Sigala, Rigopoulou, Chaniotakis, Lymperopoulos, & Siomkos, 2008)It is very important company should always focus to the customer perceptions and expectations. If there is a difference between customer expectations and perceptions, then there is a gap and in observe, it does not matter whether the gap is based on facts or feelings, but how the customer perceives customer expectation.
In the customer evaluation process (Jones, Mothersbaugh, & Beatty, 2002)it has been reported that customers identify greater risk when purchasing services rather than products, more dependent on information from personal sources, and use price and physical facilities as the most important for service quality. Customers can be unwilling to try new services because of the risks involved (Cannie, 1994) Making and retaining expensive relationship with customer while using every feature of taking, retaining and enhancing customer satisfaction is known as customer sales services management (Kotler & Armstrong, 2010) When organization sell product efficiently it has to make helpful planning for services after sale, such planning is a part of customer satisfaction. After sale service has been important for every organization tobattle in the market by using such comprehensive services (Sigala et al., 2008) Different customers have different needs some customers want that the product to be delivered to their target place at right time and right price, others give value to customers needs and wants, on the other hand poor after sales services create negative impression on the results. (Kotler & Armstrong, 2010)
Organizations need to improve relationship with customers for increase more efficiency and to improve their sales revenue. To provide good services, it will provide to the customers pleasant sale service to consumer from organization. Properly planned feedback is very important for every organization as they came to know that what customer needs from us. And also know about what type of changes organization should bring into the service line, so that they give more value to customers. Therefore, services given to consumer after sale are more important to satisfy customer needs, after sale service is very important for organization to retain customers for a long time and generate high advantageous relationship with organization.
Many researchers agree that organization can achieve more than their revenue due to after sale service that they provide to customer during a life cycle of a product. therefore, efficiency and sales revenue increases and generate profit may be more than product sale (Alexander, 2002)
After over all study, Most of the business organizations are not aware about the after-sales service factors and its impact towards the customer satisfaction. Dissatisfied customers will turn to competitors who can offer better after-sales services.
I identify the gap which can reason, problems in service delivery which customer expect more to the company. This Gap is between customer expectations.The purpose of this thesis is to focusing on customer satisfaction and customer expectation through after sales services. This model helps to improve after sales services.
However, most of the business organizations are not aware about the after-sales service factors and its impact towards the customer satisfaction. Dissatisfied customers will turn to competitors who can offer better after-sales services.

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Service Delivery and Customer Satisfaction. The Case of Burayu Town Municipality, Ethiopia

1.1 Background of the Study
1.2 Statement of the Problem
1.3. Research Questions
1.4 Objective of the Study
1.4.1 General objective
1.4.2 Specific objectives
1.5. Scope of the Study
1.6 Limitations
1.7. Significance of the Study
1.8 Operational Definition of Terms

2.1 Theoretical Literature Review
2.1.1 The definitions of Service
2.1.2 Characteristics of Services
2.1.3 Service Quality
2.1.4 Factors Influencing Provision of Quality Public Service
2.1.5 Principles of Public Service Delivery
2.1.6 Customer Satisfaction
2.1.7 Customer Satisfaction Measurement
2.1.8 SERVQUAL Model of Measuring Customer Satisfaction
2.1.9 Service Quality and Customer Satisfaction
2.2. Empirical Literature Reviews
2.3 The Conceptual Framework of the Study

3.1 Descriptions of the Study Area
3.1.1 Location
3.1.2 Population of the Study
3.2 Research Design
3.3 Sample and Sampling Techniques
3.3.1 Sampling Technique
3.3.2 Sample Size
3.4. Sources of Data
3.4.1 Primary Data Sources
3.4.2 Secondary Data Sources
3.5. Tools of Data Collection
3.6. Procedures of Data Collection
3.7. Methods of Data Analysis
3.8. Validity and Reliability

4.1 Demographic Profile of Respondents’
4.2. Service Quality and Customers Satisfaction by SERVQUAL Method
4.2.1 Tangibility of the Municipality’s Service
4.2.2 Reliability of Municipality’s Service
4.2.3 Responsiveness of the Municipality’s Service
4.2.4 Assurance of the Municipality’s Service
4.2.5 Empathy of the Municipality’s Service
4.2.6 Summary of the Municipality’s Service Quality Dimensions
4.3 Respondents Opinion on the Level of service quality of the municipality
4.4 Compliant Handling Mechanism from Customers’ Perspective
4.5 Customers Perceptions on the Practices of the Public Service Delivery Principles in the Office
4.6. Status of Customer Satisfaction on Public Service Delivery
4.7 Challenges in providing and receiving quality service at the municipality
4.8 Respondents Recommendations on how to improve customer satisfaction
4.9. Analysis of Interview with Public Service Manager of the Municipality
4.10. Discussions

5.1 Summary of the Findings
5.2 Conclusions
5.3 Recommendations
5.4 Future Research Direction



My deepest gratitude goes to the gracious God for his will in helping me to accomplish this paper . I would like to express my deepest gratitude to my advisor Dagne Tafa (Asst. professor) for his continues advice, expert guidance, concerned supervision and comments throughout the research period; his friendly approaches have contributed much to the completion of this thesis.

I would like to express heartfelt love, respect and unforgettable feeling to my friend Daraje Miecha for his unreserved support during all times of my work starting from editing words, language translation and distribution and collection of questionnaires. My sincere love and respect goes to Iyasu Mosisa, my partner for helping me by printing materials and for his assistance during data collection and analysis.

My immense gratitude goes also to Burayu Town Administration for its consent to conduct the study and for providing necessary data. Lastly, thanks go to all peoples and organizations that have been extending unreserved assistance to me from the beginning up to the end of the thesis.


Table 3.1. Number of households and population of Burayu Town at the end of 2011 E.C

Table 3.2 Population, Sample Size and Sampling Techniques

Table 4.1 Descriptive Summary of Respondents’ Profile

Table 4.2 Tangibility of the Municipality’s Service

Table 4.3 Reliability of the Municipality’s Service

Table 4.4 Responsiveness of the Municipality’s Service

Table 4.5 Assurance of the Municipality’s Service

Table 4.6 Empathy of the Municipality’s Service

Table 4.7 Summary of service quality dimensions

Table 4.8 complaint handling mechanism from customers’ perspective

Table 4.9 Measure of service delivery principles


Figure. 2.1 The relationship between Service Quality and Customer Satisfaction

Figure 2.2 Conceptual frameworks of Service Delivery and Customer Satisfaction

Figure 3.1. Map of West Shawa Zone

Figure 3.2 Map of Burayu Town

Figure 4.1 The Municipality in Meeting Expectation and Need of Customers

Figure 4.2 Timely Performances and Commitment of Employees

Figure 4.3 Employees Interaction with Customers in Service Provision Process

Figure 4.4 The Municipality in terms of Service Improvement and Receiving Feedback

Figure 4.5 The municipality in giving what customers request

Figure 4.6 Summary of status of customer satisfaction on service delivery


ACSI: American Customer Satisfaction Index

EEPCO: Ethiopia Electric Power Corporation

FDRE: Federal Democratic Republic of Ethiopia

ICS: International Customer Satisfaction

ISO: International Organization for Standardization

NALF: National Alcohol and Liquor Factory

OECD: Organization for Economic Co-operation and Development

QMS: Quality Management System

QPS: Quality Public Service

SMQ: Service Monitors Questionnaires


The main objective of the study was to analyze the quality of public service delivery and to examine the level of customer’s satisfaction in Burayu Town Municipality, Oromia Region. The study was conducted to identify the level of service quality and customers’ satisfaction at the municipality. The total of 412 customers who were the service users of the municipality were selected as a sample size by using Yamane Taro’s sample selection formula as a study subjects. The study used convenience sampling method for sample selection of respondents’ and purposive sampling for interview of Public Service Manager. Open ended questionnaires, closed ended questionnaires and interview were employed for data collection. Regarding to research methodology; the researcher employed explanatory research method with both qualitative and quantitative data type. The analysis conducted using Microsoft office excel 2007 and presented by using tables, graphs, frequency distribution and percentage. From the study it was found that service quality dimensions were positively related to customer satisfaction; as service quality meets customers’ expectation it leads to customers’ satisfaction. The result indicates that the dimensions of service quality measures were not fully practiced by the municipality, which results in low level of service quality and customers’ satisfaction. Municipal officials need to ensure that all tangible attributes related to employee performance create a desirable impact on customer perception of quality. This is important as customer continue to look for tangible cue as a means to reduce perceived service quality and describe their service experience in Burayu town municipality.

Key words: Service Quality, Customer, Burayu, Municipality, Satisfaction.



1.1 Background of the Study

The world over, public sector organizations are responsible for providing essential goods and services for the benefit of the citizens of their countries. The services sector is an indispensable player of most contemporary economies (Amanfi. B. 2012)

The public sector has been under increasing pressure to improve upon service delivery and to demonstrate that it is customer-centric. Service quality has therefore been defined as an overall judgment similar to attitudes towards the service and generally accepted as an antecedent of overall customer satisfaction. Public sector organizations are responsible and accountable to the citizens and communities of their countries as well as to their customers or clients. (Zeithaml and Bitner, 1996).

According to Gowan et al (2001), service provision is more complex in the public sector than in the private sector. This is because it is not simply a matter of meeting expressed needs but of finding out unexpressed needs, setting priorities, allocating resources and publicly justifying and accounting for what has been done.

The success of any service providing organization according to Huffman & Bateson (2001) as cited by Kibret Tekeba & Ermias Worku (2018) can be measured in terms of its customers’ expectation towards the service delivery practice, which means service quality, will be the dominant element in customers’ evaluations of a given service. Customers’ go to service providers expecting to get a good service and the level of expectation among each individual varies.

The ultimate goal of public sector is to sustain the quality of the public service and to enhance the capacity to carry out core government functions so as to promote a sustained economic, social and political development in the environment of its operation (Theodore, 2003).

The effectiveness of good local governance needs to be judged by the capacity of local government structures to provide an integrated development approach to social and economic development issues and to supply essential services congruent with the needs and desires of the local communities. In this regard, municipalities should be able to identify and prioritize local needs, determine adequate levels of services, allocate necessary resources to the public (Idasa, 2018).

In many countries, developing countries in particular, the issue of service delivery is a challenge that needs to be addressed given the low quality of service provision and the pressing needs of the poor (Besley and Ghatak, 2007). Khalid (2010) supports this view when he states that local councils in Malaysia continue face pressure to improve their service delivery. The increased level of education of the population has led to a more vocal and more discerning citizenry that expects better services and accountability from its local government.

Similarly, the argument by Gwayi (2010) that municipalities in South Africa face serious challenges in implementing service delivery options that will enhance existing structures in the sphere of local government points towards the need for strategies to improve service delivery.

According to Government of Federal Democratic Republic of Ethiopia (2000), Policy directives are formulation of mission statements, promoting positive attitudes towards serving the public, establishing compliant handling mechanisms, setting service standards, providing cost-effective service, promoting transparency in the public service atmosphere should be realized. In April 2001, the government of the Federal Democratic Republic of Ethiopia published, a service delivery policy for Ethiopian civil service. According to the document, service delivery from public sector organizations, refers to those activities of government institutions aimed at satisfying the need and ensuring the expectation of society as well as enforcing laws, regulations and directives of the government.

The ‘Customer service’ serves as an integral part to achieve customer gratification. Obviously, the preeminent reason for facing challenges by professionals, who are involved in providing customer service would be the failure to achieve customer gratification (Murali, S 2019). Public sector like Buarayu Town Municipality, which is the geographical concern of this study, is not exception to this. This research is, therefore tries to assess the service delivery practice and customer satisfaction of the municipality.

1.2 Statement of the Problem

Although the need to satisfy customer is something that goes without saying this is precisely the problem with many organizations, assumptions are made about what customers really want. Professional services in a particular sector frequently suffer from an attitude of thinking that they know best, because they are the experts. This may be true but, this attitude can create blind spots in dealing with customers (Johnson and Clark, 2002), as cited by (Yeshitila Tefera, 2018).

Mohammed Nor et al (2010), argue that the public complaint of long queues, poor service delivery and insufficient physical facilities may affect the image and level of service quality in the public sector.

According to the Organization for Economic Co-operation and Development (OECD, 2010), throughout the world cities face the most acute challenges of Service delivery because of fast growing populations. Public sector administrators around the world face a common set of challenges, if their services are to meet the increased expectations of their customers, from both citizens and businesses. However, experience shows that while the challenges may be consistent, the ways in which they are being confronted, and the results that are being achieved, vary considerably.

In many developing countries, the issue of service delivery is a challenge that needs to be addressed given the low quality of service provision and the pressing needs of the poor. The increased level of education of the population has led to a more vocal and more discerning citizenry that expects better services and accountability from its local government. Moreover, rapid industrialization and urbanization of countries have created a challenging environment for the local government. (Besley and Ghatak, 2007).

Empirical evidence by Wescott(1999) shows many African municipality Services are characterized by corrupt, inefficient and poor public service delivery that requires capacity building and relevant reforms to change the existing trend that in turn enhances social-economic developments. To address this, the public sector must find ways of improving the efficiency and effectiveness of its service delivery. This means providing value for money by improving quality of service, and reducing the costs involved in providing those services.

The government of Ethiopia adopted the Ethiopian service delivery policy in 2001, with the main objective of ensuring efficiency and effectiveness of service delivery; equity in access to government services; ensuring accountability for failure to provide quality service, so as to ensure customer satisfaction.

The essence of public sector reform in Ethiopia is similar to elsewhere in the world, were the need to improve efficiency and effectiveness in the delivery of service to the public. The importance for the development and institution of public service reform has assumed greater prominence since a major factor in the successful formulation and implementation of socio-economic and political development policies and programs in any country is an effective, efficient and responsive public service.

Some common problems faced by consumers are lack of creating awareness on the terms of the policy, prompt claims settlement method, poor risk assessment as a result insufficient recommendation by the service provider to the customer in order to minimize the happening of the loss, delay in communication, unprofessional conduct, inflexible service, in availability of staff for advise at time of claims due to rigid working hours which leads to dissatisfaction (Ethiopian Economic Association (2012: p. 84).

According to Hussein, (2009), though public organizations are supposed to give quality service in a way that is efficient, effective, fair, transparent, reliable, and responsive that meets customer satisfaction, service delivery lacks these qualities which in turn affected the level of customer satisfaction.

This study is to anticipate whether there is quality public service delivery and to determine level of customer satisfaction. Because the researcher is frequently hearing complaints from customers regarding to the service delivery system of the municipality, the researcher is to conduct the study with the objective of assessing the quality of public service delivery practice and customer satisfaction in Burayu Town Municipality, using the five dimensions of SERVQUAL model and its subsequent effect on customer satisfaction and to suggest possible solutions for gaps that will be identified by the study.

1.3. Research Questions

In order to assess the level of satisfaction of the customers the study anticipates finding possible and relevant responses for the following questions;

– What is the level of service quality of Burayu Town Municipality?
– What is the level of customer handling mechanism of the municipality?
– How much customers’ are satisfied towards service delivery of the Municipality?
– What challenges did customers face in relation to Burayu Town Municipality service?

1.4 Objective of the Study

1.4.1 General objective

The main objective of the study is to investigate the quality of public service and to identify the level of customer satisfaction in Burayu Town Municipality.

1.4.2 Specific objectives

The specific objectives of the study are:

– To identify the level of service quality of the municipality
– To explore the level of customer handling mechanism of the municipality.
– To assess customers’ satisfaction level towards service delivery of the municipality;
– To investigate major challenges facing customers in receiving service from the municipality.

1.5. Scope of the Study

Geographically, the study delimited to Burayu Town, Oromia Region. Thus, the scope of the study was delimited to two selected kebeles (Gafarsa Burayu and Burayu Kata), and individuals who lived in the town for at least two years, hoping they know better about the municipality service delivery. This was because of the sector itself was vast and has massive customers, which were not feasible to touch all otherwise.

Thematically, this study was delimited to assess the quality of public service delivery and customer satisfaction, using the five quality service dimensions from customers’ perspectives. While the level of customer satisfaction was delimited to be measured using variables of quality service, service delivery process, overall customer satisfaction, and giving recommendations for the concerned body.

1.6 Limitations

The study encountered a number of challenges. Key challenges among them were the issue of funding. Activities such as transportation, printing of questionnaires, pretesting of questionnaires and other relevant documents proved financially burdensome. Employees’ negligence to fill the questionnaires was also great problem. Another challenge was the difficulty in getting clients to respond to the questionnaires. Because of the prevalence of pandemic disease called COVID-19, it was very difficult to get respondents’, government launched stay home regarding to the pandemic disease. Customers the researcher met were unwilling to touch questionnaire papers, fear of Corona Virus.

The researcher was not overwhelmed by these challenges and took steps to as much as possible minimize the effects of these challenges. To reduce transport cost the researcher selected nearby kebeles having large number of population purposively, to overcome financial problem asked and gained sponsor to print materials, to meet many respondents the researcher took long period of time and for the respondents negligence to fill questionnaires fear of corona virus the researcher gave them sanitizer.

1.7. Significance of the Study

As the researcher’s main focus was to assess the quality of public service delivery and the current level of customer satisfaction on the delivery system of the municipality, emphasizing compliant handling mechanism, major challenges affecting the provision of quality and processes in the public service delivery, the study will be important in different ways.

For customers of the town, the study paves way for the improvement of service delivery system, provide formal means of feedback to service received, which may help to identify existing and potential problems regarding to the municipality. Furthermore the result of the study helps the developmental strategy held by government at country level, because it supports the existence of good governance and harmonious relationship between customer and employee.

In specific terms, the study was believed to have the following importance:

Helps the administrators of the municipality to review service delivery system in a way that it meets the customers’ needs and expectations. It also helps different levels of the sector to identify their respective status in relation to improvement of service delivery and customer satisfaction. Furthermore, it helps to identify the level of satisfaction/dissatisfaction in the prevailing service delivery and to recommend possible solutions on the causes or dissatisfying factors. Moreover the finding of the research was important to Burayu Town Municipality, to recognize the gap between customers’ expectation and their perception towards the service.

Eventually, the finding may help any interested person who wants to conduct study in the area as a point of reference.

1.8 Operational Definition of Terms

Service: – service is an act or performance offered by the municipality to its customers.

Quality: is the expressed opinion, mental standard by the respondents and the estimation given on the scale especially Likert Scale.

Service quality: -is how well the municipality’s delivered service level matches customer’s expectation.

Customer perception: -is the actual level of service the customers received from the municipality.

Customer satisfaction: -is a customer’s feeling of pleasure or disappointment resulting from comparing a service in relation to his or her expectation.

Reliability:-is the municipality’s ability to perform the promised service dependably and accurately

Responsiveness:- it’s the employees’ willingness to help customers and provide prompt service

Assurance:-the municipality’s employees’ knowledge, courtesy and ability to inspire trust and confidence.

Empathy:-caring and individualized attention given to customers by the employees.

Tangibility:-the municipality’s appearance of physical facilities, equipment’s, personnel and written materials required for service delivery.

Municipality – a town, city or district with its own local government; the group of officials who govern it.

Delivery: the municipality’s providing what is expected to be provided or discharging responsibility.

Satisfaction: is the final customers’ judgment of service that is provided by the municipality.

Customers: Any person or inhabitants of the Town that demand service from the municipality.

Service provider: The municipal employees who deliver service for the customers.

SERVQUAL model: A model with five dimensions that helps to measure quality of service from customers’ point of view.


2.1 Theoretical Literature Review

It is scientific to make a study grounded on strong and relevant theoretical literature which helps a researcher or a professional reader to evaluate what is the existing body of the knowledge and what is the gap to be filled by the topic under the study.

2.1.1 The definitions of Service

Service is intangible activities aimed at satisfying the need and ensuring the wellbeing of individual, group or society as a whole. Service delivery system requires systematic method where by activities are arranged so that the service recipients can get the service they need in effective, efficient and in equitable manner. (Peter and Ellen, 1998) defined service as “acts, deeds, and performances”. In this context he attempted to define services bearing in mind what is done by the service provider and the end result of this process on the customers.

To reinforce this more, Fogli (2006), put that customer service is the interaction between the customer and a representative of the organization and is not limited to a single function or job type within the organization but customer service is defined as” meeting the needs and expectations of the customer, as defined by the customer since the customer is the judge of quality customer service based on the expectations he/she has for the service.

2.1.2 Characteristics of Services

A number of characteristics of service have been suggested to help distinguish goods and services in the past decades. It is the combination of these characteristics which creates the specific context in which service organizations must develop their marketing policies. Though different authors suggest different characteristics of service, Kotler (2001) lists intangibility, inseparability, variability, and perish ability as the common characteristics services.

Intangibility of Services

Unlike physical products, services cannot be seen, tasted, felt, heard or smelled before purchased. Obviously, opinions and attitudes may be sought beforehand, but a repeat purchase may rely upon previous experience. To reduce uncertainty buyers will look for signs or evidence of service quality. They will draw inferences from place, people, equipment, price, etc. that they see. Therefore the service providers task is to “manage the evidence”, to “tangibilize the intangible”. According to Kotler (2001), Services are essentially intangibles, in which the service marketers are able to manage evidences and visualize the intangible services or the abstract offers. Regan (1963) also introduced the idea of service as activities, benefits or satisfactions which are offered for sale or provided in connection with the sales of goods. The degree of intangibility has been suggested as a means of differentiating tangible products with services.

Inseparability of Services

The other characteristic of service is inseparability. Services are typically produced and consumed simultaneously and often cannot be separated from the person who sales the service. Thus, performing the service occurs at the same time as full or partial consumption of it. Unlike physical goods, services cannot be manufacture, put into inventory, distributed through seller and consumed later. Whereas, services are produced, sold and consumed at the same time. According to Zeithaml (1981), inseparability is taken to reflect the simultaneous delivery and consumption of services.

Variability of Services

Variability of service quality depends on who provides the service, where and when they are provided. Knowing this, service firms can take three steps towards quality control according to Kotler (2001). The first one is that recruiting the right employees and providing them with excellent training regardless of whether they are professionals or low-skilled workers. The second step is standardizing the service performance process throughout the organization. The third and final step is that to monitor customer satisfaction through suggestions, compliant system and customer surveys. Having this in mind, service providers can apply these steps in their organization so as to improve their service provision.

Perishability of Services

Contrasting to physical goods, services cannot be stored and carried forward to the future time period Zeithaml et al. (1985). The perish ability of services is not a problem when demand is steady. When demand fluctuates, service firms have problems.

2.1.3 Service Quality

Researchers have tried to operationalize service quality from different perspectives for different service applications. Authors (Parasuramanet al., 1988) agree that service quality is an abstract concept, difficult to define and measure. Key characteristics of service quality can be difficult to define due to the highly subjective nature of service quality. This is underlined by Deming (1986) when he stated that; quality can be defined only in terms of the agent.‟ In essence; ultimately this means that it is the consumer that will form a judgment about the quality of any given service that they receive”. A further complexity in trying to understand the service quality is its dynamic nature. Firstly, the speed of a consumer’s reaction to service quality is immediate, compared, for example, with the speed of reaction to manufactured goods.

Additionally, because of the immediacy of the consumers’ service quality evaluation, attempting to understand a consumer’s reaction to a future service cannot be ascertained today as consumer needs and expectations continually change. Therefore, the relevant characteristics are those which are important to each individual consumer at a specific point of time (Deming, 1986). This is particularly well summarized by Peters (1985) who stated that; “consumers perceive service in their own unique, idiosyncratic, emotional, irrational, end-of-the-day, and totally human terms. Perception is all there is.”

Nonetheless, in spite of the intangible, difficult to pin down nature of service quality, what can be concluded is that a good service experience will depend on the organization’s ability to understand consumer needs, wants and expectations, and then to deliver service in a way that meets or exceeds those expectations. Several measuring instruments have been developed aiming to capture and explain the service quality dimensions. SERVQUAL has been developed in a series of stages leading to consecutive more refined versions.(parasureman, 1985)

In the most commonly used version (Parasuraman et al., 1988), service quality is calculated as the gap between customer expectations and perceptions, and is characterized by five dimensions namely reliability, responsiveness, assurance, empathy, and tangibles. Parashuraman et al (1985) have found that consumers consider five dimensions in their assessments of service quality: reliability, responsiveness, assurance, empathy and tangibles. These dimensions represent how consumers organize information about service quality in their minds. These five dimensions are explained below.

Tangibility: the physical appearance of the facility which includes materials, equipment and personnel. This enhances the image of the company and provides a more positive image in the way the customer perceives the service. All of these provide physical representations or images of the services that customers‟ particularly new customers‟ will use to evaluate quality.

Reliability: this refers to service reliability, which is different from product reliability and involves the service provider to be able to perform the services accurately and dependably. This means that the company fulfills its promises with regard to the delivery of the service, the price and solving the customer’s problems. Customers want to do business with companies that keep their promises, particularly their promises about the core service attributes.

Responsiveness: the readiness to provide timely service by the service provider. This includes paying attention to the customer, and dealing with the customer’s complaints and problems in a timely manner. Responsiveness is being flexible with the customer and trying to accommodate the customer’s demands and performing the service without delay.

Assurance: the ability to deliver services at a professional level. This includes the employee’s knowledge and courtesy which inspires confidence in them. Having trust and confidence in the employee leads to the customer having more trust in the company itself. This dimension is likely to be particularly important for services that the customer perceives as involving high risk and/or about which they feel uncertain about their ability to evaluate outcomes, for example, banking, insurance, brokerage, medical, and legal service.

Empathy: is defined as the caring and individualized attention the firm provides to its customers. The essence of empathy is conveying, through personalized or customized service, that customers are unique and special. Customers want to feel understood by and important to firms that provide service to them. Service quality is considered an important tool for a firm’s struggle to differentiate itself from its competitors (Ladhari, 2008).

2.1.4 Factors Influencing Provision of Quality Public Service

The inescapable fact is there are a number of factors that affect the potential capacity of an organization in the service delivery processes and environments. There are a number of researches that have been done regarding those factors in different countries and organization context. According to a research finding Wanju, Mururi and Ayodo (2012), low employees’ capacity, ineffective communication, insufficient number of staff and skills required, insufficient finance, poor management of problems, challenges of collective action, policy incoherence and levels of performance are the major challenges that can affect provision of quality public service in an organization.

Furthermore, a study conducted in Rwanda RALGA, (2010) show that poor coordination of staff, poor planning ability, low motivation, geographic location of the center of service recipients. Lack of effective performance oversight: that is manifested mostly in the form of infrequent and non-periodic monitoring and evaluation of service delivery processes and quality. Therefore, a manager of an organization should pay attention to these problems and their effects in a way that can reduce or eliminate if possible.

2.1.5 Principles of Public Service Delivery

These days, according to different findings, public service delivery is the burning issue in the public sectors and non-profit organization for achieving their objectives. It is obvious that there is no single prescriptive way to provide services, but the following points are major service delivery principles along which public sectors should frame its service delivery as stated by Naidoo (2004).

Consultation: Naidoo (2004,) indicated that customers should be asked about the level and quality of the public services they receive and wherever possible should be given a choice about the services that are to have service standards.

Courtesy: politeness and consideration for public is one of the fundamental duties of public servants by specifying that public servants treat members of the public as customers who are allowed to receive the highest standards of service without restriction Naidoo,(2004).

Information: -customers should be given complete and reliable information about the public service they are to receive as required. This is in a sense that information is one of the most important to accomplish the service delivery in a well-organized way.

Openness and transparency: -customers should be informed how public service is conducted and delivered, what they cost, and who is responsible for any activity and for the outcome of the delivery of the service. Thus, Public servants are required to be open enough in making the customers confident on the service they receive.

Redress -A right of redress is of particular importance in the public service. In the absence of a choice of supplier, individuals need mechanisms to settle their grievances fast, simply and fairly Common Wealth Secretariat, (2002). It is putting things service right through explanation of terms like apologizing and compensating for customers in a way that enable them get rid of their grievances.

Value for money: public services have to be provided cost effectively and efficiently to offer customers the best possible worth for money improving service delivery and expanding access to the general public must be achieved parallel to the need for reducing the public expenses and creating a more cost effective public service. For example a considerate and respectful salutation requires no monetary asset.

2.1.6 Customer Satisfaction

Customer satisfaction has been a popular topic in marketing practice and academic research since Cardozo’s (1965) initial study of customer effort, expectations and satisfaction. Despite many attempts to measure and explain customer satisfaction, there still does not appear to be a consensus regarding its definition (Giese and Cote, 2000). Jamal and Nader (2002) argued that customer satisfaction is not only linked with the view of customers, but also on their experience with the service delivery process. (Abram P. and Amah. M. 2010) Customer satisfaction reflects the degree of a customer’s positive reaction for a service provider, it is necessary for service providers to recognize the customer’s vision of their services. A high level of customer satisfaction can have a positive impact on customer loyalty (Deng et al., 2010).

The most widely accepted conceptualization of the customer satisfaction concept is the expectancy disconfirmation theory (Mc. Quitty, Finn and Wiley, 2000). The theory was developed by Oliver, who proposed that satisfaction level is a result of the difference between expected and perceived performance.

Satisfaction (positive disconfirmation) occurs when product or service is better than expected. On the other hand, a performance worse than expected results is dissatisfaction (negative disconfirmation).

Studies show that customer satisfaction may have direct and indirect impact on business results. Luo and Homburg (2007) concluded that customer satisfaction positively affects business profitability. The majority of studies have investigated the relationship with customer behavior patterns (Dimitriades, 2006). According to these findings, customer satisfaction increases customer loyalty, influences repurchase intentions and leads to positive word-of-mouth. Given the vital role of customer satisfaction, it is not surprising that a variety of research has been devoted to investigating the determinants of satisfaction.

Satisfaction can be determined by subjective (e. g. customer needs, emotions) and objective factors (e. g. product and service features). Applying to the hospitality industry, there have been numerous studies that examine attributes that travelers may find 360 important regarding customer satisfactions.

Atkinson (1988) found out that cleanliness, security, value for money and courtesy of staff determine customer satisfaction. Knutson (1988) revealed that room cleanliness and comfort, convenience of location, prompt service, safety and security, and friendliness of employees are important. A study conducted by Akan (1995) showed that the main determinants of hotel guest satisfaction are the behavior of employees, cleanliness and timeliness. Choi and Chu (2001) concluded that staff quality, room qualities and value are the top three hotel factors that determine travelers’ satisfaction.

ACSI (American Customer Satisfaction Index) model is a series of causal equation, linking customer expectation, perceived quality, perceived value and customer satisfaction together. In the model, customer satisfaction leads to two results: customer complaints and customer loyalty. Loyalty is regarded as the source of customer retention and their tolerance to price. In the last decades lots of causal models were constructed to indicate the relationships among perceived performance, customer satisfaction and loyalty, most of which concluded that increase in satisfaction led to improvement in loyalty which might lead to repurchase, positive word-of-mouth behavior, cross buying and price tolerance.

The concept of customer satisfaction transforms all industries from production centralized to customer based. Several evaluation models or indices exist for assessing customer satisfaction in various industries. To achieve a highly reliable and stable index of satisfaction, the American Customer Satisfaction Index (ACSI) defines the satisfaction as a weighted average of three survey ratings: perceived quality, perceived value, and customer expectations.

Generally, the evaluation result for customer satisfaction is highest for competitive products, lower for competitive services and retailers, and lowest for government and public agencies.

2.1.7 Customer Satisfaction Measurement

Measuring customer satisfaction is a key performance indicator within business and is often part of the balanced score card. The main aim of measuring customer satisfaction is to make a prompt decision for the continuous improvement of the business transactions. Attracting a new customer as a source to build on existing relationship, customer satisfaction measurement is essential to be measured. Similarly, to retain the current customer base, measuring customer satisfaction is equally important. Actionable information on how to make customers more satisfied is, therefore, a crucial outcome.

Unless the organizations focus on their improvement efforts in the right area the organization cannot maintain the competition level of business in a market. To recognize the needs of the customer is to satisfy the customer and to meet the need of the customer, a measurement of customer satisfaction is what matters the organization (Hill et al, 2007).

Measuring a customer satisfaction may be different in the different organization since there are different approaches to measure customer satisfaction. As one of the measurements of the performance of the quality management system, the organization shall monitor information relating to customer perception as to whether the organization has met the customer requirements. The methods for obtaining and using this information shall be determined (American National Standards Institute/International Organization for Standardization/American Society of Quality 9001-2000).

Every organization seeks customer satisfaction where these sorts of parameters help an organization to measure the customer’s satisfaction and demands so that organizations can provide them with appropriate services as per their requirements. The possible dimension to measure customer satisfaction could be quality, price, trust relationship, complaints, problems and many others. The key point of measuring customer satisfaction is to conclude how to improve it and how to keep building a good relationship with customers and potential customers.

International Organization for Standardization (ISO) 9000:2000 states “As one of the measurements of the performance of the Quality Management System, the organizations shall monitor information relating to customer perception as to whether the organization has met customer requirements. The methods for obtaining and using this information shall be determined”.

The requirement has been there in the Quality Management System (QMS) 9000 standard clause which says,

“Trends in customer satisfaction and key indicators of customer dissatisfaction shall be documented and supported by objective information. These trends shall be compared to those of competitors, or appropriate benchmarks, and reviewed by senior management.”

International Customer Satisfaction (ICS) is an international quality guideline that encourages to create and to implement a Quality Management System (QMS). ISO certification 9001 allows any organization to gear towards achieving the quality goal (ISO Update 2017.) Many strategies exist regarding the customer satisfaction measurement, but overlooking the fundaments of how to measure customer satisfaction can be detrimental to a business. Measurement of customer satisfaction refers to the collection of data and providing information about how customers are satisfied or dissatisfied with the products and the service.

During 1960-1980 customer satisfaction was initially considered as a problem of consumer behavioral analysis and the most important effort from this was the following. (Grigoroudis & Siskos 2010). Nowadays organization has started to track the satisfaction level so that they can improve the services. In addition, it has a great impact on understanding the issues that cause the satisfaction or dissatisfaction with the service experience. In this way, if the organization is able to understand why and how the customers are satisfied then, they can focus on its resources. (Hill et al, 2007.)

Surveys are administered to measure customer satisfaction of quality, satisfaction and loyalty. The basic steps in the development of surveys are survey objectives, what information is required, segmentation, sampling and survey methods. Lovelock (1997) notes that ,when customers visit a service factory, their satisfaction will be influenced by such factors as encounters with service personnel, appearance and features of service facilities-both exterior and interior, interaction with self-service equipment ,and characteristics and behavior of other customers.

2.1.8 SERVQUAL Model of Measuring Customer Satisfaction

Customer satisfaction and service quality are interrelated, the higher the service quality, the higher its customer satisfaction. Many agree that in the insurance sector, there are no recognized standard scales to measure the perceived quality of the insurance service. However, competitive advantage through high quality service is an increasingly important weapon to survive. Measuring service quality seems to pose characteristics of service: intangibility, heterogeneity, inseparability and perish ability (Batson, 1985). Because of these complexities, various measuring model have been developed for measuring perceptions of service quality (Gronroos, 1990; Parasuraman et al, 1985).

The SERVQUAL Model of Parasuaman et al (1988) Propose a five dimensional Construct of perceived service quality: tangibles, reliability, responsiveness, assurance and empathy- with item reflecting both expectation and perceived performance. Service quality has become an important research topic because it’s apparent relation to cost, profitability, customer satisfaction, customer retention and positive word of mouth. There are many research instrument developed to measure the perceived service quality. Among such general instrument the most popular being the SERVQUAL model, a well-known scale developed by Parasuraman et al. SERVQUAL has been widely acknowledge and applied in various services setting for variety of industries in the past decade.

Example, including health care setting, dental school, clinic, business school placement center, tire store, banking, insurance, pest control etc… the SERVQUAL measuring tool main benefit is its ability that allow researchers to examine numerous service industries such as, health care, insurance, banking, financial service and education. The fact that SERVQUAL has criticism received concerning SERVQUAL measuring tool may have more to do with how researcher use the tool, SERVQUAL formulated by Parasuraman et al (1985) show case ten various components. Letter in 1988, these ten component were collapsed in to five different dimensions. They are Assurance, Reliability, Tangibility, Empathy, and Responsiveness.

2.1.9 Service Quality and Customer Satisfaction

A review of the literature suggests that service quality and satisfaction are distinct constructs. The most common explanation of the difference between the two is that perceived service quality is the form of attitude, a long run overall evaluation whereas satisfaction is a transaction specific measure. This distinction is important to managers and researchers alike because service providers need to know whether the objective should be to have consumers who are “satisfied” with their performance or to deliver the maximum level of “perceived” service quality.

Service quality researchers suggested that the proof of service quality is in its flawless performance (Berry and Parasuram1991) a concept akin to the notion of “Zero defects” in manufacturing. Others have noted that break through service managers pursue the goal of 100% defects free service (Heskett et al., 1990). From the customers’ point of view the most immediate evidence of service occurs in the service encounter is the “moment of truth “when the customer interacts with the firm. Thus one central goal in the pursuit of “Zero defects” in service is 100% flawless performance in service customers.

Zeithamal and Bitner (2000) portray satisfaction as a broader concept arguing that perceived service quality is one component of customer satisfaction, which also reflects price quality tradeoffs and personal and situational factors. Satisfaction can be defined as an attitude-like judgment following a purchase act or a series of consumer product interactions.

Figure. 2.1 The relationship between Service Quality and Customer Satisfaction

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Source: Institute of Interdisciplinary Business Research (2010)

2.2. Empirical Literature Reviews

Various studies conducted in the areas of public service delivery in Ethiopian civil service institutions indicate that several problems exist and have been leading to poor quality public service delivery. In April 2001, Government of the Federal Democratic Republic of Ethiopia published a service delivery policy of the Ethiopian civil service realizing that the existing system requires reforms or adjustment to improve public service delivery. The policy came up with the assumption that effective implementation of the policy requires that all civil servants, service users and other concerned bodies have sufficient understanding of the objectives, contents, concepts and principles that enables civil service initiations to carry out what is expected of them and makes service users aware of their rights to receive services and benefit thereafter.

Among the reviewed works of others, the case study research conducted by Aman, (2008) to determine the effect of service delivery and quality on customer satisfaction in the case of EEPCo was the one. Accordingly, the researcher came up with the findings that there were problems with provision of service delivery process and quality service indicating it was below the average customer expectations. Similarly, Zeritu (2010) conducted a research with a topic of “service delivery and satisfaction‟ in the same organization. Lastly, her researches findings revealed that similar problems identified by the former researcher were still ongoing. Based on her findings she concluded that because of poor quality service and performance of the organization, the needs and expectations of customers were not met to the level that it had to be.

Further, Zegeye (2013) conducted a research entitled as‟ public service delivery and customer satisfaction‟. He used case study method to conduct his research at EEPCo-South Addis Ababa center. The study came up with the findings like mass dissatisfaction with the corporation indicating that there were long waiting time for getting service signifying the organization’s unresponsiveness to customers‟ requests, clear procedures, and predetermined service standards were not in place and/or not posted officially; absence of communication to customers, no consultation process and feedback collection; no training for developing skills of service delivery and no consistent service delivery. Eventually, he concluded that the corporation was still could not achieve excellent public service delivery to the extent required.

Tibebe, (2011) conducted a research with the purpose of evaluating the service quality that the national Alcohol and liquor factory (NALF) provides to its customers by measuring customers’ perceptions relative to their expectations of the service by the factory. He used the five–dimensional format of SERVQUAL model to assess the relationship among the five dimensions and customer satisfaction. The findings of his study indicate that the five service quality dimensions are positively related to overall service quality and are indeed drivers of service quality which in turn has an impact on a customer’s satisfaction.

The empirical Jamal and Anastasiadou, (2009) worked on investigating the effects of service quality dimensions and expertise on loyalty. In their paper they had investigated the effects of individual dimensions of service quality in creating and enhancing customer loyalty via customer satisfaction. They had discovered the direct and indirect effects of customer expertise on customer loyalty.

A research finding shows the following characteristics in customer behavior when buying services: greater risk perceived when buying services, use of information prior to buying services and price and physical facilities are seen as major indicators of service quality the following generic dimensions used by customers to evaluate service quality credibility, security, access, communication, understanding customer, tangibles, reliability, Responsiveness, competence, and courtesy.

Thus, this study will attempt to assess the quality of public service delivery and level of customer satisfaction in Burayu Town Municipality, depending on variables indicated and theoretical knowledge, by giving more emphasis on quality service delivery processes, customer satisfaction, major problems encountering the office to provide quality service, and customers’ compliant handling mechanism.

2.3 The Conceptual Framework of the Study

In their understanding, the authors put it as service need not be of the highest quality to satisfy customer rather customers trade off various factors in their assessments of quality and satisfaction. For some customers adequate service at a convenient location or a lower price may be more satisfactory than higher service levels elsewhere that triggered the authors to introduce the term Zone of tolerance to represent a range of service quality out comes that are deemed neither particularly good nor bad by customers. That is the gap between desired service and the perceived service by the customers.

Customer satisfaction is a customer’s global evaluation of service provider’s provision of service. Dissatisfaction of customers on service provision comes when performance does not meet an acceptable level of expectation. The two most important variables of this study were quality public service (Independent variable) and customer satisfaction (dependent variable). The independent variable (QPS) has effect on customers satisfaction while the independent variable could be conditioned based on the status of the independent variables was tested in correlation in the analysis part of the study.

Figure 2.2 Conceptual frameworks of Service Delivery and Customer Satisfaction

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Source: Siddiqui M.H and Sharm T.G (2010)

Quality public service was measured in terms of its five dimensions of Quality Service: tangibility, reliability, responsiveness, assurance, and empathy of the service. But this Quality public service was affected by different factors that can affect the process of service provision. In addition, the way an organization receives feedback and makes service recovery affect the satisfaction level. Effective system of handling in place the most likely result was customer satisfaction and, the reverse was occurred in the service delivery process. It was also obvious that the customers’ attributes like word of mouth, personal needs and past experiences affect the customers’ expectations and perceptions that lastly result either in satisfaction and dissatisfaction.


3.1 Descriptions of the Study Area

3.1.1 Location

Burayu was founded in 1946 E.C by land lord named Girazmatch Robi Kelecha. Burayu town got its name in Afan Oromo word, Burayu means, a known indigenous tree that was found at the heart of the town. Burayu is one of a local municipal government which experienced fastest urbanization since 1991. It is located in the western fringe of Addis Ababa, along the Addis Ababa-Ambo road at about 15 km from the center of Addis Ababa city administration office. Administratively, Burayu town is found in Finfine Special Zone, Oromia Regional State. It got municipality reform in 2005/1997 E.C. (Burayu Town office of Plan and Economic Development, 2011/2019).

According to the rank given by Oromia National Regional State to all urban centers of the region; the town is the first grade city in the region starting from 2006/1998 E.C and has got its master plan in December, 2007. The Town has a total land mass of about 9,057 square kilometers and shared more than 15 kms total length of border with Addis Ababa city administration. It is bounded by Addis Ababa city administration in the East, Sebeta-Hawas district in the South, Sululta district in the North and Walmera district in the Western. The coordinates of the city at the center in X: Y is 463096.5 and 1002340 respectively. (Burayu Town office of Plan and Economic Development, 2011/2019).

The existing built up area is estimated to be nearly 9,057 Hectare, while the area under the administration of the town, including the adjacent peasant associations and the other remaining area is used for farming and forest and occupied by illegal settlement. (Burayu Town office of Plan and Economic Development, 2011/2019)

Figure 3.1. Map of West Shawa Zone

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Source: Burayu Town office of Plan and Economic Development, 2011/2019.

Figure 3.2 Map of Burayu Town

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Source: Burayu Town office of Plan and Economic Development, 2011/2019.

3.1.2 Population of the Study

The study area is characterized by rapid population growth. The total population of the town in 1977 E.C was 4,138, in 1987 the population grew to 10,027, in 1999E.C. 63,873 and in 2009 E.C the population growth reached 250,000. As it is mentioned below in the table Burayu town had 375,349 total populations in 2011 E.C with growth rate of 15.5 % per annum according to House and Population census at gote level, (Burayu Town office of Plan and Economic Development, 2011/2019.

The municipality has six (6) kebeles. The kebeles being governed under the rural district which was the neighbor of the municipal become recently demarcated to the town because of urbanization. However, the researcher aimed to collect better data from all sections of the society in each kebeles that has an experience in providing relevant information for the study, the researcher targeted on two purposively selected kebeles.

Thus, all customers who lived in the Town for at least two years and the target study population of Gafarsa Burayu and Burayu Kata households and individuals were selected conveniently. There were 10,154 Households and 91,314 total populations in Gafarsa Burayu and 5,304 households and 56,291 total populations in Burayu Kata. The total populations of purposively selected kebeles were 147,605. In this study any individual who was able to understand the manner of the municipality service was selected as a sample. In addition, the employees of the municipality who worked in the office for at least two years were expected to provide better information about the service rendering & customer feedback were taken as the populations from which the sample of the study was drawn. This is because the researcher thinks they were more experienced about the ongoing process of service delivery of the municipality.

Table 3.1. Number of households and population of Burayu Town at the end of 2011 E.C

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Source: Burayu Town Office of Plan and Economic Development, (2011E.C)

3.2 Research Design

The researcher’s intention was to clearly show the service quality and the customer satisfaction on service delivery, customer and employee relationship and service delivery system, the municipality delivers to various customers. The design of this research study was cross-sectional (descriptive), which helped to assess service quality at a predetermined moment of time. This method is often used to make inferences about possible relationships or to gather preliminary data to support further research and experimentation. Quantitative method was employed to gather and analyze data for the case and qualitative for concepts that were in the form of distinct variables described with generated numerical data. The researcher compared factors of service quality to find top priorities which help to understand the customers’ criteria in judging service quality.

This study used descriptive inquiry to describe the service quality dimensions that led to customer satisfaction and explanatory inquiry to explain and control the relationship between dependent and independent variables of the study.

3.3 Sample and Sampling Techniques

3.3.1 Sampling Technique

It was forgone that taking a sample was required since collecting data through questionnaires from whole population was expensive and time consuming. The municipality understudy had 375,349 populations directly or indirectly customers registered active in 2011/19.

To go with the available resource and to be economical, the researcher employed non- probability sampling methods. The sampling techniques were adopted in this study were believed by the researcher as an appropriate technique to draw a representative sample from the population under study.

Accordingly, the researcher used Purposive sampling to conduct interview with the concerned body (Public Service Manager) regarding to service quality, customer satisfaction and mechanism of avoiding/reducing customers’ complaints and select sample kebeles. This sampling method was chosen hoping public service manager may have better knowledge about the ongoing process in the municipality and to hear the problems facing the customer and employee from the concerned body.

The researcher used convenience sampling to choose respondents, which was assumed to help the researcher reach the target group. Where samples are selected from the population only because they are conveniently available to the researcher. This sampling method is important, because of its speed, cost-effectiveness, and ease of availability of the sample. Accordingly, the researcher selected 2 kebeles from six kebeles using purposive sampling technique. The kebeles chosen were Gafarsa Burayu and Burayu Kata, each having 250 and 150 population respectively employed as sample size. Then after, the researcher administered the questionnaires for those of individuals who lived for more than 2 years in the two kebeles, hoping that they experienced more about the municipality and give accurate information.

3.3.2 Sample Size

A simple random sampling was employed to select sample from the study population. The reason for using simple random sampling was that first, the researcher had more precise information inside the sub-population about the variables the researcher studied. Second, the researcher raised precision of the estimate of the variables of the whole population.

According to Taro (1967), study was applied as simplified formula to determine the required sample size at 95% confidence level, and allowable error = 0.05%.

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Using the Taro Yamane’s Formula of sample calculation, the researcher intended to draw the following sample size:

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Where, ‘n’ is the sample size, ‘N’ represented for both of the total number of customers in the municipality, and ‘e’ is the level of precision.

Employees in the office who worked for more than two years were selected through calculating the sample size by substituting the numbers into the Taro’s formula. The samples determined by the researcher were 400, who have lived for more than two years and (12) employees of the municipality were selected as the targets subjected for the study. After all, considering such constraints as financial, material and time, the total sample size was as follows.

Table 3. 2 Population, Sample Size and Sampling Techniques

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Source: Researchers own computation, 2019/20

3.4. Sources of Data

To ensure the reliability of the research and meet the objectives of the study, the researcher collected relevant data from both primary and secondary data sources.

3.4.1 Primary Data Sources

The primary data were collected from the urban dweller customer of the selected villages. The information that had been gained from the staff and Burayu city administration was used as primary sources. The data collection techniques used to collect firsthand information were self- administered questionnaires, and interview.

3.4.2 Secondary Data Sources

To robust the study, the researcher collected relevant secondary data related to the study’s topic by analytically reviewing different documentary sources. Among such sorts of sources books, articles /thesis, journals, internet, reports and any other relevant scholarly or academic writings were the most ones. Secondary sources of data were obtained from Burayu City Administration annual reports, and performance appraisal documents, manuals and other related documents that were used by the organization.

3.5. Tools of Data Collection

With the aim to investigate the satisfaction/dissatisfaction level of customers with regard to services delivery of Burayu Town Municipality, detailed research instruments were developed and pretested before they were administered. A comprehensive questionnaire was designed and administered to customers drawn from the selected kebeles. The items were carefully selected and administered and meticulously edited bearing in mind the research objectives. In general the researcher employed the following two instruments of data collection.

A. Questionnaires

Questionnaires were designed in open ended and closed ended. The closed ended questionnaires prepared in Five Likert Scales to let customers and employees express their opinion on the scales. To measure the responses a five-point Likert scale ranging from strongly disagree=1 to strongly agree=5 were used. In addition, questions like “Yes” or “No” questions were used when appropriate. The questionnaires were administered to 400 customers and 12 employees, to enable the researcher collect relevant data. Once the questionnaires had been developed in English, it was translated in to Afan Oromo.

The questionnaires were divided into seven parts. Part I had nine questions and sought some background information about the respondents; Part II had twenty-one (21) questions relating to the customers’ expectations and perceptions towards service quality in Burayu Town Municipality (the SERVQUAL model was adopted); Part III sought information about status of customer satisfaction on public service delivery; Part IV held nine questions about complaint handling mechanism; Part V sought to assess information on the practices of the public service delivery principles. Part VI sought to elicit recommendations to improve service quality and customer care at Burayu town municipality (open ended). Questions regarding to challenges of quality service delivery were prepared for employees.

B. Interview

One interview guide was designed and formed the basis for interview with the public service Manager. The guide for the Management which had ten (10) questions sought to find out the policy direction of the office with regards to service quality, client care and satisfaction, the level of implementation, successes and challenges, their understanding of service quality, importance and participants of training and their recommendations to enhance service quality and customer satisfaction .

In interview, the researcher used purposive sampling technique to interview the public service manager of the municipality. Accordingly, problems faced in delivering quality service at the different levels of the sector focusing on work related variables such as challenges of providing quality service, processes in providing service, time usage, customers’ compliant handling mechanism and employee’s related attributes were considered and asked.

3.6. Procedures of Data Collection

Up on request, the researcher asked permission from Burayu Town Municipality to gather data on service quality and customer satisfaction specifically service users’ of municipality. Then, questionnaires were distributed to the respondents with the necessary explanations on how to complete. The survey pack included a copy of the cover letter and the main questionnaire. Collection of filled out questionnaires ended up to 5 days from the date of distribution.

3.7. Methods of Data Analysis

For the purpose of achieving the objectives of the study, data gathered through these different techniques were analyzed and interpreted qualitatively and quantitatively. To this effect, data gathered through questionnaire were analyzed quantitatively and displayed by using tables, pie charts, frequency distribution and percentage. In this sense, tools of data analysis used to describe the service delivery processes, improvements in service quality and perception level of customers’ satisfaction. Similarly, data gathered through interviews and observations were analyzed qualitatively. Microsoft Office Excel Windows 2007 was used to analyze the data as it assists the researcher to manage it.

3.8. Validity and Reliability

Validity is fundamental in evaluating measures in the thesis. In this thesis, the research is valid because the collected data and the research questions are in a systematic way. All the things that needed to be measured have been measured. The answers given by the participants are truth full and beneficial for those who are not parts of the research. Additionally, the purpose of the research was to know how satisfied the customers are with the services provided by the municipality. In order to ensure the validity of thesis the author has conducted the questionnaire. Before conducting the survey Burayu town municipality was informed and also had an open discussion about what the office wants to know about the customers. However, the validity will determine whether the research truly measures the exact thing which is intended to measure or how truthful the research results are.

Reliability is a concept to evaluate quality in quantitative study with a purpose of explaining and quality concept in qualitative study with the purpose of generating understanding which relates to the concept of a good quality research. The researcher has gathered the information to understand how the customer feels about the services of the municipality and to create improvements where needed This research work is reliable because the data were a true reflection of what the customer felt. The questionnaire was conducted in May 2020 using clear format and respondents reply accordingly. Therefore, the questionnaire was distributed in the written paper to the customers for 5 days. The number of the respondents’ within these 5 days was very high therefore the time period in collecting and analyzing the data was perfect for reliable results.

The questions were arranged into a meaningful order and format where the subjects were provided with easy to answer background questions at the opening section, which lead them easily to the next. This is because it was likely that respondents broke off unless they find the opening questions easy to answer. Besides, to minimize the risk of possible cut off owing to fatigue, questions those were of special importance included in the earlier part of the questionnaire.

Public Policy and Administration Research

The issue of service delivery is becoming a global concern that demands continuous reform to fit the turbulent environment and changing customer needs. Efficient and effective services delivery is now a prominent agenda of most countries including Ethiopia. The demand for effective and efficient delivery of services requires fundamental change involving both institutional and cultural changes. Hence, measuring the level of satisfaction provides an indication of how successful organizations are at providing services, and is taken as effective outcome measure. Several researches have been conducted on the subject matter; however, most of them were focusing on private sectors such as insurance, hotel, bank and the like. Few are studied on public service organizations. Moreover, so far no study has been conducted that critically analyzes the state of customer satisfaction on service delivery of public service organizations in Dire Dawa Administration. The purpose of this study is therefore to assess customer satisfaction on service delivery of public service organizations in Dire Dawa Administration. To this effect, four research questions were employed to guide the study. These were: 1) what are the levels of customer satisfaction of public service organizations in Dire Dawa Administration? 2) What are the extents of the service delivery process in public service organizations (in terms of Assurance, Reliability, Tangibility, Empathy, and Responsiveness)? 3) What are the relationships between service delivery dimensions and customer satisfaction? 4) What are the major problems that exist in the service delivery process of public service organizations in Dire Dawa Administration? In addition, two data gathering techniques: systematic random sampling and purposive sampling were used to obtain relevant data required for the study. In the primary data gathering technique, questionnaire that were designed and distributed to customers and employees were used. For further elaboration, key informant interviews were conducted with selected officials from the sample organizations. Secondary data from different sources were employed. The data gathered from both primary and secondary sources were analyzed and presented using descriptive and statistical methods such as means, frequencies, percentages, tables and charts. The results of the study indicated that the five service delivery dimensions and customer satisfaction were positively correlated; the general level of customer satisfaction and the service delivery dimensions were moderate. The major challenges in service delivery such as lack of skilled and experienced leadership, inability to lead and make decisions strategically, inconsistent follow up and monitoring, absence of regular consultation with customers and stakeholders, prevalence of corruption and rent seeking activities and behavior, lack of motivation and service mentality, ineffective automation, absence of timely revision of rules and regulations; lack of cooperation and integration among stakeholders, inefficient and inappropriate grievance handling systems, mismatch between demand and supply in water, health and electric services, and absence of conducting customer satisfaction surveys scientifically were thoroughly identified. Finally, based on the analysis and conclusions, possible recommendations were suggested for alleviating the major challenges of service delivery processes in the study area.

Key Terms: Customer Satisfaction, Service Delivery, Public Service Organizations.

DOI: 10.7176/PPAR/10-7-02

Publication date:July 31st 2020

Full Text: PDF

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ISSN (Paper)2224-5731 ISSN (Online)2225-0972

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This journal follows ISO 9001 management standard and licensed under a Creative Commons Attribution 3.0 License.

Service Quality and Customer Satisfaction Essay (Article)

Yuksel (2008) described the attitude that customers create after receiving services from the providers. The description revealed clear positivity or negativity in accordance to the quality of services offered. Primarily, dissatisfaction is associated with poor quality of services while satisfaction relies on good quality of services. Many researchers have performed evaluation on service enterprises to give valid conclusions regarding the relationships of these two aspects.

According to Yuksel (2008), customer satisfaction is the most vital attribute that enterprises seek to achieve. After all, there are no concrete explanations revealing why an enterprise could aim on earning profits without satisfying the customers. This paper will link service quality to customer satisfaction by reviewing various finding from researchers and evaluating how service enterprises should consider this link.

Market Share and Competition

Businesses are subjected to many forces that have facilitated stability and delivery of competitive services. These outcomes arise from competition where businesses are allowed to enter the market. The free markets triggered close monitoring of services to retain customers by maintaining loyalty.

Essentially, seeking loyalty arose as a new factor to protect customer satisfaction without creating dependence to quality regulations. This implies that enterprises must provide quality services to earn loyalty from customers and raise their income. For instance, if three companies provide communication services, customers have the freedom to choose between the companies and change in accordance to cost and efficacy. The company providing the best services will draw customers from the others and increase its market share.

Similarly, a reverse event will happen to the two remaining companies. They will share a small portion of the market due to loss of customers. Therefore, enterprises must provide quality services to satisfy their customers and attain loyalty. The competitive nature of the world does not give chances to poor quality of services. Additionally, the businesses that have attained loyalty by dominating the market must work to satisfy the customers, follow quality regulations, and avoid ridicule through the media.


Provision of reliable services to customers is a critical step that facilitates satisfaction. According to Yuksel (2008), customers prefer to receive services from businesses that are reliable and promising. In essence, quality services must be reliable, responsive, and assuring to enable preferences from many customers. Reliability takes a huge role in establishing satisfaction and raising loyalty. Customers become loyal to enterprises that depict high levels of reliability.

Therefore, unreliable service enterprises are not recommended or preferred by customers. For instance, if a communication company hires a service enterprise to deliver products to the customers, it expects that the enterprise will consider all factors to ensure quality. In case the targets do not receive the products in a timely manner, the enterprise will have failed. This implies that service quality has an indirect relationship to customer satisfaction through reliability.


Satisfying a customer does not rely entirely on quality of services. Reimann, Lunemann and Chase (2008) indicated that customer satisfaction is affected by personal characters. Their model identified that satisfaction is hard to achieve without aiming at perfection for all outcomes.

When providing services with an aim of reaching perfection, there are minimal chances of dissatisfying a customer. Consequently, quality becomes an outcome of aiming at satisfaction in this model. An enterprise works diligently to satisfy a customer where quality services are invented to achieve this goal.

Attitude and Marketing

Attitude has a strong influence to satisfaction and dissatisfaction of customers. For instance, it is hard to satisfy a customer with a negative attitude against the service. Marketing is a vital tool that could be applied when creating a positive attitude within customers.

It involves dispersion of information that could be facilitated through speaking and interacting. When customers receive appealing services from an enterprise, they spread information regarding the service providers to other people in a positive way. In this way, their friends recognize the enterprise and seek for these services.

Kattara, Dina and Osman (2008) postulated that the customers’ mind could be manipulated to appreciate services if their friends recommended them. The quality of services provides positive attitude that favors satisfaction. Also, positive attitude leads to advertisement of the services and high profits. On the other hand, negative attitude could be initiated by low quality of services. This attitude creates higher chances of dissatisfaction because the customer is sensitive about low quality.

Proportionality Relations

There are proportion relations that link customer satisfaction to services quality. The two make concise trends that show proportionality where a rise in one factor leads to rise in the other factor. Essentially, customer satisfaction seems to cover a wider area that incorporates service quality. Service quality serves as one way of achieving customer satisfaction. Their model shows that other factors could influence satisfaction.

For instance, the cost of receiving services, personal tastes, and situational aspects could influence the satisfaction of customers. Therefore, it could be indicated that there is a directly proportional relationship between service quality and customer satisfaction. This implies that high quality services will lead to high customer satisfaction. Similarly, low quality services cause low satisfaction or dissatisfaction. Professional strategies are applied to ensure that the customers are retained after the first service.

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It has been identified that price influences customer satisfaction and regulates the quality of services. Kattara, Dina and Osman (2008) reviewed the trends that prices of products take in relation to quality. For instance, the services provided in 5 star hotels had varying quality. Some room rates were very high due to the services offered.

On the other hand, some rooms were more affordable but received rare attendance and low quality furniture. In today’s world, businesses depict similar regulations where quality and cost are directly proportional. When the qualities of services rise, there are alternate increments in the prices. This strategy facilitated the customers to choose what they want and declare the services they want.

It prevents dissatisfaction through advertising the requirements for each category of service provision. In this model, when customers receive services that satisfy their needs, they become part of the community maintaining the enterprise and providing the services. Therefore, it could be concluded that customer satisfaction and service quality are controlled by prices where high quality service have higher charges than low quality services.


Provision of services must have precise aims of reaching the customers and fulfilling their demands in a satisfactory manner. Failure to reach these standards will lead to loss of customers where they search for promising enterprises. Satisfaction must act as the leading attribute of the enterprise because it is a concrete reason for providing the services.

In fact, if there was no need for satisfaction, the services would not be rendered by any enterprise. Satisfaction must be taken as a critical factor in ensuring loyalty. This loyalty could lead to more customers and income than the prevailing achievements.


Kattara, H., Dina W., Osman A., “The Impact Of Employee Behaviour On Customers’ Service Quality Perceptions And Overall Satisfaction”, Tourism and Hospitality Research, 8/4, 2008, PP. 309-323.

Reimann, M., Lunemann, F., Chase, R., “Uncertainty Avoidance As A Moderator Of The Relationship Between Perceived Service Quality And Customer Satisfaction” Journal of Service Research, 1/11, 2008, PP. 63-73.

Yuksel, A., “Nonverbal Service Behavior and Customer’s Affective Assessment”, Journal of Quality Assurance in Hospitality & Tourism, 1/9, 2008, PP. 57-77.

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Customer Satisfaction and Service Delivery from X-Restaurant Research Paper

The business environment today has become highly competitive. Any business willing to sustain itself through tight competition and impressive profitability, in the long run, has to devote its efforts in attracting new customers as well as retaining existing ones (Hallowell, 1996, p. 27).

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Latest empirical research has demonstrated that the only way businesses can attain above goals is through long term customer satisfaction (Chen & Hu, 2010, p.535). It is against this reason that the term customer satisfaction attracted more attention in the last two decades. This paradigm shift in attention was due to benefits associated with customer satisfaction.

Additionally, several studies have also supported the hypothesis that customer satisfaction increases price loyalty, positive word of mouth advertisement and boosts customer loyalty. Undoubtedly, customer satisfaction can be directly linked to customer retention and growth of a firm’s share in the market (Hallowell, 1996, p. 30).

It is against this background that it has become critical for businesses to improve quality of their services since it immensely and positively contributes to customer satisfaction.

Service delivery occurs when the service provider and the customer interact. During this interaction, commonly known as service encounter, the customer’s gauge the quality of the service provided and related the experience with the preconceived ideas (Chen & Hu, 2010, p.540). If the quality of the service received exceeds the expected outcomes, the customer is usually satisfied.

However, if the encountered quality of service falls below the expected, dissatisfaction is inevitable (Chen & Hu, 2010, p.546). The type of service encounter that a customer experience is what leads to either service failure or success.

Previous researches in the service industry have identified several characteristics that customers use to gauge the quality of service being offered. To begin with, customers are concerned with the timeliness and convenience of the service. A case-specific study in the restaurant industry showed that customers are concerned with time taken to receive their orders.

Likewise, studies in the service industry like mail delivery shows customers will be dissatisfied if the provider does not dwell on timeliness and convenience (Chen & Hu, 2010, p.537). Secondly, customers are more concerned with personal attention they receive from a company’s employee during service delivery (Chen & Hu, 2010, p.538).

They will also gauge the level of employee competence and professionalism as well as responsiveness incase of a query or a problem. Finally, availability, reliability and dependability of the service are key determinants in customer satisfaction (Chen & Hu, 2010, p.538). Hallowell (1996, p. 42) adds that time factors is the most important aspect that determines customer satisfaction in this fast-paced environment.

According to Hallowell (1996, p. 38), any business willing to survive in the cut-throat competitive business environment should consider improving the above factors. This is because the negative effects of customer dissatisfaction can have disastrous effects on a business.

Chen and Hu (2010, p.542) add that a dissatisfied customer tends to complain mainly to friends and other acquaintances, thus creating a negative corporate image. This negative publicity through the word of mouth will impact on a business negatively since it dissuades other potential customers from that particular service provider.

The strong correlation between customer satisfaction and loyalty is what has led marketers to design slogans that exemplify the same (Chen & Hu, 2010, p.558). As aforementioned, customers want to be appreciated and the above marketing strategy is one way of communicating the same to existing and potential customers.

Literature in marketing classifies customer loyalty under two distinct categories. The first distinction is where customer loyalty is viewed as an attitude (Hallowell, 1996, p. 27-42). The attitude of an individual is what creates emotional feelings that are responsible for detaching or attaching the person to the product or service. That positive attachment is what breeds to customer loyalty (Hallowell, 1996, p. 28).

The second distinction is that which treats customer loyalty as behavioral. Hallowell (1996, p. 28) relates the above classification with a situation where a customer after many purchases from a particular provider becomes royal based on the outcome of a past relationship.

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The above literature has exemplified that there is a direct correlation between customer satisfaction and quality of service delivery. The many elements of service delivery impact either negatively or positively on customer satisfaction. Armed with the above information, I will undertake a qualitative research to determine the level of customer satisfaction among X-restaurant customers.

Decision and research problem to be addressed

The vital role of customer satisfaction to the success of a business is what has led most businesses to focus their effort on analyzing customer satisfaction and dissatisfaction levels (Chen & Hu, 2010, p.542). For the last two decades, the business environment has experienced what may be termed as customer service revolution.

This revolution came about when marketers realized customer satisfaction as the core of any business (Chen & Hu, 2010, p.550). Since then, consultants in business have undertaken researches to determine characteristics that an organization should adopt to attract and retain more customers.

As exemplified above, businesses have realized the need to focus on customer satisfaction so as to increase customer loyalty, increase customer base, jump-start their revenues and profits, increase their market share and above all to survive in the competitive world. The focus has shifted from attaining higher profits towards rejuvenating customer experience.

Scholars and other interest groups have tried to define the term customer satisfaction. The definition, however, has been very elusive as customer satisfaction levels vary from one situation to another depending on the type of goods or services (Hallowell, 1996, p. 29). Despite the disparities in opinion, customer satisfaction has been viewed as an emotion element that is partly dependent on the customer’s expectation.

The variability of customer satisfaction levels is what led individual business to conduct customer surveys to determine what their customers want (Chen & Hu, 2010, p.548). According to Chen and Hu (2010, p.548), customer surveys are important as the results can act as a guideline in designing the methods of increasing customer experience levels.

Numerous case studies have been conducted to investigate the correlation between customer satisfaction and service quality. However, researches that are focused on assessing the same in the restaurant industry have been limited. Further, the few that have been conducted focus on restaurants where the customer goes to the place of service delivery.

This study will be unique as it focuses on customer satisfaction levels and service delivery from X-restaurant that provides outside catering services. The study will analyze quality factors such as food quality, X-restaurant staff responsiveness, timeliness, pricing and complaints response, to find out how they influence customer satisfaction.

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In addition, depending on the availability of resources, the study will identify the negative attributes that lead to X-restaurant customers’ dissatisfaction. The solution on how the above attributes if any will be provided.

Significance of the study

This study is important since collected data will shed light on the attributes that influence customer satisfaction in outside catering restaurant business. As exemplified, studies that explore a similar topic as the one being studied are very limited; hence, the results of the study will contribute positively to the literature.

The study’s finding will create awareness to the managers of X-restaurant on whether their service is eliciting the desired outcomes. Assuming high levels of customer dissatisfaction are identified, the information on what makes the customer dissatisfied can be used to modify the element of service delivery.

Research objectives

Main objective

  • To investigate customer satisfaction level with the services provided by X-restaurant.

Specific objectives

  • To establish the link between customer satisfaction and quality service delivery.
  • To determine what elements of service delivery leads to customer satisfaction
  • To investigate what elements of service delivery makes X-restaurant customers to be dissatisfaction
  • To determine the effects customer satisfaction/dissatisfaction on X-restaurants profits
  • To find out what elements of service delivery the customers of X-restaurant customer would like to be improved
  • To investigate the impact of customer satisfaction/dissatisfaction levels on X-restaurant image

Research hypothesis

The research questions highlighted above will be answered under one broad hypothesis.

Hypothesis 1: Customer satisfaction is dependent on quality and reliability of the service

Many empirical studies have focused on the relationship between customer satisfaction and reliability of the expected service. These studies have concluded that reliability of service affected customer service either negatively or positively. Reliability is gauged on whether the provider delivers the service, both in an accurate and dependable manner (Hallowell, 1996, p. 34).

Customers will gauge service delivery based on their perception of what they consider to be accurate, dependable and consistent (Hallowell, 1996, p. 32). The results will either qualify or disqualify the above hypothesis. The finished research study is expected to include an abstract, introduction, literature review, methodology, findings and discussions as well as conclusion


This research study will give emphasis on the analysis of customer satisfaction based on the level of service they receive from X-restaurant. The factors that lead to the satisfaction or dissatisfaction will also be analyzed. To achieve the above goals, data for analysis will be obtained from primary and secondary sources. The primary sources data will be obtained from respondents using primary data collection methods.

For primary data collection, both qualitative and quantitative approaches will be applied. The combination of the above approaches is necessary since each will cover limitations of the other (Hallowell, 1996, p. 38). The qualitative approach to be employed will be in the form of surveys. Customer surveys will be conducted by use of questionnaires.

On, the other hand, secondary data will be obtained from literature materials published in scholarly publications. The published materials will be consulted to obtain the information necessary for designing the data collection materials. To gain more understanding on the factors that affect customer satisfaction, journals and books on customer perception will be reviewed.

Research Plan

The proposed research will be undertaken within a period of one month. This is due to the fact that the study will be limited in scope as it will only explore customer satisfaction with the quality of service they receive from an outside catering restaurant X.

The first week will be dedicated to carrying out research to identify restaurant businesses that offered outside catering services. The goal is to identify more than 10 businesses to enable random sampling. The following week will be dedicated towards distribution of data collection materials to the customers of the identified restaurant.

The data collection materials will be administered to the identified customers to measure their perception of the quality of service they received from the said businesses. After data collection, data analysis will be commenced in the following week. The collected data will be measured against the relevant data from previous researches.

This will assist in results interpretation and discussion of the same. The data analysis and results interpretation task will be combined with final presentation of the findings. It is expected that with the availability of the needed resources in terms of literature, personnel and finances, the research will be completed successfully within the timeline identified.

There are quite a number of limitations and opportunities that are likely to be encountered when conducting this research study on customer satisfaction. The limitations which may be encountered evolve around primary research. For instance, honesty and thoroughness of the answers in the questionnaires will be an area of concern. Some responses given by the participants may not thorough or honest enough.

Another limitation will be in relation to the interviews; it may be cumbersome to obtain the right respondents for the interviews, especially if adequate time and financial resources is not allocated to the study. For the secondary research methodology, some of the challenges that may be inevitable include outdated sources, and the confidentiality of certain reference materials that require authentication before accessing the data.


Chen, P. & Hu, H. 2010. “How determinant attributes of service quality influence customer-perceived value: An empirical investigation of the Australian coffee outlet industry”, International Journal of Contemporary Hospitality Management, 22 (4): 535 – 551.

Hallowell, R. 1996. “The relationships of customer satisfaction, customer loyalty, and profitability: an empirical study”, International Journal of Service Industry Management, 7 (4): 27-42.

Sabin Parajuli- Useful.pdf – IMPACT OF ELECTRONIC BANKING.

IMPACT OF ELECTRONIC BANKING SERVICE DELIVERY ON CUSTOMER SATISFACTION IN NEPALESE PRIVATE COMMERCIAL BANKS A Thesis Submitted By Sabin Parajuli Central Department of Management Roll No: 795/16 Registration No: 7-2-522-58-2012 Submitted in partial fulfillment of the requirement for the degree of Master of Business Studies (MBS) In the Faculty of Management Tribhuvan University Kirtipur, Kathmandu December, 2018

ii CERTIFICATION OF AUTHORSHIP I certify that the work in this thesis has not previously been submitted for a degree or has it been submitted as part of requirement for a degree except as fully acknowledge within the text. I also certify that the thesis has been written by me. Any help that I have received in my research work and the preparation of the thesis itself has been acknowledged. In addition, I certify that all information sources and literature used are indicated in the reference section of the thesis. . Sabin Parajuli December, 2018

RECOMMENDATION LETTER It is certified that thesis entitled Impact of Electronic Banking Service Delivery on Customer Satisfaction in Nepalese Private Commercial Banks submitted by Sabin Parajuli is an original piece of research work carried out by the candidate under my supervision. Literary presentation is satisfactory and the thesis is in a form suitable for publication. Work evinces the capacity of the candidate for critical examination and independent judgment. Candidate has put in at least 60 days after registering the proposal. The thesis is forwarded for examination. _____________________ Dr. Ganga Ram Biswakarma Thesis Supervisor Central Department of Management Tribhuvan University, Kathmandu, Nepal Date: December, 2018

APPROVAL SHEET We, the undersigned, have examined the thesis entitled Impact of Electronic Banking Service Delivery on Customer Satisfaction in Nepalese Private Commercial Banks presented by Sabin Parajuli , a candidate for the degree of Master of Business Studies (MBS) and conducted the viva voce examination of the candidate. We here by certify that the thesis is worthy of acceptance. _____________________ Dr. Ganga Ram Biswakarma Thesis Supervisor _____________________ Internal Examiner _____________________ External Examiner ____________________ Prof. Dr. Sanjay Kumar Shrestha Chairperson, Research Committee ____________________ Associate Professor Dr. Ramji Gautam Head of the Department Date: December, 2018

v ACKNOWLEDGEMENTS The Graduate Research Project entitled “Impact of electronic banking service delivery on customer satisfaction in Nepalese Private Commercial Bank” has been prepared with the immense support, continuous supervision and motivation of distinguished personalities. First of all, I extend my heartfelt gratitude to my supervisor Dr. Gangaram Biswakarma, Deputy Director, School of Management, Tribhuvan University for his patience and continuous guidance with constructive comments and kind encouragement to me all way through this research work. It is my utmost pleasure to carry out this study under his supervision. Thank you for believing in my ability to create a finished product worth being proud of.


E-BANKING PRACTICES AND CUSTOMER SATISFACTION – IN THANJAVUR DISTRICT, TAMILNADU : AN EMPIRICAL STUDY Thesis submitted to the Bharathidasan University for the award of the degree of DOCTOR OF PHILOSOPHY IN COMMERCE By S.P. DHANDAYUTHAPANI Under the guidance of Dr. M. SELVACHANDRA, M.Com., M.B.A., M.Phil., Ph.D., Associate Professor, Post-graduate and Research Department of Commerce, A.D.M. College for Women (Autonomous), Nagapattinam – 611 001. BHARATHIDASAN UNIVERSITY TIRUCHIRAPPALLI – 620 024. MAY – 2012

Dr. M. SELVACHANDRA, M.Com. M.B.A., M.Phil., Ph.D., Associate Professor and Research Advisor in Commerce, A.D.M. College for Women (Autonomous), Nagapattinam 611 001, Tamilnadu, India Email : [email protected] Mobile : +91 98426 39030 Date : CERTIFICATE This is to certify that the dissertation entitled “ E-BANKING PRACTICES AND CUSTOMER SATISFACTION – IN THANJAVUR DISTRICT OF TAMILNADU : AN EMPIRICAL STUDY” submitted to Bharathidasan University, Tiruchirappalli in partial fulfillment of the requirements for the award of the degree of Doctor of Philosophy in Commerce is a record of original research work carried out by Mr. S.P. DHANDAYUTHAPANI, under my supervision and guidance and the thesis has not formed the basis for the award of any Degree/Diploma/ Associateship /Fellowship or similar title to any candidate of any university. (M. SELVACHANDRA)

DECLARATION I hereby declare that the thesis entitled “ E-Banking Practices And Customer Satisfaction – In Thanjavur District, Tamilnadu : An Empirical Study” submitted to Bharathidasan University, Tiruchirappalli in partial fulfillment of the requirements for the award of the degree of Doctor of Philosophy in Commerce is a record of original research work done by me under the supervision and guidance of Dr. M. SELVACHANDRA , M.Com., M.B.A., M.Phil., Ph.D., Associate Professor, Post-graduate and Research Department of Commerce, A.D.M. College for Women (Autonomous), Nagapattinam 611 001, TamilNadu and that the thesis has not formed the basis for the award of any Degree/Diploma/Associateship/Fellowship or other similar title. Signature of the Candidate (S.P. DHANDAYUTHAPANI)

ACKNOWLEDGEMENT At the outset let me prostrate and express my heartfelt gratitude to the Lord Almighty who motivated and stood by my side to accomplish this noble task. I express my deep sense of gratitude to my guide and supervisor, Dr. M. SELVACHANDRA , Associate Professor in Commerce, A.D.M. College for Women (Autonomous), Nagapattinam. Whose constant and valuable guidance made the study possible in spite of her extremely busy academic pursuits; she always spared time for me. In fact, she has created in me a life-long impression by this unstinted kindness, affectionate guidance, critical comments, valuable suggestions, advice and noble generosity. But for this support and encouragement, the present work would not have seen in the light of the day.

After-Sales Services and Innovative Approaches Essay

The following title identifies and quantifies my hypothesis: “The new role of after-sales service – how to develop unused potentials in the after-sales services via a detailed as-is-state and market analysis”. The hypothesis has been made under the present conditions in the world market and was aroused by the need of companies functioning nowadays on the secondary service apart from their major specialization – manufacturing products. The increasing need for after-sales assistance as a way to provide higher competitive advantage has been continuously recognized by the majority of manufacturers thus causing a need to create an efficient tool for assessment of black spots in the system of after-sales assistance and to design a system that would eliminate them.

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Design of the thesis

The approach taken in the present thesis is a qualitative assessment of existing company analysis tools and uniting the findings into one homogeneous assessment tool to identify the needs of the customers that fail to be satisfied in the course of the provision of mainstream services to the customers and to identify as many ways to meet them as possible. Such tools as 3C’s, the SWOT analysis and the 5 Forces Analysis have been used to identify the current position of the company and potential for development and improvement that can be gained through the improvement of after-sales services provision. Unused benefits were identified with the help of the named instruments, signifying the potential that can be further developed. Afterward, practical recommendations for the increase in potential were offered together with the enumeration of threats that were potentially possible in the course of the change.

The subject matter of the thesis

The present thesis is concentrated on the issues of ensuring higher productivity of the company-manufacturer through working out a set of innovative approaches to after-sales services. The initial statement says that the sphere of services is playing a huge role in the world market nowadays, thus it should not be neglected by the producers that are concentrated only on the production segment of their activity.

In order to prove the correctness of the idea, the analysis of the customer database was conducted, helping to estimate various groups of customers that required separate attention and different services. The company being a manufacturer, it was necessary to define the potential profit brought by spare parts as well as the real profit it gains at the present moment, thus comparing two figures and understanding the necessity of change.

Analysis of demand helped understand the needs of the customers that are continuously not met, giving a scheme for future action. Analysis of competitors creating real and potential threats was also highly useful as it helped identify the problem the company faces in a broader and more complex way. The conclusion to which the researcher came is the growing necessity to pay considerable attention to after-sales services, to create a set of measures to protect the discussed segment from unauthorized third-hand parties decreasing the profit of the company, consequently coming to harmonious co-ordination of both sectors of its activity to ensure the growing competitive advantage for the company in all spheres.


It is obvious that nowadays the sphere of services is becoming more and more important. Due to saturated or stagnant markets, changing values on the part of the customer, technical advances, globalization and access to information service are becoming one of the key differentiators especially in growing markets as a manufacturing industry. Companies introduce themselves in an increasingly competitive environment. In international competition, the precondition to survive is the introduction of measures that lead to an added value for the customer.

This added value has to be assessed by the customer as a very important and outstanding issue so that the customer prefers it in comparison with others.

A typical situation for saturated markets is that the products are very similar regarding the performance and their range of application; due to this, they are becoming exchangeable for customers. This situation results from the fact that the product and innovative technologies are at the end of the road regarding their potential for development. Furthermore, the basic technologies are used and implemented by almost all competitors. Due to this practice creating preferences on part of the customer in order to gain an advantage in the competition through optimization or improvement in the basic value becomes much harder.

Therefore, it is necessary to offer an added value to the customer; for this purpose services, especially after-sales services, are one of the best measures. Services are secondary performances that are targeted to improve customer satisfaction and loyalty through an increase in added value. These services have to be better aligned with customer requirements than those of the competitors. As a result, competitive advantages that are based on service also have the benefit of imitation protection, because services are immaterial goods.

A change in values and a consumer policy that is getting stronger result in customer behavior that is affected by increasing self-confidence, criticism and requirements. This means that the customers take some product and service performances for granted and expect them from the supplier. In addition, the willingness to accept insufficient quality regarding the products and services is steadily decreasing. Hence, it is crucial to offer a high-quality service that is aligned with the requirements of the customers.

As has been mentioned above, another factor for service to become more and more important is the increasing technical complexity of the products. The more complex and complicated the product technology becomes the more difficult the product handling and the higher the need for an explanation for the customer will be. Without accompanying services like professional consulting, training, and maintenance these high-tech products can not be used optimally and efficiently. Thus it is natural that the sales of products in the manufacturing industry are highly dependent on the supply of service, especially after-sales services that support the product.

This does not mean that innovative technologies and highly developed product quality become less important, but outstanding product quality can only be achieved by providing optimal service performance. As a consequence of the increasing importance of service and the rising demand for service, the market performances obtain a character of an independent system. Traditional product marketing will reach its final point as it is not prepared for the peculiarities of service provision and implementation. Therefore, manufacturing companies need to integrate product and service marketing in a holistic management approach. In order to develop a long-term competitive advantage based on service, the companies need to set the course already today.

Summing everything that has been said up, one can see that service, especially the after-sales service has become a very important differentiation potential for the companies. Although the companies are aware of this trend many companies are using their service advantages not adequately. The company that is analyzed in this thesis is also not completely using the potential of the after-sales service. It can be seen that it is not only the potential of differentiation that is not fully exploited by the company but also the market potential, the potential of information and customer loyalty.

The challenge for the company and the question to be asked is how to find a way to identify the unused potential benefits and how to develop this potential. Due to this the purpose of this thesis is to develop the after sales service of the analyzed company in such a way that the company would be able to take an advantage of the increasing importance of service and to develop the unused potentials in the after sales service via a detailed as-is-state and market analysis.

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It will be necessary to identify the current as-is-state of the company. Chapter 5 describes the analysis to be done in order to identify the current situation of the company. Furthermore, it is crucial to evaluate a tool that permits permanent access to the company’s data to be able to follow up the target performance analysis of the company. Additionally, a market analysis will be necessary to research the requirements crucial for establishing after sales strategies that would permit the company to take an advantage of the potential. The market analysis is based on the 3C’s and covers a customer survey, a company SWOT analysis and the 5 Forces analysis in order to get a clear understanding about the existing competitors.

The research includes secondary sources, the information provided by the personnel of the analyzed company, text books and studies on the subject as well as articles provided by the VDMA (German Engineering Association).

Facts and Figures of the current situation in the manufacturing industry

As stated above, service is becoming more and more important, especially the after-sales service. The rising demand for services, in general, is reflected by an increase in the number of jobs available in this area. More than 66.7 percent of all jobs are in the tertiary service sector. 1 According to studies, 93% of investment goods producers believe in increasing importance of service. 2 So, once looking at the reasons why customers change their provider the importance of services becomes clear. Only 14% of the customers change the company due to product dissatisfaction, 9% – due to the fact that the product from the competitor is better, 5% – due to business relations with friends and 4% due to other reasons like, for example, the product run-out. However, it is notable that 68% of the customers change their provider due to dissatisfaction in service. 3

Service is a considerably important issue in several industries, especially in engineering and construction companies. At the present moment, these companies are in a major transformation process from a service-based production company to a service company with production. There are various reasons for the decreasing importance of selling products. First, the technical research had to a very large extent reached its ultimate point of development and therefore, the products in the global market become more and more similar.

Second, due to the world economic crisis, the customers worldwide react with increasing insurance and announce cuts or postponing in investments and expenditures. Looking at the statistics, one will see that the sector estimates a decline in the real production of an average of 7 percent. Moreover, incoming orders in December 2008 declined by 40% in comparison with 2007. Consequently, the fourth term of 2008 shows the worst quarterly result since 1958. 4 Third, margins in the product-only business are diminishing because of technological and market transparency.

By implementing after-sales service engineering and construction companies can generate higher margins. Mercer Management found out in a survey among 200 German engineering companies that they achieve only 2.3 % of return on sales by selling machinery. But with services that are aimed at supporting the customer more than maintaining him/her, the average profit margin is at 10%. As an overall summary of the study, the German engineering companies could realize up to 50% of their profit by increasing service business. But at the moment 70% of the companies achieve less than 20% of their profit through service business. 5

According to Impuls Management Consulting three-quarters of producers of investment goods generate profit with service and for 68 percent of them the service sector is much more profitable than the product business. 6

Due to this companies are also able to maximize their profit by giving the service business more importance. Moreover, providing services is manifestly profitable because, according to the VDMA (Deutscher Verband für Maschinen- und Anlagenbau – German Engineering Federation), average annual costs for service and maintenance amount to about 4.7 percent of the original price for mechanical engineering products and plant construction. Consequently, after 20 years of use, these costs are equal to the original purchase price. 7 In some service segments, e.g. spare parts, figures are almost six times higher than in the core business. Therefore it is not surprising that 75 percent of all companies selling industrial products generate profits with service, with 68 percent of them actually generating more profit by providing services than in selling products only. 8

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Definition of after-sales service

After-sales service is a complex phenomenon that is thoroughly described in the BNET Business Dictionary: “In some cases, after-sales service can be almost as important as the initial purchase. The manufacturer, retailer, or service provider determines what is included in any warranty (or guarantee) package. This will include the duration of the warranty (traditionally one year from the date of purchase, but increasingly two or more years) maintenance and/or replacement policy, items included/excluded, labor costs, and speed of response”. 9

Definition of potential benefits

According to Pümpin a potential benefit is an attractive constellation that could be presented latently or effectively in the environment, the market or in the company and that can be exploited by the company for their benefit. 10

Potential of differentiation

Since the competition in the primary product markets is getting more and more intensive there are a lot of imitations of new products and many product innovations. Especially in market segments for high-quality products, it is becoming more difficult to gain a competitive advantage through physical and technical performance characteristics. Due to this, services are becoming key differentiators between companies. 11 Also the competitive advantage of the primary product or the price is, in most cases, only a short-term advantage. 12

Nowadays competitive products are more similar and due to this they become easier to substitute; for this reason, customer loyalty is decreasing. Therefore, it leads to unilateral pricing competition and to increasing customer requirements. By implementing an after-sales service focused on the customer benefit, differentiating oneself apart from the competition and making a name for it, engineering and construction companies can handle this situation. The companies could improve the problem-solving process and the customer benefits in their service offered through product support after the sale.

For this reason, it is possible to individualize even the standardized non-cash benefits – at least in the customer perception. In many cases, this will result in decreasing price sensitivity from the side of the customer. 13 Unlike the physical and technical performance characteristics after-sales-service performance is more likely to lead to permanent competitive advantage. It is very hard for the competitors to reconstruct and imitate after-sales service since the after-sales service belongs to immaterial, individual and not storageable services.

Market potential

Engineering and construction companies could generate additional turnover and results by improving the after-sales service. Due to the increasing focus on the core activities of the customers, the willingness to outsource some areas is more evident than ever before. Therefore, many companies are ready to reduce their own maintenance departments in favor of external maintenance services. Due to this trend, many manufacturing or external service companies are in charge of the maintenance or even of the so-called operator model. As an example, one can take a supplier of copy machines that also provides the delivery of toners and copy paper as well as the disposal. Naturally, the only task for the customer is to use the machines and all accompanying services without any additional difficulties.

For some engineering and construction companies, the additional turnover and results possess crucial importance. Especially the spare part business generates the results important to achieve positive turnover. More than that, it is possible to obtain high gross profit margins, because high breakdown costs in case of an unexpected machine downtime permit a time and quality competition instead of a cost competition.

For instance, Schindler, a German manufacturer of elevators generates a much higher profit margin with service and modernization of the elevators than with their planning, production and installation. Since the 1980s Schindler achieves more than 50% of their operational performance with the after-sales service. 14

Potential of customer loyalty

Customer loyalty has enormous economic importance for almost all companies. Statistically thinking, it is five times cheaper to retain an existing customer than to acquire a new customer. 15 The longer a customer relation exists the stronger the profits are increasing due to this relation. 16 In some companies the reduction in customer migration by five percent could double the profits. 17

Since it is impossible to retain customers with force the companies have to convince them to remain with superior performance. Due to this, it is necessary to come up with new products or services according to the requirements of the customers. In the majority of cases, it is more effective to concentrate on the existing and known customer segments than to gain a market share by launching new products. Thus, it is much easier to sell services to well-known customers than to new customers. 18

Regarding the engineering and construction companies, the spare part supply and the maintenance of the machines provide a good link to establish the customer base and relationship management in order to bypass the time till a new purchase of a machine. For this reason, engineering and construction companies could use the long product utilization phase to create added value for the customers. Hereby, the business transactions and the personal relation to the attractive customer could be continued, amplified and deepened. 19 Here the contact to the after-sales-employees is very important because they have more frequent and more intensive contact to the customer than the salesperson.

As there is a high correlation between customer loyalty and customer satisfaction, customer satisfaction influences the after-sales service to a high degree – it is especially the machine life that is, from the customer’s point of view, one of the most important phases. With reference to the after-sales service, the customer expects sufficient support in emergency situations, for example, in case of a breakdown of a machine or plant that would cause a high probability of losses. Therefore it is crucial that the manufacturer can give proof of his performance and due to this create customer satisfaction and loyalty. Studies from the sector of claim management show that quick problem-solving in critical situations increases customer loyalty remarkably.

Information potential

The continuous contact and interaction with the customer make a contribution to the collection of useful and valuable information regarding the customer. For example, one can collect information about requirements concerning new performances or about problems with the existing products. This information can be used purposefully when developing new services as well as for the creation of customized service bundles. 20

Introduction to the company

The analyzed company is a technology-centered company that develops high-tech production systems and industrial process solutions for various standard and highly specialized products. The company primarily operates in Europe, North America and Asia. It is headquartered in Graz, Austria and employs about 12,900 people. It operates 35 production/service facilities and over 120 affiliates and distribution firms across the globe.

The company operates five segments: pulp and paper; hydropower; rolling mills and strip processing lines; environment and process; feed and bio-fuel.

The company’s feed and bio-fuel business segment supplies machines and systems, pellet mill consumables, such as dies and rolls, and other technical services to the animal feed industry, the pet food industry, and the fish and shrimp feed industries. This segment has three main sites. It operates globally from ten regional sales and service offices and four manufacturing sites that are supported by a network of distributors and sub-suppliers. The major products of this business segment are conditioners and expanders, dryers and cooling equipment, extruders, pellet coating systems, pellet mills, size reduction systems, spare and wear parts.

Services provided by the company are customized wear parts, dynamic process simulation for all mill processes, equipment rebuilds and modernization, and original replacement parts. 21

Analysis of as-is state

Assuming that there is still major potential in the aftermarket an analysis of the as-is state has to be done.

The analysis of the as-is state through the analysis of installed bases, the analysis of lifetime of equipment parts, of actual spare part orders, and the market will give a clear understanding of the current as-is state of the company and will make it possible to identify the potential benefits.

Analysis of Installed bases

An installed base of a tangible asset is the number of its used units for a certain period of time. It can be calculated theoretically as the difference between delivered and switched-off units. 22

In order to be able to exploit the aftermarket potential consequent management of the installed base becomes an important strategic target for innovative producers. According to studies, only 50% of the installed bases are known by the manufacturer, which means that they do not know where and for what purpose the installed base is used. 23

To be able to obtain the data about the installed bases on the market it is necessary to identify the existing installed base of the company, if these units are still in use and with what customers.

Therefore, a detailed list of installed machines over the last 15 years was pulled together from heterogeneous, global sources. In the following diagram, the identified installed bases are subdivided into machine types.

Having found out the number of installed machines, for now, it is possible to proceed with identifying the real number of installed bases worldwide. For this reason, the installed machines were grouped regionally in order to be able to send a list to the responsible sales manager (See appendix). The regional sales manager has to check the list and needs to figure out if there are more installed bases active with the customers or not and if there are inactive machines out there.

The returned lists were consolidated to a global installed base list and will be used afterward to calculate the possible potentials. As it can be seen in the diagram there is a considerable change in the number of active installed machines. Regarding the figures one needs to take into consideration that there are also many installed bases that cannot be allocated, thus not appearing in the evaluation. The installed bases identified are machines that can be allocated regionally and can be assigned to customers.

As there are more installed bases than estimated, there is a potential regarding the share-of-wallet. After having identified the number of installed bases it is necessary to identify the spare and wear parts lifetime in order to be able to calculate their nominal usage.

Analysis of the usage of spare/wear parts

Definition of a spare part

The spare part is a replaceable component, sub-assembly, and assembly identical to and interchangeable with the item it is intended to replace. 24 The spare part can be divided into 2 groups:

  • Regular spare part: Parts that are not meant to last, but will wear out over the lifetime (usually in several years)
  • Incident spare parts: parts meant to last – but in some statistical cases incidents will happen over the lifetime

Definition of a wear part (also called a consumable)

The wear part is a mechanical part that comes into contact with the workpiece and, owing to their production characteristics and stressing in service, undergoes multiple scheduled replacements during the unit’s planned service life. 25

First of all, the incidents per machine and per component have to be determined. According to previous data the incidents per machine and per component are the following:

Equipment Component Type Incidents p.a.
Machine 1 Screens wear part 200
Machine 1 Beater/ Hammer wear part 2
Machine 1 Beater Bar wear part 50
Machine 1 Guide Plate regular spare part 17500
Machine 1 Grinding Grids regular spare part 32500
Machine 1 Top Plate wear part 5000
Machine 1 Rotor regular spare part 37500
Machine 1 Rotor bearings regular spare part 20000
Machine 2 Paddles regular spare part 25000
Machine 2 Bearings incident spare part 18182
Machine 2 Sealings regular spare part 16667
Machine 2 Shaft regular spare part 50000
Machine 2 V-belts regular spare part 25000

With the number of incidents per year and the knowledge about the average amount of hours during which the machine is in use, the usage of every part per year and per machine can be calculated. The assumption is that the average usage of the machines is 5000 hours per year. So the usage per year per machine is the hours per year divided by the incidents per year.

Equipment Component Type Incidents p.a. Usage p.a. p.m.
Machine 1 Screens wear part 200 25
Machine 1 Beater/ Hammer wear part 2 2266,666667
Machine 1 Beater Bar wear part 50 100
Machine 1 Guide Plate regular spare part 17500 0,285714286
Machine 1 Grinding Grids regular spare part 32500 0,153846154
Machine 1 Top Plate wear part 5000 1
Machine 1 Rotor regular spare part 37500 0,133333333
Machine 1 Rotor bearings regular spare part 20000 0,25
Machine 2 Paddles regular spare part 25000 0,2
Machine 2 Bearings incident spare part 18182 0,275
Machine 2 Sealings regular spare part 16667 0,3
Machine 2 Shaft regular spare part 50000 0,1
Machine 2 V-belts regular spare part 25000 0,2

Having calculated the usage per year and per machine the nominal usage per machine has to be calculated. The nominal usage is calculated by multiplying the number of parts needed per machine with the usage per year and per machine.

Equipment Component Type Incidents p.a. Usage p.a. p.m. Parts per machine Nominal Usage
Machine 1 Screens wear part 200 25 2 50
Machine 1 Beater/ Hammer wear part 2 2266,666667 136 3082666
Machine 1 Beater Bar wear part 50 100 4 400
Machine 1 Guide Plate regular spare part 17500 0,285714286 1 0,29
Machine 1 Grinding Grids regular spare part 32500 0,153846154 1 0,15
Machine 1 Top Plate wear part 5000 1 1 1
Machine 1 Rotor regular spare part 37500 0,133333333 1 0,13
Machine 1 Rotor bearings regular spare part 20000 0,25 2 0,5
Machine 2 Paddles regular spare part 25000 0,2 40 8
Machine 2 Bearings incident spare part 18182 0,275 2 0,55
Machine 2 Sealings regular spare part 16667 0,3 2 0,6
Machine 2 Shaft regular spare part 50000 0,1 1 0,1
Machine 2 V-belts regular spare part 25000 0,2 4 0,8

With the knowledge of the number of installed bases and the knowledge of the nominal usage, the target state can be calculated. According to the identified installed bases, there are 405 machines 1. Due to this, there should be a demand of 50 (nominal usage) x 405 (installed bases) = 20250 pieces for this type of machine. Therefore, the target demand of every machine can be calculated and later used to be compared with the actual demand. The comparison will give the potential that could be achieved.

Analysis of actual orders

The actual orders can be analyzed via the SAP-system. The SAP-system offers the possibility to create a list of all orders within a certain time period. The orders analyzed here are based on data from Q3/07 – Q2/08.

Comparing the incoming orders with the calculated demand, a high potential was analyzed. The following illustration shows some examples that give a clear understanding of the potential that can be achieved.

Equipment Component Installed base analyzed [pcs.] Nominal Usage p.a. [pcs.] Parts sold today GAP pcs Potential
Machine 1 Beater/ Hammer 772 1567387,45 120231 1447156,45 1204%
Machine 1 Beater Bar 772 73121,6163 2739 70382,6163 2570%
Machine 1 Guide Plate 772 116,707762 24 198,755638 828%
Machine 1 Grinding Grids 772 63,2307692 155 87,0889786 56%
Machine 1 Bottom Plate 261 1703,41128 110 1593,41128 1449%
Machine 1 Top Plate 267 265,346325 126 139,346325 111%
Machine 1 Rotor 722 42,5388889 16 91,8592258 574%
Machine 1 Rotor bearings 772 221,405275 18,1666667 286,608081 1578%
Machine 2 Paddles 791 2892,47493 707,666667 5861,55888 828%
Machine 2 Bearings 791 1137,78481 133,333333 1165,34027 874%
Machine 2 Sealings 791 524,466529 31,3333333 648,941184 2071%
Machine 2 Shaft 791 17,8460978 8 72,9574584 912%
Machine 2 V-belts 791 312,674143 265 552,456059 208%

This analysis comes up with a potential of up to 2570%. That means that by enforcing the after-sales service a higher margin can be achieved.

Evaluation of a tool

After the analysis of the installed base, lifetime and the actual orders the three components need to be put together to be able to constantly analyze the current as-is-state and the target state. The evaluated tool is a controlling tool that can be used for the following analysis:

  1. Forecasting of demands;
  2. Target-performance analysis;
  3. Order behavior of customers per region and per equipment.
  • The database consists of three separate parts:
    • Excel: (Please see appendix)
      • “Database for Access.xls”: This Excel tool is used for the collection and maintenance of customer information, IB data and also ordering information
      • “template.xls”: This file is used as a template for reporting, which is created in the Access tool and exported in an Excel file named “Reporting.xls”
      • “Order behavior for customers.mdb”: Based on Excel data and maintained in the Excel tool “Database for Access”. The Access database can be updated and depending on the selected input mask different analyses can be made and afterward also be exported in an Excel file.

      The input mask consists of two functional areas – an input and output section. After selecting the analysis criteria in the input section, the analysis will be automatically calculated and displayed in the output section. Afterward, the reporting in excel can be created.

      The criteria selection field that are mandatory are marked with an * and must be filled to move further. There are four available criteria combinations in the input section that can be selected.

      Analysis by region:

      Analysis by region and customer: Only after selecting the region, customer name and customer SAP No will be filled with customers in this region, where only one of the two boxes can be activated at the same time, that is, either customer name or customer SAP No.

      Analysis by region, customer and spare part: after selecting the region and customer name it will be filled with customers in this region, and after selecting the customer name or the customer SAP No the wear/spare part will then be filled with spare parts, which the selected customer should order.

      Analysis by region and spare part: after selecting the region the wear/spare part will then be filled with spare parts, which all customers in the selected region should/can order.

      In order to view the analysis by the selected criteria, the so-called list box will be applied. By double-clicking on the row in the list box the # of IB and the actual usage per year and per machine will be automatically calculated for the selected customers, and will appear in two text fields next to the list.

      After the analysis has been displayed in the output section, the button ‘execute’ has to be clicked in order to create the reporting in excel.

      The created reporting looks as follows:

      In the column “Customer Category” different types are marked with 4 colors that have the following meaning:

      • Customer category 1(yellow): customers with both IB and orders for specific wear/spare parts with a GAP in % < 100%;
      • Customer category 2 (red): customers with IB but no orders;
      • Customer category 3 (blue): Customers with orders but no IB;
      • Customer category 4 (green): Customers with IB and orders for specific wear/spare part with GAP in % < 0.

      The tool also gives the opportunity to search for equipment and wear/spare parts.

      The functionality is the same as mentioned above but the searching criteria are equipment and wear/spare parts.

      With the tool, it is now possible to create detailed forecasting for the orders of spare parts. Furthermore, a detailed list according to every region and customer can be created. With this list, the regional sales managers are able to identify the “good” and “bad” customers and due to this, they can address the customer who does not order or orders not enough and may obtain information about the “no-buy” criteria. Moreover, the tool helps to create a target-performance analysis as the necessary data, like nominal ordered pieces, actually ordered pieces and the gap is calculated automatically by the tool. Another advantage of the tool is that the after-sale persons can work with the tool, for example, during a phone talk with the customer.

      The staff only needs to fill in the customer name and the tool gives out such necessary information as the number of installed bases, the type of installed bases, and the number of nominal and actual orders. With this information, the after-sales personnel is able to react faster and more appropriately to any questions and claims. Furthermore, having this information at hand makes it possible to offer the customer the right service.

      Market analysis with the 3Cs and the 5 Forces

      Customers – What do they buy and why do they buy?

      In order to get a better overview of the customer it is necessary to look at the different requirements the customer has, what the decision criteria to buy are, how satisfied the customer is and what segments can be observed.

      Regarding the requirements the following questions are of interest:

      • Which features and facts (technical features, logistics, commercials etc.) are of importance for customers (today and in the future):
        • Basic characteristics (critical success factors; “must-haves”)
        • Performance characteristics (business driver, differentiation from competition)
        • “Wow” – Characteristics (create excitement, can be the core factor for the decision to purchase)

        Regarding the decision criteria it is of interest to know about:

        • What matters to customers?
        • What are they willing to pay extra money for?
        • Why do or don’t they buy?

        Regarding the satisfaction, the following is of interest:

        • What is the degree of satisfaction of customers today?
        • What are the issues and reasons for customers’ dissatisfaction and open desires?

        Regarding the segmentation, the following is of interest:

        • Which segmentation/clusters can be observed (different behavior across countries, distance, applications, and customers’ types)?
        • Which target customer should be addressed /treated with priority?

        In order to find answers to the above-mentioned questions, a survey is conducted among the customers of the engineering company. (Please see appendix). The main points that are queried are satisfaction regarding spare parts and services, satisfaction regarding aftermarket delivery performance, and satisfaction regarding customer interaction.

        Having evaluated the survey, the following requirements regarding aftermarket delivery performance, spare parts and services, and customer interaction were discovered.

        The customer survey revealed many known and unknown insights and areas for improvement. When looking at the service portfolio, more than 80% of customers are (very) satisfied with the aftermarket products/services. Anyway, 2/3 of the customers are (very) interested in advanced services. The lifetime is (very) important for all customers and almost 2/3 of customers are willing to invest in an increased lifetime.

        Quality is very important for all customers and around 60% are willing to invest in increased quality. Evaluation of satisfaction with pricing shows that more than half of the customers who rate pricing as (very) important think that the company is not competitive at this point. So, this has a high impact regarding the fact that 90% of customers consider the price (very) important. The lead/delivery time also requires improvement. Only 52% of the customers are satisfied with the lead/delivery time; especially the dissatisfied customers are willing to invest in shortened delivery times. The delivery performance in full and timely delivery is rated better by the customers. 71% of the customers are satisfied with the delivery performance. 1/3 of the customers are not satisfied with the delivery performance although it is (very) important for them.

        The online service is of high interest to the customer. All services listed in the survey are of interest to customers, particularly requests for quotations and questions that would be accepted by users. Since only 2 customers are satisfied with the information flow, and the majority of customers think that a proactive information flow is important for the intensification of information flow, it should be increased towards customers, especially proactive communication of changes in delivery times, availability and prices.

        In addition, many customers would like to be supported by a new handbook in order to ease the identification of spare/wear parts. More than that, many customers are not satisfied with the technical knowledge of the aftermarket staff. One can find some examples of specifications of dissatisfaction in the following list:

        • “Too little knowledge of the products’ utilization”
        • “Need more skilled people”
        • “Area of training in terms of customers needs to be better and the staff need to have more knowledge”

        These results show that there is definitely a great need for improvement, and new after-sales strategies have to be found.

        Company – SWOT- Analysis

        The SWOT – Analysis is based on 13 interviews with different general managers working at the engineering company.

        How can the weaknesses be reduced or eliminated?

        The missing information about installed bases is already reduced and almost eliminated due to the installed base analysis. Furthermore, having evaluated the behavior tool in the order mentioned above, it is possible to do the important forecasting that can help reduce long delivery times and therefore improve the delivery performance. The improvement in delivery performance is feasible because knowledge about the demand for spare parts at a certain point in time can be calculated and due to this planning of stocked parts is much easier. With the right amount of parts on stock the delivery performance can be improved because there are no bottlenecks due to missing parts.

        How can the strengths be used to create a competitive advantage?

        As the quality of the products is considered to be good, the company has a brand name and the know-how of the company is very good, it is possible to price the monopoly parts higher. Using already existing knowledge from France and the UK gives a good basis to roll out service engineers as sales channels all over the world. In addition, the local presence will support the rollout in every country. The local presence is also helpful when starting a proactive sales push regionally, as it is easier for the regional sales manager to be informed about future orders and about the installed base of the customers.

        How can the strengths be used to reduce the effect of threats?

        Having a good quality and brand name can help to compete against the pirates. Moreover, a survey conducted among the customers will reveal the “no-buy” criterion. And the detailed analysis of the installed bases and the order behavior as well as better forecasting will help to improve delivery performance.

        Competitor – Who are the relevant competitors?

        In order to gain a clear understanding of the competitive situation and advantages, an analysis of the environment has to be done.

        Porter’s Five Forces model is an appropriate framework to characterize the competition situation in the after-sales business.

        Porter defines an industry as a group of companies that produce products or services in a substitution relationship. Therefore, an industry combines the competitors that reduce the value of their own products or services for the customers. 26 As it is shown in the following text, different suppliers offer identical or similar after-sales services for the producer of machinery or the customers of a primary product manufacturer. For this reason, the after-sales service for engineering and construction companies can be seen, according to Porter, as an independent industry.

        The following competition analysis assumes that the existing competition is marked by the primary product manufacturers.

        Industry Competitors – Rivalry among existing firms

        In order to analyze the rivalry among existing firms the primary product manufacturers have to be examined, as it is possible that they provide not only after-sales service for their own products but also for external products. It concerns the following:

        • Original Equipment Manufacturer (OEM)
        • Vendors of components
        • Primary product manufacturer with technically similar products

        Due to these factors ,it can result in direct competition between:

        • Primary product manufacturers (meaning between the OEMs respectively between the vendors of components)
        • OEMs and vendors of components
        • Primary product manufacturers of technically similar products in the same application range


        Buyers influence the competition in an industry by taking part in the decision-making process concerning prices and performance. Due to this they are in a position enabling them to play off the supplier against another supplier. 27 Buyers have the following three options to put pressure on the manufacturer:

        • Threaten with the assignment to another after-sales provider
        • Threaten with own execution of maintenance
        • Threaten with not taking into consideration the company when investing in the next primary product

        The existence of alternative suppliers of after-sales services is of considerable importance. After the purchase of machinery, the customers often have the feeling of dependence on the manufacturer as they do not have enough possibilities of comparison because of insufficient sources of supply. The change to another source is handicapped through switching costs. 28

        But not only the existence of alternative suppliers is important. In many cases, the engineering and construction companies compete against the maintenance departments of their customers. In order to concentrate on the core business and on the reduction of fixed costs, companies try to reduce and downsize their maintenance departments. This could result in the need to outsource the after-sales service to external providers. 29

        Here the engineering and construction companies see high market potential. But this development is limited due to the fact that the customers downsize their maintenance departments only step by step and as slowly as possible. The customers that maintain their machinery on their own often oppose the direct costs of their own maintenance to the costs of external procurement. But many services offer often first pay off if the customers reduce their indirect costs like costs for training, tools or standby costs. Maintenance departments also care about other technical objects like buildings, cars and other machinery. In addition, many customers do not have appropriate cost calculation methods for “Make-or-Buy”-analysis at their disposal. 30

        Therefore, the maintenance departments of the customers can be on the one hand competitors and on the other hand customers of the primary product manufacturer. For many customers, the maintenance department is responsible for assigning – if necessary – an external service company.


        In the after-sales business of engineering and construction companies, the supplier of parts for the primary product business can also be a competitor, especially regarding the sale of spare parts. There is the threat that the part supplier delivers spare parts to the end customer as well as to the competitor in the after-sales business. To what extent a manufacturer can enjoin its suppliers from delivering the after-sales market depends on the distribution of the bargaining power. The kind of procurement objective is of high importance in this context. It may be distinguished as follows:

        • Suppliers of parts per drawing.
        • Suppliers of trade parts.

        For the parts per drawing, it is possible to achieve an exclusive supply. The primary product manufacturer would value the supply of other customers with drawings as a betrayal and will stop business relations. Due to these suppliers of drawings often renounce other businesses for the benefit of a high business volume with the primary product manufacturer.

        Suppliers of trade parts have many sales opportunities for their standardized products. Even though the primary product manufacturers could keep their own suppliers away from the after-sales market, they are not able to control potential suppliers who produce the same products. Although the parts per drawing or the trade parts are technically identical to the parts from the primary product manufacturer, it is not allowed to call them original spare parts or to sell them as such. The trade right is to be exclusively entitled to the primary product manufacturer. 31

        New competitors

        According to Porter the threat of new competitors entering the market depends on the existing entry barriers as well as on the foreseeable reactions of the established competitors. Competitors that differentiate themselves highly form the primary product manufacturer regarding the competition conditions, like origin, structures, personality and customer relations, provide the highest conflict potential. 32

        Potential new competitors are:

        • Franchisees
          • Plagiarizer (“Pirates”)
          • Usage in primary products with a huge population and long lifetime
          • High wear out (frequency of replacement)
          • High prices for original spare parts
          • High value due to labor-intensive production
          • They concentrate on attractive spare parts
          • They offer only little service
          • Partly usage of inferior material quality
          • Labor costs are lower due to production in countries with low labor costs
          • They do not produce by themselves. They buy the spare parts from primary product manufacturers, pirates or other free traders. For an extra charge, the free traders sell the spare parts to autonomous end customers, free service providers or other free traders.
          • Free traders concentrate on special primary products from different manufacturers, enjoying popularity with customers and suppliers as well as representing sufficient technical know-how.
          • Free traders can make well-priced spare part offers for their customers.
          • They can supply goods to their customers faster than the service organization of the primary product manufacturer due to shorter reaction times and more flexibility regarding the choice of their supplier source.
          • They supply the end customer with spare parts and other after-sales services, particularly with maintenance service.
          • Good free service providers are very flexible in relation to their customers. They differentiate their services considering the individual customer requirements.
          • They offer their customers reconditioned or repaired component parts. The old or broken parts delivered by the customer are reimbursed according to their technical condition.
          • Operators of an exploitation company buy old machinery and plants in order to dismantle them in their spare parts and to sell them to resellers or end customers.
          • Despite the competitive situation it can occur that the primary product manufacturer buys spare parts that are no more available, at an exploitation company in order to be able to serve the customer and satisfy their requirements with old primary products. Reconditioning can be considerably cheaper than the supplementary production of an old part.

          Substitution products

          According to Porter, substitution products limit the profit margin of an industry as they put a price limit for the offered services. The price sensitivity of demand represents a threat through substitution products. 33

          New primary products

          • There is a threat that customers substitute maintenance service through new primary products. Irrespective of the fact if the customer buys their primary product from the same manufacturer or at the competitor, the prices and the costs of the new primary product respectively limit the profit potential in the after-sales service. The lower the switching costs to a new primary product in comparison with maintenance costs are, the higher is the threat. The switching costs can be of the following three kinds:
            • Acquisition costs of the new primary product inclusively the implementation
            • Substitutions costs for overcoming substitution barriers
            • Transaction costs

            In the case of the analyzed company, the threat of substitution of products is rather low as the current economic crisis forces the customers to postpone new investments.

            Summary of evaluated data

            The evaluated data come from the tool, the survey, the SWOT analysis and the 5 Forces analysis.

            The data derived with the help of the tool can be divided into three categories:

            1. Forecasting
            2. Order behavior of the customer regarding the 4 customer categories
            3. GAP-analysis or target-performance analysis

            The forecasting makes it possible to calculate the future demand for spare/wear parts.

            After the analysis of the different gaps, the company can calculate the different potentials that can be achieved through a better after-sales service strategy. According to the analysis potential to sell sparer/wear parts is enormous.

            The results of the survey have shown that there are many areas requiring improvement. The following points are the most important to improve:

            • Pricing needs to be more competitive, but customers accept slightly higher pricing for higher quality
            • Introduction of further service offers like service check-ups, or advice for complete bundles could be rewarding
            • As the customers are willing to invest a higher price for increased lifetime and quality, these two issues need to be taken into consideration and a price premium can be set
            • The market demands shorter delivery times and is willing to pay for that. Therefore, concepts need to be developed in this respect
            • Service portfolio should be extended and improved in the direction of advanced services

            The strategies that need to be improved in order to develop the unused potentials are explained in chapter 9. The complete evaluation can be found in the appendix.

            According to the SWOT analysis, it can be seen that the company has many opportunities that can be supported by the company’s strengths like good quality, the brand name, and good know-how. These strengths will help to set a higher price for “monopoly” parts. Furthermore, the already existing service engineer’s models in France and the UK are very good examples for the new rollout of service engineers as sales channels. Moreover, having evaluated the tool and conducted the survey helps to reduce such weaknesses as the missing information on installed bases and no-buy criteria, and gives the opportunity to forecast.

            The 5 forces of Porter give a clear understanding of the competition. As a result, 10 different groups could be identified as competitors and characterized:

            • Primary product manufacturer
            • Customers that maintain their machinery by themselves
            • Franchisees and their suppliers
            • Pirates
            • Free traders (broker)
            • Free re-processors and maintainers
            • Free service providers
            • Exploitation of plants
            • New primary products

            Development of the unused potential benefits

            In the following chapter different strategies used to develop the identified potential will be discussed.

            Development of market potential via a new pricing policy

            The analysis shows that there are many customers that have an installed base but do not buy or buy not enough. To gain a greater market share and higher margins in the spare part business these customers are the most interesting ones. A new selling strategy has to be developed. The most important information to be obtained is the “no-buy” criteria. According to the survey, the price is the most decisive criterion for not buying at the analyzed company. More than that, the price is a major criterion in the supplier selection and the analyzed company is rated slightly weaker than the competitors regarding the pricing. Due to this a new pricing strategy for the spare/ware parts has to be developed in order to gain a higher share-of-wallet and higher margins in this business.

            Third-party maintainer (TPM) often offers prices to the customers that are considerably cheaper than those of the primary product manufacturer. In order to be able to compete against those TPMs, primary product manufacturers can use the following strategies:

            • Create bundles of the primary product and after-sales services and already monetize while selling the primary product, e.g. sell the product with a two-year full service (in comparison to the guarantee the full service also includes the wear out)
            • Differentiate the spare part pricing
            • Develop products with higher acquisition costs and less maintenance intensity

            Price bundling means that the after-sales provider combines various units that can be sold separately into one bundle. This bundle is offered at a cheaper price than all units separately. These performance packages can be combined with services or consist only of services. In the best case, the performances complement one another resulting in a higher overall benefit for the customer, e.g. less coordination and administration for the customer in case of a fixed charged service contract that bundles spare parts and maintenance. The bundles make it possible to transfer the unexploited willingness to pay for one of the parts of the offer to the other part and due to this, it is possible to monetize it. What is also important, the price bundles make it difficult to compare the price directly with the competitors, as the offered performances differ from that of the competitor. There are two kinds of bundles 34 :

            • bundling of different service offers:
              • Service unbundling: The customer pays only for the service that he actually wants to use
              • Service bundling: Sale of a standardized service package
              • Mixed bundling: Service package and product are sold separately
              • Pure bundling: Service and product are only sold together

              Regarding the pure bundles, customers are not able to disrupt the performance bundle and that allows the provider a higher degree of standardization, economies of scale, and better capacity planning. As a result of this, the company can avoid idle time costs.

              With the help of mixed bundles, the company is able to react better to individual customer requirements as the customers could vary within a defined range of standard modules. Due to these mixed bundles have also a high degree of standardization but are smaller than pure bundles. It is important that the provider of mixed bundles determine general conditions like some parts that have to be included in the bundles or a minimum sales volume.

              Companies that maintain their machinery on their own and third-party maintainers often buy only those spare parts from the primary product manufacturers which are not cheaper at alternative providers such as plagiarizers. For the company it is recommendable to target the price on the market in dependence on the following two criteria:

              • Frequency of usage and how marketable the parts are
              • Availability on the market with respect to the alternative purchase opportunities for the buyer

              Depending on the availability on the market there are four spare part groups:

              • Product group A: marketable spare parts with high availability on the market and with strong competition for the spare parts
              • Product group B: the competition intensity is high but not as strong as for product group A.
              • Product group C: there are only a few alternative providers for these spare parts. But in the medium term, there can be more intensive competition.
              • Product group D: Among these spare parts the primary product manufacturer has a monopoly position. Even in the future, there will be no plagiarizers that are interested in those parts as the production is very cost-intensive and needs special know-how.

              Thus, the company should reduce the profit margin for spare parts from the product group A and B and increase it for spare parts from the product group C and D. The sum of the contribution margin should remain constant. 35

              These price adaptations will have a positive effect on the spare part business. The demand within product groups C and D will not shrink as the company has a monopoly position. Within product groups A and B, there will be increased demand as the products are now more competitive due to the price.

              Third-party maintainers that already bought spare parts from the product group C and D at the company, now have to pay more for the spare parts. As there are no-cost reductions in the product groups A and B because they bought them at plagiarizers, the profit margin for third-party maintainers decreases and the market seems to be less attractive for them. As a result, the maintenance business of the primary product manufacturer will be influenced positively.

              With this new pricing strategy, the company will gain a higher share-of-wallet and also higher margins because the prices are now more competitive; due to this the company is no longer rated weaker than the competitors regarding the pricing.

              Development of differentiation potential

              The 5 forces analysis indicated that the parts suppliers and pirates build up the most significant competitors. Due to this, the company can differentiate itself against the competition via the quality of the spare parts as well as over logistic services concerning the spare/wear parts’ ordering and the distribution.

              Quality of spare parts

              To be able to compete against the parts supplier and the pirates the company can differentiate itself because it is an OEM (Original Equipment Manufacturer). As spare parts are experienced and credence products, the reputation of the supplier is of high importance for the customer. The SWOT analysis has shown that the company has a good brand name and offers good quality products, so it is important to use this strength. First of all, the company has to show the added value they gain by buying the original part to the customer. The following facts will help to do so:

              • The original spare parts of the OEMs, in general, have better quality than the parts offered by the competitors like plagiarizers or parts suppliers
              • OEMs possess the right specifications, tools and manufacturing methods
              • Constant improvement and development of the original parts happen due to the incoming information about necessary changes and improvement
              • Missing know-how on the part of the plagiarizers leads to high variations in quality. 36
              • The usage of inaccurate spare parts can have significant consequences like insufficient fitting accuracy, poor running performance, bad functional compliance, higher fuel consumption, early wear out and higher risks of downtime 37
              • Limitation of warranty, guarantee and goodwill in case of not usage of original spare parts

              The enumerated facts show that the company can differentiate itself by offering high-quality spare parts to the customer. In order to communicate this added value to the customer, customer dialogs, customer training, brochures and articles in trade journals or presentations on trade fairs are suitable measures. 38

              Identification of spare/wear parts

              It is recommendable to substitute the conventional spare part catalogue in paper form through electronic spare part catalogues on CD-ROM. The electronic parts catalogue has the following advantages:

              • easy, comfortable and fast handling (like menus, search functions)
              • less required space especially in case of mobile application
              • less weight
              • less duplication costs
              • less distribution costs
              • easy update
              • less wear out
              • add on function: direct transfer of data in an electronic order system

              The company also has the possibility to provide the customers and the service employees with further service documentation like diagnostic procedures, repair instruction and a manual. With the help of hyperlinks, the different kinds of documentation can be linked to problem-oriented documentation.

              As it is complicated to create a new spare part catalogue for every customized configuration, in practice, two-stage spare part identification turns out to be reasonable. 39

              With the help of the spare part catalogue the customer or the service employees determine in the first step the product independent part number and designation. The product designation is transferred together with the serial number of the machine to the manufacturer. In the second step, the manufacturer determines with the help of a configuration database the spare part material number that is necessary for the distribution.

              This two-stage pare part catalogue differentiates the company from the competitor as the competitive part supplier has no full access to the provided spare part documentation, as they cannot access the configuration database of the manufacturer. Due to missing information, the order process of spare parts at part suppliers is more time-consuming and more insecure.

              It is very important that the configuration database is maintained and updated very accurately and consistently. In the configuration database, the manufacturer has to record every customer-specific configuration. More than that, it is possible that the manufacturer can record the total service history and use the information for problem analysis and prevention. The database can also be used for controlling purposes like the calculation of service contracts. 40

              In addition to the database, the company needs to support the customers also with customer advisors that have the high technical know-how, especially when the customer is not able to identify the spare part. The customer advisors have to identify the spare part via a detailed and systematic inquiring procedure on the phone while using the spare part catalogue. Moreover, the customer advisors need to be able to consult the customer regarding the repair procedure.

              Spare/wear part distribution

              The company can also differentiate itself through professional spare/wear part logistics as it will substitute the spare part storage of the customer. Due to the known possible forecasting it the company is able to plan the demand of spare parts of the customer more precisely and is, therefore, able to guarantee high availability of spare parts and also short delivery times. Due to this, the customer stock becomes more or less obsolete. The added value for the customer is that they can reduce costs due to fewer inventory costs and carrying costs.

              The company can offer the customer to create a customized warehousing concept. The concept will consist of detailed spare part planning. That means that one should do an analysis in which the demand needs to be forecast in order to deliver the parts on demand of the customer. The customer only needs to store some parts that are crucial in case of a breakdown of a machine. Due to this costs that are linked to breakdowns can be reduced and the ongoing production at the customers’ site is secured.

              It is very important that the company differentiates the prices in the spare part service if there are heterogeneous customer requirements by offering various service options. It is recommendable to differentiate the prices according to the delivery time with discounts.

              Delivery time Discount
              Within a week 0%
              Within a month 5%
              Within 4 months 10%
              Within more than 4 months 20%

              Development of customer loyalty via service contracts and regular service check-ups

              According to the survey, 66% of the customers are interested in service contracts and 74% are (very) interested in regular service check-ups. With the knowledge about the machines that are at the customers’ site and the knowledge about the lifetime, a customized maintaining and service program can be developed and customer loyalty will be intensified.

              Service contracts

              Service contracts are bundles of maintenance performances that are charged with a fixed rate normally before the service is done. Service contracts provide win-win cooperation for the provider and customer. In the following illustration the benefits for the customer and the company are demonstrated:

              • less downtimes and high availability of primary products
              • high performance, little energy consumption
              • avoidance of consequential damage
              • guarantee in the respect of transfer of the product liability
              • little coordination regarding maintenance
              • easily planned costs for the budget
              • technical updates
              • customer loyalty: assurance of the after-sales profit, protection against direct competitors
              • predictable profits and capacities
              • less administration
              • information about the application and long-term behavior of primary products
              • information about customers’ requirements and competition development
              • continuity in customer and primary product care

              Service contracts have to result in advantages for the customers. This customer benefit has to be clearly communicated to the customer and needs to be proved. More than that, the contracts have to provide fair opportunities to cancel the contract for both sides. The company should offer the customer cost transparency by providing an annual statement about the executed service performances so that the customer does not need to fear that he pays too much. At the end of a contract, there has to be a “balance sheet”. If the customer paid more than he received the 75% of the sum that was paid too many needs to be refunded. With the rest (25%) the company can cover the risk of a cost overrun.

              With this kind of service contract, the company will gain the trust of the customers and their satisfaction resulting in customer loyalty.

              Service check-ups or maintenance

              According to DIN 31051, maintenance is the generic term for all measures done in order to maintain and reconstruct the nominal condition as well as for the determination and rating of the actual condition of the technical system. Maintenance comprehends the following three sub-tasks:

              • Inspection as determination and rating measure for the actual condition
              • Maintenance as sustainment measure for the nominal condition
              • Reconditioning as reconstruction measure for the nominal condition 41

              According to the survey, 74% are (very) interested in regular service check-ups that include the three subtasks. Conducting regular service check-ups enforces customer loyalty because as mentioned above there is a high correlation between customer loyalty and customer satisfaction. And especially the machine life is from the point of view of the customer one of the most important points. Service check-ups will help to enlarge the machine life as problems are identified early or even avoided. This results in customer satisfaction and due to this in customer loyalty.

              Furthermore, regular service check-ups also bring the advantage that the company has regular contact with the customer, which leads to better relationships between them. Moreover, regular contact with customers gives a lot of information about problems or requirements on their part. This frequent information flow also leads to a higher degree of customer loyalty.

              Customer consulting

              The company can increase customer satisfaction and loyalty by consulting them after the purchase of the product. The consulting consists of advice over:

              • the optimal usage of the machines;
              • the optimal maintenance procedure;
              • the optimal point of time for replacement of the parts of the machine or the whole machine;
              • information about new primary products and after-sales services.

              Although customer consulting often does not result in direct sales, the consultants need to care about the relationships with the customer: it is also a good information source about their own products, products of the competitors, customer requirements and general market development. This information can then be used for future development and the creation of new services that would fit customer requirements. Due to satisfaction of requirements a higher level of customer loyalty can be achieved.

              Development of information potential via frequent data collection

              In order to develop the information potential introduction of an online platform is useful. The primary reason for this is that the company very rarely has the opportunity to access information about the interests and preferences of customers in such a targeted and non-distorted manner, as when the customer surf the company’s website – supposedly unobserved. As seen from the results of the survey online services, requests for quotations and questions are of special interest. The new online platform will consist of ordering frame contracts, selecting and ordering in an online shop, question platform, request for quotes and a claim system.

              The question platform, the claim system and the availability of an online shop will deliver the most information about the customer. This information needs to be collected frequently and has to be evaluated and put together in one database that is accessible to every employee who has contacts with customers. The generated information enables customer profiles to be compiled, which on the one hand can assist with cross- or up-selling strategies and on the other hand facilitate the drafting of customized service offers.

              However, the data is not only collected via the new online platform – it also has to be collected after service check-ups and customer consulting mentioned above, and every claim coming in has to be recorded and put into the customer database.


              In order to compete in the long run against competitors and their service offers, to be able to gain higher margins from service, the company should introduce a remote service and transform the service department into an independent organizational business unit.

              Remote Service

              Remote service is a technique to transfer technical services to a distant location with the aid of telecommunication networks, also called long-distance data transmission. With the remote service, the company has the opportunity to maintain the products from a distant location. Since on-site inspections cost time and money, the use of remote technologies is becoming increasingly popular and is therefore gaining ground. The company can improve the efficiency and performance of maintenance and at the same time be able to elevate the entry barrier for competitive service providers. A shortening of reaction times is the most obvious improvement because the company can react more quickly and initiate the problem-solving process more rapidly.

              As it is possible to realize distant maintenance, potential product dysfunction can be discovered at an early time and also be avoided through appropriate maintenance measures. Furthermore, since systematic data evaluation takes place, it can help to identify deviations from set parameters. Thus, the company can adjust maintenance intervals. In some cases, it is also possible to solve the problems that occur by remote access.

              According to the study, some companies are able to analyze and solve more than 40 percent of incidents using remote access. 42 Another significant advantage can be achieved in materials and tools planning. Due to the submitted data, the company will be able to analyze the problem and the technician can take the appropriate materials and tools in order to solve the problem within the first visit. Therefore so-called “Broken Calls” can be avoided.

              “Broken Calls” are service visits at the customer sites that are interrupted because the appropriate tool or material is missing. Avoiding these broken calls will lead to shorter downtimes and therefore to higher customer satisfaction. The remote service is also an advantage for the R&D department and the manufacturer as the constant data evaluation also discovers errors in the product that can be changed in the next production phase.

              New organizational structure

              A fundamental issue that every service-focused company has to address is how the service is integrated into the company’s organizational structure. For the design of the after-sales service division, the allocation of the after-sales tasks to the organizational units of the company plays a very important role. It is recommendable to bundle the service activities in an independent Service Business Unit. The change creates the preconditions to establish an independent business that is focused on the conditions of the competitor. The new structure demands a determination of targets and their realization from of a cost or profit center.

              For the company, a cost center is more recommendable at the present moment. The organization as a separate cost center is characterized by management that is responsible for compliance with the cost management. The cost center is an organizational steering principle that separates the service tasks, competencies and responsibilities. This organizational form makes it possible to achieve independent service targets much easier. The services are communicated independently and actively to the customer. What is more, the total share of the service business will increase considerably. Another advantage is that the organizational bundling of services enables the company to exploit economies of scale, like the common usage of customer relations and know-how. Moreover, service-specific know-how will be concentrated in the service Business unit.

              Thus, there will be competitive advantages due to experience and competency in the service-related business. Additionally, the independent service business creates the basis for a service culture and mentality. With an increase of appreciation of the service business, its strategic position in the company obtains a higher value and therefore more attractive possibilities for development on behalf of the employee. Due to this, it becomes easier to employ high-qualified service personnel.

              The following illustration shows a new possible organizational structure:

              Organizational structure.


              In the past, many companies were only focused on the primary production business and neglected the after-sales service because it was considered as a cost factor or an unnecessary evil. But in the meantime, the companies, like the analyzed company, have recognized the importance of the after-sales service business, paying particular attention to the unused potential. To be able to develop the unused potential like differentiation, information, customer loyalty and market potential many points have to be kept in mind.

              First, the available data needs to be evaluated and constantly updated to obtain a reliable database. This database is the basis for many evaluations that have to be done in order to identify unused potentials in the aftermarket. The analysis of the existing installed bases together with the lifetime and the actual orders gives a clear understanding of the current situation and target state.

              Second, the frequently updated data needs to be available all the time for every employee who is engaged in the aftermarket business, to be in the position to serve the customer in the best way and to provide an excellent service. Third, a clear market understanding is very important as the customers, the competition and the company itself play a major role when creating the appropriate after-sales service strategies. Detailed knowledge about the customer requirements, dissatisfaction and expectations helps to create the best service portfolio in order to differentiate the company from its competitors and to create customer satisfaction which leads to a higher degree of customer loyalty.

              Furthermore, with a high degree of customer loyalty, it is also possible to gain a greater market share. The awareness of the competition also helps to create the right service portfolio and the right pricing strategies in order to be able to differentiate the company from its competitors. With a critical view of one’s own company by doing a SWOT analysis the company can identify its strengths, weaknesses, opportunities and threats. Having done this, it is possible to use the strengths to reduce the weaknesses and to make an advantage out of the opportunities. Moreover, the threats can be reduced or even eliminated, when using the right after-sales strategy.

              With the evaluation of the tool the data is now prepared in a way that the company can work with it easily and is able to update and maintain the data frequently. Therefore, forecasting, rating of customers’ order behavior and a target performance analysis can be done every time. This gives the company a very good overview about the present situation.

              The conducted survey provides a very good picture on what the customer requirements and dissatisfactions are and what they really need regarding the after-sales service.

              In order to develop the potential of the company’s appropriate pricing policy, a new logistic service concerning spare/wear parts, service contracts, and regular service check-ups, frequent data updates and online service has to be implemented.

              Since in the long run, many engineering and construction companies will introduce similar services, the company needs to look further and has to implement remote services as well as a new organizational structure has to be applied.

              Although the service, especially the after-sales service is gaining importance, the primary product manufacturers should not forget about their core business, the products. Even, if at the moment postponing in investments takes place and the service business plays a major role, the companies need to care about both businesses. Only a well-balanced focus on both businesses will provide the company with the expected potentials. Nevertheless, the companies are in a transformation process and due to this, they have to take advantage of this transformation by developing the potentials and gaining the biggest advantage of the situation.


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