Impact of Customer Satisfaction on the Profitability of FMCG Companies

Running head: CUSTOMER SATISFACTION
Impact of Customer Satisfaction on the Profitability of FMCG Companies
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Author Note:

Chapter 3. Why is Unilever successful in the global FMCG market?1
Research proposal:
Chapter 1. Introduction:
Chapter 1.1. Background (problem):
Nainaar and Masson (2018) mentioned that ‘Customer satisfaction is considered as the
number one priority for organisations in an extremely competitive environment.’ The term
customer satisfaction can be defined as the levels to which companies meet or surpass
expectations of consumers with their products. Banumathi and Rani (2018) upholding the
significance of customer satisfaction opine, ‘The development of business is depends on
consumer satisfaction when consumer satisfies the growth of the business in terms of sales
would gradually increase fmcg’s goods.’ Thus, customer satisfaction plays an immense role in
generation of profits in the fast moving consumer goods firms. The FMCG companies in order to
ensure steady generation of funds have to ensure that they are able to retain their existing
customers and acquire new customers. Creation of customer satisfaction by offering superior
quality products at legitimate prices enables FMCG firms to retain customers which in turn
ensures them steady profit generation. FMCG companies by retaining customers by creating
customer satisfaction, are able to prevent their competitors from largely poaching their
customers. Thus, customer satisfaction is directly related to competitive strengths of the FMCG
companies which secures steady generation of profits both in the short term and long terms.
Thus, reduction of profits earned by FMCG companies can signal reduction in the levels of
customer satisfaction secured by them. Fall in the revenue generation leads to fall in generation
of net profits these firms earn. This impacts the ROI they give to their investors which in turn
leads to fall in capital generation (Trainer, 2018). Thus, customer satisfaction levels which

Chapter 3. Why is Unilever successful in the global FMCG market?2
companies achieve have profound impacts on their operations. The FMCG market is extremely
competitive with immense number of companies competing to strengthen and retain their
positions. Thus, it has become empirical for companies to ensure high levels of customer
satisfaction in order to generate high revenue and retain their positions. An analysis of the
financial statements of Unilever, the second largest player in the fast moving consumer goods
market shows that the company suffered a fall in sales turnover in several product segments. For
example, the company generated a turnover of EU 20.6 million in the beauty and personal care
segment in 2018 compared to EU 20.7 mn in 2017. The company suffered turnover decrease of
9.9% and 4.2% in food & refreshments and home care segments respectively in 2018
(Unilever.com, 2020) (Appendix 1). This means that the company is creating low levels of the
customer satisfaction in these product segments which is evident from fall in profits. In other
words, the lowering levels of customer satisfaction would impact the other important operations
of the company namely, Unilever like capital generation ultimately leading to toppling the
company from its global position (O'Connell, 2018). The problem with which the researcher
would be the impact of customer satisfaction on the profitability of the FMCG companies.
Chapter 1.2. Relevance of the study:
The research holds strong relevance to the market sustenance of FMCG companies like
Unilever. The first importance of the research lies in the fact that it studies the relationship
between two important variables namely, customer satisfaction and profitability of the FMCG.
The former being the independent variable while the latter is the dependent variable. King,
Dhameeth and Kim (2017) mentions that ensuring customer satisfaction results in customer
retention which ultimately goes on to revenue generation. Thus, it can be established that the
importance of customer satisfaction lies in gaining customer retention and revenue generation in

Chapter 3. Why is Unilever successful in the global FMCG market?3
the long run in companies like Unilever. O’Connell (2018) can be iterated to point out that
second relevance of customer satisfaction namely, capital generation and covering the cost of
capital. One can point out that Unilever and its main competitors like P&G are listed companies
(Bloomberg.com, 2020) (Appendix 2). Thus, the company has to compete with its main
competitors not only in the product market but also in the capital market. Thus, lowering level of
customer satisfaction and consequent lower revenue generation would affect the capital
generation in the long run. This is because the company would gradually become incapable of
giving high ROI to investors owing to lowering profit generation. The lowering of revenue and
capital generation would ultimately impact all the other operations of the company like product
marketing, ultimately weakening its position in the global market. The incapability of Unilever
to market superior products would impact the consumers. Moreover, the company would not be
able to pay timely dues to its suppliers, thus impacting the revenue generation of the latter. Thus,
it can be established on the strength of the discussion above that significance of research lies in
the fact that it would establish the tremendous role which customer satisfaction plays in ensuring
not only profitability in the FMCG firms but also in ensuring smooth executions of operations as
important as capital generations.
Chapter 1.3. Research question:
Main question:
Does customer satisfaction impact profitability in the fast moving consumer goods companies?
Secondary questions:
What are the factors on which customer satisfaction depends?
What are the main customer satisfaction issues facing the FMCG companies like Unilever?

Chapter 3. Why is Unilever successful in the global FMCG market?4
How can the issues be overcome?
Chapter 1.4. Research hypothesis:
H0- Customer satisfaction has no effect on the profitability of the FMCG companies.
H1- Customer satisfaction has effects on the profitability of the FMCG companies.
Chapter 2. Theory:
Chapter 2.1. Customer satisfaction theory:
Chapter 2.1.1. Disconfirmation paradigm:
The disconfirmation theory is the theory of customer satisfaction which considers that
customer satisfaction levels which customers experience depends on their predetermined
expectations about the products. The customers take into account their expectations, purpose of
purchase and attitude they have towards the products in question. The actual utility which
customers derive from consuming products leads to perception of performance of the products.
When the actual performance perceived surpasses or equals the predetermined standards of
performance, customers experience customer satisfaction. If the former fails to surpass the latter,
the customers experience negative customer satisfaction (Siu et al., 2017). Huang (2017)
mentions that the disconfirmation theory of customer satisfaction depends on four factors
namely, expectations of the customers, performance levels of the products which the
customers perceive, disconfirmation and satisfaction. Ghotbabadi, Feiz and Baharun (2016)
stress on the importance of customer satisfaction describing it as one of the ‘factors of
determining the corporate financial performance’. Thus, it transpires upon analysis that
consumer goods firms should aim to align their products with the predetermined perceptions of
the consumers in order to generate high profits.

Chapter 3. Why is Unilever successful in the global FMCG market?5
Chapter 2.1.2. Expectancy value theory:
The expectancy value theory mentions that consumers while purchasing products take
into account the likely benefits which they would derive by using the products. In other words,
customers judge the benefit they derive by consuming products based on their present
experiences (Paul, Sankaranarayanan & Mekoth, 2016). In other words, the level of customer
satisfaction which consumers experience as per the expectancy theory is dependent on the
present experience in contrast to the disconfirmation theory in which the customer satisfaction
levels are dependent on predetermined expectations (Siu et al., 2017). Pandey, Moffett and
McAdam (2019) strengthens the discussion by opining that as per the expectancy value theory,
the customer expectations are not under the influences of predetermined expectations, firms
should ensure that they deliver products which cause value or benefits to the customers. This
would lead to creation of a stronger perceptions about the products among the customers which
would lead to customers consume the products on repeat basis and lead to generation of steady
revenue (King, Dhameeth & Kim, 2017). Thus, it can be established on the basis of analysis of
the two theories that consumer goods companies should aim to achieve customer satisfaction
with every sale of goods to ensure steady revenue inflow.
Chapter 2.2. Stakeholders’ theory:
Jones, Harrison and Felps (2018) mention that stakeholder theory is one of the central
theories applicable to the business world. The theory is extremely applicable for the research
since customers are one the key stakeholders protecting whose interests directly impacts the
profitability of the consumer goods firms. Mascena, Fischmann and Boaventura (2018) mention
that, ‘The stakeholder theory presents concepts and models that consider the interests and
demands of the various stakeholders of the organization in the formulation and strategic