Impact of Word of Mouth and Complaints on Customer Satisfaction and Loyalty

This research explores the impact of word of mouth communication and customer complaints on customer satisfaction and loyalty. It discusses the importance of customer satisfaction and loyalty for organizations and how they can be improved. The research also investigates the relationship between customer satisfaction and loyalty. Hypotheses are formulated and research methodology is discussed.

CONSUMER SATISFACTION,
COMPLAINTS
CUSTOMER LOYALITY, WORD OF
MOUTH COMMUNICATION
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Table of Contents
1. Introduction..................................................................................................................................4
1.1 Problem Statement.....................................................................................................................5
1.2 Research Objectives/Questions.................................................................................................5
2. Justification of the Project...........................................................................................................6
2.1 Expected Research Outcome.....................................................................................................6
3.0 Conceptual Framework..............................................................................................................7
3.1 Importance of Word of Mouth in case of Customer Satisfaction and Loyalty......................8
3.2 Role of Consumer Complaint in case of Customer Satisfaction Level.................................8
3.3 Effect of Customer Satisfaction Level on Customer Loyalty................................................9
3.4 Relationship between Customer Satisfaction and Customer Loyalty..................................10
4. Research Hypotheses.................................................................................................................10
5. Research Methodology..............................................................................................................11
5.1 Research Philosophy............................................................................................................11
5.2 Research Design..................................................................................................................11
5.3 Research Approach..............................................................................................................12
5.4 Data Collection Method.......................................................................................................12
5.5 Data Analysis Technique.....................................................................................................12
5.6 Sampling Technique............................................................................................................12
6. Organization of the Research Study..........................................................................................13
7. Budget and its Justification........................................................................................................14
8. Gantt Chart.................................................................................................................................15
Reference List................................................................................................................................20
Bibliography..................................................................................................................................23
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1. Introduction
Customers are the most important part of all businesses, because of which all organizations
exists to satisfy customers and thereby earn profits (Izogo & Ogba, 2015). Dealing customers
carefully, monitoring their preferences and choices, their past records and new demands and
requirements is essential for tracking and understanding customers in order to serve them better.
An organization requires fulfilling the needs and requirements of customers to stay competitive
in business environment and earn high profits. Innovating their products and services as per the
needs of customers in order to provide smart and unique products will create high reputation and
brand name for the company.
Customer satisfaction depends upon the ability of providing superior quality products and
services at reasonable prices as compared to rivals in the same sector. When customers are happy
with the quality of products and services that they receive in exchange of money they tend to be
loyal with the company. Customers tend to choose the same organization to purchase products,
the next time, and may even refer to friends and family for purchasing the product from that
organization (Ennew, Binks & Chiplin, 2015). Word of mouth communication refers to sharing
of experience, in which a customer shares his or her experience with other people surrounding
him and tend to influence their decision-making and choices. This proposal explores word of
mouth communication and customer complaints affect the satisfaction level and the loyalty of
customers. Several methods and techniques that will be used for conducting the research is
briefly discussed and mentioned below.
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1.1 Problem Statement
Customer satisfaction is a well-known aspect and all organizations understand that if their
customers are satisfied with their products and services, only then they can exist in the market
and generate large profits. Customers always share their information about a particular product
and their experience, often with other customers, friends and family (Kim, Vogt & Knutson,
2015). This does has an impact on their decision making process and future choices. Word of
mouth communication is highly effective and believable to people, far more influencing than
several polished advertisements and marketing strategies. Several studies and research have
already been conducted in the past, briefly describing the impact of word of mouth
communication on customer satisfaction. However, all these previously conducted reports and
studies fail to highlight the impact of word of mouth communication and customer satisfaction
on customer loyalty. This is the primary focus of this research and the research also aims to
outline the ideas or facts about how changes can be made in order to foster customer loyalty.
1.2 Research Objectives/Questions
The aim of this particular research will be to explore the concept of customer satisfaction. In
addition to that, this particular research will explore “explore the impact of complaints and word
of mouth communication on customer loyalty and satisfaction”.
The objectives of the research are summarized below-
 To explore the effectiveness or the usefulness of the concept of “word of mouth
communication” in the resolution of the customer complaints and enhancing the
satisfaction level of the customers.
 To explore the impact of customer complaint as well as the “word of mouth
communication” in the process of customer satisfaction.
 To explore the relationship between customer satisfaction and also customer loyalty.
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The following are the research questions that have been investigated in order to arrive at the
expected outcome:
RQ 1: How word of mouth communication assists to deal with customer complaints and
improving customer satisfaction?
RQ 2: What impact does word of mouth communication and customer complaint have on
customer satisfaction?
RQ 3: What is the relationship between customer loyalty and customer satisfaction?
2. Justification of the Project
Study of customer satisfaction and customer loyalty is essential for improving the organization
performance and competitiveness in the market. Organizations can develop better strategies and
tactics to improve their brand name and brand value. The research project will guide companies
to realize the impact of word of mouth communication on customer satisfaction, pivotal for
understanding key concepts and aspects about customers. The project highlights the relationship
between two important areas that are customer loyalty and customer satisfaction (Bowen, &
Chen McCain, 2015). Happy customers are loyal customers of an organization, they also help to
share the word about the company or organization to other possible customers. Customer
complaints have an effect on the level of customer satisfaction, therefore require proper attention
so that it does not creates negative impact on the organizational performance.
This will enhance the capabilities of organization to serve their customers and attract new ones in
a better manner. Word of mouth communication has greater impact on the minds of a customer
than various advertising strategies, therefore this report will assist to focus on more important
matters. All organizations aim to improve their reach to customers so that they can serve them
better, hence this research will aid in this process (Kaura, Durga Prasad, & Sharma, 2015).
2.1 Expected Research Outcome
The expected outcome of this research project is mentioned below:
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 It will provide better understanding of how organizations can improve the experience of
their customers and thereby increase customer satisfaction. The importance of word of
mouth communication is illustrated in the entire research project that will guide the
organization to create much better advertising strategies.
 The research project will provide concrete evidence about the impact of word of mouth
communication and customer complaints. These two aspects influence customer decision
process and their choices. The research project will also help to identify key concepts to
about improving customer satisfaction.
 The research project will provide an analytical framework to identify and analyze the
relationship between customer loyalty and customer satisfaction. This will lead to
improved organization performance and better capability to attract customers and provide
enhanced customer gratification.
3.0 Conceptual Framework
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Word of Mouth
Customer Complaint
Customer Loyalty
Customer Satisfaction
Figure 1: Conceptual Framework
(Source: Created by learner)
3.1 Importance of Word of Mouth in case of Customer Satisfaction and Loyalty
Customer satisfaction has a significant impact on the organizations present performance and
future performance. An organization that is able to provide superior quality products and services
will be far capable in gratifying customers than an organization with excellent marketing
strategies. Giving valuable service or product to customers at an affordable price will create
brand name and loyalty. High customer satisfaction aids to increase the organizations capability
to generate revenue, thereby profits, low investment in advertising and marketing strategies
(Khan & Fasih, 2014). Satisfied customers will automatically share their experience with their
close friends and family and persuade to purchase product or service from the same company
from where they did. Thus, it can be concluded that a happy customer of a given company will
tend to be highly loyal to that company due to positive reinforcement and encourage other people
to do business with that company (Chung, Yu, Choi & Shin, 2015).
Word of mouth communication is highly important for a service-oriented organization, which
offers customers with intangible and experience based product. In this case, people highly
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depend on the advice of other customers who have had already experienced the service of a
particular organization (Stathopoulou & Balabanis, 2016). People tend to trust the advice of
family and friends more than they trust the words of organization spread through various
advertisements. According to Radojevic, Stanisic and Stanic (2015), word of mouth
communication is seven times more effective than several advertising strategies developed by an
organization, this is primarily due to the reason that word of mouth communication is highly
credible. Thus, word of communication exerts a strong influence on customer loyalty. An
organization can use this opportunity to enhance their market share by developing improved
image among customers (Zakaria et al., 2014).
3.2 Role of Consumer Complaint in case of Customer Satisfaction Level
Consumer complaints are a fundamental consequence of all businesses that sell some kind of
product or service to customers (Kandampully, Zhang, & Bilgihan, 2015). Dissatisfied customers
tend to voice their problems and issues to inform the firm about their dissatisfaction, this way
giving valuable feedback to them. These are essential indicators of unsatisfactory performance of
an organization and thereby important to focus and put efforts to address and then rectify them.
Without customer complaints, an organization would have no idea about its pitfalls, problems
and areas where it needs to improve, thereby losing the ability to satisfy and retain customers
(Murali, Pugazhendhi & Muralidharan, 2016). Many unsatisfied customers tend to share the
information about their experience with other customers and prefer to change the brand or
supplier. An organization with improved methods to gather and address customer feedback will
perform better in future and increase the customer satisfaction level.
3.3 Effect of Customer Satisfaction Level on Customer Loyalty
Several theories and models describe the effect of customer satisfaction on customer loyalty.
Two such models are discussed below:
The disconfirmation of expectations model
According to this model, the measure of customer satisfaction depends upon two matters, i.e.
performance of products and services and the expectation level of customers. This model
describes that, in case, when the performance of a product or service exceeds the expectation
level of customers, the satisfaction level of customers also increases. Similarly, in case, when the
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expectation level of customers is higher than the performance of product, the satisfaction level of
customers tends to decrease. The model highlights a negative impact of customer expectation on
customer satisfaction. As the satisfaction level of customers decrease, they tend to lose the trust
on the firm or organization and try to look for alternatives and better options elsewhere.
However, the model is appropriate for product-based company and not for service oriented. This
model provides suggestion that those working in managing customer expectation should aim to
lower the expectation level.
The performance model
According to this model, the way customers perceive the performance of a product and service
and the expectation of that performance play a positive impact on the level of customer
satisfaction. Customers evaluate the performance of a product or a service based on the quality of
the product relative to the price they have paid. This perceived performance of products by
customers can be described as value that customers have received in exchange of the money
invested. The greater value of a product or service in comparison to the price, the higher the
satisfaction level of customers will be. The model shows that there is a direct and positive impact
of expectations on satisfaction level. The stronger a customer has expectation from a product or
service, as compared to its performance information, the greater is the impact of expectation on
the level of satisfaction. This in turn increases customer loyalty, as customers view the company
to be highly valued and trustworthy.
3.4 Relationship between Customer Satisfaction and Customer Loyalty
Customer satisfaction is a necessary area of concern for all organizations that is trying to build
customer loyalty and therefore foster better business performance. Customer loyalty can be
described as the relationship or bond between the organization and customers. This is developed
as through positive experiences with customers (Hannan, Suharjo & Nurmalina, 2016). This
creates trust and goodwill in the minds of customers that persuades them to choose the same
organization the nest time as well. Customer satisfaction has a direct impact on the customer
loyalty, as happy customers tend to visit the same place for fulfilling their needs and wants in
future as well (Nguyen et al., 2014). Thus, it can be said that the customer loyalty and customer
satisfaction have a direct relationship with each other. If customers are satisfied with the goods
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and services, they tend to be loyal and the revenue of the organization shows inclined slope
whereas, if customers are dissatisfied they tend to look for alternate organization offering similar
kind of product (Rahimi & Kozak, 2017). This creates a decline in sales and revenue of the
organization.
4. Research Hypotheses
Hypothesis 1
H0: Null Hypothesis: Word of mouth communication has no impact on the level of customer
satisfaction.
H1: Alternative Hypothesis: Word of mouth communication has an impact on customer
gratification and influences their choices and preferences.
Hypothesis 2
H0: Null Hypothesis: Customer complaint does have affect on the satisfaction level of customers.
H1: Alternative Hypothesis: Customer complaints do not influence the satisfaction level of
customers.
Hypothesis 3
H0: Null Hypothesis: There is no relationship between customer loyalty and customer
satisfaction.
H1: Alternative Hypothesis: There is a profound relationship between customer satisfaction and
customer loyalty.
5. Research Methodology
5.1 Research Philosophy
The research philosophy refers to the way information or data is gathered, analyzed and used.
The research strategy deployed to obtain the necessary goal or objective of the research is
necessary for successfully accomplishing them (Mackey, & Gass, 2015). Three research
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philosophies that can be implemented are interpretivism, positivism and realism. Positivism
refers to systematic approach and can be characterized by having a detached approach to gather
facts and information about the research project. In research philosophy realism, the method to
collect data is independent of reality from human mind. Interpretivism research philosophy
requires researchers to interpret data and thus involves integration of human interest into the
study. In this research project, positivism research philosophy will be implemented.
5.2 Research Design
Research design refers to the overall strategy that the researcher chooses in order to integrate the
several components of the study in comprehensive and logical manner. This ensures that the
entire project is dealt in an effective and efficient way (Lewis, 2015). There are three types of
research design that are often used that are explanatory, exploratory and descriptive. In
Explanatory design, the researcher tries to explain the current situation and the entire subject. In
exploratory design, the researcher puts effort to explore the subject and gain insights about the
topic. In descriptive research design, describes various answers about the research topic,
variables, and conditions. In this research, exploratory research design will be utilized for
accomplishing the necessary objectives.
5.3 Research Approach
The research approach describes the pattern in which the data and facts are gathered about the
research project and the way that information is analyzed and presented. This includes two
methods that are deductive and inductive. In inductive research approach, the researcher puts
effort to gather new data and investigate the matter to its core so that new findings and analysis
can be performed (Taylor, Bogdan & DeVault, 2015). This gives an opportunity to the researcher
to find facts and information that has never been discovered before. In deductive approach, the
researcher uses data and facts previously gathered and analyzed. The researcher tries to collect
and analyze the information and present according to his or her subject respectively. In this
project, deductive research approach will be implemented.
5.4 Data Collection Method
Data collection method refers to the method used by researcher to collect various data and
information related to the topic. The two kinds of data collection methods are primary and
secondary data collection method (Silverman, 2016). In this scenario, secondary data collection
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method will be used. In this method, the researcher utilizes already published journals,
magazines and newspapers relevant for the subject he is conducting the research. In this project,
peer reviewed journal, citation will referred for appropriate findings and analysis.
5.5 Data Analysis Technique
The data collection method that will be used is secondary data collection method. The data that
will be collected will be analyzed by referring to the relevant case study and observations. This
allows analyzing the collected data in a concise and detailed manner. The relevant case study
plays the role of foundation for documenting the research project and thereby providing
necessary assistance to study the entire research project. This data analysis technique is useful,
effective and provides proper guidance for developing improved research project.
5.6 Sampling Technique
Sampling technique is an important part of a research project as it has significant impact on the
quality of the result or finding of the research project. The two types of sampling techniques are
probability and non-probability sampling techniques. In this research project, non-probability
sampling technique will be used for conducting the research (Csikszentmihalyi & Larson, 2014).
In non-probability technique, samples are selected based on the subjective judgement of the
researcher. The main advantage of this technique is that is cost effective and less time
consuming. In order to complete the give project, about ten peer reviewed journal will be used.
6. Organization of the Research Study
This report is organized in the following manner:
Chapter One: This discusses a brief introduction about the subject, an overall context and
research objectives and aims.
Chapter Two: This chapter illustrates the literature review and provides information about the
subject.
Chapter Three: This includes the research design that will be utilized and implemented by the
researcher while conducting the research project.
Chapter Four: This chapter describes the results, analysis and findings of the research project.
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Chapter Five: This includes conclusions and recommendations so gathered in the research
project.
Figure 2: Organisation of the Study
(Source: Created by learner)
7. Budget and its Justification
To complete the above mentioned research project within the stipulated time, the budget or
financial capital required is about $5000. The justification for the budget is as follows:
The literature review that need to be undertaken requires peer reviewed journals and various
books, therefore cost of $500 has been estimated for this research project.
Secondary data collection method requires lot of capital and time for completing the project and
therefore, cost of about $3000 has been estimated for it.
Data analysis process requires referring to several case studies and observations and utilizing the
most relevant for the research project. $1000 has been estimated for this process.
The summary of the expenses is given below:
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S.N Purpose Estimated Budget
1. Literature Review $500
2. Secondary Data Collection Method $3000
3. Data Analysis $1000
Total Estimated Budget $4500
Table 1: Budget of the Research Study
(Source: Created by the learner)
8. Gantt Chart
Activities 1st week 3rd week 5th week 9th week 12tt week
Selecting the Research topic 
Information gathering from
secondary data sources
 
Research layout 
Literature review   
Research plan development  
Selecting appropriate techniques
for the research
 
Gathering information from the
primary research data

Findings and interpretation 
Conclusion
Creating a Rough draft
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Submission of Final study
Table 2: Gantt Chart
(Source: Created by the learner)
Activity Name Star
date
Duration
(days)
End
Date
Selecting the Research topic 01-06-
18
15 16-06-
18
Information gathering from secondary data sources 16-06-
18
15 01-07-
18
Research layout 01-07-
18
12 13-07-
18
Literature review 13-07-
18
20 02-08-
18
Research plan development 02-08-
18
14 16-08-
18
Selecting appropriate techniques for the research 16-08-
18
15 31-08-
18
Gathering information from the primary research data 31-08-
18
15 15-09-
18
Findings and interpretation 15-09-
18
15 30-09-
18
Conclusion 30-09-
18
15 15-10-
18
Creating a Rough draft 15-10-
18
5 20-10-
18
Submission of Final study 20-10-
18
3 23-10-
18
Table 3: Milestone of the Research Study
(Source: Created by the learner)
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Selecting the Research topic
Information gathering from secondary data sources
Research layout
Literature review
Research plan development
Selecting appropriate techniques for the research
Gathering information from the primary research data
Findings and interpretation
Conclusion
Creating a Rough draft
Submission of Final study
01-01-18
11-04-18
20-07-18
28-10-18
05-02-19
Star date
Duration (days)
Figure 3: Gantt Chart
(Source: Created by the learner)
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