That customer satisfaction leads to better financial performance is almost an article of faith among proponents of the balanced scorecard. More satisfied customers, they argue, are likely to give you a greater share of their business, which in turn translates to better financial returns.

Convinced by this intuitive logic, Kozy Kitchens invested heavily in improving its customer service functions. This online-only firm totally redesigned its Web interface to make it customer friendly. The firm hired staff to operate customer help lines 24/7.

A “no questions asked” returns policy was instituted, and customers were guaranteed a price match on any item in stock.

Fred Larson, the president and CEO of Kozy Kitchens, was initially delighted to see his efforts pay off in the form of higher customer satisfaction scores. However, he has become increasingly impatient to see corresponding financial results.

Required:

a. Comment on why Kozy Kitchens might never experience a significant increase in ROA following an increase in customer satisfaction scores.

b. Does the seeming lack of a relation between customer satisfaction and financial performance imply that Kozy Kitchens should stop investing in providing a superior customerexperience?

2007 Q3 Q4 2006 Q1 Q2 Q3 Q4 Q Satisfaction Index 85 88 90 92 92 4 95 95 9.0% ROA 8.5% 8.6% 8.6% 8.4% 8.2% 8.2% 8.3%