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Rice U. study: To boost sales, energy companies should focus on customer satisfaction, not just technology
HOUSTON – (March 14, 2018) – To experience the sales gains expected as a result of the increased price of crude, companies in the oil and gas sector need to go back to basics of increasing customer satisfaction, according to a study by scholars at Rice University’s Jones Graduate School of Business and Texas A&M University’s Mays Business School.
The 2017 Energy Benchmark Study is based on a nationally representative online survey of more than 1,210 managers in the energy sector. The goal of the study is to provide an evidence-based approach to understand drivers of sales, margins and earnings in the oil and gas industry.
The study found a steadily increasing association between customer satisfaction and sales in the energy sector. On average, a company with extremely dissatisfied customers had $6.4 billion in sales, but sales for a company with extremely satisfied customers increased to $8.5 billion. The research team simulated results for five companies in the energy sector --Targa Resources, Amec Foster Wheeler, Technip FMC, Conoco Phillips and Sunoco. For each company, sales increased by at least half a billion dollars when customers moved from their current satisfaction level to being extremely satisfied.
“Energy companies routinely embrace the product-features and pricing fallacy,” said study leader Vikas Mittal, the J. Hugh Liedtke Professor of Marketing at Rice. “To increase sales, they offer products with more technology and presumably better features at reduced prices. These technology investments, in many cases, only increase their costs and reduce margins, such that every bit of incremental sales only reduces margins and earnings. They also become progressively more reactive as their justification for more technology is typically lower prices or long-term value. Meanwhile, customers only demand more features and become accustomed to lower prices.”
"Instead, by focusing on customer satisfaction -- which is driven by many other factors beyond product and price -- companies in the oil and gas sector can improve sales without sacrificing margins. For this, they need to carefully measure customer satisfaction and its drivers in a rigorous manner,” Mittal said.
Additional members of the research team include Kyuhong Han at Rice and Shrihari Sridhar and Biwoong Im at Texas A&M University.
For more information about and insights from Rice Business faculty research, visit the school’s Rice Business Wisdom website, http://ricebusinesswisdom.com.
Follow the Jones Graduate School of Business via Twitter @Rice_Biz.
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Photo credit: 123RF.com/Rice University.
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