The Home Depot paradox: An investigation of the relationship between financial performance and customer satisfaction

by Guevara, Yamil Enrique, Ph.D., CAPELLA UNIVERSITY, 2009, 105 pages; 3350410

Abstract:

Most scholars in the research field of customer satisfaction are of the agreement that there is a direct link between customer satisfaction and the financial performance of organizations. Most of these scholars have concluded that satisfied customers are going to be repeat customers, i.e., loyal customers, and the repeat business that these satisfied customers bring leads to greater sales revenue. Increased sales revenue leads to enhanced cash flow, which ultimately leads to financial success. On the other hand, unsatisfied customers are not going to be repeat customers, and the lack of repeat business from these unsatisfied customers leads to decreased sales revenue. Decreased sales revenue leads to diminished cash flow, which ultimately leads to financial failure.

Between 2001 and 2005, Home Depot experienced an unprecedented financial performance. For instance, from 2001 to 2005, Home Depot’s annual earnings per share increased from $1.29 to $2.72 - representing a 111% increase. Moreover, Home Depot’s annual net earnings increased from $3 billion to $5.8 billion - representing a 93% increase. And with a 53% growth in the number of Home Depot stores, Home Depot as an organization did an outstanding job financially.

Home Depot’s unprecedented financial growth under normal circumstances would not represent a problem. However, when such financial growth takes place in the presence of diminishing customer satisfaction, it represents a contradiction to current research in the field of customer satisfaction. In that, such unprecedented financial growth took place during a period of time when Home Depot’s American Customer Satisfaction Index (ACSI) score dropped 8 points - representing a 10.66% decline. A 10.66% decline in Home Depot’s ACSI scores is a major indicator of customer dissatisfaction, and such customer dissatisfaction should have led Home Depot to a financial underperformance. Instead of experiencing financial underperformance, Home Depot experienced an unprecedented financial performance.

Home Depot’s unprecedented financial growth in the presence of diminishing customer satisfaction represents a contradiction to current research in the field of customer satisfaction that from this point forward will be referred to as the Home Depot Paradox. It is a paradox that deserves a closer examination, and it is the purpose of this research study to closely examine this paradox.

AdviserLuis Rivera
SchoolCAPELLA UNIVERSITY
Source TypeDissertation
SubjectsMarketing; Management
Publication Number3350410

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