Understanding how satisfactory service relationships can be mutually beneficial in the higher education context

Purpose: While extant research has predominantly focused on outcomes of customer satisfaction that benefit the focal firm such as customer engagement behaviors (CEBs), little is done to understand human capital-related outcomes that directly benefit customers and thus benefit the firm indirectly. Drawing on the theory of reasoned action, broaden-and-build theory of positive emotions and human capital theory, this study aims to understand how and why a satisfied customer benefits the firm directly (CEBs) and indirectly (human capital-related outcomes). Methodology: Following a sequential mixed-methods approach, two studies are conducted in an extended service encounter context (higher education) where customers also constitute key human capital of the service firm. First, a qualitative study is conducted, which is then followed by a quantitative study. Survey data collected from students working as interns in organizations and their immediate managers resulted in 209 “intern-manager” dyads. Findings: Our findings demonstrate that customer satisfaction on its own does not substantially account for either human capital-related outcomes or CEBs (except WOM). Both emotional and cognitive mechanisms play key and unique mediating roles in translating satisfaction into outcomes that benefit a service firm directly and indirectly by benefiting its customers. Originality: This study contributes to the literature by providing a deeper understanding of how and why customer satisfaction influences outcomes that not only benefit the firm but also its customers in extended service encounter context. Practical Implications: This investigation provides a deeper understanding of the significance of customer satisfaction by demonstrating how and why satisfied customers increase firm value beyond purchase, for instance, by being direct (through positive WOM) and indirect (through enhanced human capital performance) promoters, consultants (through participation) or investors (through monetary giving). A key implication of our research is that simply enhancing customer satisfaction on its own may not suffice as our findings suggest that satisfaction translates into beneficial outcomes only when satisfaction is channelled towards enhancing customer perceptions of competence and their positive emotions