ARTICLE IN PRESS

Journal of Retailing and Consumer Services 16 (2009) 352–359

Contents lists available at ScienceDirect

Journal of Retailing and Consumer Services

journal homepage: www.elsevier.com/locate/jretconser

Customer satisfaction study via a latent segment model

Jaime R.S. Fonseca 
Technical University of Lisbon, Polo Universitario do Alto da Ajuda, Institute of Social and Political Sciences, Rua Almerindo Lessa, Lisboa 1300-663, Portugal

a r t i c l e in f o a b s t r a c t

The aim of this study is to apply a new conceptual model, and a new technique as an approach to the
Keywords: modelling of customers’ satisfaction, and to develop an overall satisfaction index (OSI). This study
Quantitative methods evaluates customers’ satisfaction of a certain public organization service, and argues that in order to
Service quality estimate the global customers’ satisfaction measure we must appeal to methodologies recognizing that
American customer satisfaction index satisfaction must be understood as a latent variable, quantified through multiple indicators. Thus, it is
Customer satisfaction natural that we consider the latent segment models (LSM) approach to proceed to the evaluation of
Overall satisfaction index customer’s service satisfaction. As a result of these models estimation, we selected a three latent
Latent segment models
segment model, that is to say, the latent variable customer satisfaction has three classes: segment 1,
Information criteria
with 50.4 percent of the customers, that represents ‘‘The Very Satisfied’’, for those to whom everything
is very well in the organization service; a segment 2, with 33.4 percent of the customers, representative
of the ‘‘The Well Satisfied’’, not totally satisfied with the quality of the organization, and a segment 3,
with 16.2 percent of the customers, ‘‘Satisfaction Demanders’’, thinking that organizational quality can
be improved. Finally, we developed an overall satisfaction index which is important to show how the
company as a whole is performing.
& 2009 Elsevier Ltd. All rights reserved.

1. Introduction customer satisfaction could be indirectly measured by means of

Customer satisfaction is central to the marketing concept, with
evidence of strategic links between satisfaction and overall service
performance (Truch, 2006), and is an important theoretical and
practical issue for most marketeers and consumer researchers
(Goode, 2001); it is a key issue for all those organizations that
wish to create and keep a competitive advantage in this highly
competitive world.
Customer satisfaction which remains in the limelight
(Bartikowski and Llosa, 2004), especially in the service field, is
typically defined as an overall assessment of the performance of
various attributes that constitute a service.
The organization wants to know how satisfied their customers
are in order to be translated into marketing strategy and
organizational development. First, it was important to understand
the ways that services can influence customer behaviour in terms
of satisfaction, so that we may achieve a consistent customer
satisfaction measure, knowing that satisfaction level increases as
the congruence between the organization’s goals and the
customers’ interest also increases (Garbarino and Johnson, 2001).
This service is a non-profit professional service, social service,
whose customers are the organization’s employees and organiza-
tion’s retired employees. For the organization management,
 Tel.: +351 21 361 94 30.
E-mail address: jaimefonseca@iscsp.utl.pt
several response determinants (e.g. performance, equity, expecta-
tion, disconfirmation, attribution, etc.), and these impacts on
satisfaction are heterogeneous (Wu and DeSarbo, 2005).
2. Literature review and conceptualization of service quality
Service quality has been studied for a long time. However, this
literature also suggests that there is no consensus on how to
conceptualize perceived service quality (Caro and Garcı́a, 2007),
and two different approaches have been adopted regarding this
issue, mainly because of the difficulties involved in delimiting and
measuring the construct (Parasuraman et al., 1985).
The first one suggests that perceived service quality is based on
the disconfirmation paradigm (by a comparison between custo-
mers’ expectations and their perceptions of the received service)
(Gronroos, 1984; Parasuraman et al., 1985).
The second approach suggests that service quality should be
measured considering only customer perceptions rather than
expectations minus perceptions (Caro and Garcı́a, 2007).
Nowadays we can see a movement away from using expecta-
tions, and the theoretical background of service quality is moving
from expectation disconfirmation to the theory of reasoned action
which states that the behaviour of individuals can be predicted from
their intentions, which can be predicted from their attitudes about
the behaviour and subjective norms (Collier and Bienstock, 2006).

0969-6989/$ - see front matter & 2009 Elsevier Ltd. All rights reserved.
doi:10.1016/j.jretconser.2009.04.001
 ARTICLE IN PRESS
J.R.S. Fonseca / Journal of Retailing and Consumer Services 16 (2009) 352–359
It is well known that service quality and customer satisfaction
are distinct constructs (Dabholkar, 2000). Another important
question was answered by Oliver (1993), which first suggests that
service quality would be antecedent to customer satisfaction
regardless of whether these constructs were measured for a given
experience or over time. Spreng and Macoy (1996) find empirical
support for this model, wherein customer satisfaction is a
consequence of service quality, and Dabholkar (2000) proves
that customer satisfaction is a consequence of service quality
(mediator model of customer satisfaction).
The results of Bodet (2006) suggest that the quality of human
factors, such as staff behaviour, and non-tangible factors, such as
image, are determinant in the formation of customer satisfaction.
In this sense, by knowing customers’ perceptions about service
quality we think that we can measure customer’s service
satisfaction, using service quality as an indirect approach to
customer satisfaction.
Because of the difficulty in measuring the customers’ expecta-
tions about a service quality (can they have expectations about
unknown services?), we think that quality is about conformance
to a service design or service specification. Once the design is set,
quality is about ensuring that the end to be delivered to the
customer meets this specification or design. As a consequence,
from a service point of view, customer satisfaction is about
monitoring the quality of delivery of the service, thus measuring
how well the organization is delivering the providing service.
Services can only be experienced, and the production of a
service takes place at the same time and in the same place as its
consumption. The perception of service quality by customers
during service delivery will be influenced mainly by three factors:
technical quality (what the supplier delivers), result of know-how
available to the organization, with objective evaluations; func-
tional quality (how the supplier delivers), representing the way the
service is provided (staff appear to be a key element in the service
encounter and more precisely their capacity to answer or solve
problems encountered by the customer on the premises, Bodet,
2006); the image (of the organization which is delivering the
service, and the supplier’s corporate image).
In order to provide insights for marketing managers to make
better customer satisfaction measurement decisions, we think
that service performance, with technical quality, functional
quality and corporate image, is the best determinant of overall
customer satisfaction in this particular service.
Bearing this service in mind, we think that increasing service
performance is the key to increasing customer satisfaction (all the
coefficient correlations between technical quality and functional
quality are significant at the 0.01 level, Table 11). An important
theoretical advantage of this approach is that its results are
derived from actually experienced services performances. Though
building on and extending (see Harris and Goode, 2004; Oliver,
1997) forwards a framework of service that presents quality
which leads to satisfaction (which in turn affects loyalty).
Customers completely satisfied (dissatisfied) with service quality
and corporate image will be completely satisfied (dissatisfied)
with service. So, following Oliver (1997), stating that service
quality leads to satisfaction, and Caro and Garcı́a (2007),
suggesting that service quality should be measured considering
only customers’ perceptions rather than expectations minus
perceptions, we intend to present a simplified conceptualization
model (Fig. 1).
3. Measures and methodology
The organization uses a survey tool to collect these data from
their key customer base, that is to say the target population being
353
Indicators Latent
TECHNICAL QUALITY →
SATISFACTION
CUSTOMER
FUNCTIONAL QUALITY →
CORPORATE IMAGE →
Fig. 1. Model conceptualization.
the visitors/customers to the service. All of the customers are post
experience, because they can only be satisfied or not with the
service, having experienced it. Because the number and nature of
service quality dimensions is in direct relation to the service
under analysis, the questionnaire used in this study was designed
through a lot of discussions with the organization manager,
after careful literature review. We use a careful questionnaire
about different aspects of the service because the more detailed
the information is, the more useful it is likely to be for improving
the service. At a preliminary scale we use a set of 23 items
representing all relevant sides of service quality as input to
customer satisfaction. By using focus group interviews with
students of the Technical University of Lisbon we simplified
the scale, by eliminating some confusing items, and rewording
others.
Because of customers’ satisfaction was our main goal, we asked
from customers’ service how satisfied they were with service
quality and image; the final questionnaire had 18 items with a 10-
point Likert-type scale, ranging from 1 (indicates an extremely
negative classification, not at all satisfied or dissatisfied with service
quality and image) to 10 (indicates an extremely positive
classification, completely satisfied with service quality and image).
Because overall satisfaction depends on how the customers
experience the quality of different aspects like, for example,
service quality and expectations, reception and welcome, professional
reliability, the orientation to the customer, we used the attributes
we present in Table 1.
These variables are the indicator variables or segmentation
base variables, and the LSM is indicated because we have no
response variable on global satisfaction in the questionnaire to
indicate as dependent variable. For assessing content validity, the
survey questionnaire was subjected to pre-test and refinement
trough a pilot study of 70 randomly selected customers.
The data for this study was collected from the service
customers, using a face to face interviewing technique. An initial
sample of 873 customers was obtained, but 17 questionnaires
were considered non-valid. The final sample was representative of
the individuals’ population heterogeneity with regard to demo-
graphic characteristics such as service, customer kind, gender and
education.
Reliability was examined through confirmatory factor analysis
and each indicator loaded significantly on its designated factor (p-
valueo0.01). Overall, the analysis produced chi-squared-degrees
of freedom ratio well below the criterion of Marsh and Hocevar
(1985) and adjusted goodness-of-fit significantly better than a one
factor model. Reliability was also gauged via the Cronbach alpha
coefficient, that Churchill (1979) suggested should be over 0.7 for
a scale to be considered reliable; in this study, the Cronbach alpha
coefficients range from 0.72 to 0.96.
We ran factor analysis with these items, in order to see if they
were structurally related. The value of Kaiser–Meyer–Olkin (KMO)
 ARTICLE IN PRESS
354 J.R.S. Fonseca / Journal of Retailing and Consumer Services 16 (2009) 352–359

Table 1 Table 3
The survey items. Rotated component matrixa.

Technical quality Service quality and demand Component

Service quality perception
The ideal public service 1 2 3
Global quality of services
Reception and welcome Service location 0.03 0.58 0.37
Services area Service identification 0.11 0.84 0.18
Services location Reception and welcome area 0.26 0.87 0.06
Services identification Services area 0.36 0.81 0.15
Professional knowledge 0.86 0.23 0.26
Functional quality Professional knowledge
Information clarity 0.88 0.20 0.25
Information clarity
Waiting time 0.82 0.15 0.17
Waiting time
Liking, attention and interest 0.90 0.10 0.19
Liking, attention and professional interest
Professional reliability 0.88 0.15 0.20
Professional reliability
Interest in customer problems 0.87 0.19 0.22
Interest on customer
Modernity of procedures and technological supports 0.19 0.64 0.18
Corporate image Modernity Credibility and inspired confidence 0.64 0.40 0.32
Credibility Orientation to serve the customer 0.45 0.28 0.71
The orientation to the customer Spreading of given services 0.11 0.53 0.44
The spreading of the services Service quality and demand 0.38 0.28 0.80
Service quality perception 0.34 0.27 0.82
Socio-demographic Service The ideal public service 0.67 0.27 0.40
Customer kind Global quality of services 0.60 0.22 0.58
Gender
Education Extraction method: principal component analysis.
Rotation method: varimax with Kaiser normalization.
a
Rotation converged in five iterations.

Table 2
Items and factor loadings.

improve their service performance and consequently improve

Items Factor loadings
customer satisfaction. Even though customer satisfaction cannot
Customer kind 0.529 be directly observed, it is possible to employ indicators to capture
Gender 0.587 empirically the construct (Anderson and Fornell, 2000).
Education (school attendance) 0.674
This study measures customer satisfaction in a public admin-
Service location 0.545
Service identification 0.718 istration service, based on a questionnaire inspired on the
Reception and welcome area 0.869 American customer satisfaction index (ACSI) model. This index,
Services area 0.833 measuring overall customer satisfaction, is a customer evaluation
Professional knowledge 0.857 tool for aspects that cannot be measured directly (Anderson and
Information clarity 0.867
Fornell, 2000). So, the methodology used to analyse data must
Waiting time 0.729
Liking, attention and interest 0.852 recognize this and must also be able to measure this latent
Professional reliability 0.817 variable (customer satisfaction) by multiple observable indicators.
Interest in customer problems 0.830 This article examines a customer satisfaction model for assessing
Modernity of procedures and technological supports 0.495
the relationship of overall satisfaction with a service. Thus, we
Credibility and inspired confidence 0.691
Orientation to serve the customer 0.744 propose measuring customer’s satisfaction indirectly as a latent
Spreading of given services 0.531 variable, by the used indicators, estimating latent segment models
Service quality and demand 0.786 (LSM), assuming that there is heterogeneity, which is natural in
Service quality perception 0.781 services because a service supplier consists of different staff all
The ideal public service 0.682
working on the provision of the same services.
Global quality of services 0.730
That is, we suggest market segmentation for customer
satisfaction study, via LSM, because it provides a probabilistic
measure, 0.879, and Bartlett’s test of Sphericity (any p-value) methodology for segmentation, based on the indicator (observa-
indicate that the data is suitable for factor analysis application. ble) variables. Homogeneity within the segment is critical to
As we can see, almost all of the factor loadings of the items are defining the target customer. In LSM, customers that exhibit the
significant (Table 2) and so, Technical quality, Functional quality most similar attributes’ results would be grouped in one segment.
and Corporate image could be viewed as the core value items of Heterogeneity across the segments allows for the differentiation
the service in increasing overall customer satisfaction for the of segments and customers.
further analysis. The results for principal component analysis The latent segment model was initially introduced by Lazars-
(Tables 2 and 3) showed that the items of Table 1 loaded on three field and Henry (1968) as latent class model, assuming that the
factors (eigenvalues over 1) as displayed in Table 3, rotated latent variable is categorical, in segmentation. LSM (e.g., Cohen
component matrix. Those factors that explained 74 percent of the and Ramaswamy, 1998; Fonseca and Cardoso, 2005), are used to
meaningful variation in the initial items, roughly represent identify the latent segments required to explain the associations
Technical quality, Functional quality and Corporate image. among a set of observed variables (segmentation base variables)
and to allocate observations to these segments.
It represents a model-based approach to clustering, which
4. The model and model selection connects clustering with classical statistical estimation methods,
and assumes that the variables’ observations in a sample arise
Many organizations have felt the critical need to use a tool for from different segments of unknown proportions. Customer
evaluating service quality in order to appropriately assess and heterogeneity in satisfaction requires marketing managers to
 ARTICLE IN PRESS
J.R.S. Fonseca / Journal of Retailing and Consumer Services 16 (2009) 352–359
segment the market and make segment-specific customer
satisfaction measurement decisions.
The use of LSM has become increasingly popular in the
marketing literature, for instance Wedel and Kamakura (1998),
Dillon and Kumar (1994), and Bhatnagar and Ghose (2004). This
approach to segmentation offers some advantages when com-
pared with other segmentation techniques: it identifies market
segments, and provides unbiased market segment memberships
estimates (Dillon and Kumar, 1994); it provides means to selecting
the number of segments (McLachlan and Peel, 2000); it is able to
deal with different measurement levels (Vermunt and Magidson,
2002); demographic and other covariates can be used for segment
description (Magidson and Vermunt, 2003); it allocates cases into
segments based upon membership probabilities estimated di-
rectly from the model, instead of using an ad-hoc definition of
‘‘distance’’ (e.g., Euclidian distance) (Bonilla and Huntington,
2005). Compared with variable precision rough set theory (VPRS)
method, it offers a very useful methodology by estimating
probabilistic rules which can predict customers’ behaviour (or to
make prediction of corporate failure), based on a number of
exogenous variables (Benyon et al., 2005); LSM or unsupervised
learning, because of the absence of dependent variable, do not
make prediction, but create a typology based on probabilities.
VPRS methods only address discrete data, which limits its
usefulness in certain types of analysis; on the contrary, LSM
apply with only discrete data, with only continuous data, and with
both discrete and continuous data.
The primary focus and contribution of this manuscript is to
present a simplified conceptualization model to access customers’
satisfaction; the second one consists in using latent segmentation
methodology in order to provide a way for marketing managers to
make segment-specific decisions in customer satisfaction mea-
surement. This methodology accommodates multiple perfor-
mance attributes (including mixed case), provides parsimonious
models in order to account for the relationships between these
multiple performance’s attributes, and derives latent segments for
customers’ overall satisfaction, based on these attributes or
indicators on technical and functional quality and corporate
image.
Let yi ¼ ðyip Þ denote the vector representing the scores of the
ith case for the pth segmentation base attributes (i ¼ 1,y,n;
p ¼ 1,y,P). We consider that the cases on which the attributes are
measured arise from a population which we assume to be a
mixture of S segments, in proportions ls (mixing proportions or
relative segment sizes), s ¼ 1,y,S.
The statistical probability density function of the vector yi,
given that yi comes from segment s, is represented by f s ðyi jys Þ,
with ys representing the vector of unknown parameters associated
with the specific pdf chosen. We are dealing with mixture models
of nominal variables, thus multinomial distributional models are
used (Fonseca and Cardoso, 2007a), that is to say, f s ðyi jys Þ is
multinomial. Then the population density can be represented as a
finite mixture of the densities f s ðyi jys Þ of S distinct segments, i.e.
X
S Y
P mers, concerning the considered variables and so we can have a
f ðyi j cÞ ¼ ls f s ðyi jys Þ
s¼1 p¼1
P
S
where i ¼ 1,y,n, ls 40, ls ¼ 1, c ¼ fl; Yg, with
s¼1
fl1 ; . . . ; ls1 g; Y ¼ fy1 ; . . . ; ys g, and c is the vector of all unknown
parameters. The LSM estimation problem, simultaneously ad-
dresses the estimation of distributional parameters and classifica-
tion of cases into segments, yielding mixing probabilities. The
estimation process is typically directed to maximum likelihood
using the expectation-maximization (EM) algorithm (Dempster et
al., 1977; McLachlan and Peel, 2000; Figueiredo and Jain, 2002).
355
LSM naturally provides means for constituting a partition by
means of assigning each case to the segment with the highest
segment-membership probability, Maxs¼1;...;S t^ is , where
ðkÞ ðkÞ
l^ s f s ðyi jy^ s Þ
t^ is ¼ t^ s ðyi jcðkÞ Þ ¼ P (2)
S ^ ðkÞ ^ ðkÞ
j¼1 lj f j ðyi jyj Þ
In order to derive meaningful results from clustering, the
mixture model must be identifiable, that is, a unique maximum
likelihood solution should exist (Bozdogan, 1994).
A goal of traditional LSM estimation is to determine the
smallest number of latent segments S that is sufficient to explain
the relationships observed among the variables of segmentation
base variables. If the baseline model (S ¼ 1) provides a good fit to
the data, no LSM is needed, since there is no relationship among
the variables to be explained; otherwise, a model with S ¼ 2
segments is then fitted to the data. This process continues by
fitting successive LSM to the data, every time adding another
dimension by incrementing the number of segments by 1, until a
parsimonious model is found that provides an adequate fit.
In order to select the best number of segments and in an
attempt to overcome most of the limitations of likelihood ratio
tests (regularity conditions in finite mixtures do not hold)
(Ramaswamy et al., 1996), theoretical information criteria can be
used. They assist in determining the adequate value of S based on
minimum criteria values.
^ Þ þ C. The
The general form of information criteria is  log Lðc
first term is the negative logarithm of the maximum likelihood
which decreases when model complexity increases; the second
term, or penalty term, penalizes too complex models, and
increases with the model number of parameters ðnc Þ.The selected
LSM should evidence a good trade-off between good description
of the data and the model number of parameters.
The second focus and contribution of this manuscript consists
in using an adequate information criterion for selecting the best
LSM. In a recent work, Fonseca and Cardoso (2007a), based on an
empirical analysis, evidences the good performance of AIC3 when
dealing with only categorical segmentation base variables which
is defined by 2 log Lðc ^ Þ þ 3n (Bozdogan, 1987).
c
5. Results and discussion
As a result of LSM estimation, we selected, by means of the
used information criterion AIC3, a three-segment solution, as
displayed in Table 4, because AIC3 minimizes for S ¼ 3.
Tables 5–7 display two kinds of probabilities, estimated by
LSM, in order to characterize the customers’ typology; the
probabilities ls (s ¼ 1,y,S) of belonging to segment s, and
probabilities f s ðyi jys Þ, of being on a variable category, conditional
on belonging to a segment s.
This is a probabilistic model and it makes that LSM is easily
interpretable. Thus, we can now understand the service custo-
(1) better understanding about customers’ satisfaction. We are going
l¼
Table 4
Information criterion values.
Model AIC3
1—Latent segment 8381.9
2—Latent segment 7278.8
3—Latent segment 7093.4
4—Latent segment 7152.2
 ARTICLE IN PRESS
356 J.R.S. Fonseca / Journal of Retailing and Consumer Services 16 (2009) 352–359

Table 5 Table 6
Customers’ technical quality profile by model parameters’ estimates. Customers’ functional quality profile by model parameters’ estimates.

Segment 1 Segment 2 Segment 3 Segment 1 Segment 2 Segment 3

Relative segment size (ls) 50.4 percent 33.4 percent 16.2 percent Relative segment size (ls) 50.4 percent 33.4 percent 16.2 percent

Variables Variables
Service quality and demand Professional knowledge
6 0.01 0.00 0.08 6 0.00 0.00 0.12
7 0.00 0.04 0.37 7 0.00 0.00 0.33
8 0.04 0.20 0.45 8 0.00 0.20 0.37
9 0.25 0.67 0.09 9 0.01 0.72 0.09
10 0.70 0.08 0.01 10 0.98 0.09 0.09
Service quality perception
Information clarity
5 0.01 0.02 0.04
6 0.00 0.00 0.16
6 0.00 0.02 0.17
7 0.00 0.00 0.25
7 0.01 0.08 0.29
8 0.00 0.14 0.49
8 0.04 0.32 0.37
9 0.07 0.77 0.05
9 0.29 0.48 0.13
10 0.93 0.09 0.05
10 0.65 0.08 0.00
Waiting time
The ideal public service
6 0.00 0.00 0.08
4 0.00 0.00 0.04
7 0.00 0.00 0.29
5 0.00 0.02 0.12
8 0.05 0.12 0.33
6 0.00 0.00 0.21
9 0.11 0.65 0.05
7 0.00 0.08 0.29
10 0.84 0.21 0.17
8 0.05 0.26 0.25
9 0.29 0.60 0.09 Liking, attention and interest
10 0.66 0.04 0.00 6 0.00 0.00 0.08
7 0.00 0.00 0.12
Global quality of services
8 0.00 0.04 0.41
6 0.01 0.02 0.12
9 0.03 0.65 0.21
7 0.00 0.00 0.41
10 0.97 0.31 0.17
8 0.01 0.16 0.37
9 0.24 0.60 0.09 Professional reliability
10 0.74 0.22 0.01 6 0.00 0.00 0.04
7 0.00 0.02 0.25
Reception and welcome
8 0.00 0.04 0.45
5 0.01 0.02 0.17
9 0.00 0.71 0.09
6 0.01 0.10 0.10
10 1.00 0.23 0.17
7 0.04 0.18 0.25
8 0.25 0.38 0.33 Interest in customer problems
9 0.24 0.28 0.09 6 0.00 0.00 0.04
10 0.45 0.04 0.04 7 0.00 0.00 0.37
8 0.00 0.20 0.41
Service area
9 0.07 0.65 0.13
5 0.00 0.02 0.16
10 0.93 0.15 0.05
6 0.01 0.10 0.16
7 0.02 0.12 0.21
8 0.25 0.30 0.37
9 0.24 0.44 0.00
10 0.47 0.02 0.04
Because the greater probability value is in segment 1, we
Service location
5 0.04 0.07 0.09
associate the individual that provides this answer (10) to segment
6 0.05 0.10 0.16 1. Thus, the information of these tables (probabilities) is easily
7 0.12 0.16 0.21 interpretable, and this gives us a way to describe the individual
8 0.26 0.41 0.54 pattern about satisfaction.
9 0.26 0.22 0.00
These estimates of conditional probabilities displayed in Tables
10 0.24 0.04 0.00
5–7 allow us to name the three segments as follows: a segment 1,
Service identification
with 50.4 percent of customers, which represents the very satisfied
5 0.01 0.10 0.17
6 0.08 0.14 0.17
(top), and for them, everything is very well in the organization
7 0.08 0.16 0.27 service; a segment 2, with 33.4 percent of customers, which
8 0.26 0.22 0.39 represents the well satisfied; a segment 3, with 16.2 percent of
9 0.21 0.28 0.08 customers, which represents the satisfaction demanders.
10 0.33 0.06 0.00
As regards the very satisfied, by the customer’s technical quality
profile (Table 5), we can see that they classify all the items with 10
(customers are completely satisfied with service technical
to initiate the results discussion, trying to extract knowledge quality). For them, the service quality is extremely positive in all
about service customers’ typology. items of technical quality, and they are naturally very satisfied.
For instance, the probability 0.70 (bold, in Table 5) represents As for functional quality (Table 6), again, they consider the staff
the probability of an individual answer 10 for service quality and as extremely positive (because their answers are almost all about
demand, given that he/she belongs to segment 1. In the same line, 10, customers are very well satisfied with service functional
0.08 represents the probability of an individual answering 10 for quality). As for corporate image (Table 7), they also consider the
service quality and demand, given that he/she belongs to segment service image as extremely positive, because their answers are
2, and 0.01 represents the probability of an individual answering almost all about 10, customers are very well satisfied with
10 for service quality and demand, given that he/she belongs to corporate image. Thus, customers of segment 1 belong to a high
segment 3. level (top) of customer satisfaction.
 ARTICLE IN PRESS
J.R.S. Fonseca / Journal of Retailing and Consumer Services 16 (2009) 352–359 357

Table 7 Table 8
Customers’ corporate image profile by model parameters’ estimates. Latent segment summary profile.

Segment 1 Segment 2 Segment 3 Attributes Very Well Satisfaction

Relative segment size (ls) 50.4 percent 33.4 percent 16.2 percent satisfied satisfied demanders

Variables Service quality and demand 10 9 6–8

Modernity of procedures and technological supports Service quality perception 10 9 5–8
6 0.07 0.14 0.21 The ideal public service 10 8, 9 4–7
7 0.03 0.16 0.50 Global quality of services 10 9 6–8
8 0.25 0.34 0.21 Reception and welcome 10 8, 9 5–7
9 0.29 0.28 0.00 Service area 10 9 5–8
10 0.34 0.04 0.04 Service location 9, 10 8 5–7
Service identification 10 9 5–8
Credibility and inspired confidence
6 0.00 0.04 0.16 Professional knowledge 10 9 6–8
7 0.00 0.04 0.37 Information clarity 10 9 6–8
8 0.07 0.36 0.42 Waiting time 10 9 6–8
9 0.30 0.56 0.00 Liking, attention and interest 10 9 6–8
10 0.63 0.00 0.05 Professional reliability 10 9 6–8
Interest in customer problems 10 9 6–8
Orientation to serve the customer
6 0.00 0.00 0.12 Modernity of procedures and 9, 10 8 6, 7
7 0.01 0.06 0.37 technological
8 0.05 0.34 0.37 Credibility and inspired confidence 10 9 6–8
9 0.22 0.58 0.05 Orientation to serve the customer 10 9 6–8
10 0.71 0.02 0.05 Spreading of given services 10 8, 9 5–7

Spreading of given services

5 0.05 0.02 0.12
6 0.08 0.08 0.29
7 0.09 0.18 0.29 Table 9
8 0.15 0.32 0.29 Customers’ socio-demographic profile by model parameters’ estimates.
9 0.15 0.32 0.00
10 0.49 0.08 0.00 Segments Very satisfied Well satisfied Satisfaction
demanders
Relative segment size (ls) 50.4 percent 33.4 percent 16.2 percent

Variables
Service
Quite on the contrary, we have segment 3, with 16.2 percent of Military staff 0.33 0.62 0.59
customers, the satisfaction demanders, thinking that service quality Social share 0.67 0.38 0.42
can be improved. In terms of technical quality (Table 5), they
Customer kind
classify service quality and demand with 6–8, service quality and Reserve 0.12 0.18 0.12
expectation with 5–8, the ideal public service with 4–7, and global Retired 0.49 0.42 0.62
quality of services with 6–8. Regarding reception and welcome, they Widowers or relatives 0.18 0.16 0.04
classified them from 3 to 7, and services area from 4 to 8; as for Pensioners 0.11 0.04 0.08
services location, these customers classified it from 6 to 8, but they Availability 0.11 0.20 0.13
classify services identification from 3 to 8. Gender
Thus a few of them considered the performance of the Male 0.79 0.76 0.87
organization negative on some items (the ideal public service, Female 0.20 0.22 0.13
reception and welcome, services area and services identification). Education (school attendance)
Concerning functional quality (Table 6) they classified profes- Primary school 0.07 0.06 0.04
sional knowledge from 6 to 8, information clarity from 6 to 8, Basic school 0.54 0.44 0.33
Secondary school 0.21 0.28 0.25
waiting time from 5 to 8, liking, attention and professional interest
Higher education 0.18 0.22 0.37
from 6 to 8, professional reliability from 6 to 8, and interest in
customer problems from 6 to 8. So, for everything else they
classified as positive. As far as corporate image is concerned (Table
7) they classified modernity of the procedures and technological
support from 5 to 7, credibility and inspired confidence from 5 to 8, holds: Higher education more exigent customers, and so, more
the orientation to serve the customer from 5 to 7, and the spreading dissatisfaction.
of the given services from 5 to 7. Thus, even for these customers In order to achieve a better understanding of customers, in the
almost everything is slightly positive. three segments, we display customers’ socio-demographic profile
Between these two segments we have segment 2, with 33.4 (Table 9). Thus we have in segment 1 social share service customers,
percent of customers, the well satisfied. They are always less widowers or relatives and pensioners, and basic school customers; in
demanding customers than those of segment 1, and almost always segment 2, customers are mostly military customers, on reserve or
more demanding customers than those of segment 3, except for on the availability, and also female, and customers with secondary
services location. These summary results are displayed in Table 8. school; finally, in segment 3, we have retired customers, most of all
We have a segment 1, majority female, basic education, very male customers, with higher education.
satisfied, and a segment 3, majority male, retired customers, Finally, we have developed an overall satisfaction index (OSI),
higher education, the most dissatisfied. Higher education tends to in order to measure overall customer satisfaction, according to
develop auto-motivation (Fonseca, 2007), and so they become their responses. Let the mean satisfaction rating (MSR) (Table 10)
more and more satisfaction demanders, that is to say, they are be the mean of all responses to each item that sums 162 for all
more critical persons. So, men seem to be more dissatisfied, as is items. Then, the weighted factor (WF) is the result of MSR dividing
the case of retired customers, but we think that the same reason by 162. Next, we have weighted scores (WS) that results from the
 ARTICLE IN PRESS
358 J.R.S. Fonseca / Journal of Retailing and Consumer Services 16 (2009) 352–359

multiplication of each MSR by each WF. All the WS sum to the application with LSM approach. The finding results help on
overall weighted average. developing a picture of the customers of this Public Service,
If overall satisfaction index achieved satisfaction scores of 10 regarding satisfaction, that is to say, the typology with three
out of 10 on all considered variables, the overall weighted average classes. Moreover, the LSM, based on observed categorical
would be 10, and we express OSI as a percentage of that variables, enables us to analyse organizational quality and
theoretical maximum score. customer satisfaction, which is an important theoretical and
This index is a very important one, from a managerial/ practical issue for organization managers.
management perspective, because it shows how the Company as Thus, in a managerial sense, those results are actually quite
a whole is performing. opportune, because organization managers became knowledge-
able of how customers’ satisfaction goes on, and therefore results
obtained from this study can result in strategic planning strategies
enhancing customers’ satisfaction. It was learned that service
6. Conclusion and managerial implications
customers perceive high satisfaction. Most customers surveyed
(50.4 percent, the majority) appear to be very satisfied with
The three main aims of this research were (1) to purpose a
service quality and corporate image. The analysis allows us to
simplified model to access customers’ satisfaction based on
conclude that about 83.8 percent (segments 1 and 2) of customers
technical and functional quality, and corporate image, by asking
surveyed revealed highly overall satisfaction.
customers if they are completely dissatisfied trough completely
The findings reported here suggest that overall customer
satisfied with this, and (2) to purpose and use latent segment
satisfaction is real and so the service quality is very good for the
models methodology as an approach to the modelling of
majority of customers. It is supported by the latent segments, as
satisfaction with services, and (3) to develop an overall satisfac-
discussed, and moreover, by the OSI value of 87 percent (Table 10).
tion index.
This study also focus on identifying socio-demographic factors
These models provide the marketing manager with a very
underlying the different reinforcing behaviours across customer
flexible analysis tool, easily understood, and so managers
segments, providing managers with even more information. From
interested in building customers’ satisfaction may seek for a
the socio-demographic profile of customers we can see that
better understanding of customers’ behavioural satisfaction, in
gender is not relevant for overall satisfaction and the same
order to focus on possible marketing actions to improve or
happens for customers with average education.
maintain customer satisfaction.
Managers must take into consideration segment 2 (33.4
After reviewing the existing literature regarding service quality
percent) customers, and above all segment 3 (16.2 percent)
and service customers’ satisfaction, this led to the proposal and an
customers, because they are not very satisfied, or they are
unsatisfied, respectively.
Table 10 Finally, because the organization core business is the staff, we
Overall satisfaction index (OSI).
correlate technical quality with functional quality (see Table 11);
Items Mean satisfaction Weighting Weighted the significant Spearman correlations (p-valueo0.01) highlight
rating factor score the human resources (staff) as the service face, as it should be in
such an organization.
Service location 7.73 4.77 0.37
Thus, as Agus (2004), we also think that managers should
Service identification 7.94 4.90 0.39
Reception and welcome area 8.42 5.20 0.44 emphasize the importance of teamwork in achieving the service
Service area 8.50 5.25 0.45 goals, that is to say, every worker should be empowered to act on
Professional knowledge 9.28 5.73 0.53 worthwhile suggestions that will ultimately improve customer
Information clarity 9.22 5.69 0.52 satisfaction.
Waiting time 9.20 5.68 0.52
Liking, attention and interest 9.48 5.85 0.55
Professional reliability 9.42 5.82 0.55
Interest in customer problems 9.27 5.72 0.53
Modernity of procedures and 8.12 5.01 0.41 7. Limitations and future work
technological supports
Credibility and inspired confidence 8.88 5.48 0.49
Orientation to serve the customer 8.92 5.50 0.49
We think that this Public Service can be representative of the
Spreading of given services 8.18 5.05 0.41 Portuguese Public Sector, and so the conclusions may be valid for
Service quality and demand 9.01 5.56 0.50 other Portuguese Public Services. Moreover, these models and
Service quality and expectation 8.85 5.46 0.48 results can be generalized across other countries and other types
The ideal public service 8.82 5.44 0.48
of public/private services; to access customers’ satisfaction we can
Global quality of services 9.13 5.64 0.51
use more or less variables, and these models work well with only
Overall weighted average 162 8.71 categorical variables, with only continuous variables, and with
Overall satisfaction index 87%
both categorical and continuous variables (mixed case).

Table 11
Technical versus functional Spearman correlations.

Professional Information Waiting Liking, attention Professional Interest on customer

knowledge clarity time and interest reliability problems

Service quality and demand 0.68 0.70 0.57 0.62 0.64 0.69
Service quality and expectation 0.68 0.67 0.58 0.55 0.58 0.64
The ideal public service 0.65 0.67 0.51 0.52 0.61 0.63
Global quality of services 0.68 0.68 0.51 0.63 0.61 0.68

 Correlation is significant at the 0.01 level (two-tailed).

 ARTICLE IN PRESS
J.R.S. Fonseca / Journal of Retailing and Consumer Services 16 (2009) 352–359
It would be important that we could have another survey in
the next 2 or 3 years, based on the same questionnaire, in order to
study segment stability over time (Fonseca and Cardoso, 2007b).
Acknowledgements
The author wish to thank the two anonymous referees, for
their many valuable suggestions, which led to a significant
improvement of the article.
References
Agus, A., 2004. TQM as a focus for improving overall service performance and
customer satisfaction: an empirical study on a public service sector in
Malaysia. Total Quality Management 15, 615–628.
Anderson, E.W., Fornell, C., 2000. Foundations of the American customer
satisfaction index. Total Quality Management 11, S869–S882.
Bartikowski, B., Llosa, S., 2004. Customer satisfaction measurement: comparing four
methods of attribute categorizations. The Service Industries Journal 24, 67–72.
Benyon, M., Goode, M.M.H., Moutinho, L.A., Snee, H.R., 2005. Modelling satisfaction
automated banking channels: using variable precision rough set theory.
Services Marketing Quarterly 26, 77–93.
Bhatnagar, A., Ghose, S., 2004. A latent class segmentation analysis of e-shoppers.
Journal of Business Research 57, 758–767.
Bodet, G., 2006. Investigating customer satisfaction in a health club context by an
application of the tetraclass model. European Sport Management Quarterly 6,
149–165.
Bonilla, J., Huntington, J., 2005. Leveraging latent class segmentation to optimize
marketing campaigns and sales force implementation. 2005 PMSA Conference.
Bozdogan, H., 1987. Model selection and Akaikes’s Information Criterion (AIC): the
general theory and its analytical extensions. Psychometrika 52, 345–370.
Bozdogan, H., 1994. Mixture-model cluster analysis using model selection criteria
and a new informational measure of complexity. In: Bozdogan, H. (Ed.),
Proceedings of the First US/Japan Conference on the Frontiers of Statistical
Modeling: An Approach. Kluwer Academic Publishers, Dordrecht, pp. 69–113.
Caro, L.M., Garcı́a, J.A.M., 2007. Measuring perceived service quality in urgent
transport service. Journal of Retailing and Consumer Services 14, 60–72.
Churchill Jr., G.A., 1979. A paradigm for developing better measures of marketing
constructs. Journal of Marketing Research 14, 64–73.
Cohen, S.H., Ramaswamy, V., 1998. New tools for market segmentation: an
introduction to Latent Class Models. Marketing Research 10, 14–21.
Collier, J.E., Bienstock, C.C., 2006. Measuring service quality in E-retailing. Journal
of Service Research 8, 260–275.
Dabholkar, P.A., 2000. A comprehensive framework for service quality: an
investigation of critical conceptual and measurement issues through a
longitudinal study. Journal of Retailing 76, 139–173.
Dempster, A.P., Laird, N.M., Rubin, D.B., 1977. Maximum likelihood from incomplete
data via EM algorithm. Journal of the Royal Statistics Society B 39, 1–38.
Dillon, W.R., Kumar, A., 1994. Latent structure and other mixture models in
marketing: an integrative survey and overview. In: Bagozi, R.P. (Ed.), Advanced
Methods of Marketing Research. Blackwell Publishers, Cambridge, pp. 352–388
(Chapter 9).
359
Figueiredo, M.A.T., Jain, A.K., 2002. Unsupervised learning of finite mixture
models. IEEE Transactions on Pattern Analysis and Machine Intelligence 24,
1–16.
Fonseca, J.R.S., Cardoso, M.G.M.S., 2005. Retail clients latent segments in
Carlos Bento proceedings. In: Amı́lcar Cardoso, Gaël Dias (Ed.), 12th
Portuguese Conference on Artificial Intelligence, EPIA 2005. Springer, Covilhã,
Portugal.
Fonseca, J.R.S., Cardoso, M.G.M.S., 2007a. Mixture-model cluster analysis using
information theoretical criteria. Intelligent Data Analysis 11, 155–173.
Fonseca, J.R.S., Cardoso, M.G.M.S., 2007b. Supermarket customers segments
stability. Journal of Targeting, Measurement and Analysis for Marketing 15,
210–221.
Fonseca, J.R.S., 2007. Latent Class Model for discovering the pattern of the
Portuguese electorate feelings and their sight after 2005 elections. In: Lauro, C.,
Ferreira, C., Saporta, G., Souto de Miranda, M. (Eds.), IASC 07-Statistics for Data
Mining, Learning and Knowledge Extraction, August 30–September 1, 2007,
Aveiro, Portugal.
Garbarino, E., Johnson, M.S., 2001. Effects of consumer goals on attribute
weighting, overall satisfaction, and product usage. Psychology & Marketing
18, 929–949.
Goode, M.M.H., 2001. Predicting consumer satisfaction from CD players. Journal of
Consumer Behaviour 1, 323–335.
Gronroos, C., 1984. A service quality model and its marketing implications.
European Journal of Marketing 2, 244–249.
Harris, L.C., Goode, M.M.H., 2004. The four levels of loyalty and the pivotal role of
trust: a study of online service dynamics. Journal of Retailing 80, 139–158.
Lazarsfield, P.F., Henry, N.W., 1968. Latent Structure Analysis. Houghton Mifflin,
Boston.
Magidson, Jay, Vermunt, J.K., 2003. A Nontechnical Introduction to Latent Class
Models. Tilburg University, Statistical Innovations, Inc., Nederlands.
Marsh, H.W., Hocevar, D., 1985. Applications of confirmatory factor analysis to the
study of self concept: first-and higher order factor models and their invariance
across groups. Psychological Bulletin 97, 562–582.
McLachlan, G.F., Peel, D., 2000. Finite Mixture Models. Wiley, New York.
Oliver, R.L., 1997. Satisfaction a Behavioural Perspective on the Consumer. McGraw-
Hill, New York.
Oliver, R.L., 1993. A conceptual model of service quality and service satisfaction:
compatible goals, different concepts. In: Swartz, T.A., Bowen, D.E., Brown, S.W.
(Eds.), Advances in Marketing and Management. JAI Press, Inc., Greenwich, CT,
pp. 65–85.
Parasuraman, A., Zeithaml, V.A., Berry, L.L., 1985. A conceptual model of service
quality and its implications for future research. Journal of Marketing 49, 41–50.
Ramaswamy, V., Chaterjee, R., Cohen, S.H., 1996. Joint segmentation on distinct
interdependent bases with categorical data. Journal of Marketing Research
XXXIII, 337–350.
Spreng, R.A., Macoy, R.D., 1996. An empirical examination of a model of perceived
service quality and satisfaction. Journal of Retailing 72, 201–214.
Truch, E., 2006. Lean consumption and its influence on brand. Journal of Consumer
Behaviour 5, 157–165.
Vermunt, J.K., Magidson, J., 2002. Latent class cluster analysis. In: Hagenaars, J.A.,
McCutcheon, A.L. (Eds.), Applied Latent Class Analysis. Cambridge University
Press, Cambridge, pp. 89–106.
Wedel, M., Kamakura, W.A., 1998. Market Segmentation: Concepts and Methodo-
logical Foundations. Kluwer Academic Publishers, Boston.
Wu, J., DeSarbo, W.S., 2005. Market segmentation for customer satisfaction studies
via a new latent structure multidimensional scaling model. Applied Stochastic
Models in Business and Industry 21, 303–309.