Does customer satisfaction lead to profitability?

Timothy Lee Keiningham · Tiffany Perkins‐Munn · Lerzan Aksoy · Demitry Estrin

93 citations0/0 files storedManaging Service Quality

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Customer Service Quality and Loyalty Service and Product Innovation Customer churn and segmentation

Abstract

Purpose Many researches have proposed a virtuous chain of effects from improved customer satisfaction to profits. In particular, satisfaction is thought to improve share‐of‐spending, which in turn leads to higher customer revenue and customer profitability. This paper aims to examine these proposed linkages using data from the institutional securities industry. Design/methodology/approach The data used in the analyses were collected as part of an ongoing telephone satisfaction survey of 81 clients of an institutional securities firm across two continents (North America and Europe). Mediation analysis was used to test the hypothesized effects. Findings Customer revenue was found to correlate negatively with customer profitability for unprofitable customers, and positively for profitable customers. Research limitations/implications One of the limitations of this research is that it tests the propositions within a single industry. Future research should attempt to replicate these findings in other contexts. Practical implications A simplistic focus on improving customer satisfaction for all customers in order to improve share‐of‐wallet and customer revenue does not seem to represent the best management approach to maximize overall firm profitability. In fact, it could actually result in a negative return on investment. Therefore, customers should first be segmented by their profitability to the firm before expending resources to improve customer satisfaction and share‐of‐wallet. Originality/value The results of this paper challenge the conventional belief that customer satisfaction should lead to customer retention in turn, resulting in customer revenue and ultimately customer profitability. The findings indicate that this may not always be true.

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References

1996The Behavioral Consequences of Service Quality 1990Zero defections: quality comes to services.1996The American Customer Satisfaction Index: Nature, Purpose, and Findings 1993The Antecedents and Consequences of Customer Satisfaction for Firms 1994Putting the Service-Profit Chain to Work 2001Satisfaction, Repurchase Intent, and Repurchase Behavior: Investigating the Moderating Effect of Customer Characteristics 1993Customer satisfaction, customer retention, and market share 1998A Dynamic Model of the Duration of the Customer's Relationship with a Continuous Service Provider: The Role of Satisfaction

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2013How do you measure what you can't define?2017Effects of frontline employee role overload on customer responses and sales performance 2008Linking Perceptual and Behavioral Customer Metrics to Multiperiod Customer Profitability 2011An integrated model of perceived service quality and customer loyalty: an empirical examination of the mediation effects of customer satisfaction and customer trust 2015Perceptions are relative

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