Three essays on the customer satisfaction-customer loyalty association

Abstract

The association between customer satisfaction and customer loyalty is one of the most central relationships for marketing theory and practice. To improve our understanding of this essential relationship in marketing, we develop a comprehensive and flexible theoretical framework for analyzing the association between customer satisfaction and customer loyalty, which simultaneously incorporates heterogeneity in the possible dimensions of competitive settings. This theoretical framework is grounded by more than 40 years of academic and practitioner research on the association between these two constructs, which allows us to more precisely examine the true nature of the association between satisfaction and loyalty by incorporating competitive setting heterogeneity. In addition, we test our theoretical framework by estimating a 3-level empirical hierarchical linear model, using American Customer Satisfaction Index data and several customer, firm and industry characteristics.\nOur findings indicate that the true nature of the association between satisfaction and loyalty is significantly influenced by competitive setting differences. Accounting for such differences allows firms and managers to significantly increase their ability to effectively convert satisfaction investments into loyalty. Also, we identify important trade-offs between the intercept and slope of the association between the two metrics, indicating that firms' incentives to invest or not in satisfaction differ dramatically across industries. Depending on the shape of their satisfaction-loyalty curve, firms can obtain a certain level of loyalty by indirectly choosing how much to invest in satisfaction. Therefore, customer satisfaction must be treated as an endogenous variable. In our subsequent analysis, we control for both satisfaction endogeneity and competitive settings heterogeneity using a Two-Stage Least Squares 3-level hierarchical linear model, correcting the standard error estimates via a jackknife procedure. This research provides precise, important theoretical and managerial insights, and broadens our understanding of the essential features of the satisfaction-loyalty relationship.

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