1 Customer Satisfaction and Links to Customer Profitability: An Empirical Examination of the Association Between Attitudes and Behavior Magnus Söderlund & Mats Vilgon SSE/EFI Working Paper Series in Business Administration No. 1999:1 January 1999 Abstract: This paper explores links between customer satisfaction, repurchase intentions, purchase behavior, and customer profitability with empirical data on attitudes, behavior, and profitability at the customer level of analysis. Purchase behavior and profitability data, derived from the accounting system of a firm, are matched with the responses of the firm’s customers to survey questions distributed prior to the behavior and profitability outcomes. The analysis reveals a strong link between customer behavior and customer profitability, while modest links exist between repurchase intentions and subsequent behavior. Only a weak and non-significant direct link can be observed between customer satisfaction and customer profitability. This paper, then, questions customer satisfaction’s commonly assumed role as a proxy for profitability. Keywords: Customer satisfaction; Customer profitability JEL Code: M31
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Customer Satisfaction and Links to Customer Profitability:
An Empirical Examination of the Association Between Attitudes and Behavior
Magnus Söderlund & Mats Vilgon
SSE/EFI Working Paper Series in Business Administration No. 1999:1January 1999
Abstract:
This paper explores links between customer satisfaction, repurchase intentions, purchase
behavior, and customer profitability with empirical data on attitudes, behavior, and
profitability at the customer level of analysis. Purchase behavior and profitability data,
derived from the accounting system of a firm, are matched with the responses of the
firm’s customers to survey questions distributed prior to the behavior and profitability
outcomes. The analysis reveals a strong link between customer behavior and customer
profitability, while modest links exist between repurchase intentions and subsequent
behavior. Only a weak and non-significant direct link can be observed between customer
satisfaction and customer profitability. This paper, then, questions customer
satisfaction’s commonly assumed role as a proxy for profitability.
chain. The associations between the two latter types of variables should not be
surprising, since it is the actual acts by customers, not their attitudes, that affect the
firm’s performance (cf. Storbacka et al 1994). However, purchasing behavior variables,
which are related to what customers do, are commonly missing in many parts of the
marketing literature. Segmentation literature, and particularly the literature on
segmentation of business markets, is one area in which the void is salient. That is to say,
many segmentation variables have been described as candidates for the segmentation of
business markets, but they are generally related to other characteristics of the buyer than
what the buyer actually is actually doing over time in terms of purchases (cf. Shapiro &
Bonoma 1984, Webster 1984). One implication of the present analysis, then, is that
segmentation efforts may benefit if detailed purchase behavior is included. After all,
segmentation becomes necessary when variation between customers is at hand, and as
this study has shown, a substantial variation may exist in terms of both purchasing
behavior and customer profitability.
For a further implication, assume that it is possible for a firm to satisfactorily
assess each customer’s profitability. According to some authors, a logical next step
would be to engage in ‘‘demarketing’’ (Kotler & Levy 1971) or a ‘‘creative filtering
program’’ (Reichheld 1996). That is to say, once unprofitable customers are identified,
the firm would want to terminate relationships with them. This step raises several issues.
One issue is how to say no to unprofitable customers and what the consequences of this
might be. Anecdotal evidence suggests that saying no is indeed tricky, since a ‘‘no’’ is a
potential driver of bad publicity. For example, First Chicago Bank began charging
customers for doing transactions at a teller window that could have been performed on
an automatic basis. This move was meant to provide a disincentive to those customers
who tended to take up more teller-window time and money than they could return in
profits. The result? A wave of bad publicity in the press - and competitors who
advertised that no First Chicago customer would be too unprofitable for them (Peppers
& Rogers 1997, p 127).
However, an even more challenging issue - after a profitability analysis has been
carried out on the customer level - concerns how to turn unprofitable customers into
profitable ones. This would require knowledge of why certain customers behave in a
more profitable way than others. In other words, what do profitable customers actually
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do in terms of behaviours which distinguish them from less profitable customers? While
the present study does not provide a rich understanding of this, it does suggest that
variables other than satisfaction and repurchase intentions need to be explored in more
depth. Examples of such variables are contractual agreements, switching barriers,
relationship commitment, purchasing policy-related variables, the level of product
adaptations and personal bonds.
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