The Value of Different Customer Satisfaction and Loyalty Metrics in Predicting Business Performance

Abstract

Managers commonly use customer feedback data to set goals and monitor performance on metrics such as “Top 2 Box” customer satisfaction scores and “intention-to-repurchase” loyalty scores. However, analysts have advocated a number of different customer feedback metrics including average customer satisfaction scores and the number of “net promoters” among a firm's customers. We empirically examine which commonly used and widely advocated customer feedback metrics are most valuable in predicting future business performance. Using American Customer Satisfaction Index data, we assess the linkages between six different satisfaction and loyalty metrics and COMPUSTAT and CRSP data-based measures of different dimensions of firms' business performance over the period 1994–2000. Our results indicate that average satisfaction scores have the greatest value in predicting future business performance and that Top 2 Box satisfaction scores also have good predictive value. We also find that while repurchase likelihood and proportion of customers complaining have some predictive value depending on the specific dimension of business performance, metrics based on recommendation intentions (net promoters) and behavior (average number of recommendations) have little or no predictive value. Our results clearly indicate that recent prescriptions to focus customer feedback systems and metrics solely on customers' recommendation intentions and behaviors are misguided.customer satisfaction, marketing metrics, marketing strategy

Do managers know what their customers think and why?

“…The literature shows that customer complaints have a significant negative effect on stock returns (e.g., Luo 2007;Luo and Homburg 2008) and future sales growth and margins (e.g., Morgan and Rego 2006). Thus, any such under-investment in a key driver of complaint behavior has significant negative implications for firm performance.…”

“…Specifically, we show that firms in which the managercustomer understanding gap is relatively larger have significantly lower levels of customer satisfaction than firms in which this gap is relatively narrower. Given the large and growing body of evidence linking customer satisfaction with firms' accounting and stock market performance (e.g., Fornell et al 2006;Morgan and Rego 2006;Luo and Homburg 2008), our research suggests that closing the gap between what customers actually "think" and managers "think customers think" is a key strategic issue for most firms.…”

Possession Work on Hosted Digital Consumption Objects as Consumer Ensnarement

“…Where there is brand love, continuous and meaningful mental and physical engagement is required (Fournier, 1998;Park et al, 2010) which is akin to those described in the literature on meaningful, sacred possession (Belk et al 1989). In the case of customer loyalty more broadly (Liu, 2007) customers feel sufficient attachment to a brand that they continue to buy it and this idea underpins much of the marketing literature on branding and therefore considerable marketing effort (see Anderson and Mittal 2000;Morgan and Rego 2006;Liu, 2007). Brand love in particular frames the objectual relations between brands and consumers as intense and emotionally committed to the point that separation may cause significant distress and heartbreak (Bhatra, Ahuvia and Bagozzi, 2012).…”

If the Supplier's Human Capital Walks Away, Where Would the Customer Go?

“…Intention scores have a long tradition for measuring switching and continuity decisions in buyer-supplier relationships (e.g,. Anderson and Weitz 1989;Palmatier;Scheer, and Steenkamp 2007;Wathne, Biong, and Heide 2001) and are commonly used to predict behavior (Morgan and Rego 2006). Unfortunately, the relationship between intentions and behavior is not perfect (Chandon, Morwitz, and Reinartz 2005).…”