Article Synopsis: The High Price of Customer Satisfaction

MIT Sloan Management Review

March 18, 2014   Magazine: Spring 2014

Timothy Keiningham, Sunil Gupta, Lerzan Aksoy and Alexander Buoye

Highly satisfied customers = revenue dollars. Or do they?  Some data has shown that the relationship between customer satisfaction and customer spending behavior is surprisingly weak. 1 In this article, the authors share their analysis of the relationship between satisfaction and business outcomes, gathering data from more than 100,000 consumers covering more than 300 brands.   This data came from two sources, the American Satisfaction Index data (2000-2009) which are measures of stock returns, appended with market shares of these companies, and consumer satisfaction ratings and customer spending levels across 315 brands.2

This analysis revealed three critical issues that have an impact on correlating customer satisfaction to positive business outcomes.  1) There is a downside to continually devoting resources to raise customer satisfaction levels; 2) High satisfaction is a strong negative predictor of future market share; 3) Knowing a customer’s satisfaction level tells you almost nothing about how customer spending will be divided among the different brands used.

The authors share strategies to align customer satisfaction and profitability that companies should understand and implement as follows:

“Value to the Company vs. Value to the Customer—research and analyze your customers’ satisfaction levels with your product to the product’s profitability.”

“Market Share vs. Customer Satisfaction—begin with an analysis of customers’ satisfaction levels with not only your company but also with your competitors, as well as your and your competitors’ market shares.”

“Satisfaction and Customer Advantage—what really matters is whether or not your customer satisfaction rating is higher for your brand than for competing brands that a customer also uses.”

The authors conclude that increasing satisfaction levels can be a component of a company’s strategy, but perspective is needed.  In fact, a company may need to accept lower satisfaction scores from a smaller group of customers, in order to increase market share within a larger less homogenous group.  For researchers conducting customer satisfaction research, this context provides some fresh inspiration about how to weave conventional satisfaction research with additional data sources.

References

1 J. Hofmeyr, V. Goodall, M. Bongers and P. Holtzman, “A New Measure of Brand Attitudinal Equity Based on the Zipf Distribution,” International Journal of Market Research 50, no. 2 (2008): 181-202; and A.W. Mägi, “Share of Wallet in Retailing: The Effects of Customer Satisfaction, Loyalty Cards and Shopper Characteristics,” Journal of Retailing 79, no. 2 (2003): 97-106.

2 Some examples cited include: L. Aksoy, A. Buoye, P. Aksoy, B. Larivière and T. L. Keiningham, “A Cross-National Investigation of the Satisfaction and Loyalty Linkage for Mobile Telecommunications Services Across Eight Countries,” Journal of Interactive Marketing 27, no. 1 (February 2013): 74-82; Aksoy et al., “Long-Term Stock Market Valuation”; and others.

 

This synopsis was written by Lynn Croft, independent marketing and market research consultant. With 15 years of experience at companies such as Genzyme, Bayer Corporation, Shire, and Eli Lilly, Lynn has expertise in market research, market analysis regarding product launches, pricing and lifecycle management. 

 

[Are you planning your organization’s first customer satisfaction research? Or looking to refresh an existing program? Learn about goal setting, monitoring strategies, and common challenges in our 90-minute, live online Improving Customer Satisfaction class. MRA approved for 1.5 hours of PRC credit.]

 

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