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The link between Satisfaction and Retention

Given some of the difficulties associated with establishing unequivocal links between customer satisfaction and company performance, the 1990s witnessed many managers increasingly turning to customer retention as a long-term goal. By focusing on customer retention, managers moved closer to the ultimate dependent variable – profits. A satisfied customer is influenced by many factors when making a purchase and has many options. Even if the level of satisfaction is high, retention is not guaranteed, as there may be another product that would satisfy the customer to the same extent. Conversely, if the customer is dissatisfied, then the other product becomes more enticing. The link is nonlinear; the impact of satisfaction on retention is greater at the extremes. The flat part of the curve in the middle has also been called the zone of indifference (Jones & Sasser, 1995). As seen in the industry-level databases (such as the ACSI from the University of Michigan), a number of factors including the aggressiveness of competition, degree of switching cost, and the level of perceived risk – influence the shape of the curve and the position of the elbows (the two points in the graph where there is a sharp change in the shape of the curve).

consumers may incur considerable switching costs when utilizing an airline. This cost might increase due to bonus-point build-up in frequent-flyer programs or limited airline choice at any given airport. Thus, consumers tend to re-patronize an airline even though satisfaction might only be moderate. The same caveats that apply to the satisfaction- profit link also apply to the satisfaction-retention link. First, firms should thoroughly investigate the nature of the link for a specific industry, category, or segment. For example, two firms operating in two different industries might have identical satisfaction levels, yet the relationship between customer satisfaction and retention might be quite different for the two firms. To assess the impact of satisfaction on retention in a better manner, firms must account for the attractiveness of alternatives in addition to what they offer. Another aspect to consider is that the link might change, depending on the measurement employed for the loyalty measured. For example, a study (Mital & Kamakura, 2001) found that repurchase behavior is a better measure than repurchase intent. Finally, we know comparatively less about the link on an individual customer level as compared to a company or industry level analyses.


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