An Empirical Investigation on the Economic Consequences of Customer Satisfaction

The relationship between customer satisfaction and economic returns has received growing attention in the customer satisfaction literature. However, there has been limited work linking customer satisfaction to customer profitability. Specifically, most empirical studies conduct firm-wide or business-level tests, but few investigate if individual customers' satisfaction with products or services drives their purchase intentions and economic contributions to the firm. Using panel data from 36 retail branch banks managed by an international financial institution (RBANK), which consists of two customer satisfaction data-points over nine months and monthly-activity based customer profitability data, this study examines how individual customers' satisfaction impacts customer revenue, customer costs, and customer profitability. The results indicate that several dimensions of customer satisfaction are positively associated with individual customers' repurchase intentions and firm reputation. The effect of the responsiveness dimension dominates the effect of other dimensions in most tests. At RBANK, individual-level customer revenue and costs both increase as customer satisfaction improves, but no significant relation exists between customer satisfaction and customer profitability. These findings shed light on several management issues, such as market segmentation, customer retention, and the implementation of a balanced scorecard. Furthermore, this study highlights a way for managers to analyze customer value, which is beneficial for long-term customer relationship management.