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.
1. Introduction.
Several authors have noted that customers generally vary in terms of profitability.
That is to say, one particular customer does not generate the same costs and revenues over time as another customer. Moreover, not all customers generate acceptable cost and revenue streams. For example, in retail banking, some 50-60 percent of customers may be unprofitable (Carroll 1991-1992, Storbacka et al 1994). It has been suggested therefore, that the firm should actively encourage relationships with profitable customers and attempt to terminate relationships with unprofitable customers In Reichheld's (1996) words, caveat mercator (seller beware) ought to be a relevant principle for most firms today. An increased focus on profitability at the customer level is a reflection of a movement within the marketing discipline towards a less aggregate view of markets. In other words, the individual customer - rather than segments of customers is increasingly stressed as the unit of analysis. This movement has given birth to labels such as one-to-one marketing and micro marketing.