Effect of customer satisfaction on profitability

Customer satisfaction does have a positive effect on an organisation’s profitability. According to Hoyer and MacInnis (2001), satisfied customers form the foundation of any successful business as customer satisfaction leads to repeat purchase, brand loyalty, and positive word of mouth. Coldwell (2001): “Growth Strategies International (GSI) performed a statistical analysis of Customer Satisfaction data encompassing the findings of over 20,000 customer surveys conducted in 40 countries by InfoQuest. The conclusion of the study was:

  • A totally satisfied customer contributes 2.6 times as much revenue to a company as a somewhat satisfied customer.
  • A totally satisfied customer contributes 17 times as much revenue as a somewhat dissatisfied customer.
  • A totally dissatisfied customer decreases revenue at a rate equal to 1.8 times what a totally satisfied customer contributes to a business”.

Zairi (2000): “There are numerous studies that have looked at the impact of customer satisfaction on repeat purchase, loyalty and retention. They all convey a similar message in that:

  • Satisfied customers are most likely to share their experiences with other people to the order of perhaps five or six people. Equally well, dissatisfied customers are more likely to tell another ten people of their unfortunate experience.
  • Furthermore, it is important to realize that many customers will not complain and this will differ from one industry sector to another.
  • Lastly, if people believe that dealing with customer satisfaction/complaint is costly, they need to realize that it costs as much as 25 percent more to recruit new customers”.

Aaker (1995) said that the strategic dimension for an organization includes becoming more competitive through customer satisfaction/brand loyalty, product/service quality, brand/firm associations, relative cost, new product activity, and manager/employee capability and performance (Figure 6).

Performance measures reflecting long-term profitability

Figure 6 Performance measures reflecting long-term profitability. Consequences of customer satisfaction and Dissatisfaction

The consequences of not satisfying customers can be severe. According to Hoyer and MacInnis (2001), dissatisfied consumers can decide to:

  • Discontinue purchasing the good or service
  • Complain to the company or to a third party and perhaps return the item
  • Engage in negative word-of-mouth communication.

Customer satisfaction is important because, according to La Barbera and Mazursky (1983), “satisfaction influences repurchase intentions whereas dissatisfaction has been seen as a primary reason for customer defection or discontinuation of purchase”.