Reference no: EM132280559

-We focus on the behavioural consequences of satisfaction that relate to profit Three key behavioural measures: 1. Customer retention; This is measured as: • Repeat purchase with durables such as cars • Continuity of use with utilities and a v ariety of serv ice prov iders 2. Share of category requirement (SCR) This is the proportion of category spending that goes to a particular brand This applies in repertoire categories such as groceries, hotels and supermarkets 3. Voice • Positiv e word of mouth to other consumers • Compliment to the provider.

-Dissatisfaction produces opposite behaviours 1. Defection, the customer stops buy ing the brand 2. Share of category requirement (SCR) decreases 3. Voice • Negativ e word of mouth to other consumers • Complaint to the prov ider

-Satisfaction: what is measured? Global measure: ov erall satisf action with the product Attribute measures: ev aluations of the dif f erent f eatures of the product The global measure should relate to the sum of the attribute measures • This f its Fishbein’s (1963) treatment of attitude to a product as a bundle of ev aluations of the probable properties of the product Satisfaction is measured as a particular ty pe of attitude

-Features of the satisfaction attitude It is retrospectiv e, not prospectiv e • Because they relate to past experience, measures of satisf action may not be a sound guide to f uture behav iour such as retention It is personal • How satisfied you were with the product? This means that y our satisf action may not relate well to other users’ needs Recommendation takes account of other users’ needs Mangold et al. (1999) f ound that 50% of word of mouth was triggered by the needs of the receiv er

-Does satisfaction relate to retention? Reichheld (1993) reported that “between 65 percent and 85 percent of customers who def ect say they were satisf ied with their f ormer supplier” A rev iew by Hennig-Thurau and Klee (1997) showed that the correlation between satisf action and retention is generally positiv e but f airly weak In many studies, the intention to retain a supplier is used instead of actual retention Such studies show stronger relationships between satisf action and the intention to retain • But intentions are of ten not f ulf illed in later behaviour.

-Dissatisfaction is related to defection Andreasen (1985) studied ten patients who reported serious dissatisf action with their medical care and f ound that six of them switched phy sicians Bolton (1998) f ound that dissatisf action among recently acquired cell phone customers was quite strongly related to def ection Keav eney (1995) f ound that about 50% of serv ice def ections related to dissatisf action with serv ice deliv ery Huef ner and Hunt (1994) reported strong consumer responses of thef t and v andalism when dissatisf action was high

-Why is the relationship between satisfaction and retention weak? 1a. The retrospective nature of satisfaction Needs and brands change The greater the delay between the measurement of satisf action and the time of repurchase, the more scope f or needs and brands to change • Shares • Finance • Family

-When people report their satisfaction, they cannot anticipate some failures that induce defection • In serv ices, Keav eney (1995) showed that def ection of ten occurs because of a f ailure in serv ice deliv ery

-The satisfaction measure is usually not relative to alternatives • People may f ind sev eral brands satisf actory and buy any one of them • Relativ e measures should pick this up • But such measures need dev elopment

-Why is the relationship between satisfaction and retention weak?Customers may not have much choice about switching.Sometimes there is little choice Reasons for supermarket defection (East et al. 2000) Little choice (49%) • New store opened 22% • Mov ed house 13% • Other 14% Voluntary (51%) • Sav e money , loy alty card 21% • Just f or a change 11% • Better quality 10% • Wider choice 9%

-Why is the relationship between dissatisfaction and defection strong? 1. Dissatisf action may inv olv e loss and “losses loom larger than gains” (Kahneman, Knetsch and Thaler 1991) • Loss av ersion is well established • But not really explained

-Why is the relationship between dissatisfaction and defection strong? Satisf action and dissatisf action are not equally common Peterson and Wilson (1992) conducted a comprehensiv e rev iew of satisf action studies in the USA; in one table, they show that 83 per cent of customers were satisf ied, with the remaining 17 per cent distributed between neutrality and dissatisf action Roughly , f or ev ery 10 satisf ied customers there is one dissatisf ied customer

-Why is the relationship between dissatisfaction and defection strong?2.The rarity of negativ e experience af f ects its impact • If goods and services are normally satisfactory, this is the working assumption of most consumers • Therefore, more positive evidence would have little effect on their thinking • But negative evidence is different from their assumption s and can have more effect • Exceptionally, a person may have negative assumption s so that positive evidence has more effect • It is the gap between a person’s position and the evidence that determines the effect (Fiske, 1980)

-New research At Kingston and Massey univ ersities, we studied the predictors of recommendation and retention (East et al., 2005) This was done f or supermarkets in the UK and New Zealand, and f or cars in the UK We used past behav ioural loy alty and relativ e attitude (f or satisfaction) as predictors

-Measures Past behav ioural loy alty : For supermarket s we used SCR, the proportion of supermarket spending in the consumer’s main store The higher the proportion, the greater the past behaviour al loyalty For cars, we establish ed the make of their present car (C3) and the two previous cars (C1 and C2) If C1 was the same brand as C2 the customer had high behavi oural loyalty, if different, it was low Relativ e attitude to the main store or to C2 was measured by asking how good the store/car was, compared to alternatives Then we used multiple regression to f ind out how these two v ariables predicted retention and recommendation

-Findings Relativ e attitude predicted recommendation f or both products but it did not predict the retention of the supermarket a y ear later and only weakly predicted repeat purchase of the current make of car Past behav ioural loy alty was related to retention but not to recommendation f or both categories

Findings on the bases of loyalty behaviour Past behavioural loyalty Relative attitude Retention Recommendation • Day (1962) found that retention was predicted better when attitude was used as well as past behaviour This evidence does not give much support to his finding

-This evidence> Conf irms that ev en relativ e attitude giv es a poor prediction of retention Why does relativ e attitude strongly predict recommendation? • When we recommend , we give reasons and these reasons are often the ones that make us appreciate the product • So there is a common basis to attitude and recommendat ion

-Further work East et al. (2005) conducted f urther work on serv ices to test the link between relativ e attitude and recommendation 23 serv ices were studied and there was a signif icant correlation between relativ e attitude and recommendation in 18 of these studies (mean correlation, 0.26)

-Implications Do not expect loy al customers to giv e more recommendations In relationship marketing, there is an emphasis on retention and an assumption that this is improv ed by increasing customer satisf action • This assumption is not well supported in the evidence that has been reviewed, or in our findings • However, increases in satisfactio n may bring in new customers via recommend atio n

-Satisfaction and company performance In the USA, Sweden and some other countries, indexes of satisf action hav e been established • For exampl e, the American Consumer Satisfaction Index (ACSI) These are reported by Fornell (1992) and by Fornell et al. (1996) • Telephone surveys • Multiple indicators to produce an index, the measur e leads to satisfaction scores for firms Researchers hav e used these indexes to see whether a company that scores high on satisf action shows a later gain in prof itability

-Key research on the link between satisfaction and profit A number of papers hav e shown a positiv e link between satisf action and later prof it and some are listed below But how does satisf action lead to more prof it?

-So which is the main route to increased profits? Some papers suggest that the main ef f ect is via retention The ev idence that we hav e rev iewed suggests that satisf action has limited ef f ect on retention • But it may increase recommend atio n so that more customers are acquired More ev idence is needed • May depend on the category • B2B markets may differ from B2C

Invest in the satisfactory companies Fornell et al. (2006) examined the growth obtained f rom portf olios of high satisf action companies (drawn f rom the top 20% of the ACSI) Buy ing and selling rules f or the portf olio were based on ACSI scores; They

-ASCI measures are firm-level When the company name and the brand(s) it owns are not the same (e.g., Procter & Gamble) there will be less consumer knowledge of the company A study by Netemey er and Maxham (2007) suggests that superv isor ratings of company perf ormance predicted customer assessments • So this may be an alternative way of predicting compan y performance when the compan y is less well known

- Evidence on complaining Dissatisf action and complaining show a modest relationship Many dissatisf ied customers do not complain • Oliver (1981) claimed a correlation of 0.4 • Dissatisfact ion seems a necessary but not sufficient basis for complaining

-Evidence on complaining People may both complain and def ect (Solnick and Hemenway 1992) But some studies show that complainers are less likely to switch • This may be a service recovery effect • Those who are going to stay complain to improve their outcomes

-What affects complaining Outcomes • Particularly ref und and replacement (Singh, 1990) Justice • To restore equity , to improv e serv ice; Richins (1981) noted that consumers sometimes f elt that they ought to complain Opportunity • Grønhaug (1977) f ound more complaints f rom those liv ing near a consumer protection agency

-Complaint policy Managements should encourage dissatisf ied customers to complain by prov iding a clear and f air procedure that takes account of outcomes, justice and opportunity By making complaining easy they may : • Recover customers • Reduce negative W OM • Sometimes sell more • Gain market intelligen ce Complaints should be analysed and reported to management for action (TARP, 1979)

-Investigating consumer dissatisfaction Use complaints as research data Conduct def ection analy sis to establish its root cause (Reichheld, 1996) Determine what is particularly liked/disliked and what can be improv ed In serv ices, f ocus on the customer interf ace and make senior management aware of customer experience Examine what competitors are doing, because they help to set expectations

-Managing consumer dissatisfaction Manage beliefs • Manage expectations • Rev eal hidden benef its • Rev eal competitor f ailures • Ignore minor f ailures Service recovery • Listen to complaints, admit f aults, accept responsibility f or third party error and apologise • Explain what went wrong and any steps to av oid recurrence • Compensate or replace

-Review: what satisfaction and dissatisfaction predict Satisf action is measured as an attitude about past experience with an object It predicts positiv e word of mouth quite strongly It predicts retention rather weakly • Retention is better predicted by past behavioural loyalt y But dissatisf action does predict def ection

-Review: explaining why the relationship between satisfaction and retention is weak Satisf action deals with past, not f uture, experience • The mishaps that cause dissatisf act ion and defection cannot easily be predicted by earlier measures of satisfaction The measure should be relativ e • Satisfaction compared with alternatives Customers may lack choice • Particularly with retail services that are delivered at particular times and places

- Review: impact on profit A series of studies has shown that f irms that get high satisf action scores tend to make more prof it • And a portfolio of shares from the companies in the top 20% of the ACSI gained in share value substantially more than the standard index of share performan ce The link between satisf action and prof it can take a number of routes • Direct evidence is lacking but recommend atio n, leading to more customers, may be important

-Review: the relationship between dissatisfaction and defection may be strong because > Losses loom larger than gains Most people expect to be satisf ied so dissatisf action is more unexpected

-Review: complaining Dissatisf action seems to be necessary f or a person to complain, but many dissatisf ied customers do not complain Other f actors af f ecting complaining are: • The potential outcomes • Justice • Opportunity

-Further reading The papers cited in this presentation prov ide more detailed ev idence A textbook that cov ers this material is: • East Robert, Wright Malcolm and Vanhuel e Marc (2008), Consumer Behaviour: Applications in Marketing, London: Sage Publications, chapters 2, 8 and 11

(my book definiton of customer satisfaction:the extent to which a firm fulfills a consumers needs, desires, and expectations.)

Answer this :

1. Explain the similarities and differences between our book's definition of customer satisfaction and the video’s definition.