The complex firm financial effects of customer satisfaction improvements

It has been widely assumed that increases in customer satisfaction have continuous financial benefits for firms. However, recent meta-analysis results and anecdotal evidence suggest substantial variability in satisfaction-performance effects. We propose and investigate three explanations for this variability: (1) changing trade-offs of financial benefits vis-à-vis costs along the satisfaction continuum, (2) varying stickiness of benefits and costs over time, and (3) contextual effects related to a firm’s marketing strategic situation. For our empirical investigation, we used customer satisfaction scores and financial data for around 100 U.S. firms over a 15-year period. The results show that revenues and savings in marketing and acquisition costs can accelerate at high satisfaction levels. However, for many firms, operating costs and capital investments also accelerate, and shareholder returns for satisfaction improvements can become negative. Tests over different assessment horizons show that operating cost increases are sticky while top line benefits fade. Finally, firm strategy, offering customization, potential of customer word of mouth, and competitive innovation pressure determine the satisfaction payoffs. Our study will help managers to predict more accurately than before the financial effects of their customer-directed investment decisions.