Are Loyal Customers Profitable? Customer Satisfaction, Customer (Action) Loyalty and Customer Profitability at the Individual Level.

Author: Helgesen,Øyvind (oh@hials.no)
Source: Journal of Marketing Management; Apr2006, Vol. 22 Issue 3/4, p245-266, 22p,

Summary of the article:

Customer profitability is supposed to be positively related to customer loyalty and customer satisfaction. This link between customer satisfaction and profitability forms the most significant point of the marketing concept. And the lesson is that firms should be working for meeting the customers' needs, desires and requests. As a result, according to this way of thinking, the companies that are able to increase the satisfaction of the customers can expect a positive effect on the firm's profitability in the long term. The link between satisfaction, loyalty and profitability is understood to be so self-evident that most of the time relationship is taken for granted. This article focuses on the individual customer by pointing out the links between customer satisfaction, customer loyalty and customer profitability. In the article 2 hypotheses are tested which are; H1: The more satisfied a customer tends to be, the higher is the loyalty of the customer; H2: The more loyal a customer tends to be, the higher customer profitability is obtained.The results show strong support for the hypotheses. However, the relationships between the variables seem to be non-linear and only valid beyond certain levels. Customer relationship is based on concepts about positive cause- and effect relationships between the following main variables: customer satisfaction, customer loyalty, and customer profitability. In the paper the last two relationships have been analyzed at the individual customer level. Positive links have been found between the variables, but in such a way that the relationships seem to have decreasing shapes. So, there seems to be a positive relationship between customer satisfaction and customer loyalty, and there also seems to be a positive relationship between customer loyalty and customer profitability.

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