Q

Customer satisfaction and retention -- what's the correlation?

Expert Lior Arussy explains why customer satisfaction is not necessarily the best indicator of customer retention; companies should look at purchases and other actions rather than complaints handled.

From a marketing perspective, the indicators of customer retention are customer satisfaction with services and good complaint handling. How can these be best quantified to understand customers' experiences while doing business with us?
The question is based on the assumption that customer retention equals customer satisfaction and complaint handling. I disagree with this assumption. In fact, several studies have indicated that there is little correlation between customer satisfaction and retention or future purchases. In one case, only 17% of satisfied customers of financial institutions claimed that they would not entertain a competing offer.

The real indication for retention is not customers' perceptions (e.g., satisfaction) but customers' actions. Repeat business, purchasing ancillary services, recommendations to others, willingness to pay premium price and frequency of purchasing are the indicators of customer retention. These factors can be easily quantified and measured by the dollar value of each action.

This was first published in July 2007

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