Customer Level Profitability Implications of Satisfaction Programs: A Retailer Satisfaction Field Study

40 Pages Posted: 24 May 2006

See all articles by Chakravarthi Narasimhan

Chakravarthi Narasimhan

Washington University in St. Louis - John M. Olin Business School

Mahendra Gupta

Washington University, St. Louis

George Foster

Stanford Graduate School of Business

Rakesh Niraj

Case Western Reserve University

Date Written: March 2006

Abstract

This paper reports the results of a longitudinal study of a beverage distributor who initiated a customer satisfaction program with its entire customer base of different types of retailers. We use a broad-based measure of customer satisfaction tailored to the company's operations, and we compute customer profitability through activity-based Cost measures. We investigate the economic outcome of a satisfaction program in distributor-retailer context focusing on individual retailer level satisfaction and profitability measures. After carefully accounting for costs of launching the satisfaction program and allocating them equally carefully to individual retailers using Activity Based Costing (ABC) principles, we analyze the link between changes in satisfaction and changes in profitability. The net profit measure of CP, derived after careful allocation of costs based on activities, shows a complex and non-linear pattern of relationship with customer satisfaction.

Keywords: Customer Satisfaction, Retailing, Activity Based Costing, CRM

JEL Classification: M31

Suggested Citation

Narasimhan, Chakravarthi and Gupta, Mahendra R. and Foster, George and Niraj, Rakesh Kumar, Customer Level Profitability Implications of Satisfaction Programs: A Retailer Satisfaction Field Study (March 2006). Available at SSRN: https://ssrn.com/abstract=903985 or http://dx.doi.org/10.2139/ssrn.903985

Chakravarthi Narasimhan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive, Campus Box 1133
Olin School of Business
St. Louis, MO 63130-4899
United States
314-935-6313 (Phone)
314-935-6359 (Fax)

Mahendra R. Gupta

Washington University, St. Louis ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-4565 (Phone)
314-935-6359 (Fax)

George Foster

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-2812 (Phone)
650-725-7979 (Fax)

Rakesh Kumar Niraj (Contact Author)

Case Western Reserve University ( email )

10900 Euclid Avenue
PBL 235
Cleveland, OH OHIO 44106-7235
United States

HOME PAGE: http://weatherhead.case.edu/faculty/Rakesh-Niraj/

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