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

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