Measuring Customer Relationship Value: The Role of Switching Cost
Posted: 12 Jun 2006
Conceptually, customer relationship value depends on customer perceptions of the cost of switching to another supplier. Empirical tests of switching cost effects have been hampered because traditional performance measurement systems and customer satisfaction scores do not reflect switching cost perceptions within comparable market segments across firms. Using unique data systematically collected by market segment from online retail customers, we find that a) our switching cost proxy adds statistically significant explanatory power for both future buyer behaviors at the segment level and future financial performance at the firm level, and b) the positive relation between customer attitudes and future buyer behavior is increasing in switching cost. Our results show that externally generated non-financial data collected periodically across market segments can individually and jointly provide valuable information about segment and consolidated entity performance.
Keywords: Switching cost, non-financial performance measures, leading indicators
JEL Classification: M31, M40, M46, L81
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