Companies across a wide range of industries focus on improving customer satisfaction as a way of increasing loyalty. Still, there is evidence to show that increasing customer satisfaction does not always result in increases in repurchase. So if your company happens to be in one of those situations you could be wasting money trying to improve customer satisfaction - money that could be usefully spent on something else. What defines "those situations" where the relationship between customer satisfaction and repurchase is sketchy? In a recent issue of the Journal of Marketing, three academic researchers Glenn Voss, Andrea Godfrey and Kathleen Seiders, propose that the kind of product category (luxury or necessity) plays a crucial role in this relationship along with customer, relationship and market characteristics.
First some definitions. Necessities are those that families spend less on as income increases. Conversely luxuries are those that families spend more on as income increases. Food consumed at home is an example of a necessity and the data show that the money spent on this decreases from 30% for the bottom income decile to 15% for the highest decile. Dining out at a restaurant is a luxury and proportion from the lowest to highest deciles goes from 4% to 8%. The authors argue that in the case of luxuries, customer, relationship and market characteristics exert a complementary effect that enhances the impact of satisfaction on loyalty. Conversely for necessities they exert a substitution effect that reduces the impact of satisfaction on loyalty.
They test this with a luxury category (fashion apparel) and a necessity (automobile service) using both surveys and company database information and indeed find the predicted complementary and substitution effects respectively for luxuries and necessities. What does that mean for marketers of these products?
Luxury good sellers (such as fashion apparel, fine dining restaurants, leisure travel and entertainment) can take a multifaceted approach to marketing. They can invest in increasing customer satisfaction while simultaneously focusing on customer, relational and marketplace characteristics that aim to increase both the size and share of a customer's wallet. Delighting customers with hedonic benefits, increasing customer involvement through relationship programs and outreach efforts all help in increasing loyalty. In other words, people care about these products so anything that enhances their experience and makes them more involved will strengthen the relationship between satisfaction and loyalty.
Sellers of necessities (such as automobile maintenance, dry cleaners, grocery stores and some retailers) would be better off not trying to increase customer involvement and satisfaction beyond a moderate level, and relying more on inertia. The impact of customer satisfaction on loyalty cannot be easily improved so the kinds of steps taken by luxury good sellers would not work. Breaking the hold of inertia on competitive customers using promotions is a better strategy than focusing on increasing service intensity, atmospherics and customization as people are not really involved with these products.
Towards the end of their article the authors speculate about the application of their theory in B2B situations but don't go much beyond saying that there might be some applicability. But for practical market researchers this could be an interesting question. Is market research a luxury or necessity? I'll address that in a later post.