The High Price of Customer Satisfaction

Managers often assume that improving customer satisfaction and financial performance go hand in hand. The reality, however, is much more complex.

Reading Time: 25 min 



“Satisfaction guaranteed or your money back.” That business promise has been made to consumers since 1875, when Montgomery Ward used it to differentiate his mail-order catalog from other retailers. Commitment to customer satisfaction is now a vow many businesses make. It is common to find mission statements and marketing plans that specifically address customer satisfaction; compensation systems that incorporate satisfaction metrics into their bonus criteria; and advertisements that trumpet customer satisfaction awards.

Customer satisfaction has become the most widely used metric in companies’ efforts to measure and manage customer loyalty.1 The assumption is simple and intuitive: Highly satisfied customers are good for business.

However, the reality has not proven nearly so simple. In fact, we have found that if you look across industries at the correlation between companies’ customer-satisfaction levels for a given year and the corresponding stock performance of these companies for that same year, on average, satisfaction explains only 1% of the variation in a company’s market return.

Another recent examination of the relationship between satisfaction and stock performance by Bloomberg Businessweek reported even worse results than our own. In a 2013 article entitled “Proof That It Pays to Be America’s Most-Hated Companies,” the magazine reported that “customer-service scores have no relevance to stock market returns … the most-hated companies perform better than their beloved peers … Your contempt really, truly doesn’t matter … If anything, it might hurt company profits to spend money making customers happy.”2 These findings were so unexpected that comedian Stephen Colbert offered American corporations his faux help to “get those customer satisfaction ratings right in the toilet.”3

Admittedly, the above examples represent overly simplistic examinations of the relationship between satisfaction and stock performance. You would expect customer satisfaction to impact performance over time, so simply looking at satisfaction and stock performance levels for the same year is not going to accurately capture the complete relationship.4 And academic research consistently finds that there is a positive, statistically significant relationship between satisfaction and a host of business outcomes such as customer retention, share of wallet, referrals and stock market performance.5 We ourselves have written numerous articles demonstrating this very fact.6

The problem, however, is that the relationship between customer satisfaction and customer spending behavior is very weak.7 How weak? Our research finds that changes in customers’ satisfaction levels explain less than 1% of the variation in changes in their share of category spending. Yes, the relationship is statistically significant, but it is not very managerially relevant.

Because of findings like these, some managers have openly challenged “whether the relationship between unobservable measures such as customer satisfaction and observable behavior such as purchasing was sufficiently strong to justify its use as the primary unobservable predictor.”8 Some consultants have gone further, writing books or articles declaring satisfaction a waste of money.9 And even in the scholarly community, some academics have questioned whether customer satisfaction actually links to market performance.10

So we’ve reached a fundamental crossroads. Is customer satisfaction worth the cost? To find out, we undertook an intensive investigation into the relationship between satisfaction and business outcomes, gathering data from more than 100,000 consumers covering more than 300 brands. (See “About the Research.”) Our investigation, in conjunction with our prior research and background in consumer satisfaction, uncovered three critical issues that have a strong negative impact on translating customer satisfaction into positive business outcomes. What’s more, these issues are equally applicable for other commonly used metrics such as the net promoter score (NPS, a way to measure customer loyalty). Given their scope, we believe these findings should inform every company’s customer-service strategy.

Issue 1: Money-Losing Delighters

High customer-satisfaction ratings are typically treated by managers as being universally good for business. Our findings indicate, however, that the benefits are not nearly so clear-cut. There is a downside to continually devoting resources to raise customer satisfaction levels. Why? Because managers are rarely able to accurately quantify the cost associated with increasing customer satisfaction scores from, for example, 8.7 to 9.1 on a 10-point scale, nor are they able to determine precisely what such an increase is actually worth.11

It turns out that the return on these investments is often trivial or even negative.12 Although we find that improved satisfaction can increase sales revenue, the additional costs frequently outweigh the benefits. For example, a large beverage distributor in the midwestern U.S. found that the return on its satisfaction efforts was negative. Despite increased revenue from more satisfied customers, customer service costs increased by 10% as a result of the program, which overwhelmed any benefit from increased sales.13

If we look at one key factor that drives customer satisfaction — low prices — it is easy to see why this is the case. Our analysis of the U.S. credit union industry finds that the primary reason credit union customers prefer these institutions to banks is price — specifically, credit unions charge lower fees and offer higher interest rates on deposits than banks.14 The result is that credit unions typically have among the highest customer-satisfaction level of any industry investigated by the American Customer Satisfaction Index, or ACSI.15

In general, satisfaction and price are almost always inversely related. As a result, lowering price tends to be one of the easiest ways to improve satisfaction levels. But for most products and services, the potential for dropping price while still remaining profitable is limited — and low prices are often not good for businesses.

For example, the majority of customers of a large financial services company we examined were highly satisfied. The problem was that over two-thirds of these highly satisfied customers were also unprofitable to the company. The customers’ high satisfaction was driven largely by the belief that they were getting exceptional deals — and they were. Products were often priced below cost. Every time the company mispriced its offer, customers bought in large quantities. As a result, not only were these customers unprofitable, they were also some of the company’s largest customers. Adding insult to injury, as large customers they also expected a great deal of ancillary services to be automatically provided by the company for free.

In another example, our analysis of Groupon social coupon offers found that the relationship between customer satisfaction and merchant profitability is frequently negative.16 In fact, four of the six top-performing categories of Groupon offers in terms of satisfaction were money losers for the merchants. Because of their high customer satisfaction, however, they generated a huge demand. These four categories accounted for 50% of total Groupon volume!

These findings point to an important truth about the relationship between customer satisfaction and customer profitability. While customer satisfaction and profitability are not mutually exclusive, they don’t have to be aligned, either. Managers typically have many competing alternatives for improving satisfaction. They could provide a better customer experience or offer more innovative products, for example. Not all alternatives will be profitable. Furthermore, not all customers can be profitably satisfied. Some are not willing to pay the necessary price for the level of service being offered. Others demand a level of service that more than offsets any revenue they provide. The bottom line is that there is no substitute for understanding the profit impact of your efforts to improve customer satisfaction. Armed with this information, managers can make the right — and sometimes difficult — decisions for their businesses.

In the case of the financial services company, the information our analysis revealed caused the company to change its product-pricing strategy to ensure that products were not sold at a loss. Managers also reached out to unprofitable customers to frankly discuss the fact that the company was losing money on the services provided and inform the customers that there would now be a cost for using them. Initially, almost all of the customers chose to stop using the services, arguing — perhaps disingenuously — that they didn’t really need or use them. And as expected, satisfaction levels initially declined as a result of the change.

Within three months, however, virtually all of these customers willingly paid to have the services in question restored. Paradoxically, after they paid to have the services they initially received for free, satisfaction levels increased to their prior levels. Customers not only recognized the value of these services after being without them but were also willing to pay for them.

Issue 2: Smaller Often Equals Happier

Given that higher satisfaction levels are believed to result in higher customer spending, we might expect a strong positive relationship between satisfaction and market share. The reality for many business sectors, however, is quite the opposite.17 In fact, research finds that high satisfaction is a strong negative predictor of future market share.18

We often see examples of this inverse relationship between satisfaction and market share. For example, McDonald’s consistently ranks below Burger King and Wendy’s in industrywide customer satisfaction comparisons. For the 18 years that ACSI has tracked these companies, Wendy’s has always had the highest satisfaction level of the three, while Burger King has been second and McDonald’s third 17 times. Wal-Mart has a similar story. Since 2007, it has recorded the lowest customer satisfaction scores of all discount retailers tracked by ACSI. Target, Sears and J.C. Penney all consistently outperform Wal-Mart on this customer satisfaction measure year after year.19 Despite low relative satisfaction levels, however, McDonald’s and Wal-Mart have by far the largest market shares in their respective industries.

The primary reason for this seemingly counterintuitive finding is that the broader a company’s market appeal relative to the offerings of competitors, the lower the level of satisfaction tends to be. Why? Gaining market share typically comes from attracting customers whose needs are not completely aligned with the company’s core target market. As a result, smaller niche companies are better able to serve their customers. Companies with a large market share, on the other hand, must by their very nature serve a more diverse set of customers.

Consultants have prodded managers to benchmark their performance relative to high-satisfaction brands. The argument is that customers judge a company’s performance not just by the performance of direct competitors but also by the service they receive from the best companies in other categories. There may be some truth to this, but often the comparison is not managerially relevant, and these “best-in-class” examples reflect niche brands in categories where there is high customer involvement. While there may be things to learn from their stories, trying to achieve the satisfaction levels of these best-in-class niche brands would be counterproductive for many organizations.

In addition, increases in a company’s customer-satisfaction ratings often happen as the result of a decline in market share. For example, an examination of the ACSI data shows that Burger King’s satisfaction levels rose over the same time period that it was losing share to McDonald’s and Wendy’s. Kmart scored its biggest year-over-year increase in customer satisfaction (and its highest ACSI score since tracking began) as it was preparing its bankruptcy filing because of large-scale customer defections.

Should managers not care about customer satisfaction in the pursuit of market share growth? No — they should care. If market share is the goal, then managers need find the right balance between customer satisfaction levels and broad customer acceptance.

Issue 3: The Importance of Being No. 1

The overriding reason that companies measure satisfaction is the belief that higher scores result in a greater share of a customer’s wallet. The unfortunate reality, however, is that our research indicates that knowing a customer’s satisfaction level tells you almost nothing about how she will divide her spending among the different brands used. As a result, changes in customer satisfaction levels are unlikely to have a meaningful impact on the share of category spending customers allocate with your brand.

Why? Single-brand loyalty, which was common in our parents’ and grandparents’ generations, has been replaced with loyalty to multiple brands in a category in many sectors.20 Because of this divided loyalty, more customers partially defect (in other words, they give more of their business to a competitor) than completely defect from a business or brand. As a result, improving customers’ share of spending with your brand tends to represent a far greater opportunity than efforts to improve customer retention.

For example, a study of the hotel industry by Deloitte found that, on average, approximately 50% of hotel guests’ spending is not with their preferred hotel brand.21 A study of the banking industry by McKinsey found that, on average, only 5% of bank customers actually close their accounts each year and that the corresponding loss represents just 3% of total deposits. On the other hand, 35% of customers reduce their share of deposits, and that corresponding loss represents 24% of total bank deposits.22

Unfortunately, because of the weak relationship between satisfaction and share of wallet, managers are typically unable to identify what their companies must do to capture a greater share of customers’ spending. Managers tend to believe that customers who rate themselves as “completely satisfied” are more likely to give the lion’s share of their spending in the category to their brand. As a result, managers frequently assess their satisfaction levels as the percentage of customers who rate their satisfaction at the highest level. (In the case of NPS, customers rating themselves a “9” or “10” on an 11-point (0 to 10) recommend intention scale are classified as “Promoters.”) The goal then becomes to get that number up higher.

The problem with looking solely at a company’s satisfaction or NPS score is that it is a poor indicator of the relative preference that customers have toward the brands they use. For example, imagine that your brand has two customers: Janet and John. Both rate their satisfaction with your brand a “9” on a 10-point scale (where 10 is the highest). Virtually all managers would consider this a good score. Using the NPS classification system, both Janet and John would be considered Promoters of your brand.

Janet and John, however, also use two other brands: Brand A and Brand B. Janet rates her level of satisfaction with Brand A “9” and her satisfaction with Brand B “10.” John, on the other hand, rates his level of satisfaction with Brand A “7” and Brand B “8.” Even though Janet and John both rate your brand a “9,” your brand is John’s clear first choice. For Janet, your brand is tied for last. The result is that John allocates a substantially higher share of his category spending with your brand than Janet does.

This type of situation happens all the time. For most industries, customers divide their spending among multiple competing brands. But not all brands are equal in satisfying customers. We would naturally expect preferred brands to get a greater share of customers’ spending in the category. So the measure that really matters isn’t your percentage of delighted customers or promoters. What matters is the relative rank that your brand’s satisfaction level represents vis-à-vis your competitors.23 In other words, the highest satisfaction rating a customer could give to a brand would be assigned a “1,” the second highest a “2,” and so on.

While the idea of ranked satisfaction might seem radical, it actually builds upon what researchers have known for a long time: Satisfaction is relative to competitive alternatives.24 In fact, our research finds that the relationship between satisfaction and share of wallet is a function of satisfaction’s relationship to the relative rank.25 The problem is that we haven’t applied this knowledge to how we actually measure and manage customer satisfaction.

Our research finds that simply transforming absolute satisfaction levels to relative ranks tends to explain more than 20% of the variation in customers’ share of category spending. That is a remarkable improvement, given that absolute satisfaction levels tend to explain only 1% of the variation in share of wallet.

The problem with using ranked satisfaction levels, however, is that unlike the percentage of “top box” satisfaction levels, average rank is not easy to interpret, nor is it easy to rally the organization around. That is because we think of ranks as whole numbers — for example first, second, third place, and so forth. A company’s average rank, however, is almost never a whole number. As a result, it is hard for managers and front-line employees to internalize. An easy way to get around this problem is to track the percentage of customers who give your brand their highest satisfaction rating among all brands that they use. In other words, is your brand really a customer’s first choice, or do customers view your brand as being the same as or worse than competitors? The percentage of members who rate a brand better than all other competitors used correlates strongly with share of wallet.

Making Satisfaction Work for You

These three findings show that it is easy for customer satisfaction and profitability to become misaligned. That doesn’t have to be the case. Below we present strategies that managers can easily implement to ensure that those two goals remain in alignment.

Value to the Company vs. Value to the Customer

At their core, customer-company relationships are about the exchange of value. The value that a customer provides to the company is the flow of profits over time. For the customer, value is the satisfaction obtained from the company’s products and services. Not all company-customer relationships, however, represent a fair exchange. After analyzing your customers’ levels of satisfaction and their corresponding profitability, you can place each of them into one of four categories. (See “Customer Satisfaction vs. Customer Profitability.”26)

We call customers who do not get much value from the company and in turn provide little economic value to the company lost causes. If the company cannot migrate these customers to higher levels of profitability, it should reduce its investment in these customers or even “fire” them.

By contrast, star customers get high value from the company’s products and services and provide value to the company by way of higher margins and strong loyalty. These are the company’s ideal customers, and the key here is to continue to delight them.

The other two cases show unbalanced, and therefore unstable, relationships. Vulnerable customers provide high value to the company but do not believe that they are getting a fair value in return. Managers need to invest in these customers through better product offerings, additional services, and the like. The key is to do this without overkill — in other words, without turning them into unprofitable customers.

Free riders are the mirror image of vulnerable customers. These customers get superior value from the company’s products and services but are not very valuable to the company. Managers first need to determine why free riders are low in value to the company. Is it because the share of wallet that they contribute to the company is small or because they cherry-pick items only when they are on sale?

If the issue is small share of wallet, managers need to focus on up-selling and cross-selling to these customers. In the case of cherry-pickers, managers need to establish clear cost controls and purchase restrictions to increase profit margins. For example, it may be reasonable to cut service levels to these free riders and reallocate those resources to vulnerable customers.

Market Share vs. Customer Satisfaction

As noted earlier, the relationship between customer satisfaction and market share is negative in many industry categories. Without a good understanding of the nature of the relationship in your industry and of where your company stands vis-à-vis competitors, it is very difficult to effectively manage the customer experience in the pursuit of market share.

The place to begin is with an analysis of customers’ level of satisfaction with not only your company but also with your competitors, as well as your and your competitors’ market shares. With this information, you can place each of those competitors into one of four categories. (See “Customer Satisfaction vs. Market Share.”27)

If one or more companies fall into the high market share, low customer satisfaction category, the industry most likely demonstrates a negative relationship between customer satisfaction and market share. Companies with high market share and low satisfaction combinations are, as we discussed before, mass-market brands. These companies have a wide range of customers with a diverse set of needs. Given the breadth of different customer needs served by mass-market brands, it is impossible for these companies to precisely meet the needs of all or even most customers. As a result, some core benefit such as price, convenience or product assortment needs to be sufficiently strong in order for customers to sacrifice having their needs met more completely.

Because mass-market brands focus on the general needs of a wide audience, they typically find themselves competing with smaller, more focused competitors that better target the needs of specific segments of customers. These niche-brand competitors by necessity must have higher satisfaction levels to survive. Yet because these companies target a smaller segment of customers, their market share is relatively low. For example, niche fast-food burger restaurants like Five Guys have higher satisfaction levels than any of the big three burger chains (McDonald’s, Burger King and Wendy’s) because of the smaller companies’ almost exclusive focus on burgers and fries. Clearly this strategy has proven highly successful for Five Guys, but the limited menu also makes it virtually impossible for the chain to achieve overall market-share leadership in fast food.

In some categories, there are brands that exhibit both high customer satisfaction and high market share, which we refer to as high-loyalty brands. For example, Google has consistently received higher customer satisfaction ratings than its competitors in Internet searches while capturing almost two-thirds of U.S. search activity. High-loyalty brands, however, are similar to mass-market brands in that they face competition from niche brands.

How are these brands able to avoid the relatively poor customer satisfaction score that mass-market brands typically receive? It is interesting to note that high-loyalty brands frequently are found in the technology sector, a dynamic market. Competitive intensity combined with rapidly changing and improving product offerings means that these markets are in constant flux. As a result, customers have not habituated to the products offered. But this is a double-edged sword. Because the markets are in a high state of flux, winners can quickly lose ground — as companies such as BlackBerry have discovered.

There are also brands that despite relatively low satisfaction and low market-share levels are able to compete successfully. These conditional-use brands, as we refer to them, are able to compete effectively either because they uniquely offer items needed to complete the consumer’s shopping basket in the category or because some market barrier makes using a preferred brand difficult. For example, many retailers and restaurants compete largely through the convenience of their locations relative to competition.

Given that each quadrant of the satisfaction/market-share matrix represents a viable business strategy, simply comparing average satisfaction levels across brands in a category offers little real insight. So how should a 40% share Brand A compare itself with a 10% share Brand B in terms of satisfaction? A simple rule of thumb is to compare satisfaction levels of customers that correspond to equivalent market shares for both brands. So, in this case Brand A would take its top customers that constitute 25% of its revenue (if it had only those customers, it would have a 10% share), and compare their satisfaction level with that of Brand B. If they are comparable, then Brand A is fine. If, however, their satisfaction level is significantly lower, then Brand A managers need to assess the risk of losing these customers to competitors and work to mitigate that risk.

Satisfaction and Customer Advantage

The overriding reason for management’s focus on customer satisfaction is as a source of competitive advantage. At some level, managers expect high satisfaction levels to cause customers to prefer a brand to competitive alternatives. Clearly, there is some truth to this. As with all management truisms, however, the devil is in the details.

What really matters is whether or not your customer satisfaction rating is higher for your brand than for competing brands that a customer also uses. The lion’s share of a customer’s wallet goes to his or her first-choice brand. Therefore, it is vital to understand how a brand’s satisfaction level translates into being a customer’s first choice. By analyzing customers’ levels of satisfaction and their corresponding first-choice selection, you can place your company and each of your competitors into one of four categories. (See “Satisfaction vs. First Choice.”)

For customers who are both highly satisfied and prefer your brand to all others, you are the star brand in the category. Here the strategy is simple: Continue to delight these customers. At the opposite end of the spectrum are brands that are low in satisfaction and in first-choice preference. This is the underlying foundation that results in the conditional-use brands discussed earlier. The strategy here should be to maintain unique items that would be difficult or unprofitable for competitors to incorporate into their offering, or to find ways to erect market barriers that make access to a preferred brand difficult.

For those customers where satisfaction is high but first choice is low, high satisfaction levels are masking customers’ real perceptions of the brand. Managers typically tout the fact that customers are highly satisfied, but the reality is that the brand is one of several that the customer uses and views as being basically equivalent, which is why we refer to them as parity brands. The strategy for these brands must be differentiation from core competitors; in other words, you must give customers a reason to believe your brand is better.

There are also brands that despite low satisfaction still represent customers’ first choice. These low-service category brands compete successfully either through price leadership or because the category has few competitors. These brands can compete successfully provided that significant price leadership can be maintained or there are sufficient entry barriers for competitors. For example, the American Customer Satisfaction Index consistently shows Wal-Mart to have the lowest satisfaction levels of all major grocery retailers in the United States. Yet our research finds that the percentage of its customers who consider it their first-choice grocer is high relative to competitors. And despite it being a low-service category position, this strategy has paid off handsomely for Wal-Mart. It is now the largest grocery retailer in the United States, with groceries contributing 55% of its sales.28

Wal-Mart’s buying power and its cost-effective supply-chain management allow it to keep prices low while maintaining healthy margins.29 For many companies, however, this is an inherently difficult position to maintain. In an era of open access to information, wide access to markets and easy price comparisons, cost leadership strategies often come at the expense of acceptable financial returns. As a result, competitive markets tend to pressure companies to raise their satisfaction levels to remain customers’ first-choice brand.

The Limits of Customer Satisfaction

No company can last for long without satisfied customers. But misguided attempts to improve satisfaction can damage a company’s financial health. So while satisfaction is important, it does not mitigate the need for sound business strategy and fiscal oversight.

What is clear from our research is that there is not one right way to improve satisfaction. Different approaches are required depending upon the profiles of the company’s customers and the nature of the competitive environment. Moreover, it may even be necessary to accept lower average satisfaction levels in the pursuit of greater market share by appealing to a larger, less homogeneous customer base. This contradicts the message of many programs discussed in the popular business press regarding the relationship of satisfaction (and NPS) to business performance.

Fortunately, these issues are solvable. But they require that managers recognize and address each of the issues that can negatively impact the relationship between satisfaction and business performance. Increasing satisfaction levels can be a useful component of a company’s strategy, but it doesn’t have to be. Often it isn’t compatible with market share growth — or even good business.



1. L. Aksoy, “How Do You Measure What You Can’t Define? The Current State of Loyalty Measurement and Management,” Journal of Service Management 24, no. 4 (2013): 356-381; and V.A. Zeithaml, R.N. Bolton, J. Deighton, T.L. Keiningham, K.N. Lemon and J.A. Petersen, “Forward-Looking Focus: Can Firms Have Adaptive Foresight?” Journal of Service Research 9, no. 2 (2006): 168-183.

2. E. Chemi, “Proof That It Pays to Be America’s Most-Hated Companies,” Bloomberg Businessweek, Dec. 17, 2013.

3. S. Colbert, “Rethinking Customer Satisfaction,” The Colbert Report, Comedy Central, December 18, 2013,

4. L. Aksoy, B. Cooil, C. Groening, T.L. Keiningham and A. Yalçin, “The Long-Term Stock Market Valuation of Customer Satisfaction,” Journal of Marketing 72, no. 4 (July 2008): 105-122; and C. Fornell, Sunil Mithas, F.V. Morgeson III and M.S. Krishan, “Customer Satisfaction and Stock Prices: High Returns, Low Risk,” Journal of Marketing 70, no. 1 (January 2006): 3-14.

5. E.W. Anderson, C. Fornell and D.R. Lehmann, “Customer Satisfaction, Market Share and Profitability: Findings From Sweden,” Journal of Marketing 58, no. 3 (July 1994): 53-66; C. Fornell, S. Mithas and F.V. Morgeson III, “Commentary: The Economic and Statistical Significance of Stock Returns on Customer Satisfaction,” Marketing Science 28, no. 5 (September-October 2009): 820-825; and V. Mittal, E.W. Anderson, A. Sayrak and P. Tadikamalla, “Dual Emphasis and the Long-Term Financial Impact of Customer Satisfaction,” Marketing Science 24, no. 4 (November 2005): 544-555.

6. Some examples of our research into consumer satisfaction include: L. Aksoy, A. Buoye, P. Aksoy, B. Larivière and T. L. Keiningham, “A Cross-National Investigation of the Satisfaction and Loyalty Linkage for Mobile Telecommunications Services Across Eight Countries,” Journal of Interactive Marketing 27, no. 1 (February 2013): 74-82; Aksoy et al., “Long-Term Stock Market Valuation”; B. Cooil, T.L. Keiningham, L. Aksoy and M. Hsu, “A Longitudinal Analysis of Customer Satisfaction and Share of Wallet: Investigating the Moderating Effect of Customer Characteristics,” Journal of Marketing 71, no. 1 (January 2007): 67-83; and S. Gupta, D. Lehmann and J.A. Stuart, “Valuing Customers,” Journal of Marketing Research 41, no. 1 (February 2004): 7-18.

7. J. Hofmeyr, V. Goodall, M. Bongers and P. Holtzman, “A New Measure of Brand Attitudinal Equity Based on the Zipf Distribution,” International Journal of Market Research 50, no. 2 (2008): 181-202; and A.W. Mägi, “Share of Wallet in Retailing: The Effects of Customer Satisfaction, Loyalty Cards and Shopper Characteristics,” Journal of Retailing 79, no. 2 (2003): 97-106.

8. S. Gupta and V. Zeithaml, “Customer Metrics and Their Impact on Financial Performance,” Marketing Science 25, no. 6 (November-December 2006): 718-739.

9. J. Gitomer, “Customer Satisfaction Is Worthless, Customer Loyalty Is Priceless: How to Make Customers Love You, Keep Them Coming Back and Tell Everyone They Know” (Marietta, Georgia: Bard Press, 1998); and F.F. Reichheld, “The Loyalty Effect: The Hidden Force Behind Growth, Profits and Lasting Value” (Boston: Harvard Business Review Press, 2001).

10. J.E. Hilsenrath, “A Stock Theory Linking Price With Satisfaction Isn’t Perfect,” Wall Street Journal, Feb. 19, 2003, A2; C.D. Ittner, D.F. Larcker and D.J. Taylor, “The Stock Market’s Pricing of Customer Satisfaction,” Marketing Science 28, no. 5 (September-October 2009): 826-835; R. Jacobson and N. Mizik, “The Financial Markets and Customer Satisfaction: Reexamining Possible Financial Market Mispricing of Customer Satisfaction,” Marketing Science 28, no. 5 (September-October 2009): 810-819; D. O’Sullivan, M.C. Hutchinson and V. O’Connell, “Empirical Evidence of the Stock Market’s (Mis) Pricing of Customer Satisfaction,” International Journal of Research in Marketing 26, no. 2 (June 2009): 154-161; and R. Williams and R. Visser, “Customer Satisfaction: It Is Dead but It Will Not Lie Down,” Managing Service Quality 12, no. 3 (2002): 194-200.

11. S. Gupta and D.R. Lehmann, “Models of Customer Value,” chap. 8 in “Handbook of Marketing Decision Models,” ed. B. Wierenga (New York: Springer Science+Business Media, 2008).

12. C. Adamson, “How to Waste Money Measuring Customer Satisfaction,” Managing Service Quality 4, no. 5 (1994): 9-12; E.W. Anderson and V. Mittal, “Strengthening the Satisfaction-Profit Chain,” Journal of Service Research 3, no. 2 (November 2000): 107-120; T.L. Keiningham and T. Vavra, “The Customer Delight Principle: Exceeding Customers’ Expectations for Bottom-Line Success” (New York: McGraw-Hill, 2001); R. Niraj, G. Foster, M.R. Gupta and C. Narasimhan, “Understanding Customer-Level Profitability Implications of Satisfaction Programs,” Journal of Business & Industrial Marketing 23, no. 7 (2008): 454-463; F.F. Reichheld, R.G. Markey Jr. and C. Hopton, “The Loyalty Effect: The Relationship Between Loyalty and Profits,” European Business Journal 12, no. 3 (2000): 134-139; R.T. Rust, A.J. Zahorik and T.L. Keiningham, “Return on Quality: Measuring the Financial Impact of Your Company’s Quest for Quality” (Burr Ridge, Illinois: Irwin Professional Publishing, 1994); and J. Tanner and M.A. Raymond, “Customer Satisfaction,” chap. 14.3 in “Principles of Marketing” (Washington, D.C.: Flat World Knowledge, 2010).

13. Niraj et al., “Understanding Customer-Level Profitability Implications.”

14. L. Aksoy, “Linking Member Satisfaction to Share of Deposits: Applying the Wallet Allocation Rule in CUs,” research report, Filene Research Institute, Madison, Wisconsin, February 2013; and L. Aksoy, “Linking Satisfaction to Share of Deposits: An Application of the Wallet Allocation Rule,” International Journal of Bank Marketing 32, no. 1 (2014): 28-42.

15. “Credit Unions Set All-Time Record for Customer Satisfaction,” press release, American Customer Satisfaction Index, Ann Arbor, Michigan, December 13, 2011,

16. S. Gupta, T. Keiningham, R. Weaver and L. Williams, “Are Daily Deals Good for Merchants?” Harvard Business School background note 513-059 (Boston: Harvard Business School Publishing, December 2012).

17. C. Fornell, “The Quality of Economic Output: Empirical Generalizations About Its Distribution and Relationship to Market Share,” Marketing Science 14, no. 3 supplement (August 1995): G203-G211.

18. L.L. Rego, N.A. Morgan and C. Fornell, “Reexamining the Market Share-Customer Satisfaction Relationship,” Journal of Marketing 77, no. 5 (September 2013): 1-20.

19. “Benchmarks By Company,” American Customer Satisfaction Index,

20. G.R. Dowling and M. Uncles, “Do Customer Loyalty Programs Really Work?” MIT Sloan Management Review 38, no. 4 (summer 1997): 71-82; L. Gentry and M. Kalliny, “Consumer Loyalty — A Synthesis, Conceptual Framework, and Research Propositions,” Journal of American Business Review, Cambridge 1, no. 1 (December 2012): 119-27; and J. Kapferer, “The Roots of Brand Loyalty Decline: An International Comparison,” Ivey Business Journal 69, no. 4 (March/April 2005): 1-6.

21. A. Weissenberg, A. Katz and A. Narula, “A Restoration in Hotel Loyalty: Developing a Blueprint for Reinventing Loyalty Programs,” Deloitte, 2013.

22. S. Coyles and T.C. Gokey, “Customer Retention Is Not Enough,” McKinsey Quarterly 2, no. 2 (2002): 81-89.

23. Hofmeyr et al., “A New Measure of Brand Attitudinal Equity”; J. Hofmeyr and G. Parton, “Rank Matters,” Marketing Research 22, no. 3 (autumn 2010): 6-12; T.L. Keiningham, L. Aksoy, A. Buoye and B. Cooil, “Customer Loyalty Isn’t Enough. Grow Your Share of Wallet,” Harvard Business Review 89, no. 10 (October 2011): 29-31; T.L. Keiningham, L. Aksoy, A. De Keyser, B. Larivière, A. Buoye and Luke Williams, “It’s Not Your Score That Matters: The Importance of Relative Metrics,” chap. 9 in “Handbook of Service Marketing Research,” ed. R.T. Rust and M.-H. Huang (Cheltenham, United Kingdom: Edward Elgar Publishing, in press); and T.L. Keiningham, B. Cooil, E.C. Malthouse, L. Aksoy, A. Buoye, A. De Keyser and B. Larivière, “Perceptions Are Relative: An Examination of the Relationship Between Relative Satisfaction Metrics and Share of Wallet,” Journal of Service Management, in press.

24. R.T. Rust and R.L. Oliver, “Should We Delight the Customer?” Journal of the Academy of Marketing Science 28, no. 1 (January 2000): 86-94; R.T. Rust, A.J. Zahorik and T.L. Keiningham, “Service Marketing” (New York: HarperCollins, 1997); and S. Varki and R.T. Rust, “Satisfaction Is Relative: Apply Analysis of Variance Techniques to Determine If Your CSM Scores Measure Up,” Marketing Research 9, no. 2 (summer 1997): 15-19.

25. When examining the partial correlations between rank and share of wallet (i.e., SOW, Log[SOW] and Logit[SOW]) after removing satisfaction, the correlations remain strong. By contrast, when examining the partial correlations between satisfaction and share of wallet after removing rank, the correlations are almost zero (and are actually negative). This research is forthcoming in Keiningham et al., “Perceptions Are Relative.”

26. This work is a natural extension of S. Gupta and D.R. Lehmann, “Customers as Assets,” Journal of Interactive Marketing 17, no. 1 (winter 2003): 9-24; and S. Gupta and D.R. Lehmann, “Managing Customers as Investments: The Strategic Value of Customers in the Long Run” (Upper Saddle River, New Jersey: Wharton School Publishing, 2008).

27. The Customer Satisfaction vs. Market Share matrix builds upon standard marketing theory and the work of Dowling and Uncles, specifically, Dowling and Uncles, “Do Customer Loyalty Programs Really Work?”

28. S. Leeb, “Wal-Mart Fattens Up on Poor America with 25% of U.S. Grocery Sales,” May 20, 2013,

29. “How Wal-Mart Became a Grocery Giant in the U.S.,” January 18, 2013,

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Comments (9)
Nikhil Shankar
Hi Timothy

Very insightful article !  It has been almost 2 years since you wrote this article. Do you have any additional insights to share.
Hi Beth Zonderman,

First, thank you for your interest in the article.  Second, don't be discouraged.  Let me address your concerns:

You write "My takeaway is that I can only justify the minimum effort/expense needed to satisfy customers slightly more than our nearest competitor. Agree?"

It's easy to see how you could come to this conclusion.  The basic idea from your argument is "just win" but barely to save money.  That's actually pretty hard to do.  Customers need to see meaningful differences between brands to really have a shift in "rank."

You write, "And how do I find out how satisfied our competitors’ customers are?" 

First, focus on YOUR customers who also use the competition.  You know (or need to know) who your customers are.  Here it is a simple matter to have your customers rate the brands they use in the category.

If you would like more detailed information on how to do this, we have a Quick Start guide at the Web site (under the Resources menu).  And feel free to reach out to me if you have additional questions.

Thanks so much for your insightful comments.
Beth Zonderman
Thank you for a very interesting (but discouraging) article. I'm a UX designer for a major retailer, so my job is to advocate for the customer as a foil to the marketers – and to find balance. 

I found your article while researching how to justify the expense of improving customer experience . (*Sad trombone*) My takeaway is that I can only justify the minimum effort/expense needed to satisfy customers slightly more than our nearest competitor.  Agree? 

And how do I find out how satisfied our competitors' customers are?
LOUIS DE FROMENT, I am very glad that you enjoyed "The High Price of Customer Satisfaction."  And thank you for your insightful questions.  Below are my responses.

When you say that there is not always a link between satisfaction and profit :
You do not mention the impact of Word-of-Mouth that can be a disaster for a company considering that a dissatisfied customer will tell about his bad experience to at least 6 friends. Increasing client satisfaction will allow you to kill bad word of mouth and enhance good word-of mouth

There is some truth to the idea that a dissatisfied customer is more likely to be be vocal. But research that I am currently working on with Roland Rust, Bart Larivière, Lerzan Aksoy, and Luke Williams challenges the relevance of this. Note, we are looking at a HUGE dataset: 13,240 consumers, 10 countries, 8 industries, covering 793 brands. It turns out that the vast majority of word of mouth (both given and received) about brands is positive. 

This isn't surprising given that 1) research we conducted demonstrates that customers have a positivity bias (, and the overwhelming majority of customers are satisfied (discussed in more detail below).

This does not mean that managers should not care about customer dissatisfaction.  But focusing on reducing dissatisfaction for most businesses is not a major opportunity for most firms.
You imply that increasing Customer Satisfaction often relies on increasing Customer Service Cost. But to my point of view, when you "do it right the first time" you significantly reduce the amount of contacts to Customer Service. 

Your argument that "failure" is always bad is absolutely true. This is a basic "Cost of Quality" issue which goes back at least 40 years to W. Edwards Deming.  Managers most definitely know this to be the case.

With regard to customer dissatisfaction in particular, however, the reality is that this isn't the real problem for most businesses. Researchers have known for over three decades now that satisfaction levels are negatively skewed for the vast majority of brands--in other words, the distribution of satisfaction responses is grouped at the top, positive end of the scale. The reason for this is that customers don't do business with firms that don't satisfy them. So while reducing dissatisfaction is important, the opportunities for eliminating real dissatisfaction are limited. (That is why many managers treat scores of 5 or 6 on 10-point and 11-point satisfaction/recommend intention scales as dissatisfied, even though they are actually really "merely" satisfied--there would be very little opportunity at the bottom end of the scale otherwise). 

The big problem is that most brands are what we refer to as "Parity Brands." Customers are satisfied with them, but they are also equally satisfied with a competing brand that is also used. Therefore, the key to success for most brands is finding a way to distinguish themselves in the eyes of their customers vis-a-vis competing brands.  

When you say that satisfaction and price are almost always inversely related :
I think it depends mostly on the experience you want to deliver to your clients. For example, Groupon's promise is to deliver to clients the cheapest good plan on their neighborhood. You cannot blame the clients to expect the lower price of the market ! If Groupon looses money on those categories, it just means that they have poor financial fundamentals. On the opposite I don't think customer satisfaction on Apple's product relies on lower prices but on design, ergonomy etc.

Here we need to distinguish between "Willingness to Pay" and "Price Elasticity".  You are correct that Apple (and other high end brands) are able to command higher prices because they are perceived as offering a better experience (in your example, design, ergonomy, etc.).  That, however, does not mean that customer satisfaction would not increase if Apple dropped its prices.  In fact, Apple's own history of price drops proves this to be true.

The simplest way to understand this is to think in economic terms.  If sales increase with a drop in price, then "satisfaction" must also increase with a drop in price.  In fact, this is a fundamental tenet of economics referred to as Gossen's Second Law: "a person maximizes his utility when he distributes his available money among the various goods so that he obtains he same amount of satisfaction from the last unit of money spent on each commodity."

Very few goods or services show declines in sales with declines in prices.  There are some--for example, high end Gibson guitars--but they are the rare exception.

Thank you again for your interest in our article, and for your insightful comments.
CHRIS REICH, Thank you for you comment.  Without question, many factors influence stock market performance.

I don't see how that this is relevant, however, in the context of this article.  The stock performance linkage was simply used in the introduction to show the difficulty linking satisfaction to market performance.

The article deals with the relationship between satisfaction and firm profitability, market share, and share of category spending.  There can be no dispute about the difficulty making a "positive" linkage between customer satisfaction and any of these managerially relevant business outcomes.

I would welcome discussing our findings further if you have any additional comments related to the research.

Thank you again for your comments.
Louis de Froment

I really enjoyed your article. 
I have 2 objections though  :
- When you say that there is not always a link between satisfaction and profit :
# You do not mention the impact of Word-of-Mouth that can be a disaster for a company considering that a dissatisfied customer will tell about his bad experience to at least 6 friends. Increasing client satisfaction will allow you to kill bad word of mouth and enhance good word-of mouth
# You imply that increasing Customer Satisfaction often relies on increasing Customer Service Cost. But to my point of view, when you "do it right the first time" you significantly reduce the amount of contacts to Customer Service. 
- When you say that satisfaction and price are almost always inversely related :
# I think it depends mostly on the experience you want to deliver to your clients. For example, Groupon's promise is to deliver to clients the cheapest good plan on their neighborhood. You cannot blame the clients to expect the lower price of the market ! If Groupon loses money on those categories, it just means that they have poor financial fundamentals. On the opposite I don't think customer satisfaction on Apple's product relies on lower prices but on design, ergonomy etc.
Finally, I have a last question : how do you measure the value brought by a customer to a company ?
Chris Reich
I am sick and tired of measuring all things good against stock pricing and market performance.

Those two metrics can be manipulated in a million ways---some not even legal. 

We have to stop seeing the bloody stock market as the last word in economic well-being. Look, the stock market has been above where it was before the near economic collapse of 2008 for years. Wall Street recovered while real earnings have actually contracted. Unemployment remains high, under-employment disgraceful.

Don't tell the monoliths of Wall Street that service doesn't matter. They already know it.
Alain Thys, I am very happy that you enjoyed the article, and thank you for your comment.  

I do need to clarify our position vis-a-vis what you are describing as relative NPS (Net Promoter Score).  

The first thing to note is that NPS is a firm-level metric, not a customer-level metric.  Therefore, by relative NPS my assumption is that you mean that the focal firm is comparatively better or worse than other firms in the category based upon differences in NPS levels.

Unfortunately, firm level (aggregate level) metrics won't work if the goal is improved share of wallet.  This analysis must be done at the customer level.  [There are actually statistical rules for when you are allowed to aggregate data.  If you are interested, I would direct you to Bliese, Paul D. (2000), "Within-group agreement, non-independence, and reliability: Implications for data aggregation and analysis," in Multilevel Theory, Research, and Methods in Organizations, Katherine J. Klein and Steve W. J. Kozlowski, eds., San Francisco: Jossey-Bass, pp. 349-381.]

A simple rule of thumb is that you are never allowed to aggregate data when the relationship between the variable you are tracking and the outcome variable is very weak.  Without going into too much detail as to why, the "averages" you come up with by aggregating the data cancel out the extremes (think people above and below the mean).  As a result, you end up with what is called an Ecological Fallacy...simplistically, you mistakenly think you understand individuals within the group.

As a result, you must first get the customer-level relationship between your metric of choice (e.g., satisfaction, recommend intention, Net Promoter classifications/Promoter, Passive, Detractor) to link strongly to share of wallet BEFORE you can aggregate the data. This is best done by converting these measures to relative ranks. While you can use any of the above metrics to derive relative rank--and thereby link to share of wallet--you cannot simply use the firm-level metric (relative or absolute level).  It will almost always result in getting the wrong answer as to what is driving customers' share of category spending.
Alain Thys
Excellent article, thanks for sharing.

I would only suggest one nuance regarding the statement: "So the measure that really matters isn’t your percentage of delighted customers or promoters. What matters is the relative rank that your brand’s satisfaction level represents vis-à-vis your competitors."

This is positioned to highlight the value of NPS as a "poor indicator".  However, when looking at the full Net Promoter System, you will find that this all about the comparative satisfaction measures your research supports.

In fact, every true NPS practitioner will tell you that the score on its own is meaningless without competitive comparison.  

In short, IMHO your findings may be less in conflict with NPS than you originally considered.