A Dynamic Model of the Duration of the Customer's Relationship With a Continuous Service Provider: The Role of Satisfaction

Bolton, Ruth N.
March 1998
Marketing Science;1998, Vol. 17 Issue 1, p45
Academic Journal
Abstract Many service organizations have embraced relationship marketing with its focus on maximizing customer lifetime value. Recently, there has been considerable controversy about whether there is a link between customer satisfaction and retention. This research question is important to researchers who are attempting to understand how customers' assessments of services influence their subsequent behavior. However, it is equally vital to managers who require a better understanding of the relationship between satisfaction and the duration of the provider-customer relationship to identify specific actions that can increase retention and profitability in the long run. Since there is very little empirical evidence regarding this research question, this study develops and estimates a dynamic model of the duration of provider-customer relationship that focuses on the role of customer satisfaction.This article models the duration of the customer's relationship with an organization that delivers a continuously provided service, such as utilities, financial services, and telecommunications. In the model, the duration of the providercustomer relationship is postulated to depend on the customer's subjective expected value of the relationship, which he/she updates according to an anchoring and adjustment process. It is hypothesized that cumulative satisfaction serves as an anchor that is updated with new information obtained during service experiences. The model is estimated as a lefttruncated, proportional hazards regression with crosssectional and time series data describing cellular customers perceptions and behavior over a 22-month period.The results indicate that customer satisfaction ratings elicited prior to any decision to cancel or stay loyal to the provider are positively related to the duration of the relationship. The strength of the relationship between duration times and satisfaction levels depends on the length of customers' prior experience with the org...


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