Academic journal article Journal of Consumer Satisfaction, Dissatisfaction and Complaining Behavior

Assessing the Effects of Post-Purchase Dissatisfaction and Complaining Behavior on Profitability: A Monte Carlo Simulation

Academic journal article Journal of Consumer Satisfaction, Dissatisfaction and Complaining Behavior

Assessing the Effects of Post-Purchase Dissatisfaction and Complaining Behavior on Profitability: A Monte Carlo Simulation

Article excerpt

ABSTRACT

The authors present a Monte Carlo simulation demonstrating the effect of post-purchase dissatisfaction and complaining behavior on profitability. Although it is widely believed that improvements in complaint management can increase profits, empirical evidence is lacking. Based on pre-specified probabilities of complaint behaviors, and inputs regarding different outcomes (specifically justice, repatronage, and word-of-mouth), a simulation model is developed. The model allows one to estimate the opportunity costs of post-purchase dissatisfaction and complaint behavior. "What if" analyses are also conducted in order to estimate the impact of changes in complaint management and recovery outcomes on profitability.

INTRODUCTION

Numerous studies report that many retailers and service providers lose a substantial number of customers each year because of post-purchase dissatisfaction (Smith and Bolton 1998; Grainer 2003, Bougie, Pieters, and Zeelenberg 2003). The source of this dissatisfaction typically stems from an inadequate or defective product or service offering, and/or shoddy customer service. It is critical to develop policies and procedures to effectively address postpurchase dissatisfaction because disgruntled customers who do not complain tend to compensate by frequenting the retailer or service provider less often and/or by purchasing fewer items or services (Chebat, Davidow, and Codjovi 2005). And, although many dissatisfied customers do voice their complaints - and thus give the retailer or service provider an opportunity to recover - a large number of these complainants end up "defecting" because the seller's recovery efforts are somehow insufficient (Maxham and Netemeyer 2002). The end result for retailers and service providers is lost sales and profits.

There is ample evidence that retailers and service providers can substantially improve their profitability by retaining a greater percentage of dissatisfied customers via more effective recovery efforts (Tax, Brown, and Chandrashekaran 1998). Indeed, several researchers have found that customer retention - in general - has a substantial impact on profitability (Anderson and Sullivan 1993; Reichheld 1996). Not only is it less costly to retain current customers as compared to attracting new patrons (Hart, Heskett, and Sasser 1990; Fornell and Wernerfelt 1988), there is also evidence that complainants who are satisfied with the recovery process oftentimes became more loyal, and hence more profitable customers (TARP 1986).

Over the years a growing body of research has investigated the impact of various strategic marketing initiatives - such as complaint management, service quality, and customer satisfaction - on key performance indicators such as market share, shareholder value, and customer lifetime value (Rust, Zahorik, and Keiningham 1995; Berger and Nasr 1998; Zeithaml 2000; Kamakura et al. 2002). Fornell and Wernerfelt (1988), for example, demonstrated that effective complaint management can result in increased levels of market share. Similarly, Anderson, Fornell, and Lehmann (1994) found that firms that achieve higher levels of overall customer satisfaction experience greater economic returns.

Building upon this line of research, the objective of this study is to assess the impact of post-purchase dissatisfaction and complaining behavior on profitability. Although a plethora of studies have found a significant relationship between the recovery process and repatronage intentions (Blodgett, Hill, and Tax 1997; Tax, et al. 1998; Rust, Subramanian, and Wells 1992) the effect of complaint outcomes on profitability has not been explicitly quantified. In order to address this gap in our knowledge we present a Monte Carlo simulation that estimates the potential increase in profits resulting from more effective complaint management and recovery efforts. It should be noted that by doing so this study addresses a key priority of the Marketing Science Institute (2000) to link the effects of strategic marketing expenditures to financial outcomes such as profitability and net value. …

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