Customer Equity Diagnostics (Leading Indicators)

As Reicheld and Sasser (1990) propose companies want to keep customers satisfied in order to keep them longer, as profits increase with the duration of the relationship.

They recognize “four factors contributing to the underlying profit growth:

·       Profit derived from increased purchases

·       Profit from reduced operating costs

·       Profit from referrals to other customers

·       Profit from price premium”

 Suggesting that “the longer an enterprise keeps a customer, the more   money it can make”.

Reicheld (1994) even though notes that “Customers who describe themselves as satisfied are not necessarily loyal” and the companies have really experiences many times the “satisfied” customers of the previous year Satisfaction Questionnaire to defect and leave the company (“60%-80% of customers defectors said that they were “satisfied” or “very satisfied” on the last satisfaction survey prior to their defection”). 

This may be caused by a better competition offering, new customer’s requirements and search for alternative solutions to cover his new needs or other parameters, leading to the conclusion that the company will have to go further than the satisfaction surveys, trying to measure not customer’s state of mind but annual retention rate, frequency of purchases, share of customer’s wallet to predict customer’s future behaviour.

As Peppers and Rogers (2004) also propose such “Leading Indicators” that the company might create to monitor positive and negative trends in each customer’s behaviour 

and Ganesan (1994) seeks the “Determinants of long term orientation in buyer-seller relationships”.

Seth (2001) suggests to deal with Brand (enterprise image, values, consistency of proposition), Quality (perceived quality, professionalism of the enterprise, its service and products), Interrelationship (the degree to which customer needs are met, amount of use, dependence and convenience all in the context of competitors) and Performance (service delivery, product, reliability, response time), 

while Ruekert and Churchill (1984) examine the reliability and the validity of the alternative measures of customer satisfaction.