Why Each Encounter Matters

by Tim Keiningham

Clearly, our attitudes represent the sum of our individual experiences with a firm. It is this overall attitude toward firm impacts our impressions of the brand and our future buying behaviors.

But knowing that each transaction matters does not offer real insight into how best to improve the customer experience. Just how does each customer interaction with the firm actually affect our overall buying behavior?

Surprisingly, despite the widespread belief of the importance of each moment of truth, there has not been any research that actually looked at how satisfaction with each transaction ultimately impacted customers' future share of category spending. To answer this question, we monitored 1,448 retail customers and their subsequent purchase behaviors for four or more transactions (which resulted in 10,983 completed surveys). We then examined the relationship between the cumulative effect of satisfaction with each service encounter and customers' share of category spending.

What we found is that customers' overall feelings about a firm are indeed a summation of all prior encounters. It is not, however, a simple average of all prior encounters. Rather customers' overall satisfaction is a weighted average of satisfaction with each prior transaction, with more recent encounters receiving more weight.

More recent transaction-specific satisfaction levels tend to have greater influence on how customers allocate their share of wallet on future transactions. This is only the case, however, for customers who are less than highly satisfied (in the case of this investigation, those customers who rate their satisfaction with a particular transaction eight or lower on a ten-point scale).

Additionally, highly positive transaction-specific satisfaction levels have a greater impact on customers' share of category spending than do negative levels.

These findings challenge the conventional wisdom regarding the relationship between customer satisfaction and customers spending behavior. Articles in both the scientific and management literature overwhelmingly argue that negative outcomes have a greater influence on the satisfaction-customer behavior linkage. For example, a recent piece in the Harvard Business Review exhorted managers to "Stop Trying to Delight Your Customers." Instead, the authors argued to simply focus on the amount of effort it takes for customers to have their problems resolved if the goal is improved customer loyalty.

Without question, service failures are always bad. And firms should make it as easy as possible for customers to resolve any problems that they might encounter.

If the goal is improved share of spending, however, then firms must consistently create experiences that completely satisfy their customers. Simply solving problems isn't enough. Of course this should be obvious. No one chooses a firm because it is good at resolving its own problems.

The research upon which this article is based is: Timothy L. Keiningham, Lerzan Aksoy, Edward C. Malthouse, Alexander Buoye, Bart Lariviиre (2014), "The Cumulative Effect of Satisfaction with Discrete Transactions on Share of Wallet," Journal of Service Management. vol. 25, no. 3, 310-333. http://www.emeraldinsight.com/journals.htm?articleid=17111996&show=abstract