Functional Forms of the Satisfaction-Loyalty Relationship

Abstract

The linear functional form of the effect of customer satisfaction on repurchase intentions may not be adequate in all circumstances; a clear understanding of factors that might drive variation in functional forms for the satisfaction-loyalty relationship remains lacking though. Building on extant research, the authors consider how the functional form of the effect of satisfaction on repurchase intentions varies across segments formed at the intersection of product categories and customer economic and demographic variables. A comprehensive data set from sponsors of the Chinese Customer Satisfaction Index provides the input for a flexible cubic regression configuration to model the functional form. The linear functional form emerges as the most prominent across 972 product-customer segments (51%), followed in frequency by S-shaped and convex, and finally, inverse S-shape and concave. Different product category characteristics, customer economic and demographic variables, and market characteristics moderate the effect of satisfaction on repurchase intentions differently for the linear, quadratic, and cubic terms. This research offers key resource allocation implications based on the functional form for the effect of satisfaction on repurchase intentions, as well as strategic segmentation implications related to the varying influence of product category characteristics, customer economic and demographic variables, and market characteristics.

Keywords: Customer Satisfaction, Loyalty, Repurchase Intentions, Functional Form

JEL Classification: M31, C11, C12, C42