Why trying to increase customer satisfaction and market share at the same time is (almost) impossible
CHICAGO, Aug. 12, 2013 /PRNewswire-USNewswire/ -- Contrary to what most managers believe, under most conditions increasing a firm's current customers' satisfaction does not lead to future increases in the firm's market share, while growing a firm's current market share lowers its future customer satisfaction.
Market share and customer satisfaction are commonly used to assess firms' marketplace performance and most managers assume they have a positive relationship – believing that satisfied customers should be more loyal, buy more, and spread positive word-of-mouth, attracting new customers and growing market share. Conversely, market share should reduce perceived risk and signal quality, enhancing customer satisfaction. However, this research finds a consistently significant negative customer satisfaction-market share relationship in US consumer markets. The authors show that this is because customer satisfaction is generally not predictive of firms' future market share but market share is a strong negative predictor of firms' future customer satisfaction.
The analysis appears in the September issue of the American Marketing Association's Journal of Marketing. The authors show that higher market share today leads to lower future customer satisfaction because of the increased diversity in customer preferences. As firms grow market share, they increase the number of customers served and - since all customers are slightly different - also increase the range of different needs and requirements they face, making it harder to satisfy the growing diversity in their customers' preferences. However, the authors also find one way in which firms can deal with this problem - by marketing a greater number of brands. They also find that customer satisfaction can predict a firm's future market share – but only when it is benchmarked against the satisfaction of the firm's nearest rival's customers and customers have low switching costs.
"Our results clearly indicate that focusing on enhancing customer satisfaction may not be an appropriate strategy for growing market share...... Likewise, strategies designed to grow the firm's market share may have unintended negative consequences for customer satisfaction unless managers are able to manage the resulting increase in customer heterogeneity via the use of larger brand portfolios," write authors Lopo Rego, Neil Morgan, and Claes Fornell.
Managers clearly need to be aware of this common market share-customer satisfaction trade-off if they are to design customer and brand strategies that do not have unintended but significant negative consequences for their firms.
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SOURCE American Marketing Association