The literature pertaining to relationships among customer satisfaction, customer loyalty, and profitability can be divided into two groups. The first, service management literature, proposes that customer satisfaction influences customer loyalty, which in turn affects profitability. Proponents of this theory include researchers such as Anderson and Fornell (1994); Gummesson (1993); Heskett et al.(1990); Heskett et al. (1994); Reicheld and Sasser (1990); Rust, et al. (1995); Schneider and Bowen (1995); Storbacka et al. (1994); and Zeithaml et al. (1990). These researchers discuss the links between satisfaction, loyalty, and profitability. Statistically-driven examination of these links has been initiated by Nelson et al. (1992), who demonstrated the relationship of customer satisfaction to profitability among hospitals, and Rust and Zahorik (1991), who examine the relationship of customer satisfaction to customer retention in retail banking. The Bank Administration Institute has also explored these ideas, in particular Roth and van der Velde (1990, 1991).
The service management literature argues that customer satisfaction is the result of a customer’s perception of the value received in a transaction or relationship - where value equals perceived service quality relative to price and customer acquisition costs (see Blanchard and Galloway, 1994; Heskett et al., 1990) - relative to the value expected from transactions or relationships with competing vendors (Zeithaml et al., 1990). Loyalty behaviours, including relationship continuance, increased scale or scope of relationship, and recommendation (word of mouth advertising) result from customers’ beliefs that the quantity of value received from one supplier is greater than that available from other suppliers. Loyalty, in one or more of the forms noted above, creates increased profit through enhanced revenues, reduced costs to acquire customers, lower customer-price sensitivity, and