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Every company knows that it costs far less to hold on to a customer than to acquire a new one. That is why customer retention has become the Holy Grail in industries from airlines to wireless. Yet defecting customers are far less of a problem than customers who change their buying patterns. Today's typical metrics of customer satisfaction and defection do not tell a company how susceptible its customers are to changing their spending patterns. This article seeks to investigate this problem.

The investigation was carried out through a two‐year study of the attitudes of 1,200 households toward companies in 16 industries.

McKinsey found that focusing on smaller changes in customer spending can have as much as ten times more value than concentrating on defections alone.

This is important for those companies that wish to retain their customers.

Many researches have proposed a virtuous chain of effects from improved customer satisfaction to profits. In particular, satisfaction is thought to improve share‐of‐spending, which in turn leads to higher customer revenue and customer profitability. This paper aims to examine these proposed linkages using data from the institutional securities industry.

The data used in the analyses were collected as part of an ongoing telephone satisfaction survey of 81 clients of an institutional securities firm across two continents (North America and Europe). Mediation analysis was used to test the hypothesized effects.

Customer revenue was found to correlate negatively with customer profitability for unprofitable customers, and positively for profitable customers.

One of the limitations of this research is that it tests the propositions within a single industry. Future research should attempt to replicate these findings in other contexts.

A simplistic focus on improving customer satisfaction for all customers in order to improve share‐of‐wallet and customer revenue does not seem to represent the best management approach to maximize overall firm profitability. In fact, it could actually result in a negative return on investment. Therefore, customers should first be segmented by their profitability to the firm before expending resources to improve customer satisfaction and share‐of‐wallet.

The results of this paper challenge the conventional belief that customer satisfaction should lead to customer retention in turn, resulting in customer revenue and ultimately customer profitability. The findings indicate that this may not always be true.

The purpose of this research is to examine different customer satisfaction and loyalty metrics and test their relationship to customer retention, recommendation and share of wallet using micro (customer) level data.

The data for this study come from a two‐year longitudinal Internet panel of over 8,000 US customers of firms in one of three industries (retail banking, mass‐merchant retail, and Internet service providers (ISPs)). Correlation analysis, CHAID, and three types of regression analyses (best‐subsets, ordinal logistic, and latent class ordinal logistic regression) were used to test the hypotheses.

Contrary to Reichheld's assertions, the results indicate that recommend intention alone will not suffice as a single predictor of customers' future loyalty behavior. Use of a multiple indicator instead of a single predictor model performs better in predicting customer recommendations and retention.

The limitation of the paper is that it uses data from only three industries.

The presumption of managers when looking at recommend intention as the primary, even sole gauge of customer loyalty appears to be erroneous. The consequence is potential misallocations of resources due to myopic focus on customers' recommend intentions.

This is the first scientific study that examines recommend intentions and its impact on retention and recommendation on the micro (customer) level.