An Empirical Test of Customer Retention-Perceived Quality Link: Strategic Management Implications

Abstract

This paper employed times series econometric methods to test the theoretically-grounded link between customer retention and customer perceived quality.
The results suggest that customer retention and quality have a stable positive link
binding them together, which allows them to move together in the same direction
over time. Importantly, empirical evidence of long term Granger-type causality
running from quality to retention, was found in support of this positive link
Finally, customers' perception of quality yesterday has a positive impact on their
level of retention today. It suggests that customers' memories of quality linger
on beyond the current period to positively impact customer retention levels in
the future. In this sense, quality is an intangible strategic asset in which service
managers should invest their capital.