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 linkbinding them together, which allows them to move together in the same directionover time. Importantly, empirical evidence of long term Granger-type causalityrunning from quality to retention, was found in support of this positive linkFinally, customers' perception of quality yesterday has a positive impact on theirlevel of retention today. It suggests that customers' memories of quality lingeron beyond the current period to positively impact customer retention levels inthe future. In this sense, quality is an intangible strategic asset in which servicemanagers should invest their capital.