Are Loyal Customers Profitable? Customer Satisfaction, Customer (Action) Loyalty and Customer Profitability at the Individual Level

Customer loyalty is supposed to be positively related to profitability. The link between satisfaction, loyalty and profitability is perceived to be so self-evident that the relationship often is taken for granted. Nevertheless, only a few studies have examined this fundamental relationship. Here the focus is on the individual customer with respect to the links between customer satisfaction, customer (action) loyalty and customer profitability. The following hypotheses are tested; H1: The more satisfied a customer tends to be, the higher is the loyalty of the customer; H2: The more loyal a customer tends to be, the higher customer profitability is obtained. As expected, the results provide strong support for the hypotheses. However, the relationships between the variables seem to be non-linear (increasingly downward sloping), and only valid beyond certain levels or thresholds. Besides, the explanatory powers of the individual variables are rather low.