The cumulative effect of satisfaction with discrete transactions on share of wallet

Abstract

Purpose – The purpose of this paper is to propose a theoretical model for how consumers aggregate satisfaction with individual service encounters to form a summary evaluation of satisfaction, and further examines its effect on customers’ share of category spending (share of wallet (SOW)). Design/methodology/approach – The data used consist of 10,983 completed surveys from 1,448 customers whose transaction-specific satisfaction with a retailer and their subsequent purchase behaviors in the category were tracked for more than four transactions. Mixed effects models were employed to test the relationship between the cumulative effect of satisfaction with multiple service encounters on SOW. Findings – Cumulative satisfaction is a weighted average of satisfaction with specific encounters, with weights decaying geometrically so that more recent encounters receive more weight. More recent transaction-specific satisfaction levels tend to have greater influence on customers’ next purchase SOW allocations; this, however, is only the case for customers who are less than highly satisfied, with a rating of 8 or lower on a ten-point scale. Additionally, the impact of transaction-specific satisfaction on SOW is not linear. Highly positive transaction-specific satisfaction levels have a greater impact on SOW than negative levels. Practical implications – Many companies monitor satisfaction across multiple service encounters. This study shows how one can aggregate these measures to arrive at a cumulative effect, and highlights the importance to discriminate between first, more and less recent encounters and second, low vs high levels of satisfaction to better understand customers’ spending among different providers. Originality/value – Using a longitudinal data set with real customers, this paper identifies a new measure for taking into account the cumulative satisfaction, identifies the positivity bias, and shows how recency affects the relationship between satisfaction and SOW.