February 2003 • Table of Contents

IBM-Rochester

IBM's AS/400 Division in Rochester, MN, conducted extensive research to determine actual customer loyalty behavior. Tze-Hsi "Sam" Huang headed the research efforts.

Using years of data, the researchers examined the relationship between revenue growth and satisfaction. The correlations between key variables of interest and other results are presented in Figure 4. IBM also found 95% of revenues came from customers who were very satisfied and satisfied (top two boxes). The ratio of revenue growth between very satisfied and satisfied customers was 3:1 (see Figure 5).

Concurrently, IBM-Rochester also looked at how customers responded to the question of loyalty in relationship to overall satisfaction. The higher the satisfaction rating, the higher the loyalty level, as Figure 5 also shows. More interesting are findings of how customers actually behaved based upon their initial loyalty ratings. Because customers repurchase major computer equipment in cycles of about 18 months, it took more than two years to determine that customers repurchased pretty much the way they said they would.

IBM-Rochester thus demonstrated a direct correlation between overall satisfaction and loyalty. It also found overall satisfaction scores could be used to predict customer loyalty behavior. IBM-Rochester determined that if the customer satisfaction level improved one percentage point, an additional $257 million in revenue could be generated over five years.