Customer experience matters more when the economy is doing well than when it is doing poorly, according to a new study in the Articles in Advance section of Marketing¹ Science, a journal of the Institute for Operations Research and the Management Sciences (INFORMS). The study, entitled "Assessing the Influence of Economic and Customer Experience Factors on Service Purchase Behaviors" is by V Kumar, the Regents' Professor, Nita Umashankar, an assistant professor, and PhD candidates Hannah Kim and Yashoda Bhagwat, all at Robinson College of Business at Georgia State University.

 

The authors examine how macroeconomic indicators², such as GDP and consumer welfare, influence the way in which consumers use their past service experiences (e.g., satisfaction on their last flight) to influence their next purchase decision. The authors find, for example, that how much the enjoyment³ of your last flight influences your decision to fly again depends on the economic environment.

 

A common belief is that the economy, independent of a person's income, affects what one purchases. Consumers often feel nervous when the economy is doing poorly. The authors, however, find that the influence of the economy reaches even farther to influence the degree to which consumers incorporate past service experiences into their future purchases, especially when the economy is doing better.

 

Counter to received wisdom that firms should double down on improving customer experience when economic times are challenging, the authors find that firms should do so when times are good. While this may seem intuitive -- firms have more cash in a thriving economy and as a result, can afford to spend more on customer experience initiatives -- how customers respond to improvements in customer experience during changing economic times had not been examined.

 

Anecdotal evidence has been mixed. Most experts advise managers to refrain from cutting customer experience efforts to save money during a down economy because continuing relationships with customers matters most when the economy is bad. Others argue that firms should invest in satisfying customers and repairing broken relationships when times are better because they can afford to do so.

 

Kumar explains, "While both sides of the debate are plausible⁴, neither has been empirically verified with real data and from the perspective of the customer. We find that customer experience matters more to customers when the economy is strong."

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