Gupta .

S & Zeithaml Valerie(2006),Customer Metrics and their impact on Financial

Performance, Marketing Science,25(6)718-736

Gupta et al(2006) highlighted the impact of customer metrics on the firms financial
performance. In this study they have analyzed unobservable/perceptual and
observable/behavioural customer metrics and how these metrics affect financial performance
of the firm. They considered Observable behavior as the behavior that is related to purchase
and consumption of any product or service .Unobservable behavior is the behavior that is
related to attitude and behavioural intentions of the customers. The impact of the metrics is
studied in three parts: Impact of unobservable constructs (customer satisfaction, service
quality ,loyalty and intentions to purchase) on the firms financial performance; impact of
observable construct (customer acquisition, customer retention, cross selling, customer
lifetime value, customer equity) on financial performance and the impact of unobservable
construct on observable construct. After analyzing the linkage between unobservable
construct and financial performance the researchers found that customer satisfaction have a
strong and positive impact on Firms financial performance but the nature of linkage between
satisfaction and profitability is asymmetric and nonlinear which proves that the impact of
decrease is satisfaction have a much stronger impact on ROI than increase in satisfaction.
Furthermore, the researcher established that satisfaction profit link shows greater variations
among firms within the same industry rather than across industries. Also Satisfaction have
larger impact in service industries where the quality of a firm is determined by frontline
executives. When the researchers have studied the effect of observable metrics on firms
financial performance they found that the marketing decision which are based on observed
customer metrics such as CLV Improves firms financial performance and customer retention
is one of the most important driver of CLV and firms profitability. Also they found that the
Customer equity and CLV provide the good basis to assess the Market value of the firm.
After analyzing the impact of unobservable metrics on observable metrics researchers opined
that customer satisfaction and customer retention are positively correlated but the
relationship between other observable and non-observable constructs is not well established.
Also the customer satisfaction and service quality are strongly correlated with behavioral
intentions and these behavioral intentions dont predict the actual behavior of the customers
because the actual behavior of the customers is also affected by a large number of situational
factors and monetary constraints.