Customer Relationship Management History and Theory

American Marketing Association / Winter 2010 79

THE IMPACT OF UNPROFITABLE CUSTOMER ABANDONMENT ON CURRENT CUSTOMERS’ EXIT, VOICE, AND LOYALTY

INTENTIONS: AN EMPIRICAL ANALYSIS

Michael Haenlein, ESCP Europe, France Andreas M. Kaplan, ESCP Europe, France

SUMMARY

In recent years, the topic of (unprofitable) customer abandonment has received increasing interest in aca- demic research, fueled by several studies showing that such customers can represent a significant share of a company’s client base (e.g., Haenlein et al. 2007; Niraj et al. 2001). Haenlein et al. (2006) showed, for example, that the value of the real option of abandoning unprofit- able customers can be substantial and needs to be consid- ered when calculating customer lifetime value to avoid biased results. Unsurprisingly, the idea of “firing” unprof- itable customers also received attention in the business press (e.g., Haenlein and Kaplan 2009; Mittal et al. 2008). Adopting the (unprofitable) customer’s perspective, it seems likely that such abandonment will be perceived as negative and create a certain level of dissatisfaction which may result in negative publicity and potentially lead to the involuntary loss of other (profitable) clients the company would like to retain. However, until now, the processes underlying such mechanisms have not been formally investigated. Our manuscript intends to provide a contri- bution in this area. Based on a survey conducted among 385 customers, we investigate the reactions of the aban- doning firm’s current customers toward unprofitable cus- tomer abandonment and the influence that the strength of the relationship between the abandoned customer and the current customer under investigation has on these reac- tions. In doing so, our work represents a first step toward estimating the likely indirect cost associated with aban- doning unprofitable customers.

The conceptual framework, which builds the founda- tion for our empirical study, combines Hirschman’s (1970) exit-voice-loyalty theory with literature in the area of social influence, specifically the concept of tie strength as introduced by Granovetter (1973). Within this general conceptual framework, we use three constructs to charac- terize the reaction current customers can show toward unprofitable customer abandonment. These are the cur-

rent customer’s exit, voice and loyalty intention. In addi- tion to these three outcome variables we also investigate the role of relationship characteristics (i.e., overall satis- faction) and structural constraints (i.e., alternative attrac- tiveness, switching cost) in driving these reactions. Final- ly we analyze the moderating impact of tie strength on these processes.

Our empirical analysis results in the following four findings: First, none of the three behavioral intentions for exit, voice, and loyalty differ significantly across the five levels of tie strength manipulated in our study. This provides an indication that the reactions toward unprofit- able customer abandonment may not be significantly affected by the strength of relationship between the aban- doned customer and the current customer under investiga- tion. Second, the mean absolute intention score for loyalty is significantly lower than those for exit and voice. This implies that current customers are least likely to respond to unprofitable customer abandonment passively by re- maining attached to the organization and waiting until someone else acts to improve matters, but rather tend to react actively either by leaving the abandoning firm or by raising their voice against unprofitable customer aban- donment. Third, none of the paths between structural constraints and exit/ voice/ loyalty intentions is signifi- cant which implies that satisfaction and alternative attrac- tiveness do not significantly influence the choice between exit, voice, and loyalty. Fourth, all remaining structural paths in our model are significant and show signs along with our expectations, except for the relationship between alternative attractiveness and loyalty intention where we observe a positive instead of a negative correlation. Com- bined, this provides full support for the assumed relation- ship between alternative attractiveness and exit/ voice intention as well as the stage-like sequence between loyalty, voice, and exit intentions and partial support for the link between alternative attractiveness and loyalty intention.

REFERENCES

Granovetter, Mark S. (1973), “The Strength of Weak Ties,” The American Journal of Sociology, 78 (6),

1360–80. Haenlein, Michael, Andreas M. Kaplan, and Detlef Schoder

(2006), “Valuing the Real Option of Abandoning Unprofitable Customers When Calculating Customer

80 American Marketing Association / Winter 2010

Lifetime Value,” Journal of Marketing, 70 (3), 5–20. ____________, ____________, and Anemone J. Beeser

(2007), “A Model to Determine Customer Lifetime Value in a Retail Banking Context,” European Man- agement Journal, 25 (3), 221–34.

____________ and ____________ (2009), “Unprofit- able Customers and Their Management,” Business Horizons, 52 (1), 89–97.

Hirschman, Albert O. (1970), Exit, Voice and Loyalty:

Responses to Decline in Firms, Organizations and States. Cambridge: Harvard University Press.

Mittal, Vikas, Matthew Sarkees, and Feisal Murshed (2008), “The Right Way to Manage Unprofitable Customers,” Harvard Business Review, 86 (4), 95– 102.

Niraj, Rakesh, Mahendra Gupta, and Chakravarthi Narasimhan (2001), “Customer Profitability in a Supply Chain,” Journal of Marketing, 65 (3), 1–16.

For further information contact: Michael Haenlein

Department of Marketing ESCP Europe

79, Avenue de la République 75011 Paris

France Phone: +33.1.49.23.26.02

Fax: +33.1.49.23.22.48 E-Mail: [email protected]

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