Satisfied existing customers are a vital resource in acquiring new customers. When customer dissatisfaction is increased, a firm s reputation will decline through informal communication networks. Negative word of mouth carries an implicit cost of dissatisfaction and it can have a ripple effect. If 100 dissatisfied customers each tell seven people, a total of 700 current or potential customers will be exposed to the negative experiences. It is important to satisfy customers because satisfied customers buy more and stay longer.
Loyal customers tend to spend large sums of money over a lifetime.
If a firm improves customer satisfaction, the customer turnover rate would probably decline. The cost of acquiring new customers in most firms is five to six times the cost of retaining an existing one. Therefore, it is more important to retain existing customer than acquiring new customers in terms of cost.