Conventional wisdom--and a moderate amount of academic research--holds that better customer service leads to increased customer loyalty.
The effect takes some time, however. If customers immediately abandoned a company after a single bad service experience, no company would dare skimp on service.
Instead, a less-than-satisfying customer experience gives customers a reason to explore taking their business elsewhere. If the alternatives look better, then they may leave. The effect is an increase in customer defections over time.
In some research we did for one of our clients we tracked customer defections for several months after a customer service call. We found that after six months the defection rate among customers who were "Very Satisfied" with that original call was one quarter the rate among customers who were "Somewhat Satsified" or less.
That's a striking difference, but it took months for the gap to fully open. That one less-than-fully-satisfying service experience probably was not the only thing which led the customer to leave. More likely it was part of a chain of disappointment. Had the company broken the chain they could have kept the customer.
Fortunately this client now has the data to quantify what disappointing customer service is costing. They can choose to make the investment to improve servie and retain those customers--and they know exactly what it's worth.