Gaining from Customer Satisfaction
Director of Market Data & Content Services, CBNC
We have all had some miserable customer service experiences and as we sit on hold or try to navigate through yet another voice response system, we wonder how can these companies get away with this. In fact, a 2006 Harris Interactive Poll showed 40% of us would rather go to the dentist than deal with poor customer service. My most recent mind numbing experience with my phone company, Verizon , made me wonder if there is money to made off of this. Here is what I found...
Customer experience is defined and measured differently. Forrester Research, Inc. (www.forrester.com) publishes a Customer Experience Index which is based on customers' 1-5 scale perception of usefulness, ease of use, and enjoyability of a product or service. Based on their research, retailers lead in customer experience with Costco , Borders , Barnes & Noble and Target in the top four spots of their 2007 survey.
The University of Michigan's National Quality Research Center calculates the American Customer Satisfaction Index (www.theacsi.org). This number is based on an econometric model that takes into account the relationship between expectations, satisfaction, and resulting actions (see Figure below). Based on this model product companies rise to the top of the 2007 ACSI rankings with Heinz , Clorox , Toyota and Hershey taking 4 of the top five positions (retailer Amazon.com ranked second).
On the bottom of the list are cable companies and airlines including Charter Communications , United Airlines , Comcast , Time Warner and Delta . Charter was last in Forrester's rankings as well followed by other cable companies and health insurance providers.
Customer experience guru and head of consultancy Strativity Group (www.strativitygroup.com), Lior Arussy, pointed out to me that the ACSI data is not surprising. The nature of the relationship with products is a single transaction. You buy the Ketchup, know what you are getting and, probably do not have to deal with a call center, billing issues, etc.
"Retailers and service companies have a broader value proposition which spreads across more customer touch points, each an opportunity to excel or destroy relationships. As such companies must focus on all touch points, from the first website visit to the last payment from the customer, they become as good as the weakest link in their experience food chain." says Arussy. Amazingly, only 43% of companies surveyed in Strativity Group's 2008 Global Customer Experience Benchmarking Survey believe they deserve their customers' loyalty.
So how does this play out in the markets? Marketing 101 teaches that a satisfied customer keeps coming back and thereby increases his/her lifetime value. More satisfied customers should translate into greater cash flows and earnings (assuming returns outweigh efforts to lift satisfaction) which in turn should lift share price. A 2006 study in the Journal of Marketing by the American Marketing Association showed that there is indeed a relationship between ACSI and the stock market. They compared major market indices to a portfolio of companies that were in the top ACSI quintile for their respective industry groups over different periods of time. Each year between 2000 and 2004, the ACSI portfolio outperformed the S&P 500 and Dow. Even looking back over a longer period, the ACSI portfolio had higher cumulative returns. I guess the next time you find yourself on hold or actually find a helpful customer service rep, consider whether you are finding a buy or sell opportunity.