As the economy recovers, consumers are expected to open their wallets a bit more. As Giovanny Moreano and I pointed out yesterday, Consumer Discretionary stocks have been amongst the best performers in the current rally, up over 60% since the March lows (see Winning Stocks from Winning Sectors). Where those dollars go will partly depend on how companies have treated their customers.
A new study by management consulting firm, Strativity Group, has found that more than 70% of consumers are willing to spend 10% more with businesses if those businesses exceed expectations. After an earnings season where we saw cost reductions driving numbers more than top line growth, companies will now need to focus on their customers. Strativity CEO, Lior Arussy, says "Companies must stop the one size fits all cost cutting measures, as they reduce their customer loyalty in the process. It is time to accelerate investment in the differentiating touch points and give customers reasons to stay. It does not have to default to price strategy"
The research found that loyal customers are three times as likely as dissatisfied customers to continue a business relationship for the long term. In fact, a dissatisfied customer is 10 times more likely to attrite within twelve months of a bad experience than their satisfied counterpart.
Arussy believes these customer gains translate into shareholder value. Here are three stocks he believes could gain from their focus on customer service:
1. Delta Air Lines – they realized the critical nature of the call center and recently announced that they are bringing it back to the US with an upgrade to its performance, an example of investment in key touch points in tough times
2. Hyundai Advantage plus program – the company connected to the emotional state of mind of customers by promising a return guarantee if laid off – move was copied by others. The move did not discount the value of the car, rather they listened to their customers' concerns
3. Starbucks – when the company experienced tough times, it put its innovation engine on steroids and continued to do so in order to keep the experience fresh unique and differentiating
Disclosure: Arussy is a Starbucks shareholder
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