Taking Stock in Satisfaction: Customer Satisfaction Scores have Significant Economic Impact
In an article entitled "Customer Satisfaction and Stock Prices: High Returns, Low Risk," author Claes Fornell discusses the result of extensive research and studies that prove that an increase or decrease in customer satisfaction not only greatly impacts each individual organization, but has a significant impact on the future health of the economy. Fornell, is the director of the American Customer Satisfaction Index. The ACSI is a leading indicator of consumer behavior and measures the satisfaction of consumers across the U.S. economy.
Their findings were consistent with previous studies that have determined that firms with higher customer satisfaction are more likely to enjoy a higher, more stable net cash flow. The study proved investing in the leading ACSI companies consistently outperformed the market by considerable margins.
The Smoking Gun
Numerous resources were used to compare the top ACSI companies against the market with regards to stock performance for six years - from 1997 to 2003 - a period where the stock market had both ups and downs. The results were astonishing. You may have known the importance and benefits of providing consistent superior customer service, but I doubt you realized how significant it really is.
The top customer satisfaction companies beat the Dow Jones by 93 percent, S&P 500 by 201 percent, and NASDAQ by 335 percent. The results conclusively show that customer satisfaction pays off in "up" markets and "down" markets. When the stock market dropped in value, the stock prices of firms with highly satisfied customers seemed to have benefited from some degree of insulation.
No one can argue that these results are extraordinary. There are very few actions or strategies a business can take, if any at all, that can produce this kind of financial result. This is proof that there is a significant return on investment in improving an organization's level of customer service. In the accounting world, the economic value of satisfied customers seems to be systematically undervalued even though these customers generate substantial net cash flows with low risk. Firms that do better than their competition in terms of satisfying customers (as measured by ACSI) generate superior returns at lower systematic risk.
It is conclusive that organizations that consistently deliver superior customer service generally enjoy repeat business, lower price elasticity, higher prices, more cross-selling opportunities, greater marketing efficiency, and a host of other things that usually lead to earnings growth. In addition, several research studies find that higher customer satisfaction has a positive impact on employee loyalty, cost competitiveness, profitable performance, and long-term growth.
John DiJulius is the founder of The DiJulius Group, a customer experience consulting firm. He is an international consultant, speaker, and best-selling author. Companies he has worked with include The Ritz-Carlton, Lexus, Starbucks, Nordstrom, Panera Bread, Nestle, Marriott International, PWC, National City Bank, Cheesecake Factory, Progressive Insurance, Harley-Davidson, State Farm, and Chick-fil-A. He is the author of What's the Secret? To Providing a World-Class Customer Experience, and Secret Service: Hidden Systems That Deliver Unforgettable Customer Service. Contact him at 216-839-1430 or email@example.com.
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