For years, marketing consultants have said that improving customer satisfaction is the key to success.
However, while most business leaders would agree that customer satisfaction should be a top priority, many executives have only given it lip service.
A new study from researchers from Michigan might change this, as they found that purchasing stock from companies with high customer satisfaction levels proves to be a good investment strategy.
These findings should be good news for everyone involved.
But, in the long run, the most notable winners could be consumers.
Higher Customer Satisfaction Indirectly Leads to Higher Stock Prices
As reported in a Science Daily article, a group of researchers from Michigan have found a link between customer satisfaction levels and higher stock prices.
According to the article, “Using 15 years of audited returns, researchers from Michigan State University and University of Michigan found creating a stock portfolio based on customer satisfaction data achieves cumulative returns of 518 percent.”
“This compares with a 31 percent increase for the commonly used Standard & Poor’s 500 Index in the same time period,” the article continues. “On an annual basis, the customer satisfaction portfolio outperformed the S&P 500 in 14 out of 15 years.”
The findings suggest that customer satisfaction is more important than many people think it is.
The researchers also warn, however, that there no direct correlation between customer satisfaction and stock prices.
According to an article published in the Journal of Marketing, “We also find that the effect of customer satisfaction on stock price is, at least in part, channeled via earnings surprises. Consistent with theory, customer satisfaction also has an effect on earnings themselves.”
In other words, increased customer satisfaction levels help businesses earn more money and higher than expected revenues help boost stock prices. Thus, customer satisfaction indirectly influences stock prices.
Final Thoughts
The reality of today’s world is that businesses often try to meet short-term goals in order to please investors.
In recent years, marketing consultants have been beating the drum for the idea that providing a great customer experience is key to a company’s long-term success.
What this research proves is that all the talk of pleasing the customer is more than high-minded rhetoric.
It is one of the keys to success.
Now that we have the research to show that improving customer satisfaction can help companies outperform their earnings estimates and thus help improve the stock valuation, the job of convincing top executives might have just gotten a little easier.
And, this is good news for everyone involved.
Photo credit: Iman Mosaad on Flickr.
