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“Satisfaction guaranteed or your money back.” That business promise has been made to consumers since 1875, when Montgomery Ward used it to differentiate his mail-order catalog from other retailers. Commitment to customer satisfaction is now a vow many businesses make. It is common to find mission statements and marketing plans that specifically address customer satisfaction; compensation systems that incorporate satisfaction metrics into their bonus criteria; and advertisements that trumpet customer satisfaction awards.
Customer satisfaction has become the most widely used metric in companies’ efforts to measure and manage customer loyalty.1 The assumption is simple and intuitive: Highly satisfied customers are good for business.
However, the reality has not proven nearly so simple. In fact, we have found that if you look across industries at the correlation between companies’ customer-satisfaction levels for a given year and the corresponding stock performance of these companies for that same year, on average, satisfaction explains only 1% of the variation in a company’s market return.
Another recent examination of the relationship between satisfaction and stock performance by Bloomberg Businessweek reported even worse results than our own. In a 2013 article entitled “Proof That It Pays to Be America’s Most-Hated Companies,” the magazine reported that “customer-service scores have no relevance to stock market returns … the most-hated companies perform better than their beloved peers … Your contempt really, truly doesn’t matter … If anything, it might hurt company profits to spend money making customers happy.”2 These findings were so unexpected that comedian Stephen Colbert offered American corporations his faux help to “get those customer satisfaction ratings right in the toilet.”3
Admittedly, the above examples represent overly simplistic examinations of the relationship between satisfaction and stock performance. You would expect customer satisfaction to impact performance over time, so simply looking at satisfaction and stock performance levels for the same year is not going to accurately capture the complete relationship.
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1. L. Aksoy, “How Do You Measure What You Can’t Define? The Current State of Loyalty Measurement and Management,” Journal of Service Management 24, no. 4 (2013): 356-381; and V.A. Zeithaml, R.N. Bolton, J. Deighton, T.L. Keiningham, K.N. Lemon and J.A. Petersen, “Forward-Looking Focus: Can Firms Have Adaptive Foresight?” Journal of Service Research 9, no. 2 (2006): 168-183.
2. E. Chemi, “Proof That It Pays to Be America’s Most-Hated Companies,” Bloomberg Businessweek, Dec. 17, 2013.
3. S. Colbert, “Rethinking Customer Satisfaction,” The Colbert Report, Comedy Central, December 18, 2013, www.colbertnation.com/the-colbert-report-videos/431618/december-18-2013/rethinking-customer-satisfaction.
4. L. Aksoy, B. Cooil, C. Groening, T.L. Keiningham and A. Yalçin, “The Long-Term Stock Market Valuation of Customer Satisfaction,” Journal of Marketing 72, no. 4 (July 2008): 105-122; and C. Fornell, Sunil Mithas, F.V. Morgeson III and M.S. Krishan, “Customer Satisfaction and Stock Prices: High Returns, Low Risk,” Journal of Marketing 70, no. 1 (January 2006): 3-14.
5. E.W. Anderson, C. Fornell and D.R. Lehmann, “Customer Satisfaction, Market Share and Profitability: Findings From Sweden,” Journal of Marketing 58, no. 3 (July 1994): 53-66; C. Fornell, S. Mithas and F.V. Morgeson III, “Commentary: The Economic and Statistical Significance of Stock Returns on Customer Satisfaction,” Marketing Science 28, no. 5 (September-October 2009): 820-825; and V. Mittal, E.W. Anderson, A. Sayrak and P. Tadikamalla, “Dual Emphasis and the Long-Term Financial Impact of Customer Satisfaction,” Marketing Science 24, no. 4 (November 2005): 544-555.
6. Some examples of our research into consumer satisfaction include: L. Aksoy, A. Buoye, P. Aksoy, B. Larivière and T. L. Keiningham, “A Cross-National Investigation of the Satisfaction and Loyalty Linkage for Mobile Telecommunications Services Across Eight Countries,” Journal of Interactive Marketing 27, no. 1 (February 2013): 74-82; Aksoy et al., “Long-Term Stock Market Valuation”; B. Cooil, T.L. Keiningham, L. Aksoy and M. Hsu, “A Longitudinal Analysis of Customer Satisfaction and Share of Wallet: Investigating the Moderating Effect of Customer Characteristics,” Journal of Marketing 71, no. 1 (January 2007): 67-83; and S. Gupta, D. Lehmann and J.A. Stuart, “Valuing Customers,” Journal of Marketing Research 41, no. 1 (February 2004): 7-18.
7. J. Hofmeyr, V. Goodall, M. Bongers and P. Holtzman, “A New Measure of Brand Attitudinal Equity Based on the Zipf Distribution,” International Journal of Market Research 50, no. 2 (2008): 181-202; and A.W. Mägi, “Share of Wallet in Retailing: The Effects of Customer Satisfaction, Loyalty Cards and Shopper Characteristics,” Journal of Retailing 79, no. 2 (2003): 97-106.
8. S. Gupta and V. Zeithaml, “Customer Metrics and Their Impact on Financial Performance,” Marketing Science 25, no. 6 (November-December 2006): 718-739.
9. J. Gitomer, “Customer Satisfaction Is Worthless, Customer Loyalty Is Priceless: How to Make Customers Love You, Keep Them Coming Back and Tell Everyone They Know” (Marietta, Georgia: Bard Press, 1998); and F.F. Reichheld, “The Loyalty Effect: The Hidden Force Behind Growth, Profits and Lasting Value” (Boston: Harvard Business Review Press, 2001).
10. J.E. Hilsenrath, “A Stock Theory Linking Price With Satisfaction Isn’t Perfect,” Wall Street Journal, Feb. 19, 2003, A2; C.D. Ittner, D.F. Larcker and D.J. Taylor, “The Stock Market’s Pricing of Customer Satisfaction,” Marketing Science 28, no. 5 (September-October 2009): 826-835; R. Jacobson and N. Mizik, “The Financial Markets and Customer Satisfaction: Reexamining Possible Financial Market Mispricing of Customer Satisfaction,” Marketing Science 28, no. 5 (September-October 2009): 810-819; D. O’Sullivan, M.C. Hutchinson and V. O’Connell, “Empirical Evidence of the Stock Market’s (Mis) Pricing of Customer Satisfaction,” International Journal of Research in Marketing 26, no. 2 (June 2009): 154-161; and R. Williams and R. Visser, “Customer Satisfaction: It Is Dead but It Will Not Lie Down,” Managing Service Quality 12, no. 3 (2002): 194-200.
11. S. Gupta and D.R. Lehmann, “Models of Customer Value,” chap. 8 in “Handbook of Marketing Decision Models,” ed. B. Wierenga (New York: Springer Science+Business Media, 2008).
12. C. Adamson, “How to Waste Money Measuring Customer Satisfaction,” Managing Service Quality 4, no. 5 (1994): 9-12; E.W. Anderson and V. Mittal, “Strengthening the Satisfaction-Profit Chain,” Journal of Service Research 3, no. 2 (November 2000): 107-120; T.L. Keiningham and T. Vavra, “The Customer Delight Principle: Exceeding Customers’ Expectations for Bottom-Line Success” (New York: McGraw-Hill, 2001); R. Niraj, G. Foster, M.R. Gupta and C. Narasimhan, “Understanding Customer-Level Profitability Implications of Satisfaction Programs,” Journal of Business & Industrial Marketing 23, no. 7 (2008): 454-463; F.F. Reichheld, R.G. Markey Jr. and C. Hopton, “The Loyalty Effect: The Relationship Between Loyalty and Profits,” European Business Journal 12, no. 3 (2000): 134-139; R.T. Rust, A.J. Zahorik and T.L. Keiningham, “Return on Quality: Measuring the Financial Impact of Your Company’s Quest for Quality” (Burr Ridge, Illinois: Irwin Professional Publishing, 1994); and J. Tanner and M.A. Raymond, “Customer Satisfaction,” chap. 14.3 in “Principles of Marketing” (Washington, D.C.: Flat World Knowledge, 2010).
13. Niraj et al., “Understanding Customer-Level Profitability Implications.”
14. L. Aksoy, “Linking Member Satisfaction to Share of Deposits: Applying the Wallet Allocation Rule in CUs,” research report, Filene Research Institute, Madison, Wisconsin, February 2013; and L. Aksoy, “Linking Satisfaction to Share of Deposits: An Application of the Wallet Allocation Rule,” International Journal of Bank Marketing 32, no. 1 (2014): 28-42.
15. “Credit Unions Set All-Time Record for Customer Satisfaction,” press release, American Customer Satisfaction Index, Ann Arbor, Michigan, December 13, 2011, www.theacsi.org/media-resources/press-release-december-2011.
16. S. Gupta, T. Keiningham, R. Weaver and L. Williams, “Are Daily Deals Good for Merchants?” Harvard Business School background note 513-059 (Boston: Harvard Business School Publishing, December 2012).
17. C. Fornell, “The Quality of Economic Output: Empirical Generalizations About Its Distribution and Relationship to Market Share,” Marketing Science 14, no. 3 supplement (August 1995): G203-G211.
18. L.L. Rego, N.A. Morgan and C. Fornell, “Reexamining the Market Share-Customer Satisfaction Relationship,” Journal of Marketing 77, no. 5 (September 2013): 1-20.
19. “Benchmarks By Company,” American Customer Satisfaction Index, www.theacsi.org/customer-satisfaction-benchmarks/benchmarks-by-company.
20. G.R. Dowling and M. Uncles, “Do Customer Loyalty Programs Really Work?” MIT Sloan Management Review 38, no. 4 (summer 1997): 71-82; L. Gentry and M. Kalliny, “Consumer Loyalty — A Synthesis, Conceptual Framework, and Research Propositions,” Journal of American Business Review, Cambridge 1, no. 1 (December 2012): 119-27; and J. Kapferer, “The Roots of Brand Loyalty Decline: An International Comparison,” Ivey Business Journal 69, no. 4 (March/April 2005): 1-6.
21. A. Weissenberg, A. Katz and A. Narula, “A Restoration in Hotel Loyalty: Developing a Blueprint for Reinventing Loyalty Programs,” Deloitte, 2013.
22. S. Coyles and T.C. Gokey, “Customer Retention Is Not Enough,” McKinsey Quarterly 2, no. 2 (2002): 81-89.
23. Hofmeyr et al., “A New Measure of Brand Attitudinal Equity”; J. Hofmeyr and G. Parton, “Rank Matters,” Marketing Research 22, no. 3 (autumn 2010): 6-12; T.L. Keiningham, L. Aksoy, A. Buoye and B. Cooil, “Customer Loyalty Isn’t Enough. Grow Your Share of Wallet,” Harvard Business Review 89, no. 10 (October 2011): 29-31; T.L. Keiningham, L. Aksoy, A. De Keyser, B. Larivière, A. Buoye and Luke Williams, “It’s Not Your Score That Matters: The Importance of Relative Metrics,” chap. 9 in “Handbook of Service Marketing Research,” ed. R.T. Rust and M.-H. Huang (Cheltenham, United Kingdom: Edward Elgar Publishing, in press); and T.L. Keiningham, B. Cooil, E.C. Malthouse, L. Aksoy, A. Buoye, A. De Keyser and B. Larivière, “Perceptions Are Relative: An Examination of the Relationship Between Relative Satisfaction Metrics and Share of Wallet,” Journal of Service Management, in press.
24. R.T. Rust and R.L. Oliver, “Should We Delight the Customer?” Journal of the Academy of Marketing Science 28, no. 1 (January 2000): 86-94; R.T. Rust, A.J. Zahorik and T.L. Keiningham, “Service Marketing” (New York: HarperCollins, 1997); and S. Varki and R.T. Rust, “Satisfaction Is Relative: Apply Analysis of Variance Techniques to Determine If Your CSM Scores Measure Up,” Marketing Research 9, no. 2 (summer 1997): 15-19.
25. When examining the partial correlations between rank and share of wallet (i.e., SOW, Log[SOW] and Logit[SOW]) after removing satisfaction, the correlations remain strong. By contrast, when examining the partial correlations between satisfaction and share of wallet after removing rank, the correlations are almost zero (and are actually negative). This research is forthcoming in Keiningham et al., “Perceptions Are Relative.”
26. This work is a natural extension of S. Gupta and D.R. Lehmann, “Customers as Assets,” Journal of Interactive Marketing 17, no. 1 (winter 2003): 9-24; and S. Gupta and D.R. Lehmann, “Managing Customers as Investments: The Strategic Value of Customers in the Long Run” (Upper Saddle River, New Jersey: Wharton School Publishing, 2008).
27. The Customer Satisfaction vs. Market Share matrix builds upon standard marketing theory and the work of Dowling and Uncles, specifically, Dowling and Uncles, “Do Customer Loyalty Programs Really Work?”
28. S. Leeb, “Wal-Mart Fattens Up on Poor America with 25% of U.S. Grocery Sales,” May 20, 2013, www.forbes.com.
29. “How Wal-Mart Became a Grocery Giant in the U.S.,” January 18, 2013, www.trefis.com.