Correlation Between Customer Satisfaction & Market Performance

Here’s an interesting thesis on how to beat the market: Buy Companies With High Customer Satisfaction Scores.

Longtime readers may recall we looked at a related issue back in 2005: Consumer Issues and Investors.   

The consumerist summarizes the findings:

Using a back-tested paper portfolio and an actual case, the authors of a study published in the Journal of Marketing found that companies at the top 20% of the the American Customer Satisfaction Index (ACSI) greatly outperformed the the stock market, generating a 40% return.

The portfolio outperformed the Dow Jones Industrial Average by 93%, the S&P 500 by 201%, and NASDAQ by 335%.

Obviously, there are entire dectors that this has very little to do
with where companies that have little or no contact with the public or
consumers. (Think behind the scenes tech providers like Akamai, mining
companies, business servies providers, etc.) or monopoly businesses,
such as utilities, where customer satisfaction has little do to with
revenue and earnings.

A potential issue in the analysis is the relatively short period under
study: It was from 1996-2003. I’d like to see the same analysis over a
much longer time period — 30 or 40 years (if the data is even
available). Also, the period under study is somewhat aberrational — it
included a giant bubble and market crash.

Click for larger charts:

graphic courtesy of Journal of Marketing

But the basic underlying concept is valid: What is the relationship between customer satisfaction and market value of equity? The authors found a strong relationship:

[Academic literature] points to a significant relationship between customer satisfaction and economic performance in general, but less is known about how the satisfaction of companies’ customers translates into securities pricing and investment returns, and virtually nothing is known about the associated risks. The tacit link between buyer utility and the allocation of investment capital is a fundamental principle on which the economic system of free market capitalism rests. The degree to which capital flows from investors actually move in tandem with consumer utility is a matter of significant importance because it is an indication of how well (or poorly) markets truly work.

However, efficient allocation of resources in the overall economy and consumer sovereignty depend on the joint ability of product and capital markets to reward and punish companies such that firms that fail to satisfy customers are doubly punished by both customer defection and capital withdrawal. Similarly, firms that do well by their customers would be doubly rewarded by more business from customers and more capital from investors.

Fascinating stuff. Perhap’s this explains what happened to Dell’s share price.


Customer Satisfaction and Stock Prices:High Returns,Low Risk
by Claes Fornell, Sunil Mithas, Forrest V.Morgeson III, & M.S.Krishnan
Journal of Marketing
Vol.70 (January 2006),3–14

How To Beat The Stock Market: Buy Companies With High Customer Satisfaction Scores
The Consumerist, 05 17 2007

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What's been said:

Discussions found on the web:
  1. Richard commented on May 20

    I’m skeptical. Sirius Radio? Tivo? Customers adore their products. What happened?

  2. Tanta commented on May 20

    I was instantly reminded of Beazer Homes, who recently got into a spot of bother over having paid customers to fill out “satisfaction surveys.”

    Do any of these folks deal with the issue of companies that are expected to have a fiduciary relationship of some sort with the customer? The builder-owned mortgage companies, for instance, actively sell their in-house mortgages by pointing out that they don’t make you jump through all those hoops and suffer through all those nasty delays that the arm’s-length lenders do. You know, refusing to close until the home is actually complete per plans and specs, or meeting project pre-sale requirements, and “anti-consumer” stuff like that.

    Yet I know at least one person who bought shares in Pulte because their customer service rankings were so high.

  3. V L commented on May 20

    You hit the nail on the head. Terrible Dell Customer Service and lack of innovation were instrumental to company (and company stock) self-destruction. Their biggest mistake (greed?) was outsourcing Dell Customer Service to India. I remember calling Dell Customer Service about a very specific problem, wasting 45 minutes of my life on hold, being transferred from one broken-English “specialist” to another, and getting the same clueless responses back like “did you plug in your computer”. Since, I refuse to have any business relations with Dell. Actually, I build my own computers now, using the best components available and saving 50%, not to mention avoiding aggravations of dealing with Dell incompetent customer service staff.

    Contrarily to Dell, high customer satisfaction companies (like BMW for example) have their stocks doubled since January 2005 (BMW almost doubled).

    Actually owning BMW 335i convertible can be dangerous to your life. Look what has happened to this poor guy (I hope he can drive fast before the mafia kills him)

    Disclosure: I own BMW shares, and I shorted DELL in the past.

    P.S. Have you gotten your BMW yet?

  4. stormrunner commented on May 20

    Granted Dell’s technical assistance with regard’s to operating system or O.E.M. software issues is less than satisfying. However I run a shop of more than 100 Dell PC’s (130+ IBM’s Dell’s combined) of various generations and when considered in the context of the volume of components they order it is almost impossible to build your own box complete with valid operating system and productivity suite software licensing ( the IP rights every body screams at China for ignoring but thinks their entitled to be able to circumvent domestically) at a break even rate never mind some ridiculous 50% discount you are referring to. Dell boxes when considered in terms of the complete legal package are very competitive. Also hardware support has never been an issue. Dell usually provides a three year hardware warranty while some others only one. One needs to be fair and accurate when slamming a manufacturer in this way. Yes outsourced support can be a horrible experience. But for someone replacing a PC building modest box i.e. case, power supply, cpu, memory, video ~ $600 with no OS, add OS legal licensing Vista home basic upgrade $100 assumes you have previously purchased full version of product not illegally using O.E.M disk from previous computer (try this you’ll find non qualifing product error), otherwise — $200 and why would someone using the best components available get Vista basic so the price only skyrockets from here. We still have not added Office suite,and yes I know there are open source alternatives, (better to be familiar with standard business apps) what good is a PC without an office suite which is available from Dell or any other O.E.M. manufacturer at greater than 50% discount pushing the modest box over $1000 (and then try to get “support” for your homemade box). This is a no win recommendation for any standard retail customer (not extremely technically proficient), not fair certainly not accurate. And as far as the greed reference todays manufacturers including Dell are barely operating at the margin. Every thing today is becoming a high volume low margin nightmare and is the reason for companies shying away from service ( until the recent credit crunch and declining sales that followed). bottom line in aggregate the masses only concern themselves with price, you get what you pay for… (imagine the cost of a PC completely Made in the USA)maybe not a bad idea to keep our fellow Americans employed but who wants to pay up, also who wants to put up with the noxious fabs on our soil.Typical sentiment send the unhealthy stuff abroad but keep the safe stuff here. We can’t expect to continue down this path forever.

  5. vfsv commented on May 20

    Even if customer service shows up as a valid differentiator over a longer timeframe, I have issues with the benchmark.

    What about absolute returns? Losing less money than the averages cited is hardly the type of endorsement likely to attract my money –particularly this late in the cycle.

  6. Fred commented on May 20

    There is another “tell” in this. The treatment you receive from front line personnel reflects the treatment they receive from their management.

  7. Estragon commented on May 20

    “… monopoly businesses, such as utilities, where customer satisfaction has little do to with revenue and earnings”

    That depends on who you define as the “customer”. In the case of natural monopolies, the real customer is the regulator. Satisfy them (by means fair or foul), and your profits are assured.

  8. me commented on May 20

    ” Made in the USA)maybe not a bad idea to keep our fellow Americans employed but who wants to pay up, ”

    IBM still charges $200 an hour. Dell still charges the same high prices. they went offshore and nothing improved, including price at the customer end.

    Maybe you are lucky because you have 100 PCs. You didn’t mention if you got service from India., As I recall Dell had to bring business support BACK to the US because business balked. As a matter of fact on their BUSINESS web site it says “North American support”.

    So anybody else tough luck. Not me. HP is kicking the stuffing out of dell and IBM.

    If a company treats their employees like crap, those employees treat the customers like crap.

  9. wcw commented on May 20

    Yeah, without even reading the paper or knowing the data, an inspection of the charts indicates that the entire result is based on 2001-2003.

    I am not asserting the result need be wrong, but I wager dollars to donuts this data set isn’t persuasive.

    Not yet, anyhow.

  10. stormrunner commented on May 20

    Yes I’ve gotten service from India these types of cases a largely anecdotal, they help when they can when they cannot you’re usually escalated to the next tier of support. I feel your grief an also prefer home made support. As for IBM charging $200/ hr I’m not familiar with this, on, in warranty run of the mill PC issue’s.

    “Dell still charges the same high prices.” (what prices for what)

    As I demonstrated in previous post I do not agree with this assessment, Dell is likely the most competitive vendor for just about everything they sell. Their point of sale warranties are completely reasonable and coverage lasts 3 years during which time you pay nada, zero, zilch for assistance. You’re right with regards to software support but with regards to hardware they, as do all manufacturers follow a script, a diagnosis flowchart if you will. They, meaning all manufacturers will even, at times misdiagnose and send you a part which does not fix the problem, they will not ask you to remove it out trying different parts continuing to work with you till the issue is resolved. This is all part of overhead. If you were to equate the difficultly of this type of service (compare it to trying to repair your own car with the manufacturer -over the phone- and from the manufacturers perspective they cannot even tell if you’re a mechanic, thus it appears they are asking stupid questions) In light of this even though I do not like it either they try to cut cost by off shoring what ever they can to remain competitive and still the perception is — $1100 PC w/ flat panel fully guaranteed for three years– , !!what a rip!! I don’t get this attitude and I get it from my superiors when it’s time to buy new boxes so don’t take it personal just an insiders view of these expectations. Gateway tried to make the experience local by providing brick and mortar, where’d it get them. (More expensive with American workers and overlooked) As more and more Americans pay outrageous sums for domestic real estate and services –health care etc., less and less of disposable income will be available to purchase these discretionary items, the cheaper they will need to become, more off shoring will be necessary to achieve this and the worse the problem will become. This circles back to “Every thing today is becoming a high volume low margin nightmare and is the reason for companies shying away from service” profit margin on one PC can likely be absorbed by one serious service call. This will likely be the norm till foreign products and services provide no consumer savings benefit or there is a hugh difference in domestic verses foreign quality. Being these are disposable units unless you’re a niche product like MAC people will opt for what will see them through enduring the inconvenience for savings.

    HP is kicking the stuffing out of dell and IBM.

    Maybe recently this is true ( post Compaq takeover accumulating market share). HP is industry standard in the printing arena. For the reason that many applications model compatibility, around for instance HPNP print drivers I stick with HP brand printers. HP knows full well of this, thus the disparity in pricing between HP and the competition, Kyocera , Lexmark, Cannon. As for my experience I have had absolutely rude condescending desk help from Americans (on speaker phone no less heard by my contemporaries) from the company at times, these types of incidences are rare but they happen.
    Throughout all this one must remember this is warranty support included in the price of the product not free to the consumer but inexpensive at the per unit level, but I’m sure a drag at the manufacturer budget level. I try not to get upset by service unless at some point in the chain I am refused it.

  11. me commented on May 21

    “these types of cases a largely anecdotal,”

    And I thought New York was suing Dell for lousy, nonexistent support, not anecdotes.

    Maybe you are sitting pretty with 100 machines but if you are the lowly consumer Dell is not a viable option.

    Have you forgotten Dell selling one processor and then installing another? China sued them for that.

    You have a strange definition of anecdotal evidence. Barry had a thread that went forever about Dell and bad service. I am not sure what number exceeds anecdote and becomes fact.

  12. stormrunner commented on May 21

    Just read the artical you are referring to. Dell does offer onsite service ( corporate and retail offerings differ significantly)it is notably more expensive than the standard contract. I normally decline onsite service even if I have it (faster to swap out parts myself) on some of my inventory. I can’t imagine someone being declined a service that is in their contract by a manufacturer, however nothing is impossable.

    With regards to the “anecdotal statement” this was in regards to complaints about -Desk Help- from India not about refusal of a technician for bought and paid for “on site service.

    refer to:
    I try not to get upset by service unless at some point in the chain I am refused it.

    Yes this bothers me, no I have never experienced it. My being a corporate account could be a reason.

    For the retail customer:

    In-Home service provided via third-party contract with customer. Technician will be dispatched “if necessary” (my emphasis) following phone-based troubleshooting often the next business day. For Next Day service which includes weekend, service must be confirmed by provider by 5:00 pm local customer time on the preceding Thursday. Availability varies. Other conditions apply.

    As per suit:

    The lawsuit also claims that Dell sold onsite computer repair plans but failed to deliver, at times requiring customers to disassemble their own computers.

    This is such a gray area as a retail customer I would not opt for such service $750, preferring extended warranty service $300 after point of sale. (called Dell to very this was available)

    My argument here is that building one’s own PC is a clearly not a superior alternative to a DEll, HP, Sony whatever.

    And that these companies are under fierce competition and operating at margin. Their mainstream boxes are not outrageously expensive as you would imply.(the greed factor)

    Your plug for HP, they are still in the process of aquiring market share, I would guess that when they’re done PC support should deteriorate to that of printer support. Which having made lots of service calls to both companies “anecdotally” I prefer Dell hands down.

    Did they try to pull a fast one this holiday season maybe, we’ll have to let that one play out in the court.

  13. V L commented on May 21

    “never mind some ridiculous 50% discount”


    Ridiculous?!? It appears that you are overpaying to Dell and rationalizing in your head, or simply you are in denial.

    Just do me a favor, go to Dell website, pick up any system you like, copy down the technical data, then go to, and do the math (Hint for amateurs: use OEM products, not the same more expensive components packaged for retail). In addition, it takes 30 minutes to put everything together, [in contrast to 45 minutes to be on hold if you call Dell]

    (Like elegant LIAN LI aluminum case [not cheap plastic offered from Dell], the best rated ASUS motherboard, Intel Core 2 Duo, Vista Ultimate, etc…)

    Then post here after you do the math…
    We will see who is ridiculously overpaying to Dell and buying below average quality products and “ridiculous” poor customer support.

    P.S. I hope your “shop” does not go out of business secondary to you running it with “ridiculous” inefficiency – overpaying $75-100K to Dell for their mediocre computers.

  14. stormrunner commented on May 21

    This is purely a components comparison where is the software.
    (Remember Intellectual Property Rights The thing we are screaming at the Chinese over)To do what you are recommending requires full version licensing of all Microsoft products OS and productivity suite
    Couldn’t find Vista business for system builders or Vista Ultimate for system builders either at New EGG. Did find Vista Ultimate @$378 Retail They had XPSP2 reasonable $138 and Vista Basic for OEM selections.
    As for New Egg office selection.
    Microsoft 9QA-00444 Office Small Business 2007 Win32 English 3PK DSP OEI w/OfcProTrial (MedialessLicense Kit: NO media is included) License – OEM $699.00
    So with out using your vendor who I do like and purchase from, to keep the numbers real.
    Microsoft Windows Vista Business FULL VERSION [DVD]
    Other products by Microsoft
    Platform: Windows XP / Vista / 2000, No Operating System
    (13 customer reviews)
    List Price: $299.95
    Price: $269.99 & this item ships for FREE with

    Microsoft Office Small Business 2007 FULL VERSION
    Other products by Microsoft
    Platform: Windows XP / Vista
    (6 customer reviews)

    List Price: $449.95
    Price: $399.99 & this item ships for FREE with Super Saver Shipping.
    OEM from Dell
    Genuine Windows Vista™ Business, with media, 32 Edition, English [add $99]
    Microsoft® Office 2007 Small Business Edition and Adobe Acrobat 8 STD [add $275]
    From Amazon Adobe Acrobat Standard $290
    Retail: OS / Office $670.00 no Acrobat which we need, if you include $960
    Dell: OS / Office /Acrobat $375.00
    This is nearly a $600 discrepancy which I don’t believe you’ll make up in hardware.
    Also where is your support, you have to go to each manufacturer individually for every problem. Not that it can’t be done but each component would have different warranty periods an absolute nightmare to anticipate and manage. Then you must consider the PC images you deploy. If retail you buy a board and its no longer available its replaced under warranty next generation there goes your image no longer usable. Main boards under most PC Distributors DEll IBM Gateway available almost indefinitely or least for likely longer than you would have the unit deployed.
    ****In addition, it takes 30 minutes to put everything together, ****
    Maybe for you or I, but not your average retail customer who generally does not know the difference between an ethernet and a USB cable.
    Then you got to get these retail customers to install and configure the boxes, this just is not practical for the layman that just wants to surf the internet and run some spreadsheets.
    Once you get you full version licensing admittedly your next home made box is then subject to upgrade licensing and the total cost of the package will be significantly reduced but for the first timer, this route is expensive time consuming and a complete learning experience, and that’s assuming every thing goes correctly.

    A lot about this thread is mixing home and business environments, difficult to untagle the two but inserted to rebuke

    hope your “shop” does not go out of business secondary to you running it with “ridiculous” inefficiency,

    You clearly do not understand my environment I challenge you to find many 50 + node shops that build their own equipment or use anything but volume licensing.

  15. stormrunner commented on May 21

    Excuse me, for the home user that does not require Acrobat Standard closer to $400 discrepancy. Its just my personal opinion but without productivity suite PC is useless to student, serious home office user whatever. I am not trying to make the point of, Dell is 50% cheaper, your trying to make the point that home-made is. I have to think that in light of these prices at least 20-25% cheaper for someone that actually needs software and possably support even if its not the best support, without the caveats of the expertise needed by the do it your selfer, which I’d have to say “again anecdotally” has caused many a rift in households while the spouse is spending many hours in deep concentration trying to acquire the skill set necessary to accomplish what your proposing. You are obviously an enthusiast with high level technical skills its really not appropriate to compare yourself to the average retail consumer. Its not till you have a job like mine that you realize how little interest the mainstream has for what your advising.

  16. me commented on May 22

    ” but without productivity suite PC is useless to student”

    Students can get Student Version of Office for $99. If they are broke they will opt for the free alternatives.

    I think the bottom line is that Dell had tremendous good will and blew it, and they are still blowing it while making gratuitous statements like we have fixed the problem. It takes more than platitudes and they have a very long road back.

    The business model has passed them buy. Laptops are the predominant PC sold today and unlike a desktop, people insist on putting their hands on the keyboard. You can’t do that with mail order.

    While you may like Dell, be satisfied with Dell, the market has spoken and it doesn’t look good for Dell.

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