The Fallacy of the Decline of Customer Satisfaction

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BusinessWeek’s Eric Chemi recently posted that customer satisfaction has a negative impact on stock prices, meaning that publically traded companies may actually be better off being disliked by their customers.

He makes some interesting assertions regarding the value of spending on CSAT efforts and the potential return and, while, his so-called study seems interesting on the surface, the truth is there is little merit to the claims.

Basically, Chemi looks at CSAT scores for 146 publicly traded companies, along with their stock price trends, coming to the conclusion that there is “no statistical relationship between customer service scores and stock market returns.”

First, and perhaps most importantly, “no statistical relationship” does not imply that efforts towards increasing customer satisfaction are wasted. The fact is, in addition to revenues and earnings, multiple factors can influence stock prices, which are far beyond the scope of CSAT scores. These include local and global economies, strength of individual markets/product categories, competitive landscape, purchasing trends (both product and stock market related), and investor behavior/market sentiment.

If we’re going to look at the relationship between customer satisfaction and stock prices, these additional factors must also be considered, especially when considering the value of CSAT spend. For one thing, looking at 146 businesses across various business markets is comparing apples to oranges, since some have inherently low levels of customer satisfaction, while others are traditionally high.

Cable operators and other service providers, for instance, are notoriously poor when it comes to CSAT measurements. Part of this is due to the fact that they run on a monthly buying cycle and customers are reminded each month they are paying $100, $200, or even more for their phone, internet, and video services. Factor in the lack of choice in many markets and the constant conflict between operators and major content providers, and customer aggravation grows (especially when they are suddenly shut out from watching their favorite baseball or football teams).

On the other hand, the automotive industry runs on a much longer buying cycle and breeds a relatively high level of satisfaction due to the purchasing process. Part of it is the much larger competitive landscape – car buyers have a relatively high number of makes and models from which to choose, regardless of their budgets and needs and, quite frankly, if the car runs well, satisfaction tends to be high. In fact, 7 of the top 20 brands in the ASCI’s 2013 rankings are automakers.

Other lower-priced retail brands also find themselves atop the index, from Apple to General Mills to Pepsi. Again, one of the main differences is competition. Apple vs. Android, General Mills vs. Kellogg, Pepsi vs. Coke – consumers simply have the option to purchase their preferred brands, which means satisfaction tends to be higher.

Competitive market analysis must be included in any assessment of CSAT spend – regardless of whether that analysis includes stock behavior or not.

But that aside, the real issue with the argument is that history has shown that customer satisfaction positively impacts business results (despite the difficulty in defining and measuring the success of efforts).  Particularly in an age where social media and mobile communications have created an environment where instant comments regarding products and brands are the norm, customer satisfaction efforts should be at the forefront of any brand’s efforts.

In fact, historically, ACSI data has shown that CSAT and stocks have a positive relationship, meaning that 2013 witnessed an increased impact from outside variables, not an underlying trend.

In many ways, it comes down to common sense. Customer retention is easier and cheaper than customer acquisition, which should place customer satisfaction at the top of the corporate to-do list. Whether that’s via mass communication, individual contact, customer feedback mechanisms, social media, or other engagement techniques, the relationship between business and customer has always been the key to success. In fact, countless businesses, including this publication, have thrived because of the value customer satisfaction has to businesses.

When it comes to publicly traded companies, CSAT isn’t the only factor, especially in today’s instant gratification world, but decades’ worth of evidence outweighs an outlying year – as any “numbers guy” knows, you’ve got to ignore anomalies in research data and focus on consistent trends. After all, if you ask any business executive which he prefers, I assure you, the answer will not be dissatisfied customers.




Edited by Cassandra Tucker
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Group Editorial Director

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