We at Peppers & Rogers Group have always advocated that acting in the best interests of your customers is sound business strategy. Not only is it the right thing to do, it can positively impact a company's bottom line. The point was proven yet again last week with the release of a report from the CFI Group that ties customer satisfaction scores to higher-than-average stock prices.
The CFI Group created a stock portfolio in 2000 to examine the relationship between customer satisfaction and financial success in the short and long term, using data from the American Customer Satisfaction Index (ACSI), and the National Customer Satisfaction Index UK (NCSI). According to the study, "the cumulative return of a $100 investment in the ACSI fund from April 2000 to April 2012 was $490, a gain of 390 percent. By comparison, the S&P 500 returned only $93, a 7-percent loss. In the United Kingdom, the NCSI portfolio earned a return of 59 percent from April 2007 to June 2011, and the FTSE 100 had a negative return of 6 percent." In addition, higher levels of customer satisfaction are tied to high levels of positive case flows with low volatility, and positive earnings surprises.
University of Michigan professor and ACSI founder Claes Fornell attributes the correlation to the influence customer satisfaction has on retaining customers and driving loyalty. Investors hate risk, and a company with strong customer retention is one where risk is diminished. "Companies with highly satisfied customers generate superior returns because customer satisfaction is critical for repeat business, and that type of business is usually very profitable," Fornell said in a press release. "That is, loyal customers tend to be highly profitable as long as their loyalty comes from their satisfaction and not because prices are low."
Customer satisfaction is important, but takes a strategic focus to maintain. Satisfied customers aren't static. Companies must constantly work to keep them satisfied, as well as win over dissatisfied customers. Companies also need to understand why customers are satisfied or dissatisfied. Is it price? Is it the experience? Are they loyal, or "trapped" into satisfaction? What can be done to improve even more? These are important elements to consider from a business and financial perspective. With satisfaction as a foundational element, advanced attributes like loyalty and advocacy can propel stock prices even higher. And that comes when companies think and act strategically about understanding the needs, behavior and value of customers to treat them differently.
The C-suite has their eyes most fixed on company stock prices. This news may drive home the point that customer metrics aren't just the domain of customer service and marketing. The CFO, investor relations, and even the board of directors now have some skin in the game when it comes to customer strategy. And the more players taking a customer focus, the more likely it is to become a truly customer-focused organization.
About the author: Elizabeth Glagowski is the executive editor of strategy at Peppers & Rogers Group. Contact her at email@example.com.