U-M Study Links Customer Satisfaction to Stock Returns


LONDON — According to research from the University of Michigan, customer satisfaction is directly linked to stock market performance. Companies with high scores on the American Customer Satisfaction Index (ACSI) and the National Customer Satisfaction Index UK (NCSI-UK) produce higher stock returns than competitors and greatly outperform market indices.

The study examined the relationship between customer satisfaction and financial success by creating portfolios in which stocks are bought long or sold short based on performance in the ACSI and NCSI, which use the same measurement technology. The cumulative return of a $100 investment in the ACSI fund from April 2000 to April 2012 was $490, a gain of 390%. By comparison, the S&P 500 returned only $93, a 7% loss. In the United Kingdom, the NCSI portfolio earned a return of 59% from April 2007 to June 2011, and the FTSE 100 had a negative return of 6%.

“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,” said ACSI founder, Claes Fornell. “That is, loyal customers tend to be highly profitable as long as their loyalty comes from their satisfaction and not because prices are low.”

The study also finds that high levels of customer satisfaction lead to high levels of positive cash flows with low volatility, and increases in customer satisfaction are associated with subsequent positive earnings surprises. However, the market fails to incorporate the full value of this intangible into stock valuations. Investors tend to react to the tangible results of customer satisfaction rather than information about customer satisfaction itself, which is why customer satisfaction funds have outperformed the market.

Edit Module
Edit Module Edit Module
Edit ModuleShow Tags Edit ModuleShow Tags

Most Popular

  1. 30 in Their Thirties: Amy Peterson // 35
    Since she was a young girl in Jamestown, N.Y., Amy Peterson wanted to work for a Major League...
  2. Guest Blog: Dispelling Myths Behind the H1-B Visa Controversy
    Here we go again in the immigration reform debate, controversy simmering where it doesn't belong.
  3. Multi-Media Company to Revamp Vacant School in Highland Park for New HQ
    Rochester-based Modern Tribe Communications Inc. a, multi-media company, plans to invest $3...
  4. City of Southfield Buys Shuttered Northland Mall, Plans to Demolish, Sell Property
    The city of Southfield today announced it has purchased the closed Northland Center mall for $2.4...
  5. West Meets East: Varnum Law Firm Moves into Federal Reserve Building
    Varnum, a Grand Rapids-based law firm, has now moved into its new Detroit office in the Federal...
  6. Guest Blog: Fueled by SBA, Michigan Small Businesses Rebound
    There is some great news about Michigan, in case you haven’t heard: Small business is back.