Recently, the HVAC unit in my apartment sprung a leak. I'd already made numerous calls to the community managers, warning that the thing was making unfamiliar and unsettling noises. Instead of responding to my initial complaint before it became a full-blown leak, they chose to ignore it. The result: It sprung a major leak, I missed days of work, I waited for repairmen who never showed, and I was disappointed with the entire process.
Based on my experience as a tenant, I've established an opinion about where I live -- an opinion I will carry with me until my lease expires and I head for the hills.
You may be wondering how this has anything to do with investing.
The water-cooler effect
Well, investment legend Philip Fisher reminds us of the importance of "scuttlebutt." Repurposing the word's nautical meaning, Fisher likens scuttlebutt to a place to be or hang out, and he stresses that that's something we should all do as consumers and investors alike: observe, listen, take notes, and spread the word.
Aha! As a consumer, I observed a problem with my HVAC unit, listened as the community personnel made false promises, took notes on how they mismanaged the situation, and formed an opinion on the company running my complex. And as an investor, I am now wary of Archstone-Smith, the publicly traded company that owns my apartment complex. Although the stock has done well recently, if it runs all of its apartment communities this way, it'll end up with legions of not-so-happy customers. (I should note that since this article first ran, an Investor Relations representative contacted me, which was both helpful and encouraging.)
But we must remember that consumer experiences work both ways. A satisfied customer can be a company's -- and shareholder's -- greatest asset.
The fantastic four
In an excellent BusinessWeek article, research consultant Jeneanne Rae described how customer experiences are broken into four areas that can make or break a company. Rae concluded that a company that can deliver consistently positive consumer experiences will create:
- Raving fans.
- Brand loyalty.
- Premium pricing.
- Product differentiation.
Fool co-founder David Gardner recently echoed Rae's principles. He highlighted the importance of company culture, both as a consumer and investor. Examining the disconnect between competitors FedEx and United Parcel Service, he wrote, "Even in seemingly similar companies, clear contrasts exist in the dynamics of their corporate cultures -- contrasts rooted in history and in founders' visions and actions. Because, you see, company cultures and principles have real consequences to shareholders."
Not surprisingly, FedEx also has an impressive Net Promoter Score of 56%, which gauges a company's performance, accountability, and growth potential in terms of customer satisfaction. Earning an even higher Net Promoter Score (81%) was tiny mortgage banker HomeBanc (NYSE: HMB ) . Much larger competitor Countrywide Financial (NYSE: CFC ) was not on the list.
The wow factor
Just as David observed the differences between the two carriers, investors can witness disconnects in their everyday lives. Let's take movie viewing as an example. Are you a Netflix (Nasdaq: NFLX ) convert? Or will we still see you in line at the local Blockbuster (NYSE: BBI ) ? David Gardner's a big supporter of Netflix -- he tapped it in Stock Advisor years ago -- but if you need more evidence, check out the past performance of the two.
But the value of brand loyalty, product differentiation, and satisfied customers doesn't end there -- in fact, it can even trickle all the way down to the bottle in your hand. Think about it: An Anheuser-Busch (NYSE: BUD ) enthusiast wouldn't be caught dead with a Molson Coors (NYSE: TAP ) bottle in his hand -- and vice versa. That type of brand loyalty reaches beyond U.S. borders -- Budweiser earned a respectable spot (No. 27) on Interbrand's 2006 list of the 100 best global brands; Molson Coors didn't make the cut.
The Foolish bottom line
As you research possible investments for your portfolio, think of how each company treats you, its customer. Fisher reminds us to observe, listen, take notes, and spread the word. And Rae cautions that a company that fails its customers will ultimately fail its shareholders. Sounds like good advice to me.
I've provided but a short list of companies that get it right for their customers. For additional examples of firms that know how to wow -- and create the ultimate "experience" along the way -- I turn to David and his brother Tom. Together, in the Motley Fool Stock Advisor newsletter service, they uncover companies with a history of satisfying customers and shareholders alike. Satisfy, indeed: Since inception in 2002, their recommendations have outperformed the S&P 500 by more than 44 percentage points.
To join them for a 30-day free trial of the service, click here. I know you'll be satisfied.
This article was originally published Nov. 17, 2006. It has been updated.
Jill Ralph owns shares of no company mentioned. FedEx and Netflix are Stock Advisor recommendations. United Parcel Service is an Income Investor pick. Anheuser-Busch is an Inside Value selection. The Fool's disclosure policy always satisfies.