Recently, the HVAC unit in my apartment sprung a leak. This came after my 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 (79%) was Costco (NASDAQ:COST) -- competitor Wal-Mart (NYSE:WMT), which operates Sam's Club, doesn't approach that number. Also scoring pretty high on that list (81%) was Harley-Davidson (NYSE:HOG). Have you ever met a Harley rider who didn't live and die by the brand? Me either.
The wow factor
Just as David observed the differences between the two carriers, investors can witness disconnects in their everyday lives. Regardless of where you get your prescriptions filled, for example, a glance at the past performance of CVS (NYSE:CVS) and competitor Rite Aid (NYSE:RAD) shows that Rite Aid has been on a bumpy ride since the turn of the century, while CVS has been on a steady climb. Perhaps CVS shoppers are more loyal. Perhaps CVS is a better company. Perhaps it's a little bit of both.
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: A Coca-Cola (NYSE:KO) enthusiast wouldn't be caught dead with a Pepsi (NYSE:PEP) bottle in his hand -- and vice versa. That type of brand loyalty reaches beyond the U.S. borders -- Coke topped Interbrand's 2006 list of the best global brands; Pepsi came in at No. 22.
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 on Nov. 17, 2006. It has been updated.
Jill Ralph owns shares of no company mentioned. FedEx and Costco are Stock Advisor recommendations. UPS is an Income Investor pick. Wal-Mart and Coca-Cola are Inside Value selections. The Fool has a disclosure policy that always satisfies.
