In 2006, a study published in the Journal of Marketing reported an astonishing correlation: Companies that most satisfied customers outperformed the market to a huge degree.
The study looked at companies rated by the University of Michigan's American Customer Satisfaction Index (ACSI), dividing them into quintiles. The stocks of those companies in the top 20% outperformed the Dow Jones Industrial Average by a whopping 93%, doubled the performance of the S&P 500, and almost tripled that of the Nasdaq.
How do top-ranking companies profit through good service? The recent American Express Global Customer Service Barometer study found that most consumers are willing to spend 9% more, on average, at a retailer with top-notch service. That can deliver a big boost to the bottom line. Conversely, bad experiences had previously driven 81% to vow never to do business with a company again.
So which companies are producing both smiling customers and smiling shareholders? Well, recent ACSI data rated Netflix
Consumer Reports magazine recently offered a "Naughty and Nice" listing of companies that were good and bad at customer service. The nice list included Southwest Airlines
Denizens of the naughty list included SanDisk
Companies that displease customers can lose them entirely. Even worse, customers often spread the word about bad experiences, as my colleague Rick Munarriz did regarding his experience with Comcast
As investors, we can make more money by focusing on companies that are pleasing their constituents, rather than driving them away.