Customer satisfaction and stock price generally tend to move in the same direction. Both are quite reliable indicators of a company's strength. At the same time, the demands of digitally empowered consumers and activist shareholders are increasing. Therefore, managers now need to understand this issue at a deeper level, according to the website of the INSEAD business school.
Quantifying the relationship
Have academics found convincing data-based evidence proving that customer satisfaction and stock price are linked? And if so, how can we isolate the variables behind this relationship? The first major study on this topic, published in 2006, estimated that a 1% increase in a firm’s customer satisfaction index score is associated with an eventual 4.6% increase in market value. Other scholars, however, treated such findings with scepticism.
Satisfaction: Improve with caution; it may backfire
Not all increases in customer satisfaction bring the same rewards to shareholders. Another study (from 2010) focuses on rapid growth that is powered by high customer satisfaction. It can present long-term challenges for the company, since new sets of customers appear and the company’s systems come under pressure. As a result, a high level of customer satisfaction might mean that more attention should be paid to the variances in satisfaction levels among your customer base. Different groups of customers also often have different expectations.
Focus on service quality
The authors concluded that in situations where satisfaction fluctuates significantly, the impact of increased overall satisfaction upon shareholder value is blocked by as much as 70%. Airlines in the USA which invested in customer care in various ways did improve it but the level was less consistent. Nonetheless, service quality investments brought about a more uniform rise in satisfaction. It seems, therefore, that customer service should be seen as an investment priority.
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