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Customer Satisfaction is More Important Than You Thought

Published on December 4, 2018
By Richard Kestenbaum December 4, 2018   You already know that customer satisfaction is important. What you may not have known is that high customer satisfaction indicates that financial performance expectations will be exceeded. There’s data indicating that when research analysts and management have forecasted earnings for a retailer, there’s a better chance that those targets will be exceeded if customer satisfaction is high. Said another way, retailers with high customer satisfaction are often underestimated; for whatever reason, retailers with higher customer satisfaction have better earnings than most people expect, including their own management.   How Do We Know This? I recently spoke with Phil Bak of Exponential ETFs. Bak’s fund uses customer satisfaction data to pick stocks. Here’s how a portfolio of stocks picked based on their customer satisfaction data performed over the indicated period (although the fund didn’t exist for the entire period, the data shows is how it would have performed using the methodology as if it had existed for the entire period): forbes_custsat_graphic1 image  I’m not giving you stock-picking advice. I’m saying that one of the primary movers of stock prices is earnings that exceed or fall short of expectations. The data tells us that no matter what else the market is doing, when customer satisfaction is high, a company’s financial performance exceeds what people are expecting, that’s primarily why the stocks outperform. What that says to a retailer is – improve your customer satisfaction and numerous other key performance indicators, like earnings, that are not apparently directly related to customer satisfaction, will go up.   Who's Doing it? Here's some of the data that Exponential ETFs is using (from the American Customer Satisfaction Index), ranking major retailers by their customer satisfaction: Forbes_CustSat_GraphicNote particularly that Amazon is at the very top and Walmart is at the very bottom. Bak points out that Amazon raised the price of their premium service, Amazon Prime, and while they don’t release specific data, you heard barely a ripple about it in the marketplace. Companies with high customer satisfaction can do that; you could hardly even imagine Walmart charging a premium price for their products, the customers would be gone.   What To Do Increasing customer satisfaction is not like pushing a button, it might actually be the hardest thing for a retailer to do. But retail is in an upheaval, so many things about it are changing and it’s being reinvented in so many ways. What the Exponential ETFs data says is that if the reinvention focuses mainly on measurable customer satisfaction, everything else will follow, customer satisfaction is driving all the important other indicators.   Mark Fortlage, Vice President, Operations Support at Alorica, a provider of customer experience solutions, said, “the American Customer Satisfaction Index ranks many of the top online retailers high on their list, showing that the evolution to digital in all aspects, including customer service, is a success for companies. Brands have shown their ability to deliver the level of customer service that consumers want with digital avenues such as chatbots and social media which offers more convenience to consumers. The evolution of technology is greatly changing the customer service landscape and these innovations aren’t going anywhere anytime soon, meaning brands will need to modify their tactics to keep earnings and customer satisfaction up.”   One of the key questions facing retailers right now is what functions should their stores serve? In earlier times, stores were where the stuff is and you had to go there to buy. Now that stores are not as important for buying, the question is — what else should happen in a store besides stockpiling products? If a retailer focuses on a question of customer satisfaction, they come up with different answers than if they focus on other things like brand advertising, contests and other events. According to the data we’re seeing here, testing different ways of developing stores and measuring the output in terms of customer satisfaction is going to lead to a wide range of better outcomes than using other kinds of measures.  

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