Debunking Businessweek’s Analysis of Customer Service

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I’ve received many, many emails asling me to respond to an article in Businessweek “Proof That It Pays to Be America’s Most-Hated Companies,” The article analyzes the relationship between stock prices and customer satisfaction scores (from the American Customer Satisfaction Index). The article states that customer service is irrelevant or maybe even negatively influences business results. Here’s an excerpt:

“…there’s no statistical relationship between customer-service scores and stock-market returns. Your contempt really, truly doesn’t matter to these companies, with no influence on the bottom line. If anything, it might hurt company profits to spend money making customers happy.”

My take: It’s a bad analysis. Let me clarify this statement a bit. The actual crunching of numbers, comparing satisfaction scores versus stock prices, appears to be just fine. But good analysis is more than just getting the math right. It’s about making good decisions about the math that you choose to do in the first place and then applying good judgement in how you interpret the results. This article misses the mark on those last two points. Here’s why I say that:

  • The short-term movement of a company’s stock price is NOT a good indicator about the long-term success of a company. As matter of fact, it’s not a good indicator of much at all. Stock prices go up and down all of the time, so looking at year-to-date changes in stock price have more to do with the arbitrary time period chosen than with any particular dynamic of the company. What would the analysis look like if it started in November 2012 instead of January 2013, went 14 months instead of 11 months, etc. And what happens if Time Warner’s stock drops 10% over the next month or day?
  • The interpretation of the analysis should have been that customer satisfaction scores from the ACSI.org do not correlate with short-term stock prices (at least for the one period that was studied). I would agree. But to look at the results and say that customer service is not important for an organization’s success or even that it might hurt a company is just wrong. That’s more than a stretch, it’s just a bad interpretation of the data.

We’ve analyzed tens of thousands of consumers over the years and have found a really strong connection between good customer experience—which can be measured by satisfaction as well as other metrics—and loyalty (see my posts about the ROI of CX). Yes, there are some companies that can “trap” unhappy customers by doing things such as controlling regional monopolies or roping customers into long-term contracts. If your company has that type of market power, then you may not need to focus on customer experience.

For most companies, however, their customers have a choice. Loyalty is something that needs to be earned and can be extremely costly when it is squandered. Good customer experience increases that loyalty. It may not increase your company’s stock price over the next 11 months, but I’m not sure if anyone knows exactly how to do that. And, if you’re running your company to maximize stock price gains in the short-term, then I’m not going to bet on your company for the long-term.

The bottom line: Customer experience correlates to loyalty, but not short-term stock price

Republished with author’s permission from original post.

2 COMMENTS

  1. …you’re probably being too kind. In addition to the points you’ve made, the author is equating customer satisfaction with customer service. Satisfaction isn’t the most accurate or actionable of measurements, to be sure; but, that said, the ACSI metric is closer to being a reflection of overall experience than just an assessment of service, which is one dimension.

    Also, satisfaction tends to be a more tactical, benign, and reactive type of performance metric; so, again as you point out, it is more closely aligned with transactional loyalty than the forces of ebb and flow which are the stock market. The fact that there is no correlation between satisfaction and stock price (I’d say that an R-squared of .0178 constitutes no correlation, wouldn’t you?), and even contra results favoring disliked (i.e,, unsatisfying) companies, should surprise very few.

    Finally, there is compelling evidence that enterprises which do succeed in building better product and service value and more positive customer relationships, generate far more attractive financial results: http://www.customerthink.com/blog/building_valuable_customer_centric_and_trust_based_relationships_a_well_established_concept_tha

    All in all, we can agree that the head of research for Businessweek and Bloomberg TV is guilty of superficial analysis, leading to incorrect and inaccurate conclusions.

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