Dr. Fornell’s portfolio beat the market by more than four times! (Photo by Andrew Burton/Getty ... [+]
“Are you sitting down?” That’s what Dr. Claes Fornell, founder of the American Customer Satisfaction Index (ACSI) and the Distinguished Donald C. Cook, emeritus professor of business at the University of Michigan, asked me just before sharing that in the past 15 years, Dr. Fornell’s investments into companies in the stock market returned a whopping 1,788% versus the S&P 500’s 429%.
Dr. Fornell’s portfolio beat the market by more than four times!
How did he do it? He invested in the 30 to 35 companies that had the highest customer satisfaction ratings, according to the ACSI. When a company moved off the list, he sold it and replaced it with a company that moved onto the list. This continues to support the concept that customer service and CX should not be seen as a cost, but instead as an investment that yields strong returns.
I interviewed Dr. Fornell on Amazing Business Radio, and we talked about his stock market performance and what any company, large or small, B2B or B2C, should focus on to get their customers to come back.
The ACSI is a fascinating study. It is a quarterly report that lists the top 400 largest corporations in the U.S. marketplace by their customer satisfaction scores. Its measurements and benchmark variables include customer satisfaction, customer expectations, perceived quality, perceived value, customer complaints and customer loyalty.
According to Dr. Fornell, customer retention is the key. His work proves there is an exponential increase in your ROI when you focus on retention. He cautions that some companies, even with high retention, have low customer satisfaction ratings. Their customers may come back for several reasons that include low prices. That’s a great strategy until another company comes along with a lower price. His point is that customers should come back for the right reasons. Dr. Fornell says, “You could always buy loyalty, or you can earn it. Buying loyalty is driving prices lower than all of your competition. Earning loyalty is by investing in customer satisfaction.”
Dr. Fornell emphasizes what needs to be fixed to cause customer satisfaction:
· Wait Time: If customers’ wait times take longer than expected, this is a problem. Our customer service research found that 50% of customers we surveyed think that when calling customer support for a problem or question, companies do not value their time.
· Ease of Use: In a perfect world, everything would be easy. Websites would be intuitive. A product would never have issues that require a customer to call for help. But when customers did call for help, they would be immediately connected to a customer support rep who would give them the answers they needed. Unfortunately, not all companies and brands provide that easy experience. If a customer needs help but the process is complicated, it (obviously) negatively impacts their experience.
· Segmentation: Many companies segment their customers based on age, gender and location. Of course, that’s important, but these same companies disregard the areas that most affect their customers’ sensitivity to higher quality. Know what customers are looking for and design a customer experience around that.
Just because customers come back to a company doesn’t mean they are highly satisfied. For example, Walmart doesn’t make Dr. Fornell’s list, but it still has incredible customer retention. Walmart customers want the price, and they are willing to forgo a higher level of service to get that better price.
Important! Today’s market is different. Dr. Fornell warns that investing in customer satisfaction today may not deliver outperformance because there is more demand than supply, which means that the buyer/seller relationship has changed. The seller now has more power than the buyer. In a good economy, sellers are competing for buyers. Today it’s almost the other way around, because of the short supply or scarcity of merchandise. Therefore, you may not get extra “points” or profit for customer satisfaction if there’s scarcity. Customers will do business with whatever company has the goods, even if it’s not where they would normally choose to go.
As an example, Nordstrom is legendary for customer service and is on the ACSI list, but it is currently underperforming in the market. It has nothing to do with customer satisfaction—it’s because of supply issues and scarcity of product.
Ultimately, however, even considering changes in the economy, scarcity of merchandise and supply chain issues, over an extended period of time the ACSI strategy beats the market. I’ve also reported that investing in companies with higher NPS scores has beat the market. Yet another strategy is simplicity. Investing in the Siegel+Gale’s index of the world’s simplest brands can outperform the stock market as well. The theme is easy to spot. Customer service, customer experience, convenience and simplicity help to create a better customer experience that positively impacts stock price.
