Empirical evidence of the stock market's (mis)pricing of customer satisfaction

O’Sullivan, Don; Hutchinson, Mark C.; O'Connell, Vincent

doi:10.1016/j.ijresmar.2008.08.004

Cited by 49 publications

(34 citation statements)

References 47 publications

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“…Even if alpha was not statistically significant, it does not follow that there is no evidence for above-market returns. Similar to O'Sullivan et al (2009), the data presented by J&M suggest that the probability of above-market returns because of customer satisfaction is much higher than the probability that the returns are equal to or worse than market. If the odds are even 10 to 1 that a portfolio would provide excess returns over a 10-year period versus a market return, there is little doubt what a rational investor would do.…”

Section: Introductionmentioning

confidence: 56%

Commentary—The Economic and Statistical Significance of Stock Returns on Customer Satisfaction

2009

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A ccording to Jacobson and Mizik [Jacobson, R., N. Mizik. 2009. The financial markets and customer satisfaction: Reexamining possible financial market mispricing of customer satisfaction. Marketing Sci. 28(5) 810-819], excess stock portfolio returns for firms with strong customer satisfaction are small and statistically insignificant, and if there is any above-market performance at all, it is due to a small set of firms in the computer and Internet industries. But their data seem to suggest the opposite. The returns are actually both exceptionally large and significant. Using monthly data, their portfolio consisting of strong American Customer Satisfaction Index (ACSI) firms outperformed the market by 0.0053, corresponding to 6.4% cumulative risk-adjusted above-market returns on an annual basis over a 10-year period-a performance that would beat at least 99% of all large-cap U.S. stock funds tracked by Morningstar. Using a different treatment of risk, their annualized risk-adjusted return is a whopping 8.4% better than market. After eliminating computer, Internet, and utility companies, they find that the monthly risk-adjusted abnormal returns drop to 0.0045, which corresponds to an annual above-market return of 5.4%. This too is better than 99% of all actively managed stock funds in the population. Yet Jacobson and Mizik conclude that these returns are not statistically significant and that there is no evidence that stock returns from firms with strong customer satisfaction outperform the market over the long run.The failure to reject the null hypothesis is probably due to a lack of statistical power in Jacobson and Mizik's analysis. We discuss why this is likely the case and then present new data updating the results from our original article [Fornell, C., S. Mithas, F. Morgeson III, M. S. Krishnan. 2006. Customer satisfaction and stock prices: High returns, low risk. J. Marketing 70(1) 3-14]. The above-market returns persist and are both economically and statistically significant.

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Section: Introductionmentioning

confidence: 56%

Commentary—The Economic and Statistical Significance of Stock Returns on Customer Satisfaction

2009

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“…By suggesting that recommendation is a channel through which news of satisfaction might reach investors, we reveal reasons for satisfaction's impact on firm value largely ignored (Ittner, Larcker, and Taylor 2009;O'Sullivan, Hutchinson, and O'Connell 2009). …”

Section: Introductionmentioning

confidence: 91%

Customer Satisfaction, Analyst Stock Recommendations, and Firm Value

Luo

Homburg

Wieseke

2010

Journal of Marketing Research

167

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The IMU offers the following services and expertise: Management Know-HowThe IMU publishes papers geared towards managers in companies. Subjects highly relevant to business practice are presented here in a compact and concise manner, and scientific research results are efficiently communicated. In many cases, these publications are based on application-oriented research and cooperation projects involving a large number of global companies. Scientific Working PapersThe scientific studies conducted by the IMU analyze new trends that have an impact on marketoriented management. On this basis, practice-oriented findings are derived and published in our series of scientific working papers. Today, many of our publications have been printed in prominent journals and honored with awards at international conferences (e.g., by the American Marketing Association). Series PublicationIn addition to publishing scientific working papers, the IMU, in cooperation with Gabler publishing house, issues a series featuring exemplary scientific findings from the field of market-oriented management. Application-oriented ResearchAt IMU, research aims at generating scientific results that are relevant to market-oriented management. Therefore, the IMU offers you the option of submitting concrete questions arising from your company practice, which are then scientifically analyzed.If you require additional information or have any questions, please contact the Institute for MarketOriented Management, University of Mannheim, L5, 1, 68131 Mannheim, Germany (phone: +49 621/ 181-1755) or visit our website at: www.imu-mannheim.com. Overall, our research reveals satisfaction's impact on analyst-based outcomes and firm value metrics and calls attention to the construct of customer satisfaction as a key intangible asset for the investor community. The Institute for Market-Oriented Management

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“…Fornell et al [9] found very attractive properties of the top-quintile portfolio, but only provide descriptive measures. O'Sullivan et al [22], on the other hand, failed to find statistical significance. They consider two investment periods: February 1997 until May 2003, which corresponds to the investment period of [9], and March 1996 until May 2006, which corresponds to the investment period of [12].…”

Section: Long-only Portfoliosmentioning

confidence: 93%

“…Further substantive evidence on whether mispricing is present is given by [22] who reexamine the specific trading strategy of [9] but subject it to statistical tests based on the four-factor risk model (1). The trading strategy ranks stocks (firms) according to their ACSI scores and then groups stocks into quintiles accordingly.…”

Section: Long-only Portfoliosmentioning

confidence: 99%

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A New Portfolio Formation Approach to Mispricing of Marketing Performance Indicators: an Application to Customer Satisfaction

Bell

Ledoit

Wolf

2014

Cust. Need. and Solut.

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The mispricing of marketing performance indicators (e.g., brand equity, churn, and customer satisfaction) is an important element of arguments in favor of the financial value of marketing investments. Evidence for mispricing can be assessed by examining whether or not portfolios composed of firms that load highly on marketing performance indicators deliver excess returns. Unfortunately, extant portfolio formation methods that require the use of a risk model are open to the criticism of time-varying risk factor loadings due to the changing composition of the portfolio over time. This is a serious critique as the direction of the induced bias is unknown. As an alternative, we propose a new method and construct portfolios that are neutral with respect to the desired risk factors a priori. Consequently, no risk model is needed when analyzing the observed returns of our portfolios. We apply our method to a frequently studied marketing performance indicator, customer satisfaction, and using various ways of measuring customer satisfaction, we do not find any convincing evidence that portfolios that load on high customer satisfaction lead to abnormal returns.

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Empirical evidence of the stock market's (mis)pricing of customer satisfaction

Cited by 49 publications

References 47 publications

Commentary—The Economic and Statistical Significance of Stock Returns on Customer Satisfaction

Commentary—The Economic and Statistical Significance of Stock Returns on Customer Satisfaction

Customer Satisfaction, Analyst Stock Recommendations, and Firm Value

A New Portfolio Formation Approach to Mispricing of Marketing Performance Indicators: an Application to Customer Satisfaction

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