Customer Loyalty and the Persistence of Revenues and Earnings

49 Pages Posted: 28 Jan 2021

See all articles by Hengda Jin

Hengda Jin

University of Utah - David Eccles School of Business

Stephen Stubben

University of Utah

Karen Ton

Indiana University

Date Written: December 7, 2020

Abstract

We use big data on customer shopping patterns to explain variation in the persistence of a company’s revenues and earnings. Using GPS location data from customers’ mobile devices that encompasses nearly 2.5 billion visits to over 1 million retail locations belonging to 288 U.S. companies, we find that revenues and earnings are more persistent when customers are more loyal. Specifically, revenues and earnings are more persistent when customers (a) have more regular shopping patterns, (b) are repeat rather than one-time customers, (c) shop during the week rather than on weekends, and (d) spend more time in the store. However, despite the higher persistence of revenues and earnings when customer loyalty is higher, revenue and earnings response coefficients are not higher, which suggests that investors do not immediately and fully incorporate the implications of customer loyalty into prices. We also show that analysts’ forecasts do not fully account for customer loyalty, leading to predictable forecast errors, particularly when companies do not provide guidance. Our results illustrate the value of customer data to firms, investors, and analysts in understanding the conditions under which revenues and earnings are sustainable.

Keywords: customer loyalty, revenues, earnings persistence, big data

JEL Classification: M41, M31, G14

Suggested Citation

Jin, Hengda and Stubben, Stephen and Ton, Karen, Customer Loyalty and the Persistence of Revenues and Earnings (December 7, 2020). Available at SSRN: https://ssrn.com/abstract=3744417 or http://dx.doi.org/10.2139/ssrn.3744417

Hengda Jin

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Stephen Stubben (Contact Author)

University of Utah ( email )

1655 E. Campus Center
Salt Lake City, UT 84112
United States

Karen Ton

Indiana University ( email )

Kelley School of Business
1309 E. Tenth Street, HH5100
Bloomington, IN 47405
United States

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