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Customer Satisfaction and Stock Prices: High Returns, Low Risk

Journal of Marketing, Vol. 70, No. 1, pp. 3-14, 2006

Posted: 30 Mar 2006  

Claes Fornell

Stephen M. Ross School of Business at the University of Michigan

Sunil Mithas

University of Maryland - Robert H. Smith School of Business

Forrest V. Morgeson III

American Customer Satisfaction Index

Mayuram S. Krishnan

University of Michigan, Stephen M. Ross School of Business

Abstract

Do investments in customer satisfaction lead to excess returns? If so, are these returns associated with higher stock market risk? The empirical evidence presented in this article suggests that the answer to the first question is yes, but equally remarkable, the answer to the second question is no, suggesting that satisfied customers are economic assets with high returns/low risk. Although these results demonstrate stock market imperfections with respect to the time it takes for share prices to adjust, they are consistent with previous studies in marketing in that a firm's satisfied customers are likely to improve both the level and the stability of net cash flows. The implication, implausible as it may seem in other contexts, is high return/low risk. Specifically, the authors find that customer satisfaction, as measured by the American Customer Satisfaction Index (ACSI), is significantly related to market value of equity. Yet news about ACSI results does not move share prices. This apparent inconsistency is the catalyst for examining whether excess stock returns might be generated as a result. The authors present two stock portfolios: The first is a paper portfolio that is back-tested, and the second is an actual case. At low systematic risk, both outperform the market by considerable margins. In other words, it is possible to beat the market consistently by investing in firms that do well on the ACSI.

Keywords: Customer Satisfaction, Stock Prices, Stock Returns, Risk, Market Value, Stock portfolios

JEL Classification: M31, P10

Suggested Citation

Fornell, Claes and Mithas, Sunil and Morgeson, Forrest V. and Krishnan, Mayuram S., Customer Satisfaction and Stock Prices: High Returns, Low Risk. Journal of Marketing, Vol. 70, No. 1, pp. 3-14, 2006. Available at SSRN: https://ssrn.com/abstract=891590

Claes Fornell (Contact Author)

Stephen M. Ross School of Business at the University of Michigan ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Sunil Mithas

University of Maryland - Robert H. Smith School of Business ( email )

​Van Munching Hall
7699 Mowatt Ln
College Park, MD 20742-1815
United States

HOME PAGE: http://sunilmithas.com/

Forrest V. Morgeson III

American Customer Satisfaction Index ( email )

Ann Arbor, MI 48108
United States

Mayuram S. Krishnan

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-6749 (Phone)

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