How To Beat The Stock Market: Buy Companies With High Customer Satisfaction Scores

Using a back-tested paper portfolio and an actual case, the authors of a study published in the Journal of Marketing found that companies at the top 20% of the the American Customer Satisfaction Index (ACSI) greatly outperformed the the stock market, generating a 40% return.

From 1996-2003, the portfolio outperformed the Dow Jones Industrial Average by 93%, the S&P 500 by 201%, and NASDAQ by 335%.

Past performance doesn’t indicate future results. ACSI only goes back to 1994. However, these startling findings help vindicate one of our central claims: investing in customer service and satisfaction is good for your bottom line.

“Cost-cutting” and “profit-enhancing” measures like outsourcing all your tech support to India, creating a byzantine apparatus for warranty repairs, and using rebate systems designed to trip up your customers will only hurt you in the long run. — BEN POPKEN

Customer Satisfaction and Stock Prices: High Returns, Low Risk (PDF)

Most And Least Improved Companies In Customer Satisfaction Since 1994
Customer Satisfaction Winners And Losers
Customer Satisfaction Up Thanks To Lower Prices, Not Increased Quality














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  1. Notsewfast says:

    One thing to remember about back testing:

    Correlations are easy to find in hindsight, but the key is causality. Did the firms do well because their customers were happy or were the customers happy because the held the stock of a firm that was performing well and had happier employees?

    The markets are similar to lots of things in that correlation doesn’t neccesarily mean there is a causal link between the two.

    Nearly all cancer victims have consumed bread at some point in their lives… Does bread cause cancer?

  2. Framling says:

    I’d say consuming bread is more common among the general populace than customer satisfaction is among major corporations.

  3. Ben Popken says:

    @Secret Agent Man: Good point about correlation vs causality. ACSI may be a good metascore that distills a lot of factor’s about a company’s health into one score. A business isn’t a business without a customer so I, assuming a relatively free-market economy with actual consumer choice available, think how that customer feels should have a strong effect on that company’s performance. I’m tempted to put together a dummy portfolio based on this study’s criterion to see how it performs for the future.

  4. mantari says:

    I’m a firm believer that today’s CEOs are making serious mistakes in their cost cutting efforts. It is easy for them to see a direct benefit of cutting internal costs. They don’t have visibility into the indirect hit that they take in sales and growth.

    Hurting the bottom line to help the bottom line. What visionaries!

  5. FLConsumer says:

    Just wondering, with the exception of Mal-Wart, when has a piss-poor product and pissed off customers made for a successful business? It’s not the MOST profitable to bend over backwards to please everyone, BUT it’s still very profitable. My portfolio reflects this and I’d agree — good product + good customer service = profits.

  6. Hoss says:

    @Secret Agent Man: I’m hoping there is also close correlation b/w happy employees and happy customers — otherwise why spend the $$ to breed happy employees. Your points are excellent though

  7. Ben Popken says:

    @Secret Agent Man: Oh, regarding, “or were the customers happy because the held the stock of a firm that was performing well and had happier employees?”

    The customers in the ACSI survey were actual product buyers, not shareholders.

  8. zolielo says:

    Tip of the week.

    What I do is use GARCH and ARCH to find dips of whatever then buy low then sell for a bit higher. Upward or downward trends are easy to forecast, but peaks and bottoms are not. The trick is getting the data and having graduate level statistical skill… But it works and the gains are moderate…

  9. mac-phisto says:

    where can i sign up for the ASCI index fund? seriously, you guys owe me that, what with you screwing up my investments in developing markets by pushing all this melamine news lately.

    hey ben, perhaps this would be a more lucrative idea for the consumerist mutual fund rather than that pump & dump scheme you were touting awhile ago.

  10. Doc Benway says:

    This is only the first study. If you look at follow-up studies the investment strategy doesn’t work any better than trend trading.

  11. FINANCE101 says:

    It would be startling that someone could disprove the efficient market hypothesis. But I doubt it.

  12. So when are we going to get our Consumerist Index fund? ;)

  13. wontonenigma says:

    @Holden Caufield

    Seriously. A top ACSI rated/Consumerist ETF would be a pretty awesome investment.

  14. Trackback says:

    Cory Doctorow: A study in the Journal of Marketing concludes that you can beat the market consistently by buying stock in companies with high customer satisfaction ratings: Using a back-tested paper portfolio and an actual case, the study’s authors found that companies at the top 20% of the the…

  15. The Consumerist could totally cash in on us and we would be willing. They should hire some brokers and the like and get the ball rolling already.

    With the kind of buying power that we would have and the publicity that the consumerist offers, we could actually create quite a bit of change for the good of mankind. (haha)

    We must remember however that with great power comes great responsibility!

  16. kickslop says:

    “The Journal Of Marketing article you selected is for subscribers only.”

    Was this cleared for reprint on this site?

  17. Designersheets says:

    I have decided to invest my money in hearing aides, because in about 20 years when the college age population of today is feeling the onset of old age, they will all be going deaf from the superloud ipods and booming music from beefed up car stereos. Hee hee, all i can say is cha ching!!!!!!

  18. mrestko says:

    I read the paper and I feel that the authors a bit unclear on their selection criteria for their back-testing portfolio. They say that they choose stocks of companies with ACSI ratings in the top 20% relative to their competition as well as above the national average.

    So how would you go about finding these companies on the ACSI website? Go to their list of scores-by-company and sort by ’07 score and then chop off anything below the national average of 75? After that, what would you do? How can you tell if a given company is in the “top 20% relative to its competitors”?

  19. asherchang says:

    @Secret Agent Man: customers, not stockholders.

    But maybe happy employees => happy customers => more revenue?

  20. Trackback says:

    Cable companies and telcos are infamous for their bad customer service, with poorly trained call center operatives who force you to go through a useless script and have incentives to simply get you off the phone as quickly as possible.

  21. @mantari: I think that is because most CEO’s are only signed on for a few years. Their money is made in the form of bonuses which incentivises them (is incentivise a proper verb??) to focus on the short term profits. Screw the long term goals. If I am getting a bonus based on what I can make for the company in the next couple of years instead of long term, I will do whatever it takes to pocket that extra cash.

    What if we were to base their bonuses on what happens with the company in the five year wake after they leave?

  22. Trackback says:

    United quietly but firmly kicked its elite frequent flyers in the pants again. It may be a relatively minor change, but it’s yet another devaluation in a program that’s getting less attractive all the time.

  23. Trackback says: Using a back-tested paper portfolio and an actual case, the authors of a study published in the Journal of Marketing found that companies at the top 20% of the the American Customer Satisfaction Index (ACSI) greatly outperformed the the…