Archive for the ‘Customer Satisfaction & Market Value’ Category

The Beatles were onto something with the song “Can’t Buy Me Love.” What they missed in the song was that you also can’t buy loyalty. True customer loyalty can’t be bought or bribed.

Customer loyalty is the purchase behavior of a customer. It’s the frequency with which they repurchase, it’s the new business that they deliver through word of mouth referrals and it’s the total that they spend over their lifetime as a consumer.

When it comes to the behavior of loyal customers, there are no short cuts. Having a “loyalty program” or a discount card won’t in itself cause customers to behave loyally. The only way of impacting purchase behavior is by improving total customer satisfaction.

There is a strong link between purchase behavior and customer satisfaction. Satisfied customers deliver a higher wallet share, make more positive referrals, and are more likely to be retained.

To truly influence the behavior of consumers, businesses must first understand how satisfied their customers are. Satisfaction depends on the customer’s perspective and the context of the business. As a result it will vary from customer to customer and cannot be directly measured. There are a set of factors that influence customer satisfaction such as:

  • Overall satisfaction
  • Satisfaction relative to expectations – expectations will be very different at Pebble Beach versus a 9 hole executive 
  • Satisfaction relative to your ideal golf course – golfers may have a different perception of what an ideal course is to them, maybe it’s Pebble Beach, or maybe it’s a course that they can play 18 holes in 3 hours

After understanding how customers perceive your course on these subjective satisfaction factors, the next step is understanding which of these factors have a greater influence on causing customers to behave loyally.


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I have recently became interested in a hedge fund that invests in satisfied customers. The CSat Fund (http://www.csatfund.com/home.html) invests in the top-performing companies by industry in terms of customer satisfaction. The investment strategy is simple; the fund managers invest in companies that are in the top 20% by industry, provided that the satisfaction of that company is at least better than the national average customer satisfaction score. 

Within the last month, Barron’s wrote an article noting the incredible performance of the fund. Barron’s – Happy Stocks: March 22nd, 2010 

Growth of $100 in the CSat Fund vs. S&P 500


The CSat Fund delivered an astounding cumulative return of 235% over the past 10 years. This is compared to the Standard & Poor’s Index return of negative 23% over the same timeframe. 

My Take: This fund clearly puts its money where its mouth is, and the results are compelling. It’s clear that companies with the most satisfied customers are the most profitable in the stock market. Also this fund has demonstrated that satisfied customers are an asset to companies in that they deliver high returns in up-markets but also reduce the risk in down-markets. The reason that risk is reduced is that satisfied customers are the most reluctant to defect and the most likely to buy more. These favorable traits were borne out in the performance of the CSat fund in both up and down markets. The CSat fund tracked proportionally less than the S&P 500 in down-markets, but tracked upwards proportionally more than the S&P 500 in up-markets. In down-markets the correlation of the CSat fund to the market was 74%; in up-markets it was 115%.1 

Source Notes
1Fornell, C. (2007). The Satisfied Customer: Winners and Losers in the Battle For Buyer Preference. New York: Palgrave Macmillan. 

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