Customer Satisfaction and the 2013 Stock Market Anomaly

The idea that customer satisfaction doesn’t matter, or that poor customer service is a road map to stock market success, is the stuff that satire is made of. Just ask Stephen Colbert.

A recent article in Bloomberg Businessweek suggests that customer satisfaction has no relevance to stock price. Thirteen years of ACSI data suggest otherwise, as shown by the historically positive relationship customer satisfaction has had with stock price. There are good reasons why satisfaction matters. Common sense dictates it is better to have satisfied loyal customers than to have dissatisfied defecting customers.

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Source: S&P 500 from Standard & Poor’s at http://finance.yahoo.com

That said, for 2013 (and for 2013 only), it is correct that the worst companies in the ACSI have beaten the best ACSI companies in terms of stock returns. This anomaly is due to the fact that investors have favored low-priced stocks (which have performed poorly in the past) over high-quality stocks (which are, appropriately, priced higher). In that sense, what we have is a junk rally.

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Source: S&P 500 from Standard & Poor’s at http://finance.yahoo.com

The junk rally phenomenon is explained in another Bloomberg Research piece, “Junk Glistens Under ‘Bernankecare’ as Worst Stocks Win.” According to the article, the Federal Reserve’s near‐zero interest rates, combined with asset purchases exceeding $3 trillion, are “causing parts of the market to behave strangely. Stocks of companies with weak balance sheets are rising twice as fast as stronger ones; junk borrowers get rates lower than their investment‐grade counterparts did before the credit crisis; and initial public offerings are doubling on their first day of trading.”

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Some investment experts foresee trouble when the market comes to its senses. This may not be the “irrational exuberance” the market experienced during the dot‐com bubble of the late 1990s, but cheap money and a year‐long stock market rally where investors are looking for cheaper buys are trumping the fundamentals…for now.

Credit Union Members Happier, But Crave More ATMs

Do you plan ahead when you need to hit the ATM? If so, you may not be alone. The latest report on customer satisfaction with credit unions and banks shows that overall, customers are happier in 2013 with the quality of service for their checking and savings accounts or loans. The bank industry returns to a pre-recession high of 78 (scale of 0-100), while credit unions climb 3.7% to 85—sharing this year’s top slot for customer satisfaction with televisions and video players.

Although bank fees have been rising for 15 straight years, customer satisfaction has not suffered this year. Consumers, however, may be savvier when it comes to avoiding these costs by relying on their own banks’ ATMs or keeping ahead of minimum balance requirements. Credit unions are starting to add more fees, but their superior service shines in comparison to banks across a multitude of customer experience benchmarks, except—you guessed it—ATMs. The number and location of branches are also big drawbacks for members, but like smaller banks, credit unions are unlikely to compete with megabanks when it comes to offering bricks-and-mortar.

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Banks and credit unions both receive high marks for customer service at branches and for online banking—but the edge stays with credit unions. Credit unions far outperform banks when it comes to competitiveness of interest rates, and their more personal touch is apparent in their higher score for call center satisfaction. Aside from branches, the chink in the armor for credit unions remains their more limited ATM offerings. If this drawback is addressed, it would likely push the industry’s already top-notch member satisfaction even higher.