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Grow Your Business Finances

Happier Customers Mean Happier Investors

happy customer . / Credit: Customer Satisfaction Image via Shutterstock

What do institutional investors really want to see in a company? Of course the business needs to be profitable, but a new study suggests that high customer satisfaction can influence shareholders to buy more stock in a firm.

A research group run by Aalto University marketing professor Jaakko Aspara conducted a study for the Journal of the Academy of Marketing Science that found a correlation between customer satisfaction rates and investor ownership of a firm. When companies improve their customer satisfaction, transient institutional investors like equity funds are especially likely to increase their ownership in those firms. Conversely, a drop in customer satisfaction leads to a reduction of ownership by investors.

"It's somewhat surprising to find that transient institutional investors, who we often see as focusing on quarterly profit forecasts, also react to customer satisfaction," said Aspara, who noted that customer satisfaction reflects a firm's long-term marketing competence. [Read related article: Compassion Key to Good Customer Service ]

According to the study, investors in uncertain, rapidly changing product markets like consumer electronics react more strongly to customer satisfaction. Nokia, for example, saw a rise in its American Customer Satisfaction Index (ASCI) figure in May, followed by reports of increased interest from large institutional investors.

As investors increase their firm ownership due to higher customer satisfaction, a corresponding rise in share value and drop in share-specific risk occurs. Therefore, says the study, reporting improvements in customer satisfaction gives companies the opportunity to strengthen their value on the stock market through growth in investor ownership.

The study is based on the ASCI figures and share values of more than 200 large companies.

Nicole Fallon

Nicole received her Bachelor's degree in Media, Culture and Communication from New York University. She began freelancing for Business News Daily in 2010 and joined the team as a staff writer three years later. Nicole served as the site's managing editor until January 2018, and briefly ran Business.com's copy and production team. Follow her on Twitter.