30 May How to Tame a Volatile Stock Market? Invest in Customer Experience.
The stock market hasn’t been this volatile since the 2008-2009 Financial Crisis. Risks of a trade war, higher oil prices, rising interest rates, and other geopolitical factors have all had an effect. The S&P 500 has moved by at least 1% approximately 40% of the time so far this year. Annualized, this is the most movement of such magnitude since 2009.
Despite this volatility, there appears to be a simple way to consistently outperform the S&P 500 Index—invest in a portfolio of firms that are leaders in customer experience. Strativity’s analysis has determined that, over the last decade, these customer experience leading firms taking together as a stock index performs far beyond market averages.
Many companies have had challenges connecting an improved customer experience to better financial returns. Does investing in customer experience give a demonstrable return on investment? Given this, we analyzed the returns of leaders in customer experience (using the Temkin Group Q1 2018 Consumer Benchmark Survey) in a collective index versus those of the S&P 500 over the past 10 years. The results are striking. See below.
Temkin Group Q1 2018 Consumer Benchmark Survey
As noted, customer experience leaders were identified using the Temkin Group Q1 2018 Consumer Benchmark Survey. For our index, we took firms in the Top 25 in this ranking that met the following criteria:
- The company had to have at least 10 years (2009 to 2018) of publicly traded stock prices. If a company had less than 10 years of stock prices, it was excluded.
- If the brand in the Top 25 was part of a larger publicly traded holding company, we used the publicly traded company in the index. (e.g., Pizza Hut in Yum Brands, YUM)
- Stock price taken was that of the first trading day after January 1 of a given year (e.g., January 2, 2018)
- To equalize the effect of some firms having much larger market capitalizations having a disproportionate effect on the rate of return, we calculated the arithmetic average of the stock returns of each of the companies in the index.
The following companies were ultimately included in the index: Dollar Tree (DLTR), Regions Bank (RF), Amazon (AMZN), Kroger (KR), Pizza Hut (Yum Brands, YUM), Sonic Drive-In (SONC), and Starbucks (SBUX).
Customer experience leading companies had an average 10-year return of 392%, over double the S&P 500 return of 190%.
It seems self-evident that the company with the greatest 10-year return was Amazon (1091%). Even recalculating the return without AMZN, customer experience leading companies still dramatically outperformed the S&P 500 by half (276%).
It’s not surprising that companies with exceptional customer experience have above average stock returns. Many will agree that an exceptional customer experience can improve bottom-line profitability. An excellent customer experience can improve customer loyalty, which can increase revenue and reduce costs via reduced attrition, more frequent purchasing, longer relationship duration, and customer referrals as well as decreased customer service interactions and cost to serve. Since stock prices theoretically are based on expected future earnings this seems to make sense. So, long story short: want to beat the S&P 500 in a volatile stock market? Invest in customer experience.
For more information about how your company can create an exceptional customer experience to improve financial results, please contact David Nash at David@Strativity.com