American Customer Satisfaction Index

Here is an article that I read in the HBR March 2007 issue which supports the point I made in my earlier post about customer satisfaction being the number one criteria for a longterm successful business.

Basically the article talks about a new groundbreaking study done by University of Michigan's business school professor Claes Fornell and colleagues, that shows the relationship between financial success and American Customer Satisfaction index (ASCI) by creating a imaginary hedge portfolio in which stocks are bought long and sold short in response to changes in the American Customer Satisfaction Index (ACSI). The hedge fund consistently outperformed the S&P 500.

Simplifying it for common person's understanding, about 200 companies are studied for their customer satisfaction index. What this imaginary (Imaginary in the sense that, there are no real transactions. Its all on paper) hedge fund does is, if the customer satisfaction index for a company increases, the fund buys more shares of that particular company. If the customer satisfaction for a company decreases, it sells the stock short (i.e. bets on the fact that the share price will fall). Then based on these transactions, it calculates the return on investment each year. It was found that the hedge fund beat the average S&P returns significantly.

The bottomline is, well! CSI directly affects your bottomline. Its an opportunity to wake up now and beat the competition, by ensuring you put a smile on your customer's face.