New Delhi, Dhirendra Kumar. Customer satisfaction is a good thing in business, as it can be a sign of better earnings in the future. But it is just a thought and a possibility, not an imperative. Investors are better off with companies that have a close-knit clientele and are almost certain to bring returns. One thing is said over and over again. If the customer is satisfied then it is a good sign. This is true to an extent. However, as in science, ‘must be true’ has no meaning if we talk about investing in equities. This is because it is not possible to measure it. Is there a correlation between customer satisfaction and higher returns for shareholders, which should come to the fore?
Interestingly, there are many businesses with which I am personally very happy as a shareholder, but not so much as a customer. Maybe I am quite happy with a bank as a shareholder and not at all as a customer. Similarly, there are many businesses and companies that may have very different customer and shareholders’ perceptions.
According to most people who think about this issue, often in the eyes of investors, having satisfied customers means that a company will make profits in the future. Not only do investors recognize this, even those who are not investors will understand that the most important factor that drives returns is a company’s financial results. Along with this, other information such as industry and business outlook, quality of management, regulatory environment and current stock prices are also a big factor.
The investor only thinks about the future of the company. He sees that his profit will depend on the future policies of the company and the share price. If a company has been increasing its profits over the years, it is more likely that it will do so in the future as well. If the management has run the company well in the past, it is likely that it will continue to run it like this. But we seldom think of equity research this way, as it is a way of making predictions.
Actually having a satisfied customer is a good thing. But the best part is that customers are not able to give up their favorite brand or company easily. Sometimes it is also the compulsion of the customer not to leave the company. For example, no matter how dissatisfied you are with the behavior or services of the bank’s employees or customers, you cannot easily change your bank.
Recently, the services of Facebook, WhatsApp and Instagram were disrupted for several hours around the world. But for those who use them regularly, it is not easy to go for the alternatives of these companies. In fact, companies like Facebook have tied-up customers, not visitors. This is at least true for those who use the services. The result is clear. Companies that have mortgages are better than companies with satisfied customers in terms of returns. After all the investor invests capital just to earn.
(The author is the CEO of Value Research Online.com. Published views are the personal of the author.)