Perceived quality is a measure of the customer’s evaluation through recent consumption experience of the quality of a company’s products or services.
[related_stories]Lastly, perceived value is a measure of quality relative to price paid.
The indexing methodology helps provide a rules-based approach to investing in consumer satisfaction.
“Many companies collect customer satisfaction data regularly but few companies know how to use the data effectively to drive bottom line performance of their firms,” Tomas Hult, Byington, Endowed Chair at MSU and director of MSU’s International Business Center, said in a note.
The basic premise of the ACSI’s strategy is based on research from the University of Michigan. According to the research paper, Stock Returns on Customer Satisfaction Do Beat the Market: Gauging the Effect of a Marketing Intangible, by Claes Fornell, Forrest V. Morgeson III and G. Tomas M. Hult, stock returns on customer satisfaction do beat the market, with the cumulative returns at 518% from 2000 to 2014, compared with a 31% increase for S&P 500 companies.
“As suggested by the sheer size of the abnormal returns, the reward for having satisfied customers is much greater than is generally known, generating abnormal stock returns of about 10% per annum,” according to the research paper. “Given this, why are many firms not focusing adequate attention to improving the satisfaction of their customers? The explanation for this phenomenon is likely to be found in inadequate satisfaction data collection and analysis derived from a general misunderstanding of just how valuable satisfied customers are to the firm.”
For more information on new fund products, visit our new ETFs category.