Insight: The Overlooked Role of Customers in Human Capital Analytics
By Bruce Bolger
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When the Enterprise Engagement Alliance supported the Engaged Company Stock Index in 2012-2018 created by the analytics firm McBassi using its ground-breaking Good Company Index, the reason was because the firm’s rating system included employees, communities, and customers. These findings from the American Customer Satisfaction Index suggest why the EEA’s ECSI index so consistently outperformed the S&P 500 over six years and the importance of including customers in the analytics.According to the American Customer Stock Index, “From January 2006 through January 2024, the ACSI leaders portfolio generated a cumulative return of 1,703% versus 459% for the S&P 500 and 554% for the Consumer Discretionary sector, with corresponding annualized returns of 17.53% for the ACSI Leaders portfolio and 9.90% for the S&P 500.” It says the portfolio’s relative results are affected by the fact it does not include the energy and some other industry sectors.
On the other hand, ACSI leaders outperformed the following sectors: financials (+49.6% vs. +26.2%), consumer staples (+52.9% vs. +30.1%), information technology (+48.6% vs. -36.7%), and utilities (+32.2% vs. +25.2%).
According to ACSI, “Companies with high levels of customer satisfaction, typically do very well in the stock market. This is because they tend to have strong customer loyalty, which, in turn, has exponential positive effects on profit and revenue growth. A stock portfolio of the top scoring 30-35 ACSI companies in their respective industries, weighted by customer satisfaction elasticity to customer retention, reveals something extraordinary: A reversal of both the law of diminishing returns and the notion of high risk/high return. Accordingly, investments in the top ACSI companies tend to produce above market returns and lower risk.”The report continues, “Beginning in 2020 as a result of the global pandemic, there were supply constraints, labor shortages, and inflation, followed by a host of market anomalies. These issues affected not only the stock market but the economy at large. Inflation, in addition to supply constraints and labor shortages, led to an environment where consumer demand exceeded supply in many markets. This took place during a period when customer satisfaction declined substantially, with the national ACSI score dropping by a record amount from the first quarter of 2018 to the second quarter of 2022. When demand exceeds supply, there is less competition and customer satisfaction, as a result, becomes less critical . Since the middle of 2022, partly due to lower buyer expectations, customer satisfaction has rebounded, rising to a new all-time high in the fourth quarter of 2023.”
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