This article investigates whether customer satisfaction is associated with key bond market metrics—namely, credit ratings and the cost of debt financing—as well as the degree of any observed association between these key marketing and financial metrics. The bond market represents the single largest source of external financing for most firms. Yet, potential links between customer satisfaction and the corporate bond market have not been previously examined.
The findings indicate that firms that do a poor job of satisfying customers, as measured by the American Customer Satisfaction Index (ACSI), pay more for debt financing, while firms with higher customer satisfaction levels enjoy a lower cost of debt and higher credit rating. On average, firms with high customer satisfaction are associated with a 2% reduction in the cost of debt financing—a magnitude similar to the spread between A and AA rated firms. A 2% reduction in the cost of financing translates into an average savings of approximately $5 million per firm for the samples in this study. This figure represents a significant savings to firms and one that has not been previously quantified.
For managers, this result suggests that customer satisfaction is not only related to a firm’s performance in the marketplace but is also associated with a firm’s financing costs. Thus, marketing managers may want to go beyond calculating the financial impact of marketing activities based on the estimated impact on customer behaviors of economic value to the firm, such as customer lifetime value. I addition to these customer-based benefits, managers should consider potential economic benefits of greater customer satisfaction that may result from corporate bondholders willing to provide lower financing costs. Moreover, the positive association between customer satisfaction and credit ratings means firms with high customer satisfaction should find creditors significantly more willing to lend to them.
For investors, creditors, and financial analysts, the findings indicate that customer satisfaction, as measured by the ACSI, is a significant factor that has not been previously considered in models of yield spreads and credit rating. The ACSI appears to provide important information that is missing from these models and analyst predictions of bond market performance.
The findings contribute to the growing literature linking marketing metrics with financial performance. Recent research has found that customer satisfaction is positively associated with accounting-based measures of financial performance, as well as long-term financial measures based on equity markets. The cumulative effect of this body of research is mounting empirical support for a positive association between customer satisfaction and financial performance, as measured by accounting returns, equity prices, and now bond market behavior. Combining this new finding with those related to accounting returns and equity prices extends what is known about the impact of satisfied customers on the firm’s financial performance. As a result, academics, managers, and investors should have a more complete picture of how customer satisfaction influences financial markets and, by implication, the value of marketing activity for the firm as a whole.
Biography
Eugene W. Anderson is Professor of Marketing and D. Maynard Phelps Professor of Business in the Stephen M. Ross School of Business at the University of Michigan. His research focuses on customer satisfaction as a business performance metric. He is interested in how marketing efforts are related to financial outcomes. His most recent work attempts to bring together theory and method from both marketing and finance. He currently serves as area editor at Marketing Science and on the editorial boards of Journal of Consumer Research, Journal of Marketing, Journal of Service Research, and Marketing Letters.
Sattar A. Mansi is Associate Professor of Finance in the Department of Finance, Insurance, and Law, Pamplin College of Business, at Virginia Polytechnic Institute and State University. Previously, he was Associate Professor of Finance in the Graduate School of Business at the University of California, Riverside. He has more than 20 years of research and private-sector experience. Dr. Mansi has published extensively in the most influential journals in finance, accounting, and international business. His articles appeared in scholarly journals, such as Journal of Finance, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, Journal of Accounting and Economics, Journal of Accounting Research, Journal of International Business Studies, and Financial Analyst Journal, among others. His private-sector experience includes working with Freddie Mac in the areas of risk management and securitization, and Unisys Corporation as a product OEM engineer. Dr. Mansi teaches finance classes at the doctoral and graduate levels and has held academic appointments at Virginia Polytechnic Institute and State University, University of Arizona, Georgetown University, and Texas Tech University. He has an MBA and a PhD in Finance and a BS in Electrical Engineering.
Journal Marketing Research, Volume 46, Number 5, October 2009
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