Xueming Luo
Executive Summary
Prior research has largely focused on the positive side of customer experience, such as satisfaction. In contrast, this study investigates the negative side of customer experience and tests the harmful impact of consumer negative voice on firms' stock returns. Indeed, both academic research and the trade press suggest that it may be more important to investigate negative customer experience (i.e., consumer negative voice) than positive experience (i.e., customer satisfaction). Thus, this research addresses the following simple but powerful questions: (1) How harmful is consumer negative voice financially? and (2) Can consumer negative voice, as manifested in complaint records, decrease companies' stock returns?
Using a longitudinal, real-world data set that matches consumer negative voice (complaint records) in the airline industry with firm stock prices, this author finds that higher levels of current consumer negative voice harm firms' future idiosyncratic stock returns. In addition, this harmful effect is robust (albeit different across airline companies) after latent heterogeneity and traditional finance fundamentals are considered.
These findings enable marketers and corporate financers to be more confident about customer equity theory and customer relationship management. In addition, armed with "hard" data (i.e., record-based, longitudinal data), this research helps relieve criticisms of prior studies that are based on "soft" data (i.e., survey-based, cross-sectional data). To financial analysts, this research suggests that, all else being equal, they should rate downward the stocks of firms that are shadowed by harmful consumer negative voice. To managers, this study is among the first to show unequivocally that reducing consumer negative voice could boost a firm's idiosyncratic stock returns for promoted shareholder wealth. In today's high-tech environment with blogs and online forums, the damage caused by negative voice may be nontrivial and should not be ignored.
Overall, this research demonstrates that investments in reducing consumer negative voice could indeed make financial sense in terms of promoting firms' future idiosyncratic stock returns.
Biography
Xueming Luo is Assistant Professor of Marketing in the College of Business Administration at the University of Texas at Arlington. His research focuses on econometric modeling, strategic marketing, and international marketing/business. His work has appeared in academic and practitioner journals, such as Journal of Marketing, Journal of Marketing Research, Journal of the Academy of Marketing Science, International Journal of Research in Marketing, Journal of International Marketing, Journal of Business Research, Journal of Advertising Research, Industrial Marketing Management, and Journal of Consumer Psychology.
Journal of Marketing, Vol. 71, No. 3, July 2007
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