We are a specialty consulting firm exclusively focused on measuring and improving the financial return from marketing investments. With experience in dozens of industries, we use a broad toolkit of unique approaches to find just the right way to break through the political, cultural, and structural obstacles to help you crack your toughest measurement challenges.

View our two new webcast series, designed to help you meet the challenges of marketing measurement and resource allocation.

Customer Satisfaction Delivers Future Cash Flow

Customer satisfaction, an old marketing measurement standby, deserves some new respect. Investments in customer satisfaction are resources well-spent, and while many of us may have figured as much, new research proves that satisfied customers are central to creating shareholder value.

In a recent Marketing Science Institute Working Paper, "Customer Satisfaction, Cash Flow, and Shareholder Value," authors Thomas Gruca and Lopo Rego of the University of Iowa examine the impact of customer satisfaction on a firm's operational cash flow because in the evolving debate about how to measure shareholder value, future cash flow takes priority above market-to-book ratios and price-earnings ratios.

Using the American Customer Satisfaction Index and the COMPUSTAT database, the data of 200 members of the Fortune 500 and Standard & Poor's 500 (as a proxy for a market broader than the 40 industries defined by the 200 companies) helped the pair determine that customer satisfaction creates shareholder value by significantly increasing cash flow and reducing cash flow variability.

More specifically, a one-point increase in a firm's customer satisfaction score results in an increase of nearly 8% in a firm's future net operational cash flow. In economic terms, for every $1,000 in assets, a one-point increase in customer satisfaction generates an additional $7.70 in net operating cash flow per year. The average firm represented in the study had $52 billion in assets, so the seemingly insignificant one-point increase in customer satisfaction translated to an average increase in future cash flow of $40 million, clearly a substantial figure.

The same one-point bump in customer satisfaction showed a decrease of 4% in future cash flow variability. These benefits decrease a company's cost of capital and improve bottom-line performance.

The lesson learned: Marketers need not scramble for brand-new metrics when trying to prove their worth to top management. Sales growth and market share are going to rate with the C-level, too. So maybe marketers' search to understand how marketing impacts the entire organization, specifically through the creation of value for shareholders, isn't such a chore. Nah.

But satisfied customers can be viewed as economic assets that yield future cash flows.

The influence of customer satisfaction on cash-flow growth is largest for low-involvement, routinized, and frequently purchased products, such as newspapers, beer, and pizza, according to the study. It is smallest for big-ticket, high-involvement, and less frequently purchased goods, such as automobiles, insurance, and household appliances.

To read the entire study report, see the 2003 Working Paper Series at www.msi.org for "Customer Satisfaction, Cash Flow, and Shareholder Value" by Thomas Gruca and Lopo Rego, both of the University of Iowa.