Customer satisfaction and long-term firm value: The role of uncertain imitability.

Abstract

This paper investigates whether or not customer satisfaction is positively associated with firm financial performance, as well as the nature and extent of the association. Extant literature is ambiguous on whether or not constructs like customer satisfaction are associated with long-term firm performance. The analytical part of this dissertation proposes a modeling framework based on the concept of uncertainty in innovation and imitation of satisfaction improving marketing activities (Lippmann & Rumelt, 1982; Telser, 1982) which shows that satisfaction differences can affect firm value and lead to differences in firm performance. The model also proves useful in developing hypotheses of how the satisfaction-firm value relationship should vary across product-market categories. The hypotheses are tested using firm level satisfaction data, an appropriate measure of firm long-term value, Tobin's Q, as well as several independent control variables. Our findings suggest a positive and significant association between satisfaction and long-term firm value. We investigate the differences in the relationship across two product-market types: competitive vs. concentration industries and goods versus services. Finally, we discuss the importance and managerial implications of our results and outline future research issues.