How non-financial customer based metrics are associated with company performance? An analysis of customer satisfaction, customer retention and Net Promoter Score in Telecommunications Industry

Abstract

HOW NON-FINANCIAL CUSTOMER BASED METRICS ARE ASSOCIATED WITH COMPANY PERFORMANCE? AN ANALYSIS OF CUSTOMER SATISFACTION, CUSTOMER RETENTION AND NET PROMOTER SCORE IN TELECOMMUNICATIONS INDUSTRY

PURPOSE OF THE STUDY

The purpose of this thesis is to examine, how a set of non-financial customer based metrics are associated with company performance. I study how three customer-driven metrics, namely customer satisfaction, customer retention and a customer loyalty measure of Net Promoter Score, are linked with value shares of telecommunication companies. A particular focus of this study is on discovering whether changes in these non-financial metrics are reflected in performance instantaneously or is there a time lag between the cause and effect.

DATA

The empirical analysis conducted in this study is based on two longitudinal datasets from the telecommunication industry covering a period of Q2/2007-Q1/2011. The first dataset is an extensive consumer survey conducted in 19 countries on a quarterly basis and it works as a source for the non-financial metrics. The second dataset is provided by GfK and it contains information on mobile handset prices and volumes on a country and brand level, and enables one to form performance proxies of value shares for different brands in different countries, respectively. In total, the final dataset, where the consumer survey and the GfK market tracking dataset have been combined, consists of 2032 quarterly observations for 19 countries and has records from 19 different mobile phone manufacturers.

RESULTS

My findings show that customer satisfaction and customer retention -metrics seem to be positively associated with company performance, here measured in value share development. Specifically, I find that changes in customer satisfaction are reflected in performance only after two quarters and changes hold explanatory power for up to five quarters, suggesting that customer satisfaction has a lagged effect on performance. Based on my results, current period customer retention rates are positively associated with value shares and lagged variables of retention rate hold explanatory power for up to one year, or four quarters. Finally, my results indicate that the Net Promoter Score does not seem to be of relevance in explaining company performance.