Shane S. Dikolli
The University of Texas at Austin
Karen L. Sedatole
The University of Texas at Austin
Abstract: This paper investigates whether the forward-looking information content of customer satisfaction is comparable across product markets. Using a proprietary database, we find customer satisfaction is positively associated with future buying behavior and future firm profitability for firms in differentiated product markets; however, for firms in standardized markets, customer satisfaction is unrelated to future buyer behavior and is, in fact, negatively associated with future profitability. The findings are consistent with theory that future economic benefits created by customer satisfaction in product markets with low customer switching costs (i.e. standardized product markets) may be mitigated by, for example, price competition, more easily than in product markets with high switching costs (i.e. differentiated markets). Our study presents initial evidence to regulators that if customer satisfaction were to be a required disclosure, its usefulness for financial statement users may be improved if the disclosure were required on a segmented basis (i.e. by product market).
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