Consumer complaints and company market value.
| Autor | Claro, Danny Pimentel |
Introduction
Managers have closely monitored consumer complaints to further develop marketing programs and manage customer dissatisfaction. Previous studies showed that dissatisfaction may result in negative word of mouth, for instance by people warning friends (Matos & Rossi, 2008; Singh & Wilkes, 1996; Trusov, Bucklin, & Pauwels, 2009), or may result in complaints to private or public agencies (Singh, 1988). Consumers play a critical role in spreading brand value and affecting the efficiency of marketing programs (Kozinets, Valck, Wojnick, & Wilner, 2010). Consumers have also gained control over a wide variety of media available to them, including posting opinions online and having the option to block unsolicited marketing (De Bruyn & Lilien, 2008).
In some public service industries, regulatory agencies keep public records of complaints and assess companies' performance on the basis of consumer complaint levels. Public records of complaints also affect market perception about a company and help disseminate failure of products and services by simply describing stories of negative experiences (Luo, 2009; Winchester, Romaniuk, & Bogomolova, 2008). Very often in a complaining context, the informant is not necessarily an opinion leader with his/her reputation at stake (Weimann, 1991). Rather, emotions are evident and the story of the informant deeply touches listeners (Richins, 1983) in such a way that evoke a good and evil battle or a perception of a seriously harmed victim (Laer & Ruyter, 2012). The company then becomes vulnerable to the level of complaint that influences the company market value in a direct linear fashion (Luo, 2007, 2009) or in a novel, non-linear way.
We hypothesize in this study that complaints may have a non-linear effect on company market value. The hypothesis deals with a company's ambition to defeat consumer complaint at any cost. We actually expect positive and negative tradeoffs between complaint and performance, suggesting that a company may have market value increased with low levels of complaints. Once a certain level of complaint is displayed, further increase in complaints will sharply reduce company market value. We argue that positive tradeoffs (i.e. market value increase under increasing complaint levels) create conditions for companies to avoid image decay and save costs by not attending to over-demanding consumers and costly problem-solving issues. We also argue that negative tradeoffs (i.e. market value decrease under increasing levels of complaints) destroy corporate and brand reputation as well as increase the speed and intensity of bad evaluation diffusion.
Previous studies looked deeply into the behavior and antecedents of complaints (Richins, 1983; Singh & Wilkes, 1996), and the direct linear effect on company market value (Chevalier & Mayzlin, 2006; Goldenberg, Libai, Moldovan, & Muller, 2007; Mittal, Ross, & Baldasare, 1998; Romani, Grappi, & Dalli, 2012). Beyond these previous contributions, our paper contributes to the literature by suggesting a non-linear effect of complaints on a company's market value. Intuitively, it seems evident that high levels of complaints are associated with poor financial performance, however, marketing research has mainly paid attention to the effects on customer experiences, especially at the customer satisfaction levels (Bernhardt, Donthu, & Kennett, 2000; Fornell, Mithas, Morgeson, & Krishnan, 2006; Luo & Homburg, 2008). In addition, studies have focused more on assessing consumer intentions (East, Hammond, & Lomax, 2008) or employee satisfaction (Bernhardt et al., 2000) and few have measured companies' financial performance (see Torres & Tribo, 2011 for one exception).
There has been a need to establish better metrics to measure how different marketing strategies affect a company's market value (Mintz & Currim, 2013; Srinivasan & Hanssens, 2009) and a growing trend has arisen where financial indicators are increasingly being applied to previous studies (Anderson, Fornell, & Mazvancheryl, 2004; Fang, Palmatier, & Steenkamp, 2008; Goldenberg et al., 2007; Luo & Homburg, 2008; Osinga, Leeflang, Srinivasan, & Wieringa, 2011). Lehman (2004) emphasizes that practitioners who want to be involved in the important decisions their businesses make should seek consistent links between strategies and financial indicators, in particular, those related to increasing shareholder value. Studies have used Tobin's Q Ratio as a parameter to calculate a company's market value and as a metric to evaluate the effectiveness of strategies (e.g. Fang et al., 2008). Therefore, the aim of our study is to explore the impact of a non-linear effect of complaint on company market value as measured by its Tobin's Q.
The empirical evidence to test our hypothesis was obtained from panel data collected from 2005 to 2013, from ANATEL, the regulatory agency that deals with all telecommunication issues in Brazil. ANATEL's website provides monthly data on the number of complaints made to the agency, broken down by cell phone service provider, since 2005. Complaints made to a third party agency is critical for a company's performance because consumers may have already complained directly to the company and to others (Cronin & Fox, 2010; Ruyter & Brack, 1993). We also collected data from the three main publicly quoted cell phone service providers in Brazil. These three cell phone providers that compose the data for the empirical test account for 72% of the market and were chosen due to their large client base and high number of complaints according to ANATEL records. Over 750,000 complaints related to these companies have been reported to ANATEL. This industry is also suitable for our study because of the highly competitive market and the relatively homogeneous products, which provide a context for negative consumer opinion to become relevant to distinguish one company brand from another. This context, resembling a homogeneous oligopoly market structure, has been theoretically shown to be an interesting setting to study complaint issues (Fornell & Wernerfelt, 1988). Finally, previous academic studies have focused mainly on the Northern Hemisphere context, especially the United States (S. W. Brown et al., 2005). Our study also adds to the literature by looking at the complaint issue in specific markets and in a developing country. The following sections will summarize the theory relevant to this research, the methods used, an analysis of the data, and a discussion of our results and conclusions.
Consumer Complaint and Company Market Value
There is a growing consensus that market value better captures the impact of consumer complaints (Luo, 2009; Luo & Homburg, 2008). Immediately after receiving bad service, consumers can, for instance, pass on a negative comment about the service by phone, in person or through online social networks (Bentivegna, 2002; Santos & Fernandes, 2011). Consumers tend to make great efforts to pass on the details of serious problems (Richins, 1983). Not all word of mouth is equal, and it depends on the proximity of the source to those involved, the source's influence and credibility and the characteristics of the network where the word of mouth is occurring (J. J. Brown & Reingen, 1987). A third party agency's credentials may further intensify the impact of complaints by simply collecting, sorting, and disseminating the issues to the general public (Ruyter & Brack, 1993). Depending on the agency's or consumer's influence in a given industry, there may be severe damage to the company's reputation and eventually to its sales. Complaints can give the company a chance to compensate for bad service or recover a lost sale, once the problem is properly identified and consumer trust is redeemed (Santos & Fernandes, 2008).
A seminal study on the nature of consumer dissatisfaction showed three dimensions by which consumers respond to a bad experience with a product or service (Singh, 1988). First, consumers may engage in voice response by seeking to redress the problem directly with the company. Consumers may want to have the product repaired or other compensation. Second, telling friends and relatives about the problem is also regarded as a dimension of customer dissatisfaction response. This negative word of mouth creates a remedy arousal that feeds back into future actions. Third, the response may also be materialized by filing a formal complaint report with a third party public or private agency. Reporting to agencies is considered a voluntary hard action while the other two response dimensions are considered easy choices (Singh & Wilkes, 1996). Feick (1987) posited that third-party responses are at a higher hierarchical level than voice and private, negative word of mouth. Furthermore, previous empirical studies have shown that when third-party responses happened it is because any kind of voice or negative word of mouth has happened before (Singh & Wilkes, 1996). Agency reports are objective and not driven by consumer intention to complain since it captures the actual fact that consumers have formally complained. Therefore, we isolate the third-party influence and focus on the impact of public records of complaints to assess the impact on company market value.
A common mistake made by managers is to not adequately measure financial results of their marketing programs, which undermines their overall company credibility (Mintz & Currim, 2013; Rust, Lemon, & Zeithmal, 2004). There is a relationship between customer satisfaction and generating shareholder value, which underlines the relevance of market value (Anderson et al., 2004; Gruca & Rego, 2005; Luo & Homburg, 2008). Several studies seek to establish empirical evidence about the impact of marketing activity on company financial indicators (e.g. Anderson et al., 2004; Sorescu & Spanjol, 2008). The underlying logic considers that customer satisfaction positively influences a company's...
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