How to Use Humor to Address Complainers Online

. A study published in the Journal of Interactive Marketing from October 2022, “,” investigates whether companies’ use of humor is an effective strategy to address complainers’ incivility on social media. The study used three main experiments to examine observers’ evaluation of companies’ humorous responses on social media in relation to the degree of incivility of the complaints. Finally, the study discusses the theoretical and managerial implications of using humor to address complainers online.

The Prevalence of Uncivil Complaints on Social Media

An uncivil complaint includes all forms of rude, disrespectful, condescending, or degrading complaints made by customers about a firm or an employee. The phenomenon of customer incivility is on the rise on social media because of the anonymity associated with online environments. There are several . Many people are more willing to issue a complaint online that they might not offer up verbally in real life. So, how can marketers go about addressing these uncivil complaints? 

Is Humor an Effective Strategy for Addressing Complainers Online?

The study found that observers develop higher purchase intentions toward companies that use humor to respond to uncivil complaints. The authors of the study explain that observers are less committed to uncivil complainers, which makes the use of humor amusing and benign. Second, the study compared the effectiveness of humor compared to other types of responses, like an apology and explanation. 

How to Respond to Complainers On Social Media

Every marketer should know how companies can de-escalate angry customer complaints on social media. There are two primary strategies to take when replying to a complainer on social media from a brand account. The first strategy is by apologizing. The second strategy is humor. 

According to the study, when the complaint is civil, an accommodative recovery like an apology and an explanation is a more effective strategy than a humorous response. 

However, when the complaint is uncivil, affiliative humor is more effective and tends to gain higher engagement and higher purchase intentions. These findings can help social media marketers determine how to write responses to impolite responses to brand accounts on platforms like Facebook, Twitter, TikTok, LinkedIn, Google Business Profile, and Instagram. 

Example of How to Respond to Complainers on Social Media

Let’s take a look at an example of how to respond to complainers on social media. This example comes from the study. These two examples present two responses from Virgins Trains to customers’ complaints posted on social media, and specifically, Twitter. 

[Example A] 

@Twitter User: “Always f***ing up, f**k you and your stupid trains. 

@Virgin_TrainsEC: Oh I’m soooo sorry, no reaaaaaallly I am – I forgot that we poured  gallons and gallons of rain onto the tracks!” 

[Example B] 

@Twitter User: “When Virgin trains mess up and the older male train manager in the  resulting conversation dismisses you with that hideously patronising word women shudder  at in contexts such as these: ‘honey’.” @virgin TrainsEC. 

@Virgin_TrainsEC: “Sorry for the mess up Emily, would you prefer ‘pet’ or ‘love’ next  time?”

While both of these responses adopted a humorous tone in an attempt to amuse people, the reactions to each reply were very different. For Example A, Virgin Trains received large approval from followers in the form of thousands of likes and retweets. However, for Example B, the company was accused of being misogynistic and their tweet actually generated a “bad buzz.” The “bad buzz” ultimately led the company to delete the tweet and make public apologies. 

For Example B, Virgin Trains’ social media managers probably would have received a more favorable response to responding with an apology or providing an explanation rather than trying to be funny. 

These two examples illustrate that the use of humor on social media to address complainers can provide a real opportunity. However, it can also turn into a costly public crisis. 

How to Use Humor When Addressing Complainers Online

The key is to know when humor is appropriate versus when an apology is a safer strategy. Unfortunately, academic research does not provide many insights into knowing when humor is a beneficial tactic for observers or when humor should be rejected in favor of an apologetic and accommodative recovery. The right response to a negative comment to a brand might depend on the social media platform, the timing of the social media post, the seriousness of the complaint leveled against the brand, and other factors. Ultimately, it is the judgment of the social media marketer to make a decision on how to respond to complainers on social media. 

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When Unilever acquired GROM, an Italian gelato company, 83% of consumers polled by a newspaper described the acquisition as “bad news.” This reduced consumer interest led to the closure of several GROM retail outlets, including the ice cream maker’s first store, four years after the acquisition. Similarly, consumer ratings for The Body Shop, a cosmetic brand, plummeted after L’Oréal acquired it.

Companies often engage in mergers and acquisitions to expand their portfolio and generate growth – the global value of acquisitions amounted to $2.3 trillion in 2019, according to JP Morgan – but there is plenty of anecdotal evidence suggesting that brand acquisitions can potentially generate negative reactions among consumers. Yet little is known about when and why brand acquisitions might trigger these negative reactions.

In a , we show how consumers develop negative reactions towards acquired brands in terms of lower brand choice and reduced purchase likelihood. We find that, across product categories, consumers often see an acquired brand as having compromised the authentic values upon which it was founded. This perception is triggered not only when a big company acquires a smaller one, but also when the sizes of the acquirer and acquired brand are comparable. Furthermore, the negative effect appears even in the case of partial acquisition (for example, 15% of ownership).

Conditions that Attenuate the Negative Effect of Acquisitions

Across ten studies using different methods, research designs, product categories, and brands, we demonstrate that negative brand reactions can be explained by the perceived loss of a brand’s unique values. Building on this values authenticity account, we find that the negative effect of acquisitions depends on the acquired brand’s values, brand age, leadership continuity, and the alignment between acquiring and acquired brands. The conditions that attenuate the negative effect of acquisitions are as follows:

• Consumers develop a lower purchase intention when a previously acquired brand is acquired again by another company, as the original values may have already been diluted during the first takeover.
• Consumers seem less concerned when the original leadership team remains in charge after the acquisition because this may act as a reassurance that the authentic values are retained.
• Consumers react less negatively if the values of the acquirer brand align with those of the acquired brand. For example, the negative effect is mitigated if a brand that produces sustainable products is acquired by a brand with sustainability as a core value.
• Consumers react less negatively when the acquired brand has been established with a strategic orientation towards growth. In these cases, they don’t see the takeover as a loss of the brand’s authentic values. For instance, many start-ups are founded with the desire to get bigger and many communicate this in their statements (e.g., Bill Gates often mentioned his vision to have a “PC on every desk in every home”). Sometimes founders even invoke growth values as the reason for selling the company (e.g., the founder of Dot’s Pretzels explained the acquisition by Hershey’s in November 2021 by saying she had “built the business with the idea of sharing them with everyone.”)
• Consumers react less negatively if a young brand is acquired. Consumers consider the acquisition of a younger company less disruptive of values authenticity. Conversely, for older companies with a set of values crystallized over decades – or even centuries – we find a more severe negative effect.

Managerial Implications

Before the acquisition:

• Managers should examine the target brand’s communications and identify whether the vision statement, advertising, social media accounts, and other forms of branding contain any references to growth or reaching a broader range of customers. Such cues may make the acquisition process more favorable in the eyes of consumers.  Targeting brands aligned with the acquiring company’s core values and making this alignment salient can benefit the acquisition process.
• Similarly, scouting for young, promising brands could prove beneficial, potentially giving the acquirer an aura of patronage and a reputation for investing in nascent businesses.

After the acquisition:

• Managers should carefully plan how to effectively frame acquisition announcements. If the founders/original owners will not be involved after the acquisition, managers may want to consider retaining long-term employees and highlighting this in communications.
• When the acquirer has values that align with those of the acquired brand, highlighting this can boost perceptions of the acquisition and nurture the acquired brand.
• If there is no strong alignment of values between the acquirer and the acquired brand, we suggest managers focus on other aspects that can benefit from the acquisition. For example, an acquirer could highlight an increase in R&D facilities or a potential increase in product quality.

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From: Alessandro Biraglia, Christoph Fuchs, Elisa Maira, and Stefano Puntoni, “,” Journal of Marketing.

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71% of PwC’s “Complexity of Trust” study respondents said they would buy less from a business that lost their trust. Out of that, 73% said they would spend significantly less.

Privacy is now a top consideration and focus for organizations. Any business that is data-driven, that requires personal data to be processed, needs to prioritize data privacy and have a thoughtful perspective on how data is collected and used.

Customers may provide less data, but at the same time expect an organization to deliver relevant and personalized experiences. This is a challenge for all businesses: to have a benefit-driven conversation with customers, led by privacy.

The Customer Data Platform (CDP) is the main enabler for this privacy-driven personalization.

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While bringing your brand to life may sound difficult, it is easier than you might think. Keep the following five tips in mind to create a more successful brand activation on any budget. Then, download your free eBook filled with at the end. 

What is Brand Activation? 

“Brand activation” is an immersive marketing strategy that utilizes events, campaigns, and activities to generate brand awareness, boost customer loyalty, and build lasting connections with target audiences. Most brand activations are in-person experiences with hands-on, branded activities for people to participate in.  

The biggest goal of hosting an activation is to elevate your brand. Fostering engagement through immersive experiences is one of the smartest ways to make your brand more meaningful, recognizable, and trustworthy to your target audience. 

Brand Activation Examples and Ideas 

Done right, brand activations can nurture business opportunities and build long-term customer loyalty. Types of activations include the following: 

• Experiential Marketing: Strategies that foster brand engagement through immersive experiences.  include fun challenges, social media contests, interactive booths, and memorable displays. 

• Experiential Events: Social gatherings that allow organizations to promote their brand, products, and services in interactive ways.  include auctions, ceremonies, community events, conferences, festivals, fundraisers, lunch-and-learns, networking events, open houses, pop-up shops, and retreats. 

• Games and Activities: Playful experiences that actively engage prospects and customers. Examples include raffles, claw machines, photo booths, spin-to-win games, arcade-style games, and other sponsored activities. Read a full list of  here. 
  
• Samples and Free Trials: Free giveaways that delight prospects and give them the confidence to pay full price for your item. Samples are highly effective as they put your product or service directly in the hands of people who are likely to use them. Pair your sampling strategy with a useful demonstration or feedback survey. 

Remember, the best activations help bring your brand to life. Use them to draw the attention of new audiences and reengage existing ones. You will find that memorable event experiences leave people wanting to interact with your brand in the future (which, in turn, will boost event ROI).

Brand Activation Strategy Tips to Make You Stand Out 

1. Meet your target audience where they’re at.  

Knowing your audience, their challenges, and their passions can help take a “good” marketing activation to a “great” one. That’s why it’s a good idea to do research ahead of time and position yourself where your customers already spend their time.  

Reach out to popular events in your area that draw in your target customer base. Then, find ways to engage with the audience using an experience they’ll enjoy. For instance, an audience of social media enthusiasts will love a photo-worthy backdrop or interactive photo booth experience for them to use.  

2. Use marketing activation to solve customer challenges. 

What are the top challenges that your customers experience? Create a list, then find interactive activities that can prove to them that your offerings can help. For instance, if your brand sells athletic gear, set up a “misting station” at the end of a marathon, then give out branded water bottles to runners.  

Not only will you hydrate them after the race, but you’ll also provide a gift that helps prospects recall your brand long after the event is over. Highlighting the need for a product through a creative brand experience is both strategic and effective. Your mission is to help people realize they need your products or services without being overly “salesy.” 

3. Use social media marketing to improve brand recognition. 

is your best friend! Amp up your social presence at events by pairing your brand activation with trending social media concepts to expand your brand’s reach. For example, while exhibiting at a trade show, create a custom Snapchat geofilter or lens for your booth. Encourage visitors to post their photo to social media using the event’s official hashtag.  

The size of the area that your geofilter covers as well as the duration of your geofilter will impact how much you’ll pay. Costs start as low as $5 per day. In addition to your filter, create an on-site TikTok video of people participating in your brand activation. Don’t forget to use trending hashtags to help circulate the video to new viewers. 

4. Delight customers with an unexpected activity or theme. 

Don’t be afraid to do something weird, silly, or completely unexpected when designing brand activations. Consumers are more likely to remember an odd yet satisfying experience than a “run-of-the-mill” event experience. Draw attendees’ eyes to your booth and intrigue them enough to participate. 

The best activities will surprise, delight, and grab your audience’s attention. For example, instead of handing out food or beverage samples at a table, try setting up a makeshift “food truck” display or a picnic-themed booth. Play into your theme with a photo spot and social media hashtag. 

5. Use brand activation campaigns to promote your brand’s values. 

Consumers love brands that take a stand on their beliefs and values. If your organization is passionate about a cause, use brand activations to highlight what matters to you most. For instance, if your organization values sustainability, provide reusable stainless steel straw sets, recycled cotton tote bags, or other eco-friendly gifts to those who book a demo or make a purchase.  

Not only will this gesture create awareness for the environment, but it will also highlight your brand’s dedication to hosting or participating in No matter your organization’s values, provide that tie into your mission. 

Our Free eBook on Marketing Tactics: Download Yours 

While brand activations are exciting, they are just one piece of the marketing strategy puzzle. Our free eBook on covers a variety of useful topics, including how to formulate buyer personas, build brand loyalty, boost web traffic, generate sales leads, and strengthen your marketing strategy.  

Create an Unforgettable Event Experience 

At pc/nametag, we believe meaningful connections are forged through shared experiences. We are constantly looking for new and innovative ways to create a more connected and inclusive world through socially conscious products and services.    From high-quality identification items like name badges, lanyards and ribbons to our unrivaled printing and assembly services, we go above and beyond to become an extension of your team and help deliver delightful experiences to your audience and attendees. Visit to learn more today.

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We document this phenomenon in multiple studies conducted in the lab and in the field with U.S. and European participants. In some studies, we analyzed consumers’ satisfaction with their actual past purchases and measured their political identity on a nine-point scale (1 = “extremely liberal” to 9 = “extremely conservative” in the U.S. and 1 = “extremely left-wing” to 9 = “extremely right-wing” in Europe). We found that a one-point increase in consumers’ political conservatism was associated with a 5% average increase in their satisfaction with actual purchases. In other studies, we created an identical product experience that conservatives and liberals consumed during the study. Specifically, conservatives and liberals consumed the same online instructional videos about how to complete various tasks at home (e.g., exercise from home). Such videos skyrocketed in popularity during the COVID-19 stay-at-home period when we conducted the study. We found that conservatives were more satisfied with this consumption experience than liberals.

In another set of studies, we analyzed actual customer satisfaction data obtained in the field, such as online reviews and firms’ customer satisfaction surveys, spanning various product and service categories including restaurants, airport travel, health insurance, and B2B services. Regardless of the context or category, we found that conservatives are consistently more satisfied than liberals. Importantly, higher levels of customer satisfaction drive conservatives’ higher likelihood to re-purchase the products and services they consume and to recommend these products and services to others. This ultimately translates to higher firm sales. 
 
We find that conservatives are consistently more satisfied than liberals because conservatives believe more strongly in free-will and their personal responsibility for their actions and outcomes. This leads conservatives to trust their purchase decisions more and to ultimately feel more satisfied with the products they choose to buy and consume than liberals do. In other studies, we found that restricting conservatives’ choice freedom lowers their satisfaction levels. However, strategies that boost liberals’ confidence in their purchase decisions boosts their satisfaction levels. 
 
These results have important implications for firms. First, by understanding the political identity of their customer base, companies can improve and better manage the satisfaction of their clients. For instance, because conservatives believe in free will and individual responsibility, providing them with abundant choices further boosts their level of satisfaction. Indeed, in one study we found that conservatives’ (vs. liberals’) online restaurant reviews were even higher when there were abundant restaurant options nearby. In contrast, liberals’ satisfaction can be increased through tactics that boost their confidence in their consumption choices. For example, increasing perceptions of the positivity of the consumption experience, or category expertise, raises liberals’ customer satisfaction. This also means that companies should pay close attention to service and product failures that create negative experiences for liberal clients because liberals’ dissatisfaction in these cases may be particularly pronounced. 
 
More broadly, accounting for customers’ political identity in analyses and interpretations of customer satisfaction data such as online reviews can benefit firms because customers’ political identity could bias customer analytics. Indeed, accounting for the role of political identity in satisfaction data can help companies better understand the extent to which their satisfaction data reflect actual product performance and customer service rather than their customers’ inherent tendency to feel content. This can ultimately help companies craft more effective strategies to improve their products and services. 

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From: Daniel Fernandes, Nailya Ordabayeva, Kyuhong Han, Jihye Jung, and Vikas Mittal, “,” Journal of Marketing.

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The importance of customer satisfaction in competitive markets has been well documented in academic research. Satisfied customers bring in higher profits for a firm by increasing demand for the firm’s product or service, reducing customers’ price sensitivity toward the offerings, and reducing related costs. Businesses operating in competitive markets have embraced these findings, and many firms consider improving customer satisfaction a top priority. However, little is known about how customer satisfaction affects the financial performance of firms in monopolistic markets, which are characterized by limited demand potential for firms and limited choice of the product/service providers for customers. Thus, a question remains: should monopolistic markets such as utility firms also invest in customer satisfaction?

To answer this question, Abhi Bhattacharya, Neil A. Morgan, and Lopo L. Rego the relationship between customer satisfaction and profits earned by utility firms operating in monopolistic markets. Using customer satisfaction data obtained from the American Customer Satisfaction Index (ACSI) of U.S.-based public utility firms between 2001 and 2017, the authors demonstrate that customer satisfaction is positively related to utility firms’ profits because customer satisfaction helps decrease utility firms’ operating costs incurred by serving their customers. Specifically, utility firms that have higher customer satisfaction benefit from cost savings achieved by addressing fewer customer complaints. Moreover, these firms can more easily implement operational and technological changes, facilitated by increased customer trust and goodwill.

Their study has important implications for utility managers, policy makers, and regulators. The results suggest that utility managers should have a cost-based motivation for tracking and improving customer satisfaction to enhance profitability. For example, for the average utility firm in the sample, a one-unit (on a 100-point ACSI scale) improvement in customer satisfaction is associated with a $29 million reduction in operating costs per year. In addition, the authors show that, considering that improving customer satisfaction is a “win-win” deal for both customers and utility firms, policy makers and regulators could also benefit from placing a greater emphasis on helping utility firms improve customer satisfaction. For example, regulators can encourage utility firms by allowing investments in customer satisfaction to be recoverable and require the collection and reporting of customer satisfaction data. In summary, firms with the luxury of a monopoly can still benefit from the positive impact customer satisfaction in terms of profitability. In addition, the study provides an evidence-based, and monetarily incentivized reason for stakeholders of monopolistic firms to track and invest in improving customer satisfaction for enhanced profitability through its efficiency enhancing benefits.

We reached out to the authors to gain additional insights from their study.

Q: Considering that research at the intersection of relational assets such as customer satisfaction and firm performance in monopolistic markets is in its early stages, can you suggest which other firm performance outcomes could be examined in future research?

A: It is indeed true that the role of satisfaction in monopolies has not previously been examined. In fact, in most satisfaction studies monopolies are deliberately omitted from the sample, as it was considered very unlikely to be of any importance in such markets. We think that investigations of a variety of performance outcomes may be of value in such monopolistic markets. For instance, most utilities are publicly traded and do spend on both marketing and R&D (though it may not necessarily be reported in 10-Ks). Does the stock market value such investments? Further, since customer attrition is minimal, would there be any demand side factors that would lead to greater sales volatility or risk? It might be particularly interesting to look at both customer mindset dependent variables (such as brand value and satisfaction) as well as financial market dependent variables (such as investor returns) when a firm’s monopoly status is under threat or even when competitors start entering the market. For example, firms such as Netflix and Uber enjoyed brief but substantial monopolies in streaming services and ridesharing, respectively, but competitor firms soon entered those markets and disrupted their monopoly status.

Q: As discussed in the article, most public utility firms operate in one state. Given such strong geographic roots, one can expect that community-focused investments made by utility firms are significant drivers of the satisfaction of their local customers in addition to the traditional strategic drivers such as price, quality, and value. What  other factors could potentially drive relational assets of utility firms in monopolistic markets?

A: We agree that corporate social responsibility initiatives and other altruistic community-focused activities could indeed be a source for customer satisfaction in such markets. In energy markets, a commitment to sustainability and healthy environmental practices are typically much appreciated by at least some segments of their customer base. Further, we expect (but do not know yet) that continual innovation and engagement in customer-centric practices would also be key to customer satisfaction. Given our result that satisfaction is indeed important (profitable) for monopoly firms, we would expect such firms to engage in (and benefit from) most activities that firms in normal competitive markets do. In fact, other than trying to prove that a firm’s product offering is superior to a competitor, a lot of utility firms already take many steps to ensure greater customer satisfaction, including streamlining payment interfaces and increasing customer knowledge about sustainable practices through webinars, etc. The interesting wrinkle in monopolistic markets, however, is that all of the benefits to the firm flow via cost savings. Thus, the cost of any drivers of satisfaction that a monopolist invests in will need to be recouped via customer responses that allow them to operate more efficiently.  

Q: Recent research has examined the asymmetric effects of customer satisfaction and customer dissatisfaction and has found that the latter has a stronger impact on firm performance. However, as discussed in your research, customers of utility firms in monopolistic markets either face high switching costs or do not have the option to switch when dissatisfied. Given this, please share your views on whether and how customer dissatisfaction could impact firm profitability differently than customer satisfaction for such firms?

A: In our data, we found satisfaction levels to be generally on the lower side (vs. other industries) for utility firms. We also did not find any evidence for asymmetric effects at the aggregate level. However, the question is interesting. In competitive markets, customers can switch to a competitor, but that is not the case in monopolies. However, sufficient customer dissatisfaction can incur regulatory appeals and consequent reprimands, which might be a threat to monopoly status. Unfortunately, given that we study (mainly) large established utilities we do not find enough variance in the satisfaction–dissatisfaction spectrum to trigger an asymmetry. However, at an individual customer level, it is likely that dissatisfaction creates a greater impact. To an extent, we do find that service failures (whether or not due to natural causes) create a strong dissatisfaction wave and a string of complaints.

Q: Do you expect any difference of cross-sector customer satisfaction returns between firms operating in competitive markets and firms operating in both competitive and monopolistic markets (e.g., utility firms that operate in both)?

A: We controlled for such diversification, and the extent of diversification among utility firms in noncompetitive markets was not substantial. However, in competitive markets both satisfaction pathways (i.e., through increasing revenue and decreasing costs) should be operative. Given this, we would expect returns, on average, to be higher in competitive markets. However, this may vary a great deal depending on the opportunity for operating cost savings from increased satisfaction. For example, this may be greater for firms dealing directly with end-user customers versus those selling indirectly. It may also be larger in service contexts than for physical goods. The whole “efficiency-enhancing” benefits of satisfaction (and in fact all market-based assets) have been largely ignored in empirical research across all types of markets (including competitive ones). For utility firms , which are typically tied up in energy markets, it might not be easy to diversify much in unrelated markets due to a lack of sufficient market knowledge. However, firms such as Google, which enjoys a near monopoly in the search engine market, have diversified successfully and continue to reap gains in multiple arenas.

Q: Your research focused only on residential customers of utility firms because of the availability of data. Do you expect similar effects of customer satisfaction on the profitability of utility firms for their commercial and industrial customers?

A: We focused on residential customers since we only had data on satisfaction from them. However, to the extent that satisfaction is dependent on product quality and/or price, we believe that such a relationship does exist for industrial customers as well. While industrial customers may be more “rational” in decision making, we do know from past literature that satisfaction matters there, too. Hence, we do expect the same relationship to hold across the range of customer types. Depending on the size of the industrial customer, they may also have greater power to cause cost-increasing downsides (appeals to regulators) or cost-saving upsides (co-operation in demand limiter use) for a utility depending on their satisfaction.

Q: Do you think the findings of the current research on public utility firms in highly regulated monopolistic markets apply to other types of monopolistic markets? For example, are the effects similar in monopolies caused by high economic barriers (e.g., economies of scale, technological superiority), or by legal barriers (e.g., intellectual property rights such as patents and copyrights)?

A: This is a great question and really one for future research. There are certainly monopolies of different types, geographic scale, and even extent (i.e., strong market power but not enough to qualify a firm as a monopoly). Then there are duopolies and everything in between. We think (and we ran some preliminary studies in airline markets) that the satisfaction–service cost relationship holds in all service markets, but we do not know a priori how the value of satisfaction changes depending on the type and/or extent of a monopoly. We believe that the satisfaction–revenue pathway may attenuate as the amount of switching costs in a market increase, since the value of customer loyalty becomes lower; however, the satisfaction–cost pathway may remain largely the same.

Additional Author Insights

A striking implication of our study is that a fundamental assumption in regulatory economics—that monopolist and customer incentives are misaligned is incorrect in this unique context (at least it is incorrect in markets with current regulatory regimes in place). This creates a broader salient question as to whether and how customer satisfaction should be incorporated into regulatory controls. We think this could be a potentially significant move forward in designing more effective and efficient regulatory regimes (which are, after all, designed to protect customers).

Read the full article:

Bhattacharya, Abhi, Neil A. Morgan, and Lopo L. Rego (2021), “,” Journal of Marketing Research, 58 (1), 202–22.

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However, M&As typically lead to poor financial results. This has been explained by overpayments as a result of optimism regarding synergies and cost efficiencies. However, a shows that a key reason for the failure of many M&As is due to customers’ dissatisfaction with the M&A process.

So, why do M&As harm customers? M&As are incredibly expensive, complex, and heavily scrutinized by investors. Further, M&As are often paid for by corporate debt. As a result, executive attention is diverted to the price of the deals, capital requirements, paying back debt providers, and appeasing investors. In the process, customer experience is underinvested in, or even overlooked. We demonstrate that during M&As, executives turn their attention away from customers and toward financial and debt-related issues, which then harms the customer experience and satisfaction.

How does this turn of attention by the firm affect customers? First, M&As often result in layoffs to reduce redundancies, which, while beneficial from an efficiency perspective, harms the customer experience. The remaining employees that are not laid off are likely to be stressed and their dissatisfaction with a major corporate shake-up negatively affects customers and the service they experience. Second, firms may either change or consolidate procedures such as credit policies, payment terms, and loyalty programs during an M&A to minimize the complexity of managing two separate systems. While these actions may be efficient, customers are likely to see their hard-earned privileges curtailed or taken away. Third, firms may consolidate products and brands or eliminate them altogether, resulting in customers’ loss of preferred products and brands. In fact, customers defect even before they know exactly how an M&A will affect them. Customers who face poorer service, a loss of privileges, and a loss of favorite brands and products will feel negatively about their relationship with a post-M&A firm. 

To demonstrate the financial impact of M&As due to customer dissatisfaction, we compared the firm value of M&A and non-M&A firms due to differences in customer satisfaction and firm efficiency. Compared to that of non-M&A firms, the customer satisfaction of M&A firms was 1.14% lower a year after the M&A. In contrast, compared to that of non-M&A firms, the efficiency of M&A firms was .29% higher in the same period. We found that the value of M&A firms was 2.43% lower than the non-M&A firms a year after the M&A, which translates into a loss of $481 million for the average firm in our sample. Although firms may be motivated to pursue an M&A to exploit scale-related synergies that provide cost-benefits, we show that efficiency gains fail to compensate for customer dissatisfaction-related financial losses.

Thus, it is essential for firms to allocate some of their attention to customer-related issues. The financial payoff of such attention is meaningful. We find that M&A firms that pay greater attention to customers relative to financial issues experience a 45% reduction in loss of firm value from the M&A. Executive attention to customers can help firms significantly reduce M&As’ damaging effects on customer satisfaction and firm value. 

A potential remedy is to have a marketer on the board of directors, which can reduce customer dissatisfaction from an M&A and thus increase firm value. Given that a marketing leader is a custodian of customer interests, he or she provides marketing-related advice to the board and the executive team, which ensures that firm strategies are customer-centric. We find that during an M&A, marketers on the board help minimize a depletion of executive attention on customers and marketing-related issues, which then lowers customer dissatisfaction. We find that the value of a firm with just one person with a marketing title on the board in the post-M&A year was 4.28% higher compared to firms that did not have any marketing representation. Adding these board positions is not trivial, especially during an M&A process. However, the financial consequence of not having marketers on the board during M&As is severe. 

Overall, executives and M&A consultants must make customers (in addition to investors, banks, and regulators) part of their conversation when considering engaging in an M&A.

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Read the authors’ slides for sharing this material in your classroom.

From: Nita Umashankar, S. Cem Bahadir, and Sundar Bharadwaj, “,” Journal of Marketing.

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A reveals a dark side to these benefits. Our research findings emphasize to managers that it is important to consider customer effects (e.g., potential loss of customer focus and reduction in customer satisfaction) of firm lobbying. These effects are surprising given that lobbying has been shown to have positive accounting and financial market returns, with some evidence that these returns can be even higher than returns to investment in activities such as R&D. Investors view lobbying as favorable toward market value projections and it can signal critical firm influence when policies that affect them are being debated. However, to date, these assessments of lobbying’s benefits have been conducted absent consideration of the firm’s customers. Our findings show this is a significant oversight.

In an investigation of the lobbying effects on customer outcomes, our research team finds that increased lobbying spending leads to decreased customer satisfaction, which in turn reduces the effect of lobbying on firm value. Yet, it is unclear if customers are aware of a firm’s specific lobbying efforts. Because of this, our team took a close look at what is happening inside the firm that causes increased lobbying spending to reduce customer satisfaction. Our research shows that lobbying leads to a loss of customer focus. That loss of customer focus can reduce customer satisfaction. This is an important finding for firms because it reveals an unintended customer consequence of lobbying.

Our longitudinal analysis of firms shows that when accounting for customer satisfaction loss, the benefits firms otherwise receive from lobbying can be reduced. So, what, if anything, can firms do to prevent or minimize such losses? Our research shows several marketing-focused moderators can shift firm attention back to customers and reduce customer satisfaction losses from lobbying. First, firms with a marketing CEO suffer less customer satisfaction loss from lobbying. A CEO with a marketing background (as opposed to a CEO with some other functional area expertise) understands the need to monitor customer expectations and create customer value and thereby can align firm lobbying efforts with customer priorities. Firm spending on marketing-focused activities such as R&D and advertising also helps reduce customer focus loss. And finally, when firms lobby specifically for product market issues, they experienced reduced customer satisfaction loss. Taken together, these mitigating forces reveal that if firms choose to engage in lobbying, those efforts should be either aligned with customer-focused activities or counterbalanced by customer-focused resource allocations. 

We advance public policy implications from our results as well. Public sentiment suggests a growing distaste for lobbying and close ties between business and government. Our findings suggest that greater limits may be warranted in some areas to promote positive customer outcomes. Although counterintuitive, greater lobbying limits may work to benefit firms by redirecting focus to customers and by improving the quality of the firm’s long-term customer outcomes. 

Regardless of whether greater limits on lobbying are imposed, our study supports the need for continued disclosure mandates. Due to the Lobbying Disclosure Act, customers, special interest groups, advocates, and researchers can better understand the role of lobbying in modern business practice. Although this reporting necessarily creates a burden for firm compliance, it may have the unexpected benefit of showcasing when firms lobby for product market issues, which as we note can reduce otherwise negative effects on customer satisfaction.

In summary, lobbying is a source of firm spending that can have a negative connotation, even though finance and economics fields have demonstrated the positive effects of lobbying for firm performance. Our investigation sheds light on a critical dark side and reveals that the firm’s focus on customers may be diminished when it also lobbies. Firm focus can be reoriented to customers, but doing so requires intentional, marketing-focused efforts. We highlight those efforts and explain their implications in the full study.

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Read the authors’ slides for sharing this material in your classroom.

From: Gautham Vadakkepatt, Sandeep Arora, Kelly Martin, and Neeru Paharia, “,” Journal of Marketing.

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Listen to the authors present their findings (source: July 2021 JM Webinar)

Irrespective of wage cuts and employee layoffs, the wages of top managers rose to record levels during the pandemic and wage inequality continues to grow worldwide. However, according to a 2015 OECD report, “wage inequality is harmful to long-term economic growth and undermines societal cohesion.” This situation raises the question: Do firms have an incentive to raise wage inequality?

A new addresses this question by examining the impact of wage inequality on customer satisfaction and firm performance. Our research team surveyed more than 100 top sales and marketing managers in public firms selling to businesses in three countries. We analyzed their responses and company financial data to understand how wage inequality impacts customer satisfaction and firm performance.

Results show that unequal wages between top managers and employees can boost the short-term profitability of a firm. In the long run, however, this benefit fades. What persists is that wage inequality motivates employees to exploit customers and weakens a firm’s customer-oriented culture, thereby harming customer satisfaction.

How does this happen? In firms with high wage inequality, there is a strong incentive for employees to work hard to reach higher paying positions in management. But in the process, our findings show that they are more likely to engage in opportunistic behaviors and also collaborate less with coworkers. For example, to enhance her chances for promotion, an employee might show more effort by interacting with customers more frequently to better understand and fulfill their needs to boost sales. By contrast, she could also distort facts about products to close deals more quickly.

Non-customer-facing employees could also be affected. Take, for instance, an R&D employee. He could interact with customers more often to learn and adapt innovations to their needs to increase sales. Conversely, he could also design products to fail to force customers to buy a product over and over again.

At the same time, wage inequality might also weaken collaboration among coworkers. An employee who worries about advancing to the next higher level is less concerned about her coworkers. But less collaboration impairs the flows of information and knowledge about customers throughout the firm. This, in turn, can lead to worse coordination between departments. Ultimately, the firm becomes less responsive to the changing needs of customers. We find that wage inequality weakens the customer-oriented culture of a firm.

Our findings show that wage inequality does raise the firm’s short-run profits directly. However, the adverse impact wage inequality has on opportunism and customer-oriented culture ultimately extends to customer satisfaction and reduces these short-term profits although the effect remains weakly positive.

We find this weak positive effect on short-term profitability holds in a different sample with more than 500 observations of U.S. firms selling to consumers. But when we analyzed how wage inequality plays out in the long run, the situation reverses. The harm that wage inequality costs to customer satisfaction siphons away positive benefit of wage inequality. In sum, a firm sees no profitability lift from wage inequality in the long run.

Do firms have an incentive to raise wage inequality? In terms of bottom-line impact, the answer is: “Yes” in the short run and “No” in the long run. However, when looking at the customer impact, the answer is “No” because of the negative impact of wage inequality on customer satisfaction, which weakens firm profits.

What can managers learn? If you aim for short-term profitability, go with higher wage inequality but keep an eye on the types of negative employee behaviors that can hurt customers and your firm’s customer-oriented culture—and ultimately weaken customer satisfaction. If you are interested in the long-term success of your firm, consider reducing wage inequality to help your team orient toward customers instead of competing for more wages.

What can shareholders learn? Suppose that you care about the long-term profitability of your investment. In that case, make sure to reward top managers for achieving sustainable profitability and good customer relationships.

What can policymakers learn? Wage inequality is not in a firm’s long-term interest. This argument can help to create a consensus with managers to restrain wage inequality. However, short-term-oriented managers might care little about the damage wage inequality does to society. It thus might be necessary to disincentivize them from raising wage inequality.

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From: Boas Bamberger, Christian Homburg, and Dominik M. Wielgos, “,” Journal of Marketing.

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Customer satisfaction continues to be one of the most deployed metrics by marketing executives to measure the quality of their customer-firm relationships. Extant research in marketing has broadly reached a consensus regarding the positive effects of customer satisfaction on a variety of customer mindset-based (e.g., attitudinal loyalty), product market-based (e.g., revenue), and accounting-based (e.g., profitability) firm performance outcomes. However, research findings for the effects of customer satisfaction on financial market-based outcomes such as abnormal stock returns are mixed and inconclusive. Furthermore, relatively little is known about the mechanisms through which customer satisfaction affects abnormal stock returns. This is an important issue because executives are answerable to the investors and must know whether and how investments in customer satisfaction initiatives and processes would generate above-market returns for investors.

Interestingly, a recent article by Ashwin Malshe, Anatoli Colicev, and Vikas Mittal tackles this important issue by introducing a novel mediating mechanism of short interest, a measure of short seller activity. The authors compile longitudinal data from 273 United States based firms from various public and proprietary sources and undertake a rigorous examination of the effects of unexpected changes in customer satisfaction and dissatisfaction on abnormal stock returns. They find that an unexpected change in customer satisfaction and dissatisfaction both significantly impact abnormal stock returns, and the effects are fully mediated through short interest. The results also indicate that there are asymmetric effects of customer satisfaction and dissatisfaction on short interest, and customer dissatisfaction is more consequential for firm’s financial market-based performance. The authors also identify two conditions when such effects of customer satisfaction are more relevant for firms. Their findings indicate that such effects are more relevant for firms with lower capital intensity and firms that operate in industries with lower competitive intensity. This is because firms with lower capital intensity have higher flexibility to leverage growth opportunities associated with an increase in customer satisfaction, and customer satisfaction as a resource is less imitable by competitors in industries with lower competitive intensity.

This study’s findings offer valuable guidance for executives for correctly assessing the value relevance of customer satisfaction. Executives would benefit from incorporating short interest of their firm’s stocks to assess the impact of customer satisfaction on abnormal stock returns. This would prevent potential underinvestment in customer satisfaction improvement efforts, reducing the likelihood of undesirable customer outcomes such as customer defections and negative word-of-mouth. Considering the evidence for more pronounced impact of customer dissatisfaction, executives would benefit from making investments targeted at mitigating customer dissatisfaction followed by or in addition to investments targeted at increasing customer satisfaction. Previous research also shows that mitigating dissatisfaction is not only cheaper but also more effective for customer retention. Overall, the findings for the significant effect of customer satisfaction on abnormal stock returns provide further justification for firms to continue investing in customer satisfaction for term firm performance benefits.

Considering such substantive implications and recent events that have heightened public interest in short selling, we reached out to the authors to know more about their inspiration to study customer satisfaction and gain additional insights about their study.

Q: Your paper introduces a novel mediating mechanism of short interest in the relationship between customer satisfaction and abnormal returns. What inspired you to study from the short seller perspective, and can you give us some insight into how that idea came to be and evolved?

A: The research idea started with an observation that the short-term impact of customer satisfaction on abnormal stock returns is essentially zero, even though the long-term positive impact has been supported by previous research. This pattern provided evidence that stock market investors likely overlook changes in customer satisfaction in the short term. However, there are some sophisticated investors in the stock market who understand the value relevance of the consumer mind-set metrics such as customer satisfaction. In 2017, when the research project was started, the financial press had begun to focus on the use of alternative data by hedge funds and short selling accounted for an estimated 25%-30% of trading volume on NYSE and NASDAQ. The focus on short sellers is important because short selling is risky and needs skills and sophistication to profit, indicating that short sellers have higher motivation, ability, and opportunities to detect, process, and utilize information advantage from metrics such as customer satisfaction.

Q: Could you please share with us some insight about the mediating roles of different investors’ behavior in the relationship between marketing assets and stock returns? Is it important for managers and researchers to treat investors differently?

A: Executives and researchers will benefit from understanding the different motivations and goals of different investors. Long-term investors such as pension funds and mutual funds are likely to have an amenable relationship with a company’s top management team and tend to be dependent on the management for information. Activist investors, however, often take an adversarial stance against the incumbent management but may install new management that works with the activist investors. Finally, most, if not all, managers dislike short sellers because short sellers hope to benefit from a decline in the firm’s stock price. This makes short sellers highly independent from a firm’s management because they have opposing goals. As such, short sellers have a strong incentive to be objective while evaluating the firm’s operations and strategies.

Q: What are the main takeaways you hope your audience (marketing practitioners, investors, and/or marketing researchers) will take from this paper?

A: For investors, this article presents new evidence that customer satisfaction and dissatisfaction can affect stock prices even in the short term. It will serve investors well to pay attention to the changes in these consumer mindset metrics in order to construct, balance, or rebalance their stock portfolio. For marketing researchers, the authors emphasize on the importance of understanding and examining the effects of customer satisfaction and customer dissatisfaction separately because many important strategic outcomes are likely to differ based on customer satisfaction and dissatisfaction. The starkly stronger asymmetric effect of dissatisfaction than satisfaction suggest that researchers are missing out on nuanced relationships by ignoring the asymmetry. Strategy research should examine how and when companies can benefit more from dissatisfaction mitigation efforts rather than satisfaction maximization efforts.

Q: The marketing–finance interface is an important research field in marketing. Could you please share with us some general thoughts about the field or recommendations for future research?

A: The marketing-finance literature will benefit from adopting machine learning (ML) models. Advances in computer vision and natural language processing have made it relatively easy to use unstructured data such as in company tweets, social media posts of multiple stakeholders, websites, and other forms of communication by them.

Read the full article: Ashwin Malshe, Anatoli Colicev, and Vikas Mittal (2020). “How Main Street Drives Wall Street: Customer (Dis) satisfaction, Short Sellers, and Abnormal Returns.” Journal of Marketing Research, 57(6), 1055-1075.

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