Build a Trusted Brand

Yes, customer reviews can increase shareholder value; here’s how

Thursday, 18 January 2024

In today's business landscape, shareholder value is a major objective, driven by higher sales, reduced customer acquisition costs, and an elevated stock price. Shareholder value is crucial because it determines the value of the company itself.

It measures a company's performance based on how well it can increase its investment value and is quantitative and qualitative. Simply, shareholder value is vital in attracting investors and lenders to a company. 

High shareholder value signals to potential investors that the company is a good investment opportunity, making them more willing to offer their capital.

On the business side, traditional strategies to increase shareholder value focus on boosting profits and returns. 

A more customer-centric approach, championed by experts like Roger Martin, Dean of the University of Toronto's Rotman School of Management, could hold the key to unlocking long-term value creation. 

Martin notes, “The key to maximizing shareholder value is to focus first on maximizing customer value.”

Customer value – the perceived benefits customers derive from a product or service compared to its costs – forms the bedrock of shareholder value. By prioritizing customer value, businesses foster loyalty, leading to repeat purchases and increased profits and share prices.

However, cultivating customer value and loyalty has its challenges. A recent survey by Harvard Business Review reveals that 55% of US and UK consumers express less trust in brands compared to the past.

In the quest to combat declining trust, brands investing in customer loyalty prioritize attracting new customers (65%), building emotional brand connections (57%), gaining insights into customer preferences (50%), and increasing brand advocacy (49%). 

While these initiatives are valuable and lead to success, leveraging the power of customer reviews offers a more direct and impactful approach to achieving customer loyalty goals. 

Customer reviews offer a bounty of valuable insights, providing businesses with direct customer feedback. By harnessing the power of these insights, companies can cultivate loyal customer bases, drive sales, and ultimately create sustainable value for their shareholders and future investors.

This article has gathered a few ways reviews can lead the way. 

Increased customer loyalty and retention

We've established the importance of customer loyalty for shareholder value. But how can reviews, often seen as a marketing tool, actually bring in those loyal, returning customers? The answer lies in their impact on two key metrics: customer lifetime value (CLV) and churn rate. 

CLV tracks a customer's total revenue contribution over time. Higher CLV means customers are spending more and coming back for more. Reviews are great for increasing CLV because they increase trust, customer satisfaction and retention. It’s estimated that 93% of people read online reviews before purchasing, making reviews a vital touchpoint. 

The correlation between reviews and high CLV is found in using customer sentiment offered by reviews to segment customers and align interactions and messaging with individual needs. 

A survey by NotifyVisitors found that 49% of participants purchased something impulsively when it was presented to them with a personalized message. 

Positive reviews also contribute to repeat purchases. A good review can rekindle the happy memories of past experiences, making customers eager to return for more. When customers return, they tend to spend – contributing to the business's CLV.

Customer reviews are not just marketing; they're loyalty and retention fuel for business engines. They increase customer lifetime value and reduce churn by building trust, boosting repeat purchases, and helping support teams proactively address concerns. This cycle eventually translates to happier customers, a thriving business and shareholder happiness. 

Reduced Customer Acquisition Costs (CAC)

Customer reviews are crucial in driving down customer acquisition costs (CAC) by acting as social proof and user-generated content (UGC). 

This matters to both shareholders and investors because, says marketer Neil Patel, “[CAC] can help determine a company’s profitability by looking at the difference between how much income your business makes from your buyers and the cost of securing them as customers.” 

Positive reviews act as a powerful endorsement, demonstrating to potential customers that a business is trustworthy and reputable. This, in turn, can lead to increased organic traffic, customer referrals, and a reduced need for expensive paid advertising campaigns.

We’ve looked previously at the power of user-generated content (UGC). Reviews are a great source of UGC, providing ample, unbiased insight into the true quality of products and services. 79% of people say UGC highly impacts their purchasing decisions. 

Reviews also provide valuable insights into customer preferences and pain points, allowing businesses to refine their marketing strategies and target the right audience with the most relevant messaging. This can further reduce CAC by ensuring marketing efforts reach the right people and converting leads into paying customers.

Customer reviews can enhance a business's visibility and ranking in search engine results pages (SERPs).

When businesses collect and display reviews, they create rich contextual information that signals to search engines that their website is relevant and authoritative. 

Customer reviews can also significantly impact a business's search engine rankings. Positive and negative reviews are equally crucial in this regard, as they contribute to building a solid and authentic online presence. 

According to Search Engine Journal, a good rating that includes negative reviews strongly indicates authenticity.

By employing the power of customer reviews, businesses can create an always-on machine that reduces customer acquisition costs (CAC) and improves their search engine rankings. A lower CAC translates to a more profitable business, which is something shareholders seek.

Enhanced brand reputation

Reputation management is what drives business growth and is crucial in determining a company's value to investors and shareholders. As per APCO, "a company's reputation is a critical factor in the investment decision-making process of investors and lenders. A strong reputation can enhance a company's perceived value."

A robust reputation strategy has numerous elements and multiple layers. Think of it like a cake. The top tier or icing includes positive review promotion and negative review management. In fact, proactive responses to negative reviews are favoured by customers. A study found that 56% of consumers feel a business’s responses to reviews have changed their perspective on the business. 

The middle or spongey filling contains transparency and active feedback awareness. Finally, the base layer, which holds everything together, prioritizes exceptional customer experiences. 

Reviews are the common element in a reputation management strategy. In a digital world where everyone is online and can freely and visibly share their opinion, online reviews have become a key indicator of a business's overall reputation. 

Groupon, a global e-commerce platform based in the United States that connects customers with local businesses, used reviews to boost their reputation. 

The company focused on inviting a more significant percentage of customers to review using Trustpilot’s platform. It committed to embed the option of providing feedback along touchpoints such as emails, surveys, customer service, and their website. Groupon’s team also prioritized responding individually to less-than-positive feedback and shared customer views internally to improve their offering even more. 

This resulted in a major boost to their star rating, and out of thousands of reviews Groupon received – the majority were positive.  

Reviews are the icing on the cake of reputation management. Neglecting them risks a crumbling foundation of customer experience. 

As Groupon's success shows, actively soliciting, responding to, and leveraging reviews can create a delicious reputation that attracts customers, empowers investors, and ultimately sweetens shareholder value.

Happy customers, happy employees

When utilized correctly, we know that reviews contribute to lower business costs, stronger business reputation and stronger customer loyalty. A focus on building a welcome feedback culture extends beyond the customer experience. 

Businesses that engage employees in offering feedback in internal reviews or anonymous surveys create an environment of high trust. A Harvard Business Review report via Thought Exchange found that employees at organizations considered “high-trust” experience 40% less burnout, exhibit 74% less stress, and are 50% more productive.

This contributes to a happy workplace and, by proxy, a happier and growing company. This, in turn, can increase productivity and innovation, driving business success and shareholder value. 

An Oxford University study reported on by the Financial Times found that happy employees make for satisfied shareholders. The study is “based on 15 million wellbeing surveys by employees at 1,636 publicly listed companies on the Indeed recruitment website.” 

The results found that not only does well-being have a positive correlation with company performance, but it is also a predictor of future performance.

If an investment of $1,000 were made in companies with higher staff wellbeing scores in January 2021, by the beginning of March 2023, the return would have been around US $1,300, compared to approximately US $1,100 from the S&P 500 stock index.

Additionally, in the past, Trustpilot users have utilized reviews to enliven employee morale. When Sage colleagues arrived at work, they would see the latest reviews on a live TV screen in the main atrium, offering transparency and motivation to all teams at the beginning of their work day. Any increases in star ratings and outstanding reviews were shared internally via the Intranet. 

However, it's important to note that the impact of reviews on employee happiness can be indirect and depends on how the company handles them. 

If reviews are used unfairly or to blame employees, it can have the opposite effect. Transparency, open communication, and a focus on positive reinforcement are key to ensuring reviews contribute to a happy and productive work environment.

Summing up

Reviews offer a melting pot of benefits for increased shareholder value. By strategically using reviews, businesses can create customer-centric growth.

Positive customer testimonials are powerful social proof, attracting prospects and bolstering brand trust. This translates directly to enhanced customer lifetime value (CLV), as repeat purchases fueled by positive memories and trust contribute significantly to revenue streams.

Reviews also offer transformative insights into customer preferences and pain points. By actively engaging with this feedback, businesses can refine their offerings and tailor their messaging, reducing customer acquisition costs (CAC) and driving organic engagement. 

This data-driven approach establishes deeper customer relationships, further solidifying loyalty and strengthening brand advocacy.

The impact extends beyond immediate financial gains. A culture of genuine customer-centricity, reflected in the active engagement with reviews, also creates a positive and engaging environment for employees. Studies have shown a direct correlation between employee well-being and shareholder returns, highlighting the ripple effect of an authentically customer-focused approach.

Embracing reviews fosters a thriving ecosystem of loyal customers, engaged employees, and happy shareholders. In the digital age, authenticity stands out. 

Key takeaways

  • Reviews are a direct path to customer loyalty and increased CLV: By fostering trust and satisfaction through positive reviews, businesses can unlock repeat purchases and higher customer lifetime value, directly impacting shareholder value.

  • Reduced customer acquisition costs: Reviews act as social proof and user-generated content, attracting new customers organically and lowering the need for expensive paid advertising. Analyzing review sentiment informs targeted marketing strategies, further optimizing CAC.

  • Enhanced brand reputation: Reviews are the icing on the cake of online reputation. Actively managing them, including responding to positive and negative feedback, builds trust and attracts investors.

  • Happy customers, happier employees: Engaging with reviews creates a customer-centric culture that extends to employee well-being. Studies show a correlation between happy employees and satisfied shareholders, highlighting the indirect impact of reviews on financial success.

  • Authenticity matters: Embracing reviews and using them to improve the customer experience fosters a genuine connection with both customers and employees. In the digital age, businesses that prioritize authenticity stand out and thrive.


Related stories