Predicting Firm Market Performance Using the Social Media Promoter Score

Abstract

Customer loyalty and satisfaction increase product sales, protect market share, and lower marketing costs, which potentially leads to greater returns on investment and cash flows. Therefore, investors take customer feedback into account when making investment decisions. Online social media platforms such as Facebook and Twitter have emerged as alternative sources for obtaining customer feedback information promptly and at a low cost. This study develops a new measure, the Social Media Promoter Score (SMPS), which combines several indicators of customers' attitudes toward a company derived from detailed sentiment and content analyses of social media. Using a semiparametric model of customer loyalty index based on the generalized additive model (GAM), we found that both positive and negative social media metrics about customers' attitudes were significantly associated with the customer loyalty index. Importantly, SMPS was also significantly associated with an increase in firms' market performance. These findings suggest that SMPS can be a valuable measure to complement the existing customer metrics such as the ACSI. Theoretical contributions to research on the marketing-finance interface and managerial implications are discussed.