Good, better, engaged? The effect of company-initiated customer engagement behavior on shareholder value

Abstract

In today’s connected world, customer engagement behaviors are very important. Many companies launch initiatives to stimulate customer engagement. However, despite evidence that customer engagement behavior also matters to shareholders, academic research on the firm value consequences of customer engagement campaigns is limited. This study is the first to investigate the value-related consequences of firm-initiated customer engagement behaviors, using shareholder evaluations of the public announcements of such initiatives. We find that companies’ customer engagement initiatives, on average, decrease market value, which is likely because the shareholders are sensitive to the risk of these initiatives backfiring. Nevertheless, initiatives that stimulateword-of-mouth are viewed less negatively than initiatives that solicit customer feedback, as are initiatives that are supported by socialmedia. Companies that operate in a competitive environment or do not advertise much can create value by stimulating customer engagement, while companies with a strong corporate reputation are likely to not benefit from it.