Stock market losses negatively affect consumer behaviour of individual investors

After losing money with the shares of a particular company, individual investors are unlikely to buy that particular product or service again. Although investment results appear to have little to do with how satisfied a customer is with a company’s product, stock market losses do tend to diminish customer satisfaction and customer loyalty in the long run. This was found in research by Dr. Arvid Hoffmann and Dana Ketteler of Maastricht University, which will be published in the International Journal of Bank Marketing.

According to this study, individual investors are more likely to switch to a competitor after an investment loss and more likely to complain about the product or service of the firm they invested in. These results are surprising given that traditional financial theory sees no correlation between investment behaviour and consumer behaviour.

maxresdefaultArvid Hoffmann, Assistant Professor of Behavioural Finance at Maastricht University, was the first to study the relationship between consumer behaviour and the adverse spill-over effects of investment returns. “We know that individual investors prefer to invest in companies they know and have had good experiences with,” explains Hoffmann. “For example, people are more likely to buy shares in Philips if they are happy with their Philips television set. On the other hand, we know very little about how investment experiences influence consumer behaviour. Using an online experiment, we were able to identify the impact negative investment experiences have on the consumer behaviour of individual investors,” he says.

“Our experience shows that negative emotions associated with an investment loss reduce customer satisfaction and loyalty,” Hoffmann continues. “Someone who lost money in Royal Dutch Shell shares is more likely to get petrol at a BP gas station next time. This is interesting from a marketing perspective, as we’ve found that people are also less inclined to provide positive word-of-mouth after an investment loss and more likely to submit a complaint about the product. Our results are surprising because, according to traditional financial theory, there’s no correlation between investment behaviour and consumer behaviour. Our study shows the importance of taking these complaints seriously to prevent losing a shareholder and a customer at the same time.”

The full title of the publication is: “How Experiences with Trading a Company’s Stock Influence Customer Attitudes and Purchasing Behaviour.” Click here to read the full article in the International Journal of Bank Marketing.

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Read more about Arvid Hoffmann on the UM Expert Guide.

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