University of Michigan News Service – UM News

American Customer Satisfaction Index 1st quarter report

ANN ARBOR—In spite of the enormous impact that Sept. 11 has had on our nation’s airlines, from increased wait times to more stringent security checks for passengers, air travelers are happier with America’s commercial airlines than they have been in five years, according to the American Customer Satisfaction Index (ACSI).

The airline industry improved its ACSI score by 8 percent (from 61 to 66) from a year ago—marking the only time that the airlines have shown improvement in customer satisfaction since the inception of the ACSI in 1994. In fact, all of the major airlines showed improvement.

Overall, the national aggregate ACSI score for 35 industries in the first quarter of 2002 rose to 73 (out of a possible 100), the second straight quarterly improvement and the highest overall score in six years.

Improved customer satisfaction, combined with growing disposable personal income, implies more consumer spending, says Claes Fornell, professor of business and director of the University of Michigan Business School’s National Quality Research Center, which compiles and analyzes the quarterly ACSI data. And more consumer spending, of course, means companies will be better off financially and better able to weather stock price volatility.

“Even though stock prices of the most widely held companies are down substantially for the year and the broader market indices are in negative territory, companies that have highly satisfied customers tend to be relatively sheltered from a market fall in stock prices,” he says. “Because high customer satisfaction is often a sign of a healthy company, companies that do well on the ACSI tend to do well in the stock market.”

Fornell says that the biggest surprise among industries measured in the current ACSI report is the improvement in customer satisfaction with the nation’s airlines—which comes at a time when losses are mounting for most of them.

“The decline in air travel since Sept. 11, particularly among business travelers, has meant less-crowded planes and more time available per passenger from flight attendants,” he says. “This is in spite of the fact that overall passenger load has not changed much. But, in order to fill seats, airlines also have slashed fares and offered bargains.”

Once again, Southwest Airlines leads the way in airline customer satisfaction, with an ACSI score of 74, followed by Continental Airlines (68) and Delta Airlines (66). The largest improvement, however, came from Northwest Airlines, which saw its ACSI score jump 16 percent (from 56 to 65).

In addition to airlines, the ACSI’s first quarter 2002 report measured customer satisfaction for energy utilities, telecommunication companies, broadcast and cable/satellite television, parcel delivery services, the U.S. Postal Service, newspaper publishing, hotels, hospitals, the motion picture industry and health care insurance.

While the airline industry posted the largest gain in the current ACSI, energy utilities also showed healthy improvement in customer satisfaction, raising their collective score nearly 6 percent (from an industry-low 69 to 73).

Pacific Gas & Electric made the biggest stride among all of the gas and electric companies as its ACSI score climbed 18 percent to 58 (up from 49, the lowest score ever for a company in the history of the ACSI). However, PG&E still finished at the bottom among the 28 utilities measured.

Southern Co. (81), Allegheny Energy (80), PPL Corp. (80) and Duke Energy Corp. (79) were the leaders in customer satisfaction, while Xcel Energy, Consolidated Edison, Sempra Energy, Reliant Energy and Edison International registered double-digit percentage increases in their ACSI scores.

“Overall, the improved ACSI scores for utilities have been helped by the mild winter and moderating natural gas prices, as consumers spent less money for both gas and electricity compared to the year before,” says utilities expert Andy Morrison, president of Market Strategies, Inc. “In addition, there were no major problems with energy shortages and a relatively trouble-free year for most utilities in terms of reliability problems.

“The ACSI model shows that both the perceived service quality and reliability of the relationship and the perceived value have significant impacts on satisfaction, and the industry improved on both quality and value over the last year.”

Another sector that showed some improvement in customer satisfaction, albeit small, was the telecommunication industry, inching upward from an ACSI score of 70 last year to 71 this year. Sprint Corp. and Verizon Communications Inc. paced the long-distance phone companies with scores of 74, while BellSouth Corp. topped the local phone services with the same mark.

Verizon did not fare as well with its local service, as its score dropped 8 percent to 67, while Qwest Communications also saw its score for local phone service fall by the same percentage to an industry-low 56.

“With the exception of BellSouth, which has a history of solid performance in satisfying customers, local phone service typically lags long distance in the ACSI,” Fornell says. “The likely reason is that consumers have more meaningful choices among long-distance carriers. There is still little competition in local phone service and though rates for both wireless and long distance have dropped, they have increased for local calling.”

Fornell says that the 32 percent difference in ACSI scores between the leader in local phone service, BellSouth, and Qwest, which is at the opposite end of the spectrum, is remarkable for companies in the same industry.

“It is even more remarkable in view of the fact that before 1997, Qwest had the same or higher ACSI scores than BellSouth has now,” says Fornell, who notes that Qwest’s stock has lost 90 percent of its value since August 2000. “Declining customer satisfaction may well be a warning signal about many things gone wrong in a company. It is the customers, after all, who represent its ultimate economic asset. If that asset is treated poorly and deteriorates in value, one wonders how other assets are managed.”

While customer satisfaction improved overall for the airlines, utilities and phone companies, the cable and satellite television industry was not as fortunate, as its ACSI score fell nearly 5 percent (from 64 to 61). DIRECTV Inc. remained at the top with a score of 70, but other major companies lost ground—Charter Communications plunged 16 percent to an industry-low 53, Comcast Corp. dropped more than 12 percent to 56 and AT&T Corp. declined 10 percent to 56.

“People just don’t like their cable companies,” says Jack West of the American Society for Quality. “This industry reinforces the trend we’ve been witnessing in many other industries–namely, that increased competition leads to greater satisfaction.”

In other industries, customer satisfaction was up 1 percent among parcel delivery-express mail services (from 78 to 79), as Federal Express Corp. held steady with a score of 82 and United Parcel Service improved to 80; the U.S. Postal Service saw its score rise from 70 to 73; hotels remained the same at 71, with Hilton (76), Marriott (76) and Hyatt (75) leading the way; hospitals went up from 68 to 70; broadcast television rose from 62 to 65; and newspapers (63) and motion pictures (70) both declined, 7 percent and 1 percent, respectively. Health care insurance, measured for the first time, scored 68.

“The general improvement in consumer satisfaction with service industries is encouraging,” West says. “It demonstrates that quality improvement techniques are just as effective in the service area as they are in the production of manufactured goods.”

The ACSI is a national economic indicator of customer evaluations of the quality of products and services available to household consumers in the United States. It is updated each quarter with new measures for different sectors of the economy replacing data from the prior year. The overall ACSI score for a given quarter factors in scores from 190 companies in 35 industries and from government agencies over the previous four quarters.

The index is produced by a partnership of the U-M Business School, American Society for Quality and CFI Group, and supported in part by Market Strategies Inc., a major corporate sponsor. Company scores and other information about the ACSI can be found on the ACSI Web site: www.theacsi.org.