University of Michigan News Service – UM News

American customer satisfaction rose sharply last quarter

ANN ARBOR—Customer satisfaction with the quality of goods and services available to American consumers in the retail, finance and e-commerce sectors rose during the final quarter of 2001, offsetting a drop that began in late 2000.

The American Customer Satisfaction Index (ACSI), which had declined for four straight quarters, climbed to 72.6 (out of a possible 100)—a 0.8 percent increase and the third-highest quarterly improvement ever.

Claes Fornell, professor of business and director of the University of Michigan Business School‘s National Quality Research Center, which compiles and analyzes the ACSI data, says that this bodes well for the economy.

“As customers become more satisfied with the nation’s output of goods and services, they tend to increase their spending,” he says. “Corporate revenues from repeat business tend to grow, as well. Since profits for most companies depend much more on repeat customers than on new customers and because consumer spending is so central to economic growth, the latest ACSI numbers are encouraging.”

While ACSI scores for about 80 percent of the companies measured in the current report either improved or remained unchanged, individual company behavior cannot entirely explain the combined breadth and depth of ACSI growth, Fornell says.

Falling interest rates, lower prices during the holiday season, increased emphasis on customer service by slumping companies, and improvement in the buyer-seller relationship due to Sept. 11 and its aftermath are underlying forces that probably have contributed to the overall ACSI increase, he says.

All three sectors—retail, finance and e-commerce—that were updated in the fourth quarter of 2001 have customer satisfaction scores higher than the overall national ACSI.

Retail, which includes department and discount stores, specialty retail stores, supermarkets, fast-food restaurants and gasoline service stations, has a score of 75; financial services, which includes banks, life insurance and personal property insurance companies, came in at 76; and e-commerce, which includes Web portals, retail, auction services and brokerage services, registered a mark of 73.

Department and discount stores accounted for the largest increase (4 percent) in the retail sector, with Target scoring the highest at 77, followed by Nordstrom and Sears, each with a score of 76. Federated Department Stores brought up the rear, with a score of 69.

“Deep discounting by most retailers was a contributing factor to the boost in customer satisfaction, particularly for Sears, Target, Dillard’s, May and, most prominently, Kmart,” Fornell says. “Customer satisfaction based on low price is often fragile and highly dependent on the company’s cost structure and price concessions from suppliers.

“While Kmart, which recently filed for bankruptcy protection, may suffer the ultimate consequence from improving too little, too late and with price as a primary weapon, it did improve quality as well, but this improvement was dwarfed by reductions in price.”

Among specialty stores, Sam’s Club scored 78 and Costco came in at 76.

“The major wholesale clubs continue to be highly regarded for consistently meeting customer expectations,” says Jack West, past president of the American Society for Quality.

The highest score (81) of any company in the retail sector belongs to PUBLIX Super Markets, which has finished first in customer satisfaction among supermarkets every year since the ACSI began in 1994.

Once again, the fast-food industry, as a whole, remains at the bottom of the retail sector in customer satisfaction. Papa John’s, with a score of 78, is the only fast-food company that consistently beats the retail sector average, while McDonald’s finished last among all retail companies—fast-food restaurants and otherwise—for the eighth year in a row.

“Papa John’s has been the highest-scoring firm in its class since its inclusion in the ACSI in 1999,” Fornell says. “The company recently developed an online ordering system, making it the first pizza chain to offer nationwide online ordering. Driven by a focus on quality control and high customer satisfaction, Papa John’s has supplanted Little Caeser’s as the nation’s #3 pizza maker.”

On the other hand, McDonald’s remains at the bottom of the fast-food industry, although its score improved 5 percent (from 59 to 62) over last year.

“The greatest weakness for McDonald’s is service quality,” West says. “People go to McDonald’s for a combination of fast service, consistent products, low price and convenience. Obviously, McDonald’s is not consistently meeting those expectations.”

Among financial services, most banks and insurance companies improved their ACSI scores, with Wachovia (up 9 percent to 72) and Bank of America (up 8 percent to 68) making the biggest strides, in spite of their involvement in recent mergers. Bank One, on the other hand, saw its score drop to 66, down 6 percent from a year ago and 12 percent since 1994.

In the insurance industry, while the smaller firms still lead in customer satisfaction, Northwestern Mutual (78), New York Life (77) and Prudential (76) all continue to rank high among life insurance companies. State Farm (79) and Allstate (76) remain at the top among large personal property insurance firms when it comes to satisfying customers.

Finally, the ACSI measured customer satisfaction among e-commerce companies, with Amazon.com again posting the highest score (84) and Barnesandnoble.com (82) and eBay (82) not far behind. The biggest improvement was made by 1-800-Flowers.com, which jumped 10 percent from 69 to 76.

“These numbers bode well for a new dawn in e-commerce,” says Larry Freed, CEO of ForeSee Results, which measures Web customers’ satisfaction and forecasts customer behavior. “The numbers for these e-commerce leaders show that attracting and retaining customers, not fads and gimmicks, are taking over e-commerce thinking. These companies are showing the way for the second era of the Internet.”

While the numbers provide cause for optimism for e-commerce and the economy at large, Freed says that the competition is going to get tougher.

“The companies that can really stay on top of what matters to Web customers and what doesn’t will be the winners,” he says. “With traditional retail showing increased customer satisfaction and more experienced companies dominating the Web, e-tailers will face stiffer competition on both fronts.”

Despite a 4-percent increase, America Online once again posted the lowest mark (58) among e-commerce companies. According to Freed, AOL’s score is representative of a common struggle among portal companies—not quite knowing what to give customers who still do not know exactly what they want from portals.

The ACSI is a national economic indicator of customer evaluations of the quality of goods 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 index is produced by a partnership of the U-M Business School, American Society for Quality and CFI Group, and supported in part by ForeSee Results, e-commerce corporate sponsor, and Market Strategies Inc., a major corporate contributor.

Company scores and other information about the ACSI can be found on the new ACSI Web site: www.theacsi.org.