Customer satisfaction is up, despite low consumer confidence

November 18, 2002

ANN ARBOR—While consumer confidence has been low for the past several months despite a recent upturn, customer satisfaction and consumer spending continue to rise, according to the latest results of the American Customer Satisfaction Index (ACSI).

The ACSI, updated with new customer satisfaction data on non-durable products, rose slightly from a second-quarter score of 73 (out of a possible 100) to a mark of 73.1 in the third quarter. Compared with a year ago, the ACSI is up 1.5 percent (from a score of 72).

“While troublesome in its own right, declining confidence has not translated into materially less spending or lower satisfaction with the products and services bought,” said 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. “Clearly, customer satisfaction is different from consumer confidence. A person can feel less confident about the state of the economy and yet be more satisfied with his or her automobile, sneakers or tax accountant.

“Is it consumer utility, as measured by the ACSI, or confidence about the state of the economy that drives consumer purchase decisions? Even though low confidence may eventually kick in and make consumers more cautious, we haven’t seen it yet. So far, the empirical evidence suggests that utility is a more powerful predictor.” Fornell notes that strong consumer spending accounted for much of Gross Domestic Product (GDP) growth in the third quarter. He adds that because customer satisfaction has a strong effect on spending, the ACSI and GDP usually move in the same direction.

In the current ACSI, the individual sector score for manufacturing non-durables reflects a similar percentage increase found in the overall ACSI score. But the current score of 81.4 for this sector—comprised of eight industries (food processing, soft drinks, beer, tobacco, apparel, athletic shoes, personal care products and pet foods)—is 11 percent higher than the overall ACSI score for all industries measured year-round. Fornell says that most of the ACSI gain for the sector is driven by price reductions or the absence of price increases.

“Usually, higher customer satisfaction provides more room for suppliers to raise prices, but not if the improvement in customer satisfaction is, in itself, a result of lower prices,” Fornell said. “The lack of pricing power continues to be an issue for the economy.”

According to Jack West, past president of the American Society for Quality, a co-sponsor of the ACSI: “The intense competition and the ease with which customers can switch brands in the non-durables sector drives companies to simultaneously improve quality and cost, thus the customer gains on both sides of the value equation.” The fact that this sector includes companies that manufacture candy, desserts, soft drinks and beer doesn’t hurt either, Fornell says. “Companies that, in one form or another, sell sweets or alcoholic beverages have higher satisfaction scores,” Fornell said. “This is consistent with the notion that when people are anxious, as suggested by consumer confidence numbers, they appear to take a bit more comfort in inexpensive pleasures.”

Among food processing companies, which scored a collective 81 in the ACSI, Sara Lee Corp.—often synonymous with cakes, pies and other dessert items—showed the biggest improvement as its ACSI score increased from 81 last year to 84 this year. Once again, H.J. Heinz Co. took the top spot in the industry with a score of 88. Hershey Foods Corp. edged a point to 87, which tied it with the Quaker Oats Co. for second place in the industry. Mars Inc., Nestle, General Mills Inc. and ConAgra Foods Inc. all posted scores of 83. ACSI marks are up for every company in the soft drinks and beer categories, which scored 85 and 81, respectively. While Cadbury-Schweppes and PepsiCo Inc. scored highest at 86, the Coca-Cola Co. showed the greatest improvement with a score of 85, up from last year’s company-low 81. Anheuser-Busch Companies Inc. led beer manufacturers with a mark of 82, ahead of the 79s posted by Adolph Coors Co. and Miller Brewing Co.

“Soft drinks and beer exhibit very little difference in customer satisfaction either across companies or over time,” Fornell said. “As far as customer satisfaction is concerned, the name of the game in this industry is making sure that there is enough variety in offerings to match the variety in tastes, brand image and price/value in the eyes of the consumer.” The tobacco industry posted the lowest ACSI score among the non-durables industries, holding steady at 76. R.J. Reynolds Tobacco Holdings Inc. moved up two points to 79, while Philip Morris Companies Inc. slipped a point to 74.

“For the most part, customer satisfaction has fallen for the major cigarette brands and improved for the smaller brands,” West said. ”With declining satisfaction and large price hikes for premium brands in recent years, consumption has dropped.” Among the other non-durables industries in the ACSI, the score for apparel-makers improved to 80 (up from last year’s 79), while that of the athletic shoe companies jumped to 79 (from 76). Although Nike and Reebok rebounded somewhat from last year’s numbers (both improving to 76), the smaller brands, such as Adidas and New Balance, continue to produce the highest satisfaction levels.

The pet foods industry held steady at 82, with the Colgate-Palmolive Co. holding the top spot with an ACSI score of 84. However, the company has the lowest score (a 6 percent drop to 80) among personal care products firms, which, on the whole, fell two points to 81. The Clorox Co. (85), Dial Corp. (84) and Unilever (83) led this category. 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 185 companies in 38 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.


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