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Claes Fornell
  Claes Fornell
 

Customer Satisfaction Drops Again

2/20/2008 --

As a result, consumer spending is likely to weaken further, according to the latest American Customer Satisfaction Index.

ANN ARBOR, Mich.—Customer satisfaction with the goods and services that Americans buy declined in the fourth quarter of 2007, according to the latest report released this week by the Ross School's American Customer Satisfaction Index (ACSI).

The index fell to 74.9 on the ACSI's 100-point scale, down 0.4 percent to its lowest score of 2007.

Consumer spending growth slowed in the fourth quarter as predicted by the third quarter drop in ACSI, says Claes Fornell, professor of marketing at the Ross School of Business.

A second consecutive drop in customer satisfaction, combined with increasing unemployment, plummeting house prices, tighter credit, high levels of household debt, and inflating fuel and food prices, is likely to pose even more challenges this quarter for consumer spending growth, he says.

"Falling customer satisfaction has a dampening effect on consumer demand, and household-debt-to-income ratios affect consumers' ability to spend," Fornell says. "Both are moving in the wrong direction, brewing up a double-whammy that may hit the economy hard. "In such an environment, customer satisfaction becomes even more important because satisfied buyers tend to reduce sellers' cash flow volatility."

The latest ACSI measured retail, finance and insurance, and e-commerce, which it does every fourth quarter.

Retail: Nordstrom back on top, Wal-Mart's woes, Home Depot down again

Customer satisfaction with the retail sector, which includes department and discount stores, specialty retail stores, supermarkets, gas stations, and health and personal care stores, slipped 0.3 percent to 74.2.

The holiday shopping season was anything but bright for many retailers, as satisfaction with the department and discount scores reached its lowest level since 2001 after sinking 1.4 percent to a score of 73. With rising gas prices, a shaky credit market and an uncertain job market, cautious consumers are looking for more value for their money, Fornell says.

Nordstrom, reintroduced to the ACSI after increasing its market share, led the department and discount store industry with a score of 80 as a result of high quality merchandise and superior customer service, according to Fornell.

Discount store giant, Wal-Mart, took a sharp turn south, plummeting 6 percent to its all-time low of 68, well below the industry average. Competing on price is no longer enough to offset lagging quality, says Fornell. Wal-Mart also scored lowest in the industry for customer service.

Deep discount store Dollar General made its ACSI debut with a strong score of 78, providing customers with a wide variety of merchandise in a reasonably small store-space at super discount prices.

The specialty retail category aggregate remains unchanged from last year with a score of 75. The category expanded this year to include category leader Barnes & Noble (83), Borders (81), Office Depot (78), Staples (77), Office Max (76), Gap (75), and the TJX Companies (74).

Home Depot (67) lost the gains it made last year after sliding 4 percent to the bottom of the whole retail sector. Lowe's improved 1 percent to 75, widening the gap between the rivals.

"Operational efficiencies don't always translate into customer service improvements," Fornell said. "Cutting jobs and eliminating services might improve earnings in the short term, but it won't do much good if customers take their business elsewhere."

The gap between consumer electronics retailers Best Buy and Circuit City has narrowed after moving in the opposite direction last year. Best Buy slid 3 percent to a score of 74, while Circuit City improved 3 percent to 71. Circuit City has reduced price on some items and expanded home installation and tech support service.

Supermarkets are up 1.3 percent to 76, the highest level in 14 years, despite the recent rise in food prices. Publix continues to lead the category with a score of 83. According to their customers, Publix offers high quality products and superior customer service, which has been the foundation for its lead in customer satisfaction over the past 14 years.

Winn-Dixie plunged 7 percent to tie Wal-Mart's supermarket business at the bottom of the industry at 71. Whole Foods Market made its ACSI debut with a score of 73, leading in quality but at the bottom for value.

Finance: Banks, property insurance pay off, health insurers look ill

Amid fears of a recession, the looming mortgage crisis and high insurance premiums, the finance and insurance sector dropped 0.7 percent to 75.5, a retreat from the gains last year that put the sector at its highest level since 1994.

Banks climbed 1.3 percent to 78. Wachovia, down 1 percent to 79, is still the top-scoring bank, despite its first drop since 2000. JPMorgan Chase rose 3 percent to 74, and Bank of America was unchanged at 72. Wells Fargo and Citigroup each fell 4 percent to 69, the lowest scores in the industry.

The property and casualty insurance industry improved 2.6 percent to 80, its highest score in over a decade. Progressive (79) made the biggest jump of any company, up 8 percent to 79. Various Web site improvements and rate cuts helped fuel the recent surge in customer satisfaction, Fornell says.

State Farm is tied at the top with the "All Others" category at 81. GEICO and Farmers are the only two companies to slide since 2006. GEICO dropped 4 percent to 80, while Farmers fell 3 percent to 76. Allstate remained unchanged at 78.

As health care costs continue to rise with more households now footing the bill, the satisfaction with health insurers slipped 1.4 percent to 71. UnitedHealth declined the most, down 4 percent to 65.

E-Commerce: Amazon is king

The e-commerce sector rose 2 percent to a new high of 81.6. In the highly competitive e-retail category, Amazon.com led with a score of 88, one of the highest marks regardless of industry. Fornell says that Amazon.com has been successful at keeping pace with increasing customer expectations and improving the customer experience accordingly.

Newegg, Netflix and Overstock make their inaugural appearance in the e-retail category this year. Newegg (87) and Netflix (84) debuted just behind Amazon, while Overstock's first appearance was at the bottom of the industry with a score of 80.

The online brokerage category advanced 1.3 percent to 79, a new high despite a shaky stock market. Fidelity was on top, up 5 percent to 84, a new all-time high for the company. Another strong gainer, TD Ameritrade, climbed 4 percent to 80, closing the gap between second-place Charles Schwab, up 3 percent to 82.

About the ACSI

The American Customer Satisfaction Index 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 about 200 companies in 43 industries and from government agencies over the previous four quarters.

The Index is produced by the University of Michigan's Ross School of Business in partnership with the American Society for Quality and CFI Group, and is supported in part by ForeSee Results. The ACSI can be found online at www.theacsi.org.



For more information, contact:
Bernie DeGroat, (734) 936-1015 or 647-1847, bernied@umich.edu