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ACSI: Customer Satisfaction Down a Bit; Consumer Spending Should Improve

2/18/2003 --

ANN ARBOR, Mich.—Although customer satisfaction dropped slightly in the last quarter and has been flat in the past year, household spending should rebound somewhat, according to the American Customer Satisfaction Index (ACSI), a leading indicator of consumer spending.

“Household expenditure growth dropped to a low 1 percent during the fourth quarter of 2002, so unless we have further increases in oil prices, terrorism or a collapse of housing prices, consumer spending should edge up,” said Prof. Claes Fornell, director of the University of Michigan Business School’s National Quality Research Center, which compiles and analyzes the ACSI data.

The ACSI, which measured U.S. customer satisfaction with the quality of products and services in the e-commerce, retail and finance sectors during the fourth quarter of 2002, slipped to 72.9 (on a 100-point scale) from 73.1 in the third quarter of last year. In the first half of 2002, the ACSI held steady at 73.

Fornell says that large quarterly fluctuations in consumer spending in recent times can be traced to the lack of pricing power, manifested not only in flat or falling prices, but also in resulting price promotions. Since buyer satisfaction is not improving, the lack of pricing power may well continue, he adds.

However, the ACSI shows several companies with rising customer satisfaction scores, due mainly to better service and quality, not lower prices, Fornell says.

In the e-commerce sector, for example, Amazon.com’s customer satisfaction score jumped 5 percent to an industry-best 88, the highest ACSI score ever for a service company. Barnes&Noble.com, right behind with a mark of 87, saw even greater improvement with a 6-percent increase.

“The business model employed by Barnes & Noble, a multi-channel-focused retailer, is very different from the Amazon business model, a Web-only retailer superstore, yet both companies are excelling at satisfying their customers,” said Larry Freed, CEO and president of ForeSee Results, a company that measures Web customers’ satisfaction and forecasts customer behavior. “Amazon and Barnes & Noble have set the standard for online retailers.”

The ACSI score for the e-commerce sector, overall, increased 6 percent—from a score of 72.9 in the fourth quarter of 2001 to 77.6 last quarter. Other e-commerce companies that fared well include e-Bay (82), Expedia.com (80) and Buy.com (80). Priceline.com and uBid brought up the rear with scores of 71 and 70, respectively.

“The strong satisfaction scores in this sector continue to demonstrate the value of e-commerce to the consumer,” Freed said. “E-commerce is no longer a ‘nice-to-have’ for companies, but a requirement to compete.” While customer satisfaction was up markedly for e-commerce companies, it was down slightly in the retail sector (from 74.8 to 74.6), although some companies in this sector showed improvement.

Among fast-food restaurants, for example, KFC (with a 10-percent jump to a score of 69), Little Caesar’s (a 6-percent rise to 74) and Burger King (a 5-percent increase to 68) showed solid improvement.

“KFC has shifted resources away from advertising and the promotion of ‘value items’ to customer service, food quality, menu selection and store atmosphere,” Fornell said. “Although KFC is not among the highest-scoring companies in the ACSI, the strategy appears to be paying off. It’s rare to have an increase of as much as 10 percent in customer satisfaction.”

For the fourth straight year, Papa John’s led the industry with an ACSI score of 76, followed closely by Domino’s Pizza (75), Wendy’s (74) and Little Caesar’s (74). Once again, McDonald’s posted the worst ACSI score (61) among fast-food companies.

“Embroiled in fierce price competition, the world’s largest hamburger chain reported its first quarterly losses ever and its stock price is at a seven-year low,” Fornell said. “Its ACSI score has always been the lowest in the industry, with no signs of improvement. When customers worry about fat content and complain about quality, taste and service, price promotions are seldom a recipe for success.”

In addition to fast-food restaurants, the ACSI’s retail sector also includes department and discount stores, specialty retail stores, supermarkets and gas stations.

Kohl’s, which was included in the ACSI for the first time, scored highest among department stores and all companies measured in the retail sector, with a score of 84. Publix, once again, led all supermarkets with a score of 81, while Costco topped the specialty stores with a mark of 79 (a 4-percent increase). Target discount stores (78), Sam’s Club (77) and the SUPERVALU grocery chain (77) also fared well in the retail sector.

On the other end of the spectrum, Home Depot (71) and Kmart (70) scored lowest among retail companies (excluding fast-food restaurants) and both also posted the largest drop in ACSI scores—a 5-percent decrease. “Home Depot is suffering not only from deteriorating customer satisfaction, but also from a falling stock price and lower sales and earnings,” said Jack West, past president of the American Society for Quality, a co-sponsor of the ACSI. “Service quality, customer expectations and perceived value are down, while customer complaints are up. The addition of new stores and product lines may bring in new customers, but any growth may be offset by the loss of customers to archrival Lowe’s, whose ACSI score increased to 76.” Finally, the ACSI also measured customer satisfaction in the area of financial services—banks, life insurance, personal property insurance and health insurance. As a whole, the sector’s ACSI score (73.8) fell for the first time since 1999.

Life insurance companies scored highest in the finance category with NewYork Life (81) and Northwestern Mutual (80) leading the way. State Farm fared best among personal property insurance firms with a mark of 77 and Wachovia topped the banks with a score of 73. Although still fairly low, Blue Cross/Blue Shield’s score of 70 (a 6 percent improvement) paced the health insurance field.

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 University of Michigan 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 ACSI Web site: www.theacsi.org.



For more information, contact:
Bernie DeGroat
Phone: 734.647.1847 or 734.936.1015
E-mail: bernied@umich.edu