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Claes Fornell
  Claes Fornell

American Customer Satisfaction Index Holds Steady at 10-Year High

8/25/2004 --

Overall satisfaction levels among U.S. consumers encourage spending, but perhaps not enough to offset rising prices and interest rates.

ANN ARBOR, Mich.–The latest American Customer Satisfaction Index (ACSI) stands unchanged at 74.4 for the second quarter of 2004---holding steady at its highest level in a decade.

High customer satisfaction has generally contributed to increased consumer spending, and while satisfaction cannot completely offset recent price and interest rate hikes, the economy's ability to continue to deliver strong satisfaction levels should help bring spending back from last quarter's nose-dive, says ACSI director Claes Fornell, professor of marketing at the University of Michigan Business School.

"High levels of satisfaction with shopping and consumption usually mean that people become more willing to spend, which also gives a boost to the economy," Fornell says.

"But there are now considerable forces pulling in the other direction–price-adjusted satisfaction is actually dropping. Add weak employment, debatable wage growth and higher interest rates to the picture, and enthusiasm for buying more weakens.

"Nevertheless, third quarter spending is almost certain to be higher than the dismal second quarter spending."

In general, a change in the ACSI in one quarter, adjusted for the Consumer Price Index (CPI), has been followed by a proportional consumer spending change the following quarter, according to Fornell. Based on the ACSI alone, spending should grow by 3.7 percent in the third quarter.

This quarter's ACSI scores bring a word of warning to domestic automakers, Fornell says. Of the six nameplates at or below the industry average for customer satisfaction, five are domestic. The gap in customer satisfaction between domestic and foreign producers is once again growing–with Japan regaining the lead, followed by the Europeans.

"Major recalls notwithstanding, the Big Three are basically holding their own with foreign automakers when it comes to quality and reliability," Fornell says. "Where they fall short is on value for money. Despite the weakening dollar, domestic automakers have not been able to capitalize in price comparisons with international competition."

However, all is not bleak for the Big Three, he says. Despite slowing sales, Ford's Lincoln and Mercury lines have made significant improvements in customer satisfaction and are now at the top of the industry, followed closely by Honda, BMW and Toyota. Meanwhile, DaimlerChrysler's Mercedes-Benz, plagued by quality problems, has fallen from an industry high in 2000 to the middle of the pack this year.

There is also good news for troubled Volkswagen, Fornell says. It has seen its stock price cut in half following a drop in ACSI last year. This year VW's score is up by 5 percent to 80, suggesting perhaps that the automaker has turned the corner and can look forward to better times, he adds.

On another front, customer satisfaction with personal computers has improved to levels last seen in 2000, due to lower prices, upgrades in power and capabilities, and gradually more experienced users, Fornell says.

Apple leads with a score of 81, making a 5 percent improvement in each of the last two years. Gateway has also improved, the ACSI shows. Its products are now perceived to offer a better value, particularly after the acquisition of eMachines, which helped pull the company up from a low of 69 a year ago to equal the industry average this year.

Higher satisfaction scores have implications for companies beyond simply making customers happier, Fornell says.

"A company that improves in customer satisfaction tends to perform better financially by generating more repeat business, which leads to greater profits and higher stock price," he says. "Sales of Apple computers are up and its stock value has improved more than 50 percent over the past year."

Going in the opposite direction is Hewlett-Packard. At one time a leader in customer satisfaction, H-P dropped below the industry average for the first time a year ago. The acquisition of Compaq in 2002 has not made a significant positive impact on its ACSI score.

"H-P remains competitive on price, says Jack West, past president of the American Society for Quality, a co-sponsor of the ACSI. "But this is a reminder that there's more to satisfaction and loyalty than meets the eye. H-P's problem is that the quality of their products and service support has fallen off sharply since the mid-1990s, when H-P was leading the industry."

In addition to autos and personal computers, the household appliance industry improved slightly (to 82) and remains one of the highest-scoring industries in ACSI. Kenmore is on top at 85, followed by Whirlpool (83). However, Maytag's difficulties continue. Since 2000 its ACSI score has fallen 7 percent from an all-time high of 87.

The second quarter ACSI also includes portals, search engines, and news and information Web sites. The upward trend continues as e-business takes a step forward, gaining 1.5 percent to a score of 72.5.

Up 1 percent to 71, Internet portals show some improvement, but continue to lag both search engines and news and information Web sites.

At 67, America Online is at the bottom, even though its score is up nearly 20 percent since 2000. Faced with a diminishing number of dial-up subscribers, AOL has been forced to seek revenue by marketing higher quality content and services to non-subscribers, says Larry Freed, online satisfaction expert and CEO of ForeSee Results.

"AOL has made progress in taking advantage of their strong content and is clearly focused on improving the product they deliver to their customers," Freed says. "Whereas the recent emphasis on quality has resulted in improved customer satisfaction, it is still not high compared with competition or the national ACSI."

After a 15-percent improvement last year, search engines climb another 3 percent this year to 80, an all-time high. Google continues its sizeable lead, but its customer satisfaction is no longer growing, Freed says.

"Google's status as the industry leader is not surprising for a Web site whose name has entered the lexicon as a verb," he says. "Google has not rested on its laurels, but instead has taken the stance of aggressive innovator. Going forward, though, Google faces stiff competition from other titans of e-commerce, as the lines between search and portals blur, and companies like Amazon are making noise about getting into the search 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 about 200 companies in 40 industries and from government agencies over the previous four quarters.

The index is produced by the University of Michigan Business School in partnership with the American Society for Quality and CFI Group, and is supported in part by ForeSee Results, corporate sponsor for the e-commerce and e-business measurements, and by Market Strategies Inc., a major corporate contributor.

Company scores and other information about the ACSI can be found on the its Web site:

For more information, contact:
Bernie DeGroat
Phone: (734) 936-1015 or 647-1847