Slight Uptick in Customer Satisfaction May Not Be Enough to Boost Spending Growth
Third-quarter ACSI results show satisfaction gains for food and beer, but declines for athletic shoes and pet food.
ANN ARBOR, Mich.—The American Customer Satisfaction Index improved for the second straight quarter, but only slightly, says ACSI Director Claes Fornell, professor of marketing at the University of Michigan's Stephen M. Ross School of Business.
The ACSI, which measured customer satisfaction with manufacturing and non-durable goods during the third quarter, now stands at 73.2 (on a scale of 0-100), up 0.1 percent from last quarter, but down 1.5 percent from the same time last year.
The slight improvements in the ACSI the past two quarters have done little to counter the tumble that began in the fourth quarter 2004, Fornell says. Since then, the ACSI has dropped by 1.3 percent, the largest four-quarter drop since 1996-1997.
This comes at a time when Gross Domestic Product has grown by 3.8 percent, but household incomes are not keeping pace and household savings are negative, he says. The ACSI predicted lower consumer spending growth of 3.2 percent to 3.6 percent for the second quarter 2005, while actual spending growth was 3.4 percent. Similarly, the ACSI projected third-quarter growth of 3.7 percent to 4.0 percent, while actual growth was 3.9 percent.
However, despite the historical relationship between customer satisfaction measured in one quarter and consumer spending in the following quarter, the outlook for spending in the fourth quarter is unclear, Fornell says.
"Combine this marginal rise in customer satisfaction with uncertainty due to high energy prices, recent natural disasters and increasing interest rates, and we really don't have any reason to be optimistic that consumer spending will substantially increase during the fourth quarter," he said.
Overview of Results
Third-quarter results present a mixed picture with a large decline for athletic shoes (down 6 percent to a score of 77) and a small drop for pet food (down 1 percent to 82), but with a 1 percent improvement for non-durables as a whole. In particular, there were gains for breweries (up 4 percent to 82) and apparel (up 3 percent to 81), combined with less significant progress for food products (up 1 percent to 82) and cigarettes (up 1 percent to 79). The soft drink and personal care products industries were both unchanged from last year (both at 83).
"Manufacturing and non-durables industries are historically among the most satisfying in the ACSI," Fornell said. "In general, manufacturers deliver higher satisfaction than service providers---the human element in services tends to make reliability more variable. Also, particularly in the case of non-durable goods, intense competition over a vast array of products and low switching-costs help keep satisfaction relatively high across the board."
Food: Heinz Rules Again
With a score of 82, customer satisfaction with food manufacturing—consisting of a wide array of products ranging from meat, cheese and canned fruits and vegetables to cereal, crackers and chocolate—is one of the most stable and high-scoring industries in ACSI.
H.J. Heinz remained the leader in the industry for a sixth straight year, hitting a new record with a score of 91, which is the highest score ever recorded in the ACSI. With scores of 88 and 86, Quaker Foods and Hershey are also near the top of the industry and among the highest scorers in the entire ACSI. ConAgra, which has shed various pieces of its non-food and agricultural operations to focus more on its branded packaged food business, joins them with the largest improvement of any company in the industry this year, up 5 percent to 86—its all-time high.
Beer: Is Improved Satisfaction Enough to Halt Slipping Consumption?
Following a decline in customer satisfaction last year, beer industry sales volume continued to shrink. But the beer industry may get some relief from improved 2005 customer satisfaction across the board, Fornell says.
"The whole beer industry made improvements in customer satisfaction," he said. "And that's welcome news at a time when consumers increasingly show a preference for wine and spirits."
For the first time since 1996, all the major breweries are within a point of specialty and craft beers (microbrews), which scored an 82. Adolph Coors increased 5 percent (to 82), and Anheuser-Busch (also at 82) improved 4 percent.
Although the improvement in customer satisfaction is good news for the industry, no individual company seems to have an edge, Fornell says. Among all competitors, including the smaller microbrewers, it is virtually a dead heat—Molson Coors, Anheuser-Busch and the aggregate of smaller brewers are all at the industry average of 82. SABMiller, right behind at 81, is up 3 percent from a year ago.
Athletic Shoes: Higher Prices Eroding Satisfaction
Customer satisfaction with athletic shoes, a $16-billion-a-year industry, is at a four-year low. Both major shoe manufacturers measured by the ACSI declined—both are now at 75, with NIKE down 4 percent and Reebok down 3 percent.
The culprit is price, Fornell says. Men's athletic shoes are priced about 5 percent higher and women's almost 10 percent higher than a year ago. Historically, ACSI data have shown that changes in customer satisfaction often foretell similar changes in financial performance, which could be bad news for companies like NIKE and Reebok, he says.
Apparel: VF, Jones Make Gains
Last year, VF Corp., the world's No. 1 maker of jeans (including Lee, Wrangler and Rustler brands), dropped 6 percent in the ACSI in the wake of a major reorganization that included an expansion into sports lifestyle brands via the acquisition of Nautica, Vans and Reef Holdings.
A year later, the changes may be paying off, as VF rebounded, Fornell says. Its ACSI score jumped 4 percent to 82. Sales are up 15 percent from a year ago and its stock price increased almost 20 percent over the last year.
The largest change in the industry is the 7-percent ACSI improvement for Jones Apparel, now at an all-time high of 82 and sharing the lead with VF.
Pet Food: Consistently High Satisfaction
The ACSI score for the pet food industry declined 1 percent to 82. Like food manufacturing, pet food companies demonstrate a great deal of stability in satisfying their customers, Fornell says. It is also a fairly high-scoring industry in which it is rare for a company to drop below an ACSI score of 82.
The big news this year is the improvement of Del Monte, up 5 percent to 83, a year after the company sustained a 6 percent drop, Fornell says. Better quality and value for money are behind Del Monte's improvement in pet food, which accounts for 25 percent of the food manufacturer's total sales revenues.
All competitors are grouped tightly around the industry average, within the range of 81 to 83. Nestle Purina PetCare, the world's largest pet food manufacturer, drops 4 percent to 81, its lowest score in five years.
Complete table of company and industry scores: http://the acsi.org/third_quarter.htm
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 40 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, corporate sponsor for the e-commerce and e-business measurements, and by Market Strategies Inc., a major corporate contributor.
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