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Consumer Spending Will Remain Strong as Customer Satisfaction Hits All-Time High

2/21/2007 --

Retail, finance and e-commerce improve in the American Customer Satisfaction Index.

ANN ARBOR, Mich.—Customer satisfaction with goods and services that Americans buy reached an all-time high in the fourth quarter of 2006, according to the Ross School’s latest American Customer Satisfaction Index.

The ACSI climbed to 74.9 on the index’s 100-point scale, up 0.7 percent from the previous quarter and nearly 2 percent higher than a year ago. This is the highest score the ACSI has ever registered since its first measure in 1994 (74.8).

ACSI has consistently predicted future consumer spending and is an indicator of financial performance at both the company and industry level. The latest data suggest that satisfied consumers will continue to prop up the economy, driving consumer spending growth of between 3.5 percent and 4.1 percent for the first quarter of 2007, according to Claes Fornell, director of the University of Michigan’s National Quality Research Center, which compiles and analyzes the ACSI data.

“In view of these results, it is not surprising that the consumer continues to lift the economy despite the housing slump,” said Fornell, professor of marketing at the Ross School of Business. “The economy may not be coming in for a soft landing. With the confluence of a number of favorable economic factors, there may be no landing at all.

“Rising wages, little inflation and falling unemployment combined with higher customer satisfaction and strong consumer confidence suggest the trend in spending growth will continue to drive economic growth,” Fornell said.

Every fourth quarter, ACSI measures customer satisfaction for the retail and financial services sectors and e-commerce. Improvements in customer satisfaction occur across the board with nine of the 13 industries measured in the fourth quarter showing improvements.

Retail: Home Depot Steps Up, New Low for Lowe’s; Big Boost for Best Buy

Customer satisfaction with the retail sector, which includes department and discount stores, specialty retail stores, supermarkets, gas stations and health and personal care stores, made a big jump, up 2.8 percent to 74.4 on the ACSI’s 100-point scale.

The specialty retail stores industry improved 1.4 percent to 75. Leading the industry once again is Costco, which rose 2.5 percent to 81, its highest score ever and one of the highest in all of ACSI. The biggest gain in the retail trade goes to Best Buy, whose score rose 7 percent to 76. Top-line products and extensive service offerings are helping the retailer to improve customer satisfaction, even while it has added many stores over the last year.

Scores for Home Depot and Lowe’s moved in opposite directions in 2005 with Home Depot dropping and Lowe’s on the rise. Their stock performances over the last four years have mimicked that trend, again illustrating the link between customer satisfaction and stock prices, Fornell said. But this time both companies reversed course, as Home Depot’s ACSI score improved 4.5 percent to 70 and Lowe’s dropped 5.1 percent to 74---its lowest score ever.

“Home Depot’s $350 million investment in store operations, new hires and more training may be paying off,” Fornell said. “The gap in customer satisfaction between Home Depot and Lowe’s is closing, but Lowe’s still holds a significant lead. Their challenge is to maintain strong customer service even as they accelerate growth and open more stores.”

The department and discount stores industry is one of the industries that did not improve this year, slipping 1 percent to 74. No measured company in the industry made an improvement and the “all others” category of stores with smaller market shares declined 4 percent. Kohl’s maintained its leadership position with a strong score of 80, followed by J.C. Penney, which held steady at 78 for the second year in a row. Target (77) and Dillard’s (75) dropped 1.3 percent, while Federated Department Stores (71) fell 4.1 percent.

Supermarkets improved slightly, up 1 percent in the aggregate to 75. Publix reached a new high, improving 2.5 percent to 83. The company is partly employee-owned and has a reputation for good customer service and a family-friendly atmosphere, Fornell said. SUPERVALU dropped 4 percent to 74 as it absorbed some Albertson’s stores in an acquisition.

“Albertson’s had been a poor performer before being acquired, and its less satisfied customers surely have impacted SUPERVALU’s score,” Fornell said.

The drug store industry is up 2.6 percent from its first measurement last year. CVS makes a big jump of 5.4 percent to 78 and Rite Aid is up 4.2 percent to 75. Both companies have added more outlets, defying the convention that mergers compromise customer service, Fornell said. New computer technologies have helped drug stores keep highly interconnected, allowing prescriptions to be refilled at any store. Also, more locations mean greater convenience.

Finance: Banks Cash In, Life and Health Insurance Register Healthy Increase

Every industry except one in the finance and insurance sector has improved customer satisfaction. In the aggregate, finance and insurance jumped 2.7 percent to 76, its highest score since 1994 (78.5). The sector includes commercial banks and property and life and health insurance.

Commercial banks reached a new high of 77, continuing a steady trend of improvement that goes back to 2000. The 2.7 percent increase is driven by improvements by Wachovia (up 1.3 percent to 80), JPMorgan Chase (up 3 percent to 72) and Wells Fargo (up 7.5 percent to 72).

Improvements in quality and value are driving customer satisfaction gains for life and health insurance. The jump in life insurance scores (up 5.3 percent to 79) is led by MetLife, which climbed 10 percent to 78. Though health care costs continue to climb, both health insurance premiums and drug costs grew at a slower pace in 2006. Health insurance is up 6 percent to an all-time high of 72.

E-Commerce: Amazon, Lead; Online Brokerages Improve

E-commerce, which includes e-retail, online auctions, online brokerages and online travel, improved for the second year in a row and at 80 is near its all-time high.

Online retail is one of the highest-scoring industries of ACSI, and improves this quarter 2.5 percent to 83. (up 1 percent to 88) continues to lead the industry, followed closely by (87).

eBay dropped slightly to 80, but still leads online auction sites. Selling both new and used products in 45,000 different categories, eBay also competes with online retailers and continues to do well financially, Fornell said.

Online brokerage hit a new high-water mark at 78, up 2.6 percent from last year. Charles Schwab led the charge, up 8.1 percent to 80. New to the ACSI this year are Fidelity (80) and TD Ameritrade (77). E*TRADE also improves, up 4 percent to 74, though it still lags others in the category.

The online travel industry is one of the few to lose ground this quarter, dropping 1 percent to 76. Though there are only slight fluctuations among the main players---Orbitz, and Expedia---the decline is mostly due to smaller travel Web sites, which dropped 4 percent.

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, corporate sponsor of the e-commerce and e-business measurements.

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