Customer Satisfaction Drops Again

Customer Satisfaction Drops Again and Consumer Spending Likely to Weaken Further, According to ACSI

Satisfaction in the Retail and Financial Services Sectors Falls, while E-Commerce Reaches All-Time High

ANN ARBOR, Mich. (February 19, 2008) – Customer satisfaction with the goods and services that Americans buy declined in the fourth quarter of 2007, according to a report released today by the University of Michigan’s American Customer Satisfaction Index (ACSI). The index falls 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. 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.

“Falling customer satisfaction has a dampening effect on consumer demand, and household debt to income ratios affect consumers’ ability to spend. Both are moving in the wrong direction, brewing up a double-whammy that may hit the economy hard said Claes Fornell, head of the ACSI and author of The Satisfied Customer: Winners and Losers in the Battle for Buyer Preference. “In such an environment, customer satisfaction becomes even more important because satisfied buyers tend to reduce sellers’ cash flow volatility.”

ACSI measures retail, finance and insurance, and e-commerce 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, slips 0.3 percent to 74.2 on ACSI’s 100-point scale.

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.

Nordstrom succeeds where Wal-Mart hasn’t. Nordstrom is reintroduced to ACSI after increasing its market share, and it leads the department and discount store industry with a score of 80 as a result of high quality merchandise and superior customer service.

Discount store giant, Wal-Mart, takes 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. Wal-Mart also scores lowest in the industry for customer service.

Deep discount store Dollar General makes 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 expands 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 improves 1 percent to 75, widening the gap between the rivals.

“Operational efficiencies don’t always translate into customer service improvements,” said Fornell. “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 slides 3 percent to a score of 74 while Circuit City improves 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, like Nordstrom, offers high quality products and superior customer service, which has been the foundation for the lead in customer satisfaction over the past 15 years. Winn-Dixie plunges 7 percent to tie Wal-Mart’s supermarket business at the bottom of the industry at 71. Whole Foods Market makes 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 drops 0.7 percent to 75.5, a retreat from the gains last year that put the sector at its highest level since 1994.

Banks climb 1.3 percent to 78, lead by improvements in the “all others” category, up 3 percent to lead the industry with a score of 80. Wachovia, down 1 percent to 79, is still the top scoring bank, despite its first drop since 2000. JPMorgan Chase climbs 3 percent to 74, and Bank of America is unchanged at 72. Wells Fargo and Citigroup each drop 4 percent to 69, the lowest scores in the industry.

The property and casualty insurance industry improves 2.6 percent to 80, its highest score in over a decade. Progressive (79) makes the biggest jump of any company, up 8 percent to 79. Various website improvements and rate cuts helped fuel the recent surge in customer satisfaction. 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 slips 4 percent to 80, while Farmers falls 3 percent to 76. Allstate remains unchanged at 78.

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

E-Commerce: Amazon is King in Customer Satisfaction

The e-commerce sector rises 2.0 percent to a new high of 81.6. In the highly competitive e-retail category, Amazon.com leads with a score of 88, one of the highest regardless of industry. Amazon.com has been successful at keeping pace with increasing customer expectations and improving the customer experience accordingly. Newegg, Netflix, and Overstock make their first appearance in the e-retail category this year. Newegg (87) and Netflix (84) debut just behind Amazon, while Overstock’s first appearance is at the bottom of the industry with a score of 80.

The online brokerage category also advances 1.3 percent to 79, a new high despite a shaky stock market. Fidelity leads, up 5 percent to 84, a new all-time high for the company. Another strong gainer, TD Ameritrade, climbs 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. ACSI can be found on the web at www.theacsi.org.

This article is being republished with permission from Kearns West.

If the Economy Sours, What Will Your Customers Do?

Recent news coming from Wall Street won't exactly fill your stockings with Holiday cheer. In fact, it may make you think about tucking a bit of your discretionary cash under the mattress for the proverbial rainy day. If the economy does sour, what will your customers do? Will they continue to spend as they always have, or will they begin to pare back spending?

Typically, the U.S. consumer is a hearty bunch. Despite previous economic setbacks, consumer spending has kept the economy moving forward; the result has been six consecutive years of U.S. GDP growth, including a robust 4.9 percent growth rate in the 3rd quarter of 2007 according to the U.S. Department of Commerce. But the latest round of economic signs should prompt all businesses to think twice about where the economy might be headed.

The economy may very well weather the latest storm of rising energy prices, falling home values, and tightening credit markets and continue its long running growth trend. If so, then businesses should simply ignore all of the shouting and arm waving about a potential recession. But what if consumer spending doesn’t bail out the economy this time?

Recent economic news won’t do much to comfort the U.S. consumer psyche:

Consumer Confidence Drops: The November 2007 Consumer Confidence Index as reported by The Conference Board fell to 87.3, continuing a downward slide since the feel-good ratings of 105.6 posted in August.

Property Values to Decline: The U.S. Conference of Mayors report that property values could decline as much as $1.2 Trillion across the U.S. in 2008.

Personal Income Growth is Slowing: Personal income grew only 0.2 percent annually in October, down from 0.4 percent in September according to a report published on CNBC.com.

For more news on the US economy, see the article US Economy Sees More Signs of Weakness posted on CNBC.com.

Perhaps nobody can truly predict how the economy will perform or how consumers will respond. But the U.S. consumer is being squeezed on a number of different fronts. Personal income growth is slowing, home values are declining, and variable rate mortgages will affect millions of households. As a result, consumers may change their spending behaviors to respond to these financial pressures.

Being prepared for a potential change in consumer spending behavior may be the best medicine for your business. Don’t be caught off guard if your customers cut back spending or defect altogether because of increasing price sensitivity. Instead, develop a strategy that can better prepare your business for a variety of potential scenarios.

Every business should incorporate some form of scenario planning into their business strategy, especially in times of economic uncertainty. Scenario planning is a strategy planning method that identifies and anticipates how the business will respond given a series of potential economic or business outcomes.

For example, how would you compete for customers if your competitor cut prices by 25%? Or 50%? What would happen if an economic recession cut the demand for your product or service in half? Would your business be in a position to capitalize if a chief competitor went out of business? What would your business do to prevent a spike in customer defections? Although not every scenario is equally probable, being prepared with a plan or strategy can better position your business to weather any potential economic storm.

Begin your preparations today by creating a comprehensive list of potential scenarios that could impact your business. List all scenarios, regardless of how outlandish they may seem. Then assign a probability factor to each scenario. Those scenarios that have the highest probability should form the foundation of your business strategy in the short term. Evaluate your business’s ability and readiness to respond to each scenario then develop a plan to fill any gaps.

Changing economic and market conditions can have both short and long term affects on consumer behavior. Therefore, businesses should review their list of scenarios regularly and continually adjust the probability of each scenario. By doing so, you just might be better prepared to handle whatever the economy might throw at you and your business.

Three Key Cross-Channel Trends

If you’ve listened to your customers – or attended a retail industry conference - over the past five years, then you know that cross-channel retailing continues to be a hot topic. Not only are more and more Americans going online, but a growing percent of them use the Internet to research and purchase products. Retailers can no longer fudge their online experience; customer expectations for online customer service levels are also rising.

All businesses should take note. Although the impact of cross-channel buying behaviors is most prevalent in the retail industry, it is a trend that will increasingly impact all businesses in nearly every industry.

1. More Consumers Are Going Online

In the late 1990’s, the era of irrational exuberance was in full form. Internet companies of all kinds promised to change the world with their latest e-product, e-exchange, or e-service. You may recall that stock prices for just about any e-Business climbed to unprecedented (and apparently unfounded) heights. It all came crashing down as the now infamous dot-com bubble burst.

Although many investors turned their backs on dot-com companies as a result, consumers did not; the number of people surfing and shopping online has continued to climb. Today, an impressive 73% of adult Americans use the Internet, according to the Pew Internet Project. Not only is the total number of on-line surfers steady and growing, but the amount of time they spend online is also increasing. Those numbers will only continue to increase as today’s well-connected teenagers grow into tomorrow’s prospective customers. Today’s teenagers age 12-17 are even more connected than their adult counterparts, with 87% of teenagers going online according to the Pew Internet Project.

The importance of the Internet in everyday life also continues to climb. From product research to social networking or from news & entertainment to health care research, today’s consumers are increasingly looking to the online channel. It’s becoming hard to avoid it. In 2007, 47% of adult Americans have a broadband Internet connection at home, according to the Pew Internet Project. Most working adults have a computer on their desk that can access the Internet, and many mobile telephones now have web access on their tiny screens. Furthermore, Wi-Fi connections are becoming as common as your local Starbuck’s store and cable operators continue to look for ways to integrate Internet access with traditional television service.

Any business that turned their back on the Internet as a result of the dot-com collapse in 2001 has in effect, turned their back on their customers. Although many early dot-com businesses collapsed, some in spectacular fashion, it has not dissuaded the lure of the online experience. As more potential customers are going online, businesses should take note. Without a viable Internet presence, your business is missing out.

Key Trend: If you think you can afford to ignore the Internet channel; think again. 73% of adult Americans, and 87% of teenagers, are online today.

2. More Are Using The Internet to Research and Shop

As more and more adults are going online, a growing percent of them use the Internet to research and purchase products. Over 70% of all online consumers use the Internet to research products, according to Forrester Research. That translates into $400 Billion of store sales – or 16% of total retail sales – that are directly influenced by the web as consumers research online and buy offline; a trend that is forecast to grow at a compounded annual rate of 17% through 2012 according to Forrester Research.


The influence of the Internet on retail transactions could have an even bigger impact. By 2009, 41% of all U.S. retail transactions will be influenced by online experiences, according to Jupiter Research.

The Fortune 500™ rankings are further proof that the Internet should be a strategic channel for any retailer. Pure Internet companies Amazon and eBay have passed some well known traditional retailers in the rankings. According to Fortune’s 2007 rankings, Amazon has passed notables Barnes & Noble, Borders, and Limited in total revenues. eBay has passed other well-known brands including Bed Bath & Beyond, Molson Coors, and Ross Stores.

Regardless of how you slice it, the impact of the Internet on retail transactions will make up a sizeable component of how consumers research and buy products.

Key Trend: Consumers are increasingly using the Internet channel to research and purchase products. Over 70% of all online consumers use the Internet to research products. By 2009, 41% of all U.S. retail transactions will be influenced by online experiences.

3. Expectations are Rising

As adults become more comfortable with the Internet, their expectations for their online experience are increasing. In fact, 85% of adults expect their online service levels to be the same as offline, an increase of 3% from the prior year, according to a survey conducted by Tealeaf. If those service level expectations aren’t met, 40% of online consumers will abandon their transactions entirely or turn to a competitor according to the Tealeaf survey.

The online world has also become a key influencer in purchasing decisions. An impressive 43% of American adults identified online information as the most powerful influencer of their purchase decisions according to a report published by Accenture.

The large majority of adults now expect to be able to choose from a multiple shopping channels. In fact, 80% of consumers feel that it is important to have a choice of shopping in multiple channels when choosing a retailer, according to a Sterling Commerce survey. The survey also found that 90% said it was important to be able to return an item purchased online in a physical store; underlying the importance of cross-channel integration to the consumer.

While the retail industry seems to have embraced the Internet with online catalogs, promotions, and interactive product selectors, other industries should take note. The impact of the Internet on buying decisions is here to stay. Here at ClearBrick, we anticipate that cross-channel integration will become an increasingly important element in other industries as well. The highly fragmented health care industry – for example – will likely see an increasing demand for integrated online and offline services including scheduling, diagnosis, insurance claims, and the holy grail of health care - medical records.

Key Trend: Customers’ expectations for shopping across multiple channels is increasing.

• 85% of adults expect their online service levels to be the same as offline.
• 43% identified online information as the most powerful influencer of their purchase decision.
• 80% feel it is important to have a choice of shopping across multiple channels when choosing a retailer.
• 90% said it was important to be able to return an item purchased online in a physical store.
  

Recommendations

The Internet is not just for retailers anymore. As adults become increasingly comfortable with the Internet, they grow more reliant it for their purchasing decisions. Any business that does not have a viable Internet presence needs to catch up. Simply putting up a web page is not enough. Businesses should seek to create an online experience that mirrors – or exceeds – offline service levels.

Integration is key. Online and offline channels should not be treated as independent and disconnected offerings. Creating a seamless experience between online and offline channels is very important. Customers overwhelmingly expect a seamless customer experience between online and offline channels. Start by making your business web site functional – not just informational. Offer a way for customers to initiate or complete a transaction online and coordinate that experience with corresponding offline services.

Although the dot-com era as we know it may have died in 2001, the Internet has continued to grow into a business channel that businesses can no longer ignore or neglect.