The Imperative of National
Customer Satisfaction Measures
By
Professor Claes Fornell
University of Michigan
Mexico City, September 2009
Sources of Economic Growth
Productivity
Quality
Sustainable Economic
Growth
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1
Benefits to the Economic
Decision Makers
Investors
Business Managers
Government
Consumers
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2
Investors Need to Know…
The relationship between a firm’s
current condition and its future
capacity to produce wealth
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3
Managers Need to Know…
How to improve the firm’s current
condition by allocating scarce
resources such that the strength of
the customer relationships are
maximized
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4
Government Needs to Know…
How to best encourage economic
growth and living standards for
its citizens
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5
Consumers Need to Have…
A voice in measures that reflect their
economic living standards
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6
Why Now?
The Economy is Changing
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7
Why Now? The Global Forces
Movement of:
Information
Capital
Work (not labor)
Shift in the balance of power in favor of the buyer –
at the expense of the seller
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8
Consumer utility is the true standard
for economic growth
Sellers compete for buyer satisfaction
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9
Implications
• The cost of poor service will be borne by the
seller
• When buyers are powerful, assets of supply
(balance sheet assets) have little predictive
power
• Productivity and quality of economic output must
be better balanced
• Capital follows power
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10
ACSI: A Growing Presence in the US
“The American Customer Satisfaction Index, the definitive benchmark of how
buyers feel about what business is selling them.”
- New York Times, August 8, 2004
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11
A Brief Introduction to ACSI: Data
280,000 telephone numbers
Sampled randomly
Screened: Recent experience as a
customer of the selected companies
80,000 telephone interviews
+ 4,000 internet interviews
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12
A Brief Introduction to ACSI: Analysis
The ACSI Equations
E[ η| η, ξ ]  Βη  Γξ
where  = (1, 2, ..., m) and  = (1, 2, ..., n) are
vectors of unobserved endogenous and exogenous variables,
respectively; B (m x m) is a matrix of coefficient parameters
for ; and G (m x n) is a matrix of coefficient parameters for
. The PLS estimation implies that E[0, 0,
and 0, where - |,.
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13
A Brief Introduction to ACSI: Analysis
The ACSI Equations
 1   0
   
 2   21
 3     31
  
 4   0
 5   0
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0
0
0
0
0
0
 32
0
0
0
 43
 53
0
0
 54
14
0   1   11 
 1 
 
0   2   21 
   
 2
0   3    31    3 
   
 
0   4   0 
 4 
 5 
0   5   0 
A Brief Introduction to ACSI: Analysis
The ACSI Equations
y  Λy η  ε
x
Λ
x
ξ δ
where y = (y1, y2, ..., yp) and x = (x1, x2, ..., xq) are the
measured endogenous and exogenous variables,
respectively. Ly (p x m) and Lx (q x n) are the
corresponding regression coefficient matrices. By
implication from PLS estimation (Fornell and Bookstein,
1982), the noise or measurement error has the
properties E[e] = 0, E[d] = 0, E[e] = 0, and E[d] = 0.
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15
A Brief Introduction to ACSI: Analysis
The ACSI Equations
 x 1  11 
d 1 
x      d 
 2   21 
 2
x 3  31 
d 3 
 y1   11 0
 y  
 2   21 0
 y3  31 0
  
 y4   0 12
 y5   0 22
  
0
 y6    0
y   0
0
 7 
0
 y8   0
y   0
0
 9 
 y10   0
0
  
0
 y11   0
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0
0
0
0
0
0
0
0
0
0
13
23
33
0
0
14
0
0
0
0
0
0
16
0
 e1 

e 
0
 2
 e3 
0

 
0 1   e 4 
0 2   e 5 

 
0 3    e 6 
 
0 4   e 7 

 


0 5   e 8 
e 
0

 9
e 10 
15 

 
25 
e11 
ACSI Scores – National, Sector & Industry
Q3 2008 – Q2 2009
76.1
Utilities
73.7
E-Business
81.5
Transportation
72.6
Manufacturing/
Nondurable Goods
82.3
Information
70.2
Public Administration/
Government
67.9
Hospitals 77
Ambulatory Care 80
Health Care &
Social Assistance
78.5
Retail Trade
75.2
76
74
74
76
78
Supermarkets
Gasoline Stations
Department & Discount Stores
Specialty Retail Stores
Health & Personal Care Stores
Hotels 75
Full Service Restaurants 84
Limited Service Restaurants 78
Accommodation &
Food Services
78.9
Finance &
Insurance
76.0
75
84
73
78
81
Banks
Credit Unions
Health Insurance
Life Insurance
Property & Casualty Insurance
Manufacturing/
Durable Goods
81.6
E-Commerce
80.0
Energy Utilities 74
Airlines 64
U.S. Postal Service 74
Express Delivery 82
Newspapers 63
Motion Pictures 74
Computer Software 75
Fixed Line Telephone Service 72
Wireless Telephone Service 69
Cellular Telephones 72
Cable & Satellite TV 63
Network Cable TV News 71
Personal Computers
Electronics (TV/VCR/DVD)
Major Appliances
Automobiles & Light Vehicles
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75
83
81
84
17
74 Internet News & Information
83 Internet Portals/Search Engines
83
84
79
85
Food Manufacturing
Pet Food
Athletic Shoes
Personal Care &
Cleaning Products
83 Soft Drinks
83 Breweries
78 Cigarettes
80 Apparel
68.0 Local Government
67.8 Federal Government
82 Retail
74 Brokerage
75 Travel
A Brief introduction to ACSI:
Graphic Model
Perceived
Product Quality
Perceived
Service Quality
• Reliability
• Customization
• Overall
• Reliability
• Customization
• Overall
Customer
Complaints
Perceived
Overall Quality
• Overall
• Customization
• Reliability
Customer
Expectations
Customer
Satisfaction
(ACSI)
Perceived
Value
• Price Given Quality
• Quality Given Price
•
•
•
•
• Overall
• Customization
• Reliability
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Satisfaction
Comparison w/ Ideal
Confirm/Disconfirm
Expectations
• Complaint Behavior
Customer
Loyalty
• Repurchase Likelihood
• Price Tolerance
• (Reservation Price)
18
Growth in ACSI and Consumer Spending:
1995 – 2009 (Q2)
8%
7%
Annualized, Seasonally Adjusted Rate of Growth
6%
5%
6%
4%
3%
4%
2%
1%
2%
0%
-1%
0%
-2%
-3%
-2%
-4%
-5%
-4%
% Quarterly Change in Consumer Spending
% Quarterly Change in ACSI (lagged)
-6%
-7%
-8%
Source: Consumer Spending from U.S. Department of Commerce, Bureau of Economic Analysis
© 2009 CFI Group. All rights reserved.
-6%
19
The Global Context
Global Forces:
Information
Capital
Work (not labor)
How do they affect the buyer-seller relationship?
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20
The Buyer – Seller Relationship
Who Benefits Most?
• Who is getting more choice? The buyer
• Who is becoming more replaceable? The seller
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21
The Buyer – Seller Relationship
The Result:
The balance of power between buyers
and sellers is shifting in favor of the
buyer.
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22
The Effects
Punishment and Rewards
Corporate Balance Sheets
Capital Movements
Business Strategy
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23
For Investors:
Do customers
know something
investors don’t?
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24
The Conventional Answer:
No, because markets are
efficient and reflect all
available information
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25
But…
How does this
information reach
investors (satisfied
customers are not on
the balance sheet)?
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26
Is there another answer?
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27
Shift in Power Between Buyer
and Sellers
Capital Follows Power
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28
Rewards and Punishment
The Successful Seller
Product Markets
Seller
Equity Markets
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29
Rewards and Punishment
The Unsuccessful Seller
Punished by:
• Buyer defection in product markets
• Capital withdrawal from equity markets
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30
Can You Beat the Market?
Only if you know something
that others don’t
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31
10 Years of Annual Returns
CSAT Stock Portfolio 2000 - 2009*
50%
S&P 500
40%
36%
ACSI Stock Portfolio
31%
30%
26%
22%
22%
18%
Yearly Performance
20%
13%
11%
14%
16%
9%
10%
4%
3%
0%
-6%
-10%
-9%
-12%
-13%
-20%
-23%
-26%
-30%
-40%
-39%
-50%
2000
2001
2002
2003
2004
*2009 is YTD through September 18
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32
2005
2006
2007
2008
2009
Even Lower Risk – Market Neutral vs.
HFRX Equity Market Neutral Index
*2009 is YTD through July
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33
From Investment to Business
Management
Good Customer Asset Measurement Tells Us:
•
What the company has done to its customers
•
What customers will do to the company
•
What the company can do to affect the above in
the future
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34
For Management
What Losers Do
> Buy customer loyalty with price discounts
> Get short term profit at the expense of
weakening customer relationships
> Get too close to the customer
> Try to exceed customer expectations
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35
For Management
What Winners Do
> Manage customer relationships as true economic assets
> Balance productivity and service quality
> Maximize customer complaints
> Earn loyalty of customers by satisfying them
> Combine time and space
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36