The following appeared in the February 22, 2000, issue of
THE WALL STREET JOURNAL:
more attention paid to the
bottom line than customer
satisfaction, in general."
SATISFACTION WITH
RETAIL, FINANCIAL
COMPANIES SLIPS
BY MELANIE TROTTMAN
Quality and Expectations
The continued surge in
spending in today's robust
economy doesn't necessarily mean consumers
are smiling more at the
cash register. In fact, a
quarterly survey of customer satisfaction, scheduled for release Tuesday,
indicates that customers
of retail and financialservices companies grew
less satisfied in the fourth
quarter of 1999 compared
with a year earlier. The results also show general
long-term declines in customer satisfaction since
the index's start in 1994.
Compiled by the National
Quality Research Center
at the University of Michigan Business School in
partnership
with
the
American Society
for
Quality, the American
Customer Satisfaction Index found that satisfaction
with retail companies in
the fourth quarter fell
1.9% to 73.3 out of a possible score of 100. Satisfaction with financial services also fell, by 0.7% to
73.9.
Only two categories out of
seven showed year-overyear increases, supermarkets
and
personalproperty insurance companies, both with scores
above the national average of 72.8.
"This is sort of a backside
of a growing economy,"
said Claes Fornell, a professor at the university's
research center. "What the
economy has done is increase productivity, and
there has certainly been
Mr. Fornell believes that
the quality of economic
output is as important as
the productivity of economic resources and that
attempting to improve
one without improving
the other could eventually
harm economic growth
because consumers could
become disenchanted and
curb their spending.
But other economists see
something else at work.
Brian
Wesbury,
chief
economist at Griffin, Kubik, Stephens & Co. in
Chicago, said declining
satisfaction may actually
be a function of rising expectations. "There is no
doubt that the quality of
products today is much
better than years ago, but
consumer expectations are
outstripping the ability of
companies to improve
quality." Mr. Wesbury
said that is partly because
American consumers are
fussier than ever. "Consumers are trying to force
perfection in almost everything. So if I have to
wait on line, I'm unhappy
with that. If I don't get a
dial tone on my cell
phone, I'm unhappy about
that. But cell phones are a
great product."
Still, the news isn't all bad.
The broader index, based
on a survey asking customers about their expectations and their experiences with a number of
products, shows overall
customer
satisfaction
inched up 1% to 72.8 after
factoring in the fourthquarter update on retail
and
financial-services
companies. And some
companies measured in
the quarter did increase
their ratings. However,
the declines in most
groups outweighed the
gains.
Gasoline Stations
Consider gasoline stations, a group in which
each company's score declined. BP Amoco fell the
most, by 8.4% to 76, while
Texaco Inc. declined 7.4%
to 75, and Chevron Corp.
dropped 6.2% to 76. The
culprit: higher gas prices,
which rose an average
32% last year, Mr. Fornell
said. Dan Larson, a BP
Amoco spokesman, said
he wouldn't have expected the ratings drop
for the company, which
he attributed to higher
prices. "We're in an environment of rising crude
prices, and no one likes to
pay more money," he said.
Most other energy companies echoed his comment.
Insurance Companies
The
score
for
lifeinsurance
companies
dropped as well, falling
1.3% to 76. But personalproperty insurance companies rose 2.6% in the
index to 79. Customers
buying property or casualty insurance might want
to thank Berkshire Hathaway Inc.'s Geico carinsurance unit for the improvements, said Weston
Hicks, an insurance analyst at J.P. Morgan Securities. "Consumers' exposure is shifting from the
traditional
insurance
agency that doesn't answer the phone to Geico,
which is advertising its
24-hour service." That in
2
turn has forced many of
Geico's competitors to
implement 24-hour, seven-days-a-week call centers where customers can
make changes and get information on their policies. Geico's success has
also spurred insurers to
consider new ways, such
as the Internet, to reach
customers.
Of course, it also helps
that car insurers, locked in
frenzied competition for
premium dollars, were
lowering
car-insurance
rates over much of the period covered by the survey. Customers are basically saying, "We love it
when you lower prices;
we hate it when you raise
prices," said Mr. Hicks.
Life insurers said the
same focus on when-youwant-it
answers
has
helped satisfaction stay
fairly high. A spokesman
for New York Life Insurance Co., whose approval
rating increased 5.4% to
78, said it has been "placing a great deal of emphasis on training and development" of agents and
customer-service employees at its four service centers.
Metropolitan Life Insurance Co., which is switch-
ing from a policyholderowned mutual company
to a publicly traded company in a few weeks,
dropped 3.9% to a rating
of 73 after having been on
a steady upswing since
1996.
Kevin Foley, a spokesman
for the company, noted
that the study was done in
the fourth quarter of 1999,
at a time when the company "bombarded our
customers with a lot of
mailings" about a classaction settlement and
about
the
company's
pending switch. He expects the satisfaction level
to resume its previous
upward trend.
Department Stores
Department and discount
stores also moved south in
the ratings, falling 1.4% to
72. Kmart Corp. had the
sharpest drop, 5.6%, and
turned in the group's lowest score of 67. The company was on the brink of
bankruptcy in the mid'90s before getting a new
chief
executive,
who
needed to "basically fix a
broken machine," said
Brown Brothers Harriman
retail analyst Daniel Binder. "He did a lot of things
right, but it's still got some
further room for im-
provement," Mr. Binder
said. Kmart declined to
comment.
Wal-Mart Stores Inc. and
Sears, Roebuck & Co. also
showed statistically significant declines, defined as
a drop of at least three
points. Peggy Palter, a
Sears spokeswoman, said
the retailer's own internal
data showed that customer service was improving.
Most other retailers that
saw a decline said they
hadn't seen the survey
and thus couldn't comment. Others said they
were disappointed with
the rating and were trying
hard to improve customer
satisfaction.
When ranked with supermarkets,
Wal-Mart's
Supercenters, combination
discount and grocery
stores, showed a 4% improvement in the index.
The company is simply
"doing a better job on
food," said Merrill Lynch
senior retailing analyst
Daniel Barry. Mr. Binder
said the drop at the discount stores could have
resulted from Wal-Mart
changing over some of the
operations to supercenters.
The high scorer in the
group was Costco Whole3
sale Corp., at 79. The
company had no yearearlier comparison. Analysts hailed the wholesaling giant's merchandising
strategy of selectively
providing a wide range of
high-quality products at
compelling prices. "Costco
is certainly the best of
breed in its sector," Mr.
Binder said.
Supermarket Group
The same is said to be true
of Publix Super Markets
Inc., which helped drive
the supermarket group's
score up 1.4% to 74. The
grocery-store chain's 3.8%
rise wasn't the biggest in
the group, but its score of
82 was the best, both
among supermarkets and
the entire quarterly index.
As is typical, the smaller
size of Publix's operation
makes it more adept at
handling the day-to-day
requirements of doing
business.
By contrast, the score for
Winn-Dixie Stores Inc.
dropped 4.1% to 71, which
made it and Food Lion
Inc. the lowest in the
group. "Winn-Dixie is
clearly in disarray," said
Banc of America retailing
analyst Gary Giblen, adding that numerous management changes and
shifts in merchandising
strategy have hurt the
quality of day-to-day store
conditions.
A Winn-Dixie spokesman
said the company is "disappointed" with the rating. But the spokesman
noted that Winn-Dixie
named a new president
and chief executive officer, Alan R. Rowland, in
November, and "one of
his primary objectives is
for our stores to offer
fresh quality merchandise
in pleasant supermarkets
and to meet our customers' expectations."
Supermarkets fared better
than some other retailers
because they aren't as susceptible to the tight labor
market, Mr. Fornell said.
They generally pay more
than fast-food chains or
general retail markets, analysts said.
Fast-Food Restaurants
Fast-food
restaurants,
though,
have
been
squeezed by the tight labor market. "The turnover
in this industry is just
phenomenal," Mr. Fornell
said. Even so, the group
has remained virtually
stable over the years although its scores are below
average.
McDonald's
Corp., the low scorer at
61, didn't budge from a
year earlier while Wendy's International Inc.,
Pizza Hut, and Domino's
Pizza Inc. all fell.
"McDonald's is trying to
be more responsive to customers," said Donaldson
Lufkin Jenrette analyst
Janice Meyer, who said
the company is trying to
slow unit growth and offer made-to-order burgers
instead of those pulled
from under a heat lamp.
Pizza Hut employees may
have had less time to
spend on customer service
as sales rose in 1999 on the
strength of the new New
York-style pizza product,
Ms. Meyer said. On the
flip side, Burger King,
which rose 3.1% in the index to 66, may have had
more time to focus on
consumer satisfaction because of its lower sales,
Ms. Meyer said. To tackle
the problem, many fastfood companies have
raised wages and raised
training time to attract
workers, she said.
Burger King's increase
surprised Bear Stearns analyst Joseph Buckley.
"They had disappointing
sales and spent most of
1999 trying to get off of
4
the 99-cent Whopper pricing," Mr. Buckley said.
Tricon Global Restaurants
Inc., owner of Pizza Hut
and KFC, is changing its
mix of restaurants, which
could be causing service
disruptions at stores, Mr.
Buckley said. A Tricon
spokeswoman said Pizza
Hut had "... made a significant improvement in delivery speed" since the
fourth quarter.
Financial-Service Sector
Banks had the worst
showing of all financialservices sectors, dropping
2.9% to 68 from 70.
The decline is rooted in
the strain of consolidation
and push toward electronic banking, an option that
older customers, in particular, have been hesitant
to embrace, said Brown
Brothers Harriman analyst Katrina Blecher. Mergers have resulted in customer
inconveniences
brought on by branch
closings and technical
glitches. Rising ATM fees
have also left customers
grumbling.
Bank One Corp. spokesman Thomas Kelly said
the bank's two-point decline to 66 may have been
caused by merger-related
stresses tied to the 1998
combination of Banc One
Corp. and First Chicago
NBD Corp. The companies, which formed Chicago-based Bank One
Corp., are addressing the
issues.
The only bank that didn't
fall was First Union Corp.,
which was unchanged.
To create the American Customer Satisfaction index, the National Quality Research Center conducts telephone surveys with 12,500 current customers of the companies being surveyed that quarter. Each year,
that amounts to about 50,000 customers of products from 175 companies and 30 government agencies.
Sales of the measured companies constitute 30% to 40% of the U.S. gross domestic product. Companies
are scored on a scale from 0 to 100. Industry indexes are constructed with company indexes, weighted by
the sales of each company. The national index is made up of the industry indexes, weighted by their contribution to GDP. Different sectors are updated each quarter, so the entire index is updated by sections
once each year. Customers are quizzed about their expectations and their perceptions of value and quality in the services they have purchased; for manufactured goods, quality is broken down into measures of
the product and the service accompanying the product. These are translated through computer models
into overall customer-satisfaction scores, which are used to predict customer complaints and customer
loyalty.
5
American Customer Satisfaction Index: Retail and Financial-Services Companies
The National Quality Research Center annually surveys customers of 175 companies and 30 government agencies, but each quarter it updates selected industries. Here are the index scores, out
of a possible 100, for retailers and financial-services companies. A percentage change of less than
three points for an individual company isn't statistically significant.
Group/Company
Financial Services
Banks
All Others
First Union
Bank One
Wells Fargo
BankAmerica
Gasoline Stations
Exxon Mobil
All Others
BP Amoco
Chevron
Shell Oil
Texaco
Life Insurance
Northw. Mutual Life Ins.
All Others
New York Life Insurance
Metropolitan Life Ins.
Prudential Insurance
Personal-Prop. Ins.
All Others
State Farm Insurance
Farmers Group
Allstate Insurance Group
Restaurant/Fast Food
Papa John's
All Others
Wendy's International
Pizza Hut
Domino's Pizza
Burger King
KFC
Taco Bell
McDonald's
4Q '99
Score
73.9
68
70
68
66
65
61
76
77
76
76
76
75
75
76
79
78
78
73
69
79
80
78
75
73
69
76
74
71
68
67
66
64
64
61
% Chg.
4Q '98
-0.7
-2.9
-4.1
0.0
-2.9
-3.0
-1.6
-3.8
-3.8
-1.3
-8.4
-6.2
-3.8
-7.4
-1.3
0.0
0.0
+5.4
-3.9
-2.8
+2.6
+2.6
0.0
+4.2
0.0
0.0
0.0
0.0
-2.7
-4.2
-4.3
+3.1
0.0
0.0
0.0
Group/Company
Retail
Dept., Discount Stores
Costco
Nordstrom
J.C. Penney
Dayton-Hudson Disc.
May Co.
All Others
Dayton-Hudson Dept.
Wal-Mart Stores
Sears Roebuck
AAFES
Dillard's
Federated Dept. Stores
Kmart
Supermarkets
Publix Super Markets
Wal-Mart Stores
Supervalu
Kroger
Albertson's
Safeway
All Others
Food Lion
Winn-Dixie Stores
4Q '99
Score
73.3
72
79
76
75
74
74
73
72
72
71
70
68
68
67
74
82
78
75
74
73
72
71
71
71
% Chg.
4Q '98
-1.9
-1.4
n/a
-3.8
0.0
0.0
+2.8
+2.8
-2.7
-4.0
-4.1
+2.9
-4.2
+1.5
-5.6
+1.4
+3.8
+4.0
-2.6
+1.4
+4.3
+1.4
-1.4
-2.7
-4.1
Source: The American Customer Satisfaction
Index is produced through a partnership of
the University of Michigan Business School
and the American Society for Quality
6