Transportation/Communications/Utilities and Services: Industry and Company Results
June 3, 2004
Commentary by Professor Claes Fornell
The Donald C. Cook Professor of Business Administration
Director, National Quality Research Center, Stephen M. Ross Business School at the University of Michigan
Chairman, CFI Group
Increase in ACSI bodes well for the Economy
Big Gains for Newspapers and Hospitals - Customer Satisfaction with the
Cable Industry Remains Dismal
The American Customer Satisfaction Index (ACSI) continues its upward trend. It
is now at its highest level since measurement began in 1994. Even though there
are many areas that could stand further improvements in quality and service,
customer satisfaction has benefited from a confluence of factors. Among them is
the fact that many companies have been forced to try harder to please customers
in order to generate more revenue. Although there are now signs that prices are
on the rise, consumers have been shielded from much of the inflation thus far.
Interest rates remained low during the first quarter and employee turnover was
low as well. Low turnover typically contributes to better service as well as
productivity. Job insecurity is also a factor. When people are insecure about
their employment situation, they are likely to try harder and demand less.
Again, the consumer is the likely beneficiary.
Based on an update of the Transportation/Communications/Utilities and
Services sectors for the first quarter of 2004, the overall ACSI now stands at
74.4, which is an improvement of one-half of a percentage point since last
quarter.
The overall ACSI reflects changes in the nation's quality of economic
output, as experienced by the household users of that output. The economy's
ability to create increasing consumer utility is central to economic health and
real economic growth. After all, consumer utility, or satisfaction, is the
ultimate standard for productive growth, not only because consumer spending
makes up two-thirds of GDP but also because this is the fundamental premise of
a market economy: companies compete for the satisfaction of their customers. If
they succeed, they are rewarded with more repeat business and lower price
elasticity. Economic growth at the expense of customer satisfaction, which
occurred in 1995-1996, is not sustainable, as it has a negative effect on
demand. Rather, the continued improvements in ACSI contribute to upward shifts
in consumer demand, which translate into GDP growth.
Since the inception of ACSI in 1994, the relationship between quarterly
changes in the Index and subsequent consumer spending growth has been strong.
It has also been largely immune to changes in household income, debt, or
consumer confidence and a better predictor of spending than these variables.
Rather, the combination of low inflation and increasing household satisfaction
with consumption has been a leading indicator of spending. The graph below
shows the correspondence between quarterly CPI-adjusted changes in ACSI and the
Consumer Price Index and subsequent changes in consumer spending.
With the recent increase in the CPI, it is possible that consumer demand
might be somewhat tempered despite increasing levels of customer satisfaction,
but the overall outlook is for continued increased spending and healthy
economic growth.
Even though aggregate customer satisfaction continues to improve, with the
American Customer Satisfaction Index (ACSI) at its highest level in 10 years,
first quarter 2004 results for individual industries and companies are mixed.
In fact, customer satisfaction has deteriorated for half of the measured
companies. The gains come from newspaper readers, moviegoers, shippers of small
packages and hospital patients. Patient satisfaction has improved by 4% to a
score of 76. This is an all-time high for hospitals and an improvement of 13%
since 1997. Moviegoers are more pleased as well. The index for motion pictures
is up by 3% to a score of 73 - somewhat below the satisfaction for hospitals.
This does not mean that going to the hospital is generally more satisfying than
going to the movies. The context within which services are delivered and
products consumed is obviously of some significance. Newspapers have rebounded,
following a dip in 2002 and 2003, with a gain of 6% to a score of 68. Parcel
delivery continues perform well; its ACSI climbs by 3% to a score of 81.
It is the combined effect of these industries, some of which represent a
large part of the economy, that results in a positive change in the overall
ACSI. However, quite a few individual companies have moved in the opposite
direction. After some improvement during the past two years (mainly because of
decrease in passenger load), the airlines slip again. The drop is small (2% to
a score of 66), but the growth over the past two years has been halted. Small
declines are also evident among telephone companies (down 1% to 71), broadcast
television news (down 3% to 66), utilities (down 1% to 72) and hotels (down 1%
to 72). Cable/Satellite TV remains at a low of 61, dragged down by the dismal
scores among cable companies. For the first time this quarter, ACSI also
reports on cellular service providers and wireless phone manufacturers. Both
score below the ACSI average. Providers come in at 65 and manufacturers at 69.
Parcel Delivery and Express Mail
Small package shipping has always been a high scoring industry. Its score
jumped 3% in 2004 and is now at 81 - one of the highest scoring service
industries ACSI. FedEx, UPS and the Postal Service have all improved. FedEx
maintains its lead with a score of 83 (compared with UPS at 80 and USPS at 77),
but the gap with the Postal Service continues to shrink. Ten years ago, the gap
was 16 points; it is now 6 - a reduction of more than 60%. As a result,
consumer complaints for USPS are down. What is even more important is that its
customer retention levels have actually surpassed both FedEx and UPS, even
though customer satisfaction is not as high.
Airlines
In an environment of increasing fuel costs, intense competition from discount
carriers, and continual labor challenges, it is not surprising that many of the
airlines are having difficulty providing good passenger service. The ACSI score
of 66 is a drop of 2% compared with last year. Partly as a result of reduced
traffic, the airline industry managed to improve passenger satisfaction in the
past two years. Now, however, it appears that the climb in satisfaction has
come to a halt. Most carriers are looking for ways to cut costs. In fact, some
have said that this is their top priority. Under these circumstances it is not
easy to improve customer service, especially when cost-cutting is directed at
labor. US
Airways, which came out of bankruptcy last year, may be especially vulnerable.
Its ACSI is not only the lowest in the industry at 62; it also had the largest
decline from a year ago (3%).
Southwest maintains a significant lead at 73, even as it drops 3%. It is the
only major carrier to turn a profit in each of the last three years,
demonstrating that the airline industry is not an exception to the rule that
customer satisfaction and financial performance tend to go hand-in-hand. But
the challenge for all airlines remains: how to reduce costs and improve
passenger service at the same time? Part of the answer is likely to be found in
increased self-service and automation. Adopting technologies used by banks,
supermarkets, and perhaps even gas stations, a good deal of the work that used
to be performed by the seller - ticket agents in the airline context - can now
be done by the buyer with self-service kiosks - and it can often be done better
with less effort. Kiosks provide more information in less time and, provided
that passengers learn to use them properly, can actually enhance service.
Telecommunications
ACSI includes telephone companies that provide land-line local and long
distance service and, for the first time in 2004, wireless service providers
and cell phone manufacturers. Most of the land-line providers have improved or
held steady since last year. The sole exception is Sprint, which at 65 is near
the bottom of the industry. Sprint is also at the bottom of the wireless
category with an even lower score of 59. Obviously, these scores are not
competitive and suggest a challenging future for the company. Part of the difficulty
may have been caused by the reorganization of the company last year. In
wireless, a good deal of the problems seems to stem from indifferent customer
service and numerous dropped calls. Sprint has lost money each of the past four
years. For 2003, net income was down by 14%. Although the increasing customer
service problems seem daunting, investors have bid the stock price up; it has
almost doubled in the past 12 months.
Verizon has a significant lead in customer satisfaction among large wireless
carriers. Verizon satisfies customers better than Cingular, AT&T and
Sprint, which all score in the low 60s or high 50s. With scores like these, it
is difficult to retain customers and new customers are usually harder to come
by. It is therefore not surprising that Verizon had more than three times the
sales growth compared with its competitors last year.
Virtually all manufacturers have higher scores than wireless providers.
Among the measured companies, Samsung scores the highest, at 73, with Nokia
close behind and Motorola and Kyocera slightly off the pace at 70. This is
happening at a time when the providers are supposedly gaining power over the
manufacturers. What consumers might be implying is that one should not yet
count out the branding power of Nokia, Samsung or Motorola. While Samsung has
the highest ACSI score, it is Nokia that commands the greatest customer
loyalty. Kyocera is another interesting case. Consumers consider it to be
superior in value for money, but similar to Samsung its branding power in terms
of consumer following is far behind Nokia.
Cable/Satellite TV
Cable television was added to ACSI in 2000. Since that time, customer
satisfaction has gone from bad to worse, and there is no improvement in sight.
Among cable providers, Time Warner has the highest score of 60. Both Comcast
and Charter Communications register at 56. For the private as well as public
sector, including the IRS, this is the lowest level of customer satisfaction of
any organization in ACSI. Consumer complaints are also much more common
relative to any other measured industry. Almost half of all cable customers
have registered complaints about one thing or another. When buyers have
meaningful choice alternatives, this level of customer (dis)satisfaction is
neither competitive nor sustainable. Cable is the only industry to score below
60 in ACSI. With the satellite companies removed, the weighted average for the
cable industry is 59. Under normal competitive conditions, there would be mass
customer defections. The reason this is not the case for the cable industry is
due to local monopoly power, which means that in most markets, the dissatisfied
customer has nowhere to go.
Nevertheless, the weak ACSI for the cable industry suggests that its
customer base may well become vulnerable to new competition. Another factor is
that technology is expensive and entry costs are high. Thus, it is difficult to
create competitive markets with meaningful buyer choice.
Satellite television does better with customers, mainly because of lower price,
in many instances half that of cable. Although the satellite companies don't
offer the same array of services and are often limited in terms of local
channel availability, the services they do offer are seen as having higher
quality and a better value.
Utilities
The overall ACSI score for utilities does not change much from year to year.
This is the case for 2004 as well. The industry score is 72, down 1%. However,
the stability in the aggregate masks large changes among individual utilities.
The range from high to low is also substantial.
The Southern Company, which has been a leader in customer satisfaction for
many years, retains the top position with a score of 81. PG&E occupies the
opposite end of the scale with a score of 66 - a 15 point difference in what
generally considered a commodity business. While PG&E might still suffer
from the aftermath of the power crisis in California, there are other utilities that
are only slightly above it in customer satisfaction. Dominion, for example, has
a score of 67.
The industry has faced several difficulties recently. The August 2003
blackout called into question the reliability of services and may have
contributed to some degree of distrust about industry competence and
dependability. Increases in oil prices have led to higher utility bills for
consumers, which does not help their satisfaction. Yet, there are utilities
that have improved customer satisfaction. KeySpan, FPL and Progress Energy have
all done better this year, improving by 4% each. FPL may have been able to
shield its customers from some of the price hikes by generating a significant
portion of its energy through solar power and wind generators. Progress Energy
has improved quality of service and consumers have not perceived that price has
increased relative to service.
Quite a few of the utilities record drops in ACSI. Among the largest are
First Energy and CMS Energy (down 9%). First Energy serves 4.4 million
households in Ohio, Pennsylvania
and New Jersey.
It has falling scores for quality as well as value. The company was given a
good deal of blame for the 2003 blackout. CMS serves 1.7 million customers in Michigan. As recently as
last year, it was one of the leading utilities in ACSI, but seems to suffer
from large price increases, as perceived by its customers.
Hotels
Hotel room rates, which have not increased in four years, have rebounded
somewhat. Demand is picking up as well. Judging from the improvement in guest
satisfaction for Hilton (up 4% to 77), the company seems poised to take advantage.
With improved customer satisfaction, Hilton should get more pricing power. On
the other hand, Ramada and Hyatt have dropped. Hyatt, which has been a customer
satisfaction leader in the past, falls 4% but still has a respectable showing
at 74. Ramada also falls 4% to a score of 67. The cause, according to guests,
is higher prices with no improvement in service.
Hospitals
Patient satisfaction with the nation's hospitals is measured as a category in
the ACSI. There are no scores available for individual hospitals. As a result,
the ACSI analysis is restricted to the industry level. The growth in patient
satisfaction is considerable, up 4% to 76. A reason for this is that hospitals
are beginning to pay more attention to patient satisfaction. The Institute of Medicine and the National Quality Forum
as well as the Agency for Healthcare Research and Quality are actively
promoting initiatives to help consumers make more informed choices among
hospitals and create incentives for hospitals to improve the experience of
their patients. Patient satisfaction has improved at a much steeper rate than
the overall ACSI since 2001.
The ACSI statistics indicate that patient satisfaction is up, regardless of the
nature of the hospital visit. Compared with 2003, inpatient satisfaction is up
by 3% to 79. Outpatient satisfaction is even stronger, up 5% to 82. Emergency
care remains a challenge, although it is improving rapidly. The 2004 score is
68, up by 8%.
Newspapers
Another category that shows a sizable improvement is the newspaper industry. It
climbs as much as 6% to an overall score of 68. Traditional newspapers have
faced increasing competition in the past several years from expanded cable
television news as well as from new electronic media. News and information
websites have taken away some of the special domain of newspapers. The desire
for rapid and continuously updated information now provided online has
coincided with deteriorating reader satisfaction with newspapers and it is not
until now that satisfaction has increased. It is possible that the new type of
competition is starting to have positive effects. Newspapers have attempted to
focus more on commentary and news analysis, which may well have contributed to
the rising ACSI scores.
|
ACSI Scores & Commentary 
