the imperative of national customer satisfaction measures

The Imperative of National The Imperative of National Customer Satisfaction MeasuresCustomer Satisfaction Measures

By By Professor Claes FornellProfessor Claes FornellUniversity of MichiganUniversity of Michigan

Mexico City, September 2009Mexico City, September 2009

© 2009 CFI Group. All rights reserved. 2

Sources of Economic Growth

Productivity Quality

Sustainable Economic Growth


Benefits to the Economic Decision Makers

Investors

Business Managers

Government

Consumers


Investors Need to Know…

The relationship between a firm’s current condition and its future

capacity to produce wealth

The relationship between a firm’s current condition and its future

capacity to produce wealth


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

How to improve the firm’s current condition by allocating scarce

resources such that the strength of the customer relationships are

maximized


Government Needs to Know…

How to best encourage economic growth and living standards for

its citizens

How to best encourage economic growth and living standards for

its citizens


Consumers Need to Have…

A voice in measures that reflect their economic living standards

A voice in measures that reflect their economic living standards

© 2009 CFI Group. All rights reserved.

Why Now?

The Old World

•Mass production and consumption of commodities

The New World

• Increasingly customized goods, services and information

The Economy is Changing

8


Why Now? The Global Forces

Movement of:

Shift in the balance of power in favor of the buyer – at the expense of the seller

Information

Capital

Work (not labor)


Consumer utility is the true standard for economic growth

Sellers compete for buyer satisfaction


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


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


A Brief Introduction to ACSI: Data

80,000 telephone interviews + 4,000 internet interviews

280,000 telephone numbersSampled randomly

Screened: Recent experience as a customer of the selected companies


A Brief Introduction to ACSI: Analysis

ξ η ΓΒξηη ],|E[

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 (m x n) is a matrix of coefficient parameters for . The PLS estimation implies that E[0, 0,and 0, where

The ACSI Equations



The ACSI Equations

5

4

3

2

1

31

21

11

5

4

3

2

1

5453

43

3231

21

5

4

3

2

1

0

0

000

0000

000

0000

00000



The ACSI Equations

δx Λx ξ εηy Λy

where y = (y1, y2, ..., yp) and x = (x1, x2, ..., xq) are the

measured endogenous and exogenous variables, respectively. y (p x m) and x (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[] = 0, E[] = 0, E[] = 0, and E[] = 0.



The ACSI Equations

11

10

9

8

7

6

5

4

3

2

1

5

4

3

2

1

25

15

14

33

23

13

22

12

31

21

11

11

10

9

8

7

6

5

4

3

2

1

0000

0000

0000

0000

0000

0000

0000

0000

0000

0000

0000

y

y

y

y

y

y

y

y

y

y

y

3

2

1

31

21

11

3

2

1

x

x

x


ACSI Scores – National, Sector & IndustryQ3 2008 – Q2 2009

18

Energy Utilities 74

76.1

Utilities73.7

Utilities73.7

Transportation72.6

Transportation72.6

Airlines 64U.S. Postal Service 74

Express Delivery 82

Information70.2

Information70.2

Health Care & Social Assistance

78.5

Health Care & Social Assistance

78.5

Newspapers 63Motion Pictures 74

Computer Software 75Fixed Line Telephone Service 72

Wireless Telephone Service 69Cellular Telephones 72Cable & Satellite TV 63

Network Cable TV News 71

Hospitals 77Ambulatory Care 80

Accommodation &Food Services

78.9

Accommodation &Food Services

78.9

Hotels 75Full Service Restaurants 84

Limited Service Restaurants 78

Manufacturing/Durable Goods

81.6

Manufacturing/Durable Goods

81.6

Personal Computers 75Electronics (TV/VCR/DVD) 83

Major Appliances 81Automobiles & Light Vehicles 84

E-Business81.5

E-Business81.5

Manufacturing/Nondurable Goods

82.3

Manufacturing/Nondurable Goods

82.3

Public Administration/Government

67.9

Public Administration/Government

67.9

Retail Trade75.2

Retail Trade75.2

Finance &Insurance

76.0

Finance &Insurance

76.0

E-Commerce80.0

E-Commerce80.0

74 Internet News & Information83 Internet Portals/Search Engines

83 Food Manufacturing84 Pet Food79 Athletic Shoes85 Personal Care &

Cleaning Products

68.0 Local Government67.8 Federal Government

76 Supermarkets74 Gasoline Stations74 Department & Discount Stores76 Specialty Retail Stores78 Health & Personal Care Stores

82 Retail74 Brokerage75 Travel

83 Soft Drinks83 Breweries78 Cigarettes80 Apparel

75 Banks84 Credit Unions73 Health Insurance78 Life Insurance81 Property & Casualty Insurance


A Brief introduction to ACSI: Graphic Model

CustomerComplaints

CustomerComplaints

CustomerLoyalty

CustomerLoyalty

• Repurchase Likelihood• Price Tolerance• (Reservation Price)

• Complaint Behavior

• Satisfaction• Comparison w/ Ideal• Confirm/Disconfirm• Expectations

Customer Satisfaction

(ACSI)

Customer Satisfaction

(ACSI)

PerceivedService Quality

PerceivedService Quality

PerceivedOverall Quality

PerceivedOverall Quality

PerceivedValue

PerceivedValue

• Overall• Customization• Reliability

• Overall• Customization• Reliability

• Price Given Quality• Quality Given Price

PerceivedProduct Quality

PerceivedProduct Quality

• Reliability• Customization• Overall

• Reliability• Customization• Overall

Customer Expectations

Customer Expectations


Growth in ACSI and Consumer Spending:1995 – 2009 (Q2)

Source: Consumer Spending from U.S. Department of Commerce, Bureau of Economic Analysis

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

-6%

-4%

-2%

0%

2%

4%

6%

8%

An

nu

aliz

ed

, S

easo

nally

Ad

just

ed

Rate

of

Gro

wth

% Quarterly Change in Consumer Spending

% Quarterly Change in ACSI (lagged)


The Global Context

Global Forces:

Information

Capital

Work (not labor)

How do they affect the buyer-seller relationship?


The Buyer – Seller Relationship

Who Benefits Most?

• Who is getting more choice? The buyer

The seller• Who is becoming more replaceable?


The Buyer – Seller Relationship

The Result:

The balance of power between buyers and sellers is shifting in favor of the buyer.


The Effects

Punishment and Rewards

Corporate Balance Sheets

Capital Movements

Business Strategy


For Investors:

Do customers know something investors don’t?


The Conventional Answer:

No, because markets are efficient and reflect all available information


But…

How does this information reach investors (satisfied customers are not on the balance sheet)?


Is there another answer?Is there another answer?


Shift in Power Between Buyer and Sellers

Capital Follows Power


Rewards and Punishment

Seller

Product Markets

Equity Markets

Repeat Buying

More Capital

The Successful Seller


Rewards and Punishment

• Buyer defection in product markets

• Capital withdrawal from equity markets

The Unsuccessful SellerPunished by:


Can You Beat the Market?

Only if you know something that others don’t


10 Years of Annual Returns CSAT Stock Portfolio 2000 - 2009*

33

-13%

26%

9%

3%

14%

4%

-9%

11%

-6%

22%

13%

22%

-26%

-12%

-23%

-39%

36%

16%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Yea

rly

Pe

rfo

rma

nc

e

S&P 500

ACSI Stock Portfolio

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

18%

31%

*2009 is YTD through September 18


Even Lower Risk – Market Neutral vs. HFRX Equity Market Neutral Index

34

*2009 is YTD through July


From Investment to Business Management

• 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

35

Good Customer Asset Measurement Tells Us:


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


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

the imperative of national customer satisfaction measures

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