Economy

Consumers Voice Dissatisfaction
With Wide Variety of Companies

By PATRICK BARTA and ANNE MARIE CHAKER
Staff Reporters of THE WALL STREET JOURNAL

NEW YORK -- Uncertain economic times, rising energy prices and company cost-cutting have left consumers increasingly dissatisfied with Corporate America.

That is how economists are reading the latest results of the American Customer Satisfaction Index, which suggests that consumer satisfaction with a wide variety of businesses declined sharply during the first three months of this year. The index is produced by the National Quality Research Center at the University of Michigan's Business School in partnership with the American Society for Quality, Milwaukee, and the CFI Group, Ann Arbor, Mich. The study measures customer satisfaction with consumer products and services generally, as well as for specific companies.

The overall index, scheduled to be released Monday, fell to 72.2 during the first quarter (out of a possible 100) from 72.6 a quarter earlier. More importantly, consumers gave lower scores to nearly all of the industries covered in the latest survey, including utilities, hotels, telecommunications, airlines, express mail and hospitals.

'Pretty Bad'

"It looks pretty bad out there," says Claes Fornell, a professor at the business school and director of the research center. He attributes the bad showing to the economic slowdown and lower corporate profit prompting companies to cut costs and layoff workers. "What we see is a shrinking of budgets, and the first thing to go [at companies] are things associated with customer service," he says.

The falling scores have sparked a debate over whether the findings have implications for the broader economy, or whether they only matter to individual companies. Mr. Fornell has long maintained that if consumers are consistently dissatisfied, they'll cut back on their spending overall. That, in turn, could further erode corporate profit and put more downward pressure on economic growth.

Among specific groups, PG&E Corp.'s Pacific Gas & Electric Co., which filed for bankruptcy protection earlier this year and is one of the utilities involved in California's energy crisis, posted the biggest year-over-year drop ever recorded in the survey. The San Francisco company's score fell 32.9% to 49, lower than the score for the Internal Revenue Service when it was measured in the third quarter of 2000. (Each quarter, the research center surveys a different set of industries; in the fourth quarter, the index covered retailers and financial services.)

Ratings for the media were mixed. Consumers are more satisfied with motion pictures, with a score of 71, and their feelings about newspapers were unchanged at 68. But broadcast-television scores fell to 62.

Drop in Corporate Profits

Mr. Fornell notes the current slide in satisfaction has coincided with a big drop in corporate profits. In four of the past five years, second-quarter profit for companies in the Standard & Poor's 500 index rose or fell directly in line with ACSI scores during the first quarter. "If this relationship holds" this year, he says, "the earnings picture for the second quarter does not look promising."

Other economists say the links between satisfaction and spending aren't as clear or direct. For example, consumer spending is rising even though satisfaction is down. The Commerce Department reported late last month that consumer spending grew at an annual rate of 3.1% during the first quarter, up from 2.8% growth during fourth quarter of 2000.

Allen Sinai, chief economist at Decision Economics Inc., says even if consumers complain it doesn't mean they will stop spending.

Diane Swonk, chief economist at Bank One Corp. in Chicago, suspects satisfaction scores have dropped because consumers are grumpy about the economy, not necessarily because service is worse. Consumers are worried about their prospects, and also are hearing bad news about companies, including the fact that they are cutting jobs. That makes them "think these are nasty companies," she says.

Mr. Fornell counters that broad-based declines in spending don't always show up immediately.

Airlines' Scores

Everyone agrees the data are meaningful for individual companies, if not for the broader economy. When companies' scores drop significantly, they often lose customers to other brands and become less profitable. (Of course, this holds true only in cases where there is enough competition.) Not surprisingly, Mr. Fornell says, the two major airlines whose scores didn't fall in the most recent survey, Southwest Airlines, Dallas, and Continental Airlines, Houston, were also the only ones reporting profitable first quarters. Continental's score shot up 8.1% to 67.

As a group, the airlines' scores fell 3.2% to 61, down 15.3% from the group's initial level of 72 back in 1994. Northwest Airlines, based in St. Paul, Minn., plummeted 9.7% to 56, the lowest of any airline. However, an analyst said the airline actually hit bottom a couple of years ago and was improving. The company noted it had the second-best on-time record of any major airline during the first quarter. Delta Air Lines, Atlanta, which recently ended a battle with pilots by agreeing to make them the best-paid in the industry, also saw its score tumble 7.6% to 61. A Delta spokesman said he couldn't comment because he hadn't seen the study.

Faring worst were energy utilities, whose collective scores plunged 8.0% to 69. Two large utilities at the center of California's continuing electricity crisis -- PG&E and Southern California Edison Co., a unit of Edison International, Rosemead, Calif. -- got smashed.

Brian Bennett, Edison's vice president of external affairs, said his company's drop was "somewhat consistent" with the company's own measure of customers' perceptions. "We believe that it's an unfortunate consequence of nine months of criticism of utilities in the media," he said. PG&E didn't return several calls seeking comment.

Fallout From California

Even utilities outside California suffered. Some took a hit because they provide natural gas, whose prices spiked earlier this year. Others may be victims of fallout from California. Because of the problems there, "the whole industry is being viewed more negatively," says Andrew Morrison, president of Market Strategies, a Livonia, Mich., company that studies utilities. Only one utility scored better this year compared with last year: Northeast Utilities, West Springfield, Mass.

Telephone companies fared poorly, too. Customers continue to gripe about bad service, crossed phone lines, hidden costs and "slamming," or the practice of changing a person's long-distance service without permission.

The biggest problems appeared to be at SBC Communications Inc., San Antonio. Its score dropped 5.7% to 66. A spokesman for SBC said the company couldn't comment on the survey because it was waiting for more information from the research center. Internal surveys have found perceived improvements in customer service during the past three quarters, the spokesman said. Sprint Corp., the Westwood, Kan., long-distance provider, and Verizon Communications Inc., New York, which provides local service in the Northeast, were the only two phone companies with scores that improved, although Verizon's score for its long-distance business declined.

The ACSI figures for the hotel industry slipped slightly. Bucking the trend, Marriott International Inc., Washington, improved its score by 4.1% to 77, and cruised past Hilton Hotels Corp. to place first in the category. Hilton, Beverly Hills, Calif., slipped 3.9% to 74, the same score it had back in 1999.

Similarly, the Ramada brand, owned by New York's Cendant Corp. declined 4.3% to 66. "Their properties are very inconsistent," said Jason Ader, an analyst at Bear Stearns & Co. The brand's hotels in some markets are "one step up from a youth hostel."

In a statement, Hilton said that the company's brands command more revenue per available room than other companies in most major cities, which the company says must mean it is providing guests with "excellent service and accommodations." Steven Belmonte, president and chief executive officer of Ramada Franchise Systems, noted in a statement that "we have reaped significant improvements in guest satisfaction and value" recently, thanks to the chain's spending "millions of dollars over the last few years" on special initiatives "to create a culture of service."

Ms. Swonk, the Bank One economist, says customer satisfaction should actually improve if the economy gets worse. That's because companies would have an easier time finding workers during a recession, and they would try harder to keep customers happy. She recalls traveling during the last recession, when she says she spent the night in a $150-a-night Sheraton hotel that provided a butler that shined her shoes and brought her hot cocoa. "It was like living to the nines for next to nothing," she says. "Now you're lucky if they actually say 'hello' to you when you come in."

Write to Patrick Barta at patrick.barta@wsj.com and Anne Marie Chaker at anne-marie.chaker@wsj.com