Article 5 of 8
Economy
Customer Satisfaction:
Quality, Service Barely
Pass Muster With Consumer
---
Satisfaction Index Fell
Slightly
During the Second Quarter;
Cost-Cutting Gets
the Blame
By Darren McDermott
08/16/1999
The Wall Street Journal
Page A2
(Copyright (c) 1999, Dow Jones & Company, Inc.)
Thanks to a strong economy, consumers have been on a
nonstop shopping spree and are buying cars, clothes and
consumer electronics at record levels.
Yet some evidence suggests consumers are less than thrilled
with what they are purchasing. American consumers are
notoriously finicky, and pleasing them has always been
difficult. But the latest results of the American
Customer Satisfaction Index show
consumers barely give companies a passing grade when it comes
to satisfying their expectations of quality and service.
The ACSI is based on a quarterly survey conducted by the
National Quality Research Center at the University of Michigan
Business School in partnership with Arthur Andersen
consultants and the American Society for Quality. The overall
index, which is scheduled for release today, declined slightly
in the second quarter to 72, out of a possible score of 100,
from 72.1 in the first quarter. Since 1994, when the index
made its debut, it has fallen 3.4%.
This is the downside of corporate America's cost-cutting
drive, says Claes Fornell, director of the research center and
keeper of the index. Cost cutting has boosted earnings for
many companies, but may hurt profits in the long term by
undermining customer relationships. "If you cut too much on
the cost side," says Mr. Fornell, "customer satisfaction goes
down." And that, he contends, could signal problems for the
economy as a whole in years to come.
The quality of economic output is as important as the
productivity of economic resources, he says, and attempting to
improve one without the other could eventually harm economic
growth if consumers become so disenchanted that they curb
their spending.
Not everyone agrees that the connection between economic
growth and consumer satisfaction is as direct as Mr. Fornell
suggests. After all, the economy and the stock market have
advanced rapidly during the same period that the ACSI has
declined. Others note that just because consumers complain
about a product doesn't always mean they will stop buying it.
Martin Reynolds, an analyst at researcher Dataquest, says
that when it comes to products such as personal computers, "if
your customers are all happy, you're spending too much on
support," he says. That is because while thorough customer
support wins companies plaudits from observers, it doesn't
tend to translate well into repeat sales; most buyers will
still go for the bargain, he says.
Still, the research center claims to have spotted changing
corporate fortunes before a company's problems were well
publicized. Mr. Fornell says Compaq Computer Corp.'s ACSI
score, for example, was falling as early as 1995, years before
its financial results showed signs of stress. Compaq's score
was as low as 67 in 1997 but has since recovered and was 71 in
the latest survey. And the company remains the leading
supplier of home PCs.
A Compaq spokesman said that the company "recently created
a dedicated organization to focus on quality and customer
satisfaction and to ensure that the company responds to
customers' requirements."
Although the research center annually surveys more than 175
companies across 34 industries and five government agencies,
each quarter it updates only a portion of its database. The
latest update measures durable-goods industries --
specifically personal computers, household appliances,
consumer electronics and automobiles.
In those industries, the trend was mixed. Although customer
satisfaction rose in the past 12 months for buyers of PCs and
consumer electronics, it declined for buyers of automobiles
and household appliances.
The index picked up well-known turnaround stories this year
at companies such as Apple Computer Inc., where customer
satisfaction rose 4.3% from a year ago, and Volkswagen AG,
which showed a 5.1% increase. It highlights companies that are
having trouble meeting consumer standards as well; General
Motors' Saturn division, for example, fell 5.9% from a year
ago, while South Korean car maker Hyundai dropped 5.6%.
While the overall score for PC makers rose in the past
year, the survey suggests most are struggling to make
consumers happy. The ACSI for PC makers is down 8.3% compared
with 1994, though the industry's score bottomed out at 70 in
1997 and has climbed one point in each of the two surveys
since then. Indeed, Apple's jump in consumer satisfaction went
a long way to pulling the entire category higher.
But how, when computers are more powerful than ever and
prices are falling, can consumers be so fussy? Because product
quality alone isn't enough to satisfy the demands of the
American public, the survey's conductors say; service must
keep up as well, and while machines got more powerful, their
instruction manuals and customer-support phone lines didn't
keep up. But it is clear from the survey that computer makers
are making a comeback with consumers. "PC manufacturers have
learned the importance of service and support the hard way,
and have made significant enhancements," says Joseph O'Leary,
a partner at Arthur Andersen.
No great surprise, then, that Dell Computer Corp.'s score
has risen 5.6% just since 1997, when it was included in the
survey, to an industry-high score of 72. Dell not only caters
to its customers' needs, but its business model helps ensure
their problems will be easier to fix by herding computer
purchasers into similar systems, says Dataquest's Mr.
Reynolds. "Dell is quite smart about keeping the systems
uniform and stable," he says, an advantage Apple also enjoys
because the software and hardware in its computers are so
closely interlinked. Packard Bell, which had a score of 66,
trails the industry. A spokesman for Packard Bell said the
company has a "legacy issue" from earlier years during which
it didn't put enough effort into customer support. But he
added, "we're in the middle of turning around the company,"
and that includes beefing up customer support and making more
consumer-friendly machines.
Service has been an issue for automobile makers as well, as
declining perceptions of both product and service quality
dragged down the industrywide score 1.3% from a year ago.
This year's survey points to trouble at two car makers:
Saturn and Hyundai. But those may be very different problems,
says James Hall, an analyst at consultancy AutoPacific Inc.
Hyundai has seen troubles with its car models compounded by
financial turmoil at its South Korean parent. A spokesman for
the company said it's hard to comment without seeing the
survey, but noted "like every automaker, we're working" on
improving the quality of the car and the quality of service.
Saturn, Mr. Hall says, may be mostly a victim of its own
success. Having delivered a truly different "experience" for
auto buyers, Mr. Hall says, Saturn now faces a unique problem:
how to repeat that. A spokeswoman for Saturn said the company
is fully aware it has slipped in the eyes of customers, but
adds "we're working hard to regain the top spot."
But more broadly, changes in the index over time point to a
shift in leadership in the auto market. Back in 1994, Mr.
Fornell points out, Japanese car makers led the pack in
customer satisfaction. Now Europeans, such as Bayerische
Motoren Werke AG and Daimler Chrysler AG's Mercedes Benz unit,
dominate the field, along with high-end U.S. car makers such
as GM's Buick and Cadillac divisions.
Robert Moser, director of corporate quality at
DaimlerChrysler, said a general survey that looks at companies
in a wide range of sectors can't capture the complexities of
the auto industry and its relationship with consumers. He said
that while DaimlerChrysler's Dodge unit ranked second from
last this year in the University of Michigan index, the
company was "right on top" in J.D. Powers's industry-specific
study of customer satisfaction. In addition, he says changes
in the way that the University of Michigan team grouped
DaimlerChrysler units Dodge, Plymouth and Chrysler from year
to year may have skewed the results.
Volkswagen, meanwhile, pulled off a smart rebound with the
"Bug effect," Mr. Fornell says: Customers seem to love the
redesigned Beetle.
Customer satisfaction with televisions, videocassette
recorders and other consumer-electronics jumped 5.1% from a
year ago to 83 -- the highest in the durable-group sector. The
research center did not break out the consumer-electronics
companies by brand.
Household-appliance makers have seen customer satisfaction
fall 1.2% from last year, continuing a 3.7% slide since 1994.
Whirlpool Corp. alone accounted for the drop, while all other
makers held steady from a year ago. Whirlpool didn't comment.
Terry Dunn, a spokesman for General Electric Co.'s
appliance division, said that in the past three years the
company has made a significant investment in processes that
allow it to better understand what makes consumers satisfied,
especially a process called "six sigma," which converts
"consumer comments into mathematical scores you can measure."
Since that investment, he said, "we have seen our
service-satisfaction rates improve dramatically." Indeed GE's
score, while trailing the industry, is higher than in 1997.
Despite the complaints of customers and the increased
investment by companies like G.E. in trying to understand
consumers, some economists don't believe overall complaints
will fall very much in the future. Daniel J. Meckstroth, an
economist at the Manufacturers Alliance in Washington, says
the obsession with quality that gripped many executives about
a decade ago has faded. "The drive for cutting costs is still
there, the drive to get cost savings from acquisitions. But
the cost of that is that companies are neglecting customer
satisfaction," Mr. Meckstroth says. And he doesn't see that
changing soon.
---
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 fivegovernment agencies. Sales of the
measured companies constitute 30% to 40% of the U.S. gross
domestic product. Companies are scored on a scale of 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
--- 1999 % Change
Group/Manufacturer Score from 1998
Autos 78 -1.3
BMW 86 0
Buick 86 2.4
Mercedes Benz 86 0
Cadillac 85 -3.4
Honda 83 2.5
Toyota 83 -2.4
Lincoln-Mercury 82 -1.2
Volkswagen 82 5.1
GMC 81 3.8
Oldsmobile 81 -1.2
Saturn 80 -5.9
Volvo 80 -1.2
Chrysler/Plymouth 79 -1.3
Nissan 79 2.6
Pontiac 78 2.6
Jeep/Eagle 77 0
Ford 77 0
Chevrolet 76 -3.8
Mazda 76 -1.3
Dodge 75 -3.8
Hyundai 68 -5.6 --- 1999 % Change
Group/Manufacturer Score from 1998
Personal Computers 72 1.4%
Dell 76 2.7
Gateway 76 0
Hewlett-Packard 74 2.8
IBM 73 -1.4
Apple 72 4.3
Compaq 71 -1.4
Packard Bell 66 -1.5
Other PCs 69 0
Household Appliances 82 -1.2%
Kenmore 85 0
Maytag 84 0
Whirlpool 84 -1.2
General Electric 80 0
Other H'hold Appliances 69 0
Source: National Quality Research Center, University of Michigan
Business School | 
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