Less Complaining and More Spending from Consumers
Pretty much everyone has some retailing customer service horror story to tell but, on balance, the situation may not be all that bad at the moment.
The University of Michigan’s annual American Customer Satisfaction Index was released this week and the news was encouraging for retailers and the economy.
First off, consumers gave higher marks to supermarkets, gas stations, specialty retailers, health and personal care stores and e-tailers.
Overall, according to the report, “customer satisfaction with the goods and services that Americans buy reached an all-time high in the fourth quarter of 2006.”
The expectation that consumers will continue to remain happy with their retail experiences (for the most part) should continue “driving consumer spending growth of between 3.5 percent and 4.1 percent for the first quarter of 2007,” according to the study.
As has been the case in the past, those chains that have received high markets did so once again. Companies including Publix, Costco and Best Buy with its “geek squad” continue to meet and, in many cases, exceed the expectations of shoppers.
A study by University of Iowa marketing professor Thomas Gruca posits consumer satisfaction index improvements translate into dollar improvements for retailers beyond the short term. Prof. Gruca maintains that for each point improvement, a company’s cash flow increases by $55 million a year later. The number is actually higher for retailers, according to the professor, because of the frequency in which stores are shopped.
“When a business says they want customers satisfied, it means two things. It means it wants them satisfied now, but it also means it wants them to come back,” he said.
Discussion Questions: What is your takeaway from the results of the University of Michigan’s American Customer Satisfaction Index? What are the implications for the economy and retailers?
Before we get too excited about “improved customer service” I think we should look at the numbers a bit more closely. In 1994 (first year of ACSI) the index for supermarkets was 76, twelve years later the index is 75. The same holds true for specialty retailers (1994 = 75, 2006 = 75) and department and discount stores (1994 = 77, 2006 = 74). As a professor, grades in the mid 70s represent a letter grade of D (the modern day equivalent of the gentleman’s F). Internet retailers scored 83 and even banks fared better than traditional retailers (77).
There are some notable exceptions, Publix = 83 and Costco = 81. However, overall we have a long way to go before we delight our customers.
Why shouldn’t consumers be happy and satisfied?
2006 was been a good year for employment and income (and the fifth in a row). Total employment is near 150 million (in the Bureau of Labor Statistics’ household survey). At 4.4%, the unemployment rate is well below its 5.1% long-run average.
The average wage was up 3.9% from over 2005; workers’ incomes from wages and salaries were up 6.8% (the fastest annual advance in 5 years); personal income grew 7.5%. Business compensation per employee-hour was up 8%.
By all indications 2007 will be another good year for consumers, driven again by gains in economic expansion, employment, income and wealth. Job growth in service industries, which account for four-fifths of all payrolls in the private sector, will offset weakness in the manufacturing and construction sectors.
Incomes will again rise from employment, investments and financial assets. Housing and net wealth will not increase as fast, but will not decline. Consumers are still in good cash positions, as evidenced by still-low delinquency rates for most types of loans. In other words, household finances should remain broadly healthy enough for consumers to keep spending at a steady pace.
But yes, give credit to best-practice retailers, who are delivering high quality service. They raise the bar for everyone else, as consumers come to expect what they see the industry leaders can provide.
The US is increasingly a “self service” country. While we are told that a greater share of our GDP is made up of “service,” I cannot say that there has been a concomitant increase in service standards.
Certainly there are bright spots in the retailing industry as noted in Forbes article. In general though, I believe we Americans have come to accept a lowered level of service as acceptable. We have been trained to become much more self reliant through a combination of increased POS materials and readily available and accessible media coverage and research (on line compare sites, mags, and so on).
Is it not interesting that those companies mentioned in the articles and those companies that most of us thing about as providing great customer service are the same companies that rank over and over again as great places to work? Just take a look at Fortune 100 Best companies to work for and you will find them also rated at tops in customer service.
As someone put it so simple in one of my workshops a couple of weeks ago. “If you can’t sell it on the inside you won’t sell it on the outside.”
As often happens, the data may not be saying what we think it is saying. As far as I can tell from the ASCI website, there were about 200 companies in this study. Given the data, that means that the satisfaction we can generalize for all retailers is 75% plus or minus 13 points. Right, 13 points. This means that the change from the previous quarter and the previous year are statistically insignificant–any changes under 13 points are most likely attributable to sampling error, not improvements in customer satisfaction. This means that we can’t really say that consumers are happier, because the statistics don’t support that claim. Then, let’s look at the 75% number. In many grading scales, a 75% is a middle “C.” Customer satisfaction is not high when it is a “C.”
I think this may be a case of overgeneralization. While customer satisfaction may be generally quite high, it only takes one horror story to lose a customer.
The average shopper may make hundreds of visits a year to various retail stores. In general, the experience is satisfactory, if not outstanding. So satisfaction is at 99%. But what about the two trips a year where the “horror” occurs?
Those retailers may lose the effected customers for life, with the resulting revenue loss offsetting many other satisfied customers.
Retailers need to adopt a “zero tolerance” approach to customer service and not simply be satisfied with an acceptable batting average.
I too suspect that part of the “improvement in service levels” may be that we come to expect less. Or that we have stopped shopping at the poorer places and therefore have raised our personal service levels by doing so. When you become spoiled by good customer service at places like Costco, it is very hard to go back and accept the inferiority of others.
I agree with Race Cowgill and Richard George that the American Customer Satisfaction Index scores’ recent peak isn’t that impressive. When you look at the details, the numerical movement is subtle, and major firms involved in mergers aren’t being counted consistently. It’s easier to get publicity by saying something’s changed instead of saying things look pretty much the same. And just try to write an urgent headline about statistical sampling error, interval estimation, random variables, and probability distribution.
I think that it is important to consider the impact of companies like Publix and Costco who are striving for superior customer service. I would guess that these companies are widening the gap between “average” and “good” customer experiences, compared to 10-15 years ago when the variance was much smaller. Interestingly, that would mean the gap has widened without anyone really getting “worse” in that time.
Did the University of Michigan audit the department store shopper? For, if I’m not mistaken, the department store holiday sales number represents 65% percent of its year’s total and slightly more in gross profit margin dollars. So I would think the numbers would be slightly, or even meaningfully, less impressive.
There is still an issue with consumers, in general and core shoppers of department stores receiving a desired level of service, timeliness of service and overall shopper experience satisfaction. Dealing with coupons upon coupons and which Brand(s)is excluded and included in the sale is becoming a major problem.
Sales associate numbers are still inadequate, especially when there is a special sale, or if new products are being introduced in many of the departments.
That said, Best Buy’s service and its products are very different than selling Polo clothing or fragrances in a department store. Price and knowledge of the Best Buy goods and difference in Brands would automatically imply better sales associate knowledge and friendliness.
I don’t see consumers bending as the U of M survey might imply! Hmmmmmmmmmmmmmm
Of course consumer satisfaction is rising and of course companies that had done well in the past did well now. There is a distancing taking place in the marketplace. Those companies working at consumer satisfaction and having a positive response are resonating with the consumers and generating some loyalty. Those companies that have either not embraced a consumer-centric business process or that have not been doing it well will continue to lose sales and consumers precipitating a downward spiral.
Consumers have always been quick to complain but slow to change. We only have to look at the airlines and cell phone carriers to see how tolerant we are in truly taking our business elsewhere. This is no different than when people say they’re going to boycott a retailer and despite all the claims there are very few who follow through.
The ACSI provides a useful snapshot of the state of customer satisfaction, but it’s a bit of a catch-all measure that does not provide us with much causal information. Does the index move because actual service practices have improved or because some underlying personal attitudes or expectations have changed?
Satisfaction is partly influenced by service quality, and it in turn influences patronage behavior and loyalty. But these links are elastic and each measure may have other influences, known and unknown. Low satisfaction with a particular store location may be related to poor parking access, for example, or to a horror story told by a friend.
Reducing the state of satisfaction to a number may oversimplify a situation rich in subtlety. For companies, this is where the peril lies–reliance on a summary grade or score may tend to focus management on the end result instead of the large set of practices that combine to influence the shopper’s assessment. In order to improve–really improve–satisfaction, retailers must identify sub-optimal practices and improve them systematically.
There seems to be a correlation between good customer service and reduced complaining and more spending. If one looks at the better performing retailers, they will find a) a commitment to the customer, b) highly rated customer service, c) a good customer experience and d) they spend money to back up their words by measuring the customer service levels. Many use a combination of IVR (Interactive Voice Recognition) Surveys and Mystery Shopping.
According to a recent Deloitte & Touche study, a 2% increase in customer conversion translates into a 10% sales growth.
Isn’t it a good investment to improve customer service & experience?