1
Click to edit Master subtitle style
Customer Satisfaction: A Key Element for an
Effective Business Strategy
Forrest V. Morgeson III, Ph.D.
Director of Research, American Customer Satisfaction Index
San Juan, Puerto Rico
September 12, 2013
ACSI American Customer Satisfaction Index TM
1. ACSI Overview
Snapshot of the ACSI
• Established in 1994, ACSI is the only standardized measure
of customer satisfaction in the U.S. economy, covering more
than 230 companies in 45 industries and 10 economic
sectors; companies measured account for roughly one-third of
the U.S. Gross Domestic Product (GDP)
• A quarterly measure of the national economy’s health;
complementary to measures such as productivity,
unemployment rate, and inflation rate
• ACSI results are based on interviews of consumers; database
contains information from nearly 2,000,000 customer
interviews
Snapshot of the ACSI
• Adopted in 1999 by the U.S. federal government as the “gold
standard” measure of citizen satisfaction; state and local
government services also measured
• 100+ departments and agencies of the U.S. Federal
Government measured on an annual basis
• Results from all surveys are published quarterly in various
media and on the ACSI website, www.theacsi.org
United States
Mexico
Colombia
Puerto Rico
Barbados Brazil South Africa
Indonesia
Singapore
Malaysia
Turkey
Sweden United Kingdom
Portugal
South Korea
Methodology Adopted Internationally
Peru
2. ACSI Methods and Models
The Changing Economy
The Old World
Mass Production and
Consumption of Commodities
The New World
Increasingly Customized goods,
services and information
•The buyer drives the economy
•The buyer drives the firm
MORE …
… buyer power
LESS …
… monopoly power
MORE …
… buyer information
… global competition
… services
… market economies
NEEDED: New Customer-Centric Measures • about the economy
• about the firm
Implications of the New Economy
Satisfaction Theory and Measurement
• “Customer satisfaction” is a concept that has dominated
marketing research over the past several decades
• However, how to measure satisfaction precisely and
accurately, and in a way that is operational and that
maximizes its ability to predict future consumer
behaviors is far more complicated
• Customer satisfaction (ACSI) in the ACSI model is
embedded in a system of cause and effect relationships.
Survey items are included in the questionnaire measuring
satisfaction, as well as items that influence and are
influenced by satisfaction
• The ACSI model produces variable scores to show “how
the company is doing,” and variable impacts to show
“how the company can improve”
Why Measure Satisfaction?
National Economy
• Measure and
monitor national
economic
performance
• Consumer
Spending and GDP
growth
• International
competitiveness
• Measure and
monitor firm
performance
• Forecast
revenue/profit/
stock market
growth
• Industry
competitiveness
• Measure and
monitor
government
performance
• Efficiently allocate
scarce government
resources
• Build trust and
loyalty among
citizens
The Firm The Government
ACSI Sectors and Industries
Hotels
Limited-Service
Restaurants
Full-Service
Restaurants
Newspapers
Motion Pictures
Broadcasting
TV News
Software
Fixed Line
Telephone
Service
Wireless
Telephone
Service
Cable &
Satellite TV
Energy
Utilities
Supermarkets
Gasoline
Stations
Department &
Discount Stores
Specialty Retail
Stores
Health &
Personal Care
Stores
Banks
Life Insurance
Health
Insurance
Property &
Casualty
Insurance
Airlines
U.S.
Postal
Service
Express
Delivery
Local
Government
Federal
Government
Accommodation &
Food Services
Information Utilities Finance &
Insurance
Transportation &
Warehousing
Public
Administration/
Government
Retail
Brokerage
Travel
E-Commerce
Hospitals
Health Care &
Social Assistance
National
ACSI
Manufacturing/
Durable Goods
E-Business
Personal
Computers
Electronics
(TV/VCR/DVD)
Major
Appliances
Automobiles
& Light
Vehicles
Cellular Telephones
News &
Information
Portals/
Search
Engines
Social Networking
Manufacturing/
Nondurable Goods
Food
Manufacturing
Pet Food
Soft Drinks
Breweries
Cigarettes
Apparel
Athletic Shoes
Personal Care
& Cleaning
Products
Retail Trade
The Latent Variables
• Customer Expectations
• Overall Quality
– Product Quality (for selected sectors)
– Service Quality (for selected sectors)
• Perceived Value
• Customer Satisfaction
• Customer Loyalty
• Customer complaints
Customer Expectations
• Customer Expectations are based on the customer’s
anticipation of the quality of goods and services, based
on expectations of:
– Overall expectations (considering all things, how high were
your expectations?)
– Customization (will the goods or services fit the customer’s
needs?)
– Reliability (how often will things go wrong with the goods or
services?)
Overall Quality
• Perceived Quality measures the customer’s evaluations
of the experienced quality of goods or services:
– Overall quality (considering all things, how high was the
quality?)
– Customization (how well did the goods or services fit the
customer’s needs?)
– Reliability (how often did things actually go wrong with the
goods or services?)
Perceived Value
• Perceived Value measures quality received relative to
the price paid, and vice versa:
– Quality given price (given the price paid, how would you
rate the quality?)
– Price given quality (given the quality received, how would
you rate the price paid?)
Customer Satisfaction
• Customer Satisfaction (ACSI) measures the customer’s
cumulative satisfaction. Three aspects of customer
satisfaction are measured:
– Overall satisfaction (considering all your experiences to
date, how satisfied are you?)
– Confirmation of expectations (considering all of your
expectations, to what extent has the company fallen short
of your expectations or exceeded your expectations? )
– Comparison to ideal (how well do you think the company
compares with an ideal organization?)
Complaints and Customer Loyalty
• Customer Complaints are the percentage of customers
who voice their dissatisfaction.
– This is the only single-item variable in the ACSI model, and
is reported as a percentage
• Customer Loyalty is measured by repurchase intention
and price tolerance:
– Repurchase intention (the next time you buy, how likely is it
to be from the same company?)
– Price tolerance (how much could the company raise its
prices before you would definitely not be a customer any
longer?)
The Standard Model
Customer
Expectations
• Satisfaction
• Comparison w/ Ideal
• Confirm/Disconfirm
Expectations
Perceived
Overall Quality
Perceived
Value
Customer
Complaints
Customer
Loyalty
• Repurchase Likelihood
• Price Tolerance
(Reservation Price)
• Overall
• Customization
• Reliability
• Overall
• Customization
• Reliability
• Price Given Quality
• Quality Given Price
• Complaint Behavior Customer
Satisfaction
(ACSI)
The original, standard ACSI model, designed
to be generic enough to measure consumer
satisfaction with a vast majority of consumer
experiences
3. Results and Lessons
ACSI National Quarterly Scores
70
71
72
73
74
75
76
77
Bas
elin
eQ
4/19
94Q
1/19
95Q
2/19
95Q
3/19
95Q
4/19
95Q
1/19
96Q
2/19
96Q
3/19
96Q
4/19
96Q
1/19
97Q
2/19
97Q
3/19
97Q
4/19
97Q
1/19
98Q
2/19
98Q
3/19
98Q
4/19
98Q
1/19
99Q
2/19
99Q
3/19
99Q
4/19
99Q
1/20
00Q
2/20
00Q
3/20
00Q
4/20
00Q
1/20
01Q
2/20
01Q
3/20
01Q
4/20
01Q
1/20
02Q
2/20
02Q
3/20
02Q
4/20
02Q
1/20
03Q
2/20
03Q
3/20
03Q
4/20
03Q
1/20
04Q
2/20
04Q
3/20
04Q
4/20
04Q
1/20
05Q
2/20
05Q
3/20
05Q
4/20
05Q
1/20
06Q
2/20
06Q
3/20
06Q
4/20
06Q
1/20
07Q
2/20
07Q
3/20
07Q
4/20
07Q
1/20
08Q
2/20
08Q
3/20
08Q
4/20
08Q
1/20
09Q
2/20
09Q
3/20
09Q
4/20
09Q
1/20
10Q
2/20
10Q
3/20
10Q
4/20
10Q
1/20
11Q
2/20
11Q
3/20
11Q
4/20
11Q
1/20
12Q
2/20
12Q
3/20
12Q
4/20
12Q
1/20
13
ACSI 1994 to Q1 2013
ACSI Sectors and Industries (Q212-Q113)
Cooperative Utilities 83
Investor-Owned Utilities 77
Municipal Utilities 76
76.6
Airlines 67
Consumer Shipping 82
U.S. Postal Service 75
76 Computer Software
74 Fixed-Line Telephone Service
65 Internet Service Providers
68 Subscription Television Service
72 Wireless Telephone Service
80 Full-Service Restaurants
77 Hotels
80 Limited-Service Restaurants
Energy Utilities 77.4
E-Business 74.2
Manufacturing/ Nondurable Goods
81.9
Information 72.3
Public Administration/ Government
68.8
Health Care & Social Assistance
80.0
Transportation 73.6
Accommodation & Food Services
78.9
Retail Trade 76.6
Finance & Insurance
75.4
Manufacturing/ Durable Goods
83.0
E-Commerce 81.1
73 Internet News & Information
79 Internet Portals & Search Engines
69 Internet Social Media
Federal Government 68.4
Local Government 69.1
Department & Discount Stores
77
Gasoline Stations 73
Health & Personal Care Stores
77
Specialty Retail Stores 78
Supermarkets 77
78 Internet Brokerage
82 Internet Retail
76 Internet Travel
77 Banks
82 Credit Unions
72 Health Insurance
81 Life Insurance
78 Property & Casualty Insurance
Automobiles & Light Vehicles 84
Cellular Telephones 76
Televisions & Video Players/Recorders 86
Major Appliances 81
Personal Computers 80
Apparel 79
Athletic Shoes 80
Breweries 81
Food Manufacturing 83
Personal Care & Cleaning Products 83
Soft Drinks 84
82 Ambulatory Care
78 Hospitals
Monopoly Power
Monopoly Power:
• Internal Revenue Service
High Barriers to Switching:
• Airlines
• Cable TV
• Cell Phone Service
Does customer satisfaction have to matter to the monopolist?
Competition Drives Customer Satisfaction
(2010 Scores)
Soft Drinks 84
Beer 82
Appliances 82
Personal Computers 78
Banks 76
Energy Utilities 74
Wireless Service 72
Airlines 66
Cable/Satellite TV 66
Mo
re B
arr
iers
F
ew
er
Barr
iers
Sw
itch
ing
Barr
iers
Mergers & Acquisitions
Some Key Mergers Captured in ACSI
Exxon – Mobil
Hewlett-Packard – Compaq
Comcast – AT&T Broadband
Daimler Benz – Chrysler
Kraft – Nabisco
Pepsi – Quaker
Nestle – Ralston Purina
Bank of America – Fleet Boston
J. P. Morgan Chase – Bank One
74.2
73.6
73.0
74.6
72.1
73.9
72
73
74
75
Pre-Merger Year 1 Year 2
ACSI for Mergers Compared with their
Industry Averages (Minus Mergers)
Industries (minus Mergers)
Mergers
AC
SI
= 0
-100 S
cale
Merger Year
-1.3%
-1.2%
Total = -2.5%
-0.5%
-0.8%
Total = -1.3%
Heavy Bank Merger Activity in Late
1990s
65
70
75
80
1994 1996 1998 2000 2002 2004 2006 2008 2010
ACSI Commercial Banks
1994 to 2010
Quality or Price?
• For many firms, marketing strategy is essentially the same
as pricing strategy. New customers are won, and existing
customers retained, through adjusting prices throughout
the customer life cycle
• However, while discounting can achieve short-term
improvement in customer satisfaction and/or loyalty, it is
not sustainable in the long-term
• Price important for first purchase, but it takes good quality
to bring customers back again and again
The Story of Kmart
65
70
75
80
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Kmart Industry
Customer
Satisfaction .36
.76
On Average, Quality has
approximately
twice the effect of Value.
QUALITY IS KEY!
Quality
Value
Quality and Value
Price-Sensitive Satisfaction
65
70
75
80
85
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
ACSI Gas $
U.S. Gas Prices and Gasoline Service Stations ACSI A
vera
ge R
eta
il Gas P
rice*
*Inflation adjusted
Can Price Trump Satisfaction?
A Tale of Two Supermarket Retailers
Quality Value Satisfaction Loyalty
Industry 78 77 75 81
Company A 71 76 71 81
Company B 84 77 79 70
4(a). ACSI and Financial Returns
(Macro)
ACSI Macro
70
71
72
73
74
75
76
77
Bas
elin
eQ
4/19
94Q
1/19
95Q
2/19
95Q
3/19
95Q
4/19
95Q
1/19
96Q
2/19
96Q
3/19
96Q
4/19
96Q
1/19
97Q
2/19
97Q
3/19
97Q
4/19
97Q
1/19
98Q
2/19
98Q
3/19
98Q
4/19
98Q
1/19
99Q
2/19
99Q
3/19
99Q
4/19
99Q
1/20
00Q
2/20
00Q
3/20
00Q
4/20
00Q
1/20
01Q
2/20
01Q
3/20
01Q
4/20
01Q
1/20
02Q
2/20
02Q
3/20
02Q
4/20
02Q
1/20
03Q
2/20
03Q
3/20
03Q
4/20
03Q
1/20
04Q
2/20
04Q
3/20
04Q
4/20
04Q
1/20
05Q
2/20
05Q
3/20
05Q
4/20
05Q
1/20
06Q
2/20
06Q
3/20
06Q
4/20
06Q
1/20
07Q
2/20
07Q
3/20
07Q
4/20
07Q
1/20
08Q
2/20
08Q
3/20
08Q
4/20
08Q
1/20
09Q
2/20
09Q
3/20
09Q
4/20
09Q
1/20
10Q
2/20
10Q
3/20
10Q
4/20
10Q
1/20
11Q
2/20
11Q
3/20
11Q
4/20
11Q
1/20
12Q
2/20
12Q
3/20
12Q
4/20
12Q
1/20
13
ACSI 1994 to Q1 2013
Growth in ACSI and GDP:
1997 – 2013 (Q1)
Source: GDP 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%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
An
nu
aliz
ed
, Se
aso
nal
ly A
dju
ste
d R
ate
of G
row
th
% Quarterly Change in GDP
% Quarterly Change in ACSI
Growth in ACSI and Consumer Spending:
1995 – 2013 (Q1)
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
, Se
aso
nal
ly A
dju
ste
d R
ate
of G
row
th
% Quarterly Change in Consumer Spending
% Quarterly Change in ACSI (lagged)
-24%
-20%
-16%
-12%
-8%
-4%
0%
4%
8%
12%
16%
20%
Growth in ACSI and DJIA:
1995 – 2013 (Q1)
ACSI Stock Portfolio vs. SP 500 Cumulative
April 2000 – April 2013
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500A
pr-
00
Mar
-01
Feb
-02
Jan
-03
De
c-0
3
No
v-0
4
Oct
-05
Sep
-06
Au
g-0
7
Jul-
08
Jun
-09
May
-10
Ap
r-1
1
Mar
-12
Feb
-13
Cu
mu
lati
ve P
erf
orm
ance
S&P 500
ACSI Stock Portfolio
$509.83
$106.60
4(b). ACSI and Financial Returns
(Micro)
Measuring Customers as an Asset Aligning measures to maximize the firm’s
performance
Voice of Customer Methodology-Driven
Impact Analysis Financially-Driven
Strategic Guidance
-Management Perspective
-Customer Interviews
-Model of Satisfaction
-Custom Questionnaire
-Causes and Consequences
-Quantify Improvements
-Special Analyses
-Benchmarking
-”What to Do”
-Financial Impact
-Progress Monitoring
-What-If Analysis
Customer Satisfaction Management System
The Satisfaction-Profitability Chain
Drivers of
Satisfaction
• Expectations
• Quality (Product, Service)
• Value
• Brand Image
• Employee Satisfaction
Customer
Satisfaction
Satisfaction
Outcomes
• Customer Loyalty
• Word-of-Mouth
• Up/Cross-Selling
• Share of Wallet
Corporate
Financial
Performance
• Revenue Growth
• Market Share
• Earnings/Profitability
Stock Market
Performance
• Higher Market Value
• Lower Volatility
• Lower Risk
What is CLV?
• Customer lifetime value (CLV) is defined as the dollar value of a customer relationship, based on the present value of the projected future cash flows from the customer relationship
• CLV quantifies the total value of the customer relationship. It recognizes that because retained customers are “cheaper” than new customers (no advertising; fewer incentives), and because the retained customer becomes less expensive in the future (the discount rate), the strength of the customer relationship matters greatly
• CLV is calculated as:
Customer lifetime value ($) =
Margin ($) * (Retention Rate (%) ÷
[1 + Discount Rate (%) - Retention Rate (%)])
What Role Does Satisfaction Play in CLV?
• As customer satisfaction increases, so too does the customer retention rate. In turn, an increasing retention rate means a larger CLV, with each customer bringing more profit to the firm:
• In this example, based on ACSI data, an increase in ACSI of 10-points was shown to increase Retention by 6.5%. In turn, CLV increased 33.4%, meaning that the average per-customer profitability increases by 33.4% as well!
ACSI Retention % Δ CLV
ACSI +0 75.0% 0.0%
ACSI +1 75.6% 2.8%
ACSI +2 76.3% 5.6%
ACSI +3 76.9% 8.6%
ACSI +4 77.6% 11.7%
ACSI +5 78.2% 15.0%
ACSI +6 78.9% 18.3%
ACSI +7 79.5% 21.9%
ACSI +8 80.2% 25.5%
ACSI +9 80.8% 29.3%
ACSI +10 81.5% 33.4%
$0
$100
$200
$300
$400
$500
$600
65
70
75
80
85
90
00 01 02 03 04 05 06 07 08 09 10 11 12
Apple ACSI Apple Stock
Stock Price and ACSI: Apple
$0
$40
$80
$120
$160
$200
65
70
75
80
85
90
07 08 09 10 11 12
Netflix ACSI Netflix Stock
Stock Price and ACSI: Netflix
$0
$10
$20
$30
$40
$50
$60
$70
60
64
68
72
76
80
01 02 03 04 05 06 07 08 09 10 11 12
Home Depot ACSI Home Depot Stock
Stock Price and ACSI: Home Depot
$0
$20
$40
$60
$80
$100
$120
72
74
76
78
80
82
84
00 01 02 03 04 05 06 07 08 09 10 11 12
Costco ACSI Costco Stock
Stock Price and ACSI: Costco
• ACSI data has been used and examined in more than 3000 academic research articles over the past two decades
• In one study, customer satisfaction as measured by ACSI was found to outperform other popular metrics – such as Net Promoter, customer complaints, “top-box” satisfaction, word-of-mouth/recommendation, and repurchase intention – in predicting financial outcomes
• ACSI is a leading predictor of the following measures of financial performance (among others):
• Stock market returns
• Total shareholder returns
• Market value added (MVA)
• Return on investment (ROI)
• Annual sales/revenue growth
• Net operating cash flow
ACSI: Academic Power and Proven
Performance
5. Case Studies
In-Depth Case Study:
The ACSI model in action: Results from an international retail
client (confidential) measuring employee and customer
satisfaction
– A department store client for more than a decade;
approximately $1 Billion in annual sales internationally
– The Challenge:
• Faced with aggressive competition from other big-box
retailers like Wal-Mart and Target
• Internal culture focused more on processes than on
customer needs
• Low morale and high turnover among floor employees
• Concerns about achieving profitability targets
– Initial actions taken:
• Employee Satisfaction (ESI) and Customer Satisfaction
(CSI) measurement developed for 70 largest stores;
planning guides provided to each store manager
• Program extended to smaller stores
A Major International Retailer
– Initial levels of ESI and CSI were very low, but consistency
of
improvements was remarkable
– Despite some difficult market conditions, ESI and CSI
trended upward; employee turnover stabilized
95%
100%
105%
110%
115%
120%
125%
130%
Baseline 1 yr
later
2 yrs later 3 yrs later 4 yrs later 5 yrs later 6 yrs later 7 yrs later 8 yrs later
Retail ACSI Growth Our client's CSI growth Our client's ASI growth
A Major International Retailer
What Was Done?
– ESI and CSI
• Metrics added to Balanced Scorecard report to managers
• Variable compensation tied to results and improvement
– ESI up by 9 points over eight years
• Significantly improved internal communications
• Involved employees in action planning
• Set clearer expectations about career development;
improved process for communicating job openings
• Created market-based comparison for compensation
– CSI up by 18 points over eight years
• Invested in external assessment program of merchandise
• “Forced” buyers to discuss merchandise with store
management
• Customized assortment based on store demographics
• Re-trained floor employees for customer-facing situations
r =.48
ESI and
CSI found
to be
strongly
correlated
Cu
sto
mer
Sati
sfa
cti
on
(C
SI)
by S
tore
Employee Satisfaction (ESI) by Store
ESI and CSI
Year 1 – Year 2 CSI Results
Increase
11 Stores
Rev.
25%
No Change
43 Stores
Rev.
18%
Decrease
10 Stores
Rev.
.73%
– Relative change of CSI at the store level results in
significant differences in financial performance
across stores
CSI Change
The Financial Results
BRIEF CASE STUDY – Global Electronics Retailer
Situation This leader in electronics retailing recognized the importance of gathering, analyzing, and
using customer feedback. However, they acknowledged that they were missing
opportunities to generate business improvements based on insights they could obtain
through a more systematic and scientific approach to gathering feedback.
Solution Retailer implemented an enterprise-wide customer feedback insights system The system
was designed to:
• Identify key customer insights that would have the greatest impact on
satisfaction
• Specify operational changes to be made as a direct result of these new insights
• Identify the role of employee engagement on overall customer satisfaction
Employee engagement was found to contribute 70% to customer satisfaction
growth
Investments in employee training and new technology to engage customers
more effectively
Identified high correlation between satisfaction with the equipment service
center and future purchase and referral, thereby driving an investment in this
area
Customer satisfaction increased 5% over the course of the program, boosting
revenue by $1B annually.
AT
A
G
LA
NC
E
BRIEF CASE STUDY – Business Software Provider
Situation A provider of business software faced increased competition and falling customer
retention. They saw their share of wallet from existing customers threatened and sought to
take action before it impacted the bottom line.
Solution Simply improving the software or lowering price was not the most efficient path to more
satisfied, more profitable customers. Instead the highest impact recommendations
included:
• Changing account management approach from product-centric to single point-of-
contact
• Instituting quarterly account review meetings to discuss needs and issues
• Empowering account managers and a streamlined negotiation process giving
them power to finalize agreements
BY
TH
E N
UM
BE
RS
+$60M: Additional Revenue earned through customer retention
+13Pts: Overall improvement in customer satisfaction score
2.5x: Amount satisfied customers spend compared to dissatisfied customers
+13%: Increase in satisfaction with sales representatives
+11%: Improvement in satisfaction with the negotiation process
6. Final Thoughts
The Bottom Line for Management
• Buy customer loyalty with price incentives
• Try to exceed customer expectations
• Cut cost at the expense of customer relationships
• Poor measurement
• Confuse symptoms with causes
• Loyalty
• Complaints
• Recommendations
What Losers Do:
• Manage customer relationships as true economic
assets
• Balance productivity and service quality
• Connect operations - customer satisfaction -
financials
• Maximize customer complaints
• Earn loyalty of customers by satisfying them
• Balance customer satisfaction and market share
What Winners Do:
The Bottom Line for Management
THERE ARE NO
SHORTCUTS
If you don’t satisfy your
customers, they will find
somebody who will
As Long As Repeat Business is Important
and Buyers Have Other Options…
For more information:
ACSI Website: www.theacsi.org
Forrest V. Morgeson III
Director of Research, ACSI