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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
© 2009 CFI Group. All rights reserved. 3
Benefits to the Economic Decision Makers
Investors
Business Managers
Government
Consumers
© 2009 CFI Group. All rights reserved. 4
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
© 2009 CFI Group. All rights reserved. 5
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
© 2009 CFI Group. All rights reserved. 6
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
© 2009 CFI Group. All rights reserved. 7
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
© 2009 CFI Group. All rights reserved. 9
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)
© 2009 CFI Group. All rights reserved. 10
Consumer utility is the true standard for economic growth
Sellers compete for buyer satisfaction
© 2009 CFI Group. All rights reserved. 11
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
© 2009 CFI Group. All rights reserved. 12
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
© 2009 CFI Group. All rights reserved. 13
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
© 2009 CFI Group. All rights reserved. 14
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
© 2009 CFI Group. All rights reserved. 15
A Brief Introduction to ACSI: Analysis
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
© 2009 CFI Group. All rights reserved. 16
A Brief Introduction to ACSI: Analysis
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.
© 2009 CFI Group. All rights reserved. 17
A Brief Introduction to ACSI: Analysis
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
© 2009 CFI Group. All rights reserved.
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
© 2009 CFI Group. All rights reserved. 19
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
© 2009 CFI Group. All rights reserved. 20
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)
© 2009 CFI Group. All rights reserved. 21
The Global Context
Global Forces:
Information
Capital
Work (not labor)
How do they affect the buyer-seller relationship?
© 2009 CFI Group. All rights reserved. 22
The Buyer – Seller Relationship
Who Benefits Most?
• Who is getting more choice? The buyer
The seller• Who is becoming more replaceable?
© 2009 CFI Group. All rights reserved. 23
The Buyer – Seller Relationship
The Result:
The balance of power between buyers and sellers is shifting in favor of the buyer.
© 2009 CFI Group. All rights reserved. 24
The Effects
Punishment and Rewards
Corporate Balance Sheets
Capital Movements
Business Strategy
© 2009 CFI Group. All rights reserved. 25
For Investors:
Do customers know something investors don’t?
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The Conventional Answer:
No, because markets are efficient and reflect all available information
© 2009 CFI Group. All rights reserved. 27
But…
How does this information reach investors (satisfied customers are not on the balance sheet)?
© 2009 CFI Group. All rights reserved. 28
Is there another answer?Is there another answer?
© 2009 CFI Group. All rights reserved. 29
Shift in Power Between Buyer and Sellers
Capital Follows Power
© 2009 CFI Group. All rights reserved. 30
Rewards and Punishment
Seller
Product Markets
Equity Markets
Repeat Buying
More Capital
The Successful Seller
© 2009 CFI Group. All rights reserved. 31
Rewards and Punishment
• Buyer defection in product markets
• Capital withdrawal from equity markets
The Unsuccessful SellerPunished by:
© 2009 CFI Group. All rights reserved. 32
Can You Beat the Market?
Only if you know something that others don’t
© 2009 CFI Group. All rights reserved.
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
© 2009 CFI Group. All rights reserved.
Even Lower Risk – Market Neutral vs. HFRX Equity Market Neutral Index
34
*2009 is YTD through July
© 2009 CFI Group. All rights reserved.
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:
© 2009 CFI Group. All rights reserved. 36
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
© 2009 CFI Group. All rights reserved. 37
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