Quarterly Update on U.S. Overall Customer Satisfaction

The national customer satisfaction benchmark improved during the fourth quarter of 2012, rising 0.5 percent to an American Customer Satisfaction Index (ACSI) score of 76.3 on a scale of 0 to 100. Although most of the gain is due to improvements in the public sector—satisfaction rose for both federal and local government services—the national index also was helped by higher customer satisfaction in the retail and e-commerce sector.

Sales growth in the United States was fairly strong in January 2013. Low inflation and shrinking household debt, along with long-depressed demand, are now fueling a surge in consumer spending. During the third quarter of 2012, the ACSI forecast for overall consumer spending growth was 2.8 percent, slightly higher than the actual 2.2 percent increase. At present, consumer confidence is still shaky, and employment, albeit continually improving, is still too weak to boost demand. Add in low wage growth and high gasoline prices, and the outlook for an increase in consumer spending is uncertain. Nevertheless, the increase in the national ACSI benchmark for the fourth quarter of 2012 does point to a continued spending growth of about 2.7 percent.

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Supermarkets

Customer satisfaction with supermarkets improved by 1.3 percent to an ACSI score of 77. Following a 6.0 percent spike in food prices in 2011, the cost of food prepared at home rose only 1.3 percent in 2012, slightly less than the overall increase in the consumer price index. Grocery chains continued to offset rising prices with improved quality of service, expanded merchandise selections, and better store layouts. Judging from the increase in customer satisfaction, they have been quite successful.

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Among supermarket chains, Publix reigns when it comes to customer satisfaction, just as it has done in every year since the ACSI’s inception in 1994. In 2012, Publix gained 2 percent to a score of 86, thereby widening the gap with Whole Foods, which has leveled off at 80 following four straight years of gains. Several other chains cluster closely behind Whole Foods. Kroger is unchanged at 79, followed by Winn-Dixie, up 4 percent to 78 to tie the aggregate of all smaller chains, which slipped 1 percent.

The drop-off to the rest of the supermarket industry suggests that even in a strapped economy, focusing primarily on discounting is not sufficient to create high levels of customer satisfaction. Supervalu gained 3 percent to 76 as the company tried to reduce costs to be competitive after years of lackluster sales. Low prices can create short-term gains in customer satisfaction as consumers look for the best deals, but for the strategy to work over the long term, any business that tries it should make certain that it has the cost advantages to pull it off. If not, and it is not clear that Supervalu has such advantages, either profit margins will be squeezed, or prices will have to be raised. Safeway was unchanged at 75, while discount giant Wal-Mart was in last place despite a 4 percent gain to an ACSI score of 72.

Specialty retail stores

Customer satisfaction with retailers that specialize in home improvement, electronics, office supplies, and books dipped by 1.3 percent to an ACSI score of 78. Membership wholesale warehouse clubs and office supply chains dominate the top of the category, while clothing retailers are at the bottom. Office Depot leads all specialty retailers, gaining 6 percent to 84. Office Depot is transitioning from large, warehouse-type outlets to smaller, more intimate stores with better customer service. So far, the strategy seems to be paying off. The customer satisfaction gain positioned Office Depot well ahead of rivals Staples (79) and OfficeMax (78), both of which were unchanged. Office Depot’s margins and stock value have improved in the wake of the transition, but sales have yet to follow suit.

Second to Office Depot, Barnes & Noble made the biggest improvement, up 4 percent to an ACSI score of 82. Although customers enjoy shopping in bookstores, fewer people are visiting them so Barnes & Noble has closed stores due to weakened in-store sales. Sandwiched around Barnes & Noble are the two warehouse clubs: Costco at 83 (unchanged) and Wal-Mart’s Sam’s Club at 80 (–1%).

Home improvement retailers battled over the next few spots, with Lowe’s (unchanged at 79) edging out Home Depot (down 1% to 77). Electronics chain Best Buy fell between the two after a 1 percent improvement to 78. Clothing retailers TJX (–3%) and Gap (–1%) were at the bottom of the category. Higher prices for raw materials, particularly cotton, have dampened customer satisfaction as both manufacturers and retailers pass on the additional costs to consumers.

Department and discount stores

Customer satisfaction with department and discount stores rose slightly, increasing 1.3 percent to 77. The juxtaposition of higher-priced department stores that offer better service and higher quality merchandise, and discount chains that offer lower prices, created a mixed picture of highs and lows across the industry. Department store Nordstrom led the way, unchanged at an ACSI score of 84, while discounter Wal-Mart was last, inching up 1 percent to 71. Although quality trumps price with respect to customer satisfaction, pricing pressure remains a challenge for all retailers amid sluggish consumer spending. Even the high-end department stores have resorted to more price promotions to boost sales, particularly during the holiday shopping season.

A trio of retailers tied at 81, well below Nordstrom but still above the category average. Target gained 1 percent, Kohl’s was unchanged, and J.C. Penney slips 1%. In the next tier, Dillard’s dropped 1% to 79, followed closely by Macy’s (+1%) and Dollar General (unchanged) at 78. The aggregate of smaller department and discount store chains gained 1 percent to form a three-way tie at 78.

Well below the field was Sears, down 1 percent to 75, and Wal-Mart at 71. Sears continues to struggle following its acquisition by Kmart, while Wal-Mart continues to offer the same mixture of lower quality and lower prices that has kept sales strong and customer satisfaction weak for several years. A big part of Wal-Mart’s challenge is that the chain is no longer the only game in town when it comes to discounting. Twenty years ago, Wal-Mart was able to beat the industry average for customer satisfaction, not because quality was better, but because it had the low-price market essentially to itself. That is no longer true.

Health and personal care stores

Customer satisfaction with health and personal care stores (i.e., drugstores) reversed a two-year slide, inching up 1.3 percent to an ACSI score of 77. This score matched both department and discount stores and supermarkets, and was only a point behind specialty retail. This created a rather consistent level of customer satisfaction across the retail sector. Drugstores are the one retail category where smaller chains and individual stores tended to do better. In 2012, the aggregate of smaller drugstores declined sharply by 4 percent to 79, but stayed ahead of the highest-scoring large chain, Rite Aid (up 3% to 77).

Just below Rite Aid was Walgreens at 76 (+1%) and CVS at 75 (+3%). For CVS, the customer satisfaction improvement marks a change from a two-year slide that put the chain at an all-time low in 2011 amid both declining sales and cost-cutting efforts. Higher customer satisfaction helped right the ship financially for CVS in 2012, with revenue up 15 percent.

Internet retail

Two years after a fall in customer satisfaction, online retail is back on track. The category shows a small gain for the second consecutive year, up 1.2 percent to an ACSI score of 82. Although this score is still short of the category’s all-time high, the Internet by and large remains a more amiable means of shopping for a variety of merchandise compared with traditional retail. Still, there are exceptions to this rule. The very best of traditional retailers—such as Publix, Nordstrom, Office Depot, and Costco—outperformed the average for Internet retail. Among the individual online retailers, Amazon retained its lead despite a 1 percent drop to an ACSI score of 85. However it remained the highest scoring in the ACSI among Internet, department, discount, or specialty retailers. Close behind Amazon, Newegg scored 84 after a 1 percent slip, while eBay gained 2 percent to an ACSI benchmark of 83.

The aggregate of smaller websites improved 2 percent to match the online retail average at 82, followed closely by Overstock, down 2 percent to 81. Among online retailers, only Netflix fell well below the category average, inching up 1 percent to 75. In 2011, customer satisfaction with Netflix plunged 14 percent, one of the largest-ever single-year drops in ACSI history, as a result of hefty price increases. Now, the price shock has settled, and customer satisfaction remains about where it was after the price hike. The plunge in Netflix’s stock price was even steeper than what would have been warranted by the deterioration in customer satisfaction. With the stabilization in customer satisfaction, the company’s stock price has increased dramatically, but not to the level it was before 2011.

Internet brokerage

Customer satisfaction with online brokerage rebounded from a dip in 2011, rising 2.6 percent to an ACSI score of 78. Higher customer satisfaction with the websites of smaller brokerages, such as Vanguard and Scottrade (up 4% to 78), was a major factor behind the industry gain. The strong stock market also has helped. Among the larger online brokers, Fidelity led at 78 (–1%), with Charles Schwab (–3%) and TD Ameritrade (–1%) close behind at 77.

Only E*Trade fell well short of the category average, plunging 8 percent from an industry high of 79 in 2011 to an industry low of 73 in 2012. E*Trade has struggled of late, going through a series of CEOs during the past few years. With the recent uncertainties over the fiscal cliff and Europe’s financial difficulties, trading volumes have been lower. This is particularly problematic for E*Trade. While other firms like Fidelity and Schwab are more diversified, E*Trade relies on trading fees and commissions for much of its revenue.

Internet travel

Customer satisfaction with travel websites used for booking airfares, hotels, and car rentals dropped 2.6 percent to an ACSI score of 76—the largest decline for any retail category in 2012. A combination of rising prices for travel accommodations and less discounting from travel sites has eroded the value of money somewhat, lowering customer satisfaction. Expedia (–1%) and Orbitz (unchanged) held the lead among the larger websites with scores of 76. The two were joined by the aggregate of smaller travel sites, down 4 percent to 76. Travelocity followed closely behind at 75, but also shows the largest decline (–5%). Priceline finished again at the bottom of the category after a 3-percent drop to 74. Nevertheless, because of the negative effects of pricing on the entire online travel industry, Priceline’s gap to the industry leaders was actually the narrowest it has been since 2002 when this category was first included in the ACSI.

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