ACSI Decline Halts, But No Gains Seen

The decline of overall customer satisfaction in the United States halted in the second quarter of this year, according to the American Customer Satisfaction Index (ACSI), but it hasn't risen either.

The ACSI held steady at its 15-year low of 73.6 out of 100. Those responsible for creating the index are uncertain whether the halt is temporary, but indicated that some signs suggest that customer satisfaction might continue to drop.

While COVID-19 might have played a role, the ACSI collapse began in 2018 before the pandemic began. Before COVID, it was also followed by weaker consumer spending and slower growth of the gross domestic product, two indicators of where the ACSI is headed.

Consumer spending and GDP growth have rebounded, but not customer satisfaction.

The relationship between customer satisfaction and household spending has been disrupted  because the pandemic led to high pent-up consumer demand. Many consumers also had the means to spend.

"Economic growth in an advanced economy is highly dependent on consumer spending," explained Claes Fornell, founder of the ACSI and a retired porofessor of business administration at the University of Michigan. "In the U.S., consumers account for about 70 percent of GDP. There are two requirements for consumer spending growth: willingness to spend and ability to spend. At this point, households are eager to spend, almost no matter what. It is more of a reaction to the impositions caused by COVID than a search for specific consumption gratification."

And now that inflation is rising sharply, prices have increased overall and, in some markets, by quite a bit. That inflation might damper customer satisfaction to some degree, but the ACSI authors point out that the declines in consumer satisfaction preceded the rising prices.

Increasing productivity in the service sector might also have contributed to lower customer satisfaction, coupled with the fact that some service sectors have difficulty filling jobs. When companies have to serve more customers with fewer people, labor productivity increases but service quality usually suffers, the authors explain.

ACSI's authors also blame how well businesses manage the shopping, buying, and consumption experience of their customers, pointing out that many need to improve their analysis of customer data. Most of that analysis is descriptive as opposed to prescriptive. Data are noisy, patterns are mistaken for causal relationships, and performance metrics often lack relevance, they said.

But this is in the short term, visible in the stock returns of companies with high ACSI scores. While the returns are still high, they are not much higher than the market. This is unusual, the authors maintain, because stock returns for companies with highly satisfied customers are usually significantly higher than the market.

"Long term, this will go back to normal," Fornell concludes. "Customer satisfaction will again become critical. Satisfied customers will come back. Dissatisfied customers will not. Companies with more of the former will do better."