Satisfaction Index Points to Spending Trend

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As domestic automobile manufacturers last week said they'd cut vehicle production because of jitters about consumer spending in the next few months, the latest quarter's data from the University of Michigan's American Customer Satisfaction Index supports theories about consumer spending pull-backs.

"What it means mathematically is that if satisfaction doesn't increase, then consumer spending pretty much reverts to its historical growth level, about 3.7 or 3.8 percent," says Claes Fornell, Donald C. Cook professor of business administration and director of the National Quality Research Center at the University of Michigan Business School. "That's what the mathematics would predict for next quarter, which means reasonable economic growth, but not what was predicted several months ago."

Dr. Fornell, who says that there's a high correlation between growing customer satisfaction indices and increased spending, says he was not surprised to read of domestic car manufacturer production cuts. "The automobile category is down slightly, one percent or so, and primarily because domestic manufacturers are taking some product hits," Fornell maintains. "If you look at the gap between domestic manufacturers and Japanese manufacturers, that gap in satisfaction is growing. Indeed at the bottom, you find three domestic nameplates."

The ACSI, which pre-screens its 80,000 respondents to qualify each as being an owner or purchaser of each of the products they are surveyed about, has become a helpful indicator of the direction of consumer spending overall, Fornell says.

"If we think of economic growth as the sum of the value of buyer-seller transactions, to a large extent, it turns out, the satisfaction of the buyer in the transaction will motivate the buyer to go back to repeat the experience more," Fornell says. "This, in very simple terms, is why we see more economic activity, in terms of the consumer, i.e. spending, when satisfaction goes up."

Although overall satisfaction levels are historically high across the consumer market sectors the ACSI measures -- automobiles, personal computers, household appliances, e-business, portals, search engines and news and information -- the topping out, or stabilizing, of the index from first to second quarter 2004 means "the growth has stopped," Fornell warns.

In deriving the index 10 years ago, Fornell says, it was important to make it more than a massive "public opinion" poll, which caused researchers to qualify each respondent as an end-user of the product in question. Over the years, Fornell observes that the most significant component of satisfaction "has nothing to do with quality, nothing to do with price, but everything to do with 'selection' among the two partners, the buyer and the seller. The better the buyer is at finding and then picking the supplier, the better the outcome is going to be from a satisfaction point of view."

Fornell cautions that when the seller, in order to drive revenue, goes out and gets the "wrong" people as customers, their satisfaction levels are lower, and it winds up costing the company in future sales.

Demographically speaking, females, Fornell says, tend to score much higher in satisfaction levels than males do. "You've got to be careful saying it," Fornell says. "But theoretically, what the data seem to be saying is that women are better shoppers who make smarter decisions about what they buy in the first place, so that they're more satisfied with the outcomes of their decisions."

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