COVER STORY

Customer satisfaction has become a central focus for businesses today. But Claes Fornell became interested in customer satisfaction before it became a hot topic. Fornell is the creator of the American Customer Satisfaction Index. He is also the chairman and founder of CFI Group, an international provider of customer satisfaction measurement technology services; ForeSee Results Inc., a customer experience analytics firm; and CSat Fund, a hedge fund that applies customer satisfaction data to stock portfolios. And he authored the book The Satisfied Customer: Winners and Losers in the Battle for Buyer Preference.

CUSTOMER magazine recently spoke with Fornell about the ACSI, the state of customer satisfaction, and why businesses should pay attention to this important indicator.

What factors does the ACSI consider in weighing customer satisfaction?

Fornell: There are three categories of factors that determine customer satisfaction: price, quality and fit, with the latter the most important and the first the least important. Fit has to do with how well a product matches a customer's need or desires. Since needs and desires usually differ across consumers, the best way for a company to improve customer satisfaction is to target the right customers and to segment across different customers. The best way for a consumer to improve his or her satisfaction with a product or service is to make a good, well-informed choice.

What kind of questions are asked in the ACSI surveys?

Fornell: In the ACSI, we ask three types of questions for the variable (the ACSI Index) customer satisfaction. (We also ask questions about things like quality and price that we use to explain the variation in satisfaction.) Satisfaction relative to expectations, relative to the buyer's ideal product, and also a general question about how satisfied the respondent is. However, to the surprise of non-statisticians, what is critical here is not so much the questions, but that we can take raw data and mathematically refine it by calibrating the combination of responses such that its relationship to some objective (for the firm) is maximized. In the case of ACSI, this means that we combine the responses to the three questions into an overall satisfaction index in which the responses are weighted so that the Index has the strongest possible effect on repeat purchase. Technically, this is done by maximizing the trace of the relevant covariance matrix (but few people will be able to follow the mathematics here) from the survey.

Of whom do you ask these questions?

Fornell: Randomly selected buyers/users of the product in question. Sample size is determined by what kind of precision is needed for generalization and the degree of consumer heterogeneity, but if one has a good processing tool (in our case a latent variable structural equation system), about 250 responses for each company are needed.

Who uses ACSI's indexes and how?

Fornell: The ACSI is used in a wide variety of settings, including the private and public sector, universities and stock analysts. How they use the ACSI differs, from benchmarking,  improving customer satisfaction and profitability, to determining what stocks to buy.

You’ve been quoted as saying customer satisfaction is a leading indicator of a company’s long-term market value and financial health. Explain.

Fornell: The reason for that – there are several reasons. One is that most of the purchases we make, certainly in the services sector, are in one way or another repeat purchases.

If we’re not satisfied, why would we go back and buy the same stuff again? We would only do that if the market wasn’t very competitive – either there weren’t alternatives or it was difficult to go to somebody else. So in a competitive marketplace, obviously it’s critical to make the customer satisfied, otherwise he or she will go somewhere else and the company will lose that revenue probably. If you invest in companies with strong customer satisfaction, you do much better in the market. I’ve done that now for 12 years and have never lost in the market.

Does customer satisfaction tend to be more about the products themselves, or more about the experience involved in sales and service?

Fornell: The way we look at it, customer satisfaction is a summary measurement of all of those things. The whole customer experience is embedded in one number. Then you can break it apart and say was it the service person, was it the sales person, what was the contribution of each of those things, how much was product, how much was other things. Service becomes pretty important obviously.

What do companies that have higher customer satisfaction scores have in common?

Fornell: They deliver what they promise, and the buyer is reasonably well informed as to what that is. It’s really two parts to this. One is the buyer and the buyer’s responsibility for selecting a product or service that meets whatever needs and expectations that buyer has. The other part is on the seller’s side to deliver like that.

Which sectors do the best in terms of customer service and why?

Fornell: A few companies do very well on customer satisfaction and many do less well. Some industries do well because it’s a little easier to sell, let’s say soft drinks, than it is to sell a mobile phone in the IT sector. The ones that do well are the consumer nondurables, food products and the like. That’s because they’ve been around a long time, and if I don’t like Coca Cola I’m not going to buy it more than once. It’s easy to switch. I don’t need an instruction manual to use the products. I can open a can, and I can drink the stuff. There are really no surprises, and very little service is needed to consume the thing.

Which sectors do the worst in terms of customer service and why?

Fornell: On the other side of the scale here you have companies with much more complicated products where things are much more difficult. There they don’t do so well in satisfaction. You can talk about subscription TV or airlines, [they] are not really there. Even the phone companies are much lower on customer satisfaction.

Are they getting better?

Fornell: They are getting better. In fact, there are very few that are getting worse as a category. We still see very low scores for cable and satellite TV, but they’re not really getting worse, it kind of jumps up and down a little bit. The airlines continue to have difficulties, but that’s not a big surprise.

What could the airlines be doing to improve customer satisfaction?

Fornell: Some of the things they should be doing should be relatively easy. They should communicate what they know; information here is critical. They are very bad at this. When bad things happen, delays and the like, the airlines are getting a little better, but they’re not really on top of things. They should let people know what to expect to the extent that they know it.

The airlines have begun to send passengers e-mail alerts on flight delays.

Fornell: Right, right, which is much better. In fact that happened to me yesterday. But it happened as I walked into the airport – I got the news that the plane was two hours late. Had I gotten that a half hour earlier I wouldn’t have gone to the airport. Now I don’t know the specifics of that situation, but I think they should communicate so that passengers should make other plans if they have to. And I’m still amazed in the plane itself. If you run into turbulence or whatever, the captain should say something. Sometimes they do, sometimes they don’t say anything. It’s not consistent.

Which companies and sectors are most improved in the area of customer satisfaction and why?

Fornell: The whole PC industry, Apple (News - Alert) led the way for a long time with its very high satisfaction, but also based on design and novelty that’s where we’ve probably seen the most improvement over the years. You can see more industry-specific details on our website.

But Apple’s customer satisfaction is now slipping.

Fornell: Yes. It started slipping in late summer or early fall, but not by a whole lot. For Apple the high satisfaction they’ve had has been terrific in terms of helping them. I think they’ve broken just about every sales record there is in this category. But they’re having some difficulties now, and it will be interesting to see how that plays out. But I think when they overtook the industry 7-8-9 years now in customer satisfaction, it’s been straight up since last fall. But they’re still by far in the lead both when it comes to smartphones and the iPad and the laptop products. I think they have stalled. Who knows what the leadership change at the company has really meant. If you look at them they are seemingly at least somewhat less innovative than they were are few years ago.

Does innovation impact customer satisfaction?

Fornell: Oh sure. If you get a new, novel thing that no one else has and it’s really packed with features that you like, sure.

How does customer satisfaction relate to customer spending? If I increase my customer satisfaction does that mean bigger wallet share from that customer?

Fornell: Sure. For many years we’ve had a very week economic recovery. One thing is very very clear: weak consumer demand. And that puts a drag on employment and just about everything else. But the weak customer demand there doesn’t come from low satisfaction, it comes from the fact that people have no money – the cash flow to households is not really what it should be to have a healthy recovery. What we have found is when customer satisfaction goes up in the aggregate consumer demand tends to follow. But of course the caveat is that you have to have enough discretionary income or credit available to you to so you can follow up on your intention to purchase. And right now we don’t have that. There’s also a strong relationship at the individual company level, and it is the strongest when repeat purchase is a strong proportion of the buy and when there’s a great deal of competition.

You note that customer service is seen as a cost center vs. investment. With the new focus on customer experience, is that thinking starting to change?

Fornell: Yes and no. I think Amazon is a very good example of that. They do spend quite a lot to improve customer service, but they don’t treat that spending as an investment. It’s not capitalized as an investment, which in my view it should be in order for the earnings report to be accurate, for the accounting to be accurate. But they don’t, and many other companies don’t, because it’s not what the accountants do. It’s treated as a cost. You look at Amazon, and they usually take a hit when their earnings report comes out. But the only reason for that is they’re investing more in various aspects of customer service. If the accounting people did it right that wouldn’t happen. But this is a company that has yet to deliver great profit.

In her book “You Call Is (Not That) Important to Us” Emily Yellen quoted you saying that Swedes complain the most. How do other demographics map to customer complaints?

Fornell: If you take men and women, for example, women actually complain less, and women are also more satisfied. There is an economic explanation for that, I’m not sure it’s right, but the economic explanation would be that women tend to spend more time shopping, think more about the process and are better shoppers; therefore they also buy products that are more suited to whatever purpose they use them for and they come out of the whole thing more satisfied and with fewer complaints. We have geographical  differences too. On the coasts people complain more. In the mid section of the country it’s somewhat less. I’m not sure exactly why that is.

What about complaining by age?

Fornell: Older people tend to complain less across the board, but they’re also more satisfied. I think it’s the same thing, maybe the older people have been around more, they know themselves better, and their purchase behavior is more stable; therefore they come out of the experience better. Maybe they take fewer risks as well.

What, if anything, can we learn from all that?

Fornell: The way to get high satisfaction and fewer complaints obviously is to deliver a good product and good service. But the most important factor is actually not that. It’s what I would refer to as fit. If the product really fits the needs and wants of the buyer then things usually work out. If it doesn’t, well then you have problems to begin with. As a seller, it’s very difficult. You tend to exaggerate the benefits of a product. You want to make that sale even if you know this is not really what the customer should have, but you try to sell it anyway. Then you pay the price later of not only having a dissatisfied customer that will not come back to you, but they spread the news as well. It’s better in the long run to be very selective in terms of targeting and maybe even saying no to customers who may want to buy your products if you don’t think they’re going to be happy with them.

You say complaining can be a good thing. What do you believe is the best/most effective way, and channel through which, to complain to a company these days?

Fornell: I think most companies by now are pretty receptive. Also the call center should have enough instructions to deal with the complaining customer in a smart economic way, which is of course not to question the validity of the complaint so much, but to essentially give the complainant what they want for the most part even if the real complaint might be questionable. It’s usually the smart, economic thing to do, and I think most companies try to do that even though it is really hard.

What about complaints on social media? Are companies good at responding?

Fornell: It depends on the seriousness of the complaint. I think regardless of how the complain comes in, good companies that will stay in business longer address those complaints. I was in a Greenwich, Conn., hotel yesterday and they told me all the rooms were booked and that they’d move me to another hotel. And I said no, all my meetings are here. Once you complain like that and say you’re not going to move, then they usually find a room. That happens to me all the time. You don’t get the room you want. I got a smoking room, but I didn’t have to pay for it. Does that make me a happy customer? Not really. But at least I’m not furious at them.

What are your suggestions on how to best respond to and leverage social media to increase customer satisfaction and become a stronger organization?

Fornell: If you expand the airline example we talked about, when they have something to say that’s of relevance to the customer experience or to a customer group that’s interested in a specific thing, then social media can play a great role. I think we see some of that; it could be better I suppose. But the problem we’re facing now is the irrelevance and the sending out a bunch of messages that more of the receivers aren’t interested in. You’ve got to be somewhat selective even though it costs you nothing to send it out. You’re an irritant then. But once you have something to say, if you sent something that was worthless to those individuals 10 times, they’re not going to listen to the eleventh. You’ve got to be careful. We now suffer from too much information as opposed to the other way around.

Let’s talk about customer anger. You say it can be a good thing. Explain.

Fornell: If you have angry customers and you hear from them, you should probably encourage that even though their message may not be easy to listen to. I would advise companies to listen to it and then quickly try to figure out if this is a general problem or a unique problem to that customer.

Some of my sources say that customer service and CRM are converging to allow businesses to capture and distribute voice-of-the-customer data in real time to workers so they can take immediate steps to improve the customer experience. What are your thoughts on this idea?

Fornell: In general it is a good idea to have service providers alerted, in real time if possible, about things that need fixing, but there are some caveats here as well. One is that the opinion of a single customer may not be representative and therefore not warrant a change or fix. If it is about a dirty lobby, that would probably be easy enough to check, but if it is something that's not so black-and-white and more dependent on the subjective taste of a customer, it is not so easy. From the customer's perspective, there may also be a privacy issue depending on how the VoC was captured. For example, it is fairly common in the auto industry that the sales rep gets ahold of the filled out questionnaire by the customer he or she just sold a car to. It’s also not uncommon that the sales person then contacts that customer via phone to complain about the low marks he or she got. That obviously makes the customer even more dissatisfied. There will always be an issue of feeding VoC data back to those employees (and their managers) who are responsible for the service complained about. It is a delicate problem because it reports negative job performance, and it is not always clear how serious and/or how representative the problem is. From a management perspective, the objectives are to win back disgruntled customer and to prevent the same problems for all customers in the future. The first requires reaching out to the complaining customer; the second requires analysis to determine how widespread and serious the problem is, deciding how to best fix it (if it needs fixing), and actually implementing the fix.

Virtually everyone I interview likes to talk about how customers today want to interact with companies how they want when they want. Then the conversation turns to the rise of the multichannel contact center. What are your thoughts on the multichannel contact center? Does it exist today? Will it be widespread tomorrow? And will it significantly impact customer satisfaction?

Fornell: The need for a multichannel contact center is proportional to the buyer’s current and projected future use of these channels in the purchase process.  All indications are that consumers will use more channels for products that need physical inspection or demonstration before purchase.