25th Jun 2010
University of Michigan conclusions has studied a number of years of data from the American Customer Satisfaction Index. Currently, there is no comparable information source in the UK although the UKCSI, launched in 2007, will undoubtedly provide comparisons once it has enough data.
As a result of their research, University of Michigan contend that, at the macro level, customer satisfaction and household spending are at the hub of a free market. In one way or another, everything else – employment, prices, profits, interest rates, production and economic growth itself – revolve around consumption.
They conclude that, if customers reduce their spending, the economy moves into recession. If they increase it, albeit by a very small percentage, the positive effects on economic growth are significant; customers reward companies that satisfy them and punish those that do not.
This fundamentally influences the way free markets operate, driving organisations to deliver as much customer satisfaction as they can in the most efficient way possible. This phenomenon is strengthened by the growing power of customers based on higher levels of education and confidence plus, in recent years, dramatically increased sources of information. This has resulted in the production-led economies of the past turning into today’s customer-driven markets.
There is growing evidence that today’s affluent customer is more interested in quality of life (doing things) than material wealth (owning things). This reinforces the importance of the entire customer experience, not just the core product or service.
Studies in the 1960s showed that, when basic needs of food, shelter, etc, are met, extra material wealth does not lead to greater happiness.
A 2003 study by Van Boven and Gilovich proved that experiences contribute more to long-term life satisfaction than material possessions. They also showed that individual consumption of experiential purchases led to greater satisfaction than material purchases.
The authors advance three potential explanations for this finding:
The implications of this study are that, as customers, we should look to use our discretionary spend on experiential purchases where possible and that, as suppliers, we should try to sell experiences not products.
Increasingly, there is an awareness of the need to supply customers not just with a product or service, but with a total customer experience that consists of the total of all functional and emotional benefits communicated to the customer through the product or service plus everything about the physical environment, the staff who serve the customer etc.
If customers judge their suppliers on their total experience, suppliers should carefully consider all the cues that influence the total experience that the customer perceives. Orchestrating these cues into a planned and consistent message can have a powerful impact on the way customers feel at a subconscious level and companies have started to go to considerable lengths in an effort to influence them. Cadillac, for example, has developed a special scent which is added to the seats of their new cars to appeal to customers through their sense of smell.
While Gross Domestic Product (GDP) is a measure of the quantity of economic activity, customer satisfaction is a measure of its quality (as perceived by its customers).
If it is true that people seek to repeat high quality, pleasurable experiences but avoid those of low quality, we would expect to see a relationship between these two indicators.
Analysts at the University of Michigan have identified a significant relationship between ACSI changes and subsequent GDP changes in the US, a relationship that operates via consumer spending.
While it is obvious that the level of consumer spending is based on the amount of money that people have to spend, it is also affected by their willingness to spend it. While some spending is down to necessity (e.g. the food and shelter necessary for survival), most spending is driven by the anticipated amount of satisfaction that the spending will produce.
To quote the University of Michigan again, they say that the importance of this can hardly be overstated. Since its inception, the data show that ACSI has accounted for more of the variation in future spending growth than any other factor, be it economic (income, wealth) or psychological (consumer confidence).