1

ACSI American Customer Satisfaction Index TM

Citizen Satisfaction: Public Sector and Performance Management

Forrest V. Morgeson III, Ph.D. American Customer Satisfaction Index (ACSI)

San Juan, Puerto Rico, September 5th, 2013

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1. ACSI Citizen Satisfaction Overview

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Snapshot of ACSI

• Established in 1994, ACSI is the only standardized measure of customer satisfaction in the U.S. economy, covering more than 235 companies in 45 industries and 10 economic sectors

• In the aggregate, ACSI represents a quarterly measure of the national economy’s health, complementary to measures such as inflation, productivity, and unemployment

• 100+ departments, agencies, programs and websites of the U.S. Federal government also measured on an annual basis

• Results from all surveys are published quarterly in various media and on the ACSI website, www.theacsi.org

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ACSI and Citizen Satisfaction

• ACSI has measured satisfaction with government since the project’s inception in 1994

– Internal Revenue Service and core local government services (police, waste disposal) first measured in 1994

• In 1999, ACSI was chosen as the “gold standard” measure of

citizen satisfaction by the Federal government – ACSI was tasked with measuring 30 “high impact” Federal

agencies in 1999 and 2000, reflecting the vast majority of citizen interactions with government

• Although now relying on optional agency buy-in, participation in

the ACSI study has grown significantly since 1999

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Why Measure Satisfaction with Government?

More efficient budgetary and resource allocation

Monitor and motivate public employees

Set “baseline” for customer satisfaction, measure progress, and

benchmark performance

Provide critical information for annual performance reporting

Identify areas for improving quality of service provided

to customers

Raise trust in government agencies and the

government overall Enhance government

transparency and accountability

ACSI Develop new citizen-government “feedback

loop”

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2. ACSI Methodology

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ACSI Methodology

• In the ACSI Model, Customer Satisfaction (ACSI) is embedded in a system of “cause-and-effect” or “structural” relationships

• All of the variables in the ACSI Model are measured using multiple indicators (survey questions), increasing their precision and reliability

• The central objective of the model is to explain what influences ACSI, and in turn what is influenced by ACSI

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● A component score is a weighted average of a set of attributes, or survey questions, comprising a component or activity. Responses to survey questions are given on a 1-10 scale, which are then converted to a 0-100 scale for score reporting.

● An impact, on the other hand, predicts the increase in satisfaction that would result from a 5-point increase in a component score.

● Areas for improvement are those components or activities with a relatively low score and a relatively high impact on satisfaction.

In the simplified example shown here, Activity 2

would be a key action area due to its relatively low score and high impact.

ACSI

65 Activity 2

65

Activity 1

76

1.5

.8

Impact

Score

EXAMPLE

ACSI Methodology

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3. 2012 ACSI Results and Findings

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68.6 68.6

71.370.2

70.972.1

71.372.3

67.868.9 68.7

65.466.9

68.4

60

65

70

75

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

*A sampling methodology change in 2007 limits comparability to prior years. Year-to-year trending is recommended.

Aggregate Federal Government Satisfaction, 1999-2012*

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● Year-on-year, the Federal Government ACSI score increased significantly, up 1.5 points from 2011, a gain of 2.2%

● This is the second consecutive annual gain for the Federal government ACSI, which is up 3.0 points since 2010, a total gain of 4.6%

Satisfaction Gains 2011 to 2012

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2012 Federal Government ACSI Model

N = 1376; 90% Confidence Interval = 1.2

Customer Complaints

Agency Trust

Customer Satisfaction

(ACSI)

Perceived Quality

Customer Expectations

Customer Service

Information

Process

Confidence

Recommend

Courtesy

Professional

Clarity

Accessibility

Ease

Timeliness

71

72

80

71

75

68

71

11%

1.9

1.0

1.8

0.4

4.2

0.4

-2.2

4.7

-0.1

71

71

Website Ease

Usefulness

74

80

80

73

72

71

72

78

70

2.4

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Citizen Satisfaction by Federal Department

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Public and Private Sector Comparisons

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The Expectations-Quality Gap

50

55

60

65

70

75

80

85

90

95

100

Federal Government

Transportation Hotel & Food Durable Goods

71

7881

87

7578

8187

Expectations

Quality

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Switching Barriers and Satisfaction

Soft Drinks 84

Automobiles 84

Beer 81

Appliances 81

Personal Computers 80

Banks 77

Wireless Service 70

Local Government 69

Federal Government 68

Airlines 67

Cable/Satellite TV 66

Less

Com

petit

ion

Mor

e C

ompe

titio

n

Switching Barriers/ Monopoly Power

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● ACSI measures both agency trust (confidence in the agency experienced), and generalized trust (trust in the Federal government as a whole)

● Similar to results found in other studies, trust in Washington D.C. scores far lower than trust in individual agencies experienced

● This year, both trust in Washington D.C. and trust in the performance of particular agencies increased significantly

Agency and Diffuse Trust

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Agency and General Trust

30

35

40

45

50

55

60

65

70

75

Agency Trust General Trust

69

36

71

43

20112012

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Agency and Diffuse Trust

Agency Trust

Customer Satisfaction

(ACSI)

1.7

4.7 Overall Trust in

Federal Government

71

68

0.2

43

● These results show that while satisfaction with an agency experience drives overall trust in the government only slightly, it has a strong effect through agency trust

-In other words, agencies that offer a more satisfying experience will build trust in their agency, but also help build (or rebuild) general trust in the entire Federal government among American citizens

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4. E-Government

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● It is widely agreed that government, and especially the federal government, offers poor service when compared to the private sector

● Many policymakers believe e-government – where government services are delivered using new information technologies - holds considerable potential for positively transforming government service delivery – Through legislation like the “E-Government Act,” the federal

government is working to move as many of its services to the Internet as possible, and as quickly as possible

Is E-Government the Solution?

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67.868.9 68.7

65.466.9

73.4 73.975.2 75.0 75.1

75.9 76.577.3 76.9 77.5

60

65

70

75

80

85

2007 2008 2009 2010 2011

Federal Govt-Overall Federal Govt-E-Govt Private Sector

Is E-Government the Solution?

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● Federal e-government comes much closer to matching the performance of the private sector than does the federal government as a whole

● The average annual gap between private sector and federal e-

government Web sites is just over two points on the 0-100 scale, while the gap between the private sector and federal government overall averages more than 9 points

Is E-Government the Solution?

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● However, some recent research calls into question the quality of services provided by federal e-government (Morgeson & Mithas 2009)*

● This research, using ACSI data for federal websites and comparing them to e-business websites, shows both lower satisfaction and significantly greater variability across federal websites – While e-government may be somewhat better than “off-line”

government services, it is still well behind the private sector

*Morgeson, Forrest and Sunil Mithas (2009). “Does E-Government Measure up to E-Business? Comparing End-User Perceptions of U.S. Federal Government and E-Business Websites.” Public Administration Review, 69 (4).

Is E-Government the Solution?

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Customers Expect Less of GovernmentThan of Private Sector

6.6

7.9

6.6

7.9

6.9

8.0

7.0

8.0

7.1

8.1

7.4

8.1

7.6

8.28.0

8.2 8.1

8.48.2

8.7

6

7

8

9

10

E-Government/AgencyE-Business/Company

Graph 1Overall Satisfaction: Range from Lowest to Highest Agency/Company

The range for e-government is much larger

Is E-Government the Solution?

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● E-government holds considerable promise for not only providing better government services to citizens, but also for saving the federal government money (estimates place these savings at as much as $500 million per year!)

● However, while e-government seems to perform better than “traditional” government services, it does not yet match the standards set by private sector Web sites. More work is needed

Conclusions

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5. IRS Case Study

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Before leveraging customer satisfaction …

• Disgruntled employees • Dissatisfied taxpayers • Declining, low ACSI Scores

“As only one taxpayer representative out of thousands across the country, I have seen dozens of taxpayers severely damaged and even made homeless by the IRS collection division.”

1997 Senate Hearings:

A Tax Agency Out of Control

“The long list of IRS horribles included arbitrary collection decisions, sale of taxpayer lien property far below value, and the cavalier mistreatment of taxpayers.”

Anonymous Witness #1, IRS Employee Senate IRS Hearings 1997

Bob Zelnick, ABC Good Morning America September 26, 1997

Case Study: Internal Revenue Service

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55 5450

54

74 74 72 71

0

10

20

30

40

50

60

70

80

1994 1995 1996 1997

AC

SI S

core

s

Internal Revenue Service ACSI National

Case Study: Internal Revenue Service

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e-Filers vastly more satisfied … • fewer errors, quick problem resolution • earlier refunds, status tracking

505253535248

44

77787778777574

40

50

60

70

80

90

1999 2000 2001 2002 2003 2004 2005

Paper Filers e-Filers

30 points

Case Study: Internal Revenue Service

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IRS hears the voice of the customer … • Commitment to customer service • Increased awareness and usage of e-Filing

Customer Satisfaction Up 13 Points

Faster Trade-Up to Electronic filing… Faster access to tax revenues?

51

56

60

6263

64 64

50

52

54

56

58

60

62

64

1999 2000 2001 2002 2003 2004 2005

All Individual Filers

Case Study: Internal Revenue Service

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20%

55%

0%

10%

20%

30%

40%

50%

60%

70%

1998 2005

Number of e-filers nearly triples in 7 years

“We realize we have more work to do, but the survey is just one more indication that the IRS reorganization and its emphasis on customer service are paying off. The satisfaction with IRS e-file won´t surprise any taxpayer who has used it. When they try it, they like it. It is fast, accurate and dependable.” - Charles O. Rossotti, IRS commissioner, December 17, 2001

Case Study: Internal Revenue Service

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“The IRS web site is the most popular channel for taxpayers to use to obtain information or resolve a tax matter… This web site, which has grown since 2005, along with customer satisfaction ratings for www.irs.gov from the American Customer Satisfaction Index (ACSI)...”

Internal Revenue Service,

“2010 Annual Report to Congress”

Case Study: Internal Revenue Service

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ACSI

• For more information, visit the ACSI website at: www.theacsi.org

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Appendix

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ACSI and Financial Returns (Macro)

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ACSI Macro

70

71

72

73

74

75

76

77

Base

line

Q4/1

994

Q1/1

995

Q2/1

995

Q3/1

995

Q4/1

995

Q1/1

996

Q2/1

996

Q3/1

996

Q4/1

996

Q1/1

997

Q2/1

997

Q3/1

997

Q4/1

997

Q1/1

998

Q2/1

998

Q3/1

998

Q4/1

998

Q1/1

999

Q2/1

999

Q3/1

999

Q4/1

999

Q1/2

000

Q2/2

000

Q3/2

000

Q4/2

000

Q1/2

001

Q2/2

001

Q3/2

001

Q4/2

001

Q1/2

002

Q2/2

002

Q3/2

002

Q4/2

002

Q1/2

003

Q2/2

003

Q3/2

003

Q4/2

003

Q1/2

004

Q2/2

004

Q3/2

004

Q4/2

004

Q1/2

005

Q2/2

005

Q3/2

005

Q4/2

005

Q1/2

006

Q2/2

006

Q3/2

006

Q4/2

006

Q1/2

007

Q2/2

007

Q3/2

007

Q4/2

007

Q1/2

008

Q2/2

008

Q3/2

008

Q4/2

008

Q1/2

009

Q2/2

009

Q3/2

009

Q4/2

009

Q1/2

010

Q2/2

010

Q3/2

010

Q4/2

010

Q1/2

011

Q2/2

011

Q3/2

011

Q4/2

011

Q1/2

012

Q2/2

012

Q3/2

012

Q4/2

012

Q1/2

013

ACSI 1994 to Q1 2013

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Growth in ACSI and GDP: 1997 – 2013 (Q1)

Source: GDP from U.S. Department of Commerce, Bureau of Economic Analysis

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Annu

aliz

ed, S

easo

nally

Adj

uste

d Ra

te o

f Gro

wth

% Quarterly Change in GDP

% Quarterly Change in ACSI

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Growth in ACSI and Consumer Spending: 1995 – 2013 (Q1)

Source: Consumer Spending from U.S. Department of Commerce, Bureau of Economic Analysis

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Annu

aliz

ed, S

easo

nally

Adj

uste

d Ra

te o

f Gro

wth

% Quarterly Change in Consumer Spending

% Quarterly Change in ACSI (lagged)

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-24%

-20%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

Growth in ACSI and DJIA: 1995 – 2013 (Q1)

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ACSI Stock Portfolio vs. SP 500 Cumulative April 2000 – April 2013

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500Ap

r-00

Mar

-01

Feb-

02

Jan-

03

Dec -

03

Nov

-04

Oct

-05

Sep-

06

Aug-

07

Jul-0

8

Jun-

09

May

-10

Apr-

11

Mar

-12

Feb-

13

Cum

ulat

ive

Perf

orm

ance

S&P 500

ACSI Stock Portfolio

$509.83

$106.60

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ACSI and Financial Returns (Micro)

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Measuring Customers as an Asset Aligning measures to maximize the firm’s performance

Voice of Customer Methodology-Driven Impact Analysis

Financially-Driven Strategic Guidance

-Management Perspective -Customer Interviews -Model of Satisfaction -Custom Questionnaire

-Causes and Consequences -Quantify Improvements -Special Analyses -Benchmarking

-”What to Do” -Financial Impact -Progress Monitoring -What-If Analysis

Customer Satisfaction Management System

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The Satisfaction-Profitability Chain

Drivers of Satisfaction

• Expectations • Quality (Product, Service) • Value • Brand Image • Employee Satisfaction

Customer Satisfaction

Satisfaction Outcomes

• Customer Loyalty • Word-of-Mouth • Up/Cross-Selling • Share of Wallet

Corporate Financial

Performance

• Revenue Growth • Market Share • Earnings/Profitability

Stock Market Performance

• Higher Market Value • Lower Volatility • Lower Risk

45 © NQRC

What is CLV?

• Customer lifetime value (CLV) is defined as the dollar value of a customer relationship, based on the present value of the projected future cash flows from the customer relationship

• CLV quantifies the total value of the customer relationship. It recognizes that because retained customers are “cheaper” than new customers (no advertising; fewer incentives), and because the retained customer becomes less expensive in the future (the discount rate), the strength of the customer relationship matters greatly

• CLV is calculated as: Customer lifetime value ($) = Margin ($) * (Retention Rate (%) ÷ [1 + Discount Rate (%) - Retention Rate (%)])

46 © NQRC

What Role Does Satisfaction Play in CLV?

• As customer satisfaction increases, so too does the customer retention rate. In turn, an increasing retention rate means a larger CLV, with each customer bringing more profit to the firm:

• In this example, based on ACSI data, an increase in ACSI of 10-points was shown to increase Retention by 6.5%. In turn, CLV increased 33.4%, meaning that the average per-customer profitability increases by 33.4% as well!

ACSI Retention % Δ CLVACSI +0 75.0% 0.0%ACSI +1 75.6% 2.8%ACSI +2 76.3% 5.6%ACSI +3 76.9% 8.6%ACSI +4 77.6% 11.7%ACSI +5 78.2% 15.0%ACSI +6 78.9% 18.3%ACSI +7 79.5% 21.9%ACSI +8 80.2% 25.5%ACSI +9 80.8% 29.3%ACSI +10 81.5% 33.4%

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$0

$100

$200

$300

$400

$500

$600

65

70

75

80

85

90

00 01 02 03 04 05 06 07 08 09 10 11 12

Apple ACSI Apple Stock

Stock Price and ACSI: Apple

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$0

$40

$80

$120

$160

$200

65

70

75

80

85

90

07 08 09 10 11 12

Netflix ACSI Netflix Stock

Stock Price and ACSI: Netflix

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$0

$10

$20

$30

$40

$50

$60

$70

60

64

68

72

76

80

01 02 03 04 05 06 07 08 09 10 11 12

Home Depot ACSI Home Depot Stock

Stock Price and ACSI: Home Depot

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$0

$20

$40

$60

$80

$100

$120

72

74

76

78

80

82

84

00 01 02 03 04 05 06 07 08 09 10 11 12

Costco ACSI Costco Stock

Stock Price and ACSI: Costco

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• ACSI data has been used and examined in more than 3000 academic research articles over the past two decades

• In one study, customer satisfaction as measured by ACSI was found to outperform other popular metrics – such as Net Promoter, customer complaints, “top-box” satisfaction, word-of-mouth/recommendation, and repurchase intention – in predicting financial outcomes

• ACSI is a leading predictor of the following measures of financial performance (among others): • Stock market returns • Total shareholder returns • Market value added (MVA) • Return on investment (ROI) • Annual sales/revenue growth • Net operating cash flow

ACSI: Academic Power and Proven Performance

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Cross-National Benchmarking

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Why Measure Cross-National Satisfaction?

• In 2008, 48% of the revenues of S&P 500 companies came from abroad; share of international profits as a percentage of total profits has risen from 5% during the 1960s to over 25% in 2008

• As firms globalize their operations, market research examining consumer attitudes and behaviors cross-nationally has become very common

• Similar to single-market firms, cross-national satisfaction measurement is driven by the belief that improving satisfaction will result in increased customer loyalty and the financial benefits associated with more loyal customers in all markets of operation

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• Many MNCs are now implementing cross-national satisfaction measurement programs, with data collected across a dozen or more countries and results compared

• This data is now utilized as the basis for performance incentives, operational decision-making, and process improvement

• The proliferation of cross-national satisfaction measurement means that research practitioners within MNCs must be able to disentangle sources of variation in consumer satisfaction across nations in order to effectively compare and benchmark satisfaction across nations

Cross-National Satisfaction Research from ACSI

55 © NQRC

• A recent study, using data from ACSI and ACSI partner countries, examines this issue, seeking to explain sources of cross-national variation in consumer satisfaction*

• The paper focuses on three sets of broad factors hypothesized to impact satisfaction across nations: cultural, socioeconomic and political-economic factors

• The study utilizes a unique sample of cross-industry satisfaction data from 11 economic sectors across 19 nations, encompassing nearly 257,000 interviews of consumers

*Morgeson III, Forrest V., Sunil Mithas, Timothy L. Keiningham and Lerzan Aksoy

(2011). “An Investigation of the Cross-National Determinants of Customer Satisfaction,” Journal of the Academy of Marketing Science, 39(2), 198-215.

Cross-National Satisfaction Research from ACSI

56 © NQRC

Sectors and Nations Measured

Country Utilities

Transportation and

Warehousing Information

Health Care and Social Assistance

Accommodation and Food Services

Educational Services

Manufacturing (Nondurable

Goods)

Manufacturing (Durable Goods)

Public Administration

Retail Trade

Finance and

Insurance Total

United States 1 3 12 1 3 0 8 5 4 5 4 46

Singapore 0 6 2 4 5 3 0 1 0 9 1 31

Hong Kong 0 2 2 3 3 1 0 0 0 6 1 18

Japan 0 2 2 2 4 2 0 0 0 5 1 18

Thailand 0 3 2 3 3 1 0 0 0 5 1 18

Colombia 0 0 1 2 0 0 0 1 0 1 2 7

Turkey 0 2 1 1 1 1 14 5 4 4 4 37

United Kingdom 0 0 1 0 2 0 0 1 0 0 3 7

Denmark 0 1 3 1 0 1 0 0 1 0 2 9

Finland 1 1 4 1 0 1 0 0 0 1 2 11

Norway 0 0 3 0 0 0 0 0 0 2 2 7

Sweden 1 5 3 3 0 4 0 0 2 5 5 28

Iceland 1 0 2 0 0 0 0 0 0 4 2 9

Czech Republic 0 1 1 1 0 1 0 0 0 0 2 6

Russia 0 1 1 0 0 0 0 0 0 0 1 3

Ukraine 0 1 1 0 0 0 0 0 0 1 2 5

Estonia 0 0 2 0 0 0 0 0 0 1 1 4

Latvia 0 0 2 0 0 0 0 0 0 1 1 4

Lithuania 0 0 2 0 0 0 0 0 0 1 1 4

Total 4 28 47 22 21 15 22 13 11 51 38 272

57 © NQRC

United StatesSingapore

Hong Kong

Japan

Thailand

Colombia

Turkey

United Kingdom

DenmarkFinland

Norway

Sweden

Iceland

Czech Republic

RussiaUkraine

Estonia

Latvia Lithuania

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0

Trad

ition

al v

s. S

ecul

ar-R

atio

nal

Valu

es

Survival vs. Self-Expressive Values

Traditional vs. Secular-Rational and Survival vs. Self-Expressive Cultural Values by Nation

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Cultural Findings

• Consumers in traditional societies (strong national pride, passive respect for authority, protectionism; e.g. Colombia, Turkey, the United States) tend to experience and express higher levels of satisfaction than secular-rational societies (e.g. the northern European countries)

• Consumers in self-expressive societies (strong interpersonal trust, high subjective well-being, post-materialist values; e.g. Sweden, Norway, Denmark) tend to experience and express higher levels of satisfaction

• These results suggest that cultural factors matter when benchmarking satisfaction results across nations, and that some cultural groups may be harder to please than others

59 © NQRC

United States

Singapore

Hong KongJapan

ThailandColombia

Turkey

United KingdomDenmark

Finland

Norway

SwedenIceland

Czech RepublicRussia

Estonia

Latvia

Lithuania

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

100.0

60.0 65.0 70.0 75.0 80.0 85.0 90.0 95.0 100.0

Busin

ess

Free

dom

Trade Freedom

Trade Freedom and Business Freedom Values by Nation

60 © NQRC

Political-Economic Findings

• Consumers in nations with greater international trade freedom (e.g. Hong Kong, Singapore) tend to experience and express higher levels of satisfaction

• Consumers in nations with greater domestic business freedom (e.g. Finland, Singapore) tend to experience and express higher levels of satisfaction

• Taken together, these results suggest that greater levels

of economic freedom increases the satisfaction of domestic consumers

61 © NQRC

Socio-Economic Findings

• Consumers in nations with higher average per capita GDP (e.g. Singapore, Norway, the United States) are less satisfied

• On the other hand, consumers in nations with higher literacy rates (e.g. Finland, Norway) are generally more satisfied

• These findings suggest that as a nation’s wealth grows, consumers become more demanding/less easy to satisfy. On the other hand, more literate consumers tend to be more satisfied consumers

62 © NQRC

Conclusions & Recommendations

• Marketing managers must recognize that any effort to benchmark and compare satisfaction levels across distinct nations is likely to be confounded by cultural differences

• Moreover, results suggest that efforts to improve satisfaction may have a less noticeable effect in some nations, suggesting that efforts to establish cross-national “targets” for satisfaction improvement may be difficult

• Strategically, MNCs should recognize these culturally-driven satisfaction thresholds when considering entry into new national markets

63 © NQRC

Conclusions & Recommendations

• Confirming both classical economic theory and contemporary accepted wisdom, the study finds that both free trade and business freedom positively impact customer satisfaction. Freer markets have happier consumers

• For economic and political policymakers, this finding suggests that improving customer service and satisfaction as a strategy for spurring economic growth can be achieved (in part) through expanding economic freedom

• Finally, as a nation’s wealth increases consumers become more difficult to satisfy, while an increasing literacy rate has the opposite impact. MNCs should recognize these facts as well when considering entry into developed national markets