An Interview with Claes Fornell, Founder and CEO of the American Customer Satisfaction Index (ACSI)
Since 1994, the American Customer Satisfaction Index (ACSI) has conducted millions of interviews with American consumers regarding their experiences with major consumer goods and services companies. As we commemorate ACSI’s 25th anniversary, the expert team at the ACSI (Claes Fornell, Forrest Morgeson, Tomas Hult, and David VanAmburg) published a book – The Reign of the Customer: Customer-Centric Approaches to Improving Satisfaction – that takes a look back and examines the major findings from the invaluable, incomparable ACSI source of consumer insights and information.
Rather than the book being a mere retrospective, the authors use 25 years of ACSI findings to inform best practices for improving the consumer experience, better satisfying customers, and achieving profitable customer loyalty – today and into the rapidly changing future. The Reign of the Customer helps managers understand where we were, where we are today, and where we are heading tomorrow in providing exceptional customer experiences.
As a part of the book, we included an interview with Professor Claes Fornell, one of the book’s coauthors and the Founder of the American Customer Satisfaction Index. The question and answer session with Dr. Fornell is included here.
Question: When you founded the ACSI more than 25 years ago, what was your primary goal? What did you hope the project would provide that didn’t already exist (to researchers, companies, policymakers, etc.)?
Claes Fornell: It was about that time 25 years ago when three big trends were beginning to become evident. The first was global competition, the second was the growth of services in most advanced economies, and the third was that consumers were beginning to be better armed with information (about purchase alternatives, prices, quality, etc.). These trends led to more buyer power and fewer monopolies in the overall economy. In other words, there was a major shift in power away from producers to consumers. It also meant that the conventional measures about the performance of firms and economies needed updating and change. At the company level, it was clear that the more we knew about how satisfied customers were, the better we could predict future revenue from repeat buyers. At the macro level, we could also infer what an increase (or decrease) in aggregate customer satisfaction meant for aggregate consumer spending. This was very important since consumers account for about 70% of gross domestic product in the U.S. It is not possible to have strong economic growth without robust growth in consumer spending.
Question: Have changes in the economy over the past 25 years impacted how customer satisfaction is measured?
Fornell: Yes. Just about every company now measures customer satisfaction in one way or another. That’s an important first step. The problem is that most companies still do not have enough quality in their measurements. Very little attention is paid to the integrity and properties of the measures. The concepts of reliability and validity seem foreign to many companies, which have led to measures that don’t reflect what they purport to measure and contain more random noise than authentic variation. Over the long run, this is, of course, untenable.
Question: Can you give us some idea of the economic and financial importance of customer satisfaction, both to companies and to national economies?
Fornell: Most companies depend heavily on repeat business. There are only a few things we consume only once. In a competitive market, where consumers have a great deal of choice, it is therefore necessary to make sure one has satisfied customers. Otherwise, they will go elsewhere. We can see the financial impact not only in revenue and profitability, but also in stock returns. For more than 15 years now, we have had a stock fund that invests in companies with superior customer satisfaction (as measured by the ACSI), with very good results. The stock portfolio of these companies had a return of 518% between March 2000 and March 2014. This is much better than the market. The S&P 500 went up only by 31% over the same period of time.
Question: Given that the ACSI has existed for 25 years, and that satisfaction measurement in general is more popular than ever, why do some companies (and even entire industries) continue to treat their customers so poorly (cable TV companies perhaps being an example here)?
Fornell: The major reason for this is some form of monopoly power. Despite what I said about the increase of competition in general, there are exceptions. There are markets where purchase alternatives are few and/or where the cost of leaving a company can be substantial. I would put cable companies in that category. In industries with few product and service options, customers have limited powers to punish offending companies.
Question: Finally, if you had one lesson or piece of advice from all of your research and all of your experience that you think would help companies most, what would that advice be?
Fornell: Let me answer by first saying what advice I would not give. For example, it is a folly to believe that the customer is always right. Economically speaking, the customer is only “right” if there is an economic gain for the company in keeping that customer. Some customers are very costly and not worth keeping. It is also not helpful to believe that customer loyalty is priceless and customer satisfaction worthless. Unless the company has a monopoly, loyalty can be very costly unless it is produced by customer satisfaction. If loyalty is gained by price discounts instead of having satisfied customers, for example, it is usually a path to failure rather than to healthy profits.
Book Author Biographies
Dr. Claes Fornell is D.C. Cook Distinguished Professor in the Ross School of Business at the University of Michigan (Emeritus). He founded the American Customer Satisfaction Index in 1994 and is hailed globally as “The Father of Customer Satisfaction.” Fornell’s work on systems for managing customer satisfaction has led to two U.S. patents. He has also founded several other customer-centric companies (CFI Group, ForeSee Results, Detroit Vineyards, and Exponential ETFs).
Dr. Forrest V. Morgeson III is a member of the faculty of Marketing in the Broad College of Business at Michigan State University and Director of Research at the American Customer Satisfaction Index. Morgeson’s first book, titled Citizen Satisfaction: Improving Government Performance, Efficiency, and Citizen Trust, was released in 2014 (Palgrave Macmillan). He has consulted with numerous corporations and governments in more than 30 countries.
Dr. G. Tomas M. Hult is Professor and Byington Endowed Chair in the Broad College of Business at Michigan State University and a researcher at the American Customer Satisfaction Index. Hult is a member of the Expert Networks of the World Economic Forum and United Nations / UNCTAD’s World Investment Forum. He is a Fellow of Academy of International Business and the 2016 Academy of Marketing Science Distinguished Marketing Educator.
David VanAmburg is Managing Director of the American Customer Satisfaction Index. As an expert in customer satisfaction, VanAmburg has lectured at the University of Michigan’s Ross School of Business and numerous venues internationally, addressing the relationships among satisfaction, quality, customer service, loyalty, and shareholder value. VanAmburg is regularly quoted and featured in numerous print and radio media, including Bloomberg, CNN, TIME, Wall Street Journal.