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The latest UK National Customer Satisfaction Index reveals customer satisfaction is strong for many retailers - and that companies driving business online are doing a better job overall of satisfying their customers.
By Xavier Quenaudon, CFI Group
As the economy slows, the big challenge for retailers of all types will be how to retain shoppers who are becoming increasingly careful with their spending. Here customer satisfaction is key: companies that provide the most satisfying experience stand the best chance not only of surviving but also thriving financially in a slower economy.
The latest UK National Customer Satisfaction Index (NCSI-UK) figures reveal that fortunately, customer satisfaction is strong for many retailers, despite the fears associated with the recession. Overall, the retail sector debuted with a score of 74.8 on the NCSI-UK's 0-100 point index scale, very similar to the US retail average of 75.2 reported for the same period by the American Customer Satisfaction Index (ACSI).
Five categories were measured in the fourth quarter of 2008 (see table below for results) – supermarkets, department stores, petrol stations, ecommerce and electrical retailers. Of the five retail categories, ecommerce easily outpaced an otherwise tightly-packed field, suggesting that further investment in the online channel could provide retailers with opportunities to drive sales and customer loyalty through a more satisfying shopping experience.
The average NCSI-UK score for online retail was 82, well above the retail sector average of 74.8. This is nearly identical to the US experience, where online retail also scores 82 to outpace the retail sector average of 75.2. Both the quality and value of the online shopping experience are rated superior and consumers who have purchased merchandise online are highly loyal to this emerging retail channel.
It is no coincidence that much of the recent effort to improve customer satisfaction by traditional retailers such as Tesco, Argos, Currys and John Lewis has involved launches, relaunches and other investments to upgrade their websites. The link is clear: companies that drive an increasing volume of business online are doing a better job overall of satisfying their customers, while those that fail to capitalise on the emergence of ecommerce are being left behind.
Among the measured companies, play.com leads with a score of 87 - the highest customer satisfaction score to date in the NCSI-UK - followed closely by Amazon UK at 85. Only Ticketmaster fared somewhat poorly in the category, scoring 74. This is largely the result of high prices leading to very low perceived value for money. With service charges, processing charges and delivery fees, the total price can reach 35% or more of the cost of the ticket itself.
Every little helps
The supermarket category, meanwhile, was first measured in NCSI-UK in the first quarter of 2008, where it debuted with a score of 72. For the fourth quarter of 2008, satisfaction with supermarkets rises slightly to 74, an impressive achievement given the continued high cost of food.
Traditional discounters Asda and Morrisons lead the way, with Morrisons catching up to Asda at 76. Supermarket giants Tesco and Asda engaged in a head-to-head pricing war for much of the second half of 2008, apparently to Tesco's slight advantage. While the UK’s largest supermarket chain still lags behind its largest competitor by a significant margin, despite rebranding itself as "Britain's Biggest Discounter", Tesco's gain of 3% to 73 closed the gap somewhat with Asda, which remained at 76.
John Lewis-owned Waitrose retained its market-leading CSI score of 82, unchanged from the first quarter 2008 and well above nearest competitor Asda. Waitrose has succeeded by offering high quality merchandise and good customer service at a premium price, but even the perennial industry leader had to engage in some discounting as the economy slowed in 2008, investing some £30 million mid-year in various pricing promotions.
The department store category debuted with a score of 76, slightly above the retail sector average. While for supermarkets, below-average perceived merchandise quality and lackluster customer service are partly salvaged by superior value, the opposite is true for department stores. The quality of products and service rate well above the mean for retailers, while value is perceived to be merely average. This fits the image of department stores as places where shoppers are accustomed to paying somewhat higher prices in return for a better shopping experience.
This is not to say that value is lacking - although around one-third of department store customers do feel that products are overpriced. With higher satisfaction comes a lower level of complaints: only 4% of all department store customers have complained about their experiences in the past year, equalling petrol stations for the fewest number of complaints in retail.
Just as its Waitrose chain dominates the supermarket industry, John Lewis topped department stores by a wide margin, scoring 80 to lead Marks & Spencer, which came in at 76 and Debenhams at 74. Customers expect a great deal from John Lewis relative to the competition and the department store does not disappoint, providing superior merchandise with outstanding customer service. The one area where John Lewis does not lead the industry, however, is perceived value for money, though it still surpasses the industry average.
At the bottom of the industry was House of Fraser, slightly behind Debenhams with a score of 73. Efforts throughout 2008 to reinvent the chain through a new advertising campaign, a new website, and the refurbishment of several stores seem to have done little to position it among the industry leaders in satisfaction. Even a foray into discounting during the holiday season could not rescue House of Fraser from the lowest rating for perceived value among department stores.
No spark for electrical goods
The NCSI-UK score for retailers specialising in electrical items was 74, tying with supermarkets and just below the average for all retailers. The recession, especially the decline in the housing market, has been especially hard on electrical retailers and has most recently seen Empire Direct go into administration.
Cautious consumers have scaled back on purchases of household appliances and other electrical products as well. Deep discounting in response to this trend has somewhat improved the value proposition, but below-average customer service is a problem. Electrical retailers will not be able to price their way to sustainable improvements in customer satisfaction - survival in this challenging economy will depend on improving service quality as well.
With the arrival of successful US giant Best Buy looming in mid-2009, there is increased urgency among UK electrical retailers to raise their game. The three largest chains all score below the industry average. Comet and Argos were level at 73, despite Comet's recent efforts to reinvent its store image with a new "showroom" feel and Argos's well-known catalogue shopping format, now increasingly imitated by Tesco and others.
One common approach to improving customer satisfaction across the five categories was through price discounting and retailers took this approach heavily throughout the fourth quarter, especially in the lead up to Christmas. Some offered savings of up to 70% on certain items in an effort to combat sluggish sales, appealing to current trends which suggest that seeking out discounted products or special offers is becoming an increasingly popular method for saving money. But it is difficult to sustain growth in the long term by focusing on price alone, especially when all retailers are relying heavily on promotions to drive sales.
Discounting may win over a new customer but high quality merchandise and good customer service will differentiate a retailer from the rest of the pack, creating the most advantageous conditions for keeping that customer and generating positive recommendations to others.
Xavier Quenaudon is vice president at CFI Group.
For the full report visit www.ncsiuk.com/.