National Customer Satisfaction Index-UK

NCSI-UK Commentary First Quarter 2009

NCSI-UK Results for Electric and Gas Utilities, Mobile Services, Airlines

First Ever National Customer Satisfaction Index; Customer Satisfaction Plunges for Energy Utilities Virgin Atlantic and Tesco Mobile Lead; 3, Easyjet, Npower Struggle


June 2, 2009

The National Customer Satisfaction Index (NCSI-UK) releases its annual results for utilities, mobile phone service and airlines as well as the first ever national customer satisfaction score for the UK economy. The national index debuts at 73.0 on the NCSI-UK’s 0-100 point scale.

Companies do a better job satisfying their customers in the UK than they do in Japan, Sweden, Finland, Denmark, Singapore, Hong Kong, Thailand, and South Korea, but lag the United States, Turkey and Colombia. Because overall customer satisfaction has a positive effect on aggregate consumer demand, it also has an effect on economic growth.

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NCSI-UK is the sister initiative of the prominent American Customer Satisfaction Index (ACSI) developed by Professor Claes Fornell in conjunction with the University of Michigan, and should have a similar role in the UK as it does in the US. The latest ACSI shows a second quarter improvement after a period of decline preceding the recession. When the ACSI score improved in the fourth quarter of 2008, it stood alone among economic indicators showing positive movement. Since then – and after correctly predicting an increase in consumer spending during the first quarter in the US - it has been joined by most other indicators of the economy.

For most companies, stock prices fell sharply over the past year, but as in the US, companies with average or better customer satisfaction were punished less by investors. For example, O2, with an NCSI score of 77; its stock price declined by 26%. By contrast, Easyjet scores a 66; its stock price tumbled 54%.

On average, companies that equal or better the national NCSI score lost 33% of their market value in 2008, while those that fell short of the national average lost 49%. By comparison, the FTSE 100 dropped by 31%. As the economy begins to show signs of recovery, companies with higher levels of customer satisfaction are probably better positioned to improve financial performance.

The sixteen industries measured in NCSI represent nearly half of total UK consumer spending. Of the three categories measured in the first quarter of 2009, mobile phone service matches the national average, while airlines and utilities fall well below average.

Airlines: Virgin Atlantic Dominates; Easyjet Trails
The airlines category debuts in NCSI with a score of 69, below the national average, but substantially better than the US. While higher fares contribute to lower passenger satisfaction, low service quality has an even greater impact. And while customer complaint frequency is less than the national average at only 6%, barely half the national average, airlines do one of the poorest jobs of any industry at handling the complaints they do receive - with the exception of Virgin, which seems to have excellent complaint handling.

Virgin Atlantic also tops the industry with a NCSI score of 75, outpacing rival British Airways at 69. Virgin is small relative to many airline competitors in terms of numbers of flights and passengers carried, but second only to BA in terms of miles logged because of international flights. Virgin’s reputation is based on good customer service, and has a history of setting itself apart through passengers through such amenities as reclining sleeper seats, stand-up bars, and in-flight beauty therapists (discontinued in 2008 due to cutbacks).

Until 2008, BA was the largest airline in the UK as measured by number of passengers. It is now surpassed by Easyjet. Although BA is recovering from the difficulties associated with the opening of Heathrow’s Terminal 5 in 2008, the airline’s reputation for customer service seems to have suffered. BMI scores 67, slightly below BA and the industry average of 69, while Easyjet is at the bottom with an NCSI score of 66. Easyjet follows the business model of American air carrier Southwest Airlines, focusing on a low-cost no-frills approach to air travel, but it has not translated into the same high levels of passenger satisfaction that Southwest enjoys. Even though service quality is less than its competitors, Easyjet’s passengers tend to come back for the low fares.

Mobiles: Tesco Leads, But O2 Gaining Ground
The mobile phone category was first measured by NCSI-UK in Q1 of 2008, where it debuted with a score of 73. A year later, customer satisfaction with mobile phone service is unchanged and equals the national average for all goods and services in the UK. Among the individual providers, Tesco Mobile remains the industry leader, despite a small drop of 2% to 82. Tesco Mobile, a joint venture with O2, is relatively small and caters to the pay-as-you-go consumer. Market leader O2 ranks second, up 3% to 77, tied with the smaller Virgin Mobile (+1%).

Orange shows the most improvement, up 6% to the industry average at 73, now ahead of Vodafone, which is unchanged at 72. New management at Orange has introduced new products and improved customer service, in part by bringing the company’s offshore call center operations back to the UK.

Hutchison 3G, which operates under the brand ‘3’, is one of the more recent entries in the mobiles market. Although the new technology is competitive in price, 3’s quality lags far behind the industry as a whole and the number of complaints is twice the industry average. As a result, customer satisfaction with 3’s services remains at the bottom of the mobiles category, down 2% to 67.

Utilities: Most Providers Drop Amid Spike in Energy Rates
The electric and gas utilities industry declines significantly, falling 5% to 63, which is the lowest in the NCSI. Rate increases and new tariffs on both electricity and gas have contributed to the sharp downturn in satisfaction. Five of the big six suppliers experience declines of 3% or more, all driven by worse perceptions of value.

Scottish & Southern Energy (SSE) continues to lead the category, despite a 4% drop to 67, closely followed by EDF Energy, down 3% to 66. E.ON and ScottishPower decline 5% to the industry average of 63, while Centrica (British Gas) is the lone improver, up 2% to 62. While British Gas still remains below the industry average, it seems to be recovering from problems with customer service, billing system errors, and public concerns over price hikes despite falling gas prices.

Gas and electric provider RWE Npower drops this quarter, falling 6% to 59, a low for the utilities industry, but the lowest customer satisfaction score for any company in the NCSI. Npower customers disputed charges which resulted in the utility being forced to issue refunds to thousands of gas customers.