NCSI-UK Commentary First Quarter 2010
NCSI-UK Results for Electric and Gas Utilities, Mobile Services, Airlines
Customer Satisfaction Rises Sharply; Good News for the Economy? Strong Gains for T-Mobile, Virgin Mobile, British Gas, ScottishPower, E.ON
June 2, 2010
The After the UK economy shrank by 5% in 2009, there are signs, however small, that better days may lie ahead. In the fourth quarter of 2009, the National Customer Satisfaction Index (NCSI-UK) improved for the first time. The slight gain coincided with the first positive growth for the economy since 2008. In 2010, the Index trends upwards, this time making its largest gain to date, up 0.5% to a score of 73.3 on the NCSI’s 0-100 point scale. This is the highest level for the NCSI since national scores for the economy were first released, and the uptick coincides with a second straight quarter of small, but still positive, GDP growth.
NCSI-UK uses the methodology of the American Customer Satisfaction Index (ACSI), which was developed by Professor Claes Fornell at the University of Michigan. Academic research shows a strong correlation between customer satisfaction and consumer spending and, because consumer spending is such a large part of the economy, economic growth. This quarter’s rise in the NCSI should bode well for the economy if the gain is also joined by improvement in credit markets, wages, and employment rates.
Mobile telephone networks score the highest of the three industries measured in the first quarter, up 1.4% to an NCSI score of 74, but this is offset by a 2.9% drop in airline passenger satisfaction to a score of 67. The improvement in the Index overall is driven mostly by a large gain for energy utilities (up 4.8% to 66), which nevertheless remains the lowest score of the fourteen industries measured in NCSI.
This quarter, gainers outnumber decliners by a strong margin: 59% of the companies improve their customer satisfaction, while 18% decline and 23% are unchanged.
Airlines: Virgin Atlantic Soars over a Turbulent Industry
Passenger satisfaction with airlines dips nearly 3% to a score of 67. The drop puts airlines among the lowest scoring industries in the UK, just above utilities and below mortgage lending. Because the data on airlines were collected in the first quarter, the ash cloud that choked air travel throughout much of Europe from mid-April into May did not impact the findings. The falling score reflects dissatisfaction with charges and cutbacks in services, as airlines continue to combat fuel prices and losses caused by the global recession.
Virgin Atlantic remains on top with an NCSI score of 74, down 1% from a year ago. A long history of strong customer service has counterbalanced higher prices. Despite the slight downturn, Virgin passengers still consider the airline to be the best value for the money. Virgin’s customer satisfaction is much higher than British Midlands (BMI) at 69, the only other air carrier above the industry average. BMI is the only airline to improve customer satisfaction over the past year. BMI has rolled out enhancements to its services, including a new self service check-in system and a re-launch of its popular loyalty programme.
British Airways falls the furthest, down 3% with the industry average of 67. The recent work stoppages by cabin crews hit BA particularly hard, causing hundreds of flight cancellations. EasyJet follows closely behind BA, unchanged at 66. Customers rate EasyJet’s value for the money second only to Virgin, but even in a down economy, the low-cost no-frills approach to air travel hasn’t created higher than average levels of customer satisfaction, and quality of service ranks below the industry average. Flybe is included for the first time this quarter in NCSI on the strength of its rapid growth in the domestic short-haul market, debuting at the bottom of the airline industry with a score of 65. While passenger satisfaction with EasyJet and Flybe is below average, their low-cost focus keeps customer loyalty relatively high.
Mobiles: Tesco on Top, but Virgin Coming on Fast
Following two years of stable NCSI scores, mobile service improves for the first time, gaining 1.4% to a score of 74. Almost all providers improve or hold steady over the past year, reaching or matching all-time highs. Upgraded networks, more attractive packages combining voice and data, and lower pricing have contributed to better quality of service and stronger value.
Tesco’s mobile service, which caters to the pay-as-you-go customer, tops the category for a third straight year and remains one of the highest scoring providers. This year, Tesco Mobile improves 1% to a score of 83, far above the industry average. Tesco Mobile benefits from using O2’s infrastructure and a focus on value deals. At the end of 2009, Tesco landed the rights to sell the Apple iPhone in its stores, which until then had been exclusive to O2.
Virgin Mobile also operates via a virtual network (using T-Mobile’s infrastructure). Virgin improves for the second straight year, gaining 3% to an all-time high score of 80. Tesco maintains the lead, but the 3-point gap is the smallest to date between Tesco and the next highest scoring company.
O2 is next, holding steady at 77, followed by Orange, Vodafone and T-Mobile at 73. Orange is unchanged and Vodafone is up slightly by 1%, but T-Mobile leaps 4% into a three-way tie. T-Mobile has improved its services over the past year, offering prepay customers unlimited free Internet, and rolling out a free ‘texts for life’ campaign.
Hutchison 3G’s ‘3’ brand drops for a second consecutive year. Customer satisfaction with ‘3’ falls 3% to an all-time industry low of 65 and marks the third straight year at the bottom of the mobiles category. In the middle of 2009, ‘3’ ended its ‘3 Like Home’ offering in the UK, a service that eliminated roaming charges as long as the customer was using any ‘3’ branded network anywhere in the world. Customer complaints are nearly triple the industry average.
Utilities: Falling Energy Prices = Higher Customer Satisfaction
Customer satisfaction with energy utilities is quite sensitive to price. Customers typically interact far less with utilities suppliers than with other types of services, and as long as power interruptions are minimal, changes in customer satisfaction relate more to fluctuations in rates.
At the beginning of 2009, customer satisfaction plunged in the wake of spikes in energy prices. A year later, customer satisfaction for energy utilities rebounds as suppliers cut rates in response to a drop in wholesale prices. Still, the cuts of up to 10% by most suppliers have not even come close to erasing the nearly 50% increase in energy bills at the end of 2008, and prices remain near all-time highs. As a result, despite the strong 4.8% improvement to a score of 66, utilities continue to have the lowest customer satisfaction.
Five of the six utilities suppliers improve, and all but one are tightly grouped around the industry average. ScottishPower gains 10% to the lead at 69, followed closely by E.ON, which also rises sharply by 8%, and EDF Energy, up 3%, both tied at 68. Scottish & Southern Energy (SSE) is next, unchanged at 67 and is the only utility company that does not increase its score from a year ago. SSE led the category in 2008 and 2009.
British Gas (Centrica) gains 6% to a score of 66. Recent price reductions have made British Gas one of the most inexpensive energy suppliers in the county, and enhancements to its call centre operations have improved customer service. Npower edges up 2% to a score of 60, below all other energy suppliers and failing to match the rate of improvement for the industry as a whole