National Customer Satisfaction Index-UK

NCSI-UK Commentary Fourth Quarter 2010

Customer Satisfaction with Retail Surges

Waitrose, John Lewis and Amazon Lead; Big Improvement for Electrical Retailers

March 01, 2011

The National Customer Satisfaction Index (NCSI-UK) continues to climb, with a large gain for the retail sector driving customer satisfaction in the UK to its highest level in two years. For the fourth quarter of 2010, the NCSI rises 0.8% to 74.7 on a 0-100 index scale. With the American Customer Satisfaction Index (ACSI) stalling at 75.3, the gap between UK and US customer satisfaction is narrowing.

 The gain ties the fourth quarter of 2009 for the largest single quarterly improvement in the UK. Customer satisfaction increases for all categories of retail, with electrical retailers seeing the largest rise, and petrol stations, supermarkets, department stores, and e-commerce making smaller gains.

Of the five retail categories, e-commerce continues to lead by a wide margin with an NCSI score of 84, up 1.2% from a year ago. Internet shopping seems to have benefited from the harsh weather, as more consumers purchased online. Customer satisfaction with department stores also improves slightly, rising 1.3% to 79. Despite higher prices, petrol stations improved 1.3% to 77. The cost of petrol is up about 10% from a year ago, but better service, as reported by drivers, has offset the negative effect of price increases. Customer satisfaction with electrical retailers advances the most, up 4% to an NCSI score of 78. Supermarkets improve by 1.4% to 75, but remain last among the retail categories. Gainers vastly outnumber decliners: 61% of companies improved their customer satisfaction compared with a year ago, while 33% are unchanged and only 6% declined.

Like its counterpart in the United States – The American Customer Satisfaction Index (ACSI) – NCSI data are correlated to economic growth. Consumer demand tends to increase more when satisfaction goes up and less so when it goes down. However, this was not the case for the fourth quarter of 2010, as GDP contracted by 0.6% in the UK. Although it is not entirely clear what caused the economic slowdown, holiday shopping was not helped by the coldest December in a century.

If bad weather is to blame, at least some proportion of consumer purchases is likely to have been postponed. We should therefore see a rebound in GDP during the first quarter this year. The most recent economic data supports this theory; GDP grew by an estimated 0.6% in January, led by the kind of strong retail sales that December might have experienced had it not been for the unusually bitter weather. While December retail sales were flat, January sales grew sharply. Despite the recent hikes in VAT, January sales grew compared with a year ago.

It remains to be seen if the improvement in customer satisfaction will translate into higher longer-term consumer demand, as the typically strong relationship between satisfaction and demand may be tempered by higher commodity prices and rising inflation. On the other hand, short-term demand may actually increase as inflation expectations also increase.

Department Stores: John Lewis Favorite of High Street
The department store sector gains 1.3% to an NCSI score of 79. Good customer service, high product quality, impressive variety of choice, and few complaints, combined with a good deal of promotional pricing, made for a strong NCSI performance among department stores. Online retail is the only retail sector with higher customer satisfaction than department stores.

John Lewis remains the leader, holding on to the top spot with an NCSI score of 84, up 1% following a gain of 4% in 2009. According to customers, John Lewis offers the best shopping experience in terms of both merchandise and service. John Lewis was also one of the few retailers that managed to overcome the bad December weather and emerge with strong sales growth: a 13% rise compared with the previous year.

Marks & Spencer is behind at 79, but reduces the gap with a 3% improvement. The aggregate of all other, smaller department stores is next, up 1% to 78.

House of Fraser remains at an NCSI score of 76. Debenhams is up 1% to 75, but still at the bottom of the department store category. Debenhams seems to experience problems with weaker customer service compared to its competitors. The large customer satisfaction gap to department stores as a whole, on top of the even greater distance to leader John Lewis, leaves Debenhams under pressure. The company’s holiday sales declined compared with a year ago.

Electrical Retailers: Customer Satisfaction Climbs
Customer satisfaction with electronics stores improves by 4%, the strongest gain in retail. This category is now at an NCSI score of 78, moving closer to but not quite catching department stores. According to their customers, electrical retailers offer more value for money than a year ago, but service lags behind that of department stores. However, service is not only improving, it is also the main contributor to the customer satisfaction gain for electrical retailers. With the threat of US giant Best Buy entering the UK market, the domestic retail chains have stepped up their customer service. As it has turned out, Best Buy’s plans for a massive rollout of stores have not yet not materialised, with only six UK stores opened to date. If the improved customer satisfaction is sustainable, it will make Best Buy’s attempt to lure customers away more costly.

The aggregate of smaller electrical retail chains leads the category, as it has always has in the past. Satisfaction rises 3% to an NCSI score of 81 and remains well ahead of all large competitors. Among the large companies, Argos leads with a 3% gain to 77, followed closely by Comet, up 3% to 76. Argos has been successful in multichannel retailing, with nearly 40% of its holiday business driven by Internet sales. Currys has the largest gain for a second consecutive year, rising 4% to 75, following a similar improvement in 2009. While still below others in the category, Currys is closing in on its rivals. Customer service appears to be the key to further improvement.

Supermarkets: Waitrose Unchallenged on Top;  The Co-operative much Improved
Consistent with improvements throughout the retail sector, customer satisfaction with supermarkets gains slightly for the fourth quarter of 2010, rising 1.4% to an NCSI score of 75. Rising prices for food and other commodities keep customer satisfaction lower than in other retail sectors. Customer service ranks lower for supermarkets than other retail categories, and despite frequent discounting, higher prices in general continue to cause consumer aggravation.

The large chains have not changed much with respect to the satisfaction among their customers. John Lewis’s Waitrose supermarket brand remains head-and-shoulders above other brands, with an NCSI score of 85. Satisfaction with Asda remains unchanged from a year ago, at 79. Waitrose and Asda have maintained very strong and better than average customer satisfaction using very different business models. Waitrose relies on high quality merchandise and strong customer service, while Asda, like its US parent Wal-Mart, concentrates on deep discounting. Waitrose customers do pay a premium, but the quality of goods and service has a greater impact on customer satisfaction than price. Therefore, Waitrose enjoys much higher customer satisfaction and customer loyalty than Asda.

The aggregate of smaller grocery stores follows closely behind Asda. This group has the largest improvement in NCSI. Satisfaction rises by 11% to a score of 78, which makes up almost all of the increase in the industry as a whole. The improvement in customer satisfaction is reflected in sales, which rose nearly 3% for the smaller supermarkets and specialist food stores last year.

Morrisons (77), Sainsbury’s (73) and market-share leader Tesco (72) are all unchanged. Despite Tesco’s increased emphasis on its own brands and low pricing, its customers do not consider value for money to be high; it is below the supermarket category average.

Since the Co-operative Group acquired the Somerfield chain a year ago, customer satisfaction with the combined supermarket retailer has increased. After three years of NCSI scores in the low 60s, by far the lowest of any company in any retail category, The Co-operative improves 11% to 70. While this rise does not lift The Co-operative from last place in the supermarket category, the gap has narrowed considerably. For the first time, the Co-operative is now positioned within striking distance of Tesco and Sainsbury’s. The Co-operative was originally formed from many smaller independent grocers without much of a uniform brand posture. The lack of branding is being addressed and the Co-operative is trying to create a more unified business, investing in staffing and refitting hundreds of former Somerfield stores.

E-Commerce: Amazon UK Takes the Lead and Tops All Retailers
Customer satisfaction with e-commerce improved slightly for a second straight year, up 1.2% to an NCSI score of 84. This category easily outdistances all brick-and-mortar retail businesses. Internet sales accounted for almost 11% of all retail sales during the 2010 holiday shopping season, a strong growth from 7% a year ago. According to customers, online retail provides the best quality shopping, with greater convenience and value, not only for the pure online retailers, such as Amazon and eBay, but also for the multi-channel retail included in the “all others” aggregate.

Among the companies that do retail business solely online, Amazon’s UK business leads, up 1% to an NCSI score of 88. Not only is this the best in the e-commerce category, but Amazon UK also holds the highest customer satisfaction score of any company in retail, just as it does in the U.S.  Last year’s leader Play.com is next, after dropping 2% to a score of 86. Similar to eBay, Play.com offers a PlayTrade feature that allows third parties to sell items via Play.com. This may have taken some of the edge off Play.com’s customer satisfaction, as it is more difficult to control consistently high quality of merchandise, shipping, and service from third-party sellers.

eBay is up 3% to 82, and iTunes 1% to 81.  eBay sales were up 25% in the fourth quarter, a faster rate of growth than for e-commerce overall. Low priced toys, tech, and fashion at were major drivers of the higher sales. Ticketmaster improves slightly, up 1% to 77 at the bottom of the e-commerce category. While customer satisfaction has improved over the past two years, service costs such as surcharges and delivery fees dampen customer satisfaction with Ticketmaster.