NCSI-UK Commentary Fourth Quarter 2012
Supermarkets, Department Stores, Electrical Retailers, Petrol Stations and E-Commerce
March 5, 2013
The UK’s national customer satisfaction benchmark gains 0.1% in the fourth quarter of 2012 to 75.4 on a scale of 0 to 100. This is the fourth consecutive quarterly increase in the National Customer Satisfaction Index (NCSI-UK), but the pace of growth has slowed. The slight uptick in overall customer satisfaction for the final quarter of 2012 is only the result of lower petrol prices, which have since reversed course.
NCSI-UK is produced by the American Customer Satisfaction Index (ACSI), and demonstrates a strong relationship to economic growth. According to research from the University of Michigan, customer satisfaction – as measured by the NCSI-UK and ACSI – is also a predictor of stock price. Companies with high scores on the ACSI and the NCSI-UK generally produce higher stock returns than firms with weak customer satisfaction results, and consistently outperform the broad market indices.
Customer satisfaction is stagnant across almost all retail categories of retail. Department stores, supermarkets, electrical retailers, and e-commerce show no improvement at the industry level, though a few companies make gains.
Among individual retailers, 11% improve customer satisfaction, 26% decline, and 63% register no change.
Customer satisfaction with supermarkets has stalled for the past three years, and remains at an NCSI score of 75, the lowest of the retail categories. Supermarkets are engaging in fierce pricing competition to win over customers, but focusing primarily on discounting has not been enough to create high levels of customer satisfaction and loyalty.
Waitrose continues to reign with a customer satisfaction score of 83 (-1%), far above the other large chains. The aggregate of smaller supermarkets (including Aldi and Lidl) also do better than larger chains, despite slipping 1% to 79. Morrisons maintains an NCSI score 78, well ahead of the industry average.
Asda shows the biggest decline in customer satisfaction among the large supermarket chains. Despite reducing prices on its “essential” line of products, Asda falls 3% to 77, the lowest benchmark for the company in four years. Asda’s sales growth also slowed during the final quarter, and its share of the grocery market dipped year-on-year. Sainsbury’s sustains an NCSI score of 75, matching the industry average.
Co-operative Food shows the greatest improvement of all supermarkets – and all retailers – in 2012. The Co-operative has consistently scored at the bottom of the customer satisfaction ranks for years, but now makes major gains, rising 7% to an NCSI score of 73 – still below the industry average, but no longer in last place.
In 2012, the supermarket completed an overhaul of its store replenishment system to improve product availability and customer service. The £12.5m investment appears to have paid off, and like-for-like sales also rose 2.2% over the holiday period.
The Co-operative’s rise leaves Tesco in last place for customer satisfaction. Despite a 1% increase to 71, Tesco is now the lowest scoring retailer tracked by the NCSI.
Customer satisfaction with department stores is stable at an NCSI score of 78, the highest benchmark for any category among traditional retailers. Weak demand continues to put pricing pressure on stores, but for this industry in particular, quality usually outweighs price when it comes to satisfying shoppers. While most department stores have been forced to offer more price promotions to boost sales, the challenge has been to do so without compromising quality and customer service.
John Lewis continues to lead the way – as it has each year since the inception of NCSI. For 2012, its customer satisfaction benchmark is steady at 83.with department stores drops 1.3% to an NCSI score of 78, but department stores remain the highest-scoring category among brick-and-mortar retailers.
Marks & Spencer dips 1% to 77. While none of the large department store chains improved customer satisfaction in 2012, only Marks & Spencer is weaker than a year ago. It is also the only department store to post declining sales over the holiday season, when merchandise revenue fell 3.8%. Marks & Spencer is one of the few department stores to refrain from deep-discounting and aggressive promotions, which explains in part the slight decline in customer satisfaction.
House of Fraser is steady at an NCSI score of 77, now tied with Marks & Spencer and the aggregate of all other smaller department stores, which gains 1% to 77. Debenhams follows closely behind at 76, also unchanged.
Customer satisfaction with electrical retailers is stagnant at an NCSI score of 76. Apple Stores make a strong debut in the NCSI, leading the category with a score of 83 – matching John Lewis for the highest customer satisfaction of any brick-and-mortar retailer tracked by NCSI.
Weakened demand for electronics, particularly big-ticket items, has hit the high street stores hard, and smaller chains have suffered the most. They typically rely more on quality and personalised service to drive sales, but find it difficult to compete with the pricing power of the online marketplace and larger retailers. After falling 5% last year, customer satisfaction with smaller electronics stores slips again by 1% to an NCSI score of 76.
Well behind Apple, Argos is steady at 78, but the retailer still maintains a higher level of customer satisfaction than other electronics stores, and is continuing to invest in its hybrid business model with click-and-collect, allowing customers to shop online and pick up in-store.
With the recent demise of rival Comet, Curry’s/Dixons is now alone in last place, scoring 75 for a third consecutive year.
Customer satisfaction with e-commerce is steady in 2012 with an NCSI score of 83. While this falls a bit short of the satisfaction level achieved two years ago, it is still very high. Internet retail is the highest-scoring retail category, well above most traditional stores. Only the Apple Store and John Lewis’ department store reach this level of customer satisfaction on the high street.
Amazon.co.uk continues to lead among internet retailers at 87, the highest score for any company in the NCSI. For the final quarter of 2012, Play.com ties Amazon at 87, perhaps for the last time. Following the UK government’s closure of a loophole allowing it to sell VAT-free DVDs and CDs from the Channel Islands, Play.com announced that it will shutter its retail business in 2013.
Customer satisfaction with Ebay is stable at an NCSI benchmark of 81, just below the aggregate score of all other e-commerce sites, including the websites of traditional retailers (82). After three years of steady improvements, customer satisfaction with Apple’s iTunes slips 2% to 80.
Following a 3% drop in 2011, Ticketmaster remains at the bottom of the category, unchanged at 75 and lagging the rest of the industry by a wide margin.