Battle for hearts and minds

The release of the first results from the National Customer Satisfaction Index aim to help banks, supermarkets and mortgage lenders pinpoint the areas that consumers feel need improvement

Customer satisfaction is crucial to long-term profitability, and business success is largely determined by who wins the battle for the hearts and minds of customers: companies that systematically monitor and improve customer satisfaction consistently exhibit more stable cashflow and greater gains in shareholder value.

In the US, companies with the very highest levels of customer satisfaction have nearly four times the “market value added” of companies with the lowest levels of satisfaction, while the aggregate stock valuation of these highly satisfying firms has grown at twice the rate of the market as whole.

A new measure of customer satisfaction, the National Customer Satisfaction Index, has been launched, with the first wave of results released for banks, supermarkets and mortgage lenders. The NCSI-UK aims to name customer satisfaction winners and losers as well as those all-important areas for improvement.

UK banks overall have a low satisfaction score (71 on a 0-100 scale) in comparison with the aggregate US score (78). They also top the number of complaints received compared to mortgage lenders and supermarkets with 21% of customers making a complaint in the past year (Abbey and HBOS have the highest proportions with 31% and 28% respectively).

The top-rated banks were RBS Group (The Royal Bank of Scotland/ NatWest/Ulster Bank) and HSBC (including First Direct), both with scores of 71, followed by Lloyds TSB with 70. The lowest scorer is Abbey (including Cahoot) at 64. Banks may be able to retain their unhappy customers because of their complex switching procedures and customer resistance to change, but only in the short term. Long-term customers will eventually defect.

The smaller banks and financial services groups, at 79, score higher overall than any of the major banks, which could reflect their greater emphasis on personal banking and customer management.

Given the competitive nature of modern supermarkets, success is ultimately achieved only by continually monitoring the customer base and making improvements that create the highest rates of return.

At a total annual spend of £130bn, grocery shopping is one of the largest items of UK household expenditure, and with supermarkets accounting for nearly 80% of this spend they have a lot to lose if their customers are unsatisfied and defect to a competitor.

With the highest customer satisfaction of all companies examined, Waitrose leads with a score of 82 on the 100-point scale, well above the average of 72 for the supermarket sector. Asda is second on 76. Asda customers are more likely to feel that they are getting good value for money while for Waitrose customers it is all about quality. Somerfield is the worst performing supermarket with a score of 63.

In terms of customer complaints, Tesco and Sainsbury’s fare worst with the highest number (21% and 18% respectively). Both also score low for complaint handling with only Somerfield faring worse.

With mortgage payments (alongside groceries and transport) constituting one of the highest components of UK household expenditure, those mortgage lenders that deliver high levels of customer satisfaction stand to gain significantly more revenues and profit from this large household spend.

With an aggregate customer satisfaction score of only 70 on the 100-point scale. the mortgage lending industry has much room for improvement. Known for its competitive deals, the top performer is Nationwide Building Society (including Portman BS) with a score of 77, followed by RBS Group (NatWest/The Royal Bank of Scotland) with 72 and Lloyds TSB (including Cheltenham and Gloucester BS) with 71. Abbey fares worst at 65 with, surprisingly, Northern Rock performing slightly better (68).

With 18% of customers making a complaint in the past year, RBS Group has the highest number of complaints; Northern Rock has the lowest, followed by Nationwide. However, Northern Rock performs worst at complaint handling, while Abbey fares only a little better.

In terms of customer loyalty, Nationwide comes out on top again, while loyalty to Northern Rock seems to have been damaged by the recent crisis. This may be entirely consistent with Northern Rock looking to liquidate as much capital as possible to repay its debt to the UK taxpayer.

Customer satisfaction brings financial rewards to an organisation – no question about it. Customers are critical assets: companies that understand this and do well by the customer will be rewarded with increased market share and more capital investment, while companies that fail to satisfy the customer will lose both buyers and investors.

Sheri Teodoru, CFI Group chief executive, contributed to this week’s Trends Insight

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