ANN ARBOR—Driven in large part by consumers’ growing discontent with utility companies, American customer satisfaction levels have declined for a second straight quarter.

The American Customer Satisfaction Index (ACSI) fell by 0.6 percent for the first quarter of this year and now stands at 72.2 (out of a possible 100), according to Jack West, past president of the American Society for Quality (ASQ), and Claes Fornell, director of the University of Michigan Business School’s National Quality Research Center, which compiles and analyzes the ACSI data.

Utility companies registered the largest decline among industries rated during this past quarter—an 8 percent drop from a score of 75 a year ago to 69 currently. The utilities included in the ACSI provide gas and electric service to more than 75 percent of U.S. households.

“There is no mystery in explaining ACSI scores for a utility,” Fornell says. “Reliable supply and delivery, good customer service and reasonable prices lead to high customer satisfaction.”

The utilities sector included the widest range in scores among all industries in the ACSI, from a high of 80 for both the Southern Co. and PPL Corp. to a low of 49 for Pacific Gas & Electric—the lowest ACSI score ever, with the sole exception of the Internal Revenue Service. PG&E’s rating plunged by 33 percent since last year, a record decline for any company during any time period since ACSI’s inception in 1994.

“Many energy utility customers, especially those in California, are clearly reacting negatively to energy supply and price problems,” says utilities expert Andrew Morrison of Market Strategies. “Another major factor in the ACSI scores is the significant increase in natural gas prices this past winter in many parts of the country.”

While utilities account for a large part of American consumer dissatisfaction for the first quarter of this year, most of the other industries rated in the current ACSI also showed declines in customer satisfaction.

Parcel delivery/express mail slipped nearly 4 percent; postal service, airlines, telecommunications and television broadcasting each fell about 3 percent; and hotels and hospitals were both down more than 1 percent. The newspaper publishing business held steady, while only the motion picture industry posted a gain in customer satisfaction—an increase of more than 4 percent.

West points out that the ACSI measures a ratio of value to price. “When price goes up without a commensurate increase in value, there’s only one way for the ACSI scores to go, and that’s down,” he says. “That’s bad news for industries like parcel delivery, airlines, telecommunications and television broadcasting. This could be a leading indicator of reduced demand for their services.”

The ACSI has made fairly steady gains since its low mark of 70.7 in the first quarter of 1997, but improvements in customer satisfaction may have come to a halt with today’s release of a second consecutive falling score, he adds.

“With the recent upturn in consumer sentiment and continued retail sales growth, is this something to worry about? Since about 80 percent of the U.S. economy consists of services in one form or another, and consumer spending makes up almost as much of all economic transactions, poor service is more than an annoyance—it is a threat to corporate earnings,” says Fornell, who adds that in all but one previous year, first-quarter ACSI results have predicted changes in the next quarter’s earnings for the S&P 500. “If this relationship holds, the earnings picture for the second quarter does not look promising.”

Although the ACSI for the first quarter presents a fairly bleak picture of the trend in customer service in the United States, there are some bright spots, Fornell says.

In the nation’s airline industry, Continental Airlines posted an 8 percent gain, up from last year’s ACSI score of 62 to 67 this year—second only to Southwest Airlines’ score of 70. Again, Northwest Airlines brought up the rear with a score of 56 (down nearly 10 percent from a year ago).

While the airlines, on the whole, have had problems with customer satisfaction for some time and have never once shown improvement in the ACSI, Continental and Southwest demonstrate that it is possible to deliver both high levels of customer satisfaction and profit, Fornell says.

“Both are the only major airlines to show positive earnings for the first quarter and are also the only airlines that do well in the ACSI,” he says. “They are probably also among the few airlines that cannot rely on the same degree of monopoly power as Northwest, United and USAir—whose customer satisfaction scores are the lowest.”

According to West, the telecommunications sector—like the airlines—has faced a steady decline in customer satisfaction over the years, due to billing problems, poor directory service, slamming and service outages. Although long-distance provider Sprint and Verizon’s local service showed modest increases in their ACSI numbers this past quarter and Bell South continues its reign as the highest-rated phone company, the industry as a whole now lags behind the national ACSI average for all industries.

Likewise, customer satisfaction with hotels once again is below the national average for all sectors, although the ACSI for this industry tends to mirror the aggregate numbers. Marriott International led the way with an ACSI score of 77 and a 4 percent gain—the only hotel to show improvement from last year. Ramada Inns, on the other hand, scored lowest with a mark of 66 and a drop of more than 4 percent.

Finally, customer satisfaction also declined among the parcel delivery and express mail companies, namely, Federal Express, United Parcel Service and the U.S. Postal Service. Despite the drop, all three scored higher than the national ACSI average, with Federal Express and UPS posting especially high scores of 82 and 78, respectively.

In all, Fornell says that high levels of customer satisfaction in any industry are indicators not only of repeat business—which typically accounts for an overwhelming portion of a company’s profit—but also of the general health of a company.

“The observed relationship between corporate earnings and customer satisfaction is testimony to the fact that most U.S. markets are competitive,” Fornell says. “They do offer consumer choice and, short-term fluctuations notwithstanding, sellers are usually rewarded for treating customers well and penalized for treating them badly.”

“It’s interesting,” adds West, “that a few companies—Marriott, Continental and Southwest Airlines, for example—are finding ways to buck the trend by increasing customer satisfaction in a time of general declines. Consumers may well reward these firms not only now but with increased loyalty as the economy strengthens.”

The ACSI is a national economic indicator of customer satisfaction with the quality of goods and services available to household consumers in the United States. Produced by a partnership of the University of Michigan Business School, American Society for Quality and CFI Group, ACSI is updated on a rolling basis with new measures for two sectors of the economy replacing data from the prior year.

Company scores can be found on ASQ’s Web site: www.asq.org. The Web site for CFI Group is www.cfigroup.com.