The American Customer Satisfaction Index (ACSI) Q3 results are a warning sign threat to the very functioning of the U.S. economy: high profits, record-breaking stock returns, and weakening customer satisfaction.
While the national score is unchanged at 76.9 (on a scale of 0 to 100), it follows a steep decline and long-term stagnation that is a slow-moving threat which, if not reversed, might inflict severe damage to economic growth: the decoupling of buyer utility from seller profit, says Claes Fornell, Distinguished Donald C. Cook Professor (Emeritus) of Business Administration at the University of Michigan. (The ACSI was ounded in 1994 at the University of Michigan’s Ross School of Business, and measures customer satisfaction with more than 400 companies in over 40 industries.)
Consumer switching costs have risen over the past decade, especially in digital and service sectors, with less competition as a result. Online retail, video streaming, and search engines have decreasing customer satisfaction this quarter, according to the ACSI.
Overall, markets have become more concentrated with rising seller pricing power. Corporate profits as a share of national income have increased as well, but so have customer complaints. Mergers and acquisitions have escalated, while antitrust enforcement has not. Consumer surplus is eroding, with less household purchasing power as a result.
From the ACSI report: If economic history is a guide, innovation will suffer, capital allocation will be inefficient, and productivity growth will slow. There will be rising inequality and further redistribution of income from consumers to shareholders. Because high-income groups have lower marginal propensity to consume, consumer demand will fall and both groups will be worse off.
There are exceptions, however. The ACSI says Apple, Google, Microsoft, and Costco are longtime front-runners in customer satisfaction. Most of them belong to the high stock-return technology sector and have pricing power, but they haven’t exercised that power to the detriment of their customers. Accordingly, even their short-term three- and five-year stock returns are higher than the S&P 500 return.
From the ACSI report: A healthy market economy relies on constructive competition among sellers for the satisfaction of buyers, with prices aligned with costs and demand rather than monopoly power. Increasing customer satisfaction implies that consumers realize value, with rising surplus and high marginal utility of expenditure as a result. Most data suggests that we now have the opposite. The reason that it might be more damaging than the Great Recession of 2007-2009 is that it threatens the very functioning of a market economy, which was not the case back then.
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