THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Wednesday, October 26, 1994 TAG: 9410260430
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY LON WAGNER, STAFF WRITER
LENGTH: Medium: 86 lines
To most consumers, the intangible concept of quality has long been evaluated much the same way Supreme Court Justice Potter Stewart evaluated pornography: They know it when they see it.
But a yardstick released Tuesday quantifies for the first time how Americans feel about the quality of goods we buy. That number is 74.5.
The inventors of the new American Customer Satisfaction Index think this new economic measure will soon make Wall Street jump. The 74.5 rating - based on a 0-to-100 scale - tells business that consumers are generally pleased with the quality of goods they buy.
The index measures consumer satisfaction for hundreds of products and services. Everything from beer to the performance of the U.S. Postal Service and the IRS are rated.
Claes Fornell, the University of Michigan professor who developed the index, goes so far as to suggest the index may one day do what President Clinton can't: keep the Federal Reserve Board from raising interest rates.
``Our economic road map is outdated,'' Fornell said. ``The economy is changing. In many ways, we are measuring an economy that no longer exists.''
Perhaps the Federal Reserve would be less likely to raise interest rates to throttle perceived inflation, Fornell said, if it knew that people were paying more for higher-quality products or services.
And maybe companies that cut their work forces to the bone to achieve cost savings and productivity are hurting themselves in the long run, he said.
``Producing more with fewer resources may not always be better,'' Fornell said. ``We look at Germany and Japan, two countries known for quality, and their productivity is not as high as many developed countries.''
The index is derived by telephone interviews with 46,000 customers. The index measures 203 companies involved in 40 industries in seven sectors of the economy. The companies that are evaluated account for 40 percent of gross domestic product. The preliminary satisfaction index for the United States was higher than numbers customers were giving goods and services in Sweden and Germany, two countries that have been measuring quality for several years. Those European countries have been posting scores in the mid- to upper-60s.
The service sector scored a 74.4, well below the 79.2 rating for durable goods such as cars (79) and household appliances (85). That may be cause for concern because the service sector is where most new jobs are being created.
``The bad news is the service sectors that dominate our economy are also the sectors that have lower productivity and lower satisfaction,'' Fornell said.
The professor unveiled the index as part of the 10th annual National Quality Forum. He introduced the index in Hampton Roads via satellite to a quality forum gathered at Ford's Norfolk Assembly Plant.
The index could be an important next step in the quality-improvement movement. Improvements in quality, Fornell said, are only significant if the customer notices and is willing to pay for them.
David Larcker, a professor of accounting at the Wharton School of Business, analyzed the Swedish index to see if a company's quality rating had any bearing on its future stock performance. Larcker found that the index fills an important gap in evaluating the future performance of either a company or a sector of the economy.
The American index is a much-needed balance to measurements of productivity, he said.
``Those things tell you whether you're turning out more units per labor hour, but they don't tell you if people want to buy the stuff you're turning out,'' Larcker said. ``This is sort of a missing link.''
Fornell said the index can also serve as an early warning sign that a sector of the economy is vulnerable to foreign competition. If the index were around in the 1970s, it could have predicted trouble for the auto industry, he said.
But even a newfangled economic indicator can't improve customers' perceptions of some frequently scorned government services. The index gave a mark of 60 to the U.S. Postal Service, which was saved embarrassment only by a poorer ranking for the Internal Revenue Service.
Fornell had a tongue-in-cheek answer for the IRS's low score.
``Now, it is very difficult for an agency to attain high customer satisfaction if it is not only a monopoly, but also has low customer demand,'' he said. ``So maybe a score of 55 is not that bad.'' ILLUSTRATION: Charts
American Customer Satisfaction Index
How can you measure the quality of goods and services?
SOURCE: University of Michigan Business School; American Society for
Quality Control
by CNB