[The following news item appears in the April 1995 edition of
_Quality_Progress_, pages 11 and 14.]

            ACSI SCORES MIGHT RELATE TO STOCK PRICES

     Can you outfox Wall Street by trading stocks of companies
that have seen increases in their American Customer Satisfaction
Index (ACSI) ratings?
     David F. Larcker, professor of accounting at the Wharton
School of the University of Pennsylvania, believes it is possible
to beat the market using ACSI scores. He bases this belief on
preliminary results from the Swedish Customer Satisfaction
Barometer (SCSB)-an index established in 1989 that was the basis
for ACSI.
     "What you find in the Swedish index--for a small sample of
companies--is that as the satisfaction numbers go up, the stock
price returns of those companies also go up," Larcker explained.
"This suggests that the SCSB is forward looking and provides
information about the future prospects and profitability of its
companies. The result indicates that SCSB is related to the real
economic performance of firms." He added that the same might hold
true for companies in the ACSI.
     Larcker said that while product or service performance,
requirements, and specifications are important, ACSI measures
components that are vital to the quality equation but were
previously difficult to measure. "The substantial impact of
quality improvement isn't in the outputs that are easy to
measure, such as warranty claims and rework, but rather [in such
areas as] have your customers been retained, are they satisfied,
are they buying more of your product, and are new customers being
attracted," he said. "Those are the big payoffs from quality
programs.
     "Companies have tried to measure the effects of quality for
a long time. I think ACSI provides an operational way to measure
the less tangible benefits of quality, and that's one of its
exciting features. Once companies determine how their quality
programs affect their customer satisfaction index, they will be 
able to assess the financial consequences of their quality
programs."
     Larcker said ACSI could have effects beyond how companies
and Wall Street react to it. "When you see the CPI [Consumer
Price Index] go up, that's used as a measure of inflation.
However, it is difficult to measure the quality of the goods and
services included in the CPI. For example, the prices people are
paying for goods might go up, but they might be getting
higher-quality products. So putting the ACSI quality rating into
the macroeconomic models used by the Federal Reserve can provide
very different signals to the policy makers, with respect to the
money supply and interest rates."
     Jack West, ASQC chairman of the board, said that from a
quality practitioner's standpoint, ACSI will help answer
upper-level management questions about the value of investing in
quality. "We [quality professionals] have typically asked people
to make these investments based on faith, intuition, or anecdotal
evidence--that investing in quality was a good thing to do," West
said. "Now, with the index, we're starting to get some hard,
empirical evidence that there is value to investing in quality."
     West believes one effect of ACSI will be the expansion of
the quality practitioner's role and importance within companies.
"The index allows quality professionals to have much more
influence on strategy because they can help steer how a company
invests discretionary resources, in terms of where the company
would see the largest returns," West explained. "If product
perfection was the key attribute, you'd want to steer your
resources in one way. If there was another attribute, such as
on-time delivery or response to customer queries, you might
invest your money differently. These are elements that quality
professionals can bring to the party that they didn't have
before." 
__________________________________________________________
[Sidebar]

    AMERICAN CUSTOMER SATISFACTION INDEX TAKES A SLIGHT DIP

     New data on customer satisfaction in two service-provider
sectors of the economy--retail and finance/insurance--in the
American Customer Satisfaction Index (ACSI) showed a slight drop
in the fourth quarter of 1994, compared to the baseline measures
released in October 1994. (For a complete list of baseline scores
for all sectors and industries, see Jon Brecka, "United States
Scores 74.5 on ACSI," [in the] December 1994 [edition of
_Quality_Progress_], p 32).
     In the most recent ACSI, customer satisfaction in the retail
sector was down by 2.8%, and customer satisfaction in the
finance/insurance sector declined by 0.8%. The overall ACSI score
dropped 0.4% from 74.5 to 74.2; these scores are the average
scores of the index's seven sectors, 40 industries, and 200
individual companies and. agencies.
     Of the four industries in the retail sector, customer
satisfaction with department stores led decliners with a 5.2%
tumble, followed by drop-offs in discount stores (-3.9%) and
supermarkets (-2.6%). Restaurants offering fast food, pizza, and
carryout saw a 1.4% increase in customer satisfaction.
     In the finance/insurance sector, the personal property,
homeowners, and automobile insurance industry registered a
decline in customer satisfaction of 6.2%. Customer satisfaction
with the life insurance industry dipped 2.6% from its October
1994 baseline Satisfaction with the commercial bank industry
remained unchanged.
     ACSI is co-sponsored by ASQC, the University of Michigan,
AT&T, Genera Motors, MBNA, Milliken & Co., KPMG Peat Marwick, and
U.S. Healthcare. For details about the index, contact ASQC New
Product Development, 611 E Wisconsin Ave., P. O. Box 3005
Milwaukee, WI 53201-3005, 800-248 1946, (414) 272-8575.
Information about becoming an ACSI corporate sponsor is also
available from this department.