Why limited-service chains were better positioned for the pandemic than full-service restaurants

The restaurant industry is facing unsettling times.

Customer satisfaction with full-service and limited-service restaurants dropped 2.5% and 1.3% respectively this year, and the Accommodation and Food Services sector overall diminished 1.3% to a score of 77.9 (out of 100), per our most recent Restaurant Report.

This was all before COVID-19. Now, the situation is even more dire.

From March to May 2020, the industry lost $120 billion, according to the National Restaurant Association. This figure could double by the end of the year.

Yet, while sit-down chains remain slightly ahead of fast food restaurants (79 to 78) from a customer satisfaction standpoint, this might not be the case next year.

The delivery paradox

Since COVID-19, takeout and delivery options have become a full-blown necessity. But customers were turning to delivery even before the pandemic arrived, and full-service restaurants have been trying to adapt. By mid-2019, nearly four in five brands used an online ordering platform.

Unfortunately, online ordering from full-service restaurants hadn’t caught on before the pandemic hit.

According to our survey, completed between April 2019 and March 2020, 92% of respondents reported dining in at sit-down establishments, compared to 6% ordering carryout and 2% choosing delivery. Furthermore, customers are more satisfied when dining in (78) at full-service restaurants than getting takeout (75) or delivery (77).

When customers were forced to choose between takeout and delivery, full-service restaurants’ apps might not have lived up to expectations. While diners agree that overall quality of mobile apps from full-service restaurants is better than those of fast-food chains (85 to 81), the reliability of those apps tells a different story.

Although the segments share the same score for mobile app reliability (81), full-service chains plummeted 6% while fast-food chains improved. As our data consistently show, the more satisfied customers are, the more willing they are to increase their restaurant spending in the future.

Many fast food restaurants had the technology and the habits in place before the pandemic. Subway, whose overall score remained unchanged overall, had the top-rated mobile app for quality. This is good news in its efforts to adapt to consumer preferences, especially after the company closed more than 1,000 U.S. locations in 2019.

Domino’s is reaping the rewards of having its own digital platform for ordering and delivery. The new pizza segment leader, at an ACSI score of 79, earned 70% of its total U.S. sales in 2019 via digital. It also boasts a database of over 85 million customers.

If full-service restaurants can’t follow suit to fulfill customer’s delivery needs during the pandemic, they may struggle to regain trust down the road.

Takeout troubles

Takeout is the bread and butter for fast-food chains. Nearly 70% of their business comes from drive-thru lanes, which are built for quick, contactless meal distribution.

Without drive-thru in their arsenal, full-service restaurants have been trying alternative takeout methods. Unfortunately, save for Applebee’s, many full-service restaurants didn’t have designated curbside pickup programs in place prior to the pandemic.

Some were unprepared for the influx of orders. TGI Friday’s had to convert its headquarters into a call center because it lacked a sufficient number of phone lines to handle demand.

On top of that, many customers have been less satisfied with full-service restaurants in many of the customer experience benchmarks that apply to both dining in and takeout. The courtesy and helpfulness of staff was down 3.4% to 84, and the speed in which food is received was down 2.4% to 80.

Full-service has no time to waste

The full-service restaurant industry was having trouble before COVID-19. But the pandemic may have exacerbated the segment’s shortcomings, from its falling mobile app reliability to its relative lack of experience with takeout and delivery.

Customer satisfaction with limited-service chains was also deteriorating, but these chains are built for contactless delivery and pickup.

Even as restaurants open for in-person dining, the need to adhere to social distancing guidelines and other safety precautions will make it so the dining-in experience will never be the same. This will make efficient delivery and takeout even more critical.

The writing’s been on the wall for the restaurant industry for a while now. Those that truly embrace the power of digital for delivery and takeout are more likely to weather the storm.

Costs and Benefits of Addressing Customer Complaints

The angry restaurant patron. The irritated airline passenger. The retail customer screaming about a return or refund. Every company worries about complaining customers. They can be loud, disruptive, bad for employee morale, and have a huge impact on companies. But are customer complaints as damaging as they seem? A new study in the Journal of Marketing (JM) turns its lens on customer complaints, performing the largest scientific study ever to understand how they affect companies’ performance (JM is published by the American Marketing Association and AMA is cross-promoting the research as Learning to Love Your Complaining Customers).

A few years ago, Snapchat lost $1.3 billion in market value in a single day after a Kylie Jenner tweet about unhappiness with the app’s new layout. She simply said: “Sooo does anyone else not open Snapchat anymore? Or is it just me… ugh this is so sad.” Jenner had long been one of Snapchat’s most influential users and her words had immediate consequences. While Jenner has a larger audience than most users, social media gives all complaining customers a chance to be influencers. In our social media era, even one unhappy customer can damage brand reputation, slow sales, and harm a company’s market value

But are complaining customers always a drain on sales and damaging for employees’ morale? As it turns out, customers who lodge complaints are not a lost cause. They can still be satisfied and remain loyal if their complaints are handled well. Regrettably, companies rarely handle complaints consistently, partly because they don’t know how.

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Our research team analyzed relationships between customer complaints, complaint handling by companies, and customer loyalty to inform companies how to manage customer complaints much better and more consistently. We studied data from the American Customer Satisfaction Index (ACSI) regarding behaviors of 35,597 complaining customers over a 10-year period across 41 industries.

Our study finds that the relationship between a company’s complaint recovery and customer loyalty is stronger during periods of faster economic growth, in more competitive industries, for customers of luxury products, and for customers with higher overall satisfaction and higher expectations of customization. On the other hand, we also find that the recovery–loyalty relationship is weaker when customers’ expectations of product/service reliability are higher, for manufactured goods, and for males compared to females.

From these results, we draw two key conclusions. First, companies need to recognize not only that industries vary widely in the percentage of customers who complain (on average, about 11.1 percent), but also that economic, industry, customer-firm, product/service, and customer segment factors dictate the importance of complaint recovery to customers and their future loyalty. Companies should develop complaint management strategies accordingly.

Secondly, the financial benefits of complaint management efforts differ significantly across companies. Since complaint management’s effect on customer loyalty varies across industries and companies offering different kinds of goods, the economic benefit from seeking to reaffirm customer loyalty via complaint recovery varies as well. Through this study, these performance factors can be identified and considered when designing a company’s complaint management system.

Without context, our conclusions suggest that a profit-maximizing strategy simply requires that managers understand the impact of complaint recovery on customer loyalty in their industry. Added to this complexity, however, is the reality that profitability is not evenly distributed throughout the customer base. Companies need to implement complaint management systems that make it easier for front-line employees to respond to complaining customers in ways that optimize customer satisfaction, customer loyalty, and the economic contribution of customers.

Without a deeper understanding of the boundaries of the complaint handling–customer loyalty relationship and the effects of economic, industry, customer-firm, product/service, and customer segment factors, companies will likely allocate cost estimates to complaint management that are too low for the required recovery actions or customer loyalty estimates that are too high, or both, instead of achieving an optimal point of recovery-loyalty yield.

Achieving an optimal recovery-loyalty yield is more advantageous than adopting the mantra that the customer is always right. It is a folly to believe that the customer is always right. Economically speaking, the customer is only “right” if there is an economic gain for the company to keep that customer. In reality, some complaining customers are very costly and not worth keeping.

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Read the full article

Forrest V. Morgeson III, G. Tomas M. Hult, Sunil Mithas, Timothy Keiningham, and Claes Fornell, “Turning Complaining Customers into Loyal Customers: Moderators of the Complaint Handling – Customer Loyalty Relationship,” Journal of Marketing (https://journals.sagepub.com/doi/pdf/10.1177/0022242920929029).

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An Interview with Claes Fornell, Founder and CEO of the American Customer Satisfaction Index (ACSI)

Since 1994, the American Customer Satisfaction Index (ACSI) has conducted millions of interviews with American consumers regarding their experiences with major consumer goods and services companies. As we commemorate ACSI’s 25th anniversary, the expert team at the ACSI (Claes Fornell, Forrest Morgeson, Tomas Hult, and David VanAmburg) published a book – The Reign of the Customer: Customer-Centric Approaches to Improving Satisfaction – that takes a look back and examines the major findings from the invaluable, incomparable ACSI source of consumer insights and information.

Rather than the book being a mere retrospective, the authors use 25 years of ACSI findings to inform best practices for improving the consumer experience, better satisfying customers, and achieving profitable customer loyalty – today and into the rapidly changing future. The Reign of the Customer helps managers understand where we were, where we are today, and where we are heading tomorrow in providing exceptional customer experiences.

As a part of the book, we included an interview with Professor Claes Fornell, one of the book’s coauthors and the Founder of the American Customer Satisfaction Index. The question and answer session with Dr. Fornell is included here.

June 12 2020

Question: When you founded the ACSI more than 25 years ago, what was your primary goal? What did you hope the project would provide that didn’t already exist (to researchers, companies, policymakers, etc.)?

Claes Fornell: It was about that time 25 years ago when three big trends were beginning to become evident. The first was global competition, the second was the growth of services in most advanced economies, and the third was that consumers were beginning to be better armed with information (about purchase alternatives, prices, quality, etc.). These trends led to more buyer power and fewer monopolies in the overall economy. In other words, there was a major shift in power away from producers to consumers. It also meant that the conventional measures about the performance of firms and economies needed updating and change. At the company level, it was clear that the more we knew about how satisfied customers were, the better we could predict future revenue from repeat buyers. At the macro level, we could also infer what an increase (or decrease) in aggregate customer satisfaction meant for aggregate consumer spending. This was very important since consumers account for about 70% of gross domestic product in the U.S. It is not possible to have strong economic growth without robust growth in consumer spending.

Question: Have changes in the economy over the past 25 years impacted how customer satisfaction is measured?

Fornell: Yes. Just about every company now measures customer satisfaction in one way or another. That’s an important first step. The problem is that most companies still do not have enough quality in their measurements. Very little attention is paid to the integrity and properties of the measures. The concepts of reliability and validity seem foreign to many companies, which have led to measures that don’t reflect what they purport to measure and contain more random noise than authentic variation. Over the long run, this is, of course, untenable.

Question: Can you give us some idea of the economic and financial importance of customer satisfaction, both to companies and to national economies?

Fornell: Most companies depend heavily on repeat business. There are only a few things we consume only once. In a competitive market, where consumers have a great deal of choice, it is therefore necessary to make sure one has satisfied customers. Otherwise, they will go elsewhere. We can see the financial impact not only in revenue and profitability, but also in stock returns. For more than 15 years now, we have had a stock fund that invests in companies with superior customer satisfaction (as measured by the ACSI), with very good results. The stock portfolio of these companies had a return of 518% between March 2000 and March 2014. This is much better than the market. The S&P 500 went up only by 31% over the same period of time.

Question: Given that the ACSI has existed for 25 years, and that satisfaction measurement in general is more popular than ever, why do some companies (and even entire industries) continue to treat their customers so poorly (cable TV companies perhaps being an example here)?

Fornell: The major reason for this is some form of monopoly power. Despite what I said about the increase of competition in general, there are exceptions. There are markets where purchase alternatives are few and/or where the cost of leaving a company can be substantial. I would put cable companies in that category. In industries with few product and service options, customers have limited powers to punish offending companies.

Question: Finally, if you had one lesson or piece of advice from all of your research and all of your experience that you think would help companies most, what would that advice be?

Fornell: Let me answer by first saying what advice I would not give. For example, it is a folly to believe that the customer is always right. Economically speaking, the customer is only “right” if there is an economic gain for the company in keeping that customer. Some customers are very costly and not worth keeping. It is also not helpful to believe that customer loyalty is priceless and customer satisfaction worthless. Unless the company has a monopoly, loyalty can be very costly unless it is produced by customer satisfaction. If loyalty is gained by price discounts instead of having satisfied customers, for example, it is usually a path to failure rather than to healthy profits.

 

Book Author Biographies

Dr. Claes Fornell is D.C. Cook Distinguished Professor in the Ross School of Business at the University of Michigan (Emeritus). He founded the American Customer Satisfaction Index in 1994 and is hailed globally as “The Father of Customer Satisfaction.” Fornell’s work on systems for managing customer satisfaction has led to two U.S. patents. He has also founded several other customer-centric companies (CFI Group, ForeSee Results, Detroit Vineyards, and Exponential ETFs).

Dr. Forrest V. Morgeson III is a member of the faculty of Marketing in the Broad College of Business at Michigan State University and Director of Research at the American Customer Satisfaction Index. Morgeson’s first book, titled Citizen Satisfaction: Improving Government Performance, Efficiency, and Citizen Trust, was released in 2014 (Palgrave Macmillan). He has consulted with numerous corporations and governments in more than 30 countries.

Dr. G. Tomas M. Hult is Professor and Byington Endowed Chair in the Broad College of Business at Michigan State University and a researcher at the American Customer Satisfaction Index. Hult is a member of the Expert Networks of the World Economic Forum and United Nations / UNCTAD’s World Investment Forum. He is a Fellow of Academy of International Business and the 2016 Academy of Marketing Science Distinguished Marketing Educator.

David VanAmburg is Managing Director of the American Customer Satisfaction Index. As an expert in customer satisfaction, VanAmburg has lectured at the University of Michigan’s Ross School of Business and numerous venues internationally, addressing the relationships among satisfaction, quality, customer service, loyalty, and shareholder value. VanAmburg is regularly quoted and featured in numerous print and radio media, including Bloomberg, CNN, TIME, Wall Street Journal.

 

Securing better in-home Wi-Fi: Why ISPs have an opportunity in the hardware department

Internet service providers (ISPs) are at the bottom no more.

A year after tying for the lowest score in the American Customer Satisfaction (ACSI) rankings, customer satisfaction with ISPs soared 4.8% to a score of 65 (on a scale of 0 to 100), according to our most recent Telecommunications Report.

Eight of 11 providers improved. Verizon’s Fios led the industry with a 4% jump to 73, while Comcast’s Xfinity made the biggest leap, moving into third place with an 8% surge to 66 – and almost every facet of the customer experience improved compared to last year.

That’s the good news. The bad news?

ISPs, which have historically ranked low on the ACSI scale, only climbed into second-to-last place, and except for mobile app quality (79) and reliability (77), most benchmark scores remain low, ranging from the upper 60s to the lower 70s.

The data are a blueprint for how ISPs can address a pressing customer need right now. The question is, will they use it?

ISP-provided equipment is no match for hardware from third parties

For the first time, we measured the in-home Wi-Fi experience, comparing customers’ experience with ISP-provided equipment with those who use third-party equipment.

For the most part, it was no contest.

While ACSI scores for Wi-Fi security were comparable (75 for third parties versus 74 for ISPs), customers using third-party equipment were far more satisfied across the board.

They were happier with the range (75 versus 72 for ISPs), reliability of service (75 versus 71 for ISPs), how quickly equipment restarted (74 versus 69 for ISPs), and most notably, cost (72 versus 66 for ISPs).

This is hardly unexpected. After all, equipment is the bread and butter for these third-party companies.

However, if there was ever a time for ISPs to put resources into improving in-home equipment, it’s now.

Quality in-home Wi-Fi has never been more important

In-home high-speed internet service, once deemed a luxury, is now in nearly three-quarters of American households. But it’s often taken for granted.

That changed when COVID-19 relegated workers and students to their homes, switching quality high-speed in-home internet from a luxury to a necessity. ISPs have room to grow in this area as well.

This year, we also measured overall Wi-Fi quality for the first time. We based the scores on seven benchmarks: security, multiple device connections, range, avoiding service loss, service restart, upload/download speed, and price paid.

Verizon Fios had the highest score overall (77) but was the only ISP to outperform the top third-party leaders, Netgear and TP-Link, both at 75. LinkSys (73) outpaced the remaining ISPs as well, while Xfinity (72) was the only other ISP to beat a third-party company, narrowly besting ASUS (71).

Although the numbers don’t bode well for ISPs, there are bright spots. For example, ISP customers were happier with the variety of available internet plans this year, and they found internet service more reliable.

If ISPs can make progress in those areas, then there’s no reason why they can’t make similar gains in the hardware department by offering more reasonable equipment rental prices and improving the reliability of in-home Wi-Fi.

It starts at home

ISPs are no longer resigned to the cellar of the ACSI rankings. They’re not exactly a fan favorite, either.

But, with more people working from home, more students studying from home, and more people simply forced to be home, they’re going to require – and expect – a reliable in-home connection like never before.

ISPs shouldn’t expect to wipe away years of customer satisfaction woes overnight by solely improving the equipment they provide. But it’s an opening that could slowly bridge the gap. Will they take it?

The Politics of Consumerism and COVID-19

Recently my colleagues from the Broad College of Business at Michigan State University and I were discussing the coronavirus’ impact on consumer spending. We were curious how the shutdowns would impact the economy and how consumer attitudes and beliefs might shape spending in the months to come.

So, as self-described data geeks, we set out to find some answers. Here’s what we discovered.

Few respondents have been able to escape the economic impacts of the coronavirus

At the time of surveying (early May), nearly all respondents (95%) were under lockdown orders, and 16% had been laid off, furloughed, or were unemployed. Nearly 42% reported that their income had decreased since the pandemic began.

Furthermore, about 78% were working from home, compared to 37% before the pandemic.

Republicans express greater anxiety, stress, and powerlessness than Democrats

Specifically:

  • 38% of Republicans reported being either “quite a bit” or “extremely” anxious, compared to 29% of Democrats
  • 41% of Republicans reported being either “quite a bit” or “extremely” stressed, compared to 32% of Democrats
  • 37% of Republicans reported feeling either “quite a bit” or “extremely” powerless, compared to 28% of Democrats

Furthermore, when asked how much they agree with the statement “I am very afraid to die of COVID-19,” 56% of Republicans somewhat or strongly agreed, compared to 53% of Democrats.

Yet, Republicans are more optimistic about the future

Although they’re more negatively impacted emotionally, Republicans express greater positivity about the future.

While 34% of Democrats reported being either “quite a bit” or “extremely” hopeful, this number leapt to 49% among Republicans. Similarly, only 40% of Democrats reported being either “quite a bit” or “extremely” optimistic, compared to 50% of Republicans.

Republicans more likely to jumpstart the economy post-pandemic

How do these attitudes translate into consumer behavior and spending? To find out, we asked respondents what they would spend the money on were they to receive $1,000 “unexpectedly.”

Democrats told us they would put just over half ($514) into savings or paying down debts and bills. Republicans said they would use nearly two thirds ($613) for purchases and spending.

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Next, we asked each respondent the first thing they plan to “buy or do” when the pandemic begins to slow or ends. Responses were open-ended and therefore varied, but the two most common goods mentioned by Democrats were “restaurant” and “vacation.”  By contrast, the two most common goods mentioned by Republicans were “food” and “clothes.”

Breaking spending habits down further, our data reveal Republicans appear eager to spend more than Democrats on:

  • household items (39% vs. 29%)
  • health and personal care items (36% vs. 23%)
  • food to consume at home (39% vs. 30%)
  • utilities (32% vs. 21%)
  • telecommunication goods (33% vs. 21%)
  • luxury goods, like jewelry and electronics (44% vs. 28%)

Members of the two parties share some common ground, though. Republicans and Democrats expect to spend at roughly equal levels on restaurants and bars, clothing and apparel, travel and leisure, and entertainment and events (concerts, sports events).

ACSI-covidpolitics-spending

Political partisanship helps explain both how consumers are feeling during the pandemic and how they plan to behave after it

With local economies just now starting to open back up, a lot can certainly change. But current indications are that while politicized consumerism does exist, it’ll be less active in industries like restaurants. This could bode well for local establishments looking to regain their clientele as restrictions are lifted.

As the months progress, we plan to survey the same respondents to gauge changes in attitudes and spending behavior. We’ll report back on our findings.

Our methodology

In early May 2020, we collected data from a nationwide sample of 1,151 American consumers (margin of error = +/- 3%). The sample was roughly balanced between male (48%) and female (52%) respondents. About 74% of the sample identified their race as white. More than half (55%) have household income of $60,000 or less per year. Fifty-four percent are married and 38% are either single (never married) or divorced.

Special thanks to my colleagues, Ayalla A. Ruvio, PhD and G. Tomas M. Hult, PhD, who assisted in the research.