You Recently Had Bad Service, But Is It A Trend?

Is customer service really getting worse? The data says no, but competitive markets are key to consumer satisfaction.

I was recently interviewed by a writer working on a story for a business publication about the commonly held belief that customer service has declined in America. It's a narrative we've all heard - endless hold times, unhelpful representatives, increasing rage, and a general sense that companies just don't care about their customers like they used to.

This commonly reported story that customer service has declined in recent decades didn't seem right to me, so I looked at some data, a different picture emerged. The American Customer Satisfaction Index, has been tracking consumer satisfaction across American industries since 1994, and their data tells a compelling story:

• from when the study started in 1994 customer satisfaction declined until 1997;

• but, the trend in satisfaction reversed, steadily increasing, peaking in 2019;

• satisfaction took a hit during the pandemic, but has since rebounded to new highs in Q1 2024.

This trajectory aligns with what I would expect. 1997 marked the rise of the internet as a major factor in commerce and consumer behavior. The web ushered in a new era of transparency, empowering consumers with online reviews, ratings sites, and expanded word-of-mouth via social media which inc. In a more transparent world, companies that deliver poor service get called out while those that excel gain recognition and loyalty. A decline during the pandemic was to be expected with supply chain interruptions, reduced services, and fewer employees. With the pandemic behind us we are once again experiencing increasing satisfaction.

Not all customers may be experiencing this improvement equally. With the rise of big data and advanced analytics, companies are increasingly able to calculate the lifetime value of individual customers - that is, the total amount of money a customer is expected to spend on a company's products or services over their lifetime. Armed with this insight, brands can use technology to deliver premium service to high-value customers while deprioritizing those deemed less profitable. For example, an airline may route frequent business travelers to dedicated support lines with little to no hold times, while infrequent leisure travelers sit on hold. So while overall satisfaction is up, some customers may feel left behind.

We all experience a rage inducing service experience at one time or another. The Customer Rage Study, conducted by Customer Care Measurement & Consulting (CCMC) in collaboration with Arizona State University's W.P. Carey School of Business, has a rich history dating back to the seminal 1976 White House Study. Over time, the study has revealed that despite significant investments in customer care by businesses, customer rage remains high, with the 2023 survey showing that 74% of customers experienced a product or service problem in the past year, the highest percentage since the survey began. The Customer Rage Study captures whether a customer experienced a problem in the past year, rather than measuring overall satisfaction indicated by the American Customer Satisfaction Index. As companies have raised the bar for service quality through investments in customer care and technology, consumer expectations have risen accordingly, and the proliferation of digital channels like social media and review sites has made it easier than ever for customers to publicly voice their dissatisfaction when experiences fall short of these heightened expectations. From my years in marketing at Dell, I learned that sellers can't always meet buyer expectations, but when sellers fall short they can build brand loyalty if they respond to buyer complaints promptly, empathetically, transparently, and make a genuine effort to resolve the issue satisfactorily.

Competitive dynamics of a market play the critical role in determining the level of customer satisfaction. In competitive markets, companies are incentivized to deliver high-quality products and services at fair prices to attract and retain customers. Conversely, markets with low competition often see lower satisfaction scores as consumers lack alternatives and companies face less pressure to excel. In 2015, Ipsos found that that the highest level of dissatisfaction was with government offices and telecommunications companies, examples of low competition.

The airline industry provides a clear example of this dynamic. Carriers like United and American dominate certain markets, particularly at their hub airports. In these markets, they face limited competition and consequently tend to have lower customer satisfaction compared to rivals like Southwest and JetBlue. These smaller carriers operate in more competitive markets where they must work harder to differentiate themselves through better service, amenities, and value.

While competitive markets are key to ensuring consumers receive good value, there is also a role for government in maintaining healthy competition. Antitrust laws are designed to prevent companies from unfairly dominating a market in ways that harm competition and, ultimately, consumers. For example, the Department of Justice has the authority to block mergers that would create monopolies or oligopolies, as we saw with the nixing of the American-US Airways merger in 2013.

However, it's important for government intervention to strike the right balance. Overregulation can stifle innovation and efficiency that benefits consumers, while under-regulation leaves consumers vulnerable to abuse if markets become uncompetitive. Government involvement in markets usually start with admirable goals, but often devolve into regulatory capture, where oversight agencies become unduly influenced by the very industries they are meant to police. This can lead to policies that benefit incumbents at the expense of consumers and potential competitors.

The Interstate Commerce Commission, created to regulate railroads and trucking, exemplifies this risk. While intended to prevent abusive practices, the ICC eventually became a tool of the transportation industry, setting rates and limiting competition in ways that harmed consumers. It took deregulation in the 1970s and 80s to dismantle this captured bureaucracy and restore market forces.

The current antitrust lawsuit against Amazon is an example of how government can go too far. The Federal Trade Commission (FTC), backed by 17 state attorneys general, has filed a lawsuit alleging that Amazon is unlawfully maintaining monopoly power. The government’s case hinges on accusations that Amazon’s anticompetitive conduct reduces competition, inflates prices, degrades quality, and stifles innovation. The case against Amazon is weak because it primarily targets Amazon for its size rather than demonstrating actual harm to consumers. While Amazon has a dominating share in internet retail, large brick-and-mortar retailers like Walmart and Target are ready substitutes. Being big alone does not inherently violate antitrust laws; the government must show how Amazon’s size directly results in consumer harm, which has not been convincingly demonstrated in this instance. Blogger Ben Thompson points out "the sheer audacity of the FTC’s insistence it ought to be able to simply take what Amazon has built and distribute it to whoever wants it."

So while competitive markets are the ideal and judicious government intervention is sometimes necessary to maintain them, government intervention is at risk of doing more harm than good. The key is to structure oversight in a way that aligns regulatory incentives with the public interest and preserves the dynamic competition that keeps companies focused on serving their customers.

When companies face robust competition, on the other hand, investing in strong service becomes essential for long-term success. Businesses may be tempted to cut customer service to boost short-term profits claiming “shareholder primacy,” but this is shortsited. In competitive markets, as customers start to perceive less value than they desire, it opens a door for a competitor to win away those customers. In the long run, delivering value desired by customers is always in the best interests of shareholders.

The role of government should be to ensure markets remain competitive, removing impediments and guarding against regulatory capture. In truly open markets, consumers will vote with their wallets and the companies that serve them best will win.

While poor service makes for sensational anecdotes, the big picture data shows American consumers are actually more satisfied than ever. As long as we maintain a dynamic, competitive economy, we can expect that upward trend to continue.

Peace through understanding.