Implications of the Index of Consumer Satisfaction For Public Policy Pertaining to Market Performance



Citation:

Charles R. Handy (1972) ,"Implications of the Index of Consumer Satisfaction For Public Policy Pertaining to Market Performance", in SV - Proceedings of the Third Annual Conference of the Association for Consumer Research, eds. M. Venkatesan, Chicago, IL : Association for Consumer Research, Pages: 738-741.

Proceedings of the Third Annual Conference of the Association for Consumer Research, 1972      Pages 738-741

IMPLICATIONS OF THE INDEX OF CONSUMER SATISFACTION FOR PUBLIC POLICY PERTAINING TO MARKET PERFORMANCE

Charles R. Handy, U.S. Department of Agriculture

I

This audience is no doubt well aware of the growing concern for the quality of life experienced by the American population. This concern is manifested in the rapid increase of interest in developing social indices or methods of accounting that will monitor the direction and rate of change of the many variables that can influence current and future national well-being. Interest in this activity has been expressed at all levels of government. Government agencies, consumer groups, educators, researchers, and many representatives of the business community have urged a larger effort to be expended in the development of social indicators, including measures reflecting changes in consumer satisfaction, aspirations, and expectations.

It seems to me that the social indicators under development can be broken down into two basic categories: (1) those measures or sets of data which monitor changes in the physical aspects of our environment, and (2) psychological or subjective measures which monitor how our society, or subsectors of our society, perceive their quality of life. The second category contains measures of attitude. They attempt to describe over time, how individuals and groups perceive their opportunities, satisfactions, and expectations. To date, the majority of manpower and financial resources has been devoted to developing the first category of social accounts.

The Department of Health, Education, and Welfare's document, Toward a Social Report, encouraged the development of these types of indicators and sketched the form they might take. These indicators would include: monitoring the level and trends of various pollutants and their effect on our natural resources; monitoring the quality and availability of education at all levels of society; more detailed monitoring of trends in criminal acts, and data on our penal institutions; monitoring trends in physical and mental health between different segments of our population; and monitoring trends in social mobility.

Social indices providing time series information on these issues, combined with our numerous and highly developed economic indicators, would greatly facilitate our ability to assess trends in our national well-being. Yet both of these types of social and economic measures omit a crucial variable in any assessment of wellbeing; the subjective attitudes of society. We need to "flesh out" both our economic indicators and social indicators with subjective or psychological indices reflecting a person's perception of a situation as it affects him. This brings us to the Index of Consumer Satisfaction and the second category of social indices.

When turning to subjective or psychological indicators, we move into an area that is highly experimental. There are very few examples of subjective economic indicators that are actually in use. This is understandable. These measures present tremendous measurement problems, problems of aggregating responses between individuals, groups, and products, and problems of interpretation. Another factor tending to restrict development of these indicators is that as researchers and economists, we have shown a strong affinity for precision of methodology and concepts even if it means restricting areas of investigation. The rapidly changing social fabric of our society creates a vacuum of information concerning our values, attitudes, expectations, and satisfaction. Measures which document this type of information may provide a useful and timely empirical data base for anticipating and responding to real world problems.

The papers presented this morning focus on the conceptual and methodological problems of constructing indices of consumer satisfaction. This has been a necessary first step. Up to now the ICS was a promising but untested concept. Research reported this morning has shown the powerful techniques of nonmetric scaling can be successfully and meaningfully employed in the development of subjective measures of market performance.

Now that procedures for constructing indices of consumer satisfaction have been largely developed, I fell greater involvement from business firms, trade associations, government agencies, consumer groups, and other potential users is justified. As we move forward to operationalize the ICS, primary effort must shift from methodology questions to concern with maximizing useful information for public and private decision makers. Statistical and mathematical elegance is not enough for continued support. Thus, it is to the potential applications of the ICS that I would like to direct my remarks.

II

The Department of Agriculture became involved in developing an index of consumer satisfaction following a detailed evaluation of traditionally used measures of market performance such as value added, productivity, profit rates and market structure variables. This investigation concluded that while these measures were extremely useful, they all focused on the input side rather than the output side of the market. While we can measure the growth of our economy, efficiency of resource use, and product flows, we have virtually no information indicating the extent consumers feel the products and services available to them actually conform to their preferences and needs. Yet in our economy, consumer satisfaction is one of the ultimate goals of marketing activity. Considering today's environment of rapid change, various tabulations of the increased number and variety of products offer little evidence as to how well these market alternatives match a heterogeneous demand.

The demand for consumer satisfaction information from both the public and private sector is increasing. Knowing how the various segments of the population feel-their attitudes and frustrations--is increasingly necessary for the development of far-sighted corporate and public policy. Sources of consumer dissatisfaction are not static. Rather they require periodic monitoring since they may stem from changes in consumer values, attitudes, and expectations as well as from physical characteristics of products and services.

Both government and the business sector need to improve their dialogue with consumers. An index of consumer satisfaction could be a vital mechanism to facilitate this dialogue. Just the mere collection and publication of consumer satisfaction data may likely be beneficial since individuals tend to be more sensitive and responsive to those factors that are regularly measured. At present, this dialogue is limited largely to random complaints initiated by consumers, information obtained at hearings called by various government agencies, and private consumer research activity which is highly concentrated among a limited number of products and brands.

I now would like to mention several potential uses of consumer satisfaction information by the public and private sectors. A primary mission of the Economic Research Service is evaluating market performance and determining ways in which the marketing system can be improved to more effectively meet the needs of farmers, market intermediaries, and consumers. Consumer satisfaction and the responsiveness of markets to consumer needs are major dimensions of market performance that have received inadequate attention. Indices of consumer satisfaction with a market basket of food products and services would help close this Rap in market intelligence.

Indices of consumer satisfaction would supplement traditional market signals from consumers to producers. This type of information could help commodity groups and marketing firms tailor their products and services to the expressed needs of different consumer groups. It would also help identify market voids currently unserved by available products or services. While this information would be available to all, it should be particularly useful to smaller firms and to agricultural commodity groups since they often do not have the resources or organization to conduct their own consumer research.

Another function of government is to be a resolver of conflicts. Government is concerned with promoting the welfare of its people and how to best plan and adjust policy to take care of citizen needs and wants. In carrying out this function, policy makers-require a solid empirical information base for action. Public officials must be able to identify and anticipate citizen concerns and problems. Without regularly monitoring a large cross section of our population, it is very easy to be mislead as to the actual state of consumer dissatisfaction.

Congress and local legislative bodies in recent times have frequently found themselves in a position of being called upon to act on consumer issues without the benefit of an adequate information base. The pressure for action may not allow enough time to plan and conduct appropriate research. Information from an ongoing index of consumer satisfaction would provide legislators a continuous objective data base to help guide decision making. This information may also provide evidence for evaluating the extent past legislation such as "Truth-in-Packaging" has been successful in reducing consumer discontent with this aspect of marketing.

Discussions with representatives of the Office of Consumer Affairs and the Federal Trade Commission indicated several areas where information from an index of consumer satisfaction could be useful. The Office of Consumer Affairs (OCA) receives thousands of letters per month containing consumer complaints. These complaints are categorized by topic, tabulated, and stored. The primary problem in relying on this information is that OCA has no way of knowing how representative it is. People who write complaints tend to fall into two groups, according to OCA. One group tends to have a lot of time on their hands, indicating a high proportion of retired persons. The other group tends to be very articulate, signifying above average education and income. An index of consumer satisfaction covering all product group classes would help OCA estimate how representative are various complaints received by them by showing how satisfactions or dissatisfactions with products and services are distributed across specific segments of the population.

Representatives from the Federal Trade Commission suggested that this type of index could be of use to them in: (1) the allocation of resources to important problem areas as perceived by consumers; and (2) the development of programs and regulations which reflect differences in the perceptions, needs, and predispositions of different segments of the population.

Selection of trade or marketing practices to challenge relies heavily on individual complaints, suggestions, and staff investigations. An index of consumer satisfaction again could indicate the extent individual complaints are representative of all consumer groups. Information from indices of consumer satisfaction could also aid the Commission in designing programs to take account of individual product and consumer differences. The proposed index is able to identify particular product attributes causing dissatisfaction. For example, if dissatisfaction for a particular product group was not related to price, the Commission may be misallocating its resources in mandating industry action to improve price information in these particular product lines.

Index of consumer satisfaction information could be of additional use to the private sector by the encouragement of voluntary action and self-regulation of business practices. Legislation and regulations once-enacted, tend to impose universal behavior and values on all. Voluntary action enables business firms to retain greater flexibility in responding to the many minority interests and market segments they seek to serve.

The Council of Better Business Bureau recently has become more active in encouraging business self-regulation. Plans are to set up a national consumer information bank. Information from local bureaus and the national office will include data on: promotion practices, product performance, consumer attitudes, and complaints. An index of consumer satisfaction could serve as additional input and reference point for the data bank.

On a more general or macro basis, the ICS can be viewed as a social indicator reflecting over time changes in satisfaction with specific and general aspects of our market economy. At this stage, we can only speculate as to the stability of the indices over time. Increased experience with movements in the indices of product or service satisfaction may help identify or predict buying patterns, and may also be indicative of potential consumer protest should an index fall to a certain level of dissatisfaction.

These comments clearly indicate that in my opinion, subjective indices of economic performance have the potential for becoming important inputs affecting policy decision making. Subjective or psychological indicators provide an additional perspective or dimension to balance traditional economic, accounting, and engineering measures of performance.

Subjective indices are not a panacea. There will continue to be serious questions of interpretation as these measures come into use. Consumer satisfaction as a goal also has limitations. Individual consumer preferences in some cases may have to be restricted or disallowed if long run social costs out-weigh private benefit. Generally, the technical feasibility of constructing subjective measures of economic performance has been demonstrated; they appear to provide worthwhile information; and they have a number of potential users.

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Authors

Charles R. Handy, U.S. Department of Agriculture



Volume

SV - Proceedings of the Third Annual Conference of the Association for Consumer Research | 1972



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