Some evidence suggests consumers are less than thrilled with what they are purchasing. American consumers are notoriously finicky, and pleasing them has always been difficult. But the latest results of the American Customer Satisfaction Index (ACSI) show consumers barely give companies a passing grade when it comes to satisfying their expectations of quality and service.

The ACSI is based on a quarterly survey conducted by the National Quality Research Center at the University of Michigan Business School in partnership with Arthur Andersen consultants and the American Society for Quality.

The overall index declined slightly in the second quarter (1999) to 72, out of a possible score of 100, from 72.1 in the first quarter. Since 1994, when the index made its debut, it has fallen 3.4%.

This is the downside of corporate America’s cost cutting drive, says Claes Fornell, director of the research center and keeper of the index. Cost cutting has boosted earnings for many companies, but may hurt profits in the long term by undermining customer relationships. “If you cut too much on the cost side,”

says Mr. Fornell, “customer satisfaction goes down.” And that, he contends could signal problems for the economy as a whole in years to come.

SOURCE: Adapted from Darren McDermott, “Customer Satisfaction: Quality, Service Barely Pass Muster with Consumer

—Satisfaction Index Fell Slightly During the Second Quarter: Cost Cutting Gets Blame,” The Wall Street Journal

(August 16, 1999), p. A2.

a. Does cost cutting automatically result in quality reductions? Defend your answer.

b. How can managers be confident that they are not harming long-term survival of their organizations as they strive to manage “relevant” costs?