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Chapter 4Chapter 4

Focusing on

Customers

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Key Idea

To create satisfied customers, the organization needs to identify customers’ needs, design the production and service systems to meet those needs, and measure the results as the basis for improvement.

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Importance of Customer Satisfaction and Loyalty

• “Satisfaction is an attitude; loyalty is a behavior”

• Loyal customers spend more, are willing to pay higher prices, refer new clients, and are less costly to do business with.

• It costs five times more to find a new customer than to keep an existing one happy.

• A firm cannot create loyal customers without first creating satisfied customers.

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Key Idea

Customer wants and needs drive competitive advantage, and statistics show that growth in market share is strongly correlated with customer satisfaction.

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American Customer Satisfaction Index

• Measures customer satisfaction at a national level

• Introduced in 1994 by University of Michigan and American Society for Quality

• Index continually declined from 1994 through 1997 with small improvements into 2004, when it declined again, suggesting that quality improvements have not kept pace with consumer expectations

• www.theacsi.org

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ACSI Model of Customer Satisfaction

Perceivedquality

Customercomplaints

Perceivedvalue

Customer satisfaction

Customerexpectations Customer

loyalty

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Key Idea

The econometric model used to produce ACSI links customer satisfaction to its determinants: customer expectations, perceived quality, and perceived value. Customer satisfaction, in turn, is linked to customer loyalty, which has an impact on profitability.

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Customer-Driven Quality Cycle

measurement and feedback

Customer needs and expectations (expected quality)

Identification of customer needs

Translation into product/service specifications (design quality)

Output (actual quality)

Customer perceptions (perceived quality)

PERCEIVED QUALITY is a comparison of ACTUAL QUALITY to EXPECTED QUALITY

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Key Idea

Many organizations still focus more on processes and products from an internal perspective, rather than taking the perspective of the external customer.

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Leading Practices (1 of 2)

• Define and segment key customer groups and markets

• Understand the voice of the customer (VOC)

• Understand linkages between VOC and design, production, and delivery

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Leading Practices (2 of 2)

• Build relationships through commitments, provide accessibility to people and information, set service standards, and follow-up on transactions

• Develop effective complaint management processes

• Measure customer satisfaction for improvement

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Key Customer Groups

• Organization level– consumers– external customers– employees – society

• Process level– internal customer units or groups

• Performer level– individual internal customers

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Identifying Internal Customers

• What products or services are produced?

• Who uses these products and services?

• Who do employees call, write to, or answer questions for?

• Who supplies inputs to the process?

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AT&T Customer-Supplier Model

Requirementsand feedback

Requirementsand feedback

Your Suppliers

YourProcesses

YourCustomers

Inputs Outputs

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Key Idea

The natural customer-supplier linkages among individuals, departments, and functions build up the “chain of customers” throughout an organization that connect every individual and function to the external customers and consumers, thus characterizing the organization’s value chain.

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Customer Segmentation

• Demographics

• Geography

• Volumes

• Profit potential

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Key Idea

Segmentation allows a company to prioritize customer groups, for instance by considering for each group the benefits of satisfying their requirements and the consequences of failing to satisfy their requirements.

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Key Dimensions of Manufacturing Quality

• Performance – primary operating characteristics• Features – “bells and whistles”• Reliability – probability of operating for specific

time and conditions of use• Conformance – degree to which characteristics

match standards• Durability - amount of use before deterioration

or replacement• Serviceability – speed, courtesy, and

competence of repair• Aesthetics – look, feel, sound, taste, smell

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Key Dimensions of Service Quality

• Reliability – ability to provide what was promised

• Assurance – knowledge and courtesy of employees and ability to convey trust

• Tangibles – physical facilities and appearance of personnel

• Empathy – degree of caring and individual attention

• Responsiveness – willingness to help customers and provide prompt service

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Kano Model of Customer Needs

• Dissatisfiers: expected requirements that cause dissatisfaction if not present

• Satisfiers: expressed requirements

• Exciters/delighters: unexpected features

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Key Idea

As customers become familiar with them, exciters/delighters become satisfiers over time. Eventually, satisfiers become dissatisfiers.

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Customer Listening Posts

• Comment cards and formal surveys

• Focus groups

• Direct customer contact

• Field intelligence

• Complaint analysis

• Internet monitoring

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Key Idea

Companies use a variety of methods, or “listening posts,” to collect information about customer needs and expectations, their importance, and customer satisfaction with the company’s performance on these measures.

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Tools for Classifying Customer Requirements

Affinity diagram Tree diagram

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Using Customer Information

• Link customer needs and expectations to design, production, and service delivery processes

• Empower employees to listen and take appropriate action to meet customer needs

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Key Idea

An organization builds customer loyalty by developing trust, communicating with customers, and effectively managing the interactions and relationships with customers through approaches and its people. Companies must carefully select customer contact employees, train them well, and empower them to meet and exceed customer expectations.

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Moments of Truth

• Every instance in which a customer comes in contact with an employee of the company.

• Example (airline)– Making a reservation– Purchasing tickets– Checking baggage– Boarding a flight– Ordering a beverage– Requests a magazine– Deplanes– Picks up baggage

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Customer Relationship Management

• Accessibility and commitments• Selecting and developing customer contact

employees• Relevant customer contact requirements• Effective complaint management• Strategic partnerships and alliances• Exploiting CRM technology

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Importance of Complaint Management

• The average company never hears from 96 percent of its unhappy customers

• Of the customers who make a complaint, more than half will do future business if the complaint is resolved

• The average customer who has had a problem will tell 9 or 10 others.

• Dissatisfied customers increasingly post their feelings on the Web

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Key Idea

To improve products and processes effectively, companies must do more than simply fix the immediate problem. They need a systematic process for collecting and analyzing complaint data and then using that information for improvements.

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Measuring Customer Satisfaction

• Discover customer perceptions of business effectiveness

• Compare company’s performance relative to competitors

• Identify areas for improvement

• Track trends to determine if changes result in improvements

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Key Idea

An effective customer satisfaction measurement system results in reliable information about customer ratings of specific product and service features and about the relationship between these ratings and the customer’s likely future market behavior.

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Survey Design

• Identify purpose

• Determine who should conduct the survey

• Select the appropriate survey instrument

• Design questions and response scales

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Key Idea

The types of questions to ask in a survey must be properly worded to achieve actionable results. By actionable, we mean that responses are tied directly to key business processes, so that what needs to be improved is clear; and information can be translated into cost/revenue implications to support the setting of improvement priorities.

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Analyzing Feedback: Performance - Importance Analysis

Performance

Importance

Low High

Low

High

Who cares? Overkill

Vulnerable Strengths

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Key Idea

Appropriate customer satisfaction measurement identifies processes that have high impact on satisfaction and distinguishes between low performing processes low performance and those that are performing well.

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Difficulties with Customer Satisfaction Measurement

• Poor measurement schemes• Failure to identify appropriate quality

dimensions• Failure to weight dimensions appropriately• Lack of comparison with leading competitors• Failure to measure potential and former

customers• Confusing loyalty with satisfaction

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Customer Perceived Value

• CPV measures how customers assess benefits—such as product performance, ease of use, or time savings—against costs, such as purchase price,installation cost or time, and so on,in making purchase decisions.

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Customer and Market Focus in the Baldrige Criteria

The Customer and Market Focus category examines how an organization determines requirements, expectations, and preferences of customers and markets; and how it builds relationships with customers and determines the key factors that lead to customer acquisition, satisfaction, loyalty, and retention, and to business expansion.

3.1 Customer and Market Knowledge3.2 Customer Relationships and Satisfaction

a. Customer Relationship Buildingb. Customer Satisfaction Determination