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Chapter 4Chapter 4Chapter 4Chapter 4

Focusing on Focusing on

CustomersCustomers

Key IdeaKey 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 Importance of Customer Satisfaction and LoyaltySatisfaction and Loyalty

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

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

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

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

Key IdeaKey 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 American Customer Satisfaction IndexSatisfaction Index

Measures customer satisfaction at Measures customer satisfaction at national levelnational level

Introduced in 1994 by University of Introduced in 1994 by University of Michigan and American Society for Michigan and American Society for QualityQuality

Continual decline in index from 1994 Continual decline in index from 1994 through 1998 with a small improvement through 1998 with a small improvement into 2000 suggests that quality into 2000 suggests that quality improvements have not kept pace with improvements have not kept pace with consumer expectationsconsumer expectations

ACSI Model of Customer ACSI Model of Customer SatisfactionSatisfaction

Perceivedquality

Customercomplaints

Perceivedvalue

Customer satisfaction

Customerexpectations Customer

loyalty

Key IdeaKey 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 Customer-Driven Quality CycleCycle

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

Key IdeaKey Idea

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

Leading Practices Leading Practices (1 of 2)(1 of 2)

Define and segment key customer Define and segment key customer groups and marketsgroups and markets

Understand the voice of the Understand the voice of the customer (VOC) customer (VOC)

Understand linkages between VOC Understand linkages between VOC and design, production, and and design, production, and deliverydelivery

Leading Practices Leading Practices (2 of 2)(2 of 2)

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

Effective complaint management Effective complaint management processesprocesses

Measure customer satisfaction for Measure customer satisfaction for improvementimprovement

Key Customer GroupsKey Customer Groups

Organization levelOrganization level– consumersconsumers– external customersexternal customers– employees employees – societysociety

Process levelProcess level– internal customer units or groupsinternal customer units or groups

Performer levelPerformer level– individual internal customersindividual internal customers

Identifying Internal Identifying Internal CustomersCustomers

What products or services are What products or services are produced?produced?

Who uses these products and Who uses these products and services?services?

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

Who supplies inputs to the Who supplies inputs to the process?process?

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AT&T Customer-Supplier AT&T Customer-Supplier ModelModel

Requirementsand feedback

Requirementsand feedback

Your Suppliers

YourProcesses

YourCustomers

Inputs Outputs

Key IdeaKey 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.

Customer SegmentationCustomer Segmentation

DemographicsDemographics GeographyGeography VolumesVolumes Profit potentialProfit potential

Key IdeaKey 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.

Key Dimensions of Key Dimensions of QualityQuality

PerformancePerformance – primary operating – primary operating characteristicscharacteristics

FeaturesFeatures – “bells and whistles” – “bells and whistles” ReliabilityReliability – probability of operating for – probability of operating for

specific time and conditions of usespecific time and conditions of use ConformanceConformance – degree to which – degree to which

characteristics match standardscharacteristics match standards DurabilityDurability - amount of use before - amount of use before

deterioration or replacementdeterioration or replacement ServiceabilityServiceability – speed, courtesy, and – speed, courtesy, and

competence of repaircompetence of repair AestheticsAesthetics – look, feel, sound, taste, smell – look, feel, sound, taste, smell

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Key Dimensions of Key Dimensions of Service QualityService Quality

ReliabilityReliability – ability to provide what was – ability to provide what was promisedpromised

AssuranceAssurance – knowledge and courtesy of – knowledge and courtesy of employees and ability to convey trustemployees and ability to convey trust

TangiblesTangibles – physical facilities and – physical facilities and appearance of personnelappearance of personnel

EmpathyEmpathy – degree of caring and – degree of caring and individual attentionindividual attention

ResponsivenessResponsiveness – willingness to help – willingness to help customers and provide prompt servicecustomers and provide prompt service

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Kano Model of Customer Kano Model of Customer NeedsNeeds

DissatisfiersDissatisfiers: expected : expected requirementsrequirements

SatisfiersSatisfiers: expressed : expressed requirementsrequirements

Exciters/delightersExciters/delighters: : unexpected featuresunexpected features

Key IdeaKey Idea

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

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Customer Listening PostsCustomer Listening Posts

Comment cards and formal Comment cards and formal surveyssurveys

Focus groupsFocus groups Direct customer contactDirect customer contact Field intelligenceField intelligence Complaint analysisComplaint analysis Internet monitoringInternet monitoring

Key IdeaKey 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.

Tools for Classifying Tools for Classifying Customer RequirementsCustomer Requirements

Affinity diagram Tree diagram

Moments of TruthMoments of Truth

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

Example (airline)Example (airline)– Making a reservationMaking a reservation– Purchasing ticketsPurchasing tickets– Checking baggageChecking baggage– Boarding a flightBoarding a flight– Ordering a beverageOrdering a beverage– Requests a magazineRequests a magazine– DeplanesDeplanes– Picks up baggagePicks up baggage

Key IdeaKey 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.

Customer Relationship Customer Relationship Management Management

Accessibility and commitmentsAccessibility and commitments Selecting and developing customer Selecting and developing customer

contact employeescontact employees Relevant customer contact Relevant customer contact

requirementsrequirements Effective complaint managementEffective complaint management Strategic partnerships and alliancesStrategic partnerships and alliances Exploiting CRM technologyExploiting CRM technology

Key IdeaKey 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 Measuring Customer SatisfactionSatisfaction

Discover customer perceptions of Discover customer perceptions of business effectivenessbusiness effectiveness

Compare company’s performance Compare company’s performance relative to competitorsrelative to competitors

Identify areas for improvementIdentify areas for improvement Track trends to determine if Track trends to determine if

changes result in improvementschanges result in improvements

Key IdeaKey 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.

Survey DesignSurvey Design

Identify purposeIdentify purpose Determine who should conduct Determine who should conduct

the surveythe survey Select the appropriate survey Select the appropriate survey

instrumentinstrument Design questions and response Design questions and response

scalesscales

Key IdeaKey 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.

Performance-Importance Performance-Importance AnalysisAnalysis

Performance

Importance

Low High

Low

High

Who cares? Overkill

Vulnerable Strengths

Key IdeaKey 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.

Difficulties with Difficulties with Customer Satisfaction Customer Satisfaction MeasurementMeasurement

Poor measurement schemesPoor measurement schemes Failure to identify appropriate quality Failure to identify appropriate quality

dimensionsdimensions Failure to weight dimensions appropriatelyFailure to weight dimensions appropriately Lack of comparison with leading Lack of comparison with leading

competitorscompetitors Failure to measure potential and former Failure to measure potential and former

customerscustomers Confusing loyalty with satisfactionConfusing loyalty with satisfaction

Customer Perceived Customer Perceived ValueValue

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

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

3.1 Customer and Market Knowledge3.1 Customer and Market Knowledge3.2 Customer Relationships and Satisfaction3.2 Customer Relationships and Satisfaction

a. Customer Relationship Buildinga. Customer Relationship Buildingb. Customer Satisfaction b. Customer Satisfaction

DeterminationDetermination