Focusing on

1
Chapter 4

• Focusing on
• Customers

2
Key IdeaIntroduction

• 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.

3
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.

4
Key IdeaImportance of customer satisfaction
Customer wants and needs drive competitive
advantage, and statistics show that growth in
market share is strongly correlated with customer
satisfaction.
5
American Customer Satisfaction Index

• Measures customer satisfaction at national level
• Introduced in 1994 by University of Michigan and
  American Society for Quality
• Measures national index, seven industrial
  sectors, 40 industries, 203 companies
• Continual decline in index from 1994 through 1998
  with a small improvement into 2000 suggests that
  quality improvements have not kept pace with
  consumer expectations

6
ACSI Model of Customer Satisfaction
Customer complaints
Perceived quality
Perceived value
Customer satisfaction
Customer expectations
Customer loyalty
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Key IdeaACSI
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.
8
Customer-Driven Quality Cycle
Customer needs and expectations
(expected quality)
Identification of customer needs
Translation into product/service specifications
(design quality)
Output (actual quality)
Customer perceptions (perceived quality)

measurement and feedback
PERCEIVED QUALITY is a comparison of ACTUAL
QUALITY to EXPECTED QUALITY
9
Key IdeaCreating Satisfied Customer
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
• Effective complaint management processes
• Measure customer satisfaction for improvement

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Identifying CustomersKey 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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ATT Customer-Supplier Model
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Key IdeaIdentifying Customers
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 organizations value
chain.
16
Customer Segmentation

• Demographics
• Geography
• Volumes
• Profit potential

Vital few useful many
17
Key IdeaCustomer Segmentation
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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Understanding Customer NeedsKey Dimensions of
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
• Satisfiers expressed requirements
• Exciters/delighters unexpected features

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Key IdeaUnderstanding Customer Needs
As customers become familiar with them,
exciters/delighters become satisfiers over time.
Eventually, satisfiers become dissatisfiers.
22
Key IdeaGathering Customer Information
Companies use a variety of methods, or listening
posts, to collect information about customer
needs and expectations, their importance, and
customer satisfaction with the companys
performance on these measures.
23
Gathering Customer Information-- Customer
Listening Posts

• Comment cards and formal surveys
• Focus groups
• Direct customer contact
• Field intelligence
• Complaint analysis
• Internet monitoring

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Tools for Classifying Customer Requirements
Affinity diagram Tree diagram
25
Key IdeaCustomer Relationship Management

• An organization needs to build customer loyalty
  by
• developing trust,
• communicating with customers, and
• effectively managing the interactions and
  relationships with customers.

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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

28
Key IdeaCustomer Contact Employees

• Companies must carefully select customer
  contact employees, train them well, and empower
  them to meet and exceed customer expectations.

29
Key Idea Effective Complaint Mgmt
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 companys performance relative to
  competitors
• Identify areas for improvement
• Track trends to determine if changes result in
  improvements

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Key IdeaMeasuring Customer Satisfaction
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 customers 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 IdeaSurvey Design
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.
34
Key IdeaAnalyzing Customer Feedback
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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Performance-Importance Analysis
Performance
Low High
Who cares?
Overkill
Low High
Importance
Strengths
Vulnerable
36
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

37
Customer Perceived Value

• CPV measures how customers assess benefitssuch
  as product performance, ease of use, or time
  savingsagainst 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 Knowledge
• 3.2 Customer Relationships and Satisfaction
• a. Customer Relationship Building
• b. Customer Satisfaction Determination