1 1 Chapter 4 Chapter 4 Focusing on Focusing on Customers Customers Key Idea 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. 3 Importance of Customer Importance of Customer Satisfaction and Loyalty Satisfaction and Loyalty  “ “ Satisfaction is an attitude; loyalty is a Satisfaction is an attitude; loyalty is a behavior” behavior”  Loyal customers spend more, are willing to Loyal customers spend more, are willing to pay higher prices, refer new clients, and are pay higher prices, refer new clients, and are less costly to do business with. 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 without A firm cannot create loyal customers without first creating satisfied customers. first creating satisfied customers. Key Idea Key Idea Customer wants and needs drive competitive advantage, and statistics show that growth in market share is strongly correlated with customer satisfaction. 5 American Customer American Customer Satisfaction Index Satisfaction Index  Measures customer satisfaction at national Measures customer satisfaction at national level level  Introduced in 1994 by University of Introduced in 1994 by University of Michigan and American Society for Quality Michigan and American Society for Quality  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 expectations consumer expectations ACSI Model of Customer ACSI Model of Customer Satisfaction Satisfaction Perceived quality Customer complaints Perceived value Customer satisfaction Customer expectations Customer loyalty Key Idea 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. 8 Customer-Driven Quality Cycle 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 Key Idea Key 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 groups Define and segment key customer groups and markets and markets  Understand the voice of the customer Understand the voice of the customer (VOC) (VOC)  Understand linkages between VOC and Understand linkages between VOC and design, production, and delivery design, production, and delivery [...]... 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 Segmentation     Demographics Geography Volumes Profit potential Key Idea Segmentation allows a company to prioritize...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 Key Customer Groups  Organization level – – – –  consumers external customers employees society Process level – internal customer... about the relationship between these ratings and the customer’s likely future market behavior Survey Design     Identify purpose Determine who should conduct the survey Select the appropriate survey instrument Design questions and response scales 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... well 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 Customer Perceived Value  CPV measures how customers assess benefits—such as product... 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 Key Idea An organization builds customer loyalty by developing trust, communicating with customers, and effectively managing the interactions and relationships with customers through...  Comment cards and formal surveys Focus groups Direct customer contact Field intelligence Complaint analysis Internet monitoring 22 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 Tools for Classifying Customer Requirements Affinity... 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 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... 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 Management       Accessibility and commitments Selecting and developing customer contact employees Relevant customer contact requirements Effective complaint management Strategic partnerships and alliances... to be improved is clear; and information can be translated into cost/revenue implications to support the setting of improvement priorities Performance-Importance Analysis Low Low Performance High Who cares? Overkill Importance High Vulnerable Strengths Key Idea Appropriate customer satisfaction measurement identifies processes that have high impact on satisfaction and distinguishes between low performing... then using that information for improvements 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 29 Key Idea An effective customer satisfaction measurement system results in reliable information about customer ratings . 4 Chapter 4 Focusing on Focusing on Customers Customers Key Idea Key Idea To create satisfied customers, the organization needs to identify customers . not kept pace with consumer expectations consumer expectations ACSI Model of Customer ACSI Model of Customer Satisfaction Satisfaction Perceived quality