Lecture 7

Establishing a Customer Focus: Customer Satisfaction and Retention

Understand who is a Customer

Who is an external customer?

The external customer is someone who signs a check, pays our employer, and ultimately makes our paycheck possible. External customers have choice, and if they dont like your product or service , they can take their business elsewhere.
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Who is a Customer Contd

Who is an internal customer?

An internal customer or internal service provider can be anyone in the organization. An internal customer can be a co-worker, another department, or a distributor who depends upon us to provide products or services which in turn are utilized to create a deliverable for the external customer.
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Understand Customer-Defined Quality

According to Peter Scholtes:

If customers are people who receive your work, only they can determine what quality is, only they can tell you what they want and how they want it. Thats why a popular slogan of the quality movement is quality begins with the customer. You must work with internal and external customers to determine their needs, and collaborate with internal and external suppliers.

Customer Focus
The key to establishing a customer focus is putting employees in touch with customers and empowering those employees to act as necessary to satisfy the customers.
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Keeping in touch with customers

What are the ways to put employees in touch with customers?
actual contact may be in person, by telephone, or through reviewing customer-provided data. identifying customer needs and communicating with customers (will be cover in later chapter) establishing customer focus understanding employee-customer interaction Read textbook on Total Quality Tip: Satisfying customers and Profits, pg 157.
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Identifying External Customer Needs

Should customers be excluded from the product development process?

In a competitive marketplace, if customers were excluded from the product development process, such an approach can be disastrous. In total-quality setting, customer needs are identified clearly as part of product development.
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Identifying External Customer Needs

The goal should be to exceed customer expectation, not merely meet them. Your customers should boast about how much they benefit from what you do for them.
To attain this goal, you must collect reliable information on what they need and want from your product or service. In doing so, you will find out whether your processes are on target. This strategy can be used to identify potential improvement projects or just to clarify a projects goals.
by Peter. Scholtes
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Identifying External Customer Needs Contd

Six-step strategy for identifying customer needs.

1. Speculate about the results 2. Plan how to gather the information 3. Gather the Information 4. Analyze the Results 5. Check the Validity of Conclusions 6. Take Action as indicated
by Peter. Scholtes

Identifying Internal Customer Needs

Mechanism for improving communication among internal customers and suppliers.
quality circles self-managed teams

cross-departmental teams
improvement teams training that promotes and helps to improve communication skills

communication that occurs over a cup of coffee in the

break room or during lunch can be equally effective teamwork
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Communicating with Customers

Is there a need for continual communication?

Continual communication is required because customer needs change and at times, they can change rapidly.
Communication with customers must extend to both external and internal of customers. What applies on the outside also applies within the organization.
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Instituting Quality Function Deployment

A product must meet the needs of customers before you put it into production.
Quality Function Deployment (QFD) was developed to ensure that products entering production would fully satisfy the needs of their customers by building in the necessary quality levels as well as maximum suitability at every stage of product development.
by Giogio Merli
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Instituting Quality Function Deployment

QFD allows for the systematic incorporation of customer needs, production capabilities and

capacity, and all other relevant parameters into product development.

According to Merli, QFD consists of the following basic activities: deployment of customer requirements (quality needs)

deployment of measurable quality characteristics

determination of the correlation between quality needs and characteristics assignment of numerical values to each quality characteristic integration of quality characteristics into the product detailed design, production, and quality control of the product
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Service Quality

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Service Quality

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Customer satisfaction
Expressing Dissatisfaction

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Customer satisfaction
Customer Feedback & Word of mouth.
The average business only hears from 4% of their customers who are dissatisfied with their products or services. Of the 96% who do not bother to complain, 25% of them have serious problems.
The 4% complainers are more likely to stay with the supplier than are the 96% non-complainers.
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Customer satisfaction
Customer Feedback & Word of mouth - Contd
About 60% of the complainers would stay as customers if their problem was resolved and 95% would stay if the problem was resolved quickly. A dissatisfied customer will tell between 10 and 20 other people about their problem. A customer who has had a problem resolved by a company will tell about 5 people about their situation.
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Service Recovery
APPROACHES TO SERVICE RECOVERY
Case-by-case addresses each customers complaint individually but could lead to perception of unfairness. Systematic response uses a protocol to handle complaints but needs prior identification of critical failure points and continuous updating.

Early intervention attempts to fix problem before the customer is affected.

Substitute service allows rival firm to provide service but could lead to loss of customer.
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Adopted from Zeithaml & Bitner 2009, p.227

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Customer Satisfaction Process Customer focus is more than just sending out surveys. Customer focus is part of a process that leads to continual improvements in the organization which, in turn, result in customer satisfaction.
Determine who your customers are
Determine what attributes of your product/service are most importance to your customers arrange these attributes in the order of importance indicated by your customers

tie results of customer feedback to your processes

develop a set of metrics (measurements) that tell how you are performing and which areas within the process are having the greatest impact on performance.
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Customer Satisfaction Process Contd

implement measurements at the lowest possible level in the organization. work on those processes that relate to attributes that have high importance, but customer satisfaction rating work on those areas within the process that offer the greatest opportunity to improve update customer input and feedback on a continual basis. Then as process improvements correspondingly improve customer satisfaction, move on to the next most important process improvements maintain open continual communication with all stakeholders on what is being

done, why, what results are expected, and when

aggregate metrics organization-wide into a format for management review on a continual basis. Adjust as necessary
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Customer-Defined Value

How customers define value?

The value of a product or service is the sum of customers perceptions of the following factors.

product / service quality service provided by the organization the organizations personnel the organizations image selling price of the product / service overall costs of the product / service
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Customer Value Analysis

What is it that customers want from our organization? What is it about our products services that customers value?
The customer value analysis (CVA) process consists of the following five steps: determine what attributes customers value most rate the relative importance of the attribute assess your organizations performance relative to the prioritized list of attributes ask customers to relate all attributes of your product/service against the same attributes of a competitors product repeat the process periodically.
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Customer Retention A customer satisfied is not always a customer retained.

According to Michael W. Lowenstein, the desired end is customer retention. An organization should measure success based on customer retention data rather than on customer satisfaction data. The issue is not whether customers are satisfied with the organizations products or services. It is whether they are satisfied enough to be retained.
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Customer Retention Contd How can an organization go beyond just satisfying its customers? In order to retain customers over the long term, organizations must turn them into partners and proactively seek their input rather than waiting for and reacting to feedback provided after a problem has occurred.
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Customer Retention Strategy 1

Relying solely on feedback from customers for identifying problems (customer-complaint process) has three glaring weaknesses. 1. They are activated by problems customers already experienced
customer who complains has already had a negative experience even if these problems are solved quickly customers remembered such experiences even if only subconsciously no matter how well the organization responds.

2. Weakness of feed back-oriented processes

are based on the often invalid assumption that dissatisfied customers will take the time to lodge a complain. Some will, but many wont. Some people are just too busy to take the time to complain. Others give their feed back by simply going elsewhere.

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Customer Retention Strategy 1

3. The information provided is often too sketchy to yield an accurate picture of the problem

Leads to organization wasting valuable resources chasing after symptoms rather than solving root causes.

Focus Groups
Focus groups can provide a mechanism for overcoming all three of the weaknesses associated with feed back systems. Participants point out weaknesses or potential issues to the organizations representative so that they can be dealt with preemptively. Focus-group input does not depend on the willingness of customers to lodge complaints. Participants agree to provide input at periodic meetings before becoming members of the group.
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Customer Retention Strategy 1

Other Methods
Other methods for collecting customer input include hiring test customers and conducting period surveys of a representative sample of the customer base. Test customers are individuals who do business with the organization and report their perceptions to designated representatives of the organization. Customer surveys conducted periodically can help identify issues that may become problems. Each time a survey is conducted, care should be taken to select a different group of customers. Asking the same people to complete surveys over and over is sure to turn off even the most loyal customers.
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Customer Retention Strategy 2 Collect Both Registered and Unregistered Complaints

Many organizations make the mistake of acting solely on what customers say in complaints instead of going beyond what is said to include what is not being said. Lowenstein calls this phenomenon the

Iceberg Complaint Model.

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Customer Retention Strategy 2 (Contd)

Collect Both Registered and Unregistered Complaints Contd
(1) Focus groups are excellent way to solicit unregistered complaints. (2) Customer surveys and (3) test customers can also service this purpose. Another way to get at the part of the iceberg that floats beneath the surface is the (4) follow-up interview. With this method, customers who have registered complaints are contacted either in person or by telephone to discuss their complaint in greater depth. This

approach gives representatives of the organization the opportunity to

ask clarifying questions , and to ask for suggestions

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Customer Retention Strategy 2 (Contd)

Collect Both Registered and Unregistered Complaints Contd
Another way to get unregistered complaints is to use the organizations (5) sales representatives as collectors of customer input.

Sales representatives have the most frequent face-to-face contact with customers and they can bring back invaluable information from every sales call. In addition to providing sales personnel with the necessary training, organizations should also provide them with appropriate

incentives for collecting customer input. Otherwise they may fall into
the trap of simply agreeing with the customer about complaints received, thereby undermining the customer relationship even further.
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Establishing a Customer Focus

Richard C. Whitely suggests that the common characteristics can be divided into seven clusters:

1. Vision, commitment, and climate 2. Alignment with customers 3. Willingness to find and eliminate customers problems 4. Use of customer information 5. Reaching out to customers 6. Competence, capability and empowerment of people 7. Continuous improvement of products and processes
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