Chapter 4

Focusing on
Customers

1
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.
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 3

customers.
Key Idea

Customer wants and needs drive

competitive advantage, and
statistics show that growth in
market share is strongly correlated
with customer satisfaction.
American Customer
Satisfaction Index
 Measures customer satisfaction at
national level
 Introduced in 1994 by University of
Michigan and American Society for
Quality
 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
5
ACSI Model of Customer
Satisfaction

Perceived Customer
quality complaints

Perceived Customer
value satisfaction

Customer
expectations Customer
loyalty
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.
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
8
QUALITY to EXPECTED QUALITY
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 (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
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 units or groups
 Performer level
– individual internal customers
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?
AT&T Customer-Supplier
Model

Your Inputs Your Outputs Your

Suppliers Processes Customers

Requirements Requirements
and feedback and feedback

14
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.
Customer Segmentation

 Demographics
 Geography
 Volumes
 Profit potential
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.
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 match standards
 Durability - amount of use before
deterioration or replacement
 Serviceability – speed, courtesy, and
competence of repair
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
19
Kano Model of Customer
Needs
 Dissatisfiers: expected
requirements
 Satisfiers: expressed
requirements
 Exciters/delighters:
unexpected features

20
Key Idea

As customers become familiar with

them, exciters/delighters become
satisfiers over time. Eventually,
satisfiers become dissatisfiers.
Customer Listening Posts

 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 diagram Tree
diagram
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
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 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
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.
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 of specific product and
service features and 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 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
Analysis
Performance
Low High

Low 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 processes
low performance and those that are
performing 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
performance, ease of use, or time
savings—against costs, such as
purchase price,installation cost or
time, and so on,in making purchase
decisions.
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