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CUSTOMER SATISFACTION AND RETENTION


INTRODUCTION:
The most important asset of any organization is its customers. An organizations success depends on how many customers it has, how much they buy, and how often they buy. Satisfied customers will increase, buy more, and buy more frequently. The organizational diagram in Figure 1 best exemplifies just how important the customer is to any organization. Increasingly, manufacturing and service organizations are using customer satisfaction as the measure of quality. The importance of customer satisfaction is not only due to national competition but to worldwide competition.
Customers Front-line Representative Functional Operational areas Senior Managers CEO

Figure 1: Customer Satisfaction Organizational Diagram Total Quality Management (TQM) implies an organizational obsession with meeting or exceeding customer expectations, to the point that customers are delighted. Understanding the customers needs and expectations is essential to winning new business and keeping existing business. An organization must give its customers a quality product or service that meets their needs at a reasonable price, which includes on-time delivery and outstanding service. To attain this level, an organization continually needs to examine its quality system to see if it is responsive to ever-changing customer requirements and expectation. The most successful TQM programs begin by defining quality from the customers perspective. As we know, quality can mean meeting or exceeding the customers expectations.
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Quality also means anticipating the future needs of the customer. Customer satisfaction, not increasing profits, must be the primary goal of the organization. It is the most important consideration, because satisfied customers will lead to increased profits. A beginning definition of customer satisfaction is illustrated by the Teboul Model which is shown in Figure 2. The customers needs are represented by the circle, and the square depicts the product or service offered by the organization. Total satisfaction is achieved when the offer matches the need, or the circle is superimposed on the square. The goal is to cover the expected performance level better than the competitors. The part of the square that lies within the circle is perceived by the customer as satisfying, and the part of the square outside the circle is perceived as unnecessary. It is important that the organization listen to the voice of the customer and ensure that it marketing, design, production, and distribution processes truly meet the expectation of the customer. Customer satisfaction seems simple enough, and yet it is far from simple. Customer satisfaction is not an objective statistic but more of a feeling or attitude. Although certain statistical patterns can be developed to represent customer satisfaction, it is best to remember that peoples opinions and attitudes are subjective by nature. Company offer

Customer needs

Figure 2: Customer Satisfaction Model WHO IS THE CUSTOMER? A customer can be defined as one who purchases a product or service. There are two distinct types of customers external and internal. An external customer exists outside the organization and buys the organizations products or services. Every employee in the organization must know how their job enhances the total satisfaction of the external customer. Performance must be continually improved in order to retain existing customers and gain new ones. An internal customer is just as important. Every function, whether it be engineering, order processing, or production, has an internal customer each receives a product or service and, in
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exchange provide a product or service. Every person in a process is considered a customer of the preceding operation. Each workers goal is to make sure that the quality meets the expectations of the next person. When that happens throughout the design, construction, installation, commissioning and maintenance chain, the satisfaction of the external customers should be assured. All processes have outputs, which are used by internal or external customer, and inputs, which are provided by internal or external suppliers. Each performs work that produces some service or product that is used by another. As shown by Figure 3, each forms, a link in the customer/supplier chain, where every chain ends with an external customer and starts with an external supplier. Every employee throughout the organization is part of the chain of internal customers and suppliers.
External Supplier

External Supplier

External Supplier

External Supplier

Internal Customer & Supplier

Internal Customer & Supplier

Internal Customer & Supplier

Internal Customer & Supplier

Internal Customer & Supplier

Internal Customer & Supplier

External Customer

External Customer

External Customer

External Customer

Figure 3: Contemporary view of Suppliers and customers Showing that employees are suppliers and customers to each other. One basic concept of TQM is an unwavering focus on customers, both internal and external. Most employees know about the external customer or end user but may not think of other employees as internal customers of their output. In the ideal organization, every employee would have direct contact with customers and be effective at meeting their needs. But the reality is that most employees are shielded from costumers by organization layers. For example, the firstline supervisors in a computer factory many never speak with the businessman who buys and depends on the organizations products.
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However, that supervisor and countless other employees who lack direct contact must still contribute to the businesspersons satisfaction. The formula for successful internal customer/supplier relationships varies. But it always begins with people asking their internal customers three basic questions: 1. 2. 3. What do you need from me? What do you do with my output? Are there any gaps between what you need and what you get?

The leaders role is to process work through the internal customer supplier chain by helping workers guarantee that the end product or service fully satisfies the end user. Rather than strive for personal objectives, each individual or group must identify and satisfy the internal customer(s) while fostering a team effort where all people help the organization. Each department must determine what activities are important to both external and internal customers and manage quality every step of the way. All quality management systems start with the basic need of ensuring that the external customers requirements are adequately documented and understood. CUSTOMER SATISFACTION PROCESS AND CUSTOMER FOCUS Customer focus is more than just sending out survey. Customer focus is part of a process that leads to continual improvement in the organization that, in turn, results in customer satisfaction. Resources are limited; consequently, they must be applied where they will do the most to improve customer satisfaction and customer retention. The process described in the following list will help meet all these goals:

Determine who your customers are; Determine what attributes of your products or services are most important to your customers; Arrange these attributes in the order of importance indicated by your customers; Determine customers level of satisfaction with each to these attributes; Tie result of customers feedback to you process; Develop a set of metrics (measurements) that tell how you are performing and which areas the process are having the greatest impact on performance; Implement measurements at the lowest possible level in the organization; Work on those processes that relate to attributes that have high importance, but low customer satisfaction ratings. 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 increase customer satisfaction, move on to the process improvements that are next in importance; Maintain open, continual communication with all stakeholders on what is being done, why, what results are expected, and when; and Aggregate metrics organization-wide into a format for management review on a continual basis, adjust as necessary. CUSTOMER DEFINED VALUE
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It is important for organizations to understand how customers define value. The value of a product or service is the sum of a customers perceptions of the following factors:

Product or service quality; Service provided by the organization; The organizations personnel; The organizations image; Selling price of the product or service; and Overall cost of the product or service. All of these factors are important to customers. The product or service must have the attributes customers want. And those attributes must be of the quality expected. Some of these attributes include: Performance, reliability, durability, ease of use, serviceability, estheticsfor products and accuracy, timeliness, completeness, friendliness/courtesy, appearance of facilities and personnelfor services. The customers interaction with the organization and how this interaction is measured are important. Just making a good product or service available is not enough, customer satisfaction will also be affected by how effectively, courteously and promptly customers are served. The appearance, knowledge and attitudes of an organizations personnel also affect the level of satisfaction customers experience. Customers will build relationships with personnel in the organization who are knowledgeable, professional in appearance, and positive. Such relationships promote loyalty. On the other hand, no matter how satisfied customers are with a product or service, if they dont like an organizations people they are likely to defect to the competition. An organizations image is important to customers. Consequently, it is vital not just to have quality products, service and personnel but also to project an image that is consistent with these quality characteristics. Think of the adage that one should not just talk the talk but walk the walk. In establishing and nurturing an image, it is important to do both those things. The key is that organizations must be concerned with both substance and appearances. An organizations image is defined by what customers believe to be true about it. Selling price is important to customers, of course. It is the easiest characteristics to compare. The point to understand here is that customers have become so sophisticated that they no longer confuse selling price and cost. In other words, they know the difference between cheap and inexpensive. A competitive selling price is a must in the modern workplace, but it should not be achieved by sacrificing quality or service. Most customers know that the selling price is just beginning of the actual cost of a product. Only when maintenance, upkeep, replacement parts, warranty issues, and service are factored in does one know the products real cost. Customers who dont understand the difference between price and cost soon learn-the hard way. The organization that teaches this difficult lesson is not likely to retain its customers. Whether customers are satisfied will depend on the sum of their perceptions relative to all of these factors. The issues of customer satisfaction are complicated even more by the fact that different customers place a different priority on these factors. That fact makes it even more
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critical that organizations maintain close, personal, and continuous contact with their customers. The customer-value perception can also be depicted as follows: V= R-E V= Value R= Results E= Expectations The formula means that value (V) as perceived by the customer is equal to actual results (R) minus expectations (E). Consequently, when results and expectations are equal, the perceived value is zero. In other words, there is no perceived value when an organization simply meets customers requirements/expectation. The goal should therefore go beyond just meeting expectations to creating value in the eye of the customer. CUSTOMER RETENTION Customer satisfaction is a fundamental cornerstone of total quality. An organization develops a customer focus to be better able to satisfy its customers. Consequently, forward-looking organizations use customer satisfaction data to measure success. But measuring customer satisfaction alone is not enough. Another important measure of success is customer retention. Certainly customer satisfaction is the critical component in customer retention, but the two factors are not necessarily synonymous. A customer satisfied is not always a customer retained. Frederick F. Reichhled3 makes the point that although it may seem intuitive that increasing customer satisfaction will increase retention and therefore profits, the facts are contrary. Between 65 and 85 percent of customers who defect say they were satisfied or very satisfied with their former supplier. Reichhelds findings suggest that there is more to customer retention than just customer satisfaction. Many business leaders assume that having acquired customers they need only provide highquality products and services to retain them. Michael W. Lowentein calls this the myth of customer satisfaction.4 According to Lowenstein, Conventional wisdom of business, academia, and the consulting community is thatif satisfied, the customer will remain loyal. Reality proves that customer loyalty or retention is a more complex, yet more definitive indicator of quality performance. It is important to understand what Lowenstein is saying here. Is he saying that customer satisfaction is not important? No, of course not. Customer satisfaction is critical, but it is a means to an end, not an end in itself. The desired end is customer retention. What Lowenstein is saying is that organizations 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. Satisfied customers will sometimes defect in spite of their satisfaction, if for no other reason than curiosity about a competitor or the ever-present lure of variety. How, then can an organization go beyond just satisfying its customers to retaining them? The short answer to this question is as follows:

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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.
The following strategies can help organizations go beyond just satisfying customers to retaining them over the long term. These strategies will help organizations operationalize the philosophy of turning customers into partners. Be Proactive--Get Out in Front of Customer Complaints Many organizations make the mistake of relying solely on reactive feedback from customers for identifying problems; the most widely used mechanism in this area is the customer complaint process. Reactive feedback-based processes, although necessary and useful, have three glaring weaknesses. First, they are activated by problems customers have already experienced. Even if these problems are solved quickly, the customer who complains has already had a negative experience with the organization. Such experiences are typically remembered-even if only subconsciously-no matter how well the organization responds. The second weakness of reactive feedback-oriented processes is that they are based on the often invalid assumption that dissatisfied customers will take the time to lodge a complaint. Some will, but many wont. Some people are just too busy to take the time to complain. Others provide their feedback by simply going elsewhere. The third weakness of customer complaints processes is that the information they provide is often too sketchy to yield an accurate picture of the problem. This situation can result in an organization wasting valuable resources chasing after symptoms rather than solving root causes. The weaknesses associated with after-the-fact processes do not mean that organizations should stop collecting customer complaints. On the contrary, customer feedback can be important when used to supplement the data collected using input-based processes. Customer input (proactive)-based processes that are widely used include but are not limited to: Focus Group (customers who agree to meet periodically with representatives of the organization for the purpose of pointing out issues before they become problem). Input Group (this is a variation of the Focus Group where the participants do not meet but rather provide their data individually usually by mail or telephone). Periodic Surveys (customer surveys conducted periodically can help identify issues that may become problems. If this method is used, the survey instrument should be brief and to the point). Hiring Test Customers (individuals who do business with the organization and report their perceptions to designated representative of the organization). 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 unspoken. Lowenstein calls this phenomenon the iceberg complaint model.4 In other words, registered complaints from customers are just the tip of the iceberg that is seen above the surface of the water. A much larger portion of the iceberg floats quietly beneath the surface. For this reason it is important for organizations to collect both registered and unregistered complaints.
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Focus groups-already defined above-are an excellent way to solicit unregistered complaints. Customer surveys and test customers can also serve this purpose. Another way to get at that part of the iceberg that floats beneath the surface is the follow-up interview. With this method, customers who have registered complaints are contacted whether in person or by telephone to discuss their complaints in greater depth. This approach gives representatives of the organization the opportunity to ask clarifying questions and to request suggestions. Another way to get at unregistered complaints is to use the organizations sales representatives (marketing/business development staff) as collectors of customer input. Sales representatives are the employees who have the most frequent face-to-face contact with customers. If properly trained concerning what to look for, what to ask, and how to respond, sales personnel 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.
REFERENCES 1. David L. Goetsch & Stanley B. Davies, Quality Management (Introduction to Total Quality Management for Production, Processing and Services), 5th Edition, Prentice Hall 2006. Dale H. Besterfield & Co, Total Quality Management, 2nd Edition, Pearson Education, 1999. Frederick F. Reichheld, Loyalty-Based Management Harvard Business Review (March-April 1993) 71. Michael W. Lowenstein, Customer RetentionAn Integrated Process For Keeping Your Best Customers (Milwaukee, WI: ASQC Quality Press, 1995).

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