Team 28 – Andrews - Meeting Customer Expectations

An important part of maintaining sales is offering products that customers want

to purchase. When our decisions are being made, the customer buying criteria
should be at the forefront of that decision. Finding the balance between meeting
these expectations while remaining profitable is key to operating a successful
company.

1. The customer survey/satisfaction score captures how well our product

meets customer satisfaction. Please list down all components of the
customer satisfaction score and how they affect it. Be as detailed as
possible. (4 marks)

100% of customer decision making criteria is divided over the four categories of
age, price, position, and reliability. If the age category of a segment has a 45%
importance rating, then products with the ideal age will have 45 points
contributed to their base score (toward a maximum "base" score of 100). If
reliability is only with 8%, then products with perfect reliability in that category
will only receive 8 points added to their base score.

Here are my working formulas for calculating the base score:

PRICE:
As price increases away from the low end of that segment's price range, its
contribution to base score decreases in a linear fashion:

Base-Price-Score = ((10 - (actualPrice - idealPrice))/10) * importance% * 100

($10 dollars is the usual dollar range between the highest and lowest prices listed
under the segment buying criteria. Products that are priced at the highest listed
price option will not gain any points in their base CSS score from the price
criteria)

RELIABILITY:

As reliability declines away from the top reliability score, the contribution to base
CSS declines until it reaches 0, which is the bottom of the listed range. (note: like
all of these categories, once you move into the rough cut circle, or beyond the
listed range, our overall CSS declines rapidly).
Base-MTBF-Score = ((5000 - (idealMTBF - actualMTBF))/5000)*importance%*100

(5,000 is the usual allowed range in the MTBF category of buying criteria)

AGE:

There is no reliable formula for calculating the impact of age since it is

constantly changing every month and is assessed by the customer once every
month;

For the calculation, lets assume the age at month 6 all we can do is eye-ball a
graph that shows the proportional reduction in points based on deviation from
ideal age (check the top of page 10 of this document
http://ww2.capsim.com/PDF/Capstone_English.pdf
for examples of the age/impact graphs. You can find the actual graphs for our
company in our industry reports)

Once you determine the proportional reduction of the base-age-score from the
graph (for example: a product aged 3.2 in the traditional segment looks like it
would lose around 50% of its base-age-score). The formula is then as follows:

Base_Age_Score = importance% * 100 *(proportional reduction)

POSITIONING:

Positioning is a bit wonky to calculate. Presumably, when products are right on

top of the ideal-spot, they get a perfect positioning score (so if positioning is 34%
of customer buying criteria for a product's segment, and it is on the ideal spot,
then it will get 34 points added to its base CSS). It is possible to eyeball the
distance on the graph (the fine-cut circles are 5 units wide), but we can also use
Pythagoras' theorem to find out the unitary distance between the ideal spot and
our actual product's position. Presumably, when a product is right on top of the
fine cut line it will receive 0 positioning score (and beyond that the entire CSS
will start declining). We can assume that being more than 2.5 units away from the
ideal spot will cause the score to be zero so we can assign the actual distance to
the ideal spot as a fractional amount of 2.5, and that should represent the amount
of points lost for the positioning category. The formula is therefore:

Base-Positioning-Score = ((2.5 - (SQRT(((actualPerformance -

idealPerformance)^2) + ((actualSize - idealSize )^2)))/2.5) *importance% * 100

BASE CSS:

Once all these four calculations are done, you add the four results and this
amounts to our base CSS score.

From this, penalties are applied and our CSS is reduced to its final score.
Awareness, Accessibility, and our A/R policy (how many days you give customers
to pay you) affect our penalties.

The formulas for awareness and accessibility are actually given to us in the
guide. They are:

AWARENESS:

New_CSS = Base CSS * ((1 + awareness%)/2)

ACCESSIBILITY:

new_CSS_2 = New_CSS * ((1 + accessibility%)/2)

A/R POLICY:

All I can really find about this is that if you have 30 days A/R policy, then our final
CSS score will be reduced by 8%. At 60 days it is reduced by only 1.5%, and at
120 days there is no CSS loss from A/R policy. At 30 days, the formula would be
as follows

Final_CSS = new_CSS_2 * 0.92

ERROR:

Once these calculations are all applied, according to all available literature, the
final and actual CSS score comes out the other end. HOWEVER, due to the exact
formulas being a well kept secret, this method actually has a margin of error. (I
know this by plugging in old numbers to see if I can reproduce the corresponding
CSS score in Courier reports).

Most of the values I get from these calculations are slightly too big (by about
15%). So by applying a final correction I am able to get my calculated CSS scores
precisely and accurately clustered around the reported CSS scores with only a
few points of error in either direction at most. The correction formula is:

Corrected_CSS = Final_CSS * 0.85

2. Based on the above calculation method you defined, please calculate the
customer satisfaction/survey score for each product at the end of round 5.
(2 marks)
 3. According to our strategy (which you had submitted for the previous
assignment), how would you use the different levers in our control to
enhance our customer satisfaction score? Discuss the various trade-offs
and which is most appropriate for our strategy. (4 marks)

Our strategic approach to maintaining a cost leadership position while navigating

a recession is well thought out. Let's further refine and elaborate on our strategy
for Round 5:
Cost Leadership Focus: Continue emphasizing our cost leadership strategy, which
is built on investments in Automation, Human Resources (HR), and Total Quality
Management (TQM). These investments have allowed you to reduce material and
labor costs, helping you achieve impressive 30-40% profit margins.

Recession Adaptation: Acknowledge the challenging economic environment in

Round 5, characterized by a 7-8% negative growth across all market segments.
Given this context, you've decided to maintain the same production levels as in
Round 4.

Customer-Centric Approach: To counter the recession's impact, prioritize

improving Customer Satisfaction Scores (CSS). Higher customer satisfaction can
help you capture a larger market share even during an economic downturn.

Low-End Product Strategy:

R&D Investment: Allocate resources to Research and Development (R&D) for our
low-end products. The goal here is to enhance their age parameters, making them
more competitive and appealing to customers.
Competitive Pricing: Implement an aggressive pricing strategy by undercutting
the market price by $2 for our low-end products. This strategy aims to boost sales
volume and gain market share, leveraging our cost advantage.
Higher-End and Performance Products:

Margin Preservation: Maintain our commitment to maintaining premium pricing for

higher-end and performance products. This strategy is vital for safeguarding our
margins and protecting our profitability in the long term.

Capacity Improvement and Competitive Pricing: Use the leeway gained from our
cost leadership strategy to invest in capacity improvement and competitive
pricing strategies. This will ensure you are well-prepared to respond to market
dynamics and emerging opportunities.

Market Research and Monitoring: Continuously monitor market conditions,

customer preferences, and the competitive landscape. This will enable you to
make informed decisions and adjust our strategy as needed throughout the
recession.