1. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 1 Chapter 4 Focusing on Customers The Management & Control of Quality, 7e

2. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 2 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. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 3 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 customers.

4. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 4 Key Idea Customer wants and needs drive competitive advantage, and statistics show that growth in market share is strongly correlated with customer satisfaction.

5. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 5 American Customer Satisfaction Index  Measures customer satisfaction at a national level  Introduced in 1994 by University of Michigan and American Society for Quality  Index continually declined from 1994 through 1997 with small improvements into 2004, when it declined again, suggesting that quality improvements have not kept pace with consumer expectations  www.theacsi.org www.theacsi.org

6. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 6 ACSI Model of Customer Satisfaction Perceived quality Customer complaints Perceived value Customer satisfaction Customer expectations Customer loyalty

7. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 7 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. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 8 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

9. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 9 Key Idea Many organizations still focus more on processes and products from an internal perspective, rather than taking the perspective of the external customer.

10. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 10 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

11. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 11 Leading Practices (2 of 2)  Build relationships through commitments, provide accessibility to people and information, set service standards, and follow-up on transactions  Develop effective complaint management processes  Measure customer satisfaction for improvement

12. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 12 Key Customer Groups  Organization level  consumers  external customers  employees  society  Process level  internal customer units or groups  Performer level  individual internal customers

13. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 13 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?

14. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 14 AT&T Customer-Supplier Model Requirements and feedback Requirements and feedback Your Suppliers Your Processes Your Customers InputsOutputs

15. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 15 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.

16. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 16 Customer Segmentation  Demographics  Geography  Volumes  Profit potential

17. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 17 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.

18. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 18 Key Dimensions of Manufacturing 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  Aesthetics – look, feel, sound, taste, smell

19. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 19 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

20. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 20 Kano Model of Customer Needs  Dissatisfiers: expected requirements that cause dissatisfaction if not present  Satisfiers: expressed requirements  Exciters/delighters: unexpected features

21. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 21 Key Idea As customers become familiar with them, exciters/delighters become satisfiers over time. Eventually, satisfiers become dissatisfiers.

22. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 22 Customer Listening Posts  Comment cards and formal surveys  Focus groups  Direct customer contact  Field intelligence  Complaint analysis  Internet monitoring

23. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 23 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.

24. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 24 Tools for Classifying Customer Requirements Affinity diagram Tree diagram

25. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 25 Using Customer Information  Link customer needs and expectations to design, production, and service delivery processes  Empower employees to listen and take appropriate action to meet customer needs

26. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 26 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 expectations.

27. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 27 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

28. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 28 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

29. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 29 Importance of Complaint Management  The average company never hears from 96 percent of its unhappy customers  Of the customers who make a complaint, more than half will do future business if the complaint is resolved  The average customer who has had a problem will tell 9 or 10 others.  Dissatisfied customers increasingly post their feelings on the Web

30. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 30 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.

31. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 31 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

32. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 32 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.

33. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 33 Survey Design  Identify purpose  Determine who should conduct the survey  Select the appropriate survey instrument  Design questions and response scales

34. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 34 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.

35. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 35 Analyzing Feedback: Performance - Importance Analysis Performance Importance Low High Low High Who cares?Overkill Vulnerable Strengths

36. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 36 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.

37. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 37 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

38. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 38 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.

39. THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 39 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