1. Chapter 4
Focusing on
Customers

2. Key Idea Introduction
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. 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. Key Idea Importance of customer satisfaction
Customer wants and needs drive competitive advantage, and statistics show that growth in market share is strongly correlated with customer satisfaction.

5. American Customer Satisfaction Index
Measures customer satisfaction at national level
Introduced in 1994 by University of Michigan and American Society for Quality
Measures national index, seven industrial sectors, 40 industries, 203 companies
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

6. ACSI Model of Customer Satisfaction
complaints
Perceived
quality
Perceived
value
Customer
satisfaction
Customer
expectations
Customer
loyalty

7. Key Idea ACSI
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. 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 QUALITY to EXPECTED QUALITY

9. Key Idea Creating Satisfied Customer
Many organizations still focus more on processes and products from an internal perspective, rather than taking the perspective of the external customer.

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. 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

12. Identifying Customers Key Customer Groups
Organization level
consumers
external customers
employees
society
Process level
internal customer units or groups
Performer level
individual internal customers

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. AT&T Customer-Supplier Model
Requirements
and feedback
Your
Suppliers
Processes
Customers
Inputs
Outputs

15. Key Idea Identifying Customers
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. Customer Segmentation
Demographics
Geography
Volumes
Profit potential
Vital few & useful many

17. Key Idea Customer Segmentation
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. Understanding Customer Needs 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
Aesthetics – look, feel, sound, taste, smell

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. Kano Model of Customer Needs
Dissatisfiers: expected requirements
Satisfiers: expressed requirements
Exciters/delighters: unexpected features

21. Key Idea Understanding Customer Needs
As customers become familiar with them, exciters/delighters become satisfiers over time. Eventually, satisfiers become dissatisfiers.

22. Key Idea Gathering Customer Information
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.

23. Gathering Customer Information-- Customer Listening Posts
Comment cards and formal surveys
Focus groups
Direct customer contact
Field intelligence
Complaint analysis
Internet monitoring

24. Tools for Classifying Customer Requirements
Affinity diagram Tree diagram

25. Key Idea Customer Relationship Management
An organization needs to build customer loyalty by
developing trust,
communicating with customers, and
effectively managing the interactions and relationships with customers.

26. 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

27. 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

28. Key Idea Customer Contact Employees
Companies must carefully select customer contact employees, train them well, and empower them to meet and exceed customer expectations.

29. Key Idea Effective Complaint Mgmt
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.

30. 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

31. Key Idea Measuring Customer Satisfaction
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.

32. Survey Design Identify purpose Determine who should conduct the survey
Select the appropriate survey instrument
Design questions and response scales

33. Key Idea Survey Design
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.

34. Key Idea Analyzing Customer Feedback
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.

35. Performance-Importance Analysis
Low High
Who cares?
Overkill
Low
High
Importance
Strengths
Vulnerable

36. 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

37. 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.

38. 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