Focusing on Customers

Evans and Lindsay - Chapter 5

Within a customer focused company, both the planning of products and the planning of the system that makes or delivers those products focus on fulfilling the needs and expectations of customers.

To achieve customer satisfaction, the organization:

1. Identifies customers' needs
2. Designs the production and service systems to meet those needs
3. Measures the results as the basis for improvement.

The company also integrates customers into the strategic planning activities of all managers. Thus the reason we are studying customer satisfaction before strategic planning.

IMPORTANCE OF CUSTOMER SATISFACTION

Any business has four key goals:

1. To satisfy its customers

2. To achieve higher customer satisfaction than its competitors

3. To retain customers in the long run

4. To gain market share

To achieve these goals, a business must deliver ever-improving value to its customers.

Value, is quality related to price. Consumers no longer buy solely on the basis of price. They compare the total package of products and services that a business offers (sometimes called the consumer benefit package) with the price and with competitive offerings.

What factors are included in the Consumer Benefits Package?

Consumer Benefit Package

The consumer benefit package influences the perception of quality and includes:

1. The physical product
2. The quality dimensions
3. Pre-sale support, such as ease of ordering;
4. Rapid, on-time, and accurate delivery
5. Post- sale support, such as field service, warranties, and technical support.

• If competitors offer better choices for a similar price, consumers will naturally select the package with the highest perceived quality.
• Thus, understanding exactly what consumers want is absolutely crucial to competitive success.
• If a competitor offers the same package of goods and services at a lower price, customers make the choice.
• Lower prices require lower costs if the firm is to continue to be profitable.
• Quality improvements in operations reduce costs.
• Therefore, businesses must focus on both continually improving both the consumer benefit package and reducing costs.

When does customer satisfaction occur?

Customer satisfaction occurs when products and services meet or exceed customer expectations-our principal definition of quality.

• Customer satisfaction translates directly into increased profits. Loyal customers spend more, refer new clients, and are less costly to do business with.
• Studies have shown that it costs about five times more to attract new customers than to keep old ones, and that satisfied customers purchase more and are willing to pay higher prices.
• Poor quality products and services lead to customer dissatisfaction in the form of complaints, returns, and unfavorable word-of-mouth publicity.
• Dissatisfied customers purchase from competitors.
• One study found that customers are five times more likely to switch because of perceived service problems than for price concerns or product quality issues.' Studies have also shown that dissatisfied customers tell at least twice as many friends about bad experiences than they tell about good ones.
• Satisfying customers through superior products and service excellence is a principal means of achieving competitive advantage. (hence the reason we are addressing it before strategic planning)
• A company's customer-driven focus should address all stakeholders: customers, employees, sup- pliers, stockholders, the public, and the community.
• Growth in market share is strongly correlated with customer satisfaction.

American Customer Satisfaction Index

Read

CREATING SATISFIED CUSTOMERS

Customer satisfaction results from providing goods and services that meet or exceed customers' needs.

These different levels of quality can be summarized by a fundamental equation:

Perceived quality = Actual quality - Expected quality

Any differences between the expected quality and actual quality can cause either unexpected satisfaction (actual quality is higher than expected quality) or dissatisfaction (actual quality is lower than expected quality).

Leading Practices

1. They understand both near-term and longer-term customer needs and expectations (the voice of the customer) and employ systematic processes for gathering customer needs and managing the information.
2. They understand the linkages between the voice of the customer and design, production, and delivery processes. This practice ensures that no critical requirements fall through the cracks, and minimizes the potential gaps between expected quality and actual quality.
3. They make commitments to customers that promote trust and confidence in their products and services.
4. They have effective customer relationship management processes by which customers can easily seek assistance, comment, complain, and receive prompt resolution of their concerns.
5. They measure customer satisfaction, compare the results relative to competitors, and use the information to evaluate and improve internal processes.

IDENTIFYING CUSTOMERS To understand customer needs, a company must know who its customers are.

Who do most employees think their customers are?

Most employees think that "customers" are those people who ultimately purchase and use a company's products.

Internal and external Customers

Every process receives inputs from suppliers and creates outputs for customers. The feedback loops suggest that suppliers must also be considered as customers. They need appropriate information about the requirements they must meet.

Identifying customers begins with asking some fundamental questions:

What products or services are produced?

Who uses these products and services?

Who do employees call, write to, or answer questions for?

Who supplies the inputs to the process?

Chain of Customers

As individuals, departments, and functions develop their customer-supplier models, natural linkages become evident. These linkages build up the "chain of customers" throughout the company that connect every individual and function to the external customers and consumers.

Concern for External and internal Customers is related to corporate culture

If an organization remembers that its customers include its employees and the public, then it consciously maintains a work environment conducive to the well- being and growth of all employees. Health, safety, and ergonomics (the study of physical capabilities of people in the design of workplaces, tools, instruments, and so on) should be included in quality improvement activities.

The public is also an important customer of business. A company must look ahead to anticipate public concerns and assess possible impacts on society of its products, services, and operations.

Business ethics, environmental concerns, and safety are important societal issues. Companies can have a powerful influence on communities as corporate citizens through their contributions to charitable activities and the personal involvement of their employees. Based on a company's actions in promoting education, healthcare, and ethical conduct, the public judges a company's community behavior, which, in turn, can impact sales and profitability.

Customer Segmentation

Customers generally have different requirements and expectations.

A company usually cannot satisfy all customers with the same products or services.

Why would a company want to segment customers?

Companies that segment customers into natural groups and customize the products or services are better able to respond to customers' needs.

Segmentation allows a company to prioritize customer groups.

One way to prioritize segments is to consider, for each group, the benefits of satisfying their requirements and the consequences of failing to satisfy their requirements. This determination of benefits and consequences allows the company to align its internal processes according to the most important customer expectations.

Juran suggests classifying customers into two main groups: the vital few and the useful many."

What factors is customer segmentation based upon?

Customer segmentation might be based on geography, demographic factors, ways in which products are used, volumes, or expected levels of service.

UNDERSTANDFNG CUSTOMER NEEDS

What are the five key dimensions of service quality that contribute to customer perceptions?

1. Reliability: the ability to provide what was promised, dependably and accurately. Examples include customer service representatives responding in the promised time, following customer instructions, providing error-free invoices and statements, and making repairs correctly the first time.

2. Assurance: the knowledge and courtesy of employees, and their ability to convey trust and confidence. Examples include the ability to answer questions, having the capabilities to do the necessary work, monitoring credit card transactions to avoid possible fraud, and being polite and pleasant during customer transactions.

3. Tangibles: the physical facilities and equipment, and the appearance of personnel. Tangibles include attractive facilities, appropriately dressed employees, and well-designed forms that are easy to read and interpret.

4. Empathy: the degree of caring and individual attention provided to customers. Some examples might be the willingness to schedule deliveries at the customer's convenience, explaining technical jargon in layperson's language, and recognizing regular customers by name.

5. Responsiveness: the willingness to help customers and provide prompt service. Examples include acting quickly to resolve problems, promptly crediting re- turned merchandise, and rapidly replacing defective products.

What are the three classes of customer requirements according to Japanese professor, Noriaki Kano?

A Japanese professor, Noriaki Kano, suggested three classes of customer requirements:

Dissatisfiers: requirements that are expected in a product or service. In an auto- mobile, a radio, heater, and required safety features are examples, which are generally not stated by customers but assumed as given. If these features are not present, the customer is dissatisfied.

Satisfiers: requirements that customers say they want. Many car buyers want a sunroof or power windows. Although these requirements are generally not expected, fulfilling them creates satisfaction.

Exciters/delighters: new or innovative features that customers do not expect. One example is emerging satellite navigational systems for automobiles.

• Meeting customer expectations (that is, providing satisfiers) is often considered the minimum required to stay in business.
• To be truly competitive, companies must surprise and delight customers by going beyond the expected.
• As customers become familiar with them, exciters/delighters become satisfiers over time.
• Eventually, satisfiers become dissatisfiers.
• In the Kano classification system, dissatisfiers and satisfiers are relatively easy to determine through routine marketing research.

GATHERING CUSTOMER INFORMATION

Customer requirements, as expressed in the customer's own terms, are called the voice of the customer.

What is meant by the phrase, "The consumer speaks in code."?

Customer responses sometimes requires interpretation and further investigation. Whirlpool's research showed that customers wanted clean refrigerators, which could be interpreted to mean that they wanted easy-to-clean refrigerators. After analyzing the data and asking more questions, Whirlpool found out what most consumers actually wanted was refrigerators that looked clean with minimum fuss. As a result, Whirlpool's latest models have stucco-like fronts and sides that hide fingerprints.

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.

What are strategies for gathering customer information?

Comment cards and formal surveys: Comment cards and formal surveys are easy ways to solicit customer information. These approaches typically concentrate on measuring customer satisfaction.

What are the advantages of surveys?

Cheap

Easy to administer

What are the disadvantages of surveys?

Few customers will respond to comment cards or surveys

Those who do may not represent the typical customer.

Formal surveys must be designed carefully to ensure that the right information is acquired, and that unclear questions, biased questions, and excessively long questionnaires are not used.

Focus groups: A focus group is a panel of individuals (customers or non- customers) who answer questions about a company's products and services as well as those of competitors. This interview approach allows a company to carefully select the composition of the panel and probe panel members about important issues, such as comparing experiences with expectations, in depth.

Focus groups offer a substantial advantage by providing the direct voice of the customer to an organization.

A disadvantage of focus groups is their higher cost of implementation compared to other approaches.

Direct customer contact: In customer-driven companies, top executives commonly visit with customers personally. Hearing issues and complaints firsthand is Often an eye-opening experience.

Field intelligence: Any employee who comes in direct contact with customers, such as salespeople, repair technicians, telephone operators, and receptionists, can obtain useful information simply by engaging in conversation and listening to customers.

The effectiveness of this method depends upon a culture that encourages open communication with superiors.

Study complaints: Complaints, although undesirable from a service point of view, can be a key source of customer information.

Complaints allow an organization to learn about product failures and service problems, particularly the gaps between expectations and performance.

Studies indicate that approximately one out of 25 customers complains. Thus, to take full advantage of complaints, companies must make it easy for customers to complain.

Monitor the Internet:' In recent years, the growth of the Internet is offering companies a fertile arena for finding out what consumers think of their products.

Internet users frequently seek advice from other users on strengths and weaknesses of products, share experiences on service quality, or pose specific problems they need to resolve.

Tools for Classifying Customer Requirements

What is an affinity diagram?

The affinity diagram- a technique for gathering and organizing a large number of ideas or facts.

What is the purpose of an affinity diagram?

Its purpose is to allow teams to sift through large volumes of information efficiently and identify natural patterns or groupings in the information.

With an affinity diagram, managers can more easily focus on the key issues and their elements rather than an unorganized collection of information.

A tree diagram shows a hierarchical structure of facts and ideas. It is similar to an affinity diagram in that it categorizes concepts into natural groups. (Tree diagrams are also used in designing implementation plans for projects, which are shown in a later chapter.)

CUSTOMER RELATIONSHIP MANAGEMENT

How does a company build customer loyalty?

A company builds customer loyalty by developing trust and effectively managing the interactions and relationships with customers through customer-contact employees.

Truly excellent companies foster close and total relationships with customers.

These companies also provide easy access to their employees.

What are "moments of truth"?

In services, customer satisfaction or dissatisfaction takes place during moments of truth---every instance in which a customer comes in contact, either directly (face to face, by telephone) or indirectly (by letter or fax) with an employee of the company.

What are examples of "moments of truth"?

Moments of truth may be direct contacts with customer representatives or service personnel, or when customers read letters, invoices, or other company correspondence.

Problems result from unkept promises, failure to provide full service, service not provided when needed, incorrectly or incompletely performed service, or failure to convey the correct information.

What happens in a "moment of truth"?

At moments of truth, customers form perceptions about the quality of the service by comparing their expectations with the actual outcomes.

Why are Customer-contact employees important?

They are the people whose main responsibilities bring them into regular contact with customers-in person, by telephone, or through other means.

Companies must carefully select these employees who are then extensively trained and empowered to meet and exceed customer expectations.

What 4 factors impact customer relationship management?

Excellent customer relationship management depends on four aspects:

1. Commitments to customers

2. Customer-focused service standards

3. Training and empowerment

4. Effective complaint management

Commitments to Customers

Commitments address the principal concerns of customers, are free from conditions that might weaken customers' trust and confidence, and are communicated clearly and simply to customers.

What are examples of commitments to customers?

Many commitments take the form of explicit guarantees and warranties.

By translating every element of customer dissatisfaction into financial costs, guarantees quickly alert the company to problems and direct priorities.

Customer-Focused Service Standards

What are service standards?

Service standards are measurable performance levels or expectations that define the quality of customer contact.

What are examples of service standards?

• Response time (answering the telephone within two rings)
• Behavioral standards (using a customer's name whenever possible).

What steps should a company take to ensure that service standards are successful?

1. Companies must communicate service standards to all customer-contact em- often initially takes place during new employee orientations.
2. Companies must continually reinforce their service standards to maintain the consistency and effectiveness of these standards.
3. Companies must satisfy the internal customer. The key to satisfying external customers is to satisfy internal customers first. Many customer-contact employees depend on internal customers for support, who also, must understand the role they play in meeting service standards.
4. Companies should implement a process for tracking adherence to the standards and providing feedback to the employees to improve their performance. Information technology supplies the data for effectively tracking conformance to customer service standards.

Training and Empowerment

Good customer relationship management depends on the quality of training of customer-contact personnel.

Many companies begin with the recruiting process, selecting those employees who show the ability and desire to develop good customer ,relationships. Job applicants often go through rigorous screening processes.

What skills are necessary for good customer service?

Companies committed to customer relationship management ensure that customer-contact employees understand the products and services well enough to answer any question, develop good listening and problem recovery skills, and feel able to handle problems.

Customer-contact employees also need access to a variety of company information to do their jobs, which requires support from the information technology component of the organization.

What is empowerment?

Customers dislike being transferred to a seemingly endless number of employees to obtain information or resolve a problem. Empowered employees are able to make decisions on their own to satisfy the customer.

Customer focused companies empower their front-line people to do whatever is necessary to satisfy the customer.

Effective Complaint Management

Statistics about customer complaints:

1. The average company never hears from 96 percent of its unhappy customers.
2. For every complaint received, the company has 26 more customers with problems, six of whose problems are serious.
3. Of the customers who make a complaint, more than half will again do business with that organization if their complaint is resolved. If the customer feels that the complaint was resolved quickly, the figure jumps to 95 percent.
4. The average customer who has had a problem will tell nine or ten others about it. Customers who have had complaints resolved satisfactorily will only tell about five others of the problem resolutions

Effective resolution of complaints increases customer loyalty and retention.

Why do so many customers refuse to complain?

Many customers do not complain because they feel it wouldn't do any good or they are uncomfortable with the process.

World-class organizations make it easy for customers to complain. Besides providing easy access to the company using toll-free telephone numbers (which should be adequately staffed and supported), many firms actively solicit complaints.

What are the positive aspects of complaints?

Complaints provide a source of product and process improvement ideas.

Why is a systematic process for collecting and analyzing complaints necessary?

1. 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.
2. To respond quickly to customer complaints

Why should a company respond quickly to customer complaints?

1. To retain a customer
2. Reduce negative word of mouth advertising about the problem

How do you implement such a process?

Typically, cross- functional teams study the information, determine the real source of the complaints, and make recommendations.

In addition, the complaint process itself needs to be monitored, evaluated, and improved. Companies typically track the percentage of customers who are satisfied with complaint resolution, the cost of resolving com- plaints, and the time required to resolve them.

Strategic Partnerships and Alliances

Customer-supplier partnerships represent an important strategic alliance in achieving excellence and business success.

What are the benefits of strategic partnerships and alliances?

1. Access (to technology, Distribution channels, etc…)
2. Shared risks in new investments and product development
3. Improved products through early design recommendations based on supplier capabilities
4. Reduced operations costs through better communications.

Many companies work closely with suppliers that share common values. This close relationship improves supplier capabilities by teaching them quality-related tools and approaches.

MEASURING CUSTOMER SATISFACTION

What are the benefits of measuring Customer Satisfaction?

A company learns how satisfied its customers are with its products and services and sometimes about competitors' products and services.

Measures of customer satisfaction allow a business to

1. discover customer perceptions of how well the business is doing in meeting customer needs,
2. compare the company's performance relative to competitors,
3. discover areas for improvement, both in the design and delivery of products and services, and
4. track trends to determine if changes actually result in improvements.

Customer satisfaction measures may include product attributes such as product quality, product performance, usability, and maintainability; service attributes such as attitude, lead time, on-time delivery, exception handling, accountability, and technical support; image attributes such as reliability and price; and overall satisfaction measures.

The most helpful customer data include comparisons with key competitors. Companies often rely on third parties to conduct blind surveys to determine who key competitors are and how their products and services compare. Competitive comparisons often clarify how improvements in quality can translate into better customer satisfaction or whether key quality characteristics are being overlooked.

Designing Satisfaction Surveys

Steps to develop a customer satisfaction survey:

1. Determine its purpose - Surveys should be designed to clearly provide the users of the survey results with the information they need to make decisions.
2. Determine "Who is the customer?" - internal and external
3. Determine who should conduct the survey.
4. Determine the target group from which a sample is chosen.
5. Select the appropriate survey instrument.
6. Design survey
7. Conduct survey
8. Design the reporting format and the data entry methods

Analyzing and Using Customer Feedback

By examining trends in customer satisfaction measures and linking satisfaction data to its internal processes, a business can see its progress and areas for improvement.

Many companies have integrated customer feedback into their continuous improvement activities.

CUSTOMER FOCUS IN THE BALDRIGE AWARD CRITERIA

Category 3 of the 1998 Malcolm Baldrige National Quality Award Criteria for Performance Excellence (see the Appendix to Chapter 4) is titled Customer and Market Focus. This category examines how a company determines requirements and expectations for customers and markets, and how it enhances relationships with customers and determines their satisfaction. The basic premises of this criteria category are that relationship enhancement is an important part of an overall listening and learning strategy, and that customer satisfaction results provide vital information for understanding the voices of customers.

The criteria suggest that in a rapidly changing competitive environment many factors may affect customer preference and customer loyalty, making it necessary to listen and learn on a continuous basis. Such listening and learning must have a close connection with a company's overall business strategy.