Chapter 11
Understanding Customer Needs
Customer wants and needs drive
competitive advantage, and statistics show
that growth in market share is strongly
correlated with customer satisfaction and
retention.
To create satisfied customers, the
organization needs to identify customers,
discover customer needs, design the
production and service systems to meet
those needs, and measure the results as the
basis for improvement.
Importance of Customer
Satisfaction and Loyalty
• It costs five times more to find a new customer
than to keep an existing one.
• A firm cannot create loyal customers without
first creating satisfied customers.
• “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.
1. Identifying the Customer
A Customer is any one who is affected by the
product or process. This includes three groups:
 External Customers
 Internal Customers
 Suppliers
Identifying Internal Customers
The natural customer-supplier linkages
among individuals, departments, and
functions build up a “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.”
Identifying Internal Customers
To identify the value chain, we need to ask:
• 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?
Flow Diagrams
Flow diagrams are major tools for identifying
customers. Some reported benefits include:
•
•
•
•
Provide understanding of the whole process
Identify customers previously neglected
Identify opportunities for improvement
Makes it easy to set boundaries
External Customers
“A Cast of Characters”
• Identifying the complete cast of characters
improves decision making while reducing
the risk of unpleasant surprises
• The cast of characters always includes those
with vested interests
• A Pareto analysis would help allocate
priorities and resources based on the relative
importance of customers and their impact
2. Discovering Needs
Customer Behavior Concepts
Customer Needs:
• Unbounded, both in volume and in variety
• Can be classified into stated needs, real
needs, perceived needs, cultural needs, and
needs traceable to unintended use.
• Include basic physiological and
psychological requirements and desires for
survival and well-being
Maslow’s Hierarchy of Needs:
Self Actualization Needs:
Personal growth & fulfillment
Esteem Needs:
Competence
Approval
Recognition
Social Needs:
Affiliation
Comfort
Food
Acceptance
Belongingness
Safety Needs:
Security
Freedom from fear
P
Physiological Needs:
Water
Oxygen
Customer Expectations:
The anticipated characteristics and
performance of the products or services
Customer Perception:
The impression made by the product or service after
delivery
Customer Satisfaction:
The degree to which the customer believes that
the expectations are met or exceeded by the
benefits received
Spectrum of Customers
Three types of customer:
 Those who emphasize initial economy
 Those who consider value
 Those who demand the best
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.
An organization builds customer loyalty by
developing trust, communicating with
customers, and effectively managing the
interactions and relationships with
customers through listening and learning
processes.
Listening and Learning
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 relative to
the competitors.
Customer Listening Posts
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•
•
•
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Complaint Analysis (Alarm Signals)
Formal Surveys
Focus Groups
Comment Cards
Field Intelligence
Complaint Analysis
To improve products and processes
effectively, companies must do more than
simply fix the immediate problems. They
need a systematic process for collecting
and analyzing complaint data and then
using the information for improvement.
Formal Surveys
Design Steps
•
•
•
•
Identify purpose, and target
Determine who should conduct the survey
Select the appropriate survey instrument
Design questions and response scales
The types of questions to ask in a survey
must be properly worded to achieve
actionable results. The responses can be
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.
Example:
• How would you rate our service? vs.
• How would you rate the response time of
our technical support team?
Appropriate customer satisfaction
measurement identifies processes that have
high impact on satisfaction and
distinguishes between low performing
processes and those that are performing
well.
Focus Groups
• Consists of about 8 to 14 current or
potential customers
• Sessions may take up to two hours and
provide information on customer needs,
expectations, perceptions, satisfaction,
intentions and reactions to new concepts
or ideas.
http://www.youtube.com/watch?v=C8I8IQv5vmY&feature=related
Key Features:
1. The discussion can focus on current
products or proposed designs
2. A moderator who is skilled in group
dynamics guides the discussion
3. The moderator has a clear goal on the
information needed
4. Often company personnel (planners)
observe and listen to the discussion.
Critical Incident Technique
• Developed by J. C. Flanagan (1954)
• Focuses on obtaining information from
customers about the services or products they
receive
• Defines specific examples (incidents) that
illustrate performance from the customers’
perspective (positive/negative)
• A good incident has two characteristics:
• Specific
• Describes the service or product with
specific adjectives.
Examples:
“I waited in line for a long time”
• Critical incidents are collected and grouped
into satisfaction items
• Satisfaction items are finally grouped into
customer requirements
Satisfaction
Item #1
Critical
Incident
Customer
Requirement
#1
>>>
Customer
Requirement
#..
Satisfaction
Item #2
Satisfaction
Item #3
Satisfaction
Item #..
Critical
Incident
Critical
Incident
Critical
Incident
Critical
Incident
Hierarchical relationship among incidents, items and requirements
Field Intelligence
This term is used in the generic sense of any
information that relates to product
performance and to its impact on customers.
Sources for such information include:
• Direct contact with customers
• Study of user’s operation
• Government agencies, independent
laboratories and trade journals.
3. 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.
Difficulties with Customer
Satisfaction Measurement
• Failure to identify appropriate quality
dimensions
• Failure to weight dimensions appropriately
• Lack of comparison with leading competitors
• Failure to include potential and former
customers
• Confusing loyalty with satisfaction