Chapter 4
Focusing on
Customers
1
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.
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.
3
Key Idea
Customer wants and needs drive
competitive advantage, and statistics
show that growth in market share is
strongly correlated with customer
satisfaction.
American Customer
Satisfaction Index



Measures customer satisfaction at national
level
Introduced in 1994 by University of
Michigan and American Society for Quality
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
5
ACSI Model of Customer
Satisfaction
Perceived
quality
Perceived
value
Customer
expectations
Customer
complaints
Customer
satisfaction
Customer
loyalty
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.
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
8
Key Idea
Many organizations still focus more on
processes and products from an internal
perspective, rather than taking the
perspective of the external customer.
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
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
Key Customer Groups

Organization level
–
–
–
–

consumers
external customers
employees
society
Process level
– internal customer units or groups

Performer level
– individual internal customers
Identifying Internal
Customers


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
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?
AT&T Customer-Supplier
Model
Your
Suppliers
Inputs
Requirements
and feedback
Your
Your
Outputs
Processes
Customers
Requirements
and feedback
14
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.
Customer Segmentation

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

Demographics
Geography
Volumes
Profit potential
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.
Key Dimensions of Quality

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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
Key Dimensions of Service
Quality

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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
19
Kano Model of Customer
Needs
Dissatisfiers: expected
requirements
 Satisfiers: expressed requirements
 Exciters/delighters: unexpected
features

20
Key Idea
As customers become familiar with them,
exciters/delighters become satisfiers over
time. Eventually, satisfiers become
dissatisfiers.
Customer Listening Posts
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Comment cards and formal surveys
Focus groups
Direct customer contact
Field intelligence
Complaint analysis
Internet monitoring
22
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.
Tools for Classifying
Customer Requirements
Affinity diagram
Tree diagram
Moments of Truth

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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
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.
Customer Relationship
Management

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Accessibility and commitments
Selecting and developing customer
contact employees
Relevant customer contact
requirements
Effective complaint management
Strategic partnerships and alliances
Exploiting CRM technology
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.
Measuring Customer
Satisfaction

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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
29
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.
Survey Design

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Identify purpose
Determine who should conduct the
survey
Select the appropriate survey
instrument
Design questions and response scales
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.
Performance-Importance
Analysis
Low
Low
Performance
High
Who cares?
Overkill
Vulnerable
Strengths
Importance
High
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.
Difficulties with Customer
Satisfaction Measurement

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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
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.
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