THE COST OF A DISSATISFIED CUSTOMER
(I)
• Average business doesn’t hear from 96% of
unhappy customers.
• For every one complaint received, there are
24 people with unvoiced problems, six of
which are serious.
• >= 90% who are dissatisfied with the
service they receive will not buy again or
come back.
THE COST OF A DISSATISFIED CUSTOMER
(II)
• Of those who complain, 50% - 70% will do
business again if complaint is resolved. 95%
will return if resolved quickly.
• Average customer with a complaint tells 9
to 10 people, 13% tell more than 20 people.
• Those who have complained and had
resolution tell five people.
Fourth Generation Management
SOURCES OF CUSTOMER INFORMATION
Basic or Reactive Sources
• Customer service
• Technical support
• Claims/refunds
• Sales force reporting
Advanced or Proactive Sources
• Focused questioning of
selected customers
• Observing customers using the
product or service
• Monitoring customer
satisfaction
• Monitoring of broad market
trends
Result: quality improves and costs decline
Total
costs
Cost of
producing
=
goods or
services
+
Cost of
Cost of doing
producing + quality
waste or
improvement
errors
SAVE HERE
SPEND HERE
Reduce Chronic Waste
$
MATERIAL
•SCRAP
•EXCESS INVENTORY
•INSPECTION
EQUIPMENT
•TEST EQUIPMENT
•POOR MACHINE
UTILIZATION
•ENERGY
•LOST OR MISPLACED
MATERIAL
•OVER AND UNDER
SPECIFICATIONS
•EXCESSIVE
EQUIPMENT
CUMULATIVE
PEOPLE’S TIME
•REWORK
•INSPECTION
•CHECKING
•CLARIFYING
•PRODUCING
WASTE OR POOR
QUALITY
•INEFFICIENT
MEETINGS
LOST SALES
•POOR QUALITY
PRODUCTS/SERVICES
•NOT RESPONSIVE TO
CUSTOMERS NEEDS
CAPITAL
•INVESTMENTS
•WARRANTY
COST
•POOR CUSTOMER
SERVICE
•LIABILTIY COST
•POOR ENGINEERING
•IDLE
EQUIPMENT
•DEPRECIATION
Quality & Productivity: Cost savings
Increased
productivity
Improved
reliability or
conformance
Lower
rework &
scrap cost
Lower
warranty
& liability
costs
Lower
processing
costs
Lower
service
costs
Increased
financial
performance!
Quality & Productivity: Market gains
Improved
performance
features,
reliability,
etc.
Improved
reputation
for
quality
Increased
market
share
Experiencebased scale
economics
Higher
prices
Increased
financial
performance!
30
27.3M
Millions of dollars
25
23.3M
= $18.8M or
approximately $3.21
for every $1.00 spent
to date
20
15
TQM savings
10
5
2M
0.2M
0
0
1989
3.3M
0.6M
1990
4.7M
5.9M
7.1M
8.5M
1.7M
1991
1992
1993
1994
1995
1996
Year
Figure 8. Return on TQL investment at Naval Air Warfare Center
Aircraft Division, Lakehurst, New Jersey.
1997
60
Millions of dollars
50
40
30
Total
savings
20
10
Employee
share
0
1987
1988
1989
1990
1991
1992
1993
Fiscal year
Figure 7. Savings associated with productivity gain sharing at the Naval
Aviation Depot, Cherry Point, North Carolina.
Customer Satisfaction
Delight
Delighters
More Is Better
Neutral
Must Be
Dissatisfaction
Absent
Fulfilled
Presence of the Characteristic
KANO’S MODEL OF CUSTOMER PERCEPTIONS
A manager who fails to provide resources and time
for prevention activities is practicing false economy
Concentrate on Prevention, Not Correction
PREVENTION
CORRECTION
QUALITY
PREVENTION HAS MORE LEVERAGE WHEN IMPROVING QUALITY
The Trade-off Curve Between the Cost of Inspection
and the Cost Due to Producing Defective Units
Total cost
Cost ($)
Inspection and
control costs
Cost due to
defective units
Optimal
inspection level
Quality control activity level
TAGUCHI LOSS FUNCTION
Goal posts defined
by supplier
A lot
Little
Target
(Defined by Customer)
(a) Quality Loss Function; (b) Distribution of Product Produced. Taguchi aims for the
target, because products produced near the upper and lower acceptable specifications result
in higher quality loss function.
High loss
Loss (to
producing
organization,
customer and
society
Low loss
Unacceptable
Quality Loss Function
(a)
Poor
Fair
Good
Best
Target oriented quality
Conformance oriented
quality
Frequency
Lower
specification
Target
Upper
specification
Distribution of
Products Produced
(b)