GMS422 Lecture 3: Customer Focus

Customer Focus

Importance of Customers

"Without customers, you don’t have a business."
A quality product is defined by customer satisfaction with the entire product experience.

Meeting and Exceeding Expectations

To meet or exceed customer expectations, organizations must:

Meet specifications, reduce defects and errors, and resolve complaints.
Design new products that truly delight the customer.
Respond rapidly to changing consumer and market demands.
Develop new ways of enhancing customer relationships.
Fully understand all product and service attributes that contribute to customer value and lead to satisfaction and loyalty.

Customer Focus in ISO 9000

Top management must ensure customer requirements are determined and met to enhance customer satisfaction.
Organizations must determine customer requirements, including delivery and post-delivery activities, and any requirements not stated but necessary for specified or intended use.
Establish procedures for communicating with customers about product information, inquiries, and feedback (including complaints).
Monitor customer perceptions to determine customer satisfaction, ensuring the organization has met customer requirements.

Understanding Customer Needs

Identify crucial customer groups and markets, considering competitors and potential customers; segment the customer base to better meet differing needs.
Understand near-term and long-term customer needs and expectations (the “voice of the customer”).
Employ systematic processes for listening and learning from customers, potential customers, and competitors’ customers to gather actionable information about products and customer support.
Understand the connection between the voice of the customer and design, production, and delivery processes.
Use voice-of-the-customer data to innovate product offerings and customer support to exceed expectations, expand relationships, attract new customers, and identify new markets.

Enhancing Customer Experience

Create an organizational culture and support framework that allows customers to easily contact an organization.
Ensure a consistently positive customer experience.
Provide avenues for feedback.
Offer prompt resolution of concerns.
Facilitate improvement.
Manage customer relationships to build loyalty, enhance satisfaction and engagement, and acquire new customers.
Measure customer satisfaction, engagement, and dissatisfaction; compare results to competitors and industry benchmarks; use the information to improve organizational processes.

Customer Satisfaction and Profitability

Customer satisfaction is the result of delivering a product or service that meets customer requirements.
Customer satisfaction drives profitability.
The typical company gets 65% of its business from existing customers.
It costs five times more to find a new customer than to keep an existing one happy.
Businesses with a 98% customer retention rate are twice as profitable as those at 94%.

Customer Engagement

Customer engagement involves customers' investment in or commitment to a brand and product offerings.
Characteristics:
- Customer retention and loyalty.
- Customers' willingness to make an effort to do business with the organization.
- Customers' willingness to actively advocate for and recommend the brand and product offerings.

American Customer Satisfaction Index (ACSI)

Website: www.theacsi.org
Measures customer satisfaction at a national level.
Introduced in 1994 by the University of Michigan and the American Society for Quality.
Based on telephone interviews conducted in a national sample of 46,000 consumers who recently bought or used a company’s product or service.

ACSI Model

The ACSI model illustrates the relationships between:
- Customer Expectations
- Perceived Quality
- Perceived Value
- Customer Satisfaction (ACSI)
- Customer Complaints
- Customer Loyalty

Types of Customers

Consumers: Those who ultimately purchase and use a company’s products.
Internal Customers: Recipients of another’s output (product, service, or information).
External Customers: Those between the organization and the consumer, but not part of the organization.

Chain of Customers

Natural customer-supplier linkages among individuals, departments, and functions build up the “chain of customers”.
This connects every individual and function to external customers and consumers.
Characterizes the organization’s value chain.

Customer Segmentation

Demographics
Geography
Volumes
"Vital few" and "useful many"
Profit potential, using Net Present Value of Customer (NPVC).

Net Present Value of Customer (NPVC)

NPVC: The total profits (revenues associated with a customer minus expenses needed to serve a customer) discounted over time.
NPVC is used to segment customers by profit potential.

Dimensions of Quality for Manufactured Products

Performance: primary operating characteristics
Features: “bells and whistles”
Reliability: probability of operating for a 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

Examples of Quality Dimensions

Manufactured Product (Guitar Amplifier)

Performance: Signal-to-noise ratio; power (wattage)
Features: SD card; drum kits
Conformance: Accurate tuner
Reliability: Mean time to failure
Durability: Not damaged with frequent handling and transportation
Serviceability: Ease of repair
Aesthetics: Location and size of knobs and controls

Service Product (Checking Account)

Performance: Speed of online transactions
Features: Automatic bill paying
Conformance: Accuracy
Reliability: Receiving statements on time every month
Durability: Keeping pace with industry trends and product offerings
Serviceability: Prompt resolution of errors
Aesthetics: Appearance of bank lobby

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

Service Quality Dimensions - Car Rental Example

A car rental agency surveys its customers on the following dimensions:

Cleanliness of the rental facility: tangibles
Courtesy of staff: assurance
Efficiency of vehicle pickup/return: reliability
Cleanliness of vehicle: tangibles
Professionalism of staff in explaining the contract and options: assurance

Kano Model of Customer Satisfaction

Dissatisfiers (“must haves”): expected requirements that cause dissatisfaction if not present
Satisfiers (“wants”): expressed requirements
Exciters/delighters (“never thought of”): unexpected features

Voice of the Customer (VOC)

Customer requirements, as expressed in the customer’s own terms.
Organizations use various 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.

Listening Posts

Comment cards and formal surveys
Focus groups
Direct customer contact
Field intelligence
Complaints
Internet and social media monitoring

Analyzing Voice of the Customer Data

Affinity diagram

Affinity Diagram Example

Suppose a banking team determined that timely closings are most important for mortgage customers. Through focus groups and customer interviews, customers listed key elements of timely closings:

Expeditious processes
Reliability
Consistent and accurate information
Competitive rates
Notification of industry changes
Prior approvals
Innovation
Modern link between computers
Buyer orientation
Diversity of programs
Mutual job understanding
Flexibility
Professionalism
Timely and accurate status reports

The company groups these items into logical categories (using Post-it notes) and provides a descriptive title for each category. The resulting affinity diagram indicates key customer requirements for timely closings are communication, effective service, and loan products.

Perceived Quality

Perceived quality is a comparison of actual quality to expected quality.

Making Sincere Commitments to Customers

Ensuring quality customer contact
Selecting and developing customer contact employees
Managing complaints and service recovery

Moments of Truth

Customer satisfaction or dissatisfaction takes place during moments of truth—every interaction between a customer and the organization.
Example (airline):
- Making a reservation
- Purchasing tickets
- Checking baggage
- Boarding a flight
- Ordering a beverage
- Requests a magazine
- Deplanes
- Picks up baggage

Customer Contact Requirements

Measurable performance levels or expectations that define the quality of customer contact with an organization.
- Technical requirements: response time, answering the telephone within two rings or shipping orders the same day
- Behavioral requirements: using a customer's name whenever possible

Example Customer Contact Requirements (Saint Luke’s Hospital)

Greet patients/guests by introducing myself, address patients/guests by last name unless otherwise told.
Ask sincerely, “How may I help you?”
Knock, request permission to enter the room, and explain what I am going to do.
Complete initial assessment on all patients within eight hours.
Acknowledge all patient/guests requests, and be accountable for follow-up.
Address all complaints within 24 hours or less.
Introduce any replacement caregiver.
Promote family-centered care: listen thoughtfully to all patients/guests, and provide timely communication to the appropriate person(s) for action.
Respect and acknowledge diversity, culture, and values of my patients, their family, visitors, and my coworkers.
Maintain confidentiality of all information.
Know, or have access to, legal and regulatory requirements and standards of care related to my specific responsibilities.
Thank my customers for choosing Saint Luke’s Hospital.

Handling Customer Complaints

The average company never hears from 96 percent of its unhappy customers.
Dissatisfied customers tend not to complain.
For every complaint received, the company has 26 more customers with problems, six of whom have serious issues.
Of the customers who complain, more than half will do business again with the organization if their complaint is resolved.
If the customer feels the complaint was resolved quickly, the figure jumps to 95 percent.
Unsatisfied customers after complaining result in substantial negative word of mouth.

Resolving Customer Problems

Acknowledge the problem (“We’re sorry you had a problem”).
Express empathy for the inconvenience; willingly accept the complaint (“Thanks for letting us know about it”).
Describe corrective action concisely and clearly (“Here’s what we’re going to do about it”).
Appeal to the customer for continued loyalty (“We’d appreciate you giving us another chance”).

Building Customer Relationships

Customer-supplier partnerships involve long-term relationships characterized by teamwork and mutual confidence.

Customer-Focused Technology and Analytics

Most major companies use advanced analytics to “mine” and understand customer data.
Grocery and retail stores use loyalty cards to capture and analyze detailed data about customer purchase behavior.
Customer relationship management (CRM) software helps organizations increase customer loyalty, target profitable customers, and streamline customer communication processes.

Benefits of Customer Surveys

Discover customer perceptions of how well the organization is meeting customer needs.
Compare performance relative to competitors.
Identify causes of dissatisfaction and failed expectations, as well as drivers of delight to understand why customers are loyal or not loyal.
Identify internal work processes that drive satisfaction and loyalty.
Discover areas for improvement in the design and delivery of products and services.
Improve training and coaching of employees.
Track trends to determine whether changes result in improvements.

Designing Effective Customer Surveys

Identify the purpose – who will make decisions using the survey results?
Identify the customer.
Determine who should conduct the survey (internal, third party, etc.).
Select the appropriate survey instrument (written, telephone, face-to-face, etc.).
Design questions and response scales to achieve actionable results:
- Responses are tied directly to key business processes, so it is clear what needs improvement.
- Information can be translated into cost/revenue implications to support setting improvement priorities.

Example Response Scales

Very Poor 1, Poor 2, Neither Poor nor Good 3, Good 4, Very Good 5
Strongly Disagree 1, Disagree 2, Neither Agree nor Disagree 3, Agree 4, Strongly Agree 5
Very Dissatisfied 1, Dissatisfied 2, Neither Satisfied nor Dissatisfied 3, Satisfied 4, Very Satisfied 5

Reasons Customer Satisfaction Efforts Fail

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

Measuring Customer Loyalty

Overall satisfaction
Likelihood of a first-time purchaser to repurchase
Likelihood to recommend
Likelihood to continue purchasing the same products or services
Likelihood to purchase different products or services
Likelihood to increase frequency of purchasing
Likelihood to switch to a different provider

Net Promoter Score (NPS)

Developed by Fred Reichheld, Bain & Company, and Satmetrix.
Evaluates "What is the likelihood that you would recommend us?" on a scale from 0 to 10.
- Promoters: Scores of 9 or 10 (loyal customers who will typically be repeat customers)
- Passives: Scores of 7 or 8 (satisfied but may switch to competitors)
- Detractors: Scores of 6 or below (unhappy customers who may spread negative comments)
NPS is the percentage of promoters minus the percentage of detractors.

NPS Example

A sample of 300 customers responded to the question “What is the likelihood that you would recommend us?”:

Score 10: 63
Score 9: 82
Score 8: 64
Score 7: 41
Score 6: 21
Score 5: 12
Score 4: 6
Score 3: 7
Score 2: 3
Score 1: 0
Score 0: 1

Customer Perceived Value (CPV)

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, in making purchase decisions.

CPV Example

In assessing the relative importance of four attributes of a casual restaurant, a customer might assign:

30% to menu variety
20% to food quality
10% to atmosphere
40% to value

This provides a ranking of value, menu variety, food quality, and atmosphere. In rating the performance of restaurants A and B:

Attribute	Relative Importance	Restaurant A	Restaurant B	Relative Performance
Menu variety	$30\%$	8	10	$-2$
Foot quality	$20\%$	7	4	$3$
Atmosphere	$10\%$	8	8	$0$
Value	$40\%$	7	6	$1$