Chapter 4

Chapter 4
Focusing on
Customers
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, 2008 Thomson Higher Education Publishing 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.
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 a national
level
Introduced in 1994 by University of Michigan
and American Society for Quality
Index continually declined from 1994 through
1997 with small improvements into 2004,
when it declined again, suggesting that
quality improvements have not kept pace
with consumer expectations
www.theacsi.org
ACSI Model of Customer
Satisfaction
Perceived Customer
quality complaints
Perceived Customer
value satisfaction
Customer
expectations 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
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
Develop 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
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 Inputs Your Outputs Your

Suppliers Processes Customers
Requirements Requirements
and feedback and feedback
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
organizations value chain.
Customer Segmentation
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 Manufacturing
Quality
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
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
Kano Model of Customer
Needs
Dissatisfiers:expected
requirements that cause
dissatisfaction if not present
Satisfiers: expressed requirements
Exciters/delighters: unexpected
features
Key Idea
As customers become familiar with them,

exciters/delighters become satisfiers over
time. Eventually, satisfiers become
dissatisfiers.
Customer Listening Posts
Comment cards and formal surveys
Focus groups
Direct customer contact
Field intelligence
Complaint analysis
Internet monitoring
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 companys performance on these
measures.
Tools for Classifying Customer
Requirements
Affinity diagram Tree diagram
Using Customer Information
Link customer needs and expectations
to design, production, and service
delivery processes
Empower employees to listen and take
appropriate action to meet customer
needs
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.
Moments of Truth
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
Customer Relationship
Management
Accessibility and commitments
Selecting and developing customer contact
employees
Relevant customer contact requirements
Effective complaint management
Strategic partnerships and alliances
Exploiting CRM technology
Importance of Complaint
Management
The average company never hears from
96 percent of its unhappy customers
Of the customers who make a
complaint, more than half will do future
business if the complaint is resolved
The average customer who has had a
problem will tell 9 or 10 others.
Dissatisfied customers increasingly post
their feelings on the Web
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
Discover customer perceptions of
business effectiveness
Compare companys performance
relative to competitors
Identify areas for improvement
Track trends to determine if changes
result in improvements
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 customers likely future
market behavior.
Survey Design
Identifypurpose
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.
Analyzing Feedback: Performance
- Importance Analysis
Performance
Low High
Low Who cares? Overkill

Importance
High Vulnerable Strengths
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
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

benefitssuch as product performance,
ease of use, or time savingsagainst
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

Chapter 4

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Chapter 4

To create satisfied customers, the

Customer wants and needs drive

The econometric model used to produce

Identification of customer needs

Translation into product/service specifications

Output (actual quality)

Customer perceptions (perceived quality)

measurement and feedback

Many organizations still focus more on

Define and segment key customer

Your Inputs Your Outputs Your

The natural customer-supplier linkages

Segmentation allows a company to

As customers become familiar with them,

Companies use a variety of methods, or

Affinity diagram Tree diagram

To improve products and processes

An effective customer satisfaction

Low Who cares? Overkill

High Vulnerable Strengths

Appropriate customer satisfaction

CPV measures how customers assess

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