MGT4243: Understanding of Management Quality

Customer Focus (ch 3)

Lecture Overview
You should be able to:

 Understand the importance of customer satisfaction

 Understand how to gather and analyze customer needs and requirements

 Measure customer satisfaction and engagement

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Importance of Customers
 “The only value your company will ever create is the value that comes
from customers—the ones you have now and the ones you will have in
the future. Businesses succeed by getting, keeping, and growing
customers…Without customers, you don’t have a business.”
Don Peppers and Martha Rogers, “Customers Don’t Grow on Trees,” Fast Company magazine, July 2005

 “If the customer is satisfied with the whole experience with the
product, then you have a quality product.”
Executive Director of Global Quality Strategy at General Motors

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Satisfying Customers
 To meet or exceed customer expectations
→ satisfaction and loyalty

 How?
 Meeting specifications, reducing defects and errors, and resolving
complaints.
 Designing new products that truly delight the customer
 Responding rapidly to changing consumer and market demands
 Developing new ways of enhancing customer relationships

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Customer Attributes
 Customer satisfaction
 “the result of delivering a product or service that meets customer requirements.”
 Importance: profit, market share, dissatisfied customers behaviors

 Customer loyalty
 Relates to satisfaction
 Importance: loyalty customers behaviors

 Customer engagement
 Customers’ investment in or commitment to a brand and product offerings

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ACSI Model
 American Customer Satisfaction Index

www.theacsi.org 6
NCSI Model
 National Customer Satisfaction Index

http://www.ncsi.or.kr/
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Key Customer-Focused Practices
 Identify the most important customer groups and segment them
 Understand customer needs and expectations (“voice of the customer”)
 Use systematic processes for listening and learning from customers
 Affinity Diagram
 Understand the linkages between the voice of the customer and design, production,
and delivery processes
 Kano Model, House of Quality
 Create an organizational culture that allows customers to easily contact an
organization
 Manage customer relationships
 Measure customer satisfaction, engagement, and dissatisfaction
 Service recovery plan
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Identifying Customers
 Consumers - those people who ultimately purchase and use a company’s
products.
 Internal customers - the recipient of another’s output (which could be a
product, service or information)
 External customers - those who fall between the organization and the
consumer, but are not part of the organization.

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Customer Segmentation
• Demographics
• Geography
• Volumes
• “Vital few” and “useful many”
• Profit potential
• Net Present Value of the Customer (NPVC)
• the total profits (revenues associated with a customer –expenses needed to
serve a customer) discounted over time.

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Best Buy Customer Centricity
 Focus on most profitable customer segments
 Angels
 Barry: an affluent tech enthusiast
 Jill: a busy suburban mom
 Buzz: a young gadget fiend
 Ray: a price-conscious family guy
 Mr. Storefront: an owner of small business
 Demons/Devils
 Browsers who eat up associates time, get educated, more focused on returns,
discounts. Then purchase elsewhere
 Position individual stores to serve dominant customer segments

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Kano Model of Customer Requirements

• Must-be quality
• Basic needs (quality)
• Dissatisfier
• Performance quality
• Satisfier
• Excitement quality
• Attractive quality
• Delighter

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Kano Model Exercise
Develop a Kano Diagram of dissatisfiers, and delighters for your next laptop.
 Dissatisfiers –Requirements that are expected and, if not present, is a source of
dissatisfaction
 Delighters – New features that go beyond the expected.

Q. Dissatisfiers, and delighters for your next cell phone?

Q. Key takeaways?

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Review: VOC & Defect Definition
Need Drivers CTQ’s

Answers given by reps are correct

Knowledgeable
Reps Reps can answer questions asked by
customers without further research
Research information returned quickly

Customer greeted by name

Good Friendly Reps
Customer
Service Customer not interrupted

Short Wait Time on hold

Customer transferred immediately to the

person who can help them
General Specific
Hard to Measure Easy to Measure

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Customer Listening Posts
Direct
Field intelligence customer contact
Complaints
Comments Cards
GE = “GIFTS”
Formal surveys

VOICE OF THE Internet,

Focus groups CUSTOMER Social Media

Customer Requirements & Performance Gaps

Project Pipeline
Opportunities (Improve /Innovate)
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Customer Listening Posts
 Comment cards and formal surveys
 Typ. measuring customer satisfaction
 + easy to solicit information
 - selection bias

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Customer Listening Posts
 Focus groups
 Interview approach – a panel of individuals (customers, non-customers)
 Ask key questions: What pleases or delights you?
 + provide direct voice of the customer, composition
 - higher cost of implementation
 Direct customer contact
 Field Intelligence
 Any employee who comes in direct contact with customers
 Need to develop a system to feed information
 Complaints: learn about product failures and service problems
 Internet and Social Media Monitoring
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 Voice of the Customer

VOC capture, data warehouse & integration mechanism

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Analyzing Voice of the Customer Data
 Affinity diagram

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Step 1 - Generate ideas Brainstorming Rules
1. One idea per post-it
2. No criticism of any idea – all ideas are accepted
3. No discussion of the idea – group to think of new ideas
4. No group member to present more than one idea at a time
5. Each group member to contribute – do not allow the group to be dominated by
a few
6. Piggybacking encouraged – one idea leads to another…

Issues in Six Sigma project success

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Step 2 – Display the Ideas
Issues in Six Sigma project success
Pressures for Lack of follow-
up by Which comes
Data Collection success
management first composing
process needs the team or
Want to solve Lack of training stating the
What are the
problem before at all levels problem?
rewards for
clearly defined using tools
Unrealistic
Lack of Developing allotment of
Need new data time
management product
collection
understanding without
Too busy to system
of need for it developing
learn process Not using
collected data
Don’t know
what customer
wants

Short-term Competition
versus Too many
planning
cooperation projects at
mentality
once

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Step 3 - Sort ideas into related groups
Developing Lack of follow-up Competition versus Data Collection
product without by management cooperation process needs
developing process
Need new data
Lack of training at Pressures for collection system
all levels success
Which comes first
composing the What are the Unrealistic
team or stating Too busy to learn rewards for using allotment of time
the problem? tools

Short-term Not using collected

planning mentality data
Don’t know what
customer wants
Too many projects
Lack of at once
management
Want to solve
understanding of
problem before
need for it
clearly defined

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Step 4 – Create Header Cards
 Issues in Six Sigma project success

(Header Cards)

Lack of Organizational Old Lack of Six

planning Success Management Sigma
Culture knowledge

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Step 5 – Drawing the Finished Affinity

Super Header

Header
Header Header
IDEA
IDEA IDEA
IDEA
IDEA IDEA
IDEA
IDEA IDEA
IDEA
IDEA IDEA

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Step 5 – Drawing the Finished Affinity
 Issues in Six Sigma project success

Old Lack of Six

Lack of Organization Management Sigma
planning al Success Culture knowledge

Developing Lack of follow- Competition Data Collection

product up by versus process needs
without management cooperation
developing Need new data
process Lack of training Pressures for collection
at all levels success system
Which comes
first composing Too busy to What are the Unrealistic
the team or learn rewards for allotment of
stating the using tools time
problem?
Short-term Not using
Don’t know planning collected data
what customer mentality
wants Too many
Lack of projects at
Want to solve management once
problem before understanding
clearly defined of need for it

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Creating an Affinity Diagram for Customer Needs
 Suppose that a university library team determined that the most important requirement
for students is efficient access to library resources. Through focus groups and other user
interviews, library patrons listed the following as key elements of efficient resource access:

1. Quick Checkouts 8. Advanced Booking System

2. Extended Operating Hours 9. Efficient Information Desks
3. Regular User Feedback Solicitation
10. Mobile App Integration
4. Collaborative Zones
5. Self-Service Kiosks 11. Guided Library Tours and Orientations
6. Diverse Media Formats 12. Personalized Assistance for Research
7. Real-time Availability Updates 13. Notification System for Reserved Items

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Affinity Diagram

User Experience
Service and Support
Technology and infrastructure
• Quick • Efficient • Extended
Checkouts Information Operating
• Advanced Desks Hours
Booking • Personalized • Diverse Media
System Assistance for Formats
• Real-time Research • Collaborative
Availability • Notification Zones
Updates System for • Regular User
• Mobile App Reserved Feedback
Integration Items Solicitation:
• Self-Service • Guided Library
Kiosks Tours and
Orientations

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Affinity Diagram Exercise
Apply the Affinity Diagram process to develop the Customer Requirements for business
travelers staying at a hotel for a weeklong business trip
Affinity Diagram Process
1. General ideas – Brainstorming process (see rules)
2. Display ideas – white board (padlet)
2. Sort ideas into related (affinity) groups
4. Create header cards – labels for the major ideas
5. Draw finished Affinity Diagram

Brainstorming Rules:
 One idea per post-it note
 All ideas accepted – no criticism, no discussion
 Only one idea at a time
 Piggybacking encouraged

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Gap Model - Linking the VOC to Internal Processes

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Examples of Gaps

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Building a Customer-Focused Organization
1. Making sincere commitments to customers
2. Ensuring quality customer contact
3. Selecting and developing customer contact employees
4. Managing complaints and service recovery

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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, Deplane, Picks up
baggage
 Example (fast-food drive-in)
 Quality of customer contact
 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

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Moments of Truth Exercise
Your favorite musical group is in town.

 Identify the moments of truth for attending the concert.

 How would you improve each of the moments of truth?
 Which moments of truth should be managed?

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Service Recovery and Complaint Management
 Complaint management
 A systematic process for collecting and analyzing complaint data and using them for
improvements

 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 experiences on the Web

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Complaint Management Process at Cargill Corn Milling

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Complaint Resolution
 Acknowledge that a customer had a problem

 Express empathy for the inconvenience that the customer encountered;

willingly accepting the complaint

 Describe corrective action concisely and clearly

 Appeal to the customer for continued loyalty

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Service Recovery Plan Exercise
You are the manager of the Sogang Pizza Restaurant. A member of your wait
staff just spilled a drink in the lap of a customer.
 What is your Service Recovery Plan?
 Can you improve customer satisfaction and customer loyalty with your
Service Recovery Plan?
 What training have you provided to your staff?

1. Recall an incident where you encountered a service failure

2. What did the company do? What was the service recovery plan?
3. What impact did the service recovery plan have on customer loyalty?
Would you recommend the company?

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Manage Customer Relationships
 Customer-supplier partnerships - 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, designed to help
organizations increase customer loyalty, target their most profitable
customers, and streamline customer communication processes.

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Measuring Customer Satisfaction and Engagement
1. Discover customer perceptions of business effectiveness

2. Identify causes of dissatisfaction and drivers of delight

3. Compare company’s performance relative to competitors

4. Identify areas for improvement

5. Track trends to determine if changes result in improvements

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Designing Satisfaction Surveys
 Identify purpose

 Determine who should conduct the survey

 Select the appropriate survey instrument

 Design questions and response scales

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Measuring Customer Loyalty
 How to measure?
 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)

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Net Promoter Score (NPS)
 Developed by Fred Reichheld, Bain & Company, and Satmetrix
 “What is the likelihood that you would recommend us?” 0 to 10.
 Promoters: scores of 9 or 10 are usually associated with loyal customers
 Passives: scores of 7 or 8 are associated with customers who are satisfied but
may switch to competitors
 Detractors: scores of 6 or below represent unhappy customers

 NPS is the percentage of promoters minus the percentage of detractors.

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Calculating a Net Promoter Score

Score Frequency
10 63 A sample of 300 customers who responded to the
9 82 question “What is the likelihood that you would
8 64 recommend us?” resulted in the following:
7 41
6 21
5 12 • The total number of promoters: 63 + 82 = 145
4 6 • The total number of detractors: 21 + 12 + 6 + 7 + 3 + 0 + 1 = 50
3 7 • Promoters (%) 48.3% (=145/300)
2 3 • Detractors (%) 16.7% (=50/300)
1 0 • Net promoter score: 48.3% − 16.7% = 31.6%.
0 1

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Assessing Competitive Performance
 In assessing the relative importance of four attributes of a casual restaurant, a customer might
assign 30 percent to menu variety, 20 percent to food quality, 10 percent to atmosphere, and 40
percent to value. This essentially provides a ranking of these attributes as value, menu variety,
food quality, and atmosphere. In rating the performance of comparing two restaurants, A and B,
we might find the following:

Attribute Relative Importance Restaurant A Restaurant B

Menu variety 30% 8 10
Food quality 20% 7 4
Atmosphere 10% 8 8
Value 40% 7 6

Restaurant A: 30% *8+20%*7+10%*8+40%*7= 7.4

Restaurant B: 30% *10+20%*4+10%*8+40%*6= 7

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Performance-Importance Comparison

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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
 how it builds relationships with customers and determines the key factors
that lead to customer acquisition, satisfaction, loyalty, and retention, and to
business expansion

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Customer Focus Videos
 What are the key takeaways w.r.t. Customer Focus?

 BMW Customer Service

 Hotel Monaco Service Design

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Customer Focus in ISO 9000
 Top management shall ensure that customer requirements are determined
and are met.
 The standards require that the organization determine customer
requirements, including delivery and post-delivery activities, and any
requirements not stated by the customer.
 The organization must establish procedures for communicating with
customers and for obtaining feedback, including complaints.
 The organization must monitor customer perceptions as to whether the
organization has met customer requirements.

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Customer Focus in Six Sigma
 A fundamental aspect of Six Sigma methodology is to identify critical to
quality (CTQ) characteristics that are vital to customer satisfaction.

 Many Six Sigma projects develop appropriate customer satisfaction

measurement processes and improve the delivery of CTQs through voice
of the customer processes.

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Lecture Overview
You should be able to:

 Understand the importance of customer satisfaction and engagement

 Understand how to gather and analyze customer needs and requirements

 Measure customer satisfaction and engagement

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