chapter 5 ©2001 prentice-hall s. thomas foster, jr. boise state university slides prepared by bruce...

Chapter 5Chapter 5

©2001 ©2001 Prentice-HallPrentice-Hall©2001 ©2001 Prentice-HallPrentice-Hall

S. Thomas Foster, Jr.S. Thomas Foster, Jr.Boise State UniversityBoise State University

Slides Prepared bySlides Prepared byBruce R. BarringerBruce R. Barringer

University of Central FloridaUniversity of Central Florida

S. Thomas Foster, Jr.S. Thomas Foster, Jr.Boise State UniversityBoise State University

Slides Prepared bySlides Prepared byBruce R. BarringerBruce R. Barringer

University of Central FloridaUniversity of Central Florida

The Voice of the Customer

The Voice of the Customer

Transparency 5-2Transparency 5-2© 2001 Prentice-Hall© 2001 Prentice-Hall

Chapter OverviewSlide 1 of 2


• Customer-Driven Quality

• What Is the Voice of the Customer?

• Customer-Relationship Management

• The “Gap” Approach to Service Design

• Segmenting Customers and Markets

• Strategic Alliances between Customers and Suppliers




• Communicating with Customers• Actively Solicited Customer Feedback

Approaches• Passively Solicited Customer Feedback

Approaches• Managing Customer Retention and

Loyalty• A Word on Excellent Design


IntroductionIntroduction

• Different employees have different views of their customers.

• A customer is the receiver of goods or services.

• This involves an economic transaction in which something of value has changed hands.



• Customer service is important because: 1. Customer will tell twice as many people about

bad experiences as good experience.

2. A dissatisfied customer will tell 8 to 10 people about the bad experience.

3. Seventy percent of upset customers will remain your customer if you resolve the complaint satisfactorily.



• Customer service is important because: 4. It’s easier to get customers to repeat than it is

to find new business.

5. Service firms rely on repeat customers for 85% to 95% of their business.

6. Eighty percent of new product and service ideas come from customer ideas.

7. The cost of keeping an existing customer is one-sixth of the cost of attracting a new customer.



• Often customers are defined as internal or external customers.

• Internal customers are employees receiving goods or services from within the same firm.

• Some have used an abstraction of the term internal customer to include the person at the next step in a process.

• External customer are the bill-paying receivers of our work.



• The external customers are the ultimate people we are trying to satisfy with our work.

• If we have satisfied external customers, chances are we will continue to prosper, grow, and fulfill the objectives of the firm.

• Another term that describes customers is end user.

• An end user is the final recipient of a product or service.

• The term often used by software developer.



• Service firms have many titles for customers.

• These titles include patient, registrant, stockholder, buyer, patron, and many others.


Customer-Driven QualitySlide 1 of 3


• Customer-Driven Quality– Customer driven quality represents a proactive

approach to satisfying customer needs that is based on gathering data about our customers to learn their needs and preferences and then providing products and services that satisfy the customer.

– A Closer Look at Quality 5.1 shows that companies have varying degrees of success in responding to customers. ( see Table 5.1)


E-Mail ReponsesE-Mail Reponses




• The Pitfalls of Reactive Customer-Driven Quality

– There are some companies that implement customer feedback mechanisms incorrectly.

– These companies are placed in a reactive rather than a proactive mode with their customers.

– One of the difficulties in satisfying customer requirements is that in a dynamic environment customer needs are constantly changing.


Customer-Driven QualityCustomer-Driven Quality

• The Pitfalls of Reactive Customer-Driven Quality

– One potential pitfalls is falling into a reactive mode. A reactive mode, illustrated by the Reactive Customer-Driven Quality (RCDQ) model shown in Figure 5.1, signals the need for major process and service redesign.



• The RCDQ model demonstrates conceptually and graphically the primary pitfalls and dangers of RCDQ.

• Although a supplier to a customer might desire to provide high-quality service to the customer, the reactive posture engendered in the RCDQ approach will cause the supplier to fall further and further behind the moving target over time.


What is the Voice of the Customer?


• The Voice of the Customer (VOC)– The voice of the customer represents the

wants, opinions, perceptions, and desires of the customer.

– Customers are also a source of knowledge concerning the performance of the production and service systems.




• Quality Function Deployment – It has to do with a standardized, disciplined,

and cyclical approach to obtaining and prioritizing customer preferences for use in design products and services.

– This definition of the voice of the customer is sometimes associated with quality function deployment (QFD) or the “house of quality, ”

– QFD translates customer wants into a finished product design.




• Quality is as the customer see it.

• In spite of all of our efforts and work, if we do not adequately please the customer, we will cease to be economically viable.

• Therefore, companies spend a great deal of resources attempting to understanding the customer.


Customer-Relationship Management

Slide 1 of 7


Slide 1 of 7

• Customer-Relationship Management– This view of the customer asserts that he or she

is a valued asset to be managed. – There are four important design aspects (see

Figure 5.2) to customer relationship management. These are:• Complaint resolution• Feedback• Guarantees• Corrective action or recovery



Slide 2 of 7


Slide 2 of 7

Complaintresolution

Complaintresolution

FeedbackFeedback

GuaranteesGuarantees

Correctiveaction

Correctiveaction

CustomerRelationshipManagement

CustomerRelationshipManagement

Figure 5.2 Four Components of a Customer-Relationship Management Process

Figure 5.2 Four Components of a Customer-Relationship Management Process



Slide 3 of 7


Slide 3 of 7

• Complaint Resolution– Complaint resolution is an important part

of the quality management system. Three common types of complaints are regulatory complaints, employee complaints, and customer complaints.

– All three types of complaints as potential sources of information for improvement.




• Complaint Resolution - Donald Beaver states that you should love

complaints more than compliments. A complaint is someone letting you know that you haven’t satisfied them yet. They have gold written all over them.

- Complaints should be viewed as opportunities to improve.




• Complaint Resolution

-- The complaint-resolution process involves the transformation of a negative situation in one in which the complainant is restored to the state existing prior to the occurrence of the problem.

-- In extreme cases, the complaint has incurred a loss.

-- Typically, losses incurred by customer are not quite so dramatic.




• Complaint Resolution - The components of complaint-resolution

process:

1. Compensate – for people losses

2. Contrition – apologize to the customer, see A Closer Look at Quality 5.2 for Macy’s mantra “ The customer is always right.”

3. Complainants must be easy to reach resolution process



Slide 4 of 7


Slide 4 of 7

Complaint Resolution (or recovery) Process

Compensate people for

losses

Apologize to the

customer

Make it easy for the

complainant to resolve his or her problem




• Complaint Resolution - The process associated with resolving complaints

is call the complaint-recovery process.

- The recovery process must be developed for documenting complaints, resolving the complaint, documenting recovery, and feedback for system improvement.



Slide 5 of 7


Slide 5 of 7

• Feedback– One way to gather data is to receive customer

feedback.– There are two main types of feedback -

feedback to the customer and feedback to the firm as a basis for process improvements.

– Feedback to the firm should occur on a consistent basis with a process to monitor changes resulting from the process improvement.



Slide 6 of 7


Slide 6 of 7

• Guarantees– Another important aspect of customer service

is the guarantee. Many firms offer service guarantees. A guarantee outlines the customer’s rights.

– The guarantee is both a design and an economic issue that must be addressed by all companies before the first sale occurs.




• Guarantees– High Street Emporium sells products on

United Airlines flights via catalog and extends a simple guarantee:”The Best Products from the Best Catalogs at the Best Prices – Guaranteed.”

– This is a nice example of a simple, understandable guarantee.



Slide 7 of 7


Slide 7 of 7

To be effective, guarantees should be:

UnconditionalUnconditionalUnconditionalUnconditional

Painless to invokePainless to invokePainless to invokePainless to invoke

MeaningfulMeaningfulMeaningfulMeaningful

UnderstandableUnderstandableUnderstandableUnderstandable

CommunicableCommunicableCommunicableCommunicable




• Corrective Action

- When a service or product failure occurs, the failure is documented and the problem is resolved in a way that it never happens again.


The Gap Approach to Service Design


• The Gap– Typically, the gap refers to the differences

between desired levels of performance and actual levels of performance.

– The formal means for identifying and correcting these gaps is called gap

analysis.




• The Gap– There are two gap analysis methods: 1. PZB model, it define 10 determinants

service quality (see Table 5.2), its relationship is shown in Figure 5.3, and the survey instrument is call SERVQUAL (see Chapter 8)

2. Two-dimensional gaps model, shown as Figure 5.4.




• P133

• Table 5.2, Determinants of Service Quality




• Figure 5.3 Gaps and the service Quality model




Figure 5.4 Two-Dimension Gaps Model

Poor

Good

HighLowRelative Importance

Customer Perceptions

Relative strength

Wasted time

Minor annoyances

IV I

III

Areas for improvement

II

Areas for improvement

II


Segmenting Customers and Markets


• Segmenting Data– One of the preliminary steps that many analysts

overlook is segmenting data. To segment markets means to distinguish customers or markets according to common characteristics.

– Sometimes segmentation is more complex involving customer characteristics and demographics.

– Table 5.3 shows examples of segments for consumer markets.




• Table 5.3 example of consumer markets.




• Segmenting Data– Segmentation implies that data is

gathered separately for each segment

and analyzed separately.

- Table 5.4 shows examples of segments for commercial markets.




• Table 5.4 example of commercial market.


Strategic Alliances Between Customers and Suppliers


• The customer obtains advantage over the supplier by exercising the ability to change suppliers.

• The supplier attempts to gain power over the customer by increasing switching costs, thereby making it difficult for customer to switch to another supplier.

• The theory behind this arrangement is essentially a competitive model because competition among the suppliers drives costs lower and quality higher.




• However, this theory ignores the costs associated with variability created by using multiple suppliers.

• If different suppliers are used, there will be increased variability in the physical properties of the materials such as tensile strength.

• For example, one manufacturer found that by limiting the number of suppliers of sheet steel, it reduced its defects by 40%.

• This demonstrated that variability in sourced materials was a major cause of defects.




• Today many Japanese and American companies use sole sourcing as a way to reduce the number of suppliers.

• Sole sourcing is a process for developing relationships with a few suppliers for long contract terms.

• Japanese JIT purchasing methods are now synonymous with world-class purchasing practice.


Strategic Alliances Between Customers and

Suppliers

Strategic Alliances Between Customers and

Suppliers• Strategic Partnerships

– Increasingly, sole sourcing arrangements are developing into strategic partnerships where the suppliers become de facto subsidiaries to their major customers.

– In these arrangements, not only are suppliers sole source providers, but also they integrate information systems and quality systems that allow close interaction at all levels.




• Sole source suppliers to GM and Ford are increasingly trained by their customer concerning the preferred and required organizations, processes, and delivery systems.

• Suppliers also enter into agreements to reduce costs and improve productivity and are graded on an annual basis concerning the attainment of these targets.




• Toyota employs an extensive supplier development program for each of its suppliers.

• As a result, variability to Toyota is reduced as the relationship between customer and suppliers is enhanced over time.

• It is to the benefit of both parties to continue this relationship over a long period of time.

• Some Japanese companies actually include their suppliers on their organization charts.

• The task of managing suppliers is simplified over time• Variability and complexity are reduced.


Communicating With Customers


• It is less expensive to produce one item that satisfies a larger segment of the market than it is to produce several products that please niche markets.

• Operations professional does not view a dollar of income from diverse customer equally.




• Customer Rationalization– Results from agreement between marketing and

operations as to which customers add the greatest advantage and profits over time.

– Customer rationalization from agreement between marketing and operations as to which customers add the greatest advantage and profit over time.

– It could means pursuing customers that cause the company to improve in ways necessary for continued survival.




• Customer Rationalization– Customer rationalization ensures a high-quality

product is provided and that the service provider stays within its field of expertise.

– This allow firms to focus on a smaller number of key customers and to develop an annuity relationship.

– An annuity relationship is one in which the customer provides a long \-term steady income to the provider.




• As suppliers focus on satisfying their customers, these customer are re-cognized as primary sources of information.

• To batter understand the customer , data about the customer must be gathered, analyzed, and used for improvement.




• Gathering Data From Customers– There are a variety of means for gathering

data from customers.

– These include active data gathering techniques such as focus groups and surveys, and passive data gathering techniques such as customer comment cards.


Actively Solicited Customer Feedback Approaches

Slide 1 of 6


Slide 1 of 6

• Actively Solicited Customer Feedback– Includes all supplier initiated contact with

customers.

– The three most common arenas for this are telephone customers, conducting focus groups, and sending out surveys.



Slide 2 of 6


Slide 2 of 6

• Types of Data– Soft Data

• Phone contacts, focus groups, and survey results are referred to as soft data.

• Soft data are not continuous and are, at best, ordinal.

– Hard Data

• As opposed to soft data, hard data are measurements data such as height, weight, volume, or speed that can be measured on a continuous scale.

– Ordinal Data• Are ranked so that one measure is higher than the next.




• Because of ordinal scale is based on conception, measurements using ordinal data are subject to greater error than hard measurement data.

• Soft data is useful in measuring the perceptions of customers.

• One use of this soft data is to compare employee and customer perceptions of quality.

• Another important use of soft data is to provide an external source of data.




• Hard external measures include returns, refund, and warranty work.

• Sales data can be considered an external indicator of customer satisfaction.

• When measuring quality, we are interested in understanding the many dimensions of quality that are important to our customers.



Slide 3 of 6


Slide 3 of 6

Different Methods of Soliciting Customer Feedback

Telephone Telephone ContactContact

Telephone Telephone ContactContact

Focus Focus GroupsGroupsFocus Focus GroupsGroups

Customer Service Customer Service SurveysSurveys

Customer Service Customer Service SurveysSurveys




• Telephone surveys are often used to gather information related to customer.

• The major problem with telephone surveys is bias.




• A focus group allows a supplier to gather feedback from a group of consumers at one time.

• The group are focused in two ways:

- First, focus groups narrowly address a single topic or group of topics.

- Secondly, focus groups draw individual with similar characteristics or demographics.

• Figure 5.5 shows steps included in performing a focus group session.



Slide 4 of 6


Slide 4 of 6

Figure 5.5 Focus Group StepsIdentify Purpose

Narrow Scope of Questions

Select Target Population

Develop Questions

Run Multiple Groups

Summarize and Develop Common Themes




• Customer Service Surveys - The customer service survey is an important tool

for determining customer perceptions of customer service and quality and is used by marketers and quality professionals in defining areas of strength and areas for improvement in quality system.

- There are four steps to developing a useful survey, as next slide.



Slide 5 of 6


Slide 5 of 6

Steps in Developing a Useful Survey

Identifyingcustomer

requirements

Identifyingcustomer

requirements

Developing and validatingthe instrument

(See Figure5.6 and 5.7)

Developing and validatingthe instrument

(See Figure5.6 and 5.7)

Analyzing the Results

Analyzing the Results

Implementing the Survey(See Figure 5.8)

Implementing the Survey(See Figure 5.8)




1.Identifying customer requirements - Customer requirements include the dimensions of

quality, service, and performance that are necessary to satisfy the customer. It involves:

(1). Reviewing the purchase orders and contracts established when the relationship with the customer begins.

(2). Customer needs are reviewed with marketing and production.

(3). Interviews are conducted with a sampling of customers to determine what to add the list of customer requirements.




2.Developing and validating the instrument - As shown in Figure 5.6, the dimension of

timeliness is important for a fast-food restaurant.

- Notice the survey items are not questions.

- They are simple declarative sentences that use action verbs.




Figure 5.6 Timeliness at Henry’s Fast Food

Timeliness Dimension_____ I received my food quickly.

_____ The server responded in a timely manner.

_____ The line moved quickly.

_____ I was served rapidly.

_____ The food service at Henry’s is quick.




2.Developing and validating the instrument - An alternative means of developing survey items

is the critical incident approach. - The critical incident approach involves obtaining

information from customers about the process they use to receive goods and services.

- This approach is important in determining whether your process performance is improving.

- Figure 5.7 shows the same dimension of timeliness for the fast-food restaurant.


Actively Solicited Customer Feedback

Approaches

Actively Solicited Customer Feedback

ApproachesFigure 5.7 Specific Incidents Relating to Timeliness

at Henry’s Fast Food_____ I was greeted on entering Henry’s.

_____ There was a server available when I approached the service counter.

_____ My line less than three people when I arrived.

_____ As soon as I reached the counter, the server requested what I wanted immediately.

_____ My food was delivered within 60 seconds of entering Henry’s.




3. Implementing the survey - Reliability and validity are two different but

interrelated issues of survey development. - If the target in Figure 5.8 is the dimensions of

customer service that you are trying to measure, each bullet hole represents a single response using the survey instrument.

- If the measure of dimension ascertains the dimension perfectly, the shot will be right in the center of the target.



Slide 6 of 6


Slide 6 of 6

Figure 5.8 Reliability and Validity




3. Implementing the survey• It shows that reliability is directly related to

variability in responses from the respondents.• Two approaches to testing for reliability are

test/retest reliability and inter-judge assessment. - With test/retest, the instrument is administered to a

group of respondents randomly selected from the population of interest in a pretest.

- With inter-judge assessment, the survey is administered to multiple respondents and analyzed to gauge consistency of response among the respondents.




3. Implementing the survey - Validity is related to reliability but a reliable

instrument is not guaranteed to be valid.

- There are different types of validity:

1. Construct validity refers to the use of certain terms and whether terms really measure what it is we want to measure.

2. Content validity refers to whether the item really measures what we want to measure.




3. Implementing the survey - To help ensure content validity, it is helpful to

ask some outside individuals to externally validate an instrument.

- In validating a quality-related questionnaire, we found that respondents did not understand the term conformance, but they understand the term meet specification.




3. Implementing the survey - Most of the questions will be close-ended because

close-ended questions provide a better basis for data analysis.

- It is preferable to have at least one open-ended question in the customer service survey to allow customers to vent frustrations, make suggestions, or other comments.




4. Analyzing the results - Data analysis should generally be kept simple.

- Means, histogram or numerical responses, and simple correlations are best for analyzing survey responses.

- Open-ended questions are analyzed with Pareto analysis using histograms of the various categories of responses.




4. Analyzing the results - Data analysis using advanced statistical techniques,

such as multiple regression, analysis of variance, or other procedures, should be performed if necessary.

- Business experience has shown that simpler analysis is better because simple statistical results are easy to communicate to managers and co-worker.

- Quality Highlight 5.1 shows how ADAC Industries serves its customers.


Passively Solicited Customer Feedback

Approaches


Approaches• Passively Solicited Customer Feedback

– Customer initiated contact, such as filling out a restaurant complaint card, calling a toll-free complaint line, or submitting an inquiry via a company’s Web site, is considered passively solicited customer feedback.

– Table 5.5 outlines several of the difference between actively and passively collected data.

– It is found that passive collections result in low ratings of quality than active collections.

– It is not clear which approach is more biased.



Approaches


ApproachesTable 5.5, Differences between Actively and

Passively Collected Data



Approaches


Approaches• Customer Research Cards - Figure 5.9 shows an example of a customer

research card. - Research shows that respondents to these cards

tend to be expressing extreme response– either very highly pleased or extreme displeased.

- Response cards provide an opportunity for the service provider to develop a relationship with a customer through properly recovering from an extremely poor service encounter.



Approaches


Approaches• Figure 5.9 Pizzaria Complaint Card



Approaches


Approaches• Customer Response Lines - Many companies provide toll-free phone lines

for customer complaints, questions, and inquires.

- These services are offered by many third parties or can be offered in-house.

- Common problems with complaint lines occur when there are insufficient phone lines, long waits, poorly trained personnel, or unresponsive personnel.



Approaches


Approaches• Web Site Inquires - Figure 5.10 ( shown as page 145 and page

146) shows the design of Web pages that gather passively solicited customer feedback.

- The first ( please see page 145) is for a fusion jazz group, and the second ( please see page 146) is for Lands’ End.


Managing Customer Retention and Loyalty

Slide 1 of 2

Managing Customer Retention and Loyalty

Slide 1 of 2

• Customer Retention– Customer retention is measured as the

percentage of customers that return for more service.

– Customer retention will increase by application of the service tools and concepts contained in this chapter such as tools

for data gathering and analysis.


Managing Customer Retention and LoyaltyManaging Customer

Retention and Loyalty

• Customer Loyalty– Customer loyalty can be instilled by

offering specialized service not available from competitors.

– This can take many forms including high customer contact or technology advancements.


Managing Customer Retention and LoyaltyManaging Customer

Retention and Loyalty• Customer Loyalty

– There is an intangible aspect to customer loyalty.

– After all, how many products induce the kind of loyalty that causes people to tattoo the company logo on their bodies or buy garish clothing reflecting their love of the product.


A Word on Excellent Design


• The Importance of Design 1. It should be noted that not all good ideas come

from customers. Some excellent products arise from advances in technology resulting from good engineering.

2. For this purpose, the ready-fire-aim approach has been adopted by many high-technology companies as the best way to market their goods. An example of this was the Sony Walkman.




- The ready-fire-aim approach refers to developing new products by identifying needs that customers do not necessarily recognize.

- More recently, the MP3 technology for downloading music was available for a long time before it entered the mainstream for consumer use.

- Other new products are developed by identifying a need that customers do mot necessary recognize.




• There is much work being performed in alternative technologies to be use in Third World countries that do not have the infrastructure of developed countries.

• This alternative technology was developed by an engineer.

• Others are discovering that this type of technology is friendly to the environment and demand is increasing.

• Good customer intelligence coupled with innovative research and development programs appears to be the best marriage of resources.

chapter 5 ©2001 prentice-hall s. thomas foster, jr. boise state university slides prepared by bruce...

Documents

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customer ideas

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