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Chapter 4. Focusing on Customers. Key Idea Introduction. 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.

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Chapter 4

Chapter 4

Focusing on


Key idea introduction
Key IdeaIntroduction

  • 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
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 importance of customer satisfaction
Key IdeaImportance of customer satisfaction

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
American Customer Satisfaction Index

  • Measures customer satisfaction at national level

  • Introduced in 1994 by University of Michigan and American Society for Quality

  • Measures national index, seven industrial sectors, 40 industries, 203 companies

  • Continual decline in index from 1994 through 1998 with a small improvement into 2000 suggests that quality improvements have not kept pace with consumer expectations

Acsi model of customer satisfaction
ACSI Model of Customer Satisfaction













Key idea acsi
Key IdeaACSI

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-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


Key idea creating satisfied customer
Key IdeaCreating Satisfied Customer

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
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
Leading Practices (2 of 2)

  • Build relationships through commitments, provide accessibility to people and information, set service standards, and follow-up on transactions

  • Effective complaint management processes

  • Measure customer satisfaction for improvement

Identifying customers key customer groups
Identifying CustomersKey Customer Groups

  • Organization level

    • consumers

    • external customers

    • employees

    • society

  • Process level

    • internal customer units or groups

  • Performer level

    • individual internal customers

Identifying 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










and feedback


and feedback

AT&T Customer-Supplier Model

Key idea identifying customers
Key IdeaIdentifying Customers

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 organization’s value chain.

Customer segmentation
Customer Segmentation

  • Demographics

  • Geography

  • Volumes

  • Profit potential

Vital few & useful many

Key idea customer segmentation
Key IdeaCustomer Segmentation

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.

Understanding customer needs key dimensions of quality
Understanding Customer NeedsKey Dimensions of 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
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
Kano Model of Customer Needs

  • Dissatisfiers: expected requirements

  • Satisfiers: expressed requirements

  • Exciters/delighters: unexpected features

Key idea understanding customer needs
Key IdeaUnderstanding Customer Needs

As customers become familiar with them, exciters/delighters become satisfiers over time. Eventually, satisfiers become dissatisfiers.

Key idea gathering customer information
Key IdeaGathering Customer Information

Companies use a variety of 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.

Gathering customer information customer listening posts
Gathering Customer Information-- Customer Listening Posts

  • Comment cards and formal surveys

  • Focus groups

  • Direct customer contact

  • Field intelligence

  • Complaint analysis

  • Internet monitoring

Tools for classifying customer requirements
Tools for Classifying Customer Requirements

Affinity diagram Tree diagram

Key idea customer relationship management
Key IdeaCustomer Relationship Management

  • An organization needs to build customer loyalty by

  • developing trust,

  • communicating with customers, and

  • effectively managing the interactions and relationships with customers.

Moments of truth
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
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

Key idea customer contact employees
Key IdeaCustomer Contact Employees

Companies must carefully select customer contact employees, train them well, and empower them to meet and exceed customer expectations.

Key idea effective complaint mgmt
Key IdeaEffective Complaint Mgmt

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
Measuring Customer Satisfaction

  • Discover customer perceptions of business effectiveness

  • Compare company’s performance relative to competitors

  • Identify areas for improvement

  • Track trends to determine if changes result in improvements

Key idea measuring customer satisfaction
Key IdeaMeasuring Customer Satisfaction

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 customer’s likely future market behavior.

Survey design
Survey Design

  • Identify purpose

  • Determine who should conduct the survey

  • Select the appropriate survey instrument

  • Design questions and response scales

Key idea survey design
Key IdeaSurvey Design

The types of questions to ask in a survey must be properly worded to achieve actionableresults. 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.

Key idea analyzing customer feedback
Key IdeaAnalyzing Customer Feedback

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.

Performance importance analysis
Performance-Importance Analysis


Low High

Who cares?







Difficulties with customer satisfaction measurement
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
Customer Perceived Value

  • 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, and so on,in making purchase decisions.

Customer and market focus in the baldrige criteria
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