Chapter 3

Customer Satisfaction
Objectives
§ Explain what is customer satisfaction
§ Identify the customer: internal and external
§ Identity factors which influence customer satisfaction
§ Measure of customer satisfaction and dissatisfaction
§ Discuss service quality and customer satisfaction
§ Enumerate the role of leader and frontline people
§ Explain the Kano model
Introduction

§ The most important asset of any organization is its customers.

§ An organization’s success depends on how many customers it has,
how much they buy, and how often they buy.
§ Customers that are satisfied will increase in number, buy more, and
buy more frequently.
§ Satisfied customers also pay their bills promptly, which greatly
improves cash flow—the lifeblood of any organization.
The organizational diagram in Figure 3-1 best exemplifies just
how important the customer is to any organization.
Introduction
§ Increasingly, manufacturing and service organizations are using customer
satisfaction as the measure of quality.

§ The importance of customer satisfaction is not only due to national

competition but also due to world- wide competition. This fact is reflected
in Malcolm Baldrige National Quality Award where customer satisfaction
has high importance in the criteria.

§ Similarly, customer satisfaction standards are woven throughout ISO 9000:

2005. Customer satisfaction is one of the major purposes of a quality
management system.
Introduction
§ Total Quality Management (TQM) implies an organizational obsession with
meeting or exceeding customer expectations, so that customers are
delighted.
§ Understanding the customer’s needs and expectations is essential to
winning new business and keeping existing business. An organization must
give its customers a quality product or service that meets their needs at a
reasonable price, which includes on-time delivery and outstanding service.
§ To attain this level, the organization needs to continually examine their
quality system to see if it is responsive to ever changing customer
requirements and expectations.
Introduction

§ A simplistic definition of customer satisfaction is illustrated by the

Teboul model.
Introduction
§ Customer satisfaction is not an objective statistic but more of a
feeling or attitude.

§ Although certain statistical patterns can be developed to represent

customer satisfaction, it is best to remember that people’s opinions
and attitudes are subjective by nature.
• Because customer satisfaction is subjective, it is hard to measure.
There are so many facets to a customer’s experience with a product
or service that need to be measured individually to get an accurate
total picture of customer satisfaction.
Introduction
§ Customer satisfaction should not be viewed in a vacuum.
§ For example, a customer may be satisfied with a product or service and
therefore rate the product or service highly in a survey, and yet that same
customer may buy another product or service.
§ It is of little benefit to understand a customer’s views about a product or
service if the customer’s views about competitors’ product or service are
not understood.
§ The value customers place on one product compared to another may be a
better indicator of customer loyalty.
§ Customer loyalty can be sustained only by maintaining a favorable
comparison when compared with competitors.
Who is the customer?
§ There are two distinct types of customers—external and internal.
§ An external customer can be defined in many ways, such as the one who
uses the product or service, the one who purchases the product or service,
or the one who influences the sale of the product or service.

§ For instance, McDonald’s determined the customer to be the child when

they introduced their Happy Meals. The child never paid for the meals but
the child influenced the sale. Oftentimes, parents purchase mobile phones
and yet the teenage children use the mobile phones.
§ The identity of the external customer is not always easy to determine.
Who is the customer?
§ An external customer exists outside the organization and generally
falls into three categories:
§ Current
§ Prospective, and
§ Lost customers.
§ Every employee in the organization must know how their job
enhances the total satisfaction of the external customer.
§ Performance must be continually improved in order to retain existing
customers and to gain new ones.
Who is the customer?
§ An internal customer is just as important.
§ Every function, whether it be engineering, order processing, or
production, has an internal customer—each receives a product or
service and, in exchange, provides a product or service.
§ Every person in a process is considered a customer of the preceding
operation. Each worker’s goal is to make sure that the quality meets
the expectations of the next person.
§ When that happens throughout the manufacturing, sales, and
distribution chain, the satisfaction of the external customer should be
assured.
Who is the customer?
§ All processes have outputs, which are used by internal or external
customers, and inputs, which are provided by internal or external
suppliers.
§ Each supplier performs work that produces some service or product
that is used by another customer.
§ As shown by Figure 3-3, each forms a link in the customer/supplier
chain, where every chain ends with an external customer and starts
with an external supplier.
§ Every employee throughout the organization is part of the chain of
internal customers and suppliers.
Who is the customer?
Who is the customer?

§ One basic concept of TQM is an unwavering focus on

customers, both internal and external. Most employees
know about the external customer or end user but may not
think of other employees as internal customers of their
output.
§ In the ideal organization, every employee would have direct
contact with customers and be effective at meeting their
needs.
The formula for successful internal
customer/supplier relationships varies.
But it always begins with people asking their internal customers three
basic questions:

§ What do you need from me?

§ What do you do with my output?
§ Are there any gaps between what you need and what you get?

The leader’s role is to process work through the internal customer-

supplier chain by helping workers guarantee that the end product or
service fully satisfies the end user.
Customer Perception of Quality
§ One of the basic concepts of the TQM philosophy is continuous
process improvement.

§ This concept implies that there is no acceptable quality level because

the customer’s needs, values, and expectations are constantly
changing and becoming more demanding.

§ Before making a major purchase, some people check consumer

magazines that rate product quality.
Customer Perception of Quality
An American Society for Quality (ASQ) survey on end user perceptions of
important factors that influenced purchases showed the following ranking:

1. Performance
2. Features
3. Service
4. Warranty
5. Price
6. Reputation
Important factors that influenced purchases:
American Society for Quality (ASQ) Survey

1. Performance
§ Performance involves “fitness for use”—a phrase that indicates that
the product and service is ready for the customer’s use at the time of
sale.

§ Other considerations are (1) availability, which is the probability that a

product will operate when needed; (2) reliability, which is freedom
from failure over time; and (3) maintainability, which is the ease of
keeping the product operable.
Important factors that influenced purchases:
American Society for Quality (ASQ) Survey

2. Features

§ Identifiable features or attributes of a product or service are

psychological, time-oriented, contractual, ethical, and technological.
Features are secondary characteristics of the product or service.

§ For example, the primary function of an automobile is transportation,

whereas a car stereo system is a feature of an automobile.
Important factors that influenced purchases:
American Society for Quality (ASQ) Survey
3. Service
§ An emphasis on customer service is emerging as a method for organizations to give the customer-
added value.
§ However, customer service is an intangible—it is made up of many small things, all geared to
changing the customer’s perception. Intangible characteristics are those traits that are not
quantifiable, yet contribute greatly to customer satisfaction.
§ Providing excellent customer service is different from and more difficult to achieve than excellent
product quality. Organizations that emphasize service never stop looking for and finding ways to
serve their customers better, even if their customers are not complaining.
§ For instance, at Baptist Hospital in Pensacola, FL, janitors, after cleaning a room, ask if there is
anything they can do for the patient. Often patients will have a request for a window shade to be
drawn or a door closed.
Important factors that influenced purchases:
American Society for Quality (ASQ) Survey
4. Warranty
§ The product warranty represents an organization’s public promise of a quality product
backed up by a guarantee of customer satisfaction. Ideally, it also represents a public
commitment to guarantee a level of service sufficient to satisfy the customer.
§ A warranty forces the organization to focus on the customer’s definition of product and
service quality. An organization has to identify the characteristics of product and service
quality and the importance the customer attaches to each of those characteristics.
§ Finally, a warranty builds marketing muscle. The warranty encourages customers to buy a
service by reducing the risk of the purchase decision, and it generates more sales from
existing customers by enhancing loyalty.
Important factors that influenced purchases:
American Society for Quality (ASQ) Survey
5. Price
§ Today’s customer is willing to pay a higher price to obtain value. Customers
are constantly evaluating one organization’s products and services against
those of its competitors to determine who provides the greatest value.
§ However, in our highly-competitive environment, each customer’s concept
of value is continually changing.
§ Ongoing efforts must be made by everyone having contact with customers
to identify, verify, and update each customer’s perception of value in
relation to each product and service.
Important factors that influenced purchases:
American Society for Quality (ASQ) Survey
5. Reputation

§ Most of us find ourselves rating organizations by our overall

experience with them. Total customer satisfac- tion is based on the
entire experience with the organization, not just the product. Good
experiences are repeated to six people and bad experiences are
repeated to 15 people; therefore, it is more difficult to create a
favorable reputation.

§ Customers are willing to pay a premium for a known or trusted brand

name and often become customers for life.
Important factors that influenced purchases:
American Society for Quality (ASQ) Survey
6. Feedback

§ Customer feedback must be continually solicited and monitored. Customers

continually change. They change their minds, their expectations, and their
suppliers. Customer feedback is not a one-time effort; it is an ongoing and active
probing of the customers’ mind. Feedback enables the organization to:

§ Discover customer dissatisfaction.

§ Discover relative priorities of quality.
§ Compare performance with the competition.
§ Identify customers’ needs.
§ Determine opportunities for improvement.
How to get feedback?
§ Comment Card
§ Customer Questionnaire
§ Focus Groups
§ Toll-Free Telephone Numbers
§ Customer Visits
§ Report Card
§ Employee Feedback
Mass Customization

§ The ultimate in customer satisfaction is giving customers exactly what

they want.

§ In the past, the price tag for this was prohibitive, but mass
customization is a way to provide variety at an affordable cost.

§ Mass customization is a direct result of advances made in

manufacturing, such as flexible manufacturing tech- nologies, just-in-
time systems, and cycle time reduction.
Mass Customization
§ For instance, Levi Strauss customers are measured for jeans, choose
the fabric, and choose the pattern at a local store.

§ Dell assembles computers according to each customer’s requirements

by adding or subtracting components from one of several base
systems. In this way, customers get the computer they want at a
reasonable price through mass customization at the assembly stage.

§ Modular furniture is a customized product at the delivery stage.

Different customers can adapt modular furniture to meet their
changing needs long after the initial purchase.
Using Customer Complaints
§ For the most part, the information on feedback given in the previous
section is proactive.
§ Although complaints are reactive, they are very vital in gathering data on
customer perceptions.
§ A dissatisfied customer can easily become a lost customer.
§ Many organizations use customer dissatisfaction as the primary measure to
assess their process improvement efforts.
§ By taking a positive approach, complaints can be seen as an opportunity to
obtain information and provide a positive service to the customer.
Handling Customer Complaints
1. Investigate customers’ experiences by actively soliciting feedback,
both positive and negative, and then acting on it promptly.
2. Develop procedures for complaint resolution that include
empowering front-line personnel.
3. Analyze complaints, but understand that complaints do not always
fit into neat categories.
4. Work to identify process and material variations and then eliminate
the root cause. “More inspection” is not corrective action.
5. When a survey response is received, a senior manager should
contact the customer and strive to resolve the concern.
Handling Customer Complaints
6. Establish customer satisfaction measures and constantly monitor
them.
7. Communicatecomplaintinformation,aswellastheresultsofallinvestiga
tionsandsolutions,toallpeople in the organization.
8. Provide a monthly complaint report to the quality council for their
evaluation and, if needed, the assignment of process improvement
teams.
9. Identify customers’ expectations beforehand rather than afterward
through complaint analysis.
Service Quality
§ Strategies that have produced significant results in production are
often harder to implement in a service environment.
§ Thanks to the teachings of Deming, Juran, and others, significant
strides have been made in manufacturing. The same results have
been slower in service organizations or service activities in
manufacturing.
§ Customer service is the set of activities an organization uses to win
and retain customers’ satisfaction. It can be provided before, during,
or after the sale of the product or exist on its own.
Elements of Customer Service
Elements of Customer Service
Elements of Customer Service
Elements of Customer Service
Elements of Customer Service
Characteristics and Expectations
Translating Needs into Requirements
The Kano model, which is shown in Figure 3-8, conceptualizes
customer requirements. The model represents three major areas of
customer satisfaction.

First Area – Explicit Requirements

Second Area – Innovations

Third Area – Unstated or Unspoken Requirements

(the most important)
Customer Retention
§ Customer retention is more powerful and effective than customer
satisfaction. Customer retention represents the activities that produce the
necessary customer satisfaction that creates customer loyalty, which
actually improves the bottom line.

§ What people say and think is often different from what they do. Customers
may be delighted with the tropical oils and aromas in a high-priced, well-
advertised hair-care product but still end up buying the generic equivalent.
Therefore customer satisfaction should also be measured by using the hard
measures of cash register receipts, market share, the level of customer
retention, and the number of referrals from customers.
Customer Retention

§ Customer retention moves customer satisfaction to the next level by

determining what is truly important to the customers and making
sure that the customer satisfaction system focuses valuable resources
on things that really matter to the customer.

§ Likewise, high employee retention has a significant impact on high

customer retention. One way companies can manage customer
retention is to pay attention to their present employees and to who
they are hiring.
Exemplary Organization
• Merrill Lynch Credit Corporation (MLCC) offers real estate and securities-based
consumer credit products— including home financing, personal credit,
investment financing, and commercial real-estate financing—to primarily affluent
individuals. About 90 percent of its approximately 830 employees, known as
partners, are located in MLCC’s Jacksonville, FL headquarters.
• As part of the Business Planning Process, each July senior managers translate the
strategic imperatives into the company’s Critical Few Objectives, key performance
measures for their CFOs, and specific targets for the next one and three years. For
example, a CFO to increase process productivity with an aim of increasing share-
holder value is measured by the number of days to approve applications, with
specific, ambitious, and measurable goals. In turn, these CFOs provide the basis
for determining partner performance management plans. By involving all of the
firm’s partners in providing information for the business planning process, and in
regular refinements and progress reviews, MLCC ensures that its plans are fact-
based and linked to individual goals and objectives.
Exemplary Organization
• MLCC segments its market into several categories of current and potential
customers, stratified by their asset levels and age. Working with its parent
company, MLCC uses in-depth research to target and deliver appropriate
products and services. Its “Voice of the Client” process states customer
satisfaction drivers for each client segment and for each of its credit categories.
These priority requirements provide the basis for aligning the company’s
processes and work groups and for identifying indicators and key performance
measures for each of its eight core processes. In turn, each of those indicators are
tracked and used to identify and put in place improvements in areas having the
greatest impact on customer needs and satisfaction.
• Information about the customer is truly paramount for MLCC. To ensure that its
market research is always current, MLCC continuously evaluates and improves its
data on what its clients need and what they might want in the future.
Exemplary Organization
• The client data come from an array of sources, ranging from surveys of
clients and financial consultants in the field to written or telephone
feedback, internal audits, syndicated research, and benchmarking stud- ies.
Satisfaction levels of competitors’ clients also are used in analyzing client
needs. Customer complaints are analyzed in depth, reviewed monthly, and
reported back to MLCC regions to identify any sudden changes and to
share lessons learned. Negative trends and recurring problems trigger
process improvement teams to develop countermeasures and to prevent
recurrences. Clients receive acknowledgment of any com- plaint within two
business days, and resolution is received in no more than five business
days.
• MLCC has impressive results to show that its focus on quality management
and performance excellence is a wise investment. Net income rose 100%
from 1994 to 1996 and exceeds the industry’s average. Return
Exemplary Organization
§ Return on equity increased approximately 74 percent and its return
on assets improved approximately 36 percent in that same period.
Key indicators for loan delinquency rates and write-offs compare
favorably with the rest of the industry and are clearly improving—as
are the firm’s total loan originations, market share in originations,
wholesale volume as a percentage of first mortgages, and size of
servicing portfolio.