TOTAL QUALITY MANAGEMENT

CHAPTER 3
CUSTOMER FOCUS
LECTURE NOTES

DR. AMIRA OMAR

Chapter 3
CUSTOMER FOCUS
Customer focus might be the most important principle of quality
management. The customer is the ultimate judge of the quality of goods and
services, and, as has been expressively stated, "Without customers, you don't
have a business". World-class organizations are obsessed with meeting and
exceeding customer expectations. Many organizations such as the Ritz-
Carlton Hotel Company, Disney, and Toyota's Lexus division were built on
the notion of satisfying the customer.
Perceptions of value and satisfaction are influenced by many factors
throughout the customer's overall purchase, ownership, and service
experiences.
To meet or exceed customer expectations, organizations must fully
understand all product and service attributes that contribute to customer
value and lead to satisfaction and loyalty. To accomplish this task, an
organization's efforts need to extend well beyond merely meeting
specifications, reducing defects and errors, or resolving complaints. They
must include both designing new products that truly delight the customer
and responding rapidly to changing consumer and market demands.
An organization that is close to its customer knows what the customer
wants, how the customer uses its products, and anticipates needs that the
customer may not even be able to express. It also continually develops new
ways of enhancing customer relationships.

CUSTOMER SATISFACTION AND ENGAGEMENT

The ASQ Quality Glossary defines customer satisfaction as "the result of
delivering a product or service that meets customer requirements." Customer
satisfaction is vital to keeping customers and growing a business.
Although satisfaction is important, organizations need to look further. First,
they must avoid creating dissatisfied customers because of product or
service failures.
Studies have shown that dissatisfied customers tell at least twice as many
friends about bad experiences as they tell about good ones. Second, they
must try to develop loyal customers-those who stay with a company and
make positive recommendations. Satisfaction and loyalty are very different
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concepts. Customers who are merely satisfied may often purchase from
competitors because of convenience, promotions, or other factors. Loyal
customers prioritize doing business with a particular organization and will
often go out of their way or pay a premium to stay with the company. As a
result, customers spend more, are willing to pay higher prices, refer new
clients, and are less costly to do business with.
Customer satisfaction and loyalty have evolved into a new concept:
customer engagement refers to customers' investment in or commitment to
a brand and product offerings. Customer engagement is an important
outcome of a customer-focused culture and the organization's listening,
learning, and performance-excellence strategy. Characteristics of customer
engagement include:
 Customer retention and loyalty,
 Customers' willingness to make an effort to do business with the
organization, and
 Customers' willingness to actively support for and recommend the
brand and product offerings.
Customer engagement is influenced by an organization's integrity and the
relationships it builds with its customers. As small business owners stated,
"We build customer loyalty by telling our customers the truth, whether it is
good or bad. "
IDENTIFYING CUSTOMERS
The first step in being customer-focused is to understand who your
customers are. While this sounds obvious, the concept of "customer" may
mean many different things. Most employees think that "customers" are
those people who ultimately purchase and use a company's products. These
end users, or consumers, certainly are an important group. However,
consumers are not the only customer group of concern. The easiest way to
identify customers is to think in terms of customer-supplier relationships.
AT& T uses a customer-supplier model, as shown in Figure 1. Every process
receives inputs from suppliers and creates outputs for customers. The
feedback loop suggests that suppliers must also be considered as customers.
Therefore, they need appropriate information about the requirements they
must meet. Within an organization, the recipient of another's output (which
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could be a product, service, or information) is called an internal customer.
Internal customers could be other departments or processes within the
organization or individual workers. For instance, manufacturing is a
customer of purchasing, a nursing unit is a customer of the hospital laundry,
and the reservations department is a customer of the information systems
department for an airline or hotel. In addition, individual workers receive
inputs from others and produce outputs for other internal customers. Some
examples of these internal customers are the assembly line worker at the
next station, an executive's administrative assistant, the order taker who
passes along orders to the kitchen staff at McDonald's, or an radiologic
technologist who must meet a physician's timely quest. Internal customer-
supplier relationships help process owners and workers understand how their
work links to the final product.

An organization may also have external customers who fall between the
organization, and the consumer but are not part of the organization. External
customer's needs and expectations are different from consumers. An
example is a manufacturer of consumer products that distributes to retail
stores such as Walmart and grocery stores. The retail stores are external
customers of the manufacturer. They have specific needs for timely delivery,
appropriate product displays, accurate invoicing, and so forth.

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 Eventually, everyone can better understand their role in satisfying their
internal customers and the external customers. The natural customer-supplier
linkages among individuals, departments, and functions build up the "chain
of customers" throughout an organization that connects every individual and
function to the external customers and consumers, thus characterizing the
organization's value chain.

CUSTOMER SEGMENTATION
Customers generally have different requirements and expectations. As a
result, a company usually cannot satisfy all customers with the same
products or services. This issue is particularly important for those that do
business globally. Therefore, organizations that segment customers into
natural groups and customize the products or services can better respond to
customers' needs. 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.
There are many different ways to approach customer segmentation.
Customer segmentation might be based on geography, demographic factors,
ways in which products are used, volumes, or expected levels of service.
Juran suggested classifying customers into two main groups:
1- The vital few and,
2- The useful many.
For example, organizers of conferences and meetings book large blocks of
hotel rooms and have large catering needs. They represent the vital few and
deserve special attention on an individual basis. Individual travelers and
families are the useful many and typically need only standardized attention
as a group.
Segmentation helps an organization to align its internal processes according
to the most important customer expectations or their impact on shareholder
value.
UNDERSTANDING CUSTOMER NEEDS

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Organizations first need to understand the drivers of customer satisfaction-
what do customers want or expect from our goods and services? For
example, customer expectations for a restaurant would include good food,
attentive service, a comfortable atmosphere, and accurate bills.
Quality Dimensions of Goods and Services
David A. Garvin suggested that products have multiple dimensions of
quality:
1. performance: A product's primary operating characteristics. Using an
automobile as an example, characteristics would include such things
as acceleration, braking distance, steering, and handling.
2. Features: The "bells and whistles" of a product. A car may have
power options, a CD player, iPod connections.
3. Reliability. The probability of a product surviving over a specified
period of time under stated conditions of use. A car's ability to start
on cold days and frequency of failures is reliability factors.
4. Conformance: The degree to which physical and performance
characteristics of a product match pre-established standards. A car's
fit and finish and freedom from noises and squeaks can reflect this
dimension.
5. Durability: The amount of use one gets from a product before it
physically deteriorates or until a replacement is preferable. Bora cars
might include corrosion resistance.
6. Serviceability: The speed, courtesy, and competence of repair work.
An automobile owner might be concerned with access to spare parts,
the number of miles between major maintenance services, and the
expense of service.
7. Aesthetics'. How a product looks, feels, sounds, tastes, or smells. A
car's color, instrument panel design, control placement, and "feel of
the road," for example, may make it aesthetically pleasing.
8. Perceived quality: An equally important dimension of quality is the
perception of the quality of the product in the mind of the consumer.
Honda cars, Sony Walkman and Rolex watches are perceived to be
high quality items by the consumers,

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"Table 3.2 gives some examples of these dimensions for both a
manufactured product a service product.

Customers today pay more attention to service issues than to the physical
goods themselves. One study found that customers are five times more likely
to switch because of perceived service problems than for price concerns or
product quality issues; another estimated that the average company loses as
many as 35 percent of its customers each year and that about two-thirds of
these are lost because of poor customer service. Thus, an understanding of
service-related needs and expectations is important. For services, research
has identified five principal dimensions that contribute to customer
perceptions of quality:
1. Reliability: The ability to provide what was promised, dependably and
accurately. Examples include customer service representatives
responding in the promised time, following customer instructions,
providing error-free invoices and statements, and making repairs
correctly the first time.
2. Assurance: The knowledge and courtesy of employees and their
ability to convey and confidence. Examples include the ability to

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 answer questions, having the capabilities to do the necessary work,
monitoring credit card transactions to avoid possible fraud, and being
polite and pleasant during customer transactions.
3. Tangibles: The physical facilities and equipment, and the appearance
of personnel. Tangibles include attractive facilities, well-dressed
employees, and well-designed forms that are easy to read and
interpret.
4. Empathy: The degree of caring and individual attention provided to
customers. Some examples might be the willingness to schedule
deliveries at the customer's convenience, explaining technical jargon
in a layperson's language, and recognizing regular customers and
calling them by name.
5. Responsiveness: The willingness to help customers and provide
prompt services. Examples include acting quickly to resolve
problems, promptly crediting returned—merchandise, and rapidly
replacing defectives products.

The Kano Model of Customer Requirements

KANO MODEL
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Noriaki Kano suggested segmenting customer requirements into three
groups:
1. Dissatisfiers ("must-haves" ): Basic needs that customers expect in a
product or service. In an automobile, a radio, heater, and basic safety
features are examples, which are
generally not stated by customers but assumed as given. If these features are
not present, the customer is dissatisfied.
2. Satisfiers ("wants" ): Requirements that customers expressly say
they want. Many car buyers want a sunroof, satellite radio, or
navigation system. Although these requirements are generally not
expected, fulfilling them creates satisfaction.
3. Exciters/ delighters ("never thought of" ): New or innovative features
that customers do not expect or even anticipate, such as separate rear-
seat video controls that allow children to watch DVD movies or wi-fi
capabilities in a car, but love once they have them.

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Providing dissatisfiers and satisfiers is often considered the minimum
required in business. These can usually be identified from surveys,
complaints, and interviews with lost customers. To be truly competitive,
however, organizations must surprise and delight customers by going
beyond basic requirements and expressed desires.
Innovations, however, are not exciters/delighters for long. As customers
become familiar with them, exciters/delighters become satisfiers over time.
For instance, antilock brakes and traction control certainly were
exciters/delighters when they were first introduced, but now many car
buyers expect them when buying a new car. Likewise, navigation systems,
which were originally exciters/delighters, are probably viewed as satisfiers
today. As technology evolves, consumer expectations continually increase.
Eventually, satisfiers become dissatisfiers.
In the Kano classification system, dissatisfiers and satisfiers are relatively
easy to determine through routine marketing research.

Gathering the Voice of the Customer

Customer requirements, as expressed in the customer's own terms, are called
the voice of the customer. However, the customer's meaning is the crucial
part of the message.
Organizations 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.
Some of these approaches for gathering customer information include
comment cards and formal surveys, focus groups, direct customer contact,
field intelligence complaint analysis, and monitoring the Internet and social
media. Each has various advantages and disadvantages.

 Comment Cards and Formal Surveys: Comment cards and formal

surveys are easy ways to solicit customer information. These approaches
typically concentrate on measuring customer satisfaction, and often
include questions pertaining to the customers' perception of the

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 importance of particular qua. Lity dimensions as well as open-ended
questions. Formal surveys can be designed to scientifically sample a
customer base, but can also suffer from nonresponse bias. However,
some organizations find that they work well.
 Focus Groups: A focus group is a panel of individuals (customers or
non-customers) who answer questions about a company's products and
services as well as those of competitors. This interview approach allows a
company to carefully select the com position of the panel and probe panel
members about important issues, such as comparing experiences with
expectations, in depth.
Focus groups offer a substantial advantage by providing the direct voice
of the customer to an organization. A disadvantage of focus groups is
their higher cost of implementation compared to other approaches.
 Direct Customer Contact: In customer-driven organizations, top
executives commonly visit with customers personally. Hearing issues and
complaints firsthand is often an eye-opening experience.
 Field Intelligence: Any employee who comes in direct contact with
customers, such as salespeople, repair technicians, telephone operators,
and receptionists, can obtain usful information simply by engaging in
conversation and listening to customers. The effectiveness of this
method depends upon a culture that encourages open communication
with superiors. As another approach, employees simply observe customer
behavior.
 Complaints: Complaints, although undesirable from a service point of
view, can be a key source of customer information. Complaints allow an
organization to learn about product failures and service problems,
particularly the gaps between expectations and performance.
 Internet and Social Media Monitoring: The Internet and social media
such as Facebook offer organizations a fertile arena for finding out what
consumers think of their products. Internet users frequently seek advice
from other users on strengths weaknesses of products, share experiences
on service quality, or pose specific problems they need to resolve. By
monitoring the conversations on discussion groups and blogs, for
example, managers can obtain valuable insights on customer perceptions
and product or service quality problems.

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Analyzing Voice of the Customer Data
voice of the customer data typically consists of a large number of verbal
comments or other textual information, it needs to be sorted and
consolidated into logical groups so that managers can understand the key
issues. One useful tool for organizing large volumes of information
efficiently and identifying natural patterns or groupings in the information is
the affinity diagram.
An affinity diagram is a main ingredient of the KJ method, developed in the
1960s by Kawakita Jiro, a Japanese anthropologist. The affinity diagram is
a technique for gathering and organizing a large number of ideas or facts.

Through organization of an affinity diagram, information can be used to

beter design a company's products and processes to meet customer
requirements. Affinity diagrams can be used for many other applications.
For example, they can be used to organize any large group of complex ideas
or issues, such as potentia! reasons for quality problems, or things a
company must do to successfully market a product. Modern methods of

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business analytics, such as text mining and text analytics, can automate the
process of capturing and analyzing huge amounts of textual data, and are
emerging as important tools for understanding customers.

LINKING CUSTOMER NEEDS TO DESIGN,

PRODUCTION, AND SERVICE DELIVERY
VOC information must be linked to design, production, and delivery
processes. One way of understanding the linkage of the VOC to the internal
process is what is often called the gap model. Figure 3.5 provides a view of
the process in which customer needs and expectations are translated into
design, production, and delivery processes. True customer needs and
expectations are called expected quality. Expected quality is what the
customer assumes will be received from the product. The producer identifies
these needs and expectations and translates them into specifications for
products and services. The actual quality is the outcome of the production
process and what is delivered to the customer. Customers will assess and
develop perceptions (perceived quality) by comparing their expectations
(expected quality) with what they receive (actual quality). If the expected
quality is higher than the actual quality, then the customer will probably be
dissatisfied. On the other hand, if actual quality exceeds expectations, then
the customer will be satisfied or even surprised and delighted.
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 PERCEIVED QUALITY is a comparison of ACTUAL
QUALITY to EXPECTED QUALITY

BUILDING A CUSTOMER-FOCUSED ORGANIZATION

Creating a customer-focused organization takes hard work and discipline. It
must be built on good policies, good people, and good processes.
An organization fosters customer satisfaction and engagement by developing
trust, communicating with customers, and effectively managing the
interactions and relationships with customers through its processes and its
people. Customer-focused organizations focus on four key processes:
1. Making sincere commitments to customers.
2. Ensuring quality customer contact

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 3. Selecting and developing customer contact employees
4. Managing complaints and service recovery

Customer Commitments
Organizations that truly believe in the quality of their products make sincere
commitments to their customers. Effective commitments address the
principal concerns of customers, are free from conditions that might weaken
customers' trust and confidence, and are communicated clearly and simply to
customers.

Customer Contact and interaction

Customers interact with organizations in many different ways. Every
interaction between a customer and the organization—whether it be face-to-
face with a salesperson or customer service representative or online on a
website is called a moment of truth. During moments of truth, customers
form perceptions about the quality of the service by comparing their
expectations with the actual outcomes. Thus, customer satisfaction or
dissatisfaction takes place during moments of truth.
Customer contact requirements are measurable performance levels or
expectations that define the quality of customer contact with an organization.
These expectations might include technical requirements such as response
time (answering the telephone within two rings or shipping orders the same
day), or behavioral requirements (using a customer's name whenever
possible).

Selecting and Developing Customer Contact Employees

Customer-contact employees are particularly important in creating customer
satisfaction as they often are the only means by which a customer interacts
with an organization.
Businesses must carefully select customer contact employees, train them
well, and empower them to meet and exceed customer expectations. Many
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businesses begin with the recruiting process, selecting those employees who
show the ability and desire develop good customer relationships. Next,
organizations must train them. For many organizations, customer
relationship training involves every person who comes in contact with
customers.

Service Recovery and Complaint Management

Despite all efforts to satisfy customers, every business experiences unhappy
customers. Complaints can adversely affect business if not dealt with
effectively.
Service recovery is a vital element to maintaining customer relationships.
Studies in the service management literature suggest that customers who
rated service quality highly also had the highest expectations for service
recovery. Loyal customers are most likely to become dissatisfied when
problems are not resolved but are most likely to increase or maintain loyalty
whenever the problem is deemed to have been resolved successfully.
Customer-focused organizations consider complaints as opportunities for
improvement. Encouraging customers to complain, making it easy for them
to do so, and effectively resolving complaints increases customer loyalty and
retention.

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MEASURING CUSTOMER SATISFACTION AND ENGAGEMENT
Customer feedback is vital to a business. Through feedback, a company
learns how satisfied its customers are with its products and services and
sometimes about competitors products and services.
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. Customer satisfaction and engagement measurement
allows an organization to do the following:
1. Discover customer perceptions of how well the organization is doing
in meeting customer needs, and compare performance relative to
competitors.

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 2. Identify causes of dissatisfaction and failed expectations as well as
drivers of delight to understand the reasons why customers are loyal
or not loyal to the company.
3. Identify internal work process that drive satisfaction and loyalty and
discover areas for improvement in the design and delivery of products
and services, as well as for training and coaching of employees.
4. Track trends to determine whether changes actually result in
improvements.
Customer satisfaction measures may include product attributes such as
product quality, product performance, usability, and maintainability; service
attributes such as attitude. service time, on-time delivery, exception handling
accountability, and technical support: image attributes such as reliability
and price; and overall satisfaction measures. Comparisons with key
competitors can be especially insightful. Businesses often rely on third
parties to conduct blind surveys to determine who key competitors are and
how their products and services compare.

Analyzing and Using Customer Feedback

Deming stressed the importance of using customer feedback to improve a
companys pro ducts and processes. By examining trends in customer
satisfaction measures and linking satisfaction data to its internal processes, a
business can see its progress and areas for improvement. Someone must
have the responsibility and accountability for developing improvement plans
based on customer satisfaction results.
Good customer satisfaction measurement identifies processes that have high
impact on satisfaction and distinguishes between low performing processes
and those that are performing well. One way to evaluate customer
satisfaction and use it effectively is to 1 collect information on both the
importance and the performance of key quality characteristics. Many
organizations have integrated customer feedback into their continuous
improvement activities and in redesigning products and services.

Why Many Customer Satisfaction Efforts Fail

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Determining and using customer satisfaction information should be viewed
as a key business process. Just going through the motions can often lead to
failure. A. Blanton Godfrey suggests several reasons why customer
satisfaction efforts fail to produce useful results.
 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

Measuring Customer Loyalty

Commonly used factors to measure customer loyalty are:
 Overall satisfaction
 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

Today, many firms use a metric called the net promoter score (NPS),
which was developed by (and is a registered trademark of) Fred Reichheld,
Bain & Company, and Satmetrix. NPS is claimed to correlate strongly
with market and revenue growth. The metric is based on one simple
question, "What is the likelihood that you would recommend us?" evaluated

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on a scale from 0 to 10. Scores of 9 or 10 are usually asso ciated with loyal
customers who will typically be repeat customers ("promoters?) scores of 7
or 8 are associated with customers who are satisfied but may switch to
competitors ("passives"); and scores of 6 or below represent unhappy
customers who may spread negative comments ("detractors"). Promoters are
less price-sensitive and are more profitable, while detractors are more-price
sensitive, defect at higher rates, and consequently are less profitable. NPS is
the difference in the percentage of promoters and detractors.

An alternative to traditional customer satisfaction measurement that focuses

more customer loyalty than on satisfaction is customer perceived value
(CPV)63 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.
Sellers that provide the greatest CPV at the time of the purchasing decision
always win the sale. CPV measurement includes potential buyers rather than
just existing customers, is forward-looking rather than retrospective,
examines choices relative to alternatives rather than relative to expectations.

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