The Voice of the Customer Chapter 5 The Voice of the Customer S. Thomas Foster, Jr. Boise State University PowerPoint prepared by Dave Magee University of Kentucky Lexington Community College ©2004 Prentice-Hall

Chapter Overview Slide 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

Chapter Overview Slide 2 of 2 Actively Solicited Customer Feedback Approaches Passively Solicited Customer Feedback Approaches Managing Customer Retention and Loyalty Customer Relationship Management (CRM) Systems A Word on Excellent Design

Customer Facts Customers will tell twice as many people about bad experiences as good experiences. A dissatisfied customer will tell 8 to 10 people about bad experiences. Seventy percent of upset customers will remain your customer if you resolve the complaint satisfactorily. It’s easier to get customers to repeat than it is to find new business. Service firms rely on repeat customers for 85% to 95% of their business. Eighty percent of new product and service ideas come from customer ideas. The cost of keeping an existing customer is one-sixth of the cost of attracting a new customer.

Customer Defined A customer is the receiver of goods or services. Typically, this involves an economic transaction in which something of value has changed hands. Internal customers Employees receiving goods or services from within the same firm. External customers Bill-paying receivers of work. The ultimate people we are trying to satisfy. End user Another term that describes customers.

Customer-Driven Quality Slide 1 of 3 Customer-Driven Approach 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.

Customer-Driven Quality Slide 2 of 3 The Pitfalls of Reactive Customer-Driven Quality One of the difficulties in satisfying customer requirements is that in a dynamic environment customer needs are constantly changing. Problems occur when customer requirements increase at a faster rate than quality and service improvement. This places the firm in reactive mode and may signal the need for major process and service redesign.

Customer-Driven Quality Slide 3 of 3 Reactive Customer-Driven Quality Model Figure 5.1 Quality Region of satisfaction Customer expectations Region of complacency Supplier performance Time t T

What is the Voice of the Customer? The voice of the customer represents the wants, opinions, perceptions, and desires of the customer. Quality Function Deployment (QFD) “House of quality,” Translates customer wants into a finished product design.

Customer-Relationship Management Slide 1 of 8 This view of the customer asserts that he or she is a valued asset to be managed. The tangibles meet the intangibles to provide a satisfying experience for the customer. Four important design aspects Complaint resolution Feedback Guarantees Corrective action or recovery

Customer-Relationship Management Slide 2 of 8 Components of a Customer-Relationship Management Process Complaint resolution Feedback Customer Relationship Management Guarantees Corrective action Figure 5.2

Customer-Relationship Management Slide 3 of 8 Complaint Resolution Complaint resolution is an important part of the quality management system. Three common types of complaints regulatory complaints employee complaints customer complaints. 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. Complaint-recovery process

Customer-Relationship Management Slide 4 of 8 Complaint Resolution (or recovery) Process Compensate people for losses Apologize to the customer (contrition) Make it easy for the complainant to resolve his or her problem

Customer-Relationship Management Slide 5 of 8 Feedback There are two main types of feedback feedback to the customer 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. Some customer data is solicited and other data is provided without solicitation.

Customer-Relationship Management Slide 6 of 8 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. To be effective, a guarantee should be: Unconditional Meaningful Understandable Communicable Painless to invoke

Customer-Relationship Management Slide 7 of 8 To be effective, guarantees should be: Unconditional Understandable Meaningful Communicable Painless to invoke

Customer-Relationship Management Slide 8 of 8 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. Corporate teams or committees should be in place to regularly review complaints and to improve processes so the problems don’t recur.

The Gap Approach to Service Design 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 Approach to Service Design Word of mouth communications Personal needs Past experience Expected service Gap 5 Perceived service Marketer Gap 4 Service delivery External communications to consumers Gap 3 Gap 1 Translation of perceptions into service quality specs Gap 2 Management perceptions of consumer expectations Figure 5.3

The Gap Approach to Service Design Gaps Model Customer Perceptions Good Wasted time Relative strength IV I Relative Importance Low High Areas for improvement II Minor annoyances III Poor

Segmenting Customers and Markets Segmenting Data To segment markets means to distinguish customers or markets according to common characteristics. Segmentation implies that data is gathered separately for each segment and analyzed separately.

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.

Communicating With Customers Customer Rationalization Results from agreement between marketing and operations as to which customers add the greatest advantage and profits over time. Annuity Relationship An annuity relationship is one in which the customer provides a long-term, steady income stream to the provider. Gathering Data From Customers Active data gathering Passive data gathering

Actively Solicited Customer Feedback Approaches Slide 1 of 6 Includes all supplier initiated contact with customers. The three most common arenas telephone customers conducting focus groups sending out surveys Types of Data Soft data Hard data Ordinal data

Actively Solicited Customer Feedback Approaches Slide 2 of 6 Soft Data Phone contacts, focus groups, and survey results. Hard 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.

Actively Solicited Customer Feedback Approaches Slide 3 of 6 Different Methods of Soliciting Customer Feedback Telephone Contact Focus Groups Customer Service Surveys

Actively Solicited Customer Feedback Approaches Slide 4 of 6 Focus Group Steps Figure 5.5 Identify Purpose Narrow Scope of Questions Select Target Population Develop Questions Run Multiple Groups Summarize and Develop Common Themes

Actively Solicited Customer Feedback Approaches Slide 5 of 6 Steps in Developing a Useful Survey Identifying customer requirements Developing and validating the instrument Implementing the survey Analyzing the results

Actively Solicited Customer Feedback Approaches Slide 6 of 6 Reliability and Validity Figure 5.8

Passively Solicited Customer Feedback Approaches 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. Examples customer research cards customer response lines web site inquires.

Managing Customer Retention and Loyalty 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. 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.

Customer Relationship Management Systems Systems created to mine data including personal, internet, process and customer preference information to improve customer service and retention. Manage 3 phases of CRM Acquisition Retention Enhancement

Customer Relationship Management Systems CRM Functions by Category Customer-centric activities Enterprise capabilities Customer acquisition Sales management Customer retention and enhancement

A Word on Excellent Design Not all good ideas come from customers. Ready-Fire-Aim A method that focuses on getting new technology to the market and then determining how to sell the product. Good customer intelligence coupled with innovative research and development programs appears to be the best marriage of resources.

Summary Slide 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

Summary Slide 2 of 2 Actively Solicited Customer Feedback Approaches Passively Solicited Customer Feedback Approaches Managing Customer Retention and Loyalty Customer Relationship Management (CRM) Systems A Word on Excellent Design