Total Quality Management BUS 3 – 142 Voice of the Customer Week of Feb 14, 2011

Page 2 2 Case 1-2: Granite Rock Company, page 29

Page 3 3 Key Points about Customer Relationships –Customers tell twice as many people about bad experiences as they tell people about good experiences –If a company resolves complaints quickly and well, then 70% of the upset customers will remain –Keeping customers is more profitable than finding new customers  Service organizations rely on repeat business for ~90% of revenue  The cost of finding a new customer is six (6) times greater than the cost of keeping an existing customer –Approximately 80% of new product and service ideas come from customer ideas

Page 4 4 Internal and External Customers –Internal Customers are defined as the name suggests:  Individuals receiving goods or services from within the same organization  Applies within and across processes and functions  Upstream and downstream operators on an assembly line (within)  Purchasing, Receiving, and Accounts Payable working together on the Procurement process (internal)  Sales, Operations, and Finance working together on Revenue and Margin planning (internal) –External customers engage in a financial transaction  Goods and services provided in exchange for money

Page 5 5 Customer Expectations Figure 5-1 Expectations change over time – The “bar is raised”

Page 6 6 Customer Relationships –Customer relationships need to be managed like other valuable assets needs to be managed –There are four (4) components of Customer Relationship Management Complaint resolution Feedback Guarantees Corrective Action Customer “relationships” are different from customer “relations”

Page 7 7 Sources of Complaints over Quality –Regulatory complaints –Employee complaints –Customer complaints  Now includes social media, Yelp, Angie’s List, Consumers Reports, etc….  Domino’s Pizza commercial (pictures of poorly delivered pizza)  Less reliance on 800 number phone banks, more internet self serve The small percentage of customers who complain are likely to represent a much larger population of dissatisfied customers

Page 8 8 Customer Complaint Resolution The goal is to turn a negative situation into at least a neutral situation –Compensate the customer for the loss When there are damages, significant attempts should be made to make the damaged party whole –Sincerely apologize –Make resolution easy

Page 9 9 Customer Defections –Customers are classified as active vs. inactive. If the inactivity can be attributable to a quality or performance issue, then corrective action must be taken –Defections are often the SILENT dissatisfied customers and must be monitored and turned around A critical piece of data is to monitor customers who do NOT repeat their business

Page Guarantees –Unconditional  No small print –Meaningful  Address ALL customer grievances  Provide full recovery from financial loss –Understandable  Items in and out of scope explicitly stated –Communicable  Can often double as a marketing tag line –Easy for the Customer to act on  “No questions asked”  Free Sshipping  Etc… Five (5) Key Elements of a Good Guarantee

Service Quality

Page Determinates of Service Quality (Table 5-2) 1.Reliability –Consistency and Dependability –Keep your promises 2.Responsiveness 3.Competence –Knowledge & skill of the individual –Resources of the Firm 4.Access –Approachability –Ease of Contact 5.Courtesy 6.Communication 7.Honesty 8.Confidentiality 9.Empathy 10.Tangibles & Deliverables

Page Gaps The difference between the “is” and “should be” conditions is called a “Gap” Will be covered later in the Semester

Page Quality and Supplier Relations –If a Supplier’s process consistently meets or exceeds Customer Specifications, consider the following:  Increasing spend on the items (if not Single Source)  Introducing new items to be supplied  Partnerships and collaborative design where appropriate –If a Supplier’s process misses Customer Specifications, consider:  Changing the Supplier  Changing the Specification (when possible)  Improving the Supplier (if business case justifies)

Page Cost To Serve –Profitable vs. Unprofitable customers Specifications vs. Price Packaging requirements Exceptions to be managed Loss leaders –Premiums for premium service Range of products – not tightest specs while other suppliers provide easier-to-produce items Expedited shipment modes Consigned inventory Frequent design and schedule changes