Quality Management for Organizational Excellence Lecture/Presentation Notes By: Dr. David L. Goetsch and Stanley Davis Based on the book Quality Management for Organizational Excellence (Sixth Edition)

Seven: Customer Satisfaction, Retention, and Loyalty MAJOR TOPICS Understanding Who Is a Customer Understanding Customer-Defined Quality Identifying External Customer Needs Identifying Internal Customer Needs Communicating with Customers Using Customer Feedback to Make Design Improvements

Seven: Customer Satisfaction, Retention, and Loyalty (Continued) Customer Satisfaction Process Customer-Defined Value Customer Value Analysis Customer Retention Establishing a Customer Focus Recognizing the Customer-Driven Organization Value Perception and Customer Loyalty Customer Loyalty Model Customer Loyalty versus Customer Profitability Customers as Innovation Partners

Seven: Customer Satisfaction, Retention, and Loyalty (Continued) Historically, customers were considered who used a company’s products and suppliers were outsiders who provided the materials needed to produce the products. A more contemporary view is that every organization has both internal and external customers. An external customer is the one referred to in the traditional definition. An internal customer is any employee whose work depends on that of employees whose work precedes his or hers.

Seven: Customer Satisfaction, Retention, and Loyalty (Continued) In a total quality setting, customers define quality. Therefore, customer satisfaction must be the highest priority. Customer satisfaction is achieved by producing high-quality products that meet or exceed expectations. It must be renewed with each purchase. The key to establishing a customer focus is to put employees in touch with customers so that customer needs are known and understood.

Seven: Customer Satisfaction, Retention, and Loyalty (Continued) The six-step strategy for identifying customer needs is as follows: speculate about results, develop an information-gathering plan, gather information, analyze the results, check the validity of conclusions, and take action. Customer needs are not static. Therefore, constant contact with customers is essential in a total quality setting. Whenever possible, this contact should be in person or by telephone. Written surveys can be used, but they will not produce the level of feedback that personal contact can generate.

Seven: Customer Satisfaction, Retention, and Loyalty (Continued) Quality function deployment (QFD) is a mechanism for putting into operation the concept of building in quality. It makes customer feedback a normal part of the product development process, thereby improving customer satisfaction. Measuring customer satisfaction alone is not enough. Many customers who defect are satisfied. Organizations should, in addition, measure customer retention. Organizations should go beyond satisfying customers to creating value for them in every supplier-customer interaction.

Seven: Customer Satisfaction, Retention, and Loyalty (Continued) The customer loyalty model consists of four components: 1) business performance, 2) global perceptions, 3) loyalty behaviors, and 4) financial outcomes. The goal of organizations should be more than just earning customer loyalty; it should be earning the loyalty of profitable customers. Organizations should never assume a positive correlation between customer loyalty and profitability, nor should they assume that a customer who is initially profitable will always be profitable.

Seven: Customer Satisfaction, Retention, and Loyalty (Continued) An innovative approach to product development that is gaining acceptance is turning customers into innovation partners. With this approach, the customer is given a technological tool kit for designing his or her own products and making product innovations. This approach is implemented using the following steps: develop a tool kit for customers that is easy to use increase the flexibility of your own production processes carefully select the first customers to use your took kit continually improve your tool kit adapt your business practices to suit the innovation partnership approach.