Chapter Seven: Customer Satisfaction, Retention, and Loyalty

Text: Quality Management 5th edition Authors: David Goetsch & Stanley Davis Where appropriate reference text page numbers will be on bottom of slides

Customer Satisfaction, Retention, and Loyalty MAJOR TOPICS Understanding Who Is a Customer Understanding Customer-Defined Quality Customer Satisfaction Customer Focus Identifying Customer needs Retention & Loyalty Customer Loyalty Model

An organization’s survival depends upon customers 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 organization’s survival depends upon customers

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. Total Quality Perspective – External Customers define quality; Internal Customers produce it

Customer Defined Quality Only Customers can tell you what they want and how they want it. Must work with customers to determine their needs and collaborate with suppliers & operations to deliver them. Components of Customer defined quality Identifying Customer needs Customer focus Customer Satisfaction

Customer Satisfaction 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. Focus must be on the customer The key to establishing a customer focus is to put employees in touch with customers so that customer needs are known and understood.

Customer Satisfaction To ensure customer satisfaction, it must be renewed with every new purchase. This cannot be accomplished if quality, even though it is high, is static. Satisfaction implies continual improvement. Continual improvement is the only way to keep a customer satisfied and loyal.

Keys to Customer Satisfaction Establishing a customer focus. put employees in touch with customers so that customer needs are known and understood. Continual improvement Process improvement throughout the supply chain; from raw materials to delivery Making things better, even when they are not broken

Customer Satisfaction Customer Satisfaction is critical, but it is not the end of the race. It is a means to an end, not the end. The goal is Customer Retention

What is a reliable customer? Reliable customers are the most important customers. A reliable customer is one who buys repeatedly from the same organization. Customers who are satisfied with the quality of their purchases from an organization become reliable customers

Customer Focus Traditional management practices that take the management by results approach are inward-looking. An organization with a customer focus is outward-looking. The key to establishing a customer focus is putting employees in touch with customers/customer information and empowering those employees to act as necessary to satisfy the customers.

Customer Focus The employee-customer interaction is a critical element in establishing a customer focus. 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. Actual contact may be in person, by telephone, or through reviewing customer- provided data. Written surveys can be used, but they will not produce the level of feedback that personal contact can generate.

Identifying Customer Needs Scholtes’ 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.

Six-Step Strategy Speculate About Results Before gathering information about customer needs, spend some time speculating about what might be learned. The purpose of this step is to help representatives of the organization determine if they are in touch with customer needs. Develop an Information Gathering Plan Before implementing the entire information-gathering plan, conduct a smaller pilot study involving just a few customers. This will identify problems with the information-gathering methodology that should be corrected before you proceed on a larger scale. Gather Information After the methodology has been appropriately refined, gather information in a timely manner.

Six-Step Strategy Analyze the Results Results should be analyzed carefully and objectively. Do they match the speculated results from the first step? How do they agree and disagree? What problems did customers identify? What strong points? Were there trends? How many customers complained of the same problem? What changes in the product or services relating to it were suggested?

Six-Step Strategy Check the Validity of Conclusions Take Action Customers can be a valuable source of help. Select several customers and share the conclusions with them. Do they agree with the conclusions? Share the conclusions with other people in the organization and get their feedback. Adjust your conclusions as needed based on this external and internal feedback. Take Action Based on the conclusions, what changes need to be made? Which of these changes are short-term in nature, and which are long-term? Which can be made immediately and which will require longer time? Take any corrective action that can be done immediately, and lay out a plan for completing any that are long-term in nature. Meet with customers and let them know what is going to be done and when. Make sure that changes are made to the extent possible, in the same order of priority as that dictated by customer needs.

Customer Feedback Should never rely solely on Customer feedback Feedback processes have three major weaknesses Feedback is activated by problems the customer already is experiencing Assume the customer will contact you Most never do Do not buy product again Tell other people Information is typically not complete Product may no longer be available Missing code information Potential for fraud

Retention and Loyalty 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.

Retention and Loyalty 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.

Customer Loyalty Model The customer loyalty model consists of four components: business performance, global perceptions, loyalty behaviors, and financial outcomes.

Customer Loyalty Model Business Performance When evaluating the performance of an organization they do business with, customers consider a variety of factors: product quality – attributes, features, usability, compatibility, reliability service quality – sales, after-purchase service, billing relationship quality – communication, availability, responsiveness image strength – when other performance indicators are equal, the organization’s image can be an important consideration Price perceptions – initial purchase price, cost of maintenance and repairs, cost of upgrades

Customer Loyalty Model Global (general) Perceptions When evaluating an organization, customers take into consideration factors which may not be easily measured…which maybe a general feeling or perception rather than empirical data customers might form good or bad feelings about overall satisfaction, their willingness to recommend the organization to other potential customers, their willingness to do business with the organization, the extent to which the organization met their needs, or the value they received for their money.

Customer Loyalty Model Loyalty Behaviors Measure the defection rate of its customers. The business volume of individual customers. Is the volume of business for the customer going up or down?

Customer Loyalty Model Financial Outcomes Market share – high customer loyalty leads to a larger market share which, in turn, leads to better financial outcomes. Reduced costs – repeat customers cost less to deal with than new customers, which means that customer loyalty decreases the cost of doing business. Employee attitudes – positive employee attitudes promote positive customer relations. Profit – increased market share can results in increased profits provided the cost of doing business is held level or even decreased by customer loyalty. Shareholder value – customer loyalty can result in higher profits which, in turn, are a key driver of shareholder value.