Chapter 3

Customer Focus

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Importance of Customers
• “Without customers, you don’t have a business.”
o Don Peppers and Martha Rogers, “Customers Don’t Grow on
Trees,” Fast Company magazine, July 2005
• “If the customer is satisfied with the whole experience with the
product, then you have a quality product.”
o Executive Director of Global Quality Strategy at General Motors

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Satisfying Customers
• 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.
o Meeting specifications, reducing defects and errors, and resolving
complaints.
o Designing new products that truly delight the customer
o Responding rapidly to changing consumer and market demands
o Developing new ways of enhancing customer relationships

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Customer Focus in ISO 9000
• “Top management shall ensure that customer requirements are
determined and are met with the aim of enhancing customer satisfaction.”
• The standards require that the organization determine customer
requirements, including delivery and post-delivery activities, and any
requirements not stated by the customer but necessary for specified or
intended use.
• The organization must establish procedures for communicating with
customers about product information and other inquiries, and for
obtaining feedback, including complaints.
• The standards require that the organization monitor customer perceptions
as to whether the organization has met customer requirements; that is,
customer satisfaction.
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Key Customer-Focused Practices for Performance
Excellence (1 of 2)
• Identify the most important customer groups and markets, considering
competitors and other potential customers, and segment the customer base to
better meet differing needs.
• Understand both near-term and longer-term customer needs and expectations
(the “voice of the customer”) and employ systematic processes for listening
and learning from customers, potential customers, and customers of
competitors to obtain actionable information about products and customer
support.
• Understand the linkages between the voice of the customer and design,
production, and delivery processes; and use voice-of-the-customer
information to identify and innovate product offerings and customer support
processes to meet and exceed customer requirements and expectations, to
expand relationships, and to identify and attract new customers and markets.

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Key Customer-Focused Practices for Performance
Excellence (2 of 2)
• Create an organizational culture and support framework that allows
customers to easily contact an organization to conduct business, receive a
consistently positive customer experience, provide feedback, obtain
assistance, receive prompt resolution of their concerns, and facilitate
improvement.
• Manage customer relationships that build loyalty, enhance satisfaction and
engagement, and lead to the acquisition of new customers.
• Measure customer satisfaction, engagement, and dissatisfaction; compare
the results relative to competitors and industry benchmarks; and use the
information to evaluate and improve organizational processes.

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Quality Profile: City of Fort Collins, Colorado
• The City ranks in the top 10 percent of cities nationally for the
following measures: best place to live, best place to work, quality of
culture and recreation, availability of job opportunities, air quality, and
attractiveness.
• Senior leaders use a “co-creation model” to work collaboratively with
residents and businesses on solutions to urban challenges.
Collaborative methods include neighborhood gatherings, telephone
town halls, traditional public meetings, interactive website features,
and mobile apps.
• The City optimizes its use of information technology to listen to and
provide support for its residents and other customers.

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Quality Profile: K&N Management
• Vision “to become world famous by delighting one guest at a time.”
• Builds and maintains a focus on “guest delight,” relying on innovation
and technology to create product offerings that meet or exceed guest
requirements.
• All leaders carry a personal digital assistant (PDA) that alerts them of
guest comments and complaints and daily performance results.
• K&N Management’s restaurants significantly outperform local
competitors and national chains.

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Customer Satisfaction
• …“the result of delivering a product or service that meets customer
requirements.”
• Customer satisfaction drives profitability. The typical company gets 65
percent of its business from existing customers, and it costs five times
more to find a new customer than to keep an existing one happy.
• Businesses with a 98 percent customer retention rate are twice as
profitable as those at 94 percent.

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Customer Engagement
• .. customers’ investment in or commitment to a brand and
product offerings.
• Characteristics:
o customer retention and loyalty,
o customers’ willingness to make an effort to do business with the
organization, and
o customers’ willingness to actively advocate for and recommend the
brand and product offerings.

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American Customer Satisfaction Index (ACSI)
• Measures customer satisfaction at a national level
• Introduced in 1994 by University of Michigan and American Society for
Quality
• Based on results of telephone interviews conducted in a national
sample of 46,000 consumers who recently bought or used a
company’s product or service.
• Web site: www.theacsi.org

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Figure 3.1: ACSI Model

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Identifying Customers
• Consumers - those people who ultimately purchase and use a
company’s products.
• Internal customers - the recipient of another’s output (which could be
a product, service or information)
• External customers - those who fall between the organization and
the consumer, but are not part of the organization.

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Figure 3.2: AT&T Customer-Supplier Model

The natural customer-supplier linkages among individuals, departments, and

functions build up the “chain of customers” throughout an organization that
connect every individual and function to the external customers and
consumers, thus characterizing the organization’s value chain.

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Customer Segmentation

• Demographics
• Geography
• Volumes
• “Vital few” and “useful many”
• Profit potentiala

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Net Present Value of the Customer (NPVC)

• …the total profits (revenues associated with a customer

minus expenses needed to serve a customer) discounted
over time.
• NPVC is often used to segment customers by profit
potential.

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Key Product Quality Dimensions
• Performance – primary operating characteristics
• Features – “bells and whistles”
• Reliability – probability of operating for specific time and conditions of use
• Conformance – degree to which characteristics match standards
• Durability - amount of use before deterioration or replacement
• Serviceability – speed, courtesy, and competence of repair
• Aesthetics – look, feel, sound, taste, smell

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Table 3.2 Quality Dimensions of a Manufactured
Product and Service
Quality Dimension Manufactured Product (Guitar Amplifier) Service Product (Checking Account)
Performance Signal-to-noise ratio; power (wattage) Speed of online transactions
Features SD card; drum kits Automatic bill paying
Conformance Accurate tuner Accuracy
Reliability Mean time to failure Receiving statements on time every
month
Durability Not damaged with frequent handling and Keeping pace with industry trends and
transportation product offerings
Serviceability Ease of repair Prompt resolution of errors
Aesthetics Location and size of knobs and controls Appearance of bank lobby

Source: Adapted and modified from Paul E. Pisek, “Defining Quality at the Marketing/Development Interface,”
Quality Progress, Vol. 20, No. 6, pp. 28–36. Copyright © 1987 American Society for Quality.

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Key Dimensions of Service Quality
• Reliability – ability to provide what was promised
• Assurance – knowledge and courtesy of employees and ability to
convey trust
• Tangibles – physical facilities and appearance of personnel
• Empathy – degree of caring and individual attention
• Responsiveness – willingness to help customers and provide prompt
service

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Example 3.1 Classifying Customer Needs on
Dimensions of Service Quality
A car rental agency surveys its customers on the following dimensions.
• Cleanliness of the rental facility
• Courtesy of staff
• Efficiency of vehicle pickup/return
• Cleanliness of vehicle
• Professionalism of staff in explaining the contract and options
We may classify each of these according to the five service quality dimensions as follows:
1. Cleanliness of the rental facility: tangibles
2. Courtesy of staff: assurance
3. Efficiency of vehicle pickup/return: reliability
4. Cleanliness of vehicle: tangibles
5. Professionalism of staff in explaining the contract and options: assurance
Note that none of these dimensions address empathy or responsiveness. Later in this chapter we will
discuss how to design good customer surveys.

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Kano Model of Customer Requirements

• Dissatisfiers (“must haves”): expected requirements

that cause dissatisfaction if not present
• Satisfiers (“wants”): expressed requirements
• Exciters/delighters (“never thought of ”): unexpected
features

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Voice of the Customer

• …customer requirements, as expressed in the customer’s own terms

• 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.

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Customer Listening Posts
• Comment cards and formal surveys
• Focus groups
• Direct customer contact
• Field intelligence
• Complaints
• Internet and social media monitoring

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Analyzing Voice of the Customer Data
Affinity diagram

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Example 3.2 Creating an Affinity Diagram for
Customer Needs
Suppose that a banking team determined that the most important requirement for mortgage
customers is timely closings.36 Through focus groups and other customer interviews,
customers listed the following as key elements of timely closings:
1. Expeditious processes 8. Modem link between computers
2. Reliability 9. Buyer orientation
3. Consistent and accurate information 10. Diversity of programs
4. Competitive rates 11. Mutual job understanding
5. Notification of industry changes 12. Flexibility
6. Prior approvals 13. Professionalism
7. Innovation 14. Timely and accurate status reports
The company’s team would group these items into logical categories (Post-It® notes are often
used because they can be easily moved around on a wall) and provide a descriptive title for
each category. The result is an affinity diagram, shown in Figure 3.4 (see next slide), which
indicates that the key customer requirements for timely closings are communication, effective
service, and loan products.
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Figure 3.4: Affinity Diagram

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Gap Model (Figure 3.5) Linking the VOC to Internal
Processes

Perceived quality is a comparison of actual quality to expected quality

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Building a Customer-Focused Organization

1. Making sincere commitments to customers

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

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Moments of Truth
• Customer satisfaction or dissatisfaction takes place during moments
of truth—every interaction between a customer and the organization.
• Example (airline)
o Making a reservation
o Purchasing tickets
o Checking baggage
o Boarding a flight
o Ordering a beverage
o Requests a magazine
o Deplanes
o Picks up baggage
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Customer Contact Requirements

• …measurable performance levels or expectations that define the

quality of customer contact with an organization.
o Technical requirements: response time, answering the telephone within
two rings or shipping orders the same day
o Behavioral requirements: using a customer’s name whenever possible

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Figure 3.6 St. Luke’s Hospital of Kansas City
Customer Contact Requirements
1. Greet patients/guests by introducing myself, address patients/guests by last name unless otherwise
told.
2. Ask sincerely, “How may I help you?”
3. Knock, request permission to enter the room, and explain what I am going to do.
4. Complete initial assessment on all patients within eight hours.
5. Acknowledge all patient/guests requests, and be accountable for follow-up.
6. Address all complaints within 24 hours or less.
7. Introduce any replacement caregiver.
8. Promote family-centered care: listen thoughtfully to all patients/guests, and provide timely
communication to the appropriate person(s) for action.
9. Respect and acknowledge diversity, culture, and values of my patients, their family, visitors, and my
coworkers.
10. Maintain confidentiality of all information.
11. Know, or have access to, legal and regulatory requirements and standards of care related to my
specific responsibilities.
12. Thank my customers for choosing Saint Luke’s Hospital.

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Service Recovery and Complaint Management
• The average company never hears from 96 percent of its unhappy
customers. Dissatisfied individual and business customers tend not to
complain. For every complaint received, the company has 26 more
customers with problems, six of whom have problems that are serious.
• Of the customers who make a complaint, more than half will again do
business with that organization if their complaint is resolved. If the
customer feels that the complaint was resolved quickly, the figure
jumps to 95 percent.
• Customers who remain unsatisfied after complaining result in
substantial amounts of negative word of mouth.

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Complaint Resolution
• Acknowledge that a customer had a problem (“We’re sorry you had a
problem”)
• Express empathy for the inconvenience that the customer
encountered; willingly accepting the complaint (“Thanks for letting us
know about it”)
• Describe corrective action concisely and clearly (“Here’s what we’re
going to do about it”)
• Appeal to the customer for continued loyalty (“We’d appreciate you
giving us another chance”).

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Figure 3.7: Complaint Management Process at
Cargill Corn Milling

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Manage Customer Relationships
• Customer-supplier partnerships - long-term relationships
characterized by teamwork and mutual confidence
• Customer-focused technology and analytics
o Most major companies use advanced analytics to “mine” and understand
customer data. Grocery and retail stores use loyalty cards to capture and
analyze detailed data about customer purchase behavior.
o Customer relationship management (CRM) software, designed to help
organizations increase customer loyalty, target their most profitable
customers, and streamline customer communication processes.

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Measuring Customer Satisfaction and Engagement
1. Discover customer perceptions of how well the organization is doing
in meeting customer needs, and compare performance relative to
competitors.
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.

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Designing Satisfaction Surveys
• Identify purpose – who will make decisions using the survey results?
• Identify the customer
• Determine who should conduct the survey (internal, third party, etc.)
• Select the appropriate survey instrument (written, telephone, face-to-
face, etc.)
• Design questions and response scales to achieve actionable results:
o responses are tied directly to key business processes, so that what needs
to be improved is clear; and information can be translated into
cost/revenue implications to support the setting of improvement priorities.

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Table 3.3 Examples of Likert Scales Used for
Customer Satisfaction Measurement

Neither Poor nor

Very Poor 1 Poor 2 Good 4 Very Good 5
Good 3

Strongly Neither Agree nor

Disagree 2 Agree 4 Strongly Agree 5
Disagree 1 Disagree 3

Very
Neither Satisfied
Dissatisfied Dissatisfied 2 Satisfied 4 Very Satisfied 5
nor Dissatisfied 3
1

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Figure 3.11: Performance-Importance Comparison

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Why Customer Satisfaction Efforts Fail
• 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

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Measuring Customer Loyalty
• 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

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Net Promoter Score (NPS)
• Developed by (and is a registered trademark of) Fred Reichheld, Bain &
Company, and Satmetrix
• “What is the likelihood that you would recommend us?” evaluated on a
scale from 0 to 10.
o Promoters: scores of 9 or 10 are usually associated with loyal customers
who will typically be repeat customers (“promoters”)
o Passives: scores of 7 or 8 are associated with customers who are satisfied
but may switch to competitors
o Detractors: scores of 6 or below represent unhappy customers who may
spread negative comments
• NPS is the percentage of promoters minus the percentage of detractors.

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Example 3.4 Calculating a Net Promoter Score
A sample of 300 customers who responded to the question “What is the
likelihood that you would recommend us?” resulted in the following:
Score Frequency The total number of promoters is 63 + 82 = 145;
10 63
the total number of detractors is 21 + 12 + 6 + 7 +
9 82
3 + 0 + 1 = 50. As a percentage of the total, these
8 64
are 48.3% and 16.7%, so the net promoter score
7 41
6 21
is 48.3% − 16.7% = 31.6%.
5 12
4 6
3 7
2 3
1 0
0 1

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Customer Perceived Value

• Customer Perceived value (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.

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Example 3.5 Assessing Competitive Performance
In assessing the relative importance of four attributes of a casual restaurant, a customer might
assign 30 percent to menu variety, 20 percent to food quality, 10 percent to atmosphere, and
40 percent to value. This essentially provides a ranking of these attributes as value, menu
variety, food quality, and atmosphere. In rating the performance of comparing two restaurants,
A and B, we might find the following:
Attribute Relative Importance Restaurant A Restaurant B Relative Performance
Menu variety 30% 8 10 −2
Foot quality 20% 7 4 3
Atmosphere 10% 8 8 0
Value 40% 7 6 1

By multiplying the relative importance values by the performance ratings and summing, we
see that restaurant A has a weighted value of 7.4 while restaurant B has a weighted value of
7.0. Therefore, the weighted difference is 0.4. Overall, restaurant A has a higher perceived
value but could improve its perceived value by improving its menu variety. Such information
becomes the basis for strategic decisions.
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Quality in Practice: Harley-Davidson
Key Issues for Discussion
1. How do various dimensions of quality introduced in this chapter align
with the quality characteristics that are important to Harley-Davidson
and its customers?
2. Discuss how Harley-Davidson’s approaches help it to maintain a
focus on its customers and enhance customer satisfaction, loyalty,
and engagement? You may want to research and include information
from recent annual reports.

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Quality in Practice: Unique Online Furniture, Inc.
Key Issues for Discussion
1. How does Unique Online Furniture, Inc.’s key customer requirements
compare with the Key Customer-Focused Practices in Table 3.1?
2. Can you suggest other ways to use the Client Experience Checklist
(Figure 3.14) to gauge customer satisfaction levels and/or enhance
the customer’s positive experience with Unique Online Furniture?

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