CH3. Focusing On Customers

z
FOCUSING ON CUSTOMERS
THE IMPORTANCE OF CUSTOMER SATISFACTION AND Designing Satisfaction Surveys

LOYALTY Analyzing and Using Customer Feedback
QUALITY PROFILES: Custom Research Incorporated Why Many Customer Satisfaction Efforts Fail
and BI Customer Perceived Value
The American Customer Satisfaction Index CUSTOMER FOCUS IN THE BALDRIGE CRITERIA, ISO
CREATING SATISFIED CUSTOMERS 9000, AND SIX SIGMA
Leading Practices QUALITY IN PRACTICE: Understanding the Voice of the
IDENTIFYING CUSTOMERS Customer at LaRosa’s Pizzerias
Customer Segmentation QUALITY IN PRACTICE: Customer Focus at
UNDERSTANDING CUSTOMER NEEDS Amazon.com
GATHERING AND ANALYZING CUSTOMER REVIEW QUESTIONS
INFORMATION DISCUSSION QUESTIONS
CUSTOMER RELATIONSHIP MANAGEMENT PROJECTS, ETC.
Accessibilty and Commitments CASES The Case of the Missing Reservation
Selecting and Developing Customer Contact American Parkinson’s Disease
Employees Association Center
Customer Contact Requirements Gold Star Chili: Customer and Market
Effective Complaint Management Knowledge
Strategic Partnerships and Alliances CapStar Health Systems: Customer
Exploiting CRM Technology Focus
MEASURING CUSTOMER SATISFACTION
F eargal Quinn is the executive chairman of Superquinn, a 5,600-employee, 19-store

chain of supermarkets in Ireland. In every deed, the focus is on persuading the cus-
tomer to return.1 Quinn calls it the “boomerang principle.” His tireless and inventive
exploration of this principle earned him the reputation as Ireland’s “pope of cus-
tomer service.” Superquinn inspires such intense devotion that many customers say
that they drive out of their way—and past several of its biggest competitors—to shop
there. At Superquinn, you don’t have to pay for broccoli stalks and carrot tops you
152 Part 2 Quality in High-Performance Organizations
never use; the store provides scissors to cut off what you don’t want. The checkout
technology provides a running tab on a screen that faces the customer, and then orga-
nizes the final receipt by product category, rather than the order in which products
were scanned. Every store features a professionally staffed playhouse where mothers
can leave young children while they shop. The program costs the company a bundle,
but it has earned even more in loyal customers and reputation. Kindergarten teachers
around the country (Ireland doesn’t have preschool) recognize “Superquinn kids” as
the most socialized and school-ready of each new class. Each month, Superquinn
managers are required to spend time in customers’ shoes, shopping, asking ques-
tions, lodging complaints, waiting in line. Superquinn’s fresh produce, butchers, and
fishmongers are mixed in with futuristic flat screen displays, digital shelf labels, and
kiosks that link customers to their bank, their SuperClub account, as well as to wine
recommendations and interactive recipe planners. Quinn notes that “What seems
reasonable or even valuable from the perspective of the company is often glaringly
wrong from the point of view of the customer.”
In Japanese, a single word, okyakusama, means both “customer” and “honorable
guest.” World-class organizations are obsessed with meeting and exceeding cus-
tomer expectations. Many companies such as The Ritz-Carlton Hotel Company,
Disney, and Nissan Motor Co.’s Infiniti division were built on the notion of satisfying
the customer. Home Depot, cited by Wal-Mart’s CEO as the best retail organization in
the United States, has as its service philosophy: “Every customer has to be treated
like your mother, your father, your sister, or your brother.”2
Other firms have to learn to be customer-
focused. Many entrepreneurial start-up com- To create satisfied customers, the
panies, for example, create new markets with organization needs to identify cus-
innovative products; however, this process tomers’ needs, design the production
essentially tells customers what they want. As and service systems to meet those
customers became more sophisticated and needs, and measure the results as the
competition increases, these firms often face a basis for improvement.
competitive crisis and must begin to listen
more closely to customers. Many organizations simply have not developed adequate
management practices in this area. A Deloitte and Touche research study noted that
83 percent of executives surveyed said that the quality of their customer relationships
will be a critical factor to compete in the twenty-first century, yet only 56 percent of
them felt they had strong capabilities in this area.3
The organization must also use customer focus as a key driver for its strategic
planning activities. This chapter focuses on this concept of customer-driven quality.
The Quality Profiles on the following page provide two examples of organizations that
focus considerable attention on their customers.
THE IMPORTANCE OF CUSTOMER SATISFACTION AND LOYALTY

Quality Spotlight
Avis Avis recognizes two ways to increase market share in the rental car business: (1) by
buying large volumes of corporate business with extremely low rates, and (2) by
improving customer satisfaction levels,
thereby increasing repurchase intent and Customer wants and needs drive
repeat business. Avis stated that it will not buy competitive advantage, and statis-
business at low rates for the sole purpose of tics show that growth in market
increasing market share. Avis’s marketing share is strongly correlated with
department uses a full range of research and customer satisfaction.
analysis to keep pace with changing market
Chapter 4 Focusing on Customers 153
z QUALITY PROFILES e dia C

ltim
Mu
as
e
CUSTOM RESEARCH INCORPORATED AND BI CUSTOM RESEARCH INC.
Custom Research Inc. (CRI), is a national mar- to improve performance. Almost every BI account
keting research firm based in Minneapolis with requires a customized product or service.
about 100 employees. CRI adopted a highly Improvement efforts are driven by the goal of cus-
focused customer-as-partner approach in 1988, tomer delight and grouped under a process man-
and leverages an intensive focus on customer agement system known as the “BI Way,” which
satisfaction, a team-oriented workforce, and includes training, problem-solving techniques,
information technology to pursue individual- process improvement, incentives, and a focus on
ized service and satisfied customers. Senior results. BI has identified five corporate objectives
management aimed for high levels of consis- that are front and center in every decision made by
tency and competence in delivering its services the company: revenue, productivity, customer sat-
by organizing, systematizing, and measuring isfaction, associate satisfaction, and added value.
quality. Each research project is monitored on Every action at BI must support at least one of
four essentials: accuracy, on time, on budget, these objectives, and all plans, improvement
and meeting or exceeding client expectations. teams, and measures that track progress and
CRI’s business system is focused on a “Surprise quantify the company’s success are tied to these
and Delight” strategy, supported by five key objectives. BI first began using the Baldrige
business drivers: people, processes, require- approach to quality and performance improve-
ments, relationships, and results. ment in 1990, and applied for 10 consecutive years
Customer surveys have shown that CRI before winning in 1999, clearly demonstrating a
meets or exceeds its clients’ expectations on 97 commitment to continuous improvement and the
percent of its projects. More impressive is the persistence needed to reach a high level of perfor-
fact that 70 percent of its clients said that the mance.
company exceeded expectations. CRI was rated Company revenue grew by a cumulative 47
by 92 percent of clients as “better than competi- percent over the second half of the 1990s. BI con-
tion” on the key dimension “overall level of ser- sistently outperformed its two key competitors
vice.” CRI received a Baldrige award in 1996. on customer-focused results. In 1998, for
BI develops business improvement and incen- instance, a key measure of overall customer sat-
tive programs to help other companies to achieve isfaction scored 8.5 on a 10-point scale compared
their own goals by enhancing the performance of with competitor ratings of 7.9 and 7.6; on-time
the people who hold the keys to success—cus- performance scored 8.1 compared to 7.9 and 7.7
tomers’ employees, distributors, or consumers. As for competitors; and a measure of accurate per-
one of the three major players offering such pro- formance was 8.1 versus 7.8 and 7.7 for competi-
grams across the country, BI employs more than tors. Associate retention was 83 percent, which
1,400 associates. Most are located at its headquar- was particularly strong in a tight Twin Cities
ters in Minneapolis. Others are in Eden Valley, labor market.
Minnesota; Sioux Falls, South Dakota; and in 21
U.S. sales offices. BI works behind the scenes to
Source: Malcolm Baldrige National Quality Award, Profiles of
help their customers succeed by integrating com- Winners, National Institute of Standards and Technology, Depart-
munications, training, measurement, and rewards ment of Commerce.
trends and develops programs that respond to customers’ needs. Through informa-
tion technology, Avis queries all customers at car return to monitor trends and levels
of customer satisfaction. It also calls 1,500 customers each month to assess in detail
satisfaction levels in each of nine service delivery areas.4
Customer satisfaction is also an important factor for the bottom line. One study
found that companies with a 98 percent customer retention rate are twice as prof-
itable as those at 94 percent. Studies have also shown that dissatisfied customers tell
at least twice as many friends about bad experiences than they tell about good ones.
Johnson Controls, Inc. (JCI), discovered that 91 percent of contract renewals came
from customers who were either satisfied or very satisfied. A percentage point
increase in the overall satisfaction score was worth $13 million in service contract
renewals annually. JCI also learned that those customers who gave a not satisfied
rating had a much higher defection rate. After seeing the financial impact of customer
satisfaction, JCI made improving customer satisfaction a key initiative.5
Even though satisfaction is important, modern firms need to look further.
Achieving strong profitability and market share requires loyal customers—those who
stay with a company and make positive referrals. Satisfaction and loyalty are very dif-
ferent concepts. To quote Patrick Mehne, the chief quality officer at The Ritz-Carlton
Hotel Company: “Satisfaction is an attitude; loyalty is a behavior.” Customers who are
merely satisfied may often purchase from competitors because of convenience, pro-
motions, or other factors. For example, Cadillac generally receives high ratings in the
American Customer Satisfaction Index (discussed later in this chapter); however, its
market share has declined. This lack of correlation suggests that satisfaction of
Cadillac owners does not necessarily influence their next purchase. Loyal customers
place a priority on doing business with a particular organization, and will often go out
of their way or pay a premium to stay with the company. Loyal customers spend
more, are willing to pay higher prices, refer new clients, and are less costly to do busi-
ness with. As an example, although Home Depot customers spend only about $38
each visit, they shop 30 times annually and
spend more than $25,000 throughout a lifetime.6 A firm cannot create loyal cus-
Carl Sewell, owner of Sewell Cadillac in Dallas, tomers without first creating satis-
calculated that the average lifetime value of a fied customers.
loyal customer for his dealership was $332,000.7
Statistics also show that 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.8
One study of a Tennessee commercial bank found that a 0.1 percentage point
improvement in overall customer satisfaction translated into a 0.6 percentage point
increase in customer retention. Customer satisfaction occurs when products and ser-
vices meet or exceed customer expectations—our principal definition of quality. To
exceed expectations, an organization must deliver ever-improving value to its cus-
tomers. Value, as defined in Chapter 1, is quality related to price. Consumers no
longer buy solely on the basis of price. They compare the total package of products
and services that a business offers (sometimes called the consumer benefit package)
with the price and with competitive offerings. The consumer benefit package influ-
ences the perception of quality and includes the physical product and its quality
dimensions; presale support, such as ease of ordering; rapid, on-time, and accurate
delivery; and postsale support, such as field service, warranties, and technical sup-
port. If competitors offer better choices for a similar price, consumers will rationally
select the package with the highest perceived quality. One example is Midwest
Express Airlines, a Milwaukee-based operation that caters to business travelers.
Midwest Express earned its reputation for providing the “best care in the air” by
offering passengers luxury service at competitive coach or discounted fares. The
airline offers free coffee and newspapers each morning at its gates, fresh-baked
chocolate-chip cookies on afternoon flights, and steak and shrimp at dinner—in
planes with wide leather seats, no more than two across. Such practices have pro-
duced a host of awards from travel magazines and consumer groups. It outperforms
its competitors financially and in terms of the percentage of seats filled.9
If a competitor offers the same quality package of goods and services at a lower
price, customers would generally choose the one having the lower price. However,
lower prices require lower costs if the firm is to continue to be profitable. Quality
improvements in operations reduce costs. Thus, understanding exactly what cus-
tomers want and their perception of value is absolutely crucial to competitive suc-
cess. Businesses must focus on both continually improving both the consumer benefit
package and improving the quality of their internal operations.
In addition to value, satisfaction and loyalty are influenced greatly by service
quality, integrity, and the relationships that organizations build with customers.10
One study found that customers are five times more likely to switch because of per-
ceived service problems than for price concerns or product quality issues.11 As one
small business owner stated, “We build customer loyalty by telling our customers the
truth, whether it is good or bad news.”12
The American Customer Satisfaction Index 13

In 1994 the University of Michigan Business School and the American Society for
Quality (ASQ) released the first American Customer Satisfaction Index (ACSI), an
economic indicator that measures customer satisfaction at the national level. It was
the first cross-industry benchmark in the United States to measure customer satisfac-
tion. Similar indexes previously existed in Sweden and Germany. One of the goals is
to raise the public’s perception and understanding of quality, as do the consumer
price index and other economic indicators. This increased awareness will help to
interpret price and productivity measures and promote customer-driven quality.
The ACSI is based on customer evaluations of the quality of goods and services
purchased in the United States and produced by both domestic firms and foreign
firms with a substantial U.S. market share. The 1994 ACSI provides a baseline against
which customer satisfaction levels can be tracked over time. It is designed to answer
the questions: Are customer satisfaction and evaluations improving or declining for
the nation’s output of goods and services? Are they improving or declining for par-
ticular sectors of industry or specific industries? The index quantifies the value that
customers place on products, and thus drives quality improvement. Companies can
use the data to assess customer loyalty, identify potential barriers to entry within
markets, predict return on investments, and pinpoint areas in which customer expec-
tations are not being satisfied.
The index uses a tested, multi-equation
econometric model to produce four levels of
The econometric model used to pro-
duce ACSI links customer satisfac- indexes: a national customer satisfaction index
tion to its determinants: customer and indexes for seven industrial sectors, 40 spe-
expectations, perceived quality, and cific industries, and 203 companies and agen-
perceived value. Customer satisfac- cies within those industries. ACSI is based on
tion, in turn, is linked to customer results of telephone interviews conducted in a
loyalty, which has an impact on national sample of 46,000 consumers who
profitability. recently bought or used a company’s product or
service. This model is summarized in Figure 4.1.
Figure 4.1 ACSI Model
Perceived Customer
Quality Complaints
Perceived Customer
Value Satisfaction
(ACSI)
Customer Customer
Expectations Loyalty
Source: Courtesy of National Quality Research Center (see endnote 13).
The initial 1994 results showed that nondurable manufacturing scored relatively
high in customer satisfaction while public administration and government services
scored relatively low. However, the overall national index declined continually until
1997, from 74.5 to 71.7, but gradually improved since then, and stood at 73.8 in the
first quarter of 2003. Some of the largest improvements occurred in the retail, finance,
and e-commerce sectors. In fact, Amazon.com achieved the highest score in the
index, closely followed by eBay.
The ACSI is updated on a rolling basis with one to three sectors of the economy
measured each quarter. Magazines such as Fortune and Business Week generally
report current ACSI results; a question later in this chapter will ask you to research
recent trends. Company scores and other information are available from
http://acsi.asq.org/ and the Web links at evans.swlearning.com, http://www.bus
.umich.edu/, and http://www.cfigroup.com/.
In April 2000, a similar European Customer Satisfaction Model was announced. It
is administered by the European Organization for Quality (EOQ) and is based on cus-
tomer evaluations of the quality of goods and services that are purchased in Europe
and produced by both European Community and Non-European Community
companies that have substantial European market share. It provides both national
and European indexes (ECSI). ECSI has been built to be compatible with ACSI to
allow comparison of results outside Europe. More about the index may be found
http://www.eoq.org.
CREATING SATISFIED CUSTOMERS

Figure 4.2 provides a view of the process in which customer needs and expectations
are translated into perceptions during the design, production, and delivery processes.
True customer needs and expectations might be called expected quality. Expected
quality is what the customer assumes will be received from the product. The producer
identifies these needs and expectations and translates them into specifications for
products and services. Actual quality is the outcome of the production process
and what is delivered to the customer. However, actual quality may differ consider-
ably from expected quality if information gets lost or is misinterpreted from one step
to the next in Figure 4.2. For instance, ineffective market research efforts may incor-
rectly assess the true customer needs and expectations. Designers of products and
services may develop specifications that inadequately reflect these needs. Manufac-
turing operations or customer-contact personnel may not deliver according to the
specifications.
Customers will assess quality and develop perceptions (perceived quality) by
comparing their expectations (expected quality) with what they receive (actual
quality). If expected quality is higher than actual quality, then the customer will prob-
ably be dissatisfied. On the other hand, if actual quality exceeds expectations, then
the customer will be satisfied or even surprisingly delighted. Because perceived
quality drives consumer behavior, producers should make every effort to ensure that
actual quality conforms to expected quality. One complication comes from the cus-
tomer who sees and believes that the quality of the product is considerably different
from what he or she actually receives (actual quality), which might be shaped by
advertising or prior negative experiences. Thus, perceptions are not always accurate,
and may even change over time, for example, when a customer finds that the initial
quality of an automobile is high, but begins to experience problems in the long run.
Understanding these relationships requires a system of customer satisfaction mea-
surement and the ability to use customer feedback for improvement. This model sug-
gests that producers must take great care to ensure that customer needs are met or
exceeded both by the design and production process (discussed further in Chap-
ter 7). This effort requires that producers look at processes through the customers’
eyes, not the organization’s. An organization’s focus is often reflected by the
Figure 4.2 Customer-Driven Quality Cycle
Customer needs and expectations

(expected quality)
Identification of customer needs
Translation into product/service specifications

(design quality)
Output
(actual quality)
Customer perceptions
(perceived quality)
Measurement and feedback

measures that it uses to evaluate its performance.

When an organization’s principal focus is on Many organizations still focus
such things as production schedules and cost, more on processes and products
from an internal perspective, rather
productivity, or output quantity rather than ease
than taking the perspective of the
of product use, availability, or cost of ownership, external customer.
it is difficult to create a customer-focused culture.
Many causes of dissatisfaction are not attrib-
utable to production or service defects or employee mistakes.14 Customers may not
use the product correctly or may have unreasonable expectations about what it can do,
marketing sometimes makes promises it cannot keep, or advertising is misleading.
These issues suggest that companies need to pay greater attention to overall customer
experiences that impact perceptions. Such attention might include better user man-
uals or information on product packaging as well as unambiguous advertising.
Leading Practices
Successful companies in every industry engage in a variety of customer-oriented
practices that lead to profitability and market share. These generic practices, and
some specific examples, are described in the following list.
1. They clearly define key customer groups and markets, considering competitors and other
potential customers, and segment their customers accordingly. For example,
Motorola’s Commercial, Government, and Industrial Solutions Sector segments
its customers in two ways, first by world region, and second by sales distribution
channel (direct and indirect). The Ritz-Carlton Hotel Company ranks potential
and current customers by volume, geography, and profit. GTE Directories (now
Verizon Information Services) segments its customers into three distinct groups:
advertisers, consumers, and companies that contract for Yellow Pages services.
Such segmentation recognizes differences among customer groups and allows
organizations to tailor their approaches to the unique needs of the groups.
2. They 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. At Whirlpool, when customers rate a competitor’s product
higher in satisfaction surveys, engineers take it apart to find out why. They also
have hundreds of consumers fiddle with computer-simulated products while
engineers record the users’ reactions on videotape.15 GTE Directories uses four
basic approaches for identifying customer needs and monitoring satisfaction:
(1) primary research, which includes focus groups, surveys, and interviews; (2)
secondary research from monitoring competitors; (3) customer performance
tracking that studies consumer behavior; and (4) customer feedback from sales
representatives. Pearl River School District uses formative and summative
assessment data on individual students and groups; student surveys; student
utilization of offerings, facilities, and services; alumni surveys; educational
research, active student participation in committees; and business focus groups.
3. They understand the linkages between the voice of the customer and design, production,
and delivery processes. This practice ensures that no critical requirements fall
through the cracks, and minimizes the potential gaps between expected quality
and actual quality. Recognizing that many of its customers must drive hundreds
of miles to one of less than 200 Lexus dealerships in the United States, the cor-
poration designed a new service—they converted a truck into a mobile service
station that can go to the customer’s home. Ames Rubber Corporation uses a
closed-loop communication system, called Continuous Supplier and Customer
Involvement. New products begin with a series of customer meetings to create a

product brief, which outlines technical, material, and operational requirements.
The product brief is then forwarded to internal departments to select materials,
processes, and procedures as approved by the customer. The customer evaluates
prototypes until completely satisfied. Finally, a trial production run is made. Not
until the customer approves the results does full-scale production commence.
Pal’s Sudden Service derives service standards from its customer data and infor-
mation, and incorporates them into staff training, reviewing them daily by store
owners, operators, and assistant managers to build customer service skills. The
us Mater
Quality in Practice case, Software Support Center, in the Bonus Materials folder
Bon
ial
s
on the CD-ROM is an example of building operational improvements to increase
customer satisfaction.
4. They build relationships with customers through commitments that promote trust and
confidence, provide easy accessibility to people and information; set effective service
standards; train customer contact employees; and effectively follow-up on products, ser-
vices, and transactions. Eastman Chemical Company has a no-fault return policy
on its plastics products believed to be the only one of its kind in the chemical
industry. A customer may return any plastics product for any reason for a full
refund. This policy was a direct result of Eastman’s customer surveys. Eastman
Chemical also provides a toll-free number through which customers can contact
virtually anyone in the company—including the president—24 hours a day,
seven days a week. Senior managers at Branch-Smith Printing visit key cus-
tomers at least annually, and send a customer newsletter to former, current, and
potential customers four times a year, containing information useful to graphic
designers or production operations and offers a Help Desk e-mail address. Cus-
tomer relationship management includes attention to training and developing
customer-contact employees, and empowering them to do whatever is neces-
sary to satisfy the customer.
5. They have effective complaint management processes by which customers can easily com-
ment, complain, and receive prompt resolution of their concerns. Every customer rela-
tions representative at GTE Directories tries to handle customer complaints on
the first call. They are authorized to propose immediate solutions, including
credit adjustments, free advertising, or even advertising in other media to offset
omissions or misprints. If immediate resolution is not possible, they must resolve
the complaint within 10 days. The Ritz-Carlton uses Guest Incident Action forms,
which are aggregated on a monthly basis at each hotel, to ensure that complaints
were handled effectively and steps taken to eliminate the cause of the problem.
Customer service or sales reps who receive a complaint at Branch-Smith Printing
are responsible for providing resolution options within 48 hours, recording the
complaint, and delivering it to the quality manager who must determine the
cause and modify work instructions or conduct retraining as necessary.
6. They measure customer satisfaction, compare the results relative to competitors, and use
the information to evaluate and improve internal processes. BI uses three approaches
to track customer satisfaction: a Transactional Customer Satisfaction Index for
immediate feedback, an annual Relationship Customer Satisfaction Index to
learn about specific attributes of satisfaction and intent for repeat business, and
a competitive study to see how it performs relative to competitors. SSM Health
Care uses standardized patient satisfaction surveys that are customized to its
five major patient segments, informal discussions with patients and families,
and focus groups to understand satisfaction and dissatisfaction. They use online
analytical processing software to drill down to a particular nursing unit, for
example, to examine inpatient loyalty and compare those to other units within a
hospital or across the corporation. Then they distribute results electronically that
identify specific improvements that will give the greatest gains in patient satis-
faction to executives and patient satisfaction coordinators.
The remainder of this chapter expands upon these important themes.
IDENTIFYING CUSTOMERS
To understand customer needs, a company must know who its customers are. Most
employees think that “customers” are those people who ultimately purchase and use
a company’s products. These end users, or consumers, certainly are an important
group. Identifying consumers is a top management task related to the company’s
mission and vision. However, consumers are not the only customer group of concern
to a business. The easiest way to identify customers is to think in terms of customer-
supplier relationships.
AT&T uses a customer-supplier model as shown in Figure 4.3. Every process
receives inputs from suppliers and creates outputs for customers. The feedback loops
suggest that suppliers must also be considered as customers. They need appropriate
information about the requirements they must meet. This model can be applied at the
organization level, the process level, and the performer level (see the discussion of
the “Three Levels of Quality” in Chapter 1.)
At the organization level, a business has various external customers that may fall
between the organization and the consumer, and who have distinct needs and expec-
tations. For example, manufacturers of consumer products distribute to retail stores
such as Wal-Mart and grocery stores. The retail stores are external customers of the
manufacturers. They have specific needs for timely delivery, appropriate product dis-
plays, accurate invoicing, and so forth. Because these stores allocate shelf space for
the manufacturers’ products, they represent important customers. The manufac-
turers are customers of the chemical companies, printing companies, and other sup-
pliers of such things as materials and packaging materials.
At the process level, departments, and key cross-functional processes within a com-
pany have internal customers who contribute to the company’s mission and depend on
the department’s or function’s products or services to ultimately serve consumers and
external customers. For instance, manufacturing is a customer of purchasing, a nursing
unit is a customer of the hospital laundry, and reservations is a customer of the informa-
tion systems department for an airline or hotel. Figure 2.1 in Chapter 2 is a good example
of the internal customer-supplier relationships within a typical manufacturing firm.
Figure 4.3 AT&T’s Customer-Supplier Model
Inputs Outputs
Your Your Your
Suppliers Process Customers
Requirements and Requirements and

feedback feedback
Source: Reproduced with permission from AT&T © 1988. All rights reserved.
At the performer level, each employee receives inputs from others and produces
some output for their internal customers. Such internal customers may be the
assembly line worker at the next station, an executive’s secretary, the order taker who
passes along orders to the food preparer at McDonald’s, or an X-ray technician who
must meet a physician’s request.
Identifying customers begins with asking some fundamental questions:
1. What products or services are produced?
2. Who uses these products and services?
3. Who do employees call, write to, or answer questions for?
4. Who supplies the inputs to the process?
Eventually, everyone can better understand their role in satisfying not only their
internal customers, but also the external customers.
If an organization remembers that its cus-
The natural customer-supplier link- tomers include its employees and the public,
ages among individuals, depart- then it consciously maintains a work environ-
ments, and functions build up the ment conducive to the well-being and growth
“chain of customers” throughout an of all employees. Efforts in this area should go
organization that connect every indi- beyond the expected training and job-related
vidual and function to the external education. Health, safety, and ergonomics (the
customers and consumers, thus char- study of physical capabilities of people in the
acterizing the organization’s value design of workplaces, tools, instruments, and
chain. so on) should be included in quality improve-
ment activities. Many companies offer special
services such as counseling, recreational and cultural activities, non-work-related
education, day care, flexible work hours, and outplacement to their employees. Texas
Instruments, for instance, provides preventive health screenings at little or no cost to
encourage personal involvement in health management. The company-sponsored
employee association, called “Texins,” uses fitness activities, recreational clubs, and
family events to promote employee well-being.
The public is also an important customer of business. A company must look
ahead to anticipate public concerns and assess the possible impacts on society of its
products, services, and operations. Business ethics, environmental concerns, and
safety are important societal issues. Companies can have a powerful influence on
communities as corporate citizens through their contributions to charitable activities
and the personal involvement of their employees. Based on a company’s actions in
promoting education, health care, and ethical conduct, the public judges a company’s
community behavior, which, in turn, can impact sales and profitability.
Finally, everyone is his or her own customer. As we discussed in Chapter 1, quality
must be personalized or it will have little meaning at any other level. Robert Galvin,
former CEO of Motorola, once told the Economic Club of Chicago, “Quality is a very
personal obligation. If you can’t talk about quality in the first person . . . then you have
not moved to the level of involvement of quality that is absolutely essential.”
Customer Segmentation
Customers generally have different requirements and expectations. A company usually
cannot satisfy all customers with the same products or services. This issue is particularly
important for companies that do business globally (just think of the differences in regu-
lations for automobiles in various countries or the differences in electrical power sys-
tems in the United States versus Europe). Therefore, companies that segment customers
into natural groups and customize the products or services are better able to respond to
customers’ needs. Juran suggests classifying customers into two main groups: the vital
few and the useful many.16 For example, organizers of conventions and meetings book
large blocks of hotel rooms and have large catering needs. They represent the vital few
and deserve special attention on an individual basis. Individual travelers and families
are the useful many and typically need only standardized attention as a group. As
another example, telecommunications services might be segmented as follows:
1. Residential customers, grouped according to dollar amount billed.
2. Business customers, grouped according to size of business, number of different
services used, and volume of usage.
3. Third-party resellers, who purchase telecommunications capacity in bulk and
manage their own customer groups.17
Another way of segmenting customers with Customer segmentation might be
an eye toward business results is by profitability. based on geography, demographic
Many companies often spend a lot of money factors, ways in which products are
trying to acquire customers who are not prof- used, volumes, or expected levels of
service.
itable and probably will never be. Profit potential
can be measured by the net present value of the
customer (NPVC).18 NPVC is the total profits (revenues associated with a customer
minus expenses needed to serve a customer) discounted over time. For instance, the
profit associated with customers at an automobile dealer consist of the profit from the
sale of a car plus the profit from service visits. The number of transactions associated
with repeat customers can easily be estimated. As another example, frequent fliers
represent high NPVC customers to an airline. By segmenting them according to their
frequency, an airline can determine the net value of offering increasing levels of bene-
fits to fliers at higher frequency levels as a means of retaining current customers or
enticing potential customers. Firms can also use
NPVC to eliminate customers with low or nega- Segmentation allows a company to
tive values that represent a financial liability. For prioritize customer groups, for
example, the Fleet Financial Group dropped its instance by considering for each
basic savings account interest rate, hoping to lose group the benefits of satisfying their
customers who had only savings accounts.19 requirements and the consequences of
Determination of benefits and consequences failing to satisfy their requirements.
allows the company to align its internal processes
Quality Spotlight
according to the most important customer expectations or their impact on shareholder
Fidelity value. For instance, Fidelity Investments realized that some customers that do limited
Investments business with Fidelity were using costly resources of service representatives too fre-
quently. They began teaching them how to use the company’s lowest cost channels: its
automated phone lines and its Web site, which was made friendlier and easier to use.
They could still talk to service reps, but the phone system identified their calls and
routed them into longer queues as a disincentive to call, so the most profitable customers
could be served more quickly. Fidelity was willing to lose some of these customers,
because their profitability would increase; however, 96 percent of them stayed and most
switched to lower-cost channels.20
UNDERSTANDING CUSTOMER NEEDS

David A. Garvin suggests that products and services have many dimensions of quality:21
1. Performance: A product’s primary operating characteristics. Using an automo-
bile as an example, characteristics would include such things as acceleration,
braking distance, steering, and handling.
2. Features: The “bells and whistles” of a product. A car may have power options,
a tape or CD deck, antilock brakes, and power seats.
3. Reliability: The probability of a product’s surviving over a specified period of
time under stated conditions of use. A car’s ability to start on cold days and fre-
quency of failures are reliability factors.
4. Conformance: The degree to which physical and performance characteristics of a
product match preestablished standards. A car’s fit and finish and freedom
from noises and squeaks can reflect this dimension.
5. Durability: The amount of use one gets from a product before it physically dete-
riorates or until replacement is preferable. For a car it might include corrosion
resistance and the long wear of upholstery fabric.
6. Serviceability: The speed, courtesy, and competence of repair work. An automo-
bile owner might be concerned with access to spare parts, the number of miles
between major maintenance services, and the expense of service.
7. Aesthetics: How a product looks, feels, sounds, tastes, or smells. A car’s color,
instrument panel design, control placement, and “feel of the road,” for example,
may make it aesthetically pleasing.
Table 4.1 gives some examples of these dimensions for both a manufactured product and
a service product. They form the basis for what customers want. A driver seeking perfor-
mance, for example, might look to BMW, while one who values reliability might prefer a
Toyota. Others who want different features might choose Chrysler or Lincoln. Therefore,
companies need to focus on the key drivers of customer satisfaction that lead to business
success. Considerable marketing efforts go into correctly identifying customer needs.
Ford, for example, identified about 90 features that customers want in sales and service,
including a ride to their next stop when they drop off a car for service and appointments
within one day of a desired date. Ford then trimmed the list to seven service standards
and six sales standards against which dealers have begun to measure themselves.22
For services, research shows that five key dimensions of service quality contribute
to customer perceptions:
1. Reliability: The ability to provide what was promised, dependably and accurately.
Examples include customer service representatives responding in the promised
Table 4.1 Quality Dimensions of a Manufactured Product and Service
Manufactured Product Service Product

Quality Dimension (Stereo Amplifier) (Checking Account)
Performance Signal-to-noise ratio; Time to process customer
power requests
Features Remote control Automatic bill paying
Conformance Workmanship Accuracy
Reliability Mean time to failure Variability of time to
process requests
Durability Useful life Keeping pace with
industry trends
Serviceability Ease of repair Resolution of errors
Aesthetics Oak cabinet Appearance of bank lobby
Source: Adapted from Paul E. Pisek, “Defining Quality at the Marketing/Development Interface,” Quality Progress
20, no. 6 (June 1987), 28–36.
time, following customer instructions, providing error-free invoices and state-

ments, and making repairs correctly the first time.
2. Assurance: The knowledge and courtesy of employees, and their ability to
convey trust and confidence. Examples include the ability to answer questions,
having the capabilities to do the necessary work, monitoring credit card trans-
actions to avoid possible fraud, and being polite and pleasant during customer
transactions.
3. Tangibles: The physical facilities and equipment, and the appearance of per-
sonnel. Tangibles include attractive facilities, appropriately dressed employees,
and well-designed forms that are easy to read and interpret.
4. Empathy: The degree of caring and individual attention provided to customers.
Some examples might be the willingness to schedule deliveries at the cus-
tomer’s convenience, explaining technical jargon in a layperson’s language, and
recognizing regular customers by name.
5. Responsiveness: The willingness to help customers and provide prompt service.
Examples include acting quickly to resolve problems, promptly crediting
returned merchandise, and rapidly replacing defective products.
As one example, credit card users might have the following expectations for four key
business activities associated with the card:
1. Applying for an account: Accessible, responsive, accurate, and professional
2. Using the card: Easy to use and hassle free, features, credit limit
3. Billing: Accurate, timely, easy to understand
4. Customer service: Accessible, responsive, and professional
A Japanese professor, Noriaki Kano, suggested three classes of customer require-
ments:
1. Dissatisfiers: Requirements that are expected in a product or service. In an auto-
mobile, a radio, heater, and required safety features are examples, which are
generally not stated by customers but assumed as given. If these features are
not present, the customer is dissatisfied.
2. Satisfiers: Requirements that customers say they want. Many car buyers want a
sunroof, power windows, or antilock brakes. Although these requirements are
generally not expected, fulfilling them creates satisfaction.
3. Exciters/delighters: New or innovative features that customers do not expect. The
presence of unexpected features, such as a weather channel button on the radio
or separate rear-seat audio controls that allow children to listen to different
music than their parents, leads to high perceptions of quality.
Meeting customer expectations (that is, providing satisfiers) is often considered
the minimum required to stay in business. To be truly competitive, companies must
surprise and delight customers by going beyond the expected. Teams at Custom
Research Inc., all have the same goal of “surprising and delighting” their clients.
Client requirements are determined during client interviews, and drive account
plans to ensure that each project meets or exceeds client requirements through clearly
agreed-upon service standards, as well as longer-term process plans to improve the
company’s key processes. Feedback at the end of
each project and annual interviews of major As customers become familiar with
clients measure satisfaction and drive improve- them, exciters/delighters become
ments. Thus, successful companies continually satisfiers over time. Eventually,
innovate and study customer perceptions to satisfiers become dissatisfiers.
ensure that needs are being met.
For instance, antilock brakes and air bags certainly were exciters/delighters
when they were first introduced. Now, most car buyers expect them. Satellite navi-
gational systems for automobiles are a more-recent example of exciters/delighters
that are becoming more commonplace and may soon be viewed as satisfiers. As tech-
nology evolves, consumer expectations continually increase.
In the Kano classification system, dissatisfiers and satisfiers are relatively easy to
determine through routine marketing research. For example, the hot-selling Ford
F-150 pickup truck relied on extensive consumer research at the beginning of the
redesign process. Perhaps one of the best examples of understanding customer needs
and using this information to improve competitiveness is Frank Perdue’s chicken
business.23 Perdue learned what customers’ key purchase criteria were; these criteria
included a yellow bird, high meat-to-bone ratio, no pinfeathers, freshness, avail-
ability, and brand image. He also determined the relative importance of each crite-
rion, and how well the company and its competitors were meeting each one. By
systematically improving his ability to exceed customers’ expectations relative to the
competition, Perdue gained market share even though his chickens were premium-
priced. Among Perdue’s innovations was using a jet engine that dried the chickens
after plucking, allowing the pinfeathers to be singed off.
However, traditional market research efforts may not be effective in under-
standing exciters/delighters, and may even backfire. For example, Ford listened to a
sample of customers and asked whether they wanted a fourth door on the Windstar
minivan. Only about one-third thought it was a great idea, so Ford scrapped the idea.
Chrysler, on the other hand, spent a lot more time living with owners of vans and
observing their behavior, watching them wrestle to get things in and out, noting all the
occasions where a fourth door would really be convenient, and was very successful
after introducing a fourth door.24 Thus, a company must make special effort to identify
exciters/delighters. Sony and Seiko, for instance, go beyond traditional market
research and produce dozens, even hundreds, of Walkman audio products and wrist-
watches with a variety of features to help them understand what excites and delights
the customer. Those models that do not sell are simply dropped from the product
lines. To practice this strategy effectively, marketing efforts must be supported by
highly flexible manufacturing systems that permit rapid setup and quick response.
Producing breakthrough products or services often requires that companies ignore
consumer feedback and take risks. As Steve Jobs of Apple Computer noted about the
iMac, “That doesn’t mean we don’t listen to customers, but it’s hard for them to tell
you what they want when they’ve never seen anything remotely like it. Take desktop
video editing. I never got one request from someone who wanted to edit movies on his
computer. Yet now that people see it, they say, ‘Oh my God, that’s great!’”25
Besides consumers, companies must also pay attention to the needs of external
customers. In designing its Icy Rider sled, Rubbermaid used a combination of field
research, competitive product analysis, and consumer focus groups. It also listened to
major retailers, such as Wal-Mart, who wanted such products to be stackable and
save space.26
Understanding the needs of internal customers is as important as understanding
those of external customers. This point is reflected in the AT&T customer-supplier
model in Figure 4.3, which the company uses to help employees comprehend internal
customer-supplier issues. For example, in many service industries, customer-contact
employees depend on a variety of information and support from internal suppliers,
such as the information systems department, warehousing and production sched-
uling, and engineering and design functions. Failure to meet the needs of customer-
contact employees will have a detrimental effect on external customers. One company,
GTE Supply, negotiates contracts, purchases products, and distributes goods for
internal telephone operations customer groups at each GTE local telephone company.
In response to complaints from its internal customers, GTE Supply began to survey its
internal customers to identify needs and information for improvement. This approach
dramatically improved satisfaction levels, reduced costs, and decreased cycle times.27
GATHERING AND ANALYZING CUSTOMER INFORMATION

Customer requirements, as expressed in the customer’s own terms, are called the voice
of the customer. However, the customer’s meaning is the crucial part of the message.
As the vice president of marketing at Whirlpool stated, “The consumer speaks in
code.”28 Whirlpool’s research showed that customers wanted clean refrigerators, which
could be interpreted to mean that they wanted easy-to-clean refrigerators. After ana-
lyzing the data and asking more questions, Whirlpool found out what most consumers
actually wanted was refrigerators that looked clean with minimum fuss. As a result,
Whirlpool designed new models to have stucco-
like fronts and sides that hide fingerprints. Companies use a variety of methods,
When former Disney executive Paul Pressler or “listening posts,” to collect infor-
assumed the CEO position at Gap, he met with mation about customer needs and
each of Gap’s top 50 executives, asking them expectations, their importance, and
such standard questions as “What about Gap do customer satisfaction with the com-
you want to preserve and why?” “What about pany’s performance on these mea-
Gap do you want to change and why?” and so sures.
on. But he also added one of his own: “What is
your most important tool for figuring out what the consumer wants?”29 Some of the
key approaches to gathering customer information include the following:
• Comment cards and formal surveys
• Focus groups
• Direct customer contact
• Field intelligence
• Complaint analysis
• Internet monitoring
us Mater
Bon
The Bonus Materials folder on the CD-ROM contains more information and exam-
ial
s
ples about these approaches.

Some companies use unconventional and innovative approaches to understand
customers. Texas Instruments created a simulated classroom to understand how
mathematics teachers use calculators; and a manager at Levi Strauss used to talk with
teens who were lined up to buy rock concert tickets. Other approaches for obtaining
useful customer and market information might be rapid innovation and field trials of
products and services to better link research and development with design; close
tracking of technological, competitive, societal, environmental, economic, and demo-
graphic factors that may affect customer requirements and expectations; and inter-
viewing lost customers to determine the factors they use in their purchase decisions.
Voice of the customer data typically consist of a large number of verbal comments
or other textual information. Such information needs to be sorted and consolidated
into logical groups so that managers can understand the key issues. One useful tool
for organizing large volumes of information efficiently and identifying natural pat-
terns or groupings in the information is the affinity diagram. An affinity diagram is
a main ingredient of the KJ method, developed in the 1960s by Kawakita Jiro, a
Japanese anthropologist, which is a technique for gathering and organizing a large
number of ideas or facts.30 For example, suppose that a banking team determined that
the most important requirement for mortgage customers is timely closings.31 Through
focus groups and other customer interviews, customers listed the following as key
elements of timely closings:
1. Expeditious processes
2. Reliability
3. Consistent and accurate information
4. Competitive rates
5. Notification of industry changes
6. Prior approvals
7. Innovation
8. Modem link between computers
9. Buyer orientation
10. Diversity of programs
11. Mutual job understanding
12. Flexibility
13. Professionalism
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
4.4, which indicates that the key customer requirements for timely closings are com-
munication, effective service, and loan products. Through organization of an affinity
diagram, information can be used to better design a company’s products and
processes to meet customer requirements.
Affinity diagrams can be used for many other applications. For example, they can be
used to organize any large group of complex ideas or issues, such as potential reasons
for quality problems, or things a company must do to successfully market a product.
Figure 4.4 Affinity Diagram
Communication Effective Service Loan Products
Timely and accurate Innovation

status reports Reliability
Notification of Flexibility of
industry changes Flexibility programs
Consistent and Diversity of

accurate information Prior approvals programs
Mutual job Expeditious Competitive

understanding processes rates
Modem link Buyer orientation

between computers
Professionalism
CUSTOMER RELATIONSHIP MANAGEMENT

Truly excellent companies foster close relationships with customers that lead to loy-
alty. For example, Lexus owners who become accustomed to the at-home pickup of
their vehicles for service, free loaners, and other
special dealer touches may find it difficult to An organization builds customer
give up these services when it is time to pur- loyalty by developing trust, commu-
chase a new car. In Bank of Montreal’s Private nicating with customers, and effec-
Client Services group, bankers provide services tively managing the interactions
according to the preferences of their clients who and relationships with customers
value convenience and time, not the traditions through approaches and its people.
of the bank. These preferences might mean
meeting in the client’s home or office instead of the bank.32 Dell, Inc. offers a variety
of customer-friendly services that includes loading all the customer’s software, even
proprietary applications, at the factory and configuring it the way it is going to be
used, saving hours of work by highly paid computer technicians.33
Moments of truth may be direct contacts
with customer representatives or service per- In services, customer satisfaction or
sonnel, or when customers read letters, invoices, dissatisfaction takes place during
or other company correspondence. Problems moments of truth—every instance
result from unkept promises, failure to provide in which a customer comes in contact
full service, service not provided when needed, with an employee of the company.
incorrectly or incompletely performed service,
or failure to convey the correct information. At moments of truth, customers form
perceptions about the quality of the service by comparing their expectations with the
actual outcomes.
Consider an airline, for example. (The phrase “moment of truth” was
popularized by the CEO of Scandinavian Airlines System, Jan Carlzon.) Moments
of truth occur when a customer makes a reservation, buys tickets, checks bag-
gage, boards a flight, orders a beverage, requests a magazine, deplanes, and picks up
baggage. Multiply these instances by the number of passengers and the number of
daily flights, and it is easy to see that hundreds of thousands of moments of truth
occur each day. Each occurrence influences a positive or negative image about
Quality Spotlight the company. Southwest Airlines recognizes the power of customer focus.34 Known
Southwest for its legendary service, the Southwest culture ensures that it serves the needs of
Airlines
its Customers (with a capital C) in a friendly, caring, and enthusiastic manner. Every
one of the approximately 1,000 customers who write to the airline get a personal
response (not a form letter) within four weeks, and frequent fliers get birthday
cards. The airline even moved a flight up a quarter-hour when five medical students
who commuted weekly to an out-of-state medical school complained that the
flight got them to class 15 minutes late. To quote the CEO, “We dignify the Cus-
tomer.” This statement applies to internal customers also; it is not unusual to find
pilots helping ground crews unload baggage. As one executive stated, “We are not an
airline with great customer service. We are a great customer service organization that
happens to be in the airline business.” Southwest’s customer commitment was
apparent in the hours after the September 11 terrorist attacks. The top executives
swiftly agreed to grant refunds to all customers who asked for them, regardless of
ticket restrictions, despite the fact that it might have cost them several hundred mil-
lion dollars. Refund claims never came; in fact, one loyal customer sent in $1,000 to
support Southwest after the attacks. Southwest has consistently been the most prof-
itable U.S. airline.
Excellent customer relationship management depends on five aspects:

1. Accessibility and commitments
2. Selecting and developing customer contact employees
3. Relevant customer contact requirements
4. Effective complaint management
5. Strategic partnerships and alliances
Each aspect is addressed in the next sections.
Accessibility and Commitments

Customer-focused organizations provide customers easy access to their employees.
Procter & Gamble was the first company to install a toll-free number for its products
in 1974. Customers of Ames Rubber Corporation have immediate access to top divi-
sion management, manufacturing personnel, quality engineers, sales and service rep-
resentatives, and technical support staff. Today, e-mail and Web site access are
becoming the media of choice for many consumers.
Companies that truly believe in the quality of their products make strong com-
mitments to their customers. Effective commitments address the principal concerns
of customers, are free from conditions that might weaken customers’ trust and confi-
dence, and are communicated clearly and simply to customers. A customer commit-
ment might be as simple as guaranteeing that your call or e-mail inquiry will be
returned promptly. (Have you ever encountered a Web site with a disclaimer “We
cannot always answer every question that we receive”?) Many commitments take the
form of explicit guarantees and warranties. FedEx is highly recognized for its guar-
antee, which refunds full charges if a shipment is even a minute late. Xerox replaces
any product that a customer does not find satisfactory, for any reason, within three
years of purchase.
Extraordinary guarantees that promise exceptional, uncompromising quality and
customer satisfaction, and back that promise with a payout intended to fully recap-
ture the customer’s goodwill with few if any strings attached are one of the strongest
actions a company can take to improve itself.35 L.L. Bean’s guarantee is a good
example: “Everything we sell is backed by a 100 percent unconditional guarantee. We
do not want you to have anything from L.L. Bean that is not completely satisfactory.
Return anything you buy from us at any time for any reason it proves otherwise.” By
translating every element of customer dissatisfaction into financial costs, such guar-
antees quickly alert the company to problems and direct priorities. Workers gain
better knowledge of the business and quality improves, which, in turn, results in
increased sales and higher profits.
Selecting and Developing Customer Contact Employees

Customer-contact employees are particularly important. They are the people whose
main responsibilities bring them into regular contact with customers—in person, by Quality Spotlight
Procter &
telephone, or through other means. Procter & Gamble calls its consumer relations Gamble
department the “voice of the company.” A staff of more than 250 employees handles
in excess of 3 million contacts each year. Their mission is stated as “We are a world-
class consumer response center. We provide superior service to consumers who con-
tact Procter & Gamble, encourage product repurchase, and help build brand loyalty.
We protect the Company’s image and the reputation of our brands by resolving com-
plaints before they are escalated to government agencies or the media. We capture
and report consumer data to key Company functions, identify and share consumer
insights, counsel product categories on consumer issues and trends, and manage
consumer handling and interaction during crises.” Today, companies rely on call
centers—more than 60,000 in the United States and growing at 20 percent per year—
as their primary means of customer contact. Call
centers can be a means of competitive advantage Companies must carefully select cus-
by serving customers more efficiently and per- tomer contact employees, train them
sonalizing transactions to build relationships. well, and empower them to meet and
However, they must be supported by appro- exceed customer expectations.
priate technology, such as automating routine
calls to minimize the necessity of answering the same questions over and over, and
routing calls to people with appropriate skills. Inefficient processes can only lead to
frustrated customers.
Many companies begin with the recruiting process, selecting those employees
who show the ability and desire to develop good customer relationships. Major com-
panies such as Procter & Gamble seek people with excellent interpersonal and com-
munication skills, strong problem-solving and analytical skills, assertiveness, stress
tolerance, patience and empathy, accuracy and attention to detail, and computer lit-
eracy. Job applicants often go through rigorous screening processes that might
include aptitude testing, customer-service role-playing exercises, background
checks, credit checks, and medical evaluations.
Companies committed to customer relationship management ensure that
customer-contact employees understand the products and services well enough to
answer any question, develop good listening and problem recovery skills, and feel
able to handle problems. Effective training not only increases employees’ knowledge,
Quality Spotlight but improves their self-esteem and loyalty to the organization. The Ritz-Carlton
The Ritz-Carlton
Hotel Company Hotel Company follows orientation training with on-the-job training and, subse-
quently, job certification. The company reinforces its values daily, recognizes extraor-
dinary achievement, and appraises performance based on expectations explained
during the orientation, training, and certification processes. For many organizations,
customer relationship training involves every person who comes in contact with cus-
tomers, including receptionists.
Customers dislike being transferred to a seemingly endless number of employees
to obtain information or resolve a problem. TQ-focused companies empower their
front-line people to do whatever is necessary to satisfy the customer. At The Ritz-
Carlton, all employees are empowered to do whatever it takes to provide “instant
pacification.” No matter what their normal duties are, other employees must assist if
aid is requested by a fellow worker who is responding to a guest’s complaint or wish.
Ritz-Carlton employees can spend up to $2,000 to resolve complaints with no ques-
tions asked. However, the actions of empowered employees should be guided by a
common vision; that is, employees require a consistent understanding of what
actions they may or should take.
Customer-contact employees also need access to the right technology and com-
pany information to do their jobs. FedEx, for example, furnishes employees with the
information and technology they need to continually improve their performance. The
Digitally Assisted Dispatch System (DADS) communicates to all couriers through
screens in their vans, enabling quick response to pickup and delivery dispatches; it
allows couriers to manage their time and routes with high efficiency. Information tech-
nology improves productivity, increases communication, and allows customer contact
employees to handle almost any customer issue.
Customer Contact Requirements

Front-line personnel who come in daily contact with customers have a significant
amount of responsibility for customer satisfaction. Customer contact requirements
are measurable performance levels or expectations that define the quality of cus-
tomer contact with representatives of an organization. These expectations might
include technical requirements such as response time (answering the telephone
within two rings), or behavioral requirements (using a customer’s name whenever
possible). Walt Disney Company, widely recognized for extraordinary customer ser-
vice, clearly defines contact requirements in their guidelines for Guest Service, which
include making eye contact and smiling, greeting and welcoming every guest,
seeking out guests who may need assistance, providing immediate service recovery,
displaying approachable body language, focusing on the positive rather than rules us Mater
Bon
ial
and regulations, and thanking each and every guest.36 The Florida Power and Light
s
Quality in Practice case in the Bonus Materials folder on the CD-ROM provides a good
example of how customer expectations determine contact requirements.
Companies need to communicate these requirements to all customer-contact
employees. This communication often initially takes place during new employee ori-
entations. However, to maintain the consistency and effectiveness of these standards,
companies must continually reinforce their standards. Additionally, many customer-
contact employees depend on internal customers for support, who also must under-
stand the role they play in meeting the requirements. The key to satisfying external
customers is to satisfy internal customers first. At Southwest Airlines, for example,
the philosophy is that if employees can provide the same service to one another as
they do to passengers, the airline will benefit.37 Each operating division identifies an
internal customer. Mechanics who service planes target the pilots who fly them, and
marketers treat reservation agents as customers. Departments even provide free ice
cream or pizza as tokens of customer appreciation or for a job well done. Use of
the customer-supplier model approach effectively communicates the importance of
these relationships.
Finally, a company should implement a process for tracking adherence to the
requirements and providing feedback to the employees to improve their perfor-
mance. Information technology supplies the data for effectively tracking confor-
mance to customer contact requirements.
Effective Complaint Management

Despite all efforts to satisfy customers, every business experiences unhappy cus-
tomers. Complaints can adversely affect business if not dealt with effectively. A com-
pany called TARP, formerly known as Technical Assistance Research Programs, Inc.,
conducted studies that revealed the following information:
1. The average company never hears from 96 percent of its unhappy customers.
For every complaint received, the company has 26 more customers with prob-
lems, six of whom have problems that are serious.
2. 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.
3. The average customer who has had a problem will tell nine or ten others about
it. Customers who have had complaints resolved satisfactorily will only tell
about five others of the problem resolution.38
4. With the advent of the Internet, TARP also found that 4 percent of satisfied cus-
tomers post their feelings on the Web, while 15 percent of unsatisfied customers
do the same.39
Leading organizations consider complaints as opportunities for improvement.
Encouraging customers to complain, making it easy for them to do so, and effectively
resolving complaints increases customer loyalty and retention. A compelling story
Quality Spotlight was related by a Wal-Mart customer in a letter to Fortune magazine. He had tele-
Wal-Mart
phoned Wal-Mart’s headquarters to complain about its store in La Plata, Argentina.
The switchboard immediately rang the vice president of international operations,
who thanked him for calling, asked detailed questions, and inquired whether he was
willing to repeat his story to the Latin American VP, to whom he was transferred
immediately. He was then asked if he would be willing to talk to the Argentinian
store manager; 10 minutes later he received the call from La Plata. The customer
observed, “On my next trip to Argentina, a year later, the store had been transformed.
No wonder Wal-Mart is the world’s largest retailer.”
Many customers do not complain because they feel it wouldn’t do any good or they
are uncomfortable with the process. Leading firms actively solicit complaints. Nissan,
for instance, telephones each person who buys a new car or brings one in for significant
warranty work. Its objective is to resolve all dissatisfaction within 24 hours.40
Companies involved in customer relationship management train customer-
contact personnel to deal with angry customers. Customer service personnel need to
listen carefully to determine the customer’s feelings and then respond sympatheti-
cally, ensuring that the complaint is understood. They should make every effort to
resolve the problem quickly. Many companies have well-defined processes for
Quality Spotlight
dealing with complaints. For example, at BI, all complaints, regardless of where they
BI
come from, are forwarded directly to the business unit manager related to the com-
plaint.41 The manager follows the Service Recovery Process (see Figure 4.5), and con-
tacts the customer directly for clarification of the issue and additional information.
Findings are then communicated to the account executive, sales manager, account
manager, and all involved business unit associates via e-mail. This process enables
the BI team to work in conjunction with the customer to address the failure and pro-
vide a solution that meets the customer’s needs. A written follow-up of the resolution
is shared with all BI team members working with the customer.
Complaints provide a source of product and process improvement ideas.
Leading-edge companies encourage employees to bring complaints to the surface in
a variety of formal and informal ways, such as a response center to encourage
employees to call with ideas and process improvements as well as complaints, and
rewards and recognition for employees involved in the processes. Costs associated
with complaints can be significant, and include lost business, complaint handling
costs, and claims and compensation. Typically, cross-functional teams study the
information, determine the real source of the complaints, and make recommenda-
tions. Technology is often used to capture, ana-
lyze, and report complaint data. Eastman
To improve products and processes
Chemical, for example, discovered that most
effectively, companies must do more
complaint investigations stopped after learning than simply fix the immediate
who caused the problem, and corrective actions problem. They need a systematic
did not address the true causes. After devel- process for collecting and analyzing
oping a process to drill down to the actual complaint data and then using that
sources of complaints and prevent their occur- information for improvements.
rence, Eastman nearly halved the level of cus-
Figure 4.5 BI Service Recovery Process
Apologize for customer inconvenience
Listen, empathize, ask clarifying questions
Solve problem quickly in partnership with customer
Offer atonement
Keep the promise
Follow up
Prevent recurrence
Source: Courtesy of Guy Schoenecker, president and chief quality officer.
tomer complaints in three years, resulting in improved customer satisfaction,

increased sales, reduced waste, and lower costs.42 Finally, the complaint process itself
needs to be monitored, evaluated, and improved. Companies typically track the per-
centage of customers who are satisfied with complaint resolution, the cost of
resolving complaints, and the time required to resolve them.
Strategic Partnerships and Alliances

Today’s suppliers are being asked to take on greater responsibilities to help their cus-
tomers. As companies focus more on their core competencies—the things they do
best—they are looking outside their organizations for assistance with noncritical sup-
port processes. Customer-supplier partnerships—long-term relationships character-
ized by teamwork and mutual confidence—represent an important strategic alliance
in achieving excellence and business success. Benefits of such partnerships include
access to technology or distribution channels not available internally, shared risks in
new investments and product development, improved products through early
design recommendations based on supplier capabilities, and reduced operations
costs through better communications. For example, FedEx and Jostens formed a
strategic partnership that enabled both to benefit from new sales of scholastic jewelry
and yearbooks.43 They took advantage of each other’s strengths: Jostens provided a
high-quality product with superior service, and FedEx provided reliable high-
volume, short-interval delivery for these time-critical products.
Many companies work closely with suppliers that share common values. This
close relationship improves supplier capabilities by teaching them quality-related
tools and approaches. Although many companies have formal supplier certification
programs (discussed in Chapter 7) in which they rate their suppliers, some compa-
nies ask suppliers to rate them as customers. Motorola uses a 15-member council of
suppliers that rates Motorola’s practices and offers suggestions for improving, for
example, the accuracy of production schedules or design layouts that Motorola pro-
vides.44 Some typical questions that companies might ask of their suppliers might be45
What expectations do you have that are not being met? What type of technical assis-
tance would you like from us? What type of feedback would you like from us? What
benefits are you looking for in a partnership? Better two-way communication can
improve both products and relationships.
Exploiting CRM Technology

Customer relationship management (CRM) software is designed to help companies
increase customer loyalty, target their most profitable customers, and streamline cus-
tomer communication processes. More than $11 billion was spent on CRM-related
U.S. sales at the turn of the century and is growing significantly.46 A typical CRM
system includes market segmentation and analysis, customer service and relation-
ship building, effective complaint resolution, cross-selling goods and services, order
processing, and field service.
CRM helps firms gain and maintain competitive advantage by:
• Segmenting markets based on demographic and behavioral characteristics
• Tracking sales trends and advertising effectiveness by customer and market
segment
• Identifying which customers should be the focus of targeted marketing initia-
tives with predicted high customer response rates
• Forecasting customer retention (and defection) rates and providing feedback as
to why customers leave a company
• Studying which goods and services are purchased together, leading to good
ways to bundle them
• Studying and predicting which Web characteristics are most attractive to cus-
tomers and how the Web site might be improved
Technology is a key enabler of CRM. CRM systems provide a variety of useful
operational data to managers, including the average time spent responding to cus-
tomer questions, comments, and concerns, average order tracking (flow) time, total
revenue generated by each customer (and sometimes their family or business) from
all goods and services bought by the customer—the total picture of economic value
of the customer to the firm, cost per marketing campaign, and price discrepancies.
One company that exploits technology in developing customer relationships is
Quality Spotlight
Tsutaya
Tsutaya, Japan’s largest video, book, and CD chain.47 Using a point-of-sale system
that facilitates real-time inventory tracking between headquarters and franchises and
a Web and wireless site called Tsutaya Online (TOL), Tsutaya tracks purchases,
demographic data, spending behavior, and by implication, lifestyles and interests.
This system enables them to offer personalized product recommendations. For
example, if you bought a CD by a certain artist, TOL will e-mail a digital music clip
when the next album debuts. Tsutaya also developed a sophisticated recommenda-
tion engine to match a customer’s video rental history and mood to the ideal movie
selection. Many other companies, such as Amazon.com and BMG Music Service, use
technology in similar ways.
MEASURING CUSTOMER SATISFACTION

Customer feedback is vital to a business. Through feedback, a company learns how
satisfied its customers are with its products and services and sometimes about com-
petitors’ products and services. Measurement of customer satisfaction completes the
loop shown in Figure 4.2. Measures of customer satisfaction allow a business to do
the following:
1. Discover customer perceptions of how well the business is doing in meeting
customer needs, and identify causes of dissatisfaction and failed expectations as
well as drivers of delight.
2. Compare the company’s performance relative to competitors to support plan-
ning and better strategic initiatives.
3. Discover areas for improvement in the design and delivery of products and ser-
vices, as well as for training and coaching of employees.
4. Track trends to determine whether changes actually result in improvements.
For example, the city of Portland, Oregon, mails a survey annually to about 10,000 of
its citizens, asking them to rate the performance of the police department, water
bureau, environmental services, and public transportation. The city also asks them if
they feel safe walking at night in their neighborhoods, parks, and downtown;
whether the streets are clean enough, how they
An effective customer satisfaction feel about recreation services offered, and how
measurement system results in reli- they rate the livability of the city. The results
able information about customer are benchmarked against six other cities, and if
ratings of specific product and ser- Portland is not doing as well, the mayor tries
vice features and about the relation- to find out why.48 However, it is important to
ship between these ratings and the understand that customer satisfaction is a psy-
customer’s likely future market chological attitude. It is not easy to measure,
behavior. and can only be observed indirectly. The ACSI
model in Figure 4.1 shows that customer satis-
faction is influenced by customer expectations and perceptions of quality and value.
Thus, it is difficult to reduce these complex relationships into a single measure.
Customer satisfaction measures may include product attributes such as product
quality, product performance, usability, and maintainability; service attributes such
as attitude, service time, on-time delivery, exception handling, accountability, and
technical support; image attributes such as reliability and price; and overall satisfac-
tion measures. At FedEx, customers are asked to rate everything from billing to the
performance of couriers, package condition, tracking and tracing capabilities, com-
plaint handling, and helpfulness of employees. Measurements are based on a bona
fide customer requirement or need.
The most helpful customer data include comparisons with key competitors.
Companies often rely on third parties to conduct blind surveys to determine who key
competitors are and how their products and services compare. Competitive compar-
isons often clarify how improvements in quality can translate into better customer
satisfaction or whether key quality characteristics are being overlooked.
Designing Satisfaction Surveys

The first step in developing a customer satisfaction survey is to determine its pur-
pose. Surveys should be designed to clearly provide the users of the survey results
with the information they need to make decisions. A critical question to consider is
Who is the customer? Managers, purchasing agents, end users, and others all may be
affected by a company’s products and services. Xerox, for instance, sends specific
surveys to buyers, managers, and users. Buyers provide feedback on their percep-
tions of the sales processes, managers provide input on billing and other administra-
tive processes, and users provide feedback on product performance and technical
support. And customer satisfaction measurement should not be confined to external
customers. Information from internal customers also contributes to the assessment of
the organization’s strengths and weaknesses. Often the problems that cause
employee dissatisfaction are the same issues that cause dissatisfaction in external
customers. Many companies use employee opinion surveys or similar vehicles to
seek employee feedback on the work environment, benefits, compensation, manage-
ment, team activities, rewards and recognition, and company plans and values.
However, other indicators of employee satisfaction are absenteeism, turnover, griev-
ances, and strikes, which can often supply better information than surveys that many
employees may not take seriously.
The next question to address is who should conduct the survey. Independent
third-party organizations often have more credibility to respondents and can ensure
objectivity in the results. After these preliminary steps are completed, it is necessary
to define the sample frame; that is, the target group from which a sample is chosen.
Depending on the purpose of the survey, it might be the entire customer base or a
specific segment. For example, a manufacturer of commercial lawn tractors might
design different surveys for golf course superintendents who purchase the tractors
and another for end users who ride them daily.
The next step is to select the appropriate survey instrument. Formal written sur-
veys are the most common means of measuring customer satisfaction, although other
techniques, such as face-to-face interviews, telephone interviews, and focus groups
are used. Written surveys have the advantage of low data collection costs, self-
administration, and ease of analysis; when used, they should be kept short and
simple. In addition, they can probe deeply into the issues. However, they suffer from
high nonresponse bias, require large sample sizes, and measure predetermined per-
ceptions of what is important to customers, thus reducing the scope of qualitative
information that can be obtained. Face-to-face interviews and focus groups, on the
other hand, require much smaller sample sizes and can generate a significant amount
of qualitative information, but incur high costs and participant time commitments.
Telephone interviews fall somewhere in between these extremes. Telephone inter-
views appear to be the preferred approach for companies with a limited number of
business customers; mail-based surveys are used to track routine transactions, where
key attributes are stable over time. For example, Toyota uses mail surveys to identify
unhappy customers and then telephones them
for more details. This approach is cost-effective The types of questions to ask in a
when the majority of customers are satisfied.49 survey must be properly worded to
One should avoid leading questions, com- achieve actionable results. By
pound questions that address more than one actionable, we mean that responses
issue or idea, ambiguous questions, acronyms are tied directly to key business
and jargon that the respondent may not under- processes, so that what needs to be
stand, and double negatives. For example, the improved is clear; and information
question “How would you rate our service?” is can be translated into cost/revenue
too ambiguous and provides little actionable implications to support the setting
information. A better question would be “How of improvement priorities.
would you rate the response time of our tech-
nical support desk?” Another poor example is “Should Burger Mart increase its food
portions at a higher price?” This question addresses two different issues. Open-ended
questions such as “If this were your business, what would you do differently?” often
lead to honest opinions. Most surveys also ask for basic demographic information to
stratify the data.
A “Likert” scale is commonly used to measure the response (see Table 4.2). Likert
scales allow customers to express their degree of opinion. Five-point scales have been
shown to have good reliability and are often used. Responses in the “5” range tell a
company what it is doing very well. Responses in the “4” range suggest that cus-
tomer expectations are being met, but that the company may be vulnerable to com-
petitors. Responses in the “3” range mean that the product or service barely meets
customer expectations and that much room for improvement exists. Responses in the
“1” or “2” range indicate serious problems. However, most scales like these exhibit
response bias; that is, people tend to give either high or low values. If responses are
clustered on the high side, it is difficult to discriminate among responses, and the
resulting skewness in the distribution causes the mean value to be misleading.
Many customer satisfaction measures evaluate service characteristics. Devel-
oping measurable service quality characteristics can be difficult. For instance, a
quality characteristic such as “availability” is ambiguous and not as easy to measure
as the accuracy of order filling. Typically, such quality characteristics are translated
into specific statements that clearly describe the concept. For example, any of the fol-
lowing statements could be used to describe “availability.”
1. The doctor was available to schedule me at a good time.

2. I could get an appointment with the doctor at a time I desired.
3. My appointment was at a convenient time.
One example of a simple satisfaction survey for Hilton Hotels is shown in Figure 4.6.
The survey asks direct and detailed questions about the guest bathroom, including
such potential dissatisfiers as shower water pressure and temperature and bathtub/
sink drainage, likelihood of future recommendation, and space for open-ended com-
ments. A seven-point Likert scale is used in this example.
The final task is to design the reporting format and the data entry methods.
Modern technology, such as computer databases in conjunction with a variety of sta-
tistical analysis tools, assists in tracking customer satisfaction and provides informa-
tion for continuous improvement. As a final note, surveys should always be pretested
to determine whether instructions are understood, identify questions that may be
misunderstood or poorly worded, determine how long it takes to complete the
survey, and determine the level of customer interest.
Table 4.2 Examples of Likert Scales Used for Customer Satisfaction Measurement
Very Neither Poor Very

Poor Poor nor Good Good Good
1 2 3 4 5
Strongly Neither Agree Strongly
Disagree Disagree nor Disagree Agree Agree
1 2 3 4 5
Very Neither Satisfied Very
Dissatisfied Dissatisfied nor Dissatisfied Satisfied Satisfied
1 2 3 4 5
Figure 4.6 Hilton Hotel Guest Survey
Please rate your satisfaction with the comfort level of your accommodations.
Level of Satisfaction
Low Avg. High N/A
1 2 3 4 5 6 7
Accommodations look and smell clean and fresh:
Clean and comfortable linens:
Comfort level of pillow:
Comfort level of mattress:
Easily regulated room temperature:
Housekeeping during stay:
Overall satisfaction with this Hilton:
Likelihood you would recommend Hilton:
Likelihood, if returning to the area, you would
return to this Hilton:
Value of accommodations for price paid:
Primary purpose of visit? Individual business Convention/Meeting Pleasure

How many times have you been a guest at this Hilton? 1 2 3 4 5+
Did you have a hotel product or service problem during your stay? Yes No
If yes—did you report it to the staff? Yes No
If yes—was it resolved to your satisfaction? Yes No
If yes—what was the nature of the problem? ___________________________________________
_______________________________________________________________________________________
Please share any thoughts on any other aspects of your visit; including the names of any
staff members who made your stay more enjoyable: ___________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
_______________________________________________________________________________________
Name: Daytime Phone:
_______________________________________________________________________________________
Date of Stay: Room:
PLEASE DO NOT WRITE BELOW THIS LINE FD2
Source: Reprinted with permission of UniFocus, LP. © 2000 UniFocus.
Quality Spotlight Granite Rock Company is a California manufacturer of high-quality construction

Granite Rock materials for road and highway construction and maintenance, and for residential
and commercial building construction. Its major product lines include rock, sand and
gravel aggregates, ready-mix concrete, blacktop, and other products. Surveying its
principal customer groups is one of the key approaches Granite Rock uses to improve
customer satisfaction. The surveys ask respondents to rate factors in buying concrete,
not only from Granite Rock, but from competitors as well. (Figure 4.7 shows such a
survey.) Through information obtained from the surveys, Granite Rock determined
that the most important factors to customers in order of importance are on-time
delivery, product quality, scheduling (ability to deliver products on short notice),
problem resolution, price, credit terms, and salespeople’s skills. Annually, the com-
pany surveys customers and noncustomers to obtain a “report card” on their service
Figure 4.7 Granite Rock Customer Importance Survey
What is important to YOU ?

Please rate each of the following on a scale from 1 to 5 with 5
being most important in your decision to purchase from a supplier.
Building
Concrete Materials
Importance Least . . . Most Least . . . Most
Responsive to special needs 1 2 3 4 5 1 2 3 4 5

Easy to place orders 1 2 3 4 5 1 2 3 4 5
Consistent product quality 1 2 3 4 5 1 2 3 4 5
On-time delivery 1 2 3 4 5 1 2 3 4 5
Accurate invoices 1 2 3 4 5 1 2 3 4 5
Lowest prices 1 2 3 4 5 1 2 3 4 5
Attractive credit terms 1 2 3 4 5 1 2 3 4 5
Salespeople’s skills 1 2 3 4 5 1 2 3 4 5
Helpful dispatchers 1 2 3 4 5 1 2 3 4 5
Courteous drivers 1 2 3 4 5 1 2 3 4 5
Supplier resolves problems
fairly and quickly 1 2 3 4 5 1 2 3 4 5
Please write in any other items not listed above which are very
important to you in making your purchase decision:
(see Figure 4.8). Granite Rock repeats the survey every three or four years as priori-
ties change, particularly if the economy changes. The surveys also ask open-ended
questions about what customers like and dislike.50
Analyzing and Using Customer Feedback

Deming stressed the importance of using customer feedback to improve a company’s
products and processes (refer to Figure 1.3 in Chapter 1). By examining trends in cus-
tomer satisfaction measures and linking satisfaction data to its internal processes, a
business can see its progress and areas for improvement. As the next step, the com-
pany assigns to an employee or group of employees the responsibility and account-
ability for developing improvement plans based on customer satisfaction results.
Many companies, for example, tie managers’ annual bonuses to customer satisfaction
results. This practice acts as an incentive for managers and a direction for their efforts.
One way to ensure that measurement is
Appropriate customer satisfaction appropriate is to collect information on both the
measurement identifies processes importance and the performance of key quality
that have high impact on satisfaction characteristics. For example, a hotel might ask
and distinguishes between low per- how important check-in speed, check-out speed,
forming processes low performance staff attitude, and so on, are, as well as how the
and those that are performing well. customer rates the hotel on these attributes.
Evaluation of such data can be accomplished
using a grid similar to the one shown in Figure 4.9, on which mean performance and
importance scores for individual attributes are plotted.51 Results in the diagonal quad-
rants (the shaded areas) are good. A firm ideally wants high performance on important
characteristics and not to waste resources on characteristics of low importance. Results
off the diagonal indicate that the firm either is wasting resources to achieve high perfor-
Figure 4.8 Granite Rock Customer Report Card
Please write in the names of the suppliers you use most often for
concrete. Then grade each company using this scale:
1
A= The Best Please write in the Concrete Supplier
B= Above Average you use MOST OFTEN
C= Same As Competition
D= Needs Improvement 2
F= Terrible Please write in your #2
Concrete Supplier
3
Please write in your #3
Concrete Supplier
1. Reliable Delivery
A. Do your orders arrive on time?
2. Consistent Quality
A. How is their concrete's workability?
B. How does it pump?
C. Is the slump right?
D. How about set time?
E. How about psi strength?
3. Dependable Service
A. Are they responsive to special needs?
B. Is it easy to place orders or requests with them?
C. Are their invoices accurate?
4. Competitive Pricing
A. Are their prices competitive?
B. Are their credit terms competitive?
5. People Who Care
A. Do their salespeople understand your needs?
B. Are their dispatchers helpful?
C. Are their drivers courteous?
D. Do they address problems fairly and quickly?
6. Overall Rating
mance on unimportant customer attributes (overkill), or is not performing acceptably on

important customer attributes, leaving the firm vulnerable to competition. The results of
such an analysis can help target areas for improvement and cost savings, as well as pro-
vide useful input for strategic planning. Often, competitor data are also plotted, pro-
viding a comparison against the competition. Granite Rock Company, featured in the last
section, uses this approach. The results of their importance survey and competitive per-
formance survey are summarized and plotted on an importance/performance graph to
assess the strengths and vulnerabilities of the company and its competitors. The scales are
chosen so that each axis represents the industry average. Granite Rock looks at the dis-
tance between its ratings and those of the competitors. If the ratings are close, customers
cannot differentiate Granite Rock from its competitors on that particular measure. By
posting these graphs on bulletin boards at each plant, the company ensures that all
employees, particularly salespeople, are fully informed of the survey results.
Many companies have integrated customer feedback into their continuous
improvement activities and in redesigning products and services. For example,
Skilled Care Pharmacy (see Case Study in Chapter 1), located in Mason, Ohio, is a $25
Quality Spotlight
million dollar privately held regional provider of pharmaceutical products delivered Skilled Care
within the long-term care, assisted living, hospice, and group home environments. Pharmacy
Skilled Care developed a Customer Grade Card, benchmarked from Baldrige winner
Wainwright Industries, to measure customer satisfaction. The Grade Card uses a
school-like A-B-C-D scoring system shown in Figure 4.10. The scores from the four
questions covering Quality, Responsiveness, Delivery, and Communication are con-
verted from letters to numbers and averaged. Any questions that were graded C or
below generate an immediate phone call or personal visit to the customer by the Cus-
tomer Care Team to investigate and resolve the issue. An example of how the feed-
back was used for improvement involved some low scores received for “Delivery.”
Management determined there was potential risk of losing valuable customers. Upon
investigation, it became evident that the issue was not timely delivery, but their
system of cut-off times for ordering medications for same-day delivery. If the cus-
tomer missed the cut-off time, then they did not receive their order until the next day,
and, Skilled Care was considered to be “late.” Their response to this customer need
was to extend pharmacy ordering hours and to aggressively modify staff schedules
for the order processing and pharmacy departments. In turn, they were able to offer
an additional five hours for customers to phone or fax medication orders for receipt
the same day. As a result, satisfaction scores for “Delivery” rose dramatically.
Why Many Customer Satisfaction Efforts Fail 52

Determining and using customer satisfaction information should be viewed as a key
business process. Just going through the motions can often lead to failure. A. Blanton
Godfrey suggests several reasons why customer satisfaction efforts fail to produce
useful results.
1. Poor measurement schemes. Just tracking the percentage of “satisfied and very sat-
isfied” customers on a 5-point Likert scale provides little actionable informa-
tion. Many surveys provide biased results because few dissatisfied customers
respond, or the surveys lack adequate sample sizes or randomization. Survey
designers need appropriate understanding of statistical concepts.
2. Failure to identify appropriate quality dimensions. Many surveys address issues the
company thinks are important, not what customers think. This error results from
a lack of capturing reliable information about customer needs and expectations.
3. Failure to weight dimensions appropriately. Even if organizations measure the right
things, they may not understand which dimensions are important. As a result,
they spend too much effort on dimensions with the lowest scores that may
not be important to the customers. Use of techniques such as importance-
performance analysis can help focus attention to the key dimensions.
Figure 4.9 Performance-Importance Comparison
Performance
Importance Low High
Low Who cares? Overkill
High Vulnerable Strengths

Figure 4.10 Skilled Care’s Customer Grade Card Scoring System
A = Customer Totally Satisfied 100 points

B = Customer Generally Satisfied 90 points
C = Customer Generally Dissatisfied 50 points
D = Customer Totally Dissatisfied 0 points
4. Lack of comparison with leading competitors. Quality and perception of quality is

relative. Without appropriate comparative data, competitors may be improving
much faster than an organization realizes.
5. Failure to measure potential and former customers. Without an understanding of
why non-customers do not do business with a company, or more importantly,
why customers leave, an organization risks losing market share to competitors
and may be headed for demise.
6. Confusing loyalty with satisfaction. As we noted at the beginning of this chapter,
these two concepts are different. Customer retention and loyalty provide an
indication of the organization’s future.
Customer Perceived Value 53 CPV measures how customers assess

Measuring customer perceived value (CPV) is benefits—such as product perfor-
an alternative to traditional customer satisfac- mance, ease of use, or time savings—
tion measurement that focuses more on cus- against costs, such as purchase price,
installation cost or time, and so on,
tomer loyalty than on satisfaction.
in making purchase decisions.
Sellers that provide the greatest CPV at the
time of the purchasing decision always win the
sale. CPV measurement includes potential buyers rather than just existing customers,
is forward-looking rather than retrospective, and examines choices relative to alterna-
tives rather than relative to expectations. Typical questions that are asked include
“What benefits are important to you?” and “How well do you believe that each
product or supplier will deliver those benefits?” and focus on perceptions of future
value rather than past experiences.
CPV methodology identifies the most important product attributes that prospec-
tive customers use to compare one offering against another, and their relative impor-
tance and performance. One approach for assessing importance is to ask the
customer to place a percentage value of importance on each attribute so the total
sums to 100 percent, thus eliminating the common problem of giving high ratings to
each factor. Asking customers to rate the performance of different offerings on each
attribute on a 10-point scale can assess relative performance; the difference in ratings
is the relative performance. For example, in comparing two casual dining restau-
rants, A and B, we might find the following:
Attribute Relative Importance Relative Performance (A—B rating)
Menu variety 30 -2
Food quality 20 +3
Atmosphere 10 0
Value 40 +1
By multiplying the relative importance values by relative performance and sum-

ming, we see that 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.
CUSTOMER FOCUS IN THE BALDRIGE CRITERIA, ISO 9000,

AND SIX SIGMA
Category 3 of the 2003 Malcolm Baldrige National Quality Award Criteria for Perfor- us Mater
Bon
ial
mance Excellence (available on the CD-ROM) is titled Customer and Market Focus.
s
Item 3.1, Customer and Market Knowledge, examines an organization’s processes for
gaining knowledge about requirements, expectations, and preferences of customers
and markets, with the aim of keeping products and services relevant, and for devel-
oping new opportunities. The criteria ask how an organization determines its target
customers, customer groups, and market segments, considering potential customers
and competitors’ customers; and how an organization listens and learns to determine
customer requirements and expectations and their relative importance. The item also
asks how an organization uses customer and marketing information, loyalty and
retention data, win/loss analysis, and complaints to plan products and services and
to make improvements. Finally, the item asks how an organization improves its cus-
tomer listening and learning approaches so that it can keep current with changing
business needs and directions. Continuous improvement of business processes is a
core concept of the Baldrige criteria.
Item 3.2, Customer Relationships and Satisfaction, examines an organization’s
processes for building customer relationships and determining customer satisfaction,
with the aim of acquiring new customers, retaining existing customers, and developing
new opportunities. The item asks how an organization builds relationships to meet and
exceed expectations and to increase loyalty, provides easy access for customers to seek
information or assistance or to comment and complain, how customer contact require-
ments are determined and deployed, how complaints are resolved effectively and
promptly, how the organization aggregates, analyzes, and learns from complaint infor-
mation, and how approaches to all aspects of customer relationships are kept current
with changing business needs and directions. This item also addresses an organiza-
tion’s satisfaction and dissatisfaction determination processes, how they may differ
among customer groups or segments, how measurement captures actionable informa-
tion for business development and improvement, how the organization follows up
with customers on products, services, and transaction quality, how it determines cus-
tomers’ satisfaction relative to competitors so that it may improve future performance,
and finally, how satisfaction determination approaches are kept current.
Customer focus is a key requirement of ISO 9000:2000. For example, in the Man-
agement Responsibility section, one requirement is “Top management shall ensure
that customer requirements are determined and are met with the aim of enhancing
customer satisfaction.” This puts the responsibility for customer focus on senior lead-
ership. In the Product Realization section, 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. In addition, the organization must establish procedures for communi-
cating with customers about product information and other inquiries, and for
obtaining feedback, including complaints. In the Measurement, Analysis, and
Improvement sections, the standards require that the organization monitor customer
perceptions as to whether the organization has met customer requirements; that is,
customer satisfaction. Note that even though some basic customer-focused processes
are required, the scope is not as broad as in Baldrige.
Customers are sometimes a “hidden” part of Six Sigma efforts, because the focus
tends to be on the improvement projects and measurement issues. However, a focus
on the customer is vital at every stage of Six Sigma projects. For instance, product
design (and design of associated manufacturing or service delivery processes) will be

far more successful if the “voice of the customer,” is included. A fundamental aspect
of Six Sigma methodology is identification of critical to quality (CTQ) characteristics
that are vital to customer satisfaction.
During the process of producing a product or service, it is important to gather
information needed by internal customers for process control activities to ensure that
the product is meeting the CTQs. If the CTQs are not being met, then the organization
needs to develop a better measurement and control system.54 Often, internal data that
can improve control processes—such as whether materials arrived on time, how
often an accounting report had incorrect data, or how many employees were absent
from work—are kept in departmental records, where they are difficult to access. The
solution may require a Six Sigma study to determine the types of data and informa-
tion that are needed to provide necessary monitoring and control, and how the infor-
mation gap (if one exists) can be closed.
Finally, at the delivery stage, customer satisfaction measures can provide clear
information about the success of Six Sigma efforts. An interesting result of the impact
of service recovery on customer satisfaction was reported in a Fortune magazine
article:
A global hotel chain was stunned to discover a perverse consequence of its
customer-centric Six Sigma quality initiative. Apparently guests were mildly
pleased by the chain’s sincere efforts to provide a hassle-free stay. But what
really moved the customer-satisfaction needle was how well the hotel
responded when something went wrong. Guests who had experienced a
problem that was quickly and politely resolved rated the hotel service higher
than guests who had had no problems at all. What’s more, more guests with
happy resolution of their hassle said they were likely to recommend the hotel
than did the trouble-free guests.55
In fact, many common Six Sigma projects revolve around developing appropriate
customer satisfaction measurement processes, as well as trying to improve the design
and delivery of CTQs identified through voice of the customer processes.
QUALITY IN PRACTICE
z UNDERSTANDING THE VOICE OF THE CUSTOMER AT LAROSA’S
“All business is the same, it just looks different” is
PIZZERIAS56
practices that have proven successful, no matter
a favorite quote of T. D. Hughes, CEO of LaRosa’s, what business they come from. One of these is the
Inc. LaRosa’s is a privately held chain of neighbor- Voice of the Customer process.
hood pizzerias with 54 locations in Cincinnati, In 1997, as part of a new strategic planning
Ohio, northern Kentucky, and Southeast Indiana, process, LaRosa’s identified growth as a key
that offers full-service dine-in, carryout, and home strategic goal. Because the local market was essen-
delivery. LaRosa’s competes against such national tially saturated, however, the Executive Manage-
chains as Pizza Hut, Papa John’s, Uno’s and other ment Team worked on strategies for growing the
local restaurants, yet holds a 45 to 50 percent share company for three years and produced no tangible
in its market area. LaRosa’s has been a leader results. One of the reasons for the impasse was the
among local businesses in adopting and pro- lack of sound, factual data. The Executive Manage-
moting total quality principles. T. D.’s quote pro- ment Team had developed three growth strategies,
vides a foundation for learning from other but could not agree on which one to follow because
organizations and adopting high-performance of a lack of a fact-based foundation for the decision.
In 2000, a project team was formed to tackle and that restroom cleanliness affirms guests’ trust
this issue, and was given complete latitude to in restaurant cleanliness. In analyzing all the
make any recommendation for an Italian/pizzeria responses gathered, LaRosa’s was able to priori-
concept based on customer needs and expecta- tize the most important customer requirements: (1)
tions. The team consisted of the marketing director assurance that the kitchen is clean (which is
(team leader), two executive vice presidents, the reflected by the cleanliness of the restrooms), (2)
director of operations, two franchise owners, an prompt service, (3) food and drinks at their proper
external strategic business partner, and the CEO, temperature, (4) fresh food, (5) meeting the unique
who was the team sponsor. The key tool that suc- needs of adult guests as well as families, (6)
cessfully led to an understanding of their cus- exceeding service expectations, (7) an easy to read
tomers and to a new and innovative restaurant and understand menu, and (8) caring staff.
design was Voice of the Customer (VOC). VOC is The experience of using VOC changed the com-
a structured methodology for listening to cus- pany focus from a “product-out” to a “market in”
tomers that is promoted by the Center for Quality mentality. It gave them a decision-making tool
of Management (CQM), an industrial consortium based on factual data and broke down communica-
based in Boston (http:// www.cqm.org). The basis tion silos within the company, and eliminated the
for VOC is asking customers to express their needs age-old sales and marketing versus operations con-
and expectations through their experiences. flict. The Executive Management Team and directors
LaRosa’s completed 16 in-depth one-on-one inter- were able to agree on a growth strategy that had
views with current and potential customers both eluded them for three years. The result was a new
inside and outside of their current market area to restaurant design concept that explicitly addressed
provide examples of dining incidents these indi- the voice of the customer. To meet the diverse needs
viduals had experienced, seeking “the good, the of customers, for example, LaRosa’s developed a
bad, and the ugly.” Here are some responses from larger waiting area, a casual bar area with more of
customers of current competitors and potential an adult atmosphere in addition to the family dining
competitors in other markets. areas, both table and booth seating, and a private
dining area for parties. LaRosa’s also initiated an
1. “So there I was, like herded cattle, standing
improved kids’ program highlighted by Luigi’s
on the hard concrete floor, cold wind blasting
Closet, a small area in which children can select a
my ankles every time the door opened,
toy or activity to keep them busy and crackers to eat
waiting and waiting for our name to be
while waiting for dinner. The Bonus Mate- us Mater
called.”
Bon
ial
rials folder on the CD-ROM provides
s
2. “And then I saw a dirty rag being slopped
some photographs of the result.
around a dirty table!”
The new restaurant jumped to second
3. “The manager said, ‘That’s not a gnat, that’s
in sales behind LaRosa’s flagship location. The
black pepper,’ so I said I know the difference
dining room check average is 25 percent higher
between black pepper and a gnat, black
than the market average, profitability as a percent
pepper doesn’t have little wings on it!”
of gross sales is well above the chain average, and
4. “When they’re that age, going to the bath-
secret shopper satisfaction results show that it is
room is a full-contact sport—they’re reaching
performing at the top of the chain.
and grabbing at everything, and you’re
trying to keep them from touching anything
because the bathroom is so dirty.” Key Issues for Discussion
What were the customers actually saying? One of 1. How does VOC differ from other forms of
the challenges that LaRosa’s faced was to translate market research into customer needs and
the “customer voices” into actionable terms. In expectations? What advantages and possible
these examples, LaRosa’s understood the cus- disadvantages does it have?
tomers as saying that restaurant design should 2. What impact did the VOC process have for
consider the diverse comfort needs of all guests, LaRosa’s?
that it provide a facility that customers implicitly 3. Conduct a mock VOC for your school or col-
trust, that customers feel cared for by service staff, lege. What did you learn?
QUALITY IN PRACTICE
z CUSTOMER FOCUS AT AMAZON.COM
Warren Buffett, the well-known financier and CEO day. We maintained a dogged focus on
of Berkshire Hathaway, has never been a big improving the shopping experience, and
backer of technology businesses.57 However, he in 1997 substantially enhanced our store.
owns $459 million worth of Amazon.com’s bonds, We now offer customers gift certificates,
1-ClickSM shopping, and vastly more
making him one of Amazon’s biggest debt
reviews, content, browsing options, and
holders. Buffet observes, “I’ve been using a com-
recommendation features. We dramati-
puter for eight or ten years now and I still really cally lowered prices, further increasing
pay for only three things on the Internet: The Wall customer value. Word of mouth remains
Street Journal, online bridge, and books from the most powerful customer acquisition
Amazon.com. That they are one of only three com- tool we have, and we are grateful for the
panies online that have gotten money out of my trust our customers have placed in us.
pocket tells me they are doing something right.” Repeat purchases and word of mouth
The concept of Amazon began in 1994 when have combined to make Amazon.com the
Jeff Bezos, its founder and CEO, read a study that market leader in online bookselling.58
predicted the Internet would explode in popularity. In its 2002 Annual Report, Bezos’s letter made
He settled on selling books online because almost numerous points to explain how that vision of cus-
every book was already catalogued electronically, tomer service had developed and expanded,
yet no physical bookstore could carry them all. including:
Bezos has a rare talent for a relentless focus on the
customer, and a studied disregard for short-term • We have deep selection that is unconstrained
pressures to show results on the “bottom line.” The by shelf space.
original Amazon model envisioned giving cus- • We turn our inventory 19 times in a year.
tomers access to a gigantic selection without the • We personalize the store for each and every
time, expense, and hassle of opening stores and customer.
warehouses and dealing with inventory. However, • We trade real estate for technology (which
Bezos quickly discovered that the only way to gets cheaper and more capable every year).
make sure customers get a good experience and • We display customer reviews critical of our
that Amazon gets inventory at good prices was to products.
operate his own warehouses so he could control • You can make a purchase with a few seconds
the transaction from start to finish. In its 2002 and one click.
Annual Report a letter from the 1997 Annual • We put used products next to new ones so
Report was reproduced, explaining Amazon’s cus- you can choose.
tomer-focused philosophy in these words: • We share our prime real estate, our product
detail pages, with third parties, and, if they
From the beginning, our focus has been can offer better value, we let them.
on offering our customers compelling
• Customer experience costs that remain
value. We realized that the Web was, and
still is, the World Wide Wait. Therefore,
variable, such as the variable portion of
we set out to offer customers something fulfillment costs, improve in our model as
they simply could not get any other way, we reduce defects. Eliminating defects
and began serving them with books. We improves costs and leads to better customer
brought them much more selection than experience.59
was possible in a physical store (our
store would now occupy 6 football
Many of the customer-pleasing features of
fields), and presented it in a useful, easy- Amazon’s operations are not noticed, or even
to-search, and easy-to-browse format in known, by Amazon’s customers. These fall into the
a store open 365 days a year, 24 hours a categories of technology, order fulfillment, and
retailing strategies. In technology, the company’s is called their Associates Program, Amazon.com
Web site has been, and remains, leading edge. In an provides a link to 900,000 Web sites carrying spe-
effort to serve customer needs, Amazon was one of cialty items and where online auctions are taking
the early pioneers to develop software for collabo- place every day.
rative filtering of customer data. Basically, the filter With millions of customers and potential cus-
is used to suggest similar or related products to a tomers accessing its global sites in the United
customer after he or she has focused on a product States, the United Kingdom, Germany, Japan, and
or product category. For example, if a customer Canada daily, Amazon.com’s sophisticated tech-
browses or purchases The Management and Control nology allows it to build an in-depth and poten-
of Quality, other books in quality management tially valuable database of many of its customers.
would then be suggested on the viewer’s Web In 1999, Amazon.com experimented with a highly
browser. These suggestions are based on what controversial feature on its Web site. It started
other readers of the text had purchased, in addition featuring thousands of individual bestseller lists
to the target text. Web features and capabilities categorized by Zip codes, workplaces, and
have expanded over the years, to include features colleges—wherever its customers were ordering
such as “look inside the book” for a chapter pre- from. With a mouse click on its World Wide Web
view, in-store pickup of orders, shipping choices site, browsers could peek behind the scenes at the
(priority vs. regular), and affinity group selections books that specific groups were reading, the com-
(Wedding Registry, Baby Registry, personal Wish pact discs they were listening to, and the videos
List, etc.). they were watching. Amazon described it as
In order fulfillment, the capabilities of its high- ‘’fun,’’ happily announcing the feature, Purchase
tech warehouses continue to drive costs down, as Circles, in a press release. Soon, however, citing
mentioned earlier. For example, Amazon has a customer complaints, the company began back-
nearly perfect process for sorting multiple item tracking. Customers were allowed to opt out of
orders. As it expands its offerings and adds more having their data collected, as long as they were
retail partners, Amazon’s fulfillment capabilities savvy enough to read the fine print and send an e-
pay dividends to its partners, as well as adding mail to the company. Companies could choose not
revenues to Amazon. By reducing the time it takes to be included by sending a fax.61 Despite the con-
to get all the items in an order into the sorting troversy, Amazon .com still has Purchase Circles
system, Amazon shipped 35 percent more units on its Web site.
with the same number of people than it had in ear-
lier years.60 Key Issues for Discussion
Its retailing strategy is based more and more
1. How does Amazon.com’s CRM software
on partnerships with those who, in most busi-
help it to gain market share and maintain its
nesses, would be considered competitors. Amazon
competitive advantage?
proclaims that it seeks “to offer Earth’s Biggest
2. How are operating efficiencies realized in
Selection and to be Earth’s most customer-centric
order fulfillment activities of Amazon.com?
company, where customers can find and discover
Will costs continue to fall, given that their
anything they might want to buy online.” How-
warehouses are currently operating at less
ever, at any time, its competitor-partners may be
than 50% of capacity? (Note: This measure is
offering the same item through their linked Web
expected to change over time, depending on
sites at a different price. For example, when a book
the state of the economy.)
is being viewed, the web page will also permit the
3. What are the customer privacy risks, besides
viewer to go to a linking web page of a partner’s
the ones mentioned in the case, that
book company, where the same title used (or even
Amazon.com must guard against in order to
new) book is being sold for a lower price. Its part-
continue to grow its business?
ners include well-known retailers such as Borders
Books, Waldenbooks, Waterstone, Target Stores, Additional Quality in Practice case studies us Mater
Bon
ial
Lands’ End, and thousands of other lesser-known may be found in the Bonus Materials
s
companies, large and small. In fact, through what folder on the CD-ROM.
z REVIEW QUESTIONS
1. Explain the difference between satisfaction and loyalty. Why is loyalty more
important?
2. What is a consumer benefit package? Why is it important in understanding satis-
faction and loyalty?
3. Describe the model used in computing the American Customer Satisfaction
Index. How might a business use the information from the ACSI database?
4. Explain the customer-driven quality cycle. What do expected quality, actual
quality, and perceived quality mean, and how do they relate with one another?
5. List and provide an example of the six leading practices of customer-focused
quality.
6. Define the principal types of customers that an organization encounters.
7. Explain the AT&T customer-supplier model.
8. Why is it important to segment customers? Describe some ways of defining cus-
tomer segments.
9. Explain the different dimensions of quality defined by David Garvin and the key
dimension of service quality. How are these dimensions similar and different?
10. What is the voice of the customer?
11. What is the Kano model, and what are its implications for quality management?
12. List the major approaches to gathering customer information. What are the
advantages and disadvantages of each?
13. Describe how affinity diagrams and tree diagrams are used to organize and
work with customer-related information.
14. Explain the concept of moments of truth.
15. Explain the importance of accessibility and commitments such as guarantees to
building customer relationships.
16. Who are customer contact employees? Why are they critical to an organization?
17. Define the term customer contact requirements. Why are they important?
18. Explain the role of training and empowerment of customer-contact employees
in achieving customer satisfaction.
19. Why should a company make it easy for customers to complain? How should
complaint information be used?
20. Outline a generic complaint management process.
21. Why are strategic partnerships and alliances useful to an organization?
22. How can customer relationship management (CRM) software help companies
develop and improve a focus on customers?
23. Why does an organization measure customer satisfaction?
24. Describe the key steps that must be addressed in designing customer satisfac-
tion surveys.
25. Explain the concept of importance-performance analysis and its benefit to an
organization.
26. Why do many customer satisfaction efforts fail?
27. What specific issues of customer focus are addressed in the Baldrige Award
criteria?
z DISCUSSION QUESTIONS
1. Can you describe a customer-focused organization similar to Superquinn with
which you have had personal experience? What aspects of the organization
impressed you the most?
2. A service representative of a major U.S. airline told a customer about an internal
memo that had been circulated called “No Waivers, No Favors,” which
promises significant and negative consequences to any employee giving a cus-
tomer special treatment outside of the airline’s strict policies. As the employee
noted, “Now, nobody is doing anything until we find out what happens to us if
we are a little lenient about enforcing a rule. People are scared.” Why do you
think that management adopted this policy? What implications will it probably
have for customers?
3. Why do you think that many firms fail to recognize the importance of cus-
tomers until they are faced with a crisis?
4. Construct a list of at least 20 different names for a “customer,” for example,
buyer, client, and so on.
5. Think about a prescription that a doctor may write. Describe the different types
of customers involved in the process of filling the prescription.
6. How might a bank quantify the value of a loyal customer? Try to develop a
quantitative model.
7. How might your school use the customer-driven quality cycle in Figure 4.2?
8. Consider a fraternity or other student organization and make a list of all of its
customers.
9. How might a college or university segment its customers? What specific needs
might each of these customer groups have?
10. Recall the AT&T customer-supplier model in Figure 4.3. For each of the fol-
lowing departments in a typical company, discuss who are their internal or
external customers and suppliers.
a. Operations
b. Information Systems
c. Human Resources
d. Mailroom
e. Payroll
11. For services, how do the quality dimensions defined by David Garvin relate to
the five dimensions of reliability, assurance, tangibles, empathy, and respon-
siveness identified by other researchers? Do they all fit into one of these cate-
gories?
12. Which of the five key dimensions of service quality—reliability, assurance, tan-
gibles, empathy, or responsiveness—would the following items from a retail
banking customer survey address?
a. Following through on promises
b. Offering convenient banking hours
c. Providing prompt customer service
d. Properly handling any problems that arise
e. Maintaining clean and pleasant branch office facilities
f. Demonstrating knowledge of bank products and services
g. Giving undivided attention to the customer
h. Never being too busy to respond to customer requests
i. Charging reasonable service fees
j. Maintaining a professional appearance

k. Providing error-free bank statements
l. Keeping customer transactions confidential
13. Deer Valley Resort in Park City, Utah, is viewed by many as the Ritz-Carlton of
ski resorts, providing exceptional services and a superior ski vacation experi-
ence.62 The resort offers curbside ski valet service to take equipment from vehi-
cles, parking lot attendants to ensure efficient parking, and a shuttle to transport
guests from the lot to Snow Park Lodge. Guests walk to the slopes on heated
pavers to prevent the pavement from freezing and assist in snow removal. The
central gathering area by the base lifts is wide and level, allowing plenty of room
to put on equipment and easy access to the lifts. At the end of the day, guests can
store their skis without charge at each lodge. The resort limits the number of
skiers on the mountain to reduce lines and congestion, and offers complimen-
tary mountain tours for both expert and intermediate skiers. Everyone is com-
mitted to ensuring that each guest has a wonderful experience, from “mountain
hosts” stationed at the top of the lifts to answer questions and provide directions,
to the friendly workers at the cafeterias and restaurants, whose food is consis-
tently rated number one by ski enthusiast magazines. “Our goal is to make each
guest feel like a winner,” says Bob Wheaton, vice president and general manager.
“We go the extra mile on the mountain, in our ski school, and throughout our
food-service operation because we want our guests to know they come first.”
What dimensions of quality—as described by David Garvin and specific to ser-
vices that are described in this chapter—are evident at Deer Valley?
14. Give several examples of dissatisfiers, satisfiers, and exciters/delighters in
products or services that you recently purchased. Why did you classify them
into these categories?
15. Consider the following customer expectations for a fast-food (quick-service)
restaurant. Would you classify them as dissatisfiers, satisfiers, and exciters/
delighters?
a. Special prices on certain days
b. Food is safe to eat
c. Hot food is served hot
d. Service is friendly
e. Background music
f. Playland for children
g. Restaurant is clean inside
h. Food is fresh
i. A “one-bite” money-back guarantee
j. Orders can be phoned in for pickup at a separate window
16. In the context of a fast-food restaurant, make a list of different characteristics
that might describe “freshness.” Classify them by means of an affinity diagram
or tree diagram. What does your response mean for measuring satisfaction of
this attribute?
17. Prepare a list of moments of truth that you encounter during a typical quarter
or semester at your college or university.
18. Write a generic customer satisfaction policy that a firm might use to convey
trust to its customers and as a means of determining employee values, policies,
and training initiatives.
19. Customer satisfaction is generally discussed from the consumer viewpoint. How-
ever, it is equally important from a business-to-business transaction perspective.
Discuss what suppliers to other businesses can do to improve satisfaction.
20. If you were the manager of a small pizza restaurant (dine-in and limited
delivery), what customer contact requirements might you specify for your
employees who take phone orders, work the cash register, and serve as waiters?
How would you train them?
21. Comment on the following questions that you might see on customer satisfac-
tion surveys. Discuss some of the problems with these questions and how they
might be improved.
a. The staff is professional.
b. ETAs are adequate.
c. Waiting time was reasonable.
d. Food safety is important to my purchase decision.
e. The service representative was friendly and helpful.
22. A local franchise of a national car rental firm conducted a survey of customers to
determine their perceptions of the importance of key product and service attrib-
utes as well as their perceptions of the company’s performance.63 The results are
given in Tables 4.3 and 4.4. In Table 4.3, importance was measured on a four-point
scale ranging from “not at all important” to “very important.” Note that Table 4.4
is segmented by personal and business use, and that two different scales were
used (the percentage values are based on the percentage of “yes” responses; all
others are on a 5-point scale from “poor” to “excellent”). What conclusions might
you make from these data? What possible improvements can you suggest?
Table 4.3 Importance Ratings of Product/Service Attributes
Mechanical condition of car 4.00

Cleanliness of vehicle 3.93
Friendliness of staff 3.86
Check-out speed/efficiency 3.80
Getting reserved car or better 3.80
Check-in speed/efficiency 3.79
Cleanliness of facility 3.66
Employee appearance 3.45
Getting nonsmoking car 3.45
Speed of coach service 3.24
Table 4.4 Customer Ratings of Performance
Personal use Business use
Mechanical condition of car 4.815 4.750

Cleanliness of vehicle 4.893 4.563
Friendliness of staff 4.929 4.688
Check-out speed/efficiency 4.759 4.688
Getting reserved car or better 96% 100%
Check-in speed/efficiency 4.821 4.750
Cleanliness of facility 4.893 4.500
Employee appearance 100% 100%
Getting nonsmoking car 86% 100%
Speed of coach service 100% 100%
23. One of our former students discovered a way to receive great service: ask for a
satisfaction survey before the end of the transaction. In one experience, the stu-
dent observed an instant change in how she was treated. What does such an
experience tell you about the company?
24. Analyze the following customer satisfaction results (on a 5-point scale) for a fast-
food restaurant. What recommendations would you make to the managers?
Attribute Importance Performance
Fresh buns 4.83 4.80

Cheese is melted 4.26 4.82
Drink is not watery 4.88 4.64
Fries are crisp 4.85 4.80
Fries are salty 4.12 4.48
Service is fast 4.93 4.61
Open 24 hours 3.91 4.81
Good variety of food 4.46 3.87
Nutritional data displayed 3.76 4.65
Children’s menu available 4.80 3.97
Tables kept clean 4.91 4.89
Low-fat items available 3.62 4.55
25. How does the Baldrige criteria address the issues raised in the discussion of the
reasons why many customer satisfaction efforts fail? Can addressing the criteria
help to mitigate these reasons?
z PROJECTS, ETC.
1. Perform some research to examine trends in the American Customer Satisfac-
tion Index over the last three years. What economic sectors show improvement?
Which don’t? How has the overall index changed?
2. Determine whether your school implements any of the leading practices of cus-
tomer focus in a systematic manner and write a report describing their approaches.
3. Based on the information in this chapter, propose new approaches for mea-
suring customer satisfaction for your faculty and instructors that go beyond the
traditional course evaluation processes that your school may use.
4. You may have visited or purchased items from large computer and software
retail stores. In a group brainstorming session, identify those characteristics of
such a store that would be most important to you, and design a customer
survey to evaluate customers’ importance and the store’s performance.
5. Table 4.5 lists customer requirements as determined through a focus group con-
ducted by Western America Airlines. Develop an affinity diagram, classify these
requirements into appropriate categories, and design a questionnaire to survey
customers. Be sure to address any other pertinent issues/questions as well as
customer information that would be appropriate to include in the questionnaire.
6. Interview some managers of small businesses to determine how they respond
to complaints and use complaint information in their organizations.
7. Describe some ways that companies can improve Web sites and make them
Table 4.5 Airline Customer Requirements
• Quality food • Courteous and efficient gate personnel

• Ability to solve problems and answer • In-flight telephone access
questions during flight • Good variety of audio/visual programming
• Efficient boarding procedures • Flight attendants knowledgeable of airline
• Appealing interior appearance programs and policies
• Well-maintained seats • Correct explanation of fares and schedules
• Reservation calls answered promptly • Efficient seat selection process
• Timely and accurate communication of • Courteous and efficient sky cap
information prior to boarding • Timely and accurate communication of flight
• Good selection of magazines and newspapers information (in-flight)
• Efficient and attentive flight attendants • Convenient baggage check-in
• Good beverage selection • Timely baggage check-in
• Clean lavatories • Comfortable seating and leg room
• Efficient ticket line and waiting procedures • Assistance for passengers with special needs
• Convenient ground transportation • Courteous ticket counter personnel
• Courteous reservations personnel • Convenient parking close to terminal
• Good quality audio/visual system • Ability to solve baggage claim problems
• Sufficient quantity of food • Ability of reservation agents to answer
• Interesting in-flight magazine questions
more customer-focused. You might consider examining a variety of Web sites

and identifying “best practices.”
8. Gather several customer satisfaction surveys or comment cards from local
establishments. Analyze them as to their ability to lead to actionable informa-
tion that will help the organization, and propose any improvements or redesign
you deem appropriate.
9. This exercise provides an experience with developing an affinity diagram for
analyzing complaints and would best be performed by the class as a whole.64
Each student writes one or more descriptions of personal experiences of frus-
tration and dissatisfaction with products and services. Two examples might be:
“Every time I purchase a CD, the seal is difficult and time-consuming to
remove. I have even cracked the case a few times while trying to remove it.” “I
purchased a new pair of running shoes, and the laces were too long.” These
experiences should be written on large sticky notes and posted on the classroom
wall. Students then group the responses in to logical categories and develop
descriptive headers for each group that explain the causes of dissatisfaction and
then create the affinity diagram. For instance, the shoe example might fall into
a group titled “Product components are incompatible.” An alternative project is
to use positive comments about products and services.
10. A number of pizza chains or restaurants are undoubtedly located around your
college campus. Using a focus group of students, conduct an interview to deter-
mine what factors are important in selecting a restaurant or pizza delivery.
Once you have identified these factors, design a satisfaction survey to compare
perceptions among the most popular restaurants in your area. Ask a sample of
students who visited at least to two of them to complete the survey. Analyze the
results and draw conclusions in a written report.
11. Many companies host visitors for plant tours, benchmarking information, and
so on. Design a customer satisfaction questionnaire for a medium-sized manu-
facturing plant that might do so. Why would such a survey be useful?
z CASES
us Mater
Bon
Additional cases are available in the Bonus Materials Folder on the CD-ROM.
ial
s
I. THE CASE OF THE MISSING RESERVATION
Mark, Donna, and their children, along with statement, “I doubt that we would have experi-
another family, traditionally attended Easter brunch enced this situation at a hotel that truly believes in
at a large downtown hotel. This year, as in the past, quality.” About a week later, he received the fol-
Donna called and made a reservation about three lowing letter:
weeks prior to Easter. Because half the party con-
sisted of small children, they arrived 20 minutes We enjoy hearing from our valued guests, but wish
prior to the 11:30 reservation to ensure being seated you had experienced the level of service and accommo-
early. When they arrived, however, the hostess said dations that we strive to achieve here at our hotel. Our
that they did not have a reservation. She explained restaurant manager received your letter and asked me
that guests sometimes failed to show and that she to respond as Total Quality Lead.
would probably have a table available for them Looking back at our records, we did not show a
before long. Mark and Donna were quite upset and reservation on the books for your family. I have
insisted that they had made a reservation and addressed your comments with the appropriate depart-
expected to be seated promptly. The hostess told ment head so that others will not have to experience the
them, “I believe that you made a reservation, but I same inconveniences that you did.
can’t seat you until all the people on the reservation Thank you once again for sharing your thoughts
list are seated. You are welcome to go to the lounge with us. We believe in a philosophy of “continuous
for complimentary coffee and punch while you improvement,” and it is through feedback such as yours
wait.” When Mark asked to see the manager, the that we can continue to improve the service to our
hostess replied, “I am the manager,” and turned to guests.
other duties. The party was eventually seated at
11:45, but was not at all happy with the experience. Discussion Questions
The next day, Mark wrote a letter to the hotel 1. Were the hostess’s actions consistent with a
manager explaining the entire incident. Mark was customer-focused quality philosophy? What
in the MBA program at the local university and might she have done differently?
taking a course on quality management. In the 2. How would you have reacted to the letter
class, they had just studied issues of customer that Mark received? Could the Total Quality
focus and some of the approaches used at The Lead have responded differently? What does
Ritz-Carlton Hotel, a 1992 and 1999 Baldrige the fact that the hotel manager did not per-
Award winner. Mark concluded his letter with the sonally respond to the customer tell you?
II. AMERICAN PARKINSON’S DISEASE ASSOCIATION CENTER65

Parkinson’s disease (PD) is a complex neurological neurologists. However, due to the complex nature
disorder whose major characteristics are tremor, of the disease and its management, it is common
slowness of movement, and muscle rigidity. With for neurologists themselves to refer patients to PD
advancing disease, patients may have trouble with sub-specialists. The American Parkinson’s Disease
balance and gait, as well as cognitive problems. Association (APDA) is a nonprofit voluntary
Awareness of PD increased in recent years when health agency committed to serving the Parkinson
celebrities Muhammad Ali and Michael J. Fox community through a comprehensive program of
developed the disease. research, patient education, and support. The
Patients with PD are commonly referred to goals of APDA are
• To sponsor pioneering research into the APDA and OSHA regulations. Because it is not a
cause, diagnosis, treatment, and cure for PD. medical establishment, it is not subject to health
• To develop a grassroots network of informa- department regulations. Operating funds come
tion and referral centers and support groups from grant money given by APDA and other grant
nationwide. money from pharmaceutical companies.
• To establish fundraising chapters in strategic The key customers are the Parkinson’s
areas throughout the country. patients, their caregivers, family members, sup-
• To publish and distribute a quarterly port groups, and the professionals (neurologists,
newsletter, educational booklets, audio- geriatricians and nursing homes) who work with
visual and other educational and supportive these patients. Customers use the center for infor-
materials about PD. mation and referrals to improve their response to
• To sponsor educational conferences for pro- the disease and overall well-being. The center
fessionals, patients, caregivers, and families responds to every client on an individual basis.
throughout the country. APDA is the main supplier of all media materials.
• To raise public awareness and understanding Pharmaceutical companies provide their drug and
of PD. general information. Surgical companies and hos-
pital supply companies also provide information
The Cincinnati office of APDA is a nonprofit
on their devices.
information and referral center for PD. The pri-
An important strategic challenge the center
mary purpose of the center is to support and edu-
faces is involving community neurologists and
cate by counseling and providing literature to
primary care physicians outside the university
patients and individuals who are associated with
system as allies in their efforts. Community neu-
the disease. The center implements positive coping
rologists often refer their complicated patients to
skills and goals for patients, caregivers, and other
the university hospital and its affiliated neurology
health care personnel; and informs patients and
clinic. However, they do so with reservations.
caregivers of the reason and rationale for their
These reasons include losing their patients to uni-
therapies. Services are delivered to customers by
versity neurologists, conflicts of interest related to
telephone, mail, Internet, person-to-person con-
pharmaceutical-sponsored clinical trials, and a
tact, support group, and chapter work. The center
general feeling that academic neurologists do not
also conducts an annual symposium, sponsored
treat them with respect.
by area neurologists, hospitals, as well as pharma-
ceutical companies, to address hot topics such as
Discussion Questions
new drugs and surgical treatments.
The center employs a medical director, who 1. Describe the supply chain structure for this
is a neurologist specializing in PD, a registered center.
nurse as project coordinator, and an assistant. The 2. On what issues should the center focus in
assistant herself has PD and her real-life experi- order to build relationships with its cus-
ence enables her to empathize with customers. The tomers and suppliers?
center is affiliated with a local university, which 3. Can you suggest specific activities and prac-
provides an accountant to help the center with tices that they might engage in to develop
financial matters. The Center is regulated by the into a total quality organization?
III. GOLD STAR CHILI: CUSTOMER AND MARKET KNOWLEDGE 66

Gold Star Chili has hired you as a consultant to in the context of the leading practices described in
help them improve their approaches to focusing this chapter. What are Gold Star’s strengths? What
on customers. Management prepared a Baldrige- are its weaknesses and opportunities for improve-
like application as a basis for beginning a self- ment? What specific advice, including useful tools
assessment (portions of which relating to customer and techniques that might help Gold Star, would
focus are included next). Examine their response you suggest?
Company Background suppliers, co-packers, brokers/consultants, share-

holders, and regulatory agencies.
Gold Star Chili, Inc., based in Cincinnati, Ohio,
To learn from customers, Gold Star uses mul-
was founded in 1965 as a family-owned system of
tiple listening posts, including market research,
franchised and company-owned restaurants. Gold
focus groups, customer comment cards, satisfac-
Star currently operates 118 regional locations (99
tion surveys, and roundtable meetings, advisory
of which are franchised; the remaining are com-
council group meetings, and one-on-one meetings.
pany restaurants or are co-owned). The Gold Star
In determining restaurant consumer requirements,
menu is based on a unique, “Cincinnati-style” chili
market research is conducted every two to three
recipe, flavored with a proprietary blend of spices
years. Gold Star benchmarks consumer prefer-
from around the world. The chili is prepared in a
ences in eating habits, consumer loyalty, product
central commissary, designed to reduce equipment
awareness, and attribute ratings for quality, ser-
needs at individual restaurants, promote consis-
vice, and value of Gold Star restaurants and com-
tency, and reduce labor costs.
petitors. Focus groups determine consumer
Gold Star operates in a highly competitive
preferences against the competition. Customers
market against other multilocation chili firms and
expect product consistency, a clean and pleasant
traditional fast-food competitors such as
atmosphere, and consistent service. Recently, Gold
McDonald’s, Taco Bell, and Kentucky Fried
Star implemented a Voice of the Customer process
Chicken. It trails its major competitor, Skyline,
with consumers, as well as with franchisees and
which has a larger advertising campaign, in
associates.
market share. In the late 1980s, Gold Star recruited
Each restaurant has postage-paid comment
a non-family member to serve as CEO in order to
cards (see Figure 4.11) available at counters and
expand the number of restaurants and geographic
tables. Monthly, the Gold Star office receives on
coverage. In early 1997 Gold Star launched a Total
average 200–300 comment cards. A customer ser-
Quality initiative, “The Gold Star Way.”
vice representative enters each comment into a
database and produces monthly reports on con-
Customer Focus Practices
sumer satisfaction of each restaurant. From time to
Gold Star is committed to achieving exceptional time, consumers will call directly to the corporate
customer satisfaction through the creation of lasting offices to make a formal complaint; these calls are
relationships and by offering a consistently high- also tabulated into the monthly customer com-
caliber set of products and services that customers ment report. The primary communication with
perceive as an excellent value. Through the effective restaurant customers occurs at the customer-server
application of its “one customer at a time” philos- interface. In addition, store managers are encour-
ophy, each associate strives to provide the level of aged to talk with guests regularly. An 800 number
customer service that permits the company to is also provided for consumers of retail products.
create and keep customers for life. Through atten- Franchisees are attracted by the relatively low
tion to each customer’s needs at each “moment of investment required to join the Gold Star family of
truth,” its focus is on not only satisfying, but restaurants, the opportunity to operate a profitable
delighting each customer. Through careful imple- business, and to benefit from the strong brand
mentation and adherence to the “Gold Star Way,” equity built into the Gold Star name. They expect
the company seeks to develop an enhanced under- consistency in chili product, effective corporate
standing of customers and markets. direction in the form of advice, market feedback,
Gold Star Chili defines two key customer and promotional activities. Prior to the addition of
groups: direct customers who use Gold Star prod- a new restaurant, a geodemographic analysis of
ucts and services, and indirect customers with potential locations is performed to ensure that any
whom Gold Star has other relationships. Direct new facility will not take more than 10 percent of
customers are divided into six customer segments, its business from another Gold Star location. Gold
determined by product use: restaurant customers, Star’s Franchisee Service Representatives (FSRs)
franchisees, franchise applicants, retail customers, take product orders from individual franchisees
retail wholesalers, and mail-order customers. Indi- by telephone on a daily/weekly basis. These fre-
rect customers include product suppliers, service quent interactions create a continuous dialogue
anonymous. Consequently, the survey was

Figure 4.11 Customer Comment Card
redesigned in 1997 into a short, five-question
“Franchise Satisfaction Survey” that is sent to all
We would like to have your comments. locations on a quarterly basis (see Figure 4.12).
NO POSTAGE NECESSARY! Please Mail: Through the data received from market
AM
DATE: ______ TIME: ______
PM LOCATION: research and focus group studies, Gold Star can
________________ determine consumer awareness, preferences, and
Servers Name: _______________________________________
dislikes. Feedback from advisory council meetings
What Did You Order: _________________________________
and quarterly business meetings help guide the
QUALITY C D C D company in determining training needs for man-
Good value ■ ■ Taste ■ ■
agement development of franchisees and their
Quality of food ■ ■ Portion ■ ■
staff. Satisfaction survey results help target areas
Temperature of food ■ ■ Appearance of food ■ ■
of opportunity and create action plans. The rela-
SERVICE tive importance of product and service features to
Speed ■ ■ Hospitality ■ ■
franchisees is tracked through the quarterly meet-
Accuracy ■ ■ Appearance of server ■ ■
ings, as well as through learning from daily and
CLEANLINESS weekly phone calls to FSRs and face-to-face dis-
Inside store ■ ■ cussions with delivery personnel.
Outside store ■ ■
More than 70 percent of customers eat in a
Rest rooms ■ ■
Gold Star restaurant at least once a month, and 20
What radio station(s) do you listen to most often?
to 30 percent eat at least once per week. The loy-
_____________________________________________________
alty of the customer base permits servers and store
How would you rate your overall dining experience? managers to get to know customers personally
1 2 3 4 5 6 7 8 9 10
and learn much about consumer needs. Marketing
POOR GOOD EXCELLENT
consultants perform an annual telephone survey
COMMENTS: ________________________________________
_____________________________________________________
of 300 “heavy chili users” to learn more about
_____________________________________________________ what consumers seek in chili products.
OPTIONAL: Name: ___________________________________ Gold Star Chili is an active participant in
Address: ____________________________________________ roundtable events sponsored by the Greater
Phone: ______________________________________________ Cincinnati Chamber of Commerce. It participates
with the Cincinnati Restaurant Association and
the National Restaurant Association. These con-
nections help maintain awareness of business
between the franchisee and the FSR as well as the trends, and advances in new technology.
delivery person who delivers product. Changing business needs are assessed by
Numerous opportunities are created to listen reviewing the annual reports of competing restau-
and learn from franchisees, including a Franchise rants, and an annual market research study that
Advisors Council consisting of elected owners permits benchmarking against the restaurant/con-
who meet monthly to review and determine busi- venience food industry in general. Gold Star also
ness decisions that affect the chain. The council reviews market research questions and redesigns
members are also assigned to committee groups questions to gain better feedback. Service industry
that meet with department heads to review busi- trade literature is read regularly. In some
ness practices in areas of marketing, purchasing, instances, store operators have developed their
menu pricing, operational costs, and gross profit own set of customer satisfaction tracking tools, for
analysis. Gold Star also conducts quarterly busi- example, tracking tip amounts.
ness meetings with restaurant owners and key Gold Star uses several interlinked approaches
managers. These meetings cover operations issues to determine customer satisfaction and to
affecting the chain; outside suppliers are welcome strengthen relationships. The comment card pro-
to attend the meetings also. In 1996, a comprehen- gram and toll-free number make it easy for the
sive survey of franchisees was initiated. Many consumer to provide feedback. The operations
complained that the survey was too long and not department has four directors of operations,
Figure 4.12 Franchisee Satisfaction Survey
Franchisee Satisfaction Survey RATING SCALE

A TOTALLY SATISFIED
Franchisee: __________________________ B GENERALLY SATISFIED
C GENERALLY DISSATISFIED
Please complete this survey and mail by return date.
Rating and comments should pertain to all departments. D TOTALLY DISSATISFIED
Rating
Communication Staff effectively communicates to you and listens to your needs and
makes you feel important; Is easy to contact.
Quality Quality food and products. Consistent and accurate services provided.
Timeliness On-time deliveries; Handles emergencies; Speedy solutions.
Dependability Promises kept; Trust in overall direction of the company.
Cooperativeness Responds to needs; Flexible; Courteous; Sensitive to franchisee’s needs.
How does Gold Star Chili rate against

Please help us continuously improve by providing
other companies that you work with:
comments when a grade of “B” or less is given. Please circle one: A B C D
Comments: Suggestions:
each overseeing half of the franchise community. often present them directly to the server or man-
Restaurant owners are given the director’s phone ager. Usually the manager will attempt to recover
number, pagers, cell phone numbers, e-mail from the service incident by offering partial or total
addresses, and home phone numbers. All potential credit, or a coupon redeemable for free food. Gold
franchise owners meet with the executive staff Star Chili uses a formal customer response system.
prior to purchasing a franchise to establish a All complaints are channeled to a customer service
relationship. representative (CSR). All complaints, verbal or
Every worker is trained to ask the customer written, are logged onto a Comment Action form. If
about his or her experience and see whether any- the comment is determined to be critical, then a call
thing can be done to make it better. Comment is made to the customer. The CSR must make two
cards are responded to within 24 hours of receipt, attempts to contact the customer within 24 hours. If
with a letter apologizing for an error or thanking the CSR cannot make contact, then a letter is sent to
them for a compliment. All department heads treat the customer along with free coupons. Afterwards,
franchisees as internal customers, and have signed the CSR will report the outcome directly to the fran-
a pledge guaranteeing to return calls within 24 chisee. Occasionally, a three-way conference is con-
hours. If a franchisee reports a problem with ducted between the CSR, the franchisee, and the
product quality, Gold Star often hand-delivers customer. The Comment Action form is logged into
replacement product the same day. the database and forwarded to the appropriate
Restaurant customers with complaints most department for review and signature. The CSR
prepares a monthly complaint log highlighting all utes, and have a section for open comments. Action
comments, which are reviewed by senior manage- plans are set for any scores that fall below A. The
ment. A summary of comments is sent to all fran- franchise operator and supplier surveys also seek
chisees to provide a picture of how customers view ratings against other companies they deal with. The
the entire corporation and the impacts that each associate survey asks for specific likes and dislikes
store may have on the reputation of the others. This about working for Gold Star Chili.
practice has been highly effective in informing fran- The majority of follow-up with dine-in cus-
chisees of key issues that might need attention. tomers is done face-to-face. At each restaurant, the
Gold Star’s mission is to create lasting relation- server visits the table two to three times to ensure
ships based upon respect, trust, and support given that everything is acceptable and to see if cus-
to customers. Many franchisees build relationships tomer needs are being met.
through local store marketing. Many owner/ Through various meetings between corporate
managers are active in the community with spon- and franchisees, Gold Star obtains information
sorships of teams or school programs. Gold Star about satisfaction relative to competitors. The
provides owners with school achievement awards franchise satisfaction survey gives specific and
they can distribute to local schools. reliable information from stores. For consumers,
Gold Star keeps its approaches to customer satisfaction relative to competitors is obtained
access and relationships current through bench- from focus groups. The customer satisfaction
marking Baldrige Award winners and attending report is sent out monthly to make all franchisees
regional and national conference to learn best more aware of actions taking place in stores, and
practices. for sharing both positive and negative comments.
Gold Star measures customer satisfaction for As with other approaches to customer relation-
each of the major customer groups, consumers, ships, Gold Star keeps its approaches to satisfac-
franchise operators, associates, and suppliers, using tion determination current through benchmarking
comment cards and satisfaction surveys. Consumer Baldrige Award winners and best practice
comment cards rate key attributes as “thumbs up” research. For example, Gold Star was able to
or “thumbs down,” and the overall dining experi- implement changes to the satisfaction survey
ence on a scale from 1 to 10. The other satisfaction process by following the method used by a past
surveys use a score of A, B, C, or D for five attrib- winner.
IV. CAPSTAR HEALTH SYSTEMS: CUSTOMER FOCUS

The complete CapStar case study, a fictitious practices described in this chapter (you need not
example of a Baldrige application, can be found on consider the actual Baldrige criteria for this activity).
the CD-ROM accompanying this book. If you have What are their strengths? What are their weaknesses
not read the Organizational Profile yet (see Case III and opportunities for improvement? What specific
in Chapter 3), please do so first. Examine their advice, including useful tools and techniques that
response to Category 3 in the context of the leading might help them, would you suggest?
ENDNOTES
1. Adapted from the article on Feargal Quinn by 4. AVIS 1992 Annual Report and Quality Review.
Polly Labarre in “Who’s Fast in 2002,” Fast Company, 5. Steve Hoisington and Earl Naumann, “The Loy-
November 2001, 88–94. alty Elephant,” Quality Progress, February 2003, 33–41.
2. Patricia Sellers, “Companies That Serve You 6. “Companies That Serve You Best” (see note 2).
Best,” Fortune, May 31, 1993, 6. 7. Carl Sewell and Paul B. Brown, Customers for Life
3. “Making Customer Loyalty Real: Lessons from (New York: Doubleday-Currency, 1990).
Leading Manufacturers,” Special Advertising Section, 8. Jane Norman, “Royal Treatment Keeps Customers
Fortune, June 21, 1999. Loyal,” Cincinnati Enquirer, May 31, 1998, E3, E5.
9. David Leonhardt, “Big Airlines Should Follow More Than Just a Slogan,” Quality Progress 26, no. 11
Midwest’s Recipe,” Business Week, June 28, 1999. (November 1993), 35–39.
10. J. M. Juran, Juran on Quality by Design (New 32. Jane Carroll, “Mickey’s Not for Everybody,”
York: The Free Press, 1992), 7. Across the Board, February 2000, 11.
11. The Forum Corporation, “Customer Focus 33. See note 3, “Making Customer Loyalty Real . . .”.
Research,” executive briefing, Boston, 1988. 34. Richard S. Teitelbaum, “Where Service Flies
12. “Companies That Serve You Best” (see note 2). Right,” Fortune, August 24, 1992, 117–118; Southwest
13. Model developed by National Quality Research Airlines, available at http://iflyswa.com; Kevin
Center, University of Michigan Business School for the Freiberg and Jackie Freiberg, “NUTS! Southwest Air-
American Customer Satisfaction Index, (ACSI). Cospon- lines’ Crazy Recipe for Business and Personal Success
sored with American Society for Quality Control, 1994. (Austin, TX: Bard Press, 1996); “Holding Steady,” Busi-
14. John A. Goodman, Dianne Ward, and Scott ness Week, February 3, 2003, 86.
Broetzmann, “It Might Not Be Your Product,” Quality 35. Christopher Hart, “What Is an Extraordinary
Progress, April 2002, 73–78. Guarantee?” The Quality Observer 3, no. 5 (March 1994), 15.
15. “How to Listen to Consumers,” Fortune, January 36. The Disney Institute, Be Our Guest, Disney Enter-
11, 1993, 77. prises, Inc., 2001, 86.
16. J. M. Juran, Juran on Quality by Design (New 37. Teitelbaum (see note 34).
York: The Free Press, 1992), chapter 3. 38. Karl Albrecht and Ronald E. Zemke, Service
17. AT&T Quality Steering Committee, Achieving America (Homewood, IL: Dow Jones-Irwin, 1985).
Customer Satisfaction, AT&T Bell Laboratories, 1990. 39. John Goodman, Pat O’Brien, and Eden Segal,
18. Michael J. Stahl, William K. Barnes, Sarah F. Gar- “Turning CFOs Into Quality Champions—Show Link to
dial, William C. Parr, and Robert B. Woodruff, “Cus- Enhanced Revenue and Higher Margins,” Quality
tomer-Value Analysis Helps Hone Strategy,” Quality Progress 33, no. 3 (March 2000), 47–56.
Progress, April 1999, 53–58. 40. “Focusing on the Customer,” Fortune, June 5,
19. “Time to Put Away the Checkbook: Now Fleet 1989, 226.
Needs to Bring Order to Its Furious Expansion,” Busi- 41. BI 1999 Malcolm Baldrige National Quality
ness Week, June 10, 1996, 100. Award Application Summary.
20. Larry Selden and Geoffrey Colvin, “Will This 42. Gary Hallin and Robert J. Latino, “Eastman
Customer Sink Your Stock?” Fortune, September 30, Chemical’s Success Story,” Quality Progress, June 2003,
2002, 127–132. 50–54.
21. David A. Garvin, “What Does Product Quality 43. AT&T Corporate Quality Office, Supplier Quality
Really Mean?” Sloan Management Review 26, no. 1 (1984), Management: Foundations (1994), 52.
25–43. 44. Myron Magnet, “The New Golden Rule of Busi-
22. Rahul Jacob, “Why Some Customers Are More ness,” Fortune, February 21, 1994, 60–64.
Equal Than Others,” Fortune, September 19, 1994, 215–224. 45. Patricia C. La Londe, “Surveys As Supplier Rela-
23. Robert D. Buzzell and Bradley T. Gale, The PIMS tionship Tool” ASQ’s 54th Annual Quality Congress
Principles: Linking Strategy to Performance (New York: proceedings, Indianapolis, IN, 2000, 684–686.
The Free Press, 1987). 46. “Behind the Numbers,” CIO Magazine,
24. “Getting an Edge,” Across the Board, February November 2, 2000, available at http://www2.cio.com/.
2000, 43–48. 47. Eric Almquist and Carla Heaton, “Customers
25. “Apple’s One-Dollar-a-Year Man,” Fortune, Jan- Are Disappearing,” Across the Board, July–August, 2002,
uary 24, 2000, 71–76. 61–63.
26. Bruce Nussbaum, “Designs for Living,” Business 48. Lucy McCauley, “How May I Help You?” Fast
Week, June 2, 1997, 99. Company, March 2000, 93.
27. James H. Drew and Tye R. Fussell, “Becoming 49. John Goodman, David DePalma, and Scott Breet-
Partners with Internal Customers,” Quality Progress 29, zmann, “Maximizing the Value of Customer Feedback,”
no. 10 (October 1996), 51–54. Quality Progress 29, no. 12 (December 1996), 35–39.
28. “How to Listen to Consumers,” Fortune, 11 Jan- 50. Malcolm Baldrige National Quality Award Pro-
uary, 1993, 77. files of Winners, 1988–1993; and materials provided by
29. Patricia Sellers, “Gap’s New Guy Upstairs,” For- Granite Rock, including the 1992 Malcolm Baldrige
tune, April 14, 2003, 110–116. Application Summary; Edward O. Welles, “How’re We
30. “KJ” is a registered trademark of the Doing?” Inc., May 1991; Martha Heine, “Using Cus-
Kawayoshida Research Center. tomer Report Cards Ups Service,” undated reprint from
31. This example is adapted from Donald L. Concrete Trader; and “Customer Report Cards at Granite
McLaurin and Shareen Bell, “Making Customer Service Rock,” available at http://www.baldrigeplus.com.
51. Importance-performance analysis was first intro- 61. David Streitfeld, “Amazon.com’s Data-Mining
duced by J.A. Martilla and J.C. James, “Importance- Technology Stirs Internet Privacy Controversy,” Wash-
Performance Analysis,” Journal of Marketing, 41,1977, ington Post, as quoted by http://www.onlineathens.
77–79. com/stories/082899/new_0828990006.shtml.
52. A. Blanton Godfrey, “Beyond Satisfaction,” 62. Courtesy of Deer Valley Resort.
Quality Digest, January 1996, 15. 63. Adapted from Ralph F. Altman and Marilyn M.
53. David C. Swaddling and Charles Miller, “Don’t Helms, “Quantifying Service Quality: A Case Study of a
Measure Customer Satisfaction,” Quality Progress, May Rental Car Agency,” Production and Inventory Manage-
2002, 62–67. ment 36, no. 2 (Second Quarter 1995), 45–50. Reprinted
54. Mike Carnell, ”Gathering Customer Feedback,” with permission of APICS—The Educational Society for
Quality Progress, 36, no. 1 (January 2003), 60. Resource Management, Falls Church, VA.
55. Michael Schrage “Make No Mistake?” Fortune, 64. Edna White, Ravi Behara, and Sunil Babbar,
December 11, 2001. “Mine Customer Experiences,” Quality Progress, July
56. Our thanks go to Brian Cundiff of LaRosa’s Inc. 2002, 63–67.
for providing this case. 65. Our thanks go to two former students, Arif
57. Fred Vogelstein. “Mighty Amazon,” Fortune, Dalvi, M.D., and Peggy Vogt, for their work on which
May 26, 2003, 64. this case is based.
58. 1997 Amazon.com, Inc. Annual Report, as 66. We thank our student team, Sudipta Bhat-
quoted in the 2002 Amazon.com, Inc. Annual Report, 4. tacharya, Terry Fitzpatrick, Gordon Jamieson, and
59. 2002 Amazon.com, Inc. Annual Report, 1–2. Jeremy Smith, for their work on the initial version of
60. Robert D. Hof and Heather Green, “How Amazon this case for the fourth edition of this book; Kim Olden
Cleared the Profitability Hurdle,” Information Technology, of Gold Star Chili for providing current information;
February 4, 2002, available at http://www. businessweek and Gold Star Chili, Inc., for granting permission to use
.com/magazine/content/02_05/b3768079.htm. this material.
BIBLIOGRAPHY
AT&T Quality Steering Committee. Achieving Cus- Raju, P. S., and Subhash C. Lonial. “The Impact of
tomer Satisfaction. Quality Technology Center, AT&T Bell Quality Context and Market Orientation on Organiza-
Laboratories, 1990. tional Performance in a Service Environment.” Journal of
Hayes, Bob E. Measuring Customer Satisfaction: Devel- Service Research 4, no. 2 (2001), 140–154.
opment and Use of Questionnaires, 2nd ed. Milwaukee, Rosenberg, Jarrett. “Five Myths about Customer Sat-
WI: ASQC Quality Press, 1997. isfaction,” Quality Progress 29, no. 12 (December 1996),
Hoffman, K. Douglas, and John E.G. Bateson. Essen- 57–60.
tials of Services Marketing. Fort Worth: Harcourt College Sanes, Christina. “Customer Complaints = Golden
Publishers, 2002. Opportunities.” 1993 ASQC Quality Congress Transac-
Janda, Swinder, Phillip J. Trocchia, and Kevin P. tions, Boston, 45–51.
Gwinner. “Consumer Perceptions of Internet Retail Ser- Schlesinger, Leonard A. “‘Hardwiring’ an Organiza-
vice Quality,” International Journal of Service Industry tion’s Service Performance,” Managing Service Quality
Management 13, no. 5 (2002), 412–431. 13, no. 1 (2003), 6–9.
Johnston, Robert. ”The Determinants of Service Whitely, Richard C. The Customer-Driven Company.
Quality: Satisfiers and Dissatisfiers,” International Journal Reading, MA: Addison-Wesley, 1991.
of Service Industry Management 6, no. 5 (1995), 53. Wong, Amy, and Amrik Sohal. “Customers’ Per-
Kyrillidou, Martha, and Fred M. Heath. Measuring spectives on Service Quality and Relationship Quality in
Service Quality. Champaign, IL : University of Illinois Retail Encounters,” Managing Service Quality 12, no. 6
Graduate School of Library and Information Science, 2001. (2002), 424–433.
Malcolm Baldrige National Quality Award. 2003 Zeithaml, A. Parasuraman, and Leonard L. Berry.
Criteria for Performance Excellence. Delivering Quality Service. New York: The Free Press,
Mittal, Banwari, and Jagdish N. Sheth. Value Space: 1990.
Winning the Battle for Market Leadership: Lessons from the Zimmerman, Richard E., Linda Steinmann, and
World’s Most Admired Companies. New York: McGraw- Vince Schueler. “Designing Customer Surveys That
Hill, 2001. Work.” Quality Digest (October 1996), 22–28.
Nogami, Glenda Y. “Eight Points for More Useful
Surveys.” Quality Progress 29, no. 10 (October 1996),
93–96.

CH3. Focusing On Customers

Uploaded by

Copyright:

Available Formats

CH3. Focusing On Customers

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CH3. Focusing On Customers

Uploaded by

Copyright:

Available Formats

z

THE IMPORTANCE OF CUSTOMER SATISFACTION AND Designing Satisfaction Surveys

F eargal Quinn is the executive chairman of Superquinn, a 5,600-employee, 19-store

THE IMPORTANCE OF CUSTOMER SATISFACTION AND LOYALTY

z QUALITY PROFILES e dia C

The American Customer Satisfaction Index 13

Figure 4.1 ACSI Model

Source: Courtesy of National Quality Research Center (see endnote 13).

CREATING SATISFIED CUSTOMERS

Figure 4.2 Customer-Driven Quality Cycle

Customer needs and expectations

Identification of customer needs

Translation into product/service specifications

Measurement and feedback

measures that it uses to evaluate its performance.

Involvement. New products begin with a series of customer meetings to create a

Figure 4.3 AT&T’s Customer-Supplier Model

Requirements and Requirements and

UNDERSTANDING CUSTOMER NEEDS

Table 4.1 Quality Dimensions of a Manufactured Product and Service

Manufactured Product Service Product

time, following customer instructions, providing error-free invoices and state-

GATHERING AND ANALYZING CUSTOMER INFORMATION

ples about these approaches.

Figure 4.4 Affinity Diagram

Communication Effective Service Loan Products

Timely and accurate Innovation

Consistent and Diversity of

Mutual job Expeditious Competitive

Modem link Buyer orientation

CUSTOMER RELATIONSHIP MANAGEMENT

Excellent customer relationship management depends on five aspects:

Accessibility and Commitments

Selecting and Developing Customer Contact Employees

Customer Contact Requirements

Effective Complaint Management

Figure 4.5 BI Service Recovery Process

Apologize for customer inconvenience

Listen, empathize, ask clarifying questions

Solve problem quickly in partnership with customer

Keep the promise

Source: Courtesy of Guy Schoenecker, president and chief quality officer.

tomer complaints in three years, resulting in improved customer satisfaction,

Strategic Partnerships and Alliances

Exploiting CRM Technology

MEASURING CUSTOMER SATISFACTION

Designing Satisfaction Surveys

1. The doctor was available to schedule me at a good time.

Very Neither Poor Very

Figure 4.6 Hilton Hotel Guest Survey

Primary purpose of visit? Individual business Convention/Meeting Pleasure

Source: Reprinted with permission of UniFocus, LP. © 2000 UniFocus.

Quality Spotlight Granite Rock Company is a California manufacturer of high-quality construction

Figure 4.7 Granite Rock Customer Importance Survey

What is important to YOU ?

Responsive to special needs 1 2 3 4 5 1 2 3 4 5

Analyzing and Using Customer Feedback

Figure 4.8 Granite Rock Customer Report Card

A. Do your orders arrive on time?