Chapter 7: Customers

Question 1

who is a customer: traditional and contemporary view

Answer 1

Traditional: customer is someone who uses a company’s products and suppliers are outsiders who provide the material needed to produce the products

Contemporary: every organization has both internal and external customers
- external: the one referred to in the traditional definition
- internal: any employee whose work depends on that of employees whose work precedes his or hers

Question 2

Customers and quality

Answer 2

Customers define quality in a total quality settings. Thus customer satisfaction must be the highest priority. Customer satisfaction is achieved by producing high-quality products that meet or exceed expectations. It must be renewed with each purchase

Question 3

Steps for identifying customer needs

Answer 3

1. Speculate about results
   Before gathering info on customer needs, speculate about what might be learned -> to determine whether organization is in touch with customer needs
2. Develop an information-gathering plan
   Information gathering should be systematically undertaken and well-organized. Before gathering info, develop a plan
   ○ What type of info is needed
   ○ Who will be asked to provide info
3. Gather info
   Before implementing the entire info-gathering plan, conduct a smaller pilot study involving just a few customers. After the methodology has been appropriately refined, gather info
4. Analyze the results
5. Check the validity of conclusions
   Share the conclusions with the customers, do they agree with them?
6. Take action

Question 4

QFD

Answer 4

Quality function deployment is a mechanism for putting into operation the concept of building quality. It makes customer feedback a normal part of the product development process, thereby improving customer satisfaction.

Question 5

How do customers define value?

Answer 5

1. product / service quality
2. service offered
3. selling price
4. total cost
5. image
6. personnel

Question 6

CVA

Answer 6

= customer value analysis

1. determine what attributes customers value most
2. rate the relative importance of the attribute
3. assess your organization
4. ask customers to rate your product / service attributes against those of a competitor
5. repeat this process periodically

Question 7

Customer retention

Answer 7

More accurate measure of loyalty than customer satisfaction (which is a means to an end)

To retain customers over the long term, organizations must turn them into partners and proactively seek their input rather than waiting for and reacting to feedback provided after a problem has occurred.

Question 8

Strategies for customer retention

Answer 8

1. Be proactive

weaknesses of feedback-based processes:
- Activated by problems customers have already experienced –> will be remembered
- Based on the invalid assumption that dissatisfied customers will take time to lodge a complaint
- Info that the customer complaint processes provide is often too sketchy to yield an accurate picture of the problem

Customer input is customer info provided BEFORE a problem occurs. Can be collected by focus groups.

Focus groups consist of customers who agree to meet periodically with representatives of the organization for the purpose of pointing out issues before they become problems.

A variation on the focus group is the input group. The purpose of both types is to provide input the organization can use to improve its processes and its products and services. The difference between the two is that focus group participants meet together for group discussion. Input group participants provide their data individually.

Other methods include hiring test customers and conducting periodic surveys. Test customers are individuals who do business with the organization and report their perceptions.

2. collect both registered and unregisterd complaints

Question 9

Characteristics of a customer-focused organization

Answer 9

1. vision, commitment, climate
2. willingness to tackle customers’ problems
3. alignment with customers
4. use of customer info
5. reaching out to customers
6. competence, capability, and empowerment
7. continual improvement of processes and products

Question 10

Characteristics of a customer-driven organization

Answer 10

1. promptly follows all promises
2. can be trusted
3. has credibility
4. attends also to small details
5. responsiveness
6. Q management style

effective communication with customers, use of customer-specific metrics, systematic use of customer feedback, focused organization structure

Question 11

Customer loyalty model

Answer 11

Process of creating customer loyalty is a 4-phase model

1. Business performance
   When evaluating the performance of an organization, customers consider: product / service quality, relationship quality, image strength, price perception
2. Global perceptions
   Based on its evaluation of an organization, a customer will form global perceptions about that organization.
3. Loyalty behavior
   Customer loyalty is a behavioral concept that can be measured. (defection rate, business volume)
4. Financial outcomes
   Are affected by several key factors:
   ○ High customer loyalty leads to large market share and better financial outcome
   ○ Repeat customers cost less to deal with
   ○ Positive employee attitude promote positive customer relations
   ○ Increased market share results in increased profits
   Customer loyalty can result in higher profits, which, in turn, are a key driver of shareholder value

Question 12

Customer profitability

Answer 12

The goal of organizations should be more than just earning customer loyalty, it should be earning loyalty of profitable customers. Organizations should never assume a positive correlation between customer loyalty and profitability, nor should they assume that a customer who is initially profitable will always be profitable.

Question 13

Customers as innovation partners

Answer 13

Involving customers in the design, prototyping and testing phases of product development is no longer considered an innovative strategy.

With this approach, the customer is given a technological tool kit for designing his or her own products and making product innovations.

The driver behind the move to partner with customers in the area of product innovation is what we refer to as the customization revolution. Today’s customers demand products that are customized to suit their individual needs.

Question 14

Product innovation for customer retention

Answer 14

Organizations must innovate to retain customers. Innovation is how organizations continually improve the quality and cost of their products as well as the quality of their services.