Chapter 7

Customer Satisfaction, Retention, and Loyalty

Objectives

• After reading the chapter and reviewing the materials presented the students will be able to:

• Understand who is a customer.• Identify external customer needs.• Communicate with customers.• Retain customers.• Recognize a customer driven organization.• Use customers as innovation partners.

Understanding who is a customer• An organization uses certain processes by which it produces its products.• People who interact with the company prior to these processes taking

place have been considered suppliers.• Those who interact with the company after these processes have

produced the product have been viewed as customers.• From this traditional perspective customers and suppliers are both

external entities.• In a total quality setting, customers and suppliers exist inside and outside

the organization.• An employee whose work precedes that of another employee is a supplier

for that employee.• Correspondingly, any employee whose work follows that of another

employee and is dependent on it some way is a customer.

Understanding Customer Defined Quality

• The customer must be the organization’s top priority. The organization’s survival depends on the customer.

• Reliable customers are the most important customer. A reliable customer is one who buys repeatedly from the same organization. Customers who are satisfied with the quality of their purchases from an organization become reliable customers. Therefore customer satisfaction is essential.

• Customer satisfaction is ensured by producing high quality products. It must be renewed with every new purchase. This cannot be accomplished if quality, even though it is high, is static. Satisfaction implies continual improvement. Continual improvement is the only way to keep customers satisfied and loyal.

• The key to establishing customer focus is putting employees in touch with customers and empowering those employees to act as necessary to satisfy the customers.

Identifying External Customer Needs

• 1. Speculate About Results: Write down what you think customers will say they need.

• 2. Develop an Information Gathering Plan: Decide what types of information are needed and who will be asked to provide it (fig 7-4, page 99).

• 3. Gather the Information: A pilot study involving a few customers will identify problems that can be corrected before you go large scale.

• 4. Analyze the Results: Do they match speculated results from the first step? What changes were suggested?

• 5. Check the Validity of the Conclusions: With customers and other people in the organization.

• 6. Take Action: Meet with customers and let them know what is going to be done and when.

• 7. Obtain Customer Information From the Internet: Careful scrutiny of a customer’s website can reveal useful information about what is important to the customer and who is the best contact person.

Communicating With Customers

• Product enhancements: By knowing your customer’s operations, suppliers may be able to add attributes that will make the product even more attractive to the customer.

• Improved productivity: By knowing a customer’s operations, suppliers may be able to propose process modifications that improve productivity.

• Internal improvements: By knowing a customer’s operations, suppliers may learn facts that lead to internal improvements in quality, productivity, and design in their own organization.

Quality Function Deployment (QFD)

• QFD is a model for incorporating customer feedback into product development.

• QFD consists of the following basic activities:• Deployment of customer requirements (quality needs).• Deployment of measurable quality characteristics.• Determination of the correlation between quality needs and

characteristics.• Assignment of numerical values to each quality characteristic.• Integrating quality characteristic into product.• Detailed design, production, and quality control of the

product.

Customer Satisfaction Process• Determine who your customer is.• Determine what attributes of your product or service are most important

to your customers.• Arrange these attributes in the order of importance indicated by your

customer.• Work on those processes that have the highest importance but lowest

customer satisfaction ratings.• Maintain open continual communication on what is being done.• Review on a continual basis. Adjust as necessary.

Customer Retention

• Customer satisfaction data is used to measure success.

• Another important measure of success is customer retention.

• 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.

Customer Loyalty Model• When evaluating the performance of an organization customers consider:• Product quality (attributes, features, usability, compatibility, reliability).• Service quality (sales, after sales service, billing).• Relationship quality (communication, availability, responsiveness).• Image• Price perceptions (initial purchase price, cost of maintenance and repairs,

cost of upgrades).• Global Perceptions (if perceptions are positive, they can lead to loyal

behavior).• Loyalty Behaviors (customer defection rate, business volume of individual

customers - up or down).• Financial Outcomes (market share, reduced costs, employee attitudes,

shareholder value).

Customers as Innovation Partners

• The best companies involve customers in the design, prototyping, and testing phases of product development.

• Today’s customers demand products that are customized to suit their individual needs.

• In the semiconductor industry this had led to custom chip market that has grown to more than $ 15 billion.

Summary• People who interact with the company prior to these processes taking place have been considered

suppliers.• Those who interact with the company after these processes have produced the product have been viewed

as customers.• From this traditional perspective customers and suppliers are both external entities.• In a total quality setting, customers and suppliers exist inside and outside the organization.• The customer must be the organization’s top priority. The organization’s survival depends on the

customer.• Customer satisfaction is ensured by producing high quality products. It must be renewed with every new

purchase. This cannot be accomplished if quality, even though it is high, is static. Satisfaction implies continual improvement. Continual improvement is the only way to keep customers satisfied and loyal.

• The key to establishing customer focus is putting employees in touch with customers and empowering those employees to act as necessary to satisfy the customers.

• When evaluating the performance of an organization customers consider: Product quality (attributes, features, usability, compatibility, reliability), Service quality (sales, after sales service, billing), Relationship quality (communication, availability, responsiveness), Image, Price perceptions (initial purchase price, cost of maintenance and repairs, cost of upgrades).

• The best companies involve customers in the design, prototyping, and testing phases of product development.

Home Work

• Answer Questions 3, 6 on page 110.• 3. Explain the role of the customer in a total quality

setting.• 6. How is customer satisfaction ensured?