by Russell T. Westcott
Baldrige-type awards, the concept and principles of Total Quality Management (TQM), and the quality gurus we honor and respect all focus on customer satisfaction. In an organization’s efforts to sustain itself and move onward and upward, concern for customer loyalty and retention moves to the forefront. Customer satisfaction is a key metric. Think of your organization’s customer base in levels on a scale of 1–5.
|Is Your Customer
|Then Your Customer
|Has probably departed forever
|Is casual (any supplier will do)
|Is borderline, uncommitted
|Is a return customer (retained)
|A committed advocate
|Is loyal, appreciates what you do, and tells others
If customers are totally dissatisfied, either with the product or service your organization has provided and/or dissatisfied with the way they have been treated, they will likely leave for another provider (level 1).
If your customers shop wherever convenient for nondiscretionary products or services (e.g., buying health or beauty products without regard for brand, or hiring a trash removal company), and they are marginally satisfied, then any supplier may do. Price and availability are often the primary factors considered (level 2).
If it’s convenient to buy from your organization, your prices are reasonable, and you treat customers fairly and without negative incidents, customers may continue to buy from you but may not feel committed to do so continually. For example, the opening of a new supermarket may entice your customers away for a week or two, but convenience, knowing what they can expect, personal relationships with your employees, and comparable prices may well cause these customers to return. They are comfortable but not committed (level 3).
Say your products or services continually delight many of your customers in new and different ways. Over time, you will retain these customers. However, these customers could be attracted to a new supplier if a competitor trumps what you offer. These customers may remain retained as long as your organization continues to delight them (level 4).
If a substantial number of your customers remain with you for a long period of time, they may assume behavior that differentiates them from other customers. These level 5 customers are committed to buying from your organization for a number of possible reasons:
- They truly enjoy doing business with you, and they appreciate the personalized care they receive.
- They are pleased with the quality of the products and services.
- They are basically delighted with the innovative and useful improvements you make in your processes, products, and services.
- They may have been inconvenienced with an infrequent mistake or unsatisfactory product or service, but you have been quick to satisfactorily rectify the problem.
- These customers continually tell others they like doing business with you and why. They feel pride in their decision to continue to buy from your organization.
- They go out of their way to recommend your organization to others seeking the product or service you offer.
- Your organization’s reputation, integrity, and public image are vital to your customers’ perspectives.
Assume you want to strive to have your entire customer base at a level 4 or 5. The extent to which your entire organization is focused on this objective, in both thought and action, is paramount. First, you have to attempt to see your organization through the eyes of your customers. How do they view some of the critical components of customer satisfaction?
|Do customers have no concerns doing business with your organization?
|Do your employees interpret customers’ needs and wants and strive to deliver products and services to completely meet the customers’ requirements?
|Does the organization consistently deliver on time?
|Are your products/services consistently high in quality, performance, dependability and useful life?
|Are your employees willing and ready to respectfully answer inquiries and resolve any problems in a timely manner?
|Are employees provided the requisite knowledge, experience, skills, and do they have the aptitude and attitude to satisfy the customers’ expectations?
|Are employees trained to be consistently tactful, friendly, and helpful?
|Are customers addressed in language they understand and appreciate? Is the frequency of communication acceptable?
|Do customers feel secure relative to: physical safety, financial risk, and confidentiality of information?
|Does the organization, its employees, facilities, etc., appear business-like?
|Do your organization’s location, hours of operation, parking, communication access, and wait-time practices ease access?
Depending on the type and size of your organization, there may be techniques that haven’t yet been considered. Following are five techniques/tools:
- Lost customer analysis
- Customer value analysis
- Other effects
- Customer listening posts
- Retained customer incentives
Lost customer analysis
Does your organization capture and analyze the dollar-value that is lost when a customer departs? There are more complex techniques, but a starting point is to compute and continually update the dollars collected from average customers in each of the segments in the customer base, over a predetermined time period. This number is what your organization will lose if a customer is lost. You’re not done yet. Identify the major steps that are usually taken to obtain a new customer (e.g., focused advertising, incentives, recognition programs, etc.) and develop the estimated costs associated with replacing an average lost customer. Factor in an estimate of the time period it may take to replace the dollar-value of the average lost customer.
Let’s use an example of a supermarket. The average shopper—in a segment representing married buyers who own their home and have one or two children and one pet—spends an average of $125 per week. This segment of buyers average a five-year time span before leaving. That’s $32,500 for five years. If an estimate for enticing a new customer, including an approximate two-year time period to achieve a loyal, retained customer is developed, then the lost customer is a substantial financial loss.
Lost customer information should be discussed in meetings with employees to develop awareness of the value of developing loyal, retained customers (value for both the organization and for the employees’ jobs). Means for improving the organization’s performance in reducing lost customers should be emphasized by fostering what the entire organization can do together to improve their products and services and relationships with customers.
Customer value analysis
This analysis pertains to a customer’s perception of the value received from buying your organization’s products and services. This perception, derived from surveys, interviews, and focus groups, can be analyzed to create a customers’ perceived value matrix (CPVM). Using the CPVM, weigh the relevant customers’ perceived values of several brands of a similar product against value factors such as those listed below. This analysis allows management to determine where best to apply resources to increase a customer’s perceived value or where to build on already high perceived value. Value may comprise perceptions of:
- Whether the customer can afford the product or service
- Trade-offs, or what the customer must forgo to afford the product or service
- Whether the product or service is worth the price charged
- A favorable experience with seller’s products or services
- Other experiences or factors, such as:
- Speed of delivery
- Incentive to buy
- Warranty or unconditional guarantee
- Availability of a deferred payment plan
- Options available for products or services
- Future upgrades available, perhaps with a discount
- Expected time frame in which stock will be on hand should a replacement be needed, or a duplicate required
- Comfort and prestige in owning the product or obtaining the service
Other than lost customers, other factors may economically affect the organization because of failure to adequately and enthusiastically address customer satisfaction:
- Failing to elevate customer satisfaction goals, objectives, and actions to ensure top management support and continual scrutiny
- Failure to develop, implement, and monitor appropriate metrics to ascertain the level of customer satisfaction, with intent to continually improve satisfaction
- Neglecting to provide what customers want, when they want it, and how they want it
- Failing to provide employees with appropriate knowledge, experience, skills, and attitude to “delight” customers
- Concentrating solely on obtaining new customers, while neglecting caring for existing customers
- Allowing socially unacceptable practices. Accepting unethical behavior, questionable pricing schemes, and denying responsibility for unacceptable products or services
- Apparent disregard for the organization’s reputation and image in the markets served.
Customer listening posts
Imagine a business is manufacturing measuring instruments for liquid flow, electrical power, etc. The company’s product catalog is 8½ x 11 inches and nearly two inches thick. Every employee from top to bottom receives extensive training on every product in the catalog: its use, typical applications, and the usual specs and pricing details. The catalog is present at every desk or counter space for quick reference. The theory is that anyone in the company can take a customer’s call and know the basics of all the products and, if more detail is needed, can know exactly who should be contacted to meet the customer’s needs.
The company has grown to become a leader in its field and gained the enthusiastic support of local and national business leaders. The company’s president and owner is a savvy woman who built the business from the garage behind her house. The present business and its several buildings now occupy substantial real estate. Her focus is on developing her employees to be the best they can be—loyalty/retention is absolutely No. 1, for both employees and customers.
Obviously, listening carefully and intelligently to the voice of the customer is paramount in the above example. Other organizations have adopted the listening post technique, another approach for collecting, analyzing, learning, and improving from contacts with their customers. In its simplest form, this involves training all employees who may have contact with customer personnel to listen to the customer and understand the message being transmitted, regardless of the communication medium used. In its more developed form, LCALI (listen, capture, analyze, learn, and improve), there is a process for recording the information conveyed and forwarding the information to a trained person (the listening post), so that person can determine the proper action to address the inquiry or problem, ensure that corrective action—and, if necessary, preventive action—is taken, and inform the customer of the action taken. This method is designed to “hear” the casual remarks that may accompany routine transactions, e.g., order taking, order changes, corrections needed, or quality issues. The customer’s comments may relate to language and supplier actions that may offend or cause discomfort, inconvenience, frustration, or annoyance to the customer. In many organizations, because of a lack of attention and lack of an LCALI process emanating from conversations with customers, the customers’ words fail to reach people in the supplier’s organization who can address the concerns. The LCALI approach serves as an early warning system for situations that, if not captured and dealt with, could result in major complaints and loss of customers. (Need we be reminded of the massive recalls in the automotive industry, loss of lives, reputations tarnished, jobs lost, and financial losses to suppliers? All because of lack of initiative and support of processes to react to early indication of problems.)
In addition to identifying potential or actual problems, the LCALI methodology may also:
- Hint or indicate an idea for a new product or service
- Suggest an improvement in a present process, product, or service
- Allude to displeasure with some feature or aspect of an existing product or service
- Allude to displeasure with the behavior of the supplier’s employees
- Mention apparent deficiencies in product packaging, shipping methods, or billing
- Bring up a use for a product that the supplier is unaware of
- Identify competitors who offer more for the price
- Draw out comments—good or bad—about a competitor’s product or service
- Identify minor annoyances such as long wait time, lack of convenient and safe parking, or inconvenient business hours
- Hint that the customer may soon be relocating
- Highlight an action of an employee that pleased the customer
(See the May–June 2011 issue of The Auditor for more about LCALI.)
Retained customer incentives
Traditional incentives to foster retention of loyal customers include:
- Reasonable warranty processes for products or services
- Absolutely unconditional guarantees
- Reduced prices for bulk purchases of products
- Yearly reduced prices for forecasted shipments of products (blanket orders)
- Price matching with competitors’ prices
- Limited-time price reductions when a referred customer buys
- Reduced price for orders received via electronic data interchange (EDI) system—connecting customer and supplier
- Price, delivery, and billing incentives to customers identifying supplier as the sole source for products or services
Other incentives to loyal customers may include:
- Rapid and complete responses to corrective action requests
- A designated customer representative located at supplier’s location
- Free or low-cost training for customers making equipment purchases
- Customer representatives invited to supplier’s planning meetings
- Collaboration between customer and supplier on product/service designs
- Customer-supplier partnerships and alliances
When creating the audit checklist, consider appropriate suggestions from the above lists. Also consider the following general requirements:
- Is or should customer loyalty and retention be a key concern in your size and type of organization? Is it part of the organization’s strategy to have this concern?
- If yes, is there top management support and a supportive organizational culture for improving the processes to achieve better customer satisfaction, loyalty, and retention?
- Are the responsibilities for creating and sustaining customer satisfaction clearly communicated and understood?
- To whom will the audit report be delivered?
- Have the criteria been developed and deployed throughout the organization for what signifies desirable customer satisfaction, loyalty, and retention?
- What metrics are used? What is measured? How frequently?
- What actions are taken if the resulting measurement is unsatisfactory?
- Is/are there one or more adequately trained persons capable of conducting the audit, or will external help be needed?
- Will it be feasible that the assigned auditor(s) will be able to focus exclusively on customer satisfaction, loyalty, and retention?
- If not, what priority will customer satisfaction receive in a blended audit?
- Is the customer satisfaction audit considered within the scope of QMS audits? If not, should it be?
Concern for customer satisfaction, loyalty, and retention is extremely critical for many types of organizations. It can affect employment, profitability, marketplace acceptance of products and services, and life of the organization. The voices of the customers are heard too late when the customers are gone.
The inclusion and development of effective customer-focused processes and the culture to support them is as much a part of the QMS as anything included within the framework of “quality.” Customer focus should permeate organizational vision, strategy, objectives, and actions throughout the organization.
About the author
Russell T. Westcott is an ASQ Fellow, Certified Quality Auditor and Certified Manager of Quality/Organizational Excellence. He is editor of ASQ Certified Manager of Quality/Organizational Excellence Handbook, Fourth Edition and a co-editor of the ASQ Quality Improvement Handbook, Third Edition. He authored Simplified Project Management for the Quality Professional (ASQ Quality Press, 2005), and Stepping Up To ISO 9004:2000 (Paton Press, 2003). He is active in ASQ’s Quality Management Division and the Thames Valley (CT) section management.
Russ instructs the ASQ Certified Manager of Quality/Organizational Excellence refresher course nationwide. He writes for Quality Progress, The Quality Management Forum, The Auditor and other publications. He is president of R.T. Westcott & Associates, founded in 1979, based in Old Saybrook, Connecticut, (860) 388-6094 or email@example.com.