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Chapter 4Chapter 4Chapter 4Chapter 4

Quality in Customer-Quality in Customer-Supplier RelationshipsSupplier Relationships

The Value of CustomersThe Value of Customers

“The only value your company will ever create is the value that comes from customers—the ones you have now and the ones you will have in the future. Businesses succeed by getting, keeping, and growing customers. Customers are the only reason you build factories, hire employees, schedule meetings, lay fiber-optic lines, or engage in any business activity. Without customers, you don’t have a business.” – Don Peppers and Martha Rogers

Deming’s Emphasis on Deming’s Emphasis on CustomersCustomers

The Customer-Supplier The Customer-Supplier ChainChain

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Business Case for Business Case for Customer FocusCustomer Focus

““Satisfaction is an attitude; loyalty is a Satisfaction is an attitude; loyalty is a behavior”behavior”

Loyal customers spend more, are willing Loyal customers spend more, are willing to pay higher prices, refer new clients, to pay higher prices, refer new clients, and are less costly to do business with.and are less costly to do business with.

It costs five times more to find a new It costs five times more to find a new customer than to keep an existing one customer than to keep an existing one happy.happy.

A firm cannot create loyal customers A firm cannot create loyal customers without first creating satisfied customers.without first creating satisfied customers.

The Importance of The Importance of SuppliersSuppliers

Quality of the supply chain affects Quality of the supply chain affects the quality that customers receivethe quality that customers receive

“Superior quality, consistent service, and competitive pricing are just the price of entry to get into the game.”

Suppliers must continually improve and align their operations with customer needs.

Principles for Customer-Principles for Customer-Supplier RelationshipsSupplier Relationships

Recognition of the strategic importance of customers and suppliers

Development of win-win relationships between customers and suppliers

Establishing relationships based on trust

Practices for Dealing Practices for Dealing With CustomersWith Customers Collect information constantly on

customer expectations Disseminate this information widely

within the organization Use this information to design,

produce, and deliver the organization’s products and services.

Manage customer relationships Exploit CRM technology Don’t ignore internal customers

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Collect Customer Collect Customer InformationInformation

Comment cards and formal Comment cards and formal surveyssurveys

Focus groupsFocus groups Direct customer contactDirect customer contact Field intelligenceField intelligence Complaint analysisComplaint analysis Internet monitoringInternet monitoring

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Understand Customer Understand Customer Needs – the Kano ModelNeeds – the Kano Model

DissatisfiersDissatisfiers: expected : expected requirementsrequirements

SatisfiersSatisfiers: expressed : expressed requirementsrequirements

Exciters/delightersExciters/delighters: : unexpected featuresunexpected features

Disseminate Customer Disseminate Customer InformationInformation

Share information with employeesShare information with employees Provide data to product designers and Provide data to product designers and

service managersservice managers

Use Customer Use Customer InformationInformation

Manage Customer Manage Customer RelationshipsRelationships

Develop close relationshipsDevelop close relationships Provide convenient access to Provide convenient access to

information and to employeesinformation and to employees Train customer contact employeesTrain customer contact employees Develop good service standardsDevelop good service standards Deal with complaintsDeal with complaints Exploit CRM technologyExploit CRM technology Don’t ignore internal customersDon’t ignore internal customers

Moments of TruthMoments of Truth

Every instance in which a customer Every instance in which a customer comes in contact with an employee of comes in contact with an employee of the company. the company.

Example (airline)Example (airline)– Making a reservationMaking a reservation– Purchasing ticketsPurchasing tickets– Checking baggageChecking baggage– Boarding a flightBoarding a flight– Ordering a beverageOrdering a beverage– Requests a magazineRequests a magazine– DeplanesDeplanes– Picks up baggagePicks up baggage

Exploit CRM Technology Exploit CRM Technology (1 (1 of 2)of 2)

Segmenting markets based on demographic and behavioral characteristics.

Tracking sales trends and advertising effectiveness by customer and market segment.

Identifying and eliminated non-value-adding products that would waste resources as well as those products that better meet customers’ needs and provide increased value.

Identifying which customers should be the focus of targeted marketing initiatives with predicted high customer response rates.

Exploit CRM Technology Exploit CRM Technology (2 (2 of 2)of 2)

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 customers and how the Web site might be improved.

Streamlining processes around customers rather than traditional functions, resulting in improved flow of information and cycle times.

Guiding Principles in Guiding Principles in Supplier RelationshipsSupplier Relationships

Recognizing the strategic importance of suppliers in accomplishing business objectives, particularly minimizing the total cost of ownership,

Developing win-win relationships through partnerships rather than as adversaries, and

Establishing trust through openness and honesty, thus leading to mutual advantages.

Practices for Dealing Practices for Dealing With SuppliersWith Suppliers

Base purchasing decisions on Base purchasing decisions on quality as well as costquality as well as cost

Reduce the number of suppliersReduce the number of suppliers Establish long-term contractsEstablish long-term contracts Measure and certify supplier Measure and certify supplier

performanceperformance Develop cooperative relationships Develop cooperative relationships

and strategic alliancesand strategic alliances

Relationships to Relationships to Organization TheoryOrganization Theory

Roles for customersRoles for customers– ResourceResource– Worker (or coworker)Worker (or coworker)– BuyerBuyer– Beneficiary (or user)Beneficiary (or user)– Outcome or product of value-creating Outcome or product of value-creating

transformation activitiestransformation activities Resource dependence perspectiveResource dependence perspective Integrative bargainingIntegrative bargaining