- Meeting Customers' Real Needs
- Creating Customer Value
- Contributing to Customer Satisfaction
- Service System Design
- Conclusion
This chapter is from the book
This chapter is from the book
This chapter is from the book
Contributing to Customer Satisfaction
Customer satisfaction is the essence of exchange—that is, the reason customers buy things and build business relationships. To achieve high levels of satisfaction, your company must not just create outstanding value, but it must create the value customers desire and are willing to pay for. This is not a new idea. Rather, it is an idea that is recycled every few years. In fact, Business Week’s March 12, 1990, cover was titled, “KING CUSTOMER.” The tagline read, “Forget market share. Stop worrying about your competitors. The companies that are succeeding now put their customers first.” Putting customers first, of course, requires understanding how customers form perceptions of satisfaction.
Much of the customer satisfaction research has focused on expectancy disconfirmation.32 In essence, people act the way they do because of what they expect to happen as a result of their choices.33 Figure 1-4 illustrates the mechanics and implications of this idea. Satisfaction begins with each customer’s a priori expectations. When she engages in a service experience, her expectations are either confirmed or disconfirmed. Three outcomes are common:
- Experiences that fail to meet expectations lead to dissatisfaction. If the experience is bad enough, the customer may complain (remember “United Breaks Guitars”).
- Experiences that meet expectations deliver satisfaction.
- Experiences that exceed expectations achieve strong satisfaction—a result that may lead to loyalty and repeat business.
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Figure 1-4 The formation of satisfaction perceptions
Let’s dig a little more deeply into this process. Research has shown that expectations arise from a combination of cognitive and affective processes.34 At the cognitive level, the human mind processes (i.e., captures, assimilates, and responds to) information related to each experience. Memories of past experience mingle with external stimuli (e.g., advertising) to help create a learned expectation.35 The affective process is more emotional—it is a “gut” reaction. Because customer emotions arise quickly, they shape and are shaped by the cognitive process embedded in each experience.36 The comingling of rational and emotional responses intensifies feelings of satisfaction/dissatisfaction and influences long-term behavior (e.g., purchase decisions). The bottom line: You must capture both the mind and the heart of your customers to achieve high levels of satisfaction.
Now that we understand the basics of satisfaction formation, let’s briefly discuss the three core strategies companies employ to meet customer needs and achieve satisfaction.
Customer Service Strategies
At many organizations, the service focus is operational, focusing on things like product availability, order lead times, and reliability. The service goal is to perform to industry standards. Everyone in the industry—both suppliers and customers—knows what these benchmarks are. Standards are expressed as minimums (e.g., 90 percent on-time delivery) or as industry targets (e.g., 97 percent on-time delivery). Logistics executives commit to service levels that are equal to or slightly better than industry rivals. Most of the time, overall or average performance is tracked and used to assess performance and guide improvement initiatives. Because better service usually comes at a price, the top-of-mind question is, “Would better service really be worth the extra costs and provide a strong return on investment (ROI)?” Unless executives have consciously chosen to compete on delivery and responsiveness, an ever-present emphasis on costs will lead executives to commit to lowest service levels required to remain competitive.
Although common, basic service strategies possess several inherent flaws (see Table 1-2). Because they are operational and internally focused, managers must hope that by meeting industry standards, they are meeting customers’ needs. Traditional service programs do not guarantee that managers truly understand customer needs—in aggregate or by segment/specific customer. Nor do they provide insight into whether customers are truly satisfied. Managers may feel they are delivering outstanding service—and they are, based on their internally generated metrics—when customers feel otherwise. Even industry-leading performance will not be rewarded if customers do not value the type of service being provided.37 Misdirected service leads not only to wasted resources, but also to a reputation for mediocre service.
Table 1-2 Limitations of Different Customer Fulfillment Strategies
|
Strategy |
Goal & Focus |
Potential Downsides |
|
Customer service |
Meet/exceed industry standards Inward looking |
Fail to understand what customers value. Fail to satisfy the customer. Expend resources in wrong areas. Measure performance inappropriately. Operational emphasis leads to service gaps. |
|
Customer satisfaction |
Meet/exceed customer expectations Outward looking |
Ignore operating realities; overlook operating innovations. Giving customers what they say they want leads to product/service proliferation. Maintain unprofitable relationships. Historical focus makes the company vulnerable to disruptive products/processes. |
|
Customer success |
Help customers meet their customers' needs Forward/downstream looking |
Limited resources require that "customers of choice" be selected; that is, customer success is inherently a resource-intensive strategy. |
Adapted from Fawcett, Ellram, and Ogden (2007) |
||
To summarize, if they lose line of sight to customer expectations, basic service programs create service gaps. In one instance, managers at a European manufacturing facility set quality performance standards at industry levels, but lower than a key customer’s expectations. Of note, the customer was a sister division within the same corporation. Shipments that met internal standards were returned as unacceptable. Frustration grew with repeated service failures. Better expectation alignment may have led to higher standards at the factory, increasing the short-term quality training costs, but would have reduced total relationship costs (inspection, inventory, return transportation, and rework costs would have gone down). Counterproductive intrafirm rivalry would also have evaporated. The lesson is clear: It is not enough for you to talk about the customer—you need to talk to the customer.
Customer Satisfaction Strategies
More companies today are talking to customers not only to learn about their needs, but also to communicate to them a firm commitment to fulfill those needs. They do more than talk about creating value; they promise to exceed expectations, delight customers, and fulfill dreams (see Table 1-3). Deep insight into customer needs is at the heart of satisfaction strategies. To gain this insight, companies conduct surveys, focus groups, in-depth personal interviews, and ethnographic studies. Figure 1-5 shows, however, that not all data-collection efforts provide equally valuable insights. Gathering the most insightful information is costly. Many companies thus rely on surveys and focus groups instead of much more expensive shadowing and ethnography. Yet, “living” with customers almost always provides more meaningful customer insight. Companies like Procter & Gamble install cameras in customer homes to watch how customers really use their products. In the B2B setting, senior executives are spending more time (up to 20 percent to 30 percent) with customers to gain an appreciation of customer needs.38 Some companies even colocate their people on site at customers’ facilities to really find out what customers are thinking, feeling, and striving to accomplish.
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Figure 1-5 Comparison of cost and confidence for different data-gathering techniques
Table 1-3 Expressions of Customer Service, Satisfaction, and Success
Mission Statements That Express a Service Commitment |
|
Mission Statements That Express a Satisfaction Commitment |
|
Mission Statements That Express a Success Commitment |
|
Well-executed data-gathering initiatives answer the following questions:
- What value/experience do customers really expect? How do they define quality, delivery, responsiveness, and other key value areas?
- How do customers measure our performance? Are our measures consistent with theirs?
- How well does our performance meet our customers’ expectations and requirements?
- In what ways could we improve performance to differentiate ourselves in customers’ minds?
- Would customers really value better performance—enough to pay for it?39
Building on this insight, you can design your logistics service systems to deliver the experiences your customers expect and value, ensuring positive confirmation and high levels of satisfaction.
Now a warning: Customer satisfaction strategies possess limitations you need to consider. A misguided emphasis on satisfying customers can lead managers to make promises that cannot be fulfilled. When the service failure inevitably occurs, a promise has been broken and strong dissatisfaction emerges. Similarly, a desire to meet all customers’ needs promotes excessive product/service proliferation, undermining operating efficiencies and performance. Too much stress on satisfying customers has led even world-class firms to unknowingly maintain and invest in unprofitable relationships. Another challenge arises from focusing too much on what has satisfied customers in the past. Rivals’ disruptive product/service strategies can quickly persuade customers to switch allegiance. Of course, this assumes customers were loyal in the first place. Managers often mistake satisfaction for loyalty. In reality, satisfied customers may not be happy or loyal. Satisfaction means meeting expectations, not creating differentiation. To remedy this potential pitfall of satisfaction strategies, companies increasingly emphasize customer delight as their objective. Delight emerges as a company goes above and beyond customers’ existing expectations (see Figure 1-6). Delight has been described as follows:
- Satisfaction is based on fulfilling the expected; delight is based on fulfilling the unexpected positive surprise-based occurrences. Satisfaction is based on meeting or slightly exceeding expectations, while delight occurs from features that are not expected or that add unexpected utility.40
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Figure 1-6 A framework for customer delight
Unexpectedly good experience—that is, happy, affirmative surprise—drives delight and is a precursor to differentiation and loyalty. To achieve delight, you must benchmark customers’ typical experiences, understand their current expectations, and devise innovative, engaging service experiences. Please remember, however, that delighted customers are not always successful customers.
Customer Success Strategies
As Table 1-3 conveys, a small, but growing number of companies “view their success as dependent on their customers’ success.” General Electric’s “At the Customer, For the Customer” and 3M’s “6s at the Customer” programs exemplify customer success strategies. Managers at these companies realize the best way to drive growth and long-term competitiveness is to help their customers succeed. One CEO phrased the concept this way, “We turn our customers into winners. Their success is cash in our bank.”41 Well executed, a customer success strategy ensures loyalty even as it attracts new customers.
To be effective, managers must understand downstream supply chain dynamics—that is, what their customers’ customers really want. Jack Kahl, CEO at Manco, emphasized this point, saying, “I have to know more about my customers than I know about myself.”42 Without this deep understanding of customer requirements, companies cannot provide the tailored service and mentoring that customers need to win their own competitive battles. Figure 1-7 reveals that the key to executing a customer success strategy is for managers to find ways to use their company’s distinctive skills to help customers solve their own problems and improve their own capabilities. At PepsiCo, for example, a key customer was poised to switch to Coke for its fountain drinks. The customer saw no advantage to working with Pepsi. The logistics team saw things differently and sought an opportunity to change the competitive dynamics. Managers had noticed that the customer was struggling to manage routing on inbound shipments. A senior executive at Pepsi described what happened, saying, “We offered to share our experience in managing routing. As we helped them better manage their own business, their attitude changed positively and we have maintained the account. This external consultancy creates a sense of indispensability.”43
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Figure 1-7 A Customer Success Framework44
As a game changer, customer success strategies are powerful, but they are not without real implementation challenges. For instance, the executive who led the Pepsi team described an assessment dilemma, noting, “We would have lost this account, but didn’t thanks to our efforts to provide solutions. So, what do we document as gain? How do we justify the costs associated with helping our customers improve their own operations?” This comment alludes to the second challenge: Customer success strategies are resource intensive. Even the largest, most profitable companies do not have the unlimited resources to dedicate to being a consultant to every customer. You will need to apply success strategies selectively—to customers and situations that offer a real return on investment.