Return on Quality (ROQ): Making Service Quality Financially Accountable

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Return on Quality (ROQ):Return on Quality (ROQ):Making Service Quality Financially Making Service Quality Financially

AccountableAccountable

指導老師指導老師 :: 任維廉 教授任維廉 教授報告者報告者 :9832515:9832515 許程詠許程詠

Roland T. Rust, Anthony J. Zahorik, & Timothy L. Keiningham

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自我介紹自我介紹 人種：嘉義人人種：嘉義人 經歷 經歷 : : 協同高中→東海工工→交大運管協同高中→東海工工→交大運管 嗜好 嗜好 : : 上網，打球上網，打球 論文方向 論文方向 : : 利用灰色理論在遺失資料插補利用灰色理論在遺失資料插補的應用的應用

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AbstractAbstract

The quality revolution has taken over the thinking of The quality revolution has taken over the thinking of much of American industry. (Dean and Evans 1994)much of American industry. (Dean and Evans 1994)

Highly competitive market require that customers must Highly competitive market require that customers must be satisfied by their purchases or they will go else be satisfied by their purchases or they will go else where. ( Rice 1990)where. ( Rice 1990)

Wallace company won the Quality Award in 1990 but Wallace company won the Quality Award in 1990 but high spending on Quality produced unsustainable losses high spending on Quality produced unsustainable losses so that bankrupt in 2 years. (Hill 1993)so that bankrupt in 2 years. (Hill 1993)

Expenditures on quality do not have obvious profit Expenditures on quality do not have obvious profit implication (Aaker and Jacobson 1994)implication (Aaker and Jacobson 1994)

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AbstractAbstract

The benefits of quality improvements The benefits of quality improvements come in two firmscome in two firms

- The improved ability of the firm to attract - The improved ability of the firm to attract

new customersnew customers

- Customer become repeat customers - Customer become repeat customers

when they are satisfied with products.when they are satisfied with products.

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The ROQ ApproachThe ROQ Approach

Assumption:Assumption: Quality is an investmentQuality is an investment Quality efforts must be financially Quality efforts must be financially

accountableaccountable It is possible to spend too much on qualityIt is possible to spend too much on quality Not all quality expenditures are equally Not all quality expenditures are equally

validvalid

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A model of Service Quality A model of Service Quality Improvement and ProfitabilityImprovement and Profitability

Improvement Effort

Service Quality Improvement

Perceived Service Quality andCustomer Satisfaction

Customer Retention

Revenues and Market Share

Profitability

Cost Reduction

Word-of-Mouth

Attraction ofNew Customers

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Evaluating Financial ImpactEvaluating Financial Impact

AQ: Actual service QualityAQ: Actual service Quality S: Customer SatisfactionS: Customer Satisfaction CR: Cost ReductionCR: Cost Reduction R: Customer RetentionR: Customer Retention MS: Market ShareMS: Market Share

22),( EAQfS

11)( XfAQ

33)( AQfCR 44

)( SfR

55),( MVRfMS

66),( CRMSfPROFIT

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Drivers of Market ShareDrivers of Market Share

Customers retained =Customers retained = Customers switching to us =Customers switching to us =

new customers =new customers =

== net present value net present value (NPV)(NPV)

Net present value with additional spending Net present value with additional spending (NPVAS)(NPVAS)

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ROQROQ

Let NPV and NPVLet NPV and NPV00 be the net present be the net present values of the profit streams for the quality values of the profit streams for the quality improvement effort and status quoimprovement effort and status quo

ROQ=(NPV-NPVROQ=(NPV-NPV00)/NPVAS)/NPVAS

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Driver of customer SatisfactionDriver of customer SatisfactionProcess 1Measures

CustomerRetentionMeasures

OverallMeasures

Process 2Measures

Dimension 2 of Process 2Measures

Dimension 1 of Process 2Measures

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Measurement AlternativesMeasurement Alternatives

Repurchase intentionRepurchase intention （重新購買意圖）（重新購買意圖） Service qualityService quality （服務品質）（服務品質） Customer satisfactionCustomer satisfaction （顧客滿意度）（顧客滿意度） DisconfirmationDisconfirmation （不確定性）（不確定性） Customer delightCustomer delight （顧客喜好程度）（顧客喜好程度） Cumulative focus versus transaction focusCumulative focus versus transaction focus

（累積交易 （累積交易 vs vs 集中交易）集中交易）

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The ROQ Quality Improvement ProcessThe ROQ Quality Improvement Process

Stage1: Preliminary Information Gathering Customer surveys Market information Internal Information Heavy use of management judgment

Stage2: Identification of Possible Opportunities

Stage3 :Limited Testing of Improvement to Determine Effectiveness

Stage4: Financial Projections Based on Hard Data

Stage5: Full Rollout of Quality Improvement Efforts

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Summary of Managerial InputsSummary of Managerial Inputs18 managerial inputs18 managerial inputs The key management process must be indentifiedThe key management process must be indentified Key dimensions of each process must be obtainedKey dimensions of each process must be obtained Customer retention (Or repurchase intention)Customer retention (Or repurchase intention) Customer satisfaction (Or a suitable substitute)Customer satisfaction (Or a suitable substitute) Market size must be measuredMarket size must be measured Current market share must ne estimatedCurrent market share must ne estimated Churn must be estimatedChurn must be estimated The company’s current retention rate must be estimatedThe company’s current retention rate must be estimated The attraction percentage must be obtainedThe attraction percentage must be obtained The market growth rate must be estimatedThe market growth rate must be estimated

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Summary of Managerial InputsSummary of Managerial Inputs

The contribution margin from an average customer must The contribution margin from an average customer must be estimated be estimated

The cost of capital must be determined The cost of capital must be determined The time horizon must be specifiedThe time horizon must be specified A specific quality improvement alternative must be A specific quality improvement alternative must be

identifiedidentified The additional expenditures related to this improvement The additional expenditures related to this improvement

effort must be estimated effort must be estimated Cost savings must be estimatedCost savings must be estimated The satisfaction shift must be estimatedThe satisfaction shift must be estimated Market test data may be obtainedMarket test data may be obtained

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An Illustration ApplicationAn Illustration Application

A National Hotel ChainA National Hotel Chain

disappointed group(9%): 45% returndisappointed group(9%): 45% return

Satisfied group(75%): 95% returnSatisfied group(75%): 95% return

Delight group(16%): 97% returnDelight group(16%): 97% return Calculate ROQCalculate ROQ

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ConclusionsConclusions

This article presented a financial approach This article presented a financial approach to quality improvement (ROQ)to quality improvement (ROQ)

Made quality improvement financially Made quality improvement financially accountableaccountable

Let manager determine where to spend on Let manager determine where to spend on service qualityservice quality

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Thanks for your listening