Service Process Improvement

Service Process Improvement

Service Quality and Customer Satisfaction

Expected service

Perceived service

Service quality

Customersatisfaction

Customerloyalty

Customer Satisfaction

• All customers want to be satisfied.

• Customer loyalty is only due to the lack of a better alternative

• Giving customers some extra value will delight them by exceeding their expectations and ensure their return

Customer Retention

• Acquisition of customers can cost 5 times more than retaining current customers.

• The average business loses 10% of its customers each year.

• A 5% reduction to the customer defection rate can increase profits by 25% to 85%.

• The customer profit rate increases over the life of a retained customer.

What Is Customer Satisfaction?

Comparison Standard

Zone of Indifference

PerformanceWorse ThanStandard

PerformanceBetter ThanStandard

NegativeDisconfirmation

PositiveDisconfirmation

(Confirmation)

Zone of tolerance• Desired service – level that customer

hopes to receive• Adequate service – level that the

customer is willing to accept• Zone of tolerance – Extent to which

customers will accept less than desired service

• Delight – the result of exceeding desired service

• Disappointment – the result of failing to deliver adequate service

• Zones of tolerance differ for:– Different customers– Different service dimensions– Expected service

Desired service

Adequate service

Zone of tolerance

Expected service

Meeting basic respect & courtesy needs; dissatisfaction if not met; indifference if met

Customer tells what is important; satisfaction vs. dissatisfaction if met

Customer hopes & asks but doesn’t expect; if met then delighted. Unlikely to cause dissatisfaction. Build customer loyalty

Benefits above & beyond expectations; identify and suggest innovations with new products

Service Satisfaction Information System

• Customer Complaints • Surveys • Employee Surveys • Focus Groups • ‘Mystery shopping’ research • Competitive market surveys - benchmark

Net Promoter Score

• The Net Promoter Score (NPS) is a measure of Customer Loyalty

• NPS was developed by Fred Reichheld as a simple way to create a clear measure of a company's performance in its customers' eyes

• Loyal customers are classified as promoters, while non-loyal customers are classified as detractors

Promoters Created By Balancing Relationship And Operational Excellence

Rela

tion

ship

(T

rust

)

• Purchase on function• Sensitive to

competition

Customers purchase based on offering

despite trust

• Collaborate for win/win• Overcome

inconveniences• Recognize value

Loyal customers who repurchase and are willing to pay more

• Price sensitive• Deal dependent

Customers view products and

services as commodity

• Purchase on personal relationships

• Sensitive to competition

Customers purchase based on trust despite offering

Detractor Neutral

Neutral Promoter

=Promoter

Operational Excellence

RELATIONSHIP+

OPERATIONAL EXCELLENCE

10 6 5 4 3 12 08 79Extremely

UnlikelyExtremely

Likely

Question: How likely are you to recommend Cummins to a friend or colleague?

Promoters DetractorsPassivesMay create negative word-of-mouth and switch to competition

Passives may switch for convenience or a more competitive offer

Promoters may pay price premiums, devote greater share of wallet, and create advocacy

%Promoters %Detractors Net Promoter Score

Net Promoter Score Calculation

Service Failure

• In all service contexts, service failure is inevitable.

• Service failure occurs when service performance that falls below a customer’s expectations in such a way that leads to customer dissatisfaction.

• Service recovery refers to the actions taken by a firm in response to service failure.

Types of Service Failure• Service Failure• Goods/Equipment/ Facility failure• Customer failureService Recovery (dealing with failures in

service delivery)• Does it lead to increased customer satisfaction?• Does it improve retention rates?• Does it drive process improvements?• As a result does it improve financial performance?

Characteristics of an EffectiveService Guarantee

• Unconditional– the guarantee should make its promise unconditionally – no strings

attached• Meaningful

– the firm should guarantee elements of the service that are important to the customer

– the payout should cover fully the customer’s dissatisfaction• Easy to Understand and Communicate

– customers need to understand what to expect– employees need to understand what to do

• Easy to Invoke and Collect– the firm should eliminate hoops or red tape in the way of accessing or

collecting on the guarantee

Benefits of Service Guarantees• A good guarantee forces the company to focus on its customers. • An effective guarantee sets clear standards for the organization. • A good guarantee generates immediate and relevant feedback

from customers. • When the guarantee is invoked there is an instant opportunity

to recover, thus satisfying the customer and helping retain loyalty.

• Information generated through the guarantee can be tracked and integrated into continuous improvement efforts.

• Employee morale and loyalty can be enhanced as a result of having a service guarantee in place.

• A service guarantee reduces customers’ sense of risk and builds confidence in the organization.