In the world of business, there is possibly no greater focus by senior management than the focus on customer satisfaction. This lofty position is well deserved, as management knows that, where satisfied customers are, sales, and therefore profits, are likely to follow. However, the process of determining the level of satisfaction of customers is a very complex process, both in theory and in the application. The evaluation of customer satisfaction has been the subject of countless books and articles, and there is no shortage of philosophies on how to measure your customer's satisfaction.
In the world of performance measurement, it is always preferable to use objective criteria to evaluate any element of performance from product and process performance to organizational performance. An essential part of any organizational performance evaluation scheme would be the measurement of customer satisfaction. However, the objective evaluation criteria with respect to the customer's perspective are much less readily available.
This factor adds to management's dilemma. Most managers would not think of managing their operation without a plethora of objective performance measures. Measures such as the percentage of scrap/waste, percent of first pass yield, mean time between failures, and throughput rate, are all essential for managers to know how well their operations are performing. However, what about customer satisfaction and their evaluation of their customer satisfaction? How well are these tools working to evaluate the customer's wants and likely future spending habits? Can it be as simple as asserting that, 'if I'm making sales, then my customers must be satisfied"? This paper postulates that it is more complex than that. There are many other factors involved leading up to the customer decision to buy, and this is discussed later in this paper.
Adding to the complexity of assessing the efficacy of a firm's satisfaction evaluation process is the fact that for many products and services, subjective evaluations are perhaps the best, and at times the only, means available. This fact builds in an inherent measure of subjectivity to the process and many times; this subjectivity is the underlying weakness in many customer evaluation systems.
The importance of a firm in staying 'close to its customers' is essential to a company's continued competitiveness. In order know how they are performing in the customer's eye's, some effective system must be engaged which will let them know just how well they are performing. It is not a simple matter of looking at sale records. For example, a firm may be showing increasing sales but, may still be losing market share due to rising competition in an expanding market. Faed (2010) found that good customer relationship management enhance the firm's competitive stance and increase its marketplace share. Kotler and Armstrong (2011) went further in saying that firms must not only satisfy their customers but, do so in a more efficient and effective manner than their competition to remain viable. Bhattacharya (2011) also found that by implementing a good relationship management process, firms can reduce their firm's operational costs and thereby, increase profitability as a result of increased customer loyalty. Zineldin, (2006) went further into developing a triangle strategy between quality, CRM, and customer loyalty. This strategy is felt in turn would increase a company's competitive position. While other studies went on to identify the actual factors relating to customer satisfaction. For instance, Long, Khalafubezhad, Ismail, & Rasid (2013) identified; behavior of the employees, quality of customer services, relationship development and interaction management.
The purpose of this paper is to present a practical method to evaluate a firm's customer evaluation system and identify shortcoming. Then the paper shows how to align this evaluation system to the customers with the highest profit potential for the firm.
The methodology used follows the action research framework. It started with the fundamental question of a practitioner, How do I improve my work? (McNiff & Whitehead, 2000), and then seeks to illustrate current practices and then extend those into creating something new and implement those newly developed practices (Nieswiadomy, 2012).
This paper is presented in two parts. The first part provides a method to determine if an existing customer satisfaction measurement system is 'measuring the right stuff. This part will be done by illustrating a proposed method to quantify the validity of a customer evaluation system. That is, is there an alignment between a customer's satisfaction level and the levels of one's company performance in the marketplace? The underlying assumption here is that superior performance in a firm's products and services will lead to higher performance among the competition. The first part will also look into the sources of misalignment in the customer evaluation system and corrective actions for that misalignment.
The second part assumes that one's current customer satisfaction measurement system is either inadequate or nonexistent. This second part of the paper presents a protocol for establishing a customer satisfaction system that 'listens better' to one's customers. It also introduces the concept that a firm should categorize its current and potential customers by their likely contribution to sales from high-profit potential to low-profit potential. Then, a method will be introduced to weight mathematically the profit potential of these customer categories with the wants and needs of the customers. The underlying assumption here is that a firm should focus its greatest attention to the needs and satisfaction levels of the high-profit potential customers over the needs and satisfaction levels of the lower profit potential customers. The second part of this paper will also discuss the 'what to ask' the customers and 'how to ask' the customers to focus in on the critical perceptions of the most valuable customers.
Finally, an example of a proposed evaluation matrix is presented to incorporate all the preceding concepts. This one matrix takes into consideration the profit potential of the customers, along with the current performance and importance ratings established by the customers. In the final part of the matrix, the summation provides managers with metrics by which to evaluate and prioritize their actions to increase customer satisfaction.
EVALUATING THE RESULTS OF YOUR CURRENT CUSTOMER SATISFACTION PROCESS ARE WE ASKING THE RIGHT QUESTIONS?
The preceding paragraphs discussed the importance of considering customers and their relative potential as a consumer of a firm's products and services. So far consideration has been given to what questions to ask regarding their customer satisfaction and then how to evaluate those questions. With this background, it is very likely that the right questions are being asked of the customers and this information can be used to make better management decisions. However, is it known for sure that we are asking the right questions? What are the objective indicators that the right questions are being asked in the customer evaluations? Or, another way to ask this question might be, "What evidence do I have to validate that I am asking the right questions to determine how satisfied my customers are in my products and services?" One very direct method would be to test the correlation between the customer satisfaction level and the actual market performance of the firm. If the measurement system has internal validity, then as the customer satisfaction level went up, the firm's market share and, or the sales should go up as well. Conversely, if the customer satisfaction levels were declining, is there a commensurate downturn in the market share or sales? This validity check can be considered in two dimensions; from the temporal or time-base dimension, and then the quantitative dimension, or about the size of the change. The temporal dimension refers to the timing of the events, that is, if some Factor A influences some Factor B, then Factor B changes only after Factor A changes. For the size dimension, Factor B increases or decreases in some predictable pattern based on Factor A.
What follows is a notional example of using the evaluation concepts discussed above in practice. The techniques mentioned in the preceding paragraph were used to identify the customer satisfaction levels for the most important questions that matter to the most important customers of the firm. To better capture and use the customer satisfaction data, the concepts of macro and micro-metrics will be used. For purposes here, a macro-metric is a compilation of several smaller customer satisfaction micro-metrics. This is illustrated later. The advantage of using a macro-metric is that it can distil the micro-metrics into a single customer satisfaction macro-metric for clarity and focus. Then this one macro-metric can be tracked over time. The concept of use of using micro and macro metrics has received good attention in research. Day (2008) notes that there are seveal reasons for the the use of micro and macro metrics. These center on rationality. Day notes that rationality is local, and rationality is bounded. This provides a natural breakdown of knowledge into the tatcial and the strategic, which for metrics, can be operationalized at micro and marco metrics, repsectively. Further, it is realized that in the field of economics, the micro and macro factors have an interrlatedness and studying one or the other alone, is not sufficient (Forge, 2009). In another study using the mirco and macro data approach, the authors proposed that a 'fused' approach leads to additional insight that is unavailable when one focuses on either the micro or the macro data (Dias, 2002)
Following in Table 1 is are notional results based on a firm's data...