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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.
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