Wednesday, March 26, 2008

Voice of the Customer

From: qualityg
Re: Voice of the Customer (VOC)

In today’s competitive environment many companies enact a number of strategies to gain market share. However, the pursuit of market share has resulted in more concern with finding new customers than with retaining existing ones. Studies and statistics show that on average, businesses (USA) spend seven times more money attracting new customers than trying to create and retain loyal ones.

So what is the answer? A learning company (Systems Thinking) needs both strategies and their needs to be a balance and correlation between them. To concentrate on one and not the other is like trying to win a football game with only fielding an offensive unit.

The purpose of this write-up is to focus on customer retention and loyalty. There seems to be many strategies and measures for reporting new revenue but little in the area of loss customer share. Likewise, there seems to be many types of customer satisfaction studies, but few for retention. Retention is a far more dynamic measure of customer service performance quality than satisfaction. Customers can give high satisfaction scores and then defect. Between 65 percent and 85 percent of customers who defect say they were satisfied or very satisfied with their former supplier (source: Harvard Business Review).

Dr. Deming used to say, “ It will not suffice to have customers who are merely satisfied. Satisfied customers switch, for no good reason, just to try something else. Success and growth come from customers who boast about your products and services. The loyal customer requires no advertising or other persuation, and he brings a friend with him.”

A Voice of the Customer System is required to monitor customer retention and loyalty. The following model is one example:

* Plan VOC (assessment)
- Organizational enthusiasm for customer-driven needs information
- Assessment of information systems already available

The purpose of the assessment is to gain an understanding of the current state of the VOC processes within the organization.

* Gather VOC (identify needs)
- Customer-defined wants and needs, expectations, problems, and complaints
- Hands-on interviewing by staff for VOC capture and/or use of external professional
customer research vendor as partner

Once needs are identified they can be translated into data, opportunity statements, and other measures that can assist in prioritizing customer retention activities. There are three methods an organization can use to gather needs.

1. Active (proactive) methods – company representatives go directly to the customer or customer venues. Or, the organization may select to use the more formal techniques, such as personal focus groups and in-depth interviews. An outside third part vendor may also represent the organization in these type of efforts. Additionally, VOC data can also be obtained from independent quantitative research studies (i.e. American Consumer Service Index).

2. Receptive (reactive) methods – this is where the customer comes to the organization to provide information. This usually takes the form of complaints, product returns, suggestions and audits. While these are often taken as negative, an organization can retain face if it resolves the issue in an efficient and courteous manner. When dealing with this type of data be sure that a representative sample has been taken before making wholesale changes to your processes. Experience has shown that this type of information gets senior management attention, and with that comes process changes that often are not analyzed properly to determine if the cause(s) is random.

3. Indirect methods – these methods include organizational examination of a specific customer event. That event may be increased revenue, less revenue, new revenue, customer loss, or a change in a customer expectation. This type of inquiry allows the organization to respond to these types of inputs in a constructive manner as opposed to not at all or as an emergency situation.

* Understand VOC (collect and analyze customer information)
- Attribute performance and importance, transaction assessment, latent and
registered complaints impact, and gap profiling
- Prioritization description based on performance, loyalty, and recommendation

The voice of the customer much like the voice of the process needs to be systemically addressed. When collecting and analyzing data and information the following method can be utilized:

1. Define the problem/opportunity
2. Identify and map the process
3. Measure the gap(s)
4. Conduct Root Cause Analysis (understand why)
5. Develop and test countermeasures
6. Implement solutions and evaluate
7. Monitor for on-going improvement

* Implement VOC (take appropriate action)
- Quality Action Teams
- Improvement programs and follow-up measurement

The main purpose of implementation is to create a positive performance for the customer. Customers are the inevitable recipients of implementation efforts, so the result of a sound voice of the customer system is how well it retains loyal customers and increases revenue and sales, not how much information and data the organization has collected and analyzed.


1. Retention-focused organizations concentrate on customers who may be planning to defect. They also gather knowledge from former customers and internal customers.

2. A Total Quality effort must be part of the VOC plan. However, acquiring excellent quality or winning awards should not be the result that an organization strives for, customer preference and profitability is.

3. Understanding customer requirements – Dr. Noriaki Kano a leading expert in customer satisfaction studies states that directly fulfilling customer expectations has risk associated with it if the service/product provider is unaware that there are different types of customer requirements.

- Providing exorbitant quality
- Delighting the customer in one area, and driving them to competitors in another
- Focusing only on what customers say, and not what they think

Dr. Kano’s teachings direct the provider to pay attention to two dimensions and three types of customer requirement.

Example Model of Kano Analysis by qualityg (1992)

KANO MODEL - click on diagram to Enlarge

You must not lose sight of the fact that your customers (int/ext) are the most important judges of your quality, not you!

The first dimension is need fulfillment. Measure the degree to which the customers’ requirements are fulfilled. The dimension ranges, naturally, from completely unfulfilled to completely fulfill.

The second dimension is the customers’ subjective response to the first dimension. It is the dependent variable of customer satisfaction. This may range from irate to delighted.

Kano’s model of customer satisfaction predicts that the degree of customer satisfaction is dependent upon the degree of fulfillment, but is different for different types of customer expectations.


Expected requirements are those that are so obvious to the customer that they do not state requirements openly. When these requirements are not met, the customer says nothing, and probably doesn’t even notice. When these features or services are not present, the customer complains. Continually improving on meeting these kinds of needs will not obtain customer loyalty or delight.

Example: Telephone dialtone, if it slow in coming or missing, customers complain. When it is working, the customer does not pay much attention, much less become loyal to the provider of the service.


Sometimes referred to as “essential” quality. Customers openly state these needs and are quite aware of them. When these needs are met, customers are satisfied, when they are not met, customers are dissatisfied. For many types of requirements in this category, it is possible to deliver more than customer requirements and generate additional perceived benefit.

Example: Price, performance, and delivery.


Customers have needs that they are not aware of. These are referred to as ‘latent” needs. They are real, but not yet in the customers’ awareness. If a provider does not meet these needs, there is no client response. They are not dissatisfied, because the need is unknown to them. If a provider understands such a need and fulfills it, the customer is delighted. This can also be described as “attractive” or “surprising” quality. It delights and excites the customers and inspires loyalty and retention.

Example: 3M Post-Its. The need for such a note-posting tool has long been present, but was not voiced until the product existed. It met a latent need, generated much excitement, and became one of the best revenue products for 3M. My new favorite is the Post-IT Easel Sheets!

This expectation is sometimes contradictory to the saying “The customer is always right.” The customer is not cognizant of all things, in order to stay competitive and to acquire new market share as well as warding off defectors; organizations must lead the customer to their latent needs. Companies that fail to use their knowledge of customers to develop the product or service those customers will need next are leaving the door wide open for a competitor to lure them away.

4. Customers, who, through direct company contact or survey, say they’re satisfied today, can disconnect next week, next month, or next year.

5. Reality proves that customer loyalty or retention is a more complex, yet more conclusive, measure of quality performance than customer satisfaction.

- Correlating expressed complaints with satisfaction measures provides little direction for service quality improvement. Use both latent and registered complaints and correlate them with retention or loyalty scores.

- The purpose of a business is to get and keep customers.
Satisfy: To make content or appease, to fulfill requirements
Retain: To keep or use, or to hold or continue to hold in possession

6. Many companies dismiss former customers as lost causes, particularly in times of rapid and sustained growth.

7. Customers who disconnect service can provide a view of the organization that cannot be obtained from within the organization.

8. Most companies are not set up to generate latent complaints when moments of truth with the customer arise. Sales, front-line employees, and even management have little or no training in how to ask for and document such knowledge, so the opportunities are lost, and the company misses out on a vital source of information. For example, I have traveled a number of times to Denver in the winter. I frequently rent a car and often there is no ice scraper. I have repeatedly complained and I usually get a response that, “I’m sorry that happened.” Needless to say, I no longer use that rental car agency because they never documented or did anything about my complaint.

9. Sporadic capturing of customer opinions and receiving satisfaction report cards provides minimal value or strategic direction to an organization. Companies require a strategic methodology to capturing customer defined wants needs and problems. The approach should include both current and former customers in the process. Training must be provided to customer contact personnel to capture the voice of the customer.

10. Customer research studies provide little effectiveness unless there is a means of feeding back the information and data to those in the process affected so that corrective and preventive actions can be taken. Data must be captured and displayed in such a fashion as to attract attention and result in process improvements.

Ask yourself a question, when was the last time you read and absorbed customer research data and did something about it? Sending out an Email or memo saying we must do better in the areas with low ratings will not result in lasting change or improvement.

11. Should we concentrate on selling products/service, or should we be selling the expertise and technology to help our customers define their wants and needs and then sell the best product suited to them.

A good example if this situation was when a friend of mine switched long distance carriers for his business. He told me he chose the new carrier because of its advertised lower rates and coupon offerings. Over a period of time he developed a good relationship with his sales representative who provided expertise on a number of communication issues, including a centrex system, an outbound telemarketing setup, and a new data line for Internet connection. The sales rep knowledge of the current technology available helped saved my friend time and money. Since that time other long distance carriers have approached him and even offered lower rates, he has decided to stay with his current carrier because of the expertise and advice he has received.

12. Front-line and customer contact employees who deal directly with customers every day have a critical effect on customer loyalty and retention. Customers build a bond of trust and partnerships with these employees, and when these people leave or are let go the bond of trust is also broken between the customer and organization. Companies wanting to improve their customer loyalty efforts often don’t grasp the importance of this relationship.

13. The primary purpose of customer measurements are to 1) define customer needs, requirements, expectations, problems and complaints, 2) quantify them, and 3) use this information to proactively move the organization to a culture of customer need anticipation, customer partnership, and customer retention.

14. Communication of customer data is not always transmitted properly throughout the organization. When was the last time you used customer data at a staff meeting? When was the last time you discussed with front line customer contact employees customer data at a staff meeting?

15. Companies will find it very difficult to be customer-focused if they do not practice cross-functional communication and active intradepartmental listening. In many companies, there is so much chimney communication, informational gatekeeping, feudal management practice, and formal memo writing that departments become isolated fortresses. So much time and energy is used making internal numbers look good, no one is focusing on customer loyalty and retention.

16. Many companies require that senior managers call or visit customers. But all too often these meetings are trivial. The managers don’t invest the time and energy to comprehend and empathize with the customer. They usually have a preconceived idea about the customer’s situation and, as a result, do not ask or probe enough to determine the actual well being of the customer. Like in many situations, they collect information but not knowledge.

17. Key questions that a company needs to address are “How many customers do we lose each year?” “What would it cost to keep these customers?” and “How does this cost compare with the ones of finding new customers?”

The following is an example of the revenue impact of losing one local phone customer.

A newly married 20-year-old couple signs up for local phone service. Their average monthly bill is $ 50.00 per month. If we take into account that they live to be 70 years old that will be 50 years of revenue.

$50.00 X 12 months = $600.00 Annual
$600.00 X 50 years = $30,000.00

This figure does not include inflation or the addition of more family members.

If a company were to lose 34 customers, it would equate to over $1,000,000 in lost revenue over the buying life span of those customers.

18. What is the difference between measuring customer satisfaction and customer loyalty? In the past, efforts to gain customer satisfaction have attempted to influence the attitude of the customer. The concept of customer loyalty is geared more to behavior than to attitude. When a customer is loyal, he or she displays purchase behavior defined as nonrandom purchase stated over time by some decision-making unit.

19. Two important conditions associated with loyalty are customer retention and total share of the customer. A customer retention rate is the percentage of customers who have met a specified number of repurchases over a definable period of time.

Customer share denotes the percentage of a customer’s budget spent with the company. For example, AT&T captures 100 percent, or total, share of a customer when the customer spends his or her entire communication budget (i.e. local, long distance, internet, etc.) with them. Do we know what percentage of customer share we have with each customer?

Customer share is a more definitive measure than market share. A company may own 100 percent of the local market in an area, but the percentage of customer share is significantly lower.

20. Increased customer loyalty leads to higher profitability, higher employee retention, and a more stable financial base.

21. Unlike satisfaction measures, which are based on customer attitudes, loyalty can be defined in terms of customer buying behavior. A loyal customer is one who

- makes regular repeat purchases;
- purchases across product and service lines;
- refers others; and
- demonstrates immunity to the pull of competition.

22. There are essentially three ways to generate more revenue:

- Increase customer base
- Obtain more purchases from current customer base
- Obtain more expensive purchase from current customer base

Finding new customers often involves increased overhead as a result of a growing advertising budget, addition to product lines, larger payroll requirements and other associated expenses. In many cases selling more to existing customers is less costly than finding new customers. A company’s current customer base is often an untapped gold mine for additional sales (especially during slow sales periods). The following is an example: Click on diagram to enlargeThe above example assumes an average customer pays $600 annually. In order to keep up with corporate revenue’s four-year objectives, 10,833 new customers will have to be added from the first year to the customer base. However, what could be done to obtain revenue objectives if new customers (4167) could not be obtained between years three and four. One strategy might be to go back to the existing customer database after year three (9166) and sell an additional $273.00 worth of products/services to each customer. This would bring the annual average revenue per customer to $873.00. 9166 customers X $873.00 = $8,001,918 in revenue with no additional customers needed.

While this example is simply stated and it would be impractical to think that no new customers would be acquired during years three and four, it does point out that with a balanced strategy for gaining new customers as well as retaining and selling to current customers, objectives can be achieved at less cost than just adding new customers.

1 comment:

Anonymous said...

Your recent posts on customer focus and voice of the customer are very helpful. Thanks so much for sharing.

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