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Featuring Brian Lassiter, President of Minnesota Council for Quality

Last month, I talked about the tendency of organizations to cut corners during a downturn (see at “10 Ways to Kill Innovation during a Recession”). But there is an eleventh fatal error that organizations might make during a recession: reducing their focus on customers. Unfortunately, I have evidence that this may be starting to happen today…

After a remarkable 10-consecutive quarter increase in customer satisfaction, the American Customer Satisfaction Index (ACSI) declined third quarter of 2007 (the last quarter for which data are available). While this might be a very early indicator (one data point certainly does not make a trend!), I find the timing of this decline at least intriguing. As companies begin to feel the effects of our economic slow down, why did customer satisfaction decline? After all, if customers are buying less, isn’t it MORE critical to focus on their needs?! Of course, the timing could be coincidental. Or it could be more fundamental: organizations may have, quite simply, lost focus on one of the most essential principles of business: customer satisfaction.

Think about the irony here. Companies that are burying their head in the sand (and/or focusing on cost cutting, productivity, and other expense-related priorities that are typical during a downturn) will find themselves scrambling to address new or emerging customer needs once the downturn is over. But companies that never stopped doing so will be way ahead.

So how does an organization identify customer (or stakeholder) requirements and expectations? How do organizations identify desired product and service features and their relative importance to customers’ purchasing decisions? Here are some ideas:

1) Use surveys (judiciously). Used by many (if not most) organizations, customer surveys are a wonderful tool for capturing (or validating) customer needs, identifying product/service features, and/or measuring customer satisfaction. Surveys can be delivered via paper, electronic medium (email or web), or by phone; they can be delivered by an independent third party or directly by the organization. Surveys can be administered to a sample of your customers or to 100% of the population, as the situation dictates. My only word of caution: don’t over-survey your customers! (The Council’s method of surveying our own customers is to survey roughly 1/12 of our customer base every month, so that each individual customer only gets asked once a year, but we have more timely data every month.)

2) Use focus groups. Focus groups are relatively informal -- but structured -- discussion sessions with a group of current (former, and/or prospective) customers. They are usually moderated by a professional, though can be conducted by employees of the organization itself, and they are very effective at identifying (or validating) emerging needs. Typically, focus groups can be used in the product/service concept stage, when not much is known about customer preferences and can be followed up with subsequent surveying, pilot testing, and so forth. Focus groups provide for good interaction with a small number of customers; as such, they afford an opportunity to go into depth with a sample of an organization’s customer base. Usually, you will need to use tools such as Kano, Conjoint Analysis, and Quality Function Deployment to analyze the results of a focus group (more information on all of these topics can be found in our Clearinghouse or in several previous Performance Improvement Network discussions).

3) Observe customer buying behavior. You can gain a lot by “watching” how and what your customers buy. In a retail setting, this can be as simple as seeing if the blue hammers sell more or less than the black ones, and then adjusting design and/or inventories appropriately. But regardless of industry, buying behavior can help organizations determine customer preferences, and robust mechanisms for observing changes in customer buying behaviors can inexpensively help organizations proactively adjust to shifting marketplace needs.

4) Use “mystery shoppers.” Mystery shopping has exploded in popularity with organizations -- particularly in the retail and entertainment industries. Mystery shopping is a process by which your organization hires an independent contractor who is paid to evaluate your products/services while pretending to be a regular shopper. Mystery shopping can give an organization insight into current service levels, but it can also test conformance to already-known customer requirements (such as customer wait times, staff competencies, store layout, etc.).

5) Use test markets and/or simulations. Sometimes it makes sense to build a product (or service) prototype to test what you believe to be customer requirements, and then test those assumptions on a limited scale. Using test markets and/or simulations (which replicate as close as possible a buying situation) is a particularly helpful method when there is a high investment in a product/service launch.

6) Gather customer feedback on specific transactions. Different than requirements determination methods (which are usually up-front, before a product/service is designed and delivered) or customer satisfaction determination methods (which are usually a snap-shot of perceptions well after product/service delivery), organizations should have systematic methods for following up with customers on products, services, and/or transaction quality to receive prompt, actionable feedback. We all have received those 2-minute phone calls from our utility companies asking if the service we received met our expectations…or the 3-question customer comment card that is given to us in a restaurant when the server presents the bill…or the 1-page survey that your car dealer sends about a week or two after you have your car serviced. Rather than waiting a year to gauge customer satisfaction, these processes provide timely information on whether you met customer expectations.

7) Leverage your complaint data. Many organizations have a complaint management process, but few truly leverage the power of aggregated complaint data. Companies should systematically collect, aggregate, and analyze root causes of complaints (using a simple tool like Pareto Analysis will help identify the biggest sources of customer frustrations) -- and then use these insights to improve product/service performance. It is not enough to simply react by solving a specific customer’s problem (though that is important!), but also use aggregate complaint information to solve systemic issues within your organization…after all, customers are giving you a gift by telling you what upsets them.

8) Use the customer data you already have. Most organizations have (or should have) a wealth of information on their customers – buying histories, complaints, customer win/loss analysis, transaction completion rates, customer loyalty and retention data, referral (or intent-to-refer) rates, and so forth. Use this information to identify current or emerging customer needs, buying behaviors, and satisfaction rates.

Customer satisfaction is paramount to any organization’s ultimate success, especially during tough economic times when customers’ buying decisions are impacted by more constrained resources. Satisfied customers will buy more of your products and services, will remain loyal to your organization, and may refer other business to your organization. Organizations that take the time to systematically understand customer needs will eventually see increases in revenue, market share, and, presumably, profitability. (By the way, the same applies to not-for-profits, which will see increases in funding as stakeholder satisfaction increases. And the same applies also to departments, which need to understand internal customer needs in order to satisfy external customer needs.)

If you are with an organization that systematically identifies customer and market needs, good for you. If you are not, now is the time to do so before this market downturn makes you wish you had.

Yours in Improvement,

Brian S. Lassiter
President
Minnesota Council for Quality