“Customers’ perceptions of product quality – as opposed to objective quality – drive preferences and consequently satisfaction, loyalty, sales and profitability….”
As Dr Phil rightly puts it: there is no reality, only perception. The way your customers view quality is really only a reflection of their interactions with you, and do not necessarily mirror the actual quality embedded within your products, and/or services. Customers may already have impressions about you well before their first interaction with you. If customers believe that your quality is lackluster, then they will perceive poor quality in what you do and how you do it. Conversely, if your customers undergo a great shopping experience with your pre-sales team, they could enter into a relationship with your company with a pre-conceived notion that there is quality imbued in everything you do.
Many organizations have well-crafted missions to delight their customers with product and service quality which exceed customer expectations. The truth is that many of their customers continue to have problems and disappointments with product quality and service delivery. Organizations must always strive to redraw what their customers’ perceived best imaginable experience looks like. By continually refreshing such a customer-perceived target, the organization is able to hand-pick the set of most meaningful and impactful continuous improvements to bridge the sometimes subtle, but significant, gaps in its operations that shape customers impressions.
There are certain constants in business that know no economic boundaries. The most basic is that companies must retain their current customers and obtain new ones. Without this, a company cannot grow, and even a non-profit organization will not survive for long.
In a highly technologically-advanced business world, staying one step ahead of the competition is not enough. One company’s technological breakthrough is replicated by the competition in a matter of days. Patents notwithstanding, your main competitors will be at your heels in no time, ready to take your business and leave you with nothing more than vacant real estate or an ignored website.
Over the years, a wide variety of management theories, process methodologies, business strategies and fads and trends have been suggested. Often they gain overnight popularity and are considered the last word in achieving market superiority. But one by one, they seem to fall by the wayside. ISO certification, immensely popular for a time, gave way to CMM, which was followed by its own spawn, CMMI. That, in turn, has been eclipsed by Six Sigma. All are useful, but no company can rely on one to the exclusion of the others.
Hammer Process Methodology, Management by Walking Around, the One Minute Manager, and countless others have been presented, proven their worth and then faded from popularity. This does not mean they have ceased to be efficacious; what it indicates is that they may solve some basic problems, along with numerous symptoms, but still leave a root problem unaddressed.
So what is an organization to do? Once it has been ISO-certified, is at CMMI Level 5, has reduced its product defects to within the prescribed Six Sigma range, has adopted the most proven management methodologies, yet it still sees its market share dwindling, what options remain?
This is a frustration felt in international boardrooms of companies large and small. Executives have focused on the customer, reducing defects to the most minimal levels; assuring that system availability is at 99.XXX%; reducing call-waiting time in their service centers to almost nothing, and yet their customers still flee to the competition.
There is one element that has not been clearly studied within most companies, possibly because doing so has been extremely difficult. Yet it is ignored at the peril of the very existence of the company. That element is customer perception of quality.
A company can have the most efficient systems for achieving defect-free products; can offer products and services at the best prices, and still lose customers. This occurs for the simple reason that, for some purpose unknown to the company, its customers do not perceive is as offering high quality.
There are any number of factors that may lead to this impression. A company’s website may be difficult to navigate; a customer looking for some specific information may become frustrated trying to find it online. The instructions that come with the product may not be clear. Large companies may find it annoying when, ordering hundreds or even thousands of the product, they are delivered separately packaged, requiring the disposal of excessive amounts of packaging.
For some companies, these may seem trivial, or may not apply to them at all. But these are only examples: they are issues that impacted those companies’ customers’ perception of the quality of their products and services. The key issues are different for every company, but ignoring them will not make them go away.
Unfortunately, excellent products and superior customer service are not sufficient to cause customers to perceive that product and service quality are optimum. There is something else, and what that is must be identified for each company. And it is not sufficient to identify it once; that unknown quality will shift continually. Once one or more aspects are determined to be negatively impacting customer perception of quality, and they are resolved, processes must be established to continually measure this hard-to-quantify aspect of customer satisfaction.
Why are carefully administered surveys not enough? Why are account managers’ conversations with decision-makers in their customer companies not yielding the information required to assure that customers perceive that the company’s offerings are of a high quality? What is the missing ingredient that will help to maintain brand loyalty?
Quantifying the Problem
When a company’s customers do not perceive that that company’s offerings are of high value, both current and future revenues are at risk. In order to make a case for implementing an initiative to rectify the problem, it must be quantified.
There are fifteen steps to follow, that can greatly assist in accomplishing this.
1. Scan customer service system of record
This step requires reviewing the myriad of heterogeneous information systems that contain customer feedback. The desired outcome is a list of all possible records that point to the poor-customer-perception-of-quality problem. Each record will have a complaints/issues/feedback, a count of the number of occurrences of this feedback along with the customers who provided this information.
2. Extract and analyze specific problem cases
Using all the records from the previous step, it is necessary to narrow the data set down to the specific complaints/issues that are targeted to be resolved through a root cause-correcting approach. The end state here is a subset of the records from the previous step. Again, each record will have a complaint/issue/feedback, a count of the number of occurrences of this feedback along with the customers who provided this information.
3. Analyze profile of customers with issues
In this step, the customers behind the set of complaints/issues/feedback that constitute the problem at hand are analyzed. Assure consistency in determining ‘customer.’ We have seen companies lumping end-users, value-added resellers and channel partners in the same breath. We recommend that you consider the end-users of your products and/or services in your analysis as the customers. The outcome of this step is a set of all end-users, the sample size they represent, their segments along with an understanding of their current and potential value.
4. Review satisfaction and loyalty ratings
Companies store a multitude of data relating to the satisfaction levels as well as the loyalty ratings of their customers. Satisfaction levels are generally three-tiered (highly satisfied – partially satisfied – dissatisfied). Loyalty is typically measured by intentions to repurchase, and a common metric is the Net Promoter Score (NPS) that groups those intentions into three camps: promoters, detractors and passive. Having these two metrics (Satisfaction and Loyalty) for your customers provides valuable insight towards understanding the “mood” of the customers in question. In this step, the satisfaction and loyalty ratings of those customers who were profiled in step 3 are reviewed. It is noteworthy that we are only analyzing the customers behind the set of complaints/issues/feedback that are targeted to be resolved.
5. Derive number of very satisfied customers
This step depends on steps 3 and 4. It yields the number of customers who are in the “highly satisfied” camp (a subset of the customers from step 3). On a satisfaction score based on a sliding scale of zero to ten (with a score of zero representing totally dissatisfied customers and a score of ten reflecting highly satisfied customers), very satisfied customers typically score 9 or 10.
6. Derive number of partially satisfied customers
This step depends on steps 3 and 4. It yields the number of customers who are in the “partially satisfied” camp (a subset of the customers from step 3). On a satisfaction score based on a sliding scale of zero to ten (with a score of zero representing totally dissatisfied customers and a score of ten reflecting highly satisfied customers), partially satisfied customers typically score 7 or 8.
7. Derive number of dissatisfied customers
This step depends on steps 3 and 4. It yields the number of customers who are in the “dissatisfied” camp (a subset of the customers from step 3). On a satisfaction score based on a sliding scale of zero to ten (with a score of zero representing totally dissatisfied customers and a score of ten reflecting highly satisfied customers), dissatisfied customers typically score 6 or less.
8. Derive total number of customers complaining
This step sums the outputs from steps 5, 6 and 7. Also, it should reconcile exactly with the number of customers analyzed in step 3. The outcome reflects all the customers whose complaints/issues/feedback are being targeted for resolution.
9. Derive total number of customers not complaining
The worst complaint you can ever get from customers is when you never get to see them again at all. In the average business, for every customer who bothers to complain, there are many others who remain silent. This number can be as high as 26 (www.scoremichigansgreatsouthwest.org). Multiply the number from step 8 by a factor that is more realistic for your industry. We recommend a conservative calculation by assuming one non-complainer for every one complainer, i.e. use the number from step 8 to reflect the number of non-complaining customers.
10. Derive number of very satisfied customers who will not renew and/or repurchase
Among customers who complain and rate their customer service experience as very satisfactory, there is always a percentage (albeit small, typically in the 10% range) among them that remain disloyal for a variety of reasons and this phenomenon will manifest itself into a non-repurchase behavior i.e. these existing customers will not renew their contracts and cease all repurchasing. This step looks at the fraction of customers identified in step 5 (very satisfied customers) and parse them through your loyalty metrics (e.g. NPS) to derive the number of very satisfied customers who will defect, resulting in an erosion of current revenue.
11. Derive number of partially satisfied customers who will not renew and/or repurchase
Among customers who complain and rate their customer service experience as partially satisfactory, there is a percentage among them that become disloyal because their problems remain unattended. Again, this phenomenon will manifest itself into a non-repurchase behavior i.e. these existing customers will not renew their contracts and cease all repurchasing. This step looks at the fraction of customers identified in step 6 (partially satisfied customers) and parse them through the loyalty metrics (e.g. NPS) to derive the number of partially satisfied customers who will defect, resulting in an erosion of current revenue.
12. Derive number of dissatisfied customers who will not renew and/or repurchase
Among customers who complain and rate their customer service experience as dissatisfactory, there is a percentage among them that will grow disloyal largely because their problems remain unattended. This experience will lead to a non-repurchase behavior i.e. these existing customers will not renew their contracts and cease all repurchasing. This step looks at the fraction of customers identified in step 6 (dissatisfied customers) and parse them through the loyalty metrics (e.g. NPS) to derive the number of dissatisfied customers who will defect, resulting in an erosion of current revenue.
13. Derive number of non-complaining customers who will not renew and/or repurchase
Among those customers who do not complain (as identified in step 9), there is a percentage among them that will slowly walk out to the competition. This will show up as a non-repurchase behavior i.e. these existing customers will not renew their contracts and cease all repurchasing. This step looks at the fraction of customers identified in step 9 (non-complaining customers) and parse them through the loyalty metrics (e.g. NPS) to derive the number of non-complaining customers who will defect, resulting in an erosion of current revenue.
14. Derive total number of current customers who will not renew and/or repurchase
This step sums the outputs from steps 10, 11, 12 and 13. The outcome reflects the total number of existing customers who have a real likelihood of defecting; posing a danger that revenue currently on the table will flow out to the competition by the next customer purchasing cycle.
First Bottom Line Impact = Current Revenue in Danger: quantifies current revenue in danger because of current customers who will not renew and/or repurchase (leading to increasing churn). This step takes the number of customers in step 14 and multiplies this figure by your average customer lifetime value giving an indication of how much of the current revenue is at stake.
15. Derive number of potential customers who will not purchase because of dissatisfied customers spreading bad word of mouth
The average wronged customer will tell 8 to 16 people; about 10 percent will tell more than 20 people (www.scoremichigansgreatsouthwest.org). Take the number of dissatisfied customers from step 7 and multiply it by a factor that reflects the negative impact of bad word of mouth being spread around by dissatisfied customers. Make sure that your impact factor is conservative. Also, try filtering the impact down to potential customers only (intent on buying in the near future) rather than the general public who may not have any intention to purchase in the first place.
Second Bottom Line Impact = Future Revenue in Danger; quantifies future revenue in danger because of currently dissatisfied customers spreading bad word of mouth (leading to decreasing sales). This step takes the number of customers in step 15 and multiplies this figure by your average customer lifetime value giving an indication of how much of future revenue is at stake.
There is no single solution to maintaining and increasing market share. But for some companies, customer perception of quality is a key issue to be explored and addressed.
 Debanjan Mitra and Peter N. Golder. ‘Customer Perceptions of Product Quality: A longitudinal Study.’ MSI Reports; Marketing Science Institute, Issue Four, No 05-004; 2005.
Robert Fantina is the co-author, with Baboo Kureemun, of ‘Your Customers’ Perception of Quality: What it Means to Your Bottom Line and How to Control it.’