Wednesday, July 9, 2008

Multi-dimensional Customer Satisfaction - Part 5

Last blog the question asked was how to combine multiple satisfaction scores from a single customer. The naive approach of taking the arithmetic average was examined and then discarded. The next approach was to use a weighted average based on company strategy and executive experience. The column closed with an introduction to a customer contact model as a methodology to use to establish weights for each of the individual satisfaction measurements.

The value of a customer contact model

In order to manage the customer relationship, understanding customer contact is of critical importance. The simplistic answer is to spend time with the customer frequently and make each occurrence of sufficient duration to have meaning. The answer provides insufficient information to adequately measure and monitor performance of those employees that contact the customer. Do I really want the accounts receivable department frequently calling the customer and spending time discussing the balance due? Do I want the service organization (on-site or customer support) constantly contacting the customer and spending time with them? How frequently should the sales person see the account and how involved should the meeting be?

Service encounters can be classified as high, medium and low contact encounters and each type of encounter can be appraised in terms of quality so that the customer contacts (service delivery) can be designed and managed to provide both effectiveness and efficiency. Equally as important is the knowledge and understanding of each type of customer contact so that its value can be assessed relative to other customer contacts.

The customer contact model is a way of measuring customer contacts so that values can be ascribed to each and with that knowledge each type of customer contact can be designed and managed to best meet customer needs while simultaneously maximizing the use of resources.

Some history of customer contact models

The late 70’s and early 80’s saw the first mention of customer contact models. In their book on Operations Management (1977), Chase and Aquilano noted “the main feature that sets a service system apart from a manufacturing system is the extent to which the customer must be in direct contact.” Chase went on to introduce the phrase “customer contact” in 1978 and in 1981 provided the first operational definition as “the time in the system relative to the total time of service creation.” Thus, an on-site service call has a component of customer contact and a component of repair. According to Chase, the customer contact time would be only that part of the service call dedicated to communication with the customer. Some other notable contributions are:
1. G. Jones in the Academy of Management Journal (1987) performed an elaborate study of customer/firm interactions and described them using the dimensions of specificity, infrequency and duration to determine structural differences between service firms.
2. Victor and Blackburn in the Academy of Management Review (1987) looked at interdependence as a method of studying interpersonal relationships between two individuals. They defined interdependence as “the extent to which a unit’s outcomes are controlled directly by or are contingent upon the actions of another unit.”
3. Daft and Lengel in Research in Organizational Behavior (1984) introduced the concept of information richness as a way of evaluating the value of resource exchanged in a service encounter.
4. K. E. Weick in Administrative Science Quarterly (1976) introduced the concept of coupling in the study of business systems. Loose coupling occurs when the elements or parties affect each other suddenly, occasionally, negligibly and eventually. Tight coupling occurs when the parties affect each other continuously, constantly, significantly, and immediately.

The customer contact model of today

When each of these research topics noted above is integrated, along with other research, a customer contact model can be visualized. Kellogg and Chase in Management Science (1995) have done just that and identified three components; namely, time, information richness, and intimacy. They believe that these components provide the basis of customer contact from which a measurement system can be implemented. When a scale is created for each of the three components, the resulting measures should consistently (and hopefully reliably) reflect a value of customer contact.

One of the more satisfying aspects for the use of these three components in a customer contact model is they appear to be relatively independent of each other. In building mathematical models for business, independence of the components adds real value to the model. In essence, when independence exists, there is no correlation between the components which then allows the components to be combined mathematically with little concern for interaction between them. One of the concerns in customer satisfaction surveys is how much correlation exists between different satisfaction measures on the survey.

A large amount of interaction may preclude the possibility of detecting which of the satisfaction questions exerts the major influence on overall satisfaction.
In order to establish a scale for each of the three components of customer contact, the components themselves must be defined.
Time - This term is unambiguous because it refers to the clock time associated with the customer contact. A better phrase would be communication time because the time measured reflects only the time during which customer communication is involved. In the past, this might have been defined as administrative time (when paper work time was recorded separately).
Information richness - This term is perceptual much like satisfaction. Like satisfaction, information richness reflects a perceived amount of information being exchanged between the customer and the company representative. It would be reasonable for sales and service personnel to have very rich information exchanges. On the other hand, dispatchers and receptionists would offer very poor information exchanges. For this reason, a Likert scale can be developed in the same manner as a satisfaction scale. The values will be ordinal and have the same properties as satisfaction values. A 5-point, fully anchored Likert scale could be defined as:
1- No information exchanged
2- Little information exchanged
3 - Some information exchanged
4- Much information exchanged
5 - Complete information exchanged
Intimacy - This term is also perceptual in the same manner as information richness. For this term, the quality of the information exchanged rather than the quantity of the information exchanged is used as the scale. Thus, a fully anchored Likert scale could be defined as:
1- Poor quality of information exchanged
2- Low quality of information exchanged
3 - Moderate quality of information exchanged
4- Good quality of information exchanged
5 - Excellent quality of information exchanged

Now that there is a scale for each of the three components, each type of customer contact can be evaluated for each of the three components.

Putting the Theory to Work

A simple example of how to apply this theory is to consider the case of only three types of customer contact; namely, sales, service and accounts receivable. The following discussion translates average customer contact evaluations for each type of customer contact. While averages are being discussed to describe the application of the theory, best or worst case situations can also be used.

A reasonable scenario is for an average sales call to last approximately 60 minutes with some information exchanged and moderate information quality. The three components of customer contact (time, information quantity and information quality) would have the scores of 60, 3 and 3 respectively. An average service call might last 45 minutes with little information exchange but good quality information. The service contact would have the three component scores of 45, 2 and 4 respectively. The accounts receivable contact may only last an average of 10 minutes but would have much information exchanged with excellent quality (you hope). Thus, the accounts receivable contact would have the three component scores of 10, 4 and 5 respectively.

The next question is what do you do with these numbers and how can they be applied to the customer satisfaction scores obtained from the surveys of each of these customer contacts. This topic will be addressed in the next article.

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