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The impact of customer satisfaction.

Marketing is largely about creating customer satisfaction. So, you can imagine how tough it is for a staunch marketing guy like me to deal on a regular basis with CEOs who still believe that customers are a necessary evil (or worse) and that customer satisfaction is solely the sales department's concern. One explanation for this persistent yet amply discredited belief is that many CEOs simply don't buy the idea that working to maximize customer satisfaction will yield better financial performance for their companies.

This is a very complex issue. On the one hand, it's a fact that the vast majority of foundry managers do not appreciate how good their companies' financial performance can be. They feel that because sales are growing and capacity is expanding, all is as well as can be expected. But the best CEOs know that sales and capacity growth do not necessarily equate to profit maximization - and that profitability is the truest indicator of superior business performance. TDC's clients are typically several times as profitable as the industry's published averages, and most of them become this successful by focusing on customer satisfaction.

On the other hand, it also can be difficult to quantify the benefits of such a "customer orientation." I often hear that it's nearly impossible to accurately measure how satisfied customers are and even more difficult to determine the impact of customer satisfaction (or dissatisfaction) on business performance. This column is for all you skeptics out there who subscribe to this school of thought.

Satisfaction is Ongoing

When it comes to measuring how satisfied your customers are, it's important to know that customer satisfaction is not a single measure taken at a single point in time. In other words, you simply can't hire a telemarketing firm to conduct a once-every-five-years customer survey and boil customer satisfaction down to a single point on a scale of one to 10. Satisfaction is the extent to which customer expectations are being met on an ongoing basis across the entire spectrum of business activities from quality, delivery and price to business strategy, design engineering, billing and everything in between. So, it's a good idea to measure satisfaction on the most important attributes every year or two.

Further, CEOs should insist that each department manager routinely benchmark his or her staff's performance against the most demanding customers' expectations. Monitoring satisfaction on an ongoing basis is essential because expectations change, competitors' performance improves, and the standard of "satisfaction" constantly rises and changes.

Quantifying Perceptions

That brings us to the issue of quantifying the impact of customer satisfaction (or dissatisfaction) on business performance. Sometimes that impact is easy to see, as it was in the mid-1980s for companies like Midwest Foundry, Coldwater, Michigan. In this case, a large company (well over 500 employees) with state-of-the-art equipment went belly up because of poor performance and, as ample industry capacity existed, their dissatisfied customers simply left them.

But the impact of widespread customer dissatisfaction is not always that easy to see, especially during times of general industry prosperity and tight capacity, such as we have seen over the past couple of years. In these circumstances, customers cannot easily move work from poor performing suppliers to better ones. So, even though widespread customer dissatisfaction exists, the poor performers appear to be getting away with it. But appearances can be very deceiving.

In fact, and even in the face of brisk sales, widespread customer satisfaction eats away at profitability and the ability of poor performing suppliers to succeed and sets them up for a fall. In other words, even though dissatisfied customers can't easily pull work from their poor performing suppliers until sufficient capacity becomes available (and it always does), there are a host of ways that customers can use to insulate and begin disengaging themselves, and in so doing cripple the offending supplier's future. Some examples of this insulating behavior include:

* developing a second set of tooling and preparing for and/or beginning limited production at an alternative source;

* hammering poor performers for price reductions to counterbalance quality and service failures;

* denying poor performers opportunities to quote on [nf.sup.-]|products and/or redesigns;

* revving up vendor consolidation programs to place as much work as possible as soon as possible at better performing suppliers - these top performers are given the opportunities for future growth at the expense of the poor performers;

* coming to grips with "globalization" - customers that really don't want to source off shore are forced to consider doing so by the compelling combination of extraordinary pricing, tight domestic capacity and poor performance by traditional sources;

* denying poor performers "preferred supplier" status and, as a result, discouraging sister facilities throughout North America and the world from doing business with poor performers.

CEOs must recognize that poor performance and widespread customer dissatisfaction does have a significant and potentially fatal cost, even if it is difficult to see in the immediate term. Without strong leadership and resolute action, such poor performers will be severely hurt, if not doomed to the fate of companies like Midwest Foundry, as industry supply inevitably catches up with and overtakes demand.
COPYRIGHT 1998 American Foundry Society, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1998, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Marcus, Dan
Publication:Modern Casting
Geographic Code:1USA
Date:Dec 1, 1998
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