AllBusiness.com’s Chris Bjorklund interviews Dr. Jack West, spokesperson for the American Society for Quality on the American Customer Satisfaction Index.

Chris Bjorklund: You’re listening to the AllBusiness podcast. I’m Chris Bjorklund. If you’re getting this through iTunes and RSS feed or an on-line streaming media player, you have the opportunity to hear more valuable advice from top business experts right here on AllBusiness.com. We’ll be right back after this brief message from our sponsor, Comcast.

Bjorklund: Dr. Jack West is featured in this AllBusiness podcast. He is a leading expert in the study of customer satisfaction and the spokesperson for the American Society for Quality on the American Customer Satisfaction Index. Besides holding a doctorate in business administration and a masters in management, West served for five years as an examiner for the prestigious Malcolm Baldridge National Quality Award. Jack, you’ve been measuring customer satisfaction for more than a decade, serving customers of the large companies and government agencies, what are some of the most important changes that you’ve seen during that time?

Jack West: One of the most significant changes that we’ve seen during that time is a dramatic, continuous increase in the expectations that customers have of the products and services that they buy. One example of that that I think is very easy to visualize is personal computers. We’ve been measuring that customer satisfaction with personal computers now as you mentioned for about 14 years and what we see is satisfaction went down, down, down for several years and back up a little bit, down a little bit, and right now is just about exactly where it started 14 years ago. Now, if we think about the capabilities of those computers during that time, we know that they’ve gone up several orders of magnitude. But how is it that customers are no more satisfied with the computer they buy today than the one they bought 14 years ago? Well, the reason is their expectations have gone up at least as fast as the company’s ability to meet those expectations.

Bjorklund: They can hardly keep up. I mean, we want them faster, we want bigger screens, we want the color to look better.

West: And that should send a message to all of us who are in the customer satisfaction business that says, “If we’re standing still, and the quality of our products and services were losing ground vis-à-vis what the customer demands.

Bjorklund: So standing still is unacceptable.

West: Standing still will put you out of business.

Bjorklund: So what are the key determinants of customer satisfaction?

West: Well what we have found that there are three and I’ll just talk about what they are and then come back and speak a little bit more about them individually. The first one is perceived quality. The second one is value, and the third is reliability. So quality is the principle determinant of customer satisfaction and there, what we’re doing is comparing someone’s experience with the product or service that they have bought to their expectation before they bought the product or service. So when you lay your plastic on the counter, you have some expectation of the value you’re going to receive for that and the question is, “Did you obtain just the value you expected, slightly more or slightly less?” And then, value is the customer’s assessment of the quality they received given the price that they paid and then talk about the price and compare that to the quality. And then we talked about reliability being the ability the product can perform over time, if it is a tangible asset of some type, or consistency of service. So these are the most important ones that we’ve seen and quality tends to dominate in terms of a customer’s experience. Not price, not reliability but quality.

Bjorklund: What are the lessons in your findings for a business of any size? I mean, you said earlier businesses should care but for many of them, it’s just one more thing to do on their to-do list and they’re already working 24-7.

West: Well, obviously the reason we’re in business is to make money. And what the researches have shown is that the majority of our profits come from repeat customers. It’s also shown that it takes about 8 times more effort to get a new customer than it does to retain the existing one. So satisfaction is a key determinant of whether a customer comes back or not. And what our researches have shown is that if you are just satisfied, i.e. 50 percent you’re satisfied with the product that you got or the service that you received; you are about 50 percent likely to return. If you got just a little bit more, you kind of walked away and said, “Wow! I like that!” You’re 80 percent likely to return and you’re likely to refer that company to someone else. So getting that little extra edge is really what we’re looking for in business.

Bjorklund: So this is something that many businesses of any size or a business of any size could quantify, that is, how much money they might lose if they don’t meet customer expectations?

West: Certainly. If you’re able to quantify how much it costs you to get a new customer, then you can start recognizing that pretty quickly and recognizing the revenue that you’d get from each customer. Those are things that you have to know but, we do know now how it much it costs to get a new one and how much it’s value, the value of keeping one that you already have.

Bjorklund: Jack, I know that you’ve surveyed lots of consumers and I’ve talked to consumers in my work over the years and sometimes they have a difficult time really articulating what it is they want in order to be satisfied. Sometimes, they’re fickle, sometimes they say one thing; they really mean another. How does a business sort of try to figure that out?

West: Well, there’s no question about the challenge and there are some interesting tools that have been developed to work in this area. One of those is called quality functions appointment and it’s a technique where you can take what the customer says subjectively and translate it into tangible features that your product or service must have in order to meet that customer’s expectation.

Bjorklund: OK, well, we need an example here for sure.

West: OK. One of your original places that quality functions appointment was used, I think that we can all relate to, was in the design of a Ford Taurus automobile and one of the things that when they started talking to their customers, they heard things about cup holders and about easy access to loading groceries in the trunk and that led to some very interesting kind of designs in the Taurus automobile that now you can see in virtually any car. But that’s what caused the Taurus automobile to be the best selling car in the United States for about 10 years, was taking subjective customer expectations and quantifying those and translating those into actual product features.

Bjorklund: Small business owners, I think, sometimes as I said before, they’re scrambling along, they’re trying to get to the next 24 hours, they’re hiring employees, they’re firing employees, they’re taking care of the plumbing problem, what would you say to them to help them maybe realize that this is something they really have to set aside some time to think about?

West: I would ask them to do a couple of things. One of the things that I have learned in my management career is that you have to ask yourself the question, “What percent of my time am I spending on things that have a horizon of less than, let’s say, three months for a small business owner?” And if that time you’re spending is less than, say 25 or 30 percent of your time, are on things that are maybe urgent but not critically important, then maybe you need to reallocate how you’re spending your time and that just requires you to keep a little time log throughout the day and it can be a very revealing thing to do. The second thing is to ask yourself the question, “What is my competitive distinction? Why do customers come to me as opposed to my competition?” Or to put more simply, “If a competitor opened across the street, how many of my customers would I lose?” And if you asked those questions repeatedly, then you can start looking at what your competitive distinction is and what you need to be doing to capitalize on that?

Bjorklund: Do you find that a lot of businesses really can’t hardly articulate that?

West: I do. I do find that they haven’t sat down and tried to clearly think through what that is and my concern is that in the absence of that, you’re highly vulnerable to someone moving in on your territory because you have not created significant barriers to entry.

Bjorklund: I was just thinking about my carpet cleaner and why I keep calling him again and again and one of the reasons is that besides doing a good job, while he’s there, he also leaves me some spot remover so that I can sort of treat things along the way in between professional cleanings. He also leaves me a little chart so that I can see how to take out which kinds of spots. He also sends me a reminder letter when it’s time to have my carpets cleaned again. He also encourages you to call him if you are buying new carpet and you need some advice and I’m trying to think, there’s even more things that have kept me loyal to him.

West: Yes, so how you could possibly go anywhere else?

Bjorklund: I can’t.

West: And that’s exactly the kind of competitive distinction that is being built there.

Bjorklund: And yesterday, I had a plumber out and I called about 11. They were there by 1:30, the job was done by 2:30 and they were calling me by 4 to see if I was satisfied with the job that was done.

West: It doesn’t fit the stereotype.

Bjorklund: No, no. Anyway, what is a good starting point for an owner who wants to improve customer service and customer satisfaction? Let’s say I own dry cleaning establishment or some other kind of small business. What are some simple things that I can do just so it doesn’t seem so overwhelming?

West: OK, one of the things that you should look at early on is setting performance standards for some of the things that you expect your customer service personnel to do. And these things sound kind of nebulous but they are in fact very quantifiable. Let me give an example. Bank of America has quantified smiles. Now what does it mean to have a genuine smile when you see a customer? Ritz-Carlton has put down requirements that when you’re within 20 feet of a guest, you must make eye contact with them. So think of some of these kinds of things that are out there and when you start watching businesses that you think, “Hey! Their service is a little bit better. Their people are a little bit more on top of it.” It is generally because they have set up performance standards for these simple things and they’ve talked them through with their employees and they monitor them without being obtrusive and they make a real difference in the customer’s perception.

Bjorklund: Well, getting back to the plumber for a minute, when I was surveyed later about how the job went, one of the questions was, “Did he wear these blue booties over his shoes when he came into the house?” and, “Did he clean up the mess that he made when he left? Was everything put back in order?” And I thought that was interesting because they obviously had decided that was a performance standard of some sort, both things and they had communicated it to the employee and as you said, they were monitoring that.

West: Exactly right. And what that also does, I’ll bet from your perspective is, you went back and said, “Oh wow! They care about me. They care about my house because they do these things.” And therefore, you’re starting to build a competitive distinction and loyalty. And that’s one of the key things that a small business absolutely must do.

Bjorklund: You’re listening to an AllBusiness podcast with Dr. Jack West, a leading expert in the study of customer satisfaction. We’ll continue now with a question about some do-it-yourself assessment tools, and Jack, what are those? What can you recommend to a small business, just again, back to the simple things.

West: One of the most telling things you can do is to have a way of asking your customers, would they recommend your business to a friend or associate? Because that’s one of the most important and telling indicators as to whether they are satisfied and how satisfied they are. And some of these can be relatively simple techniques. One approach you might consider is to talk to your credit card processor and you may have seen in Wal-Mart and other stores where there’s a little checkbox that says, “Was the store clean today?” or, “Was the clerk friendly today?” Well, that’ their way of gathering single point, on the spot, instantaneous information and getting it back in a form that’s actionable. Something like that can be done rather easily and give you solid information that you can take action on.

Bjorklund: What do think of some of the local service-rating companies that you see online? We have a number of those that give consumers a chance to weigh in on customer satisfaction. There is also websites here where you can write services reviews, not only product reviews but service reviews. Some of them are Angie’s List, ServiceMagic, I’m just wondering, is this having any kind of impact on business owner’s attention to customer satisfaction?

West: Absolutely. All of these kinds of things in the internet, especially, have vastly increased the amount of information that customers have available to them when they’re making purchase decisions. And these are things that would cause informed consumers to choose one supplier over another. And I think there’s another indication that you can see it by how much attention businesses actually pay to these kinds of things. Just look in your newspaper or magazine about how many companies advertise that they are the number-one rated by the American Customer Satisfaction and J.D. Power. Obviously, they are trying to send a message that other customers really like us and you will too. And that’s the same kind of thing that comes through on these lists. So, having an outstanding rating on these is vitally important especially to small businesses that don’t have the power to do the national advertising that I was just talking about.

Bjorklund: I saw one restaurant had posted a comment from someone that had gone to Yelp, I don’t know if you have that, if that’s everywhere across the country, but it’s again a chance to sort of give your opinion about just about anything. And he had taken the comments from a reviewer, not a professional reviewer, just a consumer reviewer, or customer, and enlarged it and put it on the front of the restaurant window.

West: Yes, a very powerful thing because if you relate much better to people who you think share your values as opposed to someone who may be doing restaurant reviews full time and care about things you don’t care about.

Bjorklund: Well, can you give us some examples of companies that have started paying attention to customer expectations and because of that, they’ve gotten some amazing results?

West: Yes, Chris, as you had mentioned early in our discussions, what we’re doing is measuring the large companies because we’re doing random digit dialing in order to find customers so we couldn’t find customers for small businesses or businesses that are only in one portion of the country. So I have to deal with that, kind of a caveat. So one of the ones I think is really interesting is the automobile company, Hyundai. Think about a highly competitive industry that is mature, that is saturated, that really you think has no room for a new entry. Hyundai started in there about 10 years ago and they started with an ACSI score of 68. Now that is about where the IRS is, for example, in terms of thinking about customer satisfaction.

Bjorklund: I think that’s good to know.

West: And they have increased that score year over year over year to now they are comparable with Lexus. Now that is, I think, an outstanding achievement. And what they have done is two things. One is pay real, solid, daily attention to detail in all of their operations. And secondly they have employed a lot of the quality tools that we’ve talked about. Quality-functions appointments that translate what customers’ subjective desires into objective criteria and some of the other more modern techniques like six segment and lean manufacturing and so forth. But none of these are tools that are beyond the reach of small businesses. They just take time and attention every single day. That’s how they did it. Remarkable turnaround.

Bjorklund: Jack, we hear a lot about quality and many companies probably think that quality costs more and maybe consumers think so too but does it?

West: Does it? Well, I think what we have to do, first of all, is look at the definitions that we, to use the English language, use for the word quality. And generally, there are two things that we can expound. We think of quality as being compliant. That is, did the product or service meet its requirements of, for example, did the electricity in your socket come out of 120 volts and 60 hertz? Well, OK. We demand that in our society and if you don’t provide that, you’re going to go out of business fairly soon. And that is the compliance piece of quality. And what we find is, that the compliance piece, if you fail to meet that, it costs you money. So you will lose customers, you’ll have to do a lot of rework. It is a very expensive thing not to provide compliance quality. The other thing that we talked about frequently with the idea of quality is the idea of features. And features can cost more. If you decide, for example, that no one is going to wait in your check-out lines for more than 1 minute, well that means you’re going to have to have some idle checkers there, a significant amount of it, I mean it does cost more. So we have to be careful about whether we’re talking about compliance quality which costs less or features quality which may in fact cost more. And here is where some of the vital business decisions come in and that is, you have to balance the whole value equation between the features that you offer and the cost that you charge. And there’s no magic formula for that. That’s why entrepreneurs go into business and stay in business.

Bjorklund: So, in other words, it’s not enough though when you talk about compliance. I was just sitting here thinking about that. That sometimes, it’s not enough just to fulfill basic expectations for the customer. In other words, I’ve got my car repaired and the repairs were done properly but to me, that really isn’t enough quality from my perspective.

West: Yes, let’s follow up on your experience with the plumber. The plumber could have fixed the leak or whatever was the problem and walked out and maybe left a little bit of a mess or maybe tracked your floor a little bit and you probably would not have been too upset about that but that would not have lead to a distinction that would cause you to advocate that person or recommend that company to one of your friends. So that’s the distinction that we’re seeing.

Bjorklund: Right, definitely not if they left a mess.

West: Right. So you would have gotten your leak fixed but you wouldn’t really have been happy so they conformed, i.e. they fixed the leak but they did not provide the features that you have come to expect.

Bjorklund: When you hear someone evangelizing about a plumber or about an auto repair shop, that’s when I get excited.

West: Absolutely, that’s what we’re talking about when we say word of mouth is by far the best advertising and what we have to do is make sure that our customers are willing to recommend us to someone else.

Bjorklund: Jack, if you had the power to make one change in customer service throughout the country, all businesses of all sizes, what do think would it be?

West: I would have all customer service personnel exhibit a little bit more empathy. We can typically tolerate some kinds of issues in our lives if we believe that the other person is walking at least somewhat in our shoes. And the classic case of that all summer long has been the airline industry. We hear complaints all the time about people having to wait and not being told why. Well, if we were told why and there’s a little bit of empathy, there are typically much more satisfied than just if they’re stonewalled. And I think that is one quick and easy fix that small businesses could make that would dramatically their customer satisfaction.

Bjorklund: Is this something that can be taught?

West: Absolutely. But it also has to be part of a performance standard. So you can’t just say, well you will have empathy. You have to talk about specifically what that means in terms of how you’re going to talk to customers, how you’re going to relay information, how you handle hostile customers, how you handle appeals. So all these things have to be articulated in advance.

Bjorklund: Jack, can you recommend any books or websites for people to learn more about customer satisfaction and your work in particular?

West: Well, the American Customer Satisfaction Index has, what I think, is a very good website. That’s theacsi.org and it will give you customer satisfaction ratings back for 14 years of all the major companies in the US and a lot of the government agencies. And it’s very interesting to see the interaction of those over the years and also, if you want to spend a small amount of money, I’m talking about $30 or $40; you can buy the methodology book that describes how we go about measuring customer satisfaction. I doubt if that’s within the realm of most small and medium sized businesses to do all the kinds of things that we did there. But if you’re measuring willingness to recommend, you’re getting a great deal of the kinds of things that we get after, using a more costly methodology.

Bjorklund: Jack, thanks so much for talking to us today on the AllBusiness podcast. I hope that many of the businesses listening will take your message seriously, at least from a consumer point of view, that’s how I feel.

West: Well, Chris, it’s certainly been my pleasure. Thank you.

Bjorklund: Thank you. Our guest today, Dr. Jack West, is a leading expert in the study of customer satisfaction and a spokesperson for the American Society for Quality. To share your feedback on this podcast or to recommend guests for future shows, send an email to podcast@allbusiness.com. I’m Chris Bjorklund and thanks for listening to this AllBusiness podcast.