The New Appreciation of Service Quality
American industry is sold on the idea of service quality. Every major business publication has run a cover story on customer service, and companies that have won the Commerce Department’s Malcolm Baldrige National Quality Award have invested heavily in advertising their accomplishments.
American executives who participated in a recent survey by Opinion Research Corp . on quality issues said they look for Baldrige Award winners as suppliers. (The survey polled 500 executives of Fortune 1,000 companies and executives of companies that rank among the 500 largest whose main product is a service.)
But how will American companies rise to the quality challenge? Even though the executives acknowledged that quality would attract customers, most did not believe that their companies were ready to take the leap required to obtain significant quality improvement.
This reluctance represents skepticism about the value of service quality. It also represents an opportunity for those prepared to make the commitment now.
The value of service quality is clear. The executives were asked whether they had either started or stopped doing business with companies in various industries. They were then asked whether product quality, service quality, price or something else was their reason for either starting or stopping business. The power of service quality is revealed by their answers. Service quality was the No. 1 reason for starting to do business. It was followed closely by product quality, then by price. When a decision was made to stop doing business, service quality weighed more heavily than product or price. More than two-thirds of those polled said service drives their decision to stop. Only a third mentioned product quality and price. Service quality, then, is the key to keeping business customers.
Like business purchasers, consumers decide to start or stop doing business with a company on the basis of service quality. A survey of the general public revealed that service quality was the top reason for starting to do business with a company, followed closely by product quality, then price. When a decision was made to stop doing business, service quality again weighed more heavily than product or price.
A recent study reported in the Harvard Business Review put a dollar value on the importance of customer retention. The results demonstrated that customer retention has a direct and substantial impact on profitability, with the increase in dollar value of repeat customers ranging from 25% to 85%, depending on the industry. The analysis revealed that loyal customers are more profitable because of increased purchases, reduced operating costs, the value of referrals and premium pricing.
These studies underscore the importance of service quality: Quality improvement is the way to attract and retain customers, and a loyal customer base has a clear impact on the bottom line.
But the quest for quality improvement is a major challenge to American companies, and the fix is not a quick one. An examination of some of the Baldrige Award criteria reveals that quality improvement requires involvement of the entire organization. The criteria include:
* Leadership. Senior management’s effectiveness in creating and sustaining a culture of quality.
* Strategic quality planning. The planning process and the integration of quality control systems in all aspects of operations.
* Quality assurance results. The company’s performance in quality and quality improvement.
* Customer satisfaction. The effectiveness of the company’s systems for determining customer requirements and its success in meeting these requirements.
Significantly, customer satisfaction counts for 30% of the criteria in determining the award. Leadership and quality assurance are next, with 15% each.
Service quality improvement is an imperative for American companies hoping to compete in today’s marketplace. As the range of choices continues to increase, customers will continue to desert companies that disappoint them. Quality of service will increasingly be the major factor in the decision to stay or leave.
