Keeping the Competition at Bay: A Case Study in the Energy Sector
By Charles Colby, Chief Methodologist
In 2004, the Board of Trustees at CPS Energy established a corporate scorecard to assess performance in areas important to its long-term success – one of five key factors was customer satisfaction. Based in the bustling San Antonio market, CPS Energy is the largest municipally owned energy utility in the U.S. providing both natural gas and electric service. It has historically performed above U.S. norms in customer satisfaction, but the possibility for emerging competition in the Texas electric industry made it imperative to gauge customer satisfaction with a best-in-class methodology that would ensure the company continually strived for excellence.
eBrain Market Research implemented its Path to Excellence (PTE) model, an approach based on the SERVQUAL methodology developed by Parasuraman, Zeithaml and Berry. SERVQUAL is a gaps-based approach that measures the quality of service as the gap between customer perceptions of performance and their expectations for performance.
The first step in the PTE approach consists of gathering input from key stakeholders, including management, employees and external publics. For CPS Energy, eBrain conducted in-depth interviews with senior managers and outside constituencies (e.g., government consumer affairs offices), and focus groups with employees. The next step consisted of talking to customers to provide a qualitative definition of customer expectations. eBrain conducted focus groups with residential and business customers, and in-person interviews with top commercial accounts, to produce an exhaustive list of attributes that defined customer expectations.
Using the input from stakeholders and customers, eBrain implemented a baseline telephone survey of households and businesses in San Antonio, using an exhaustive list of customer expectations attributes. eBrain then analyzed the data to identify broad dimensions that defined quality from the customer perspective, such as value, communications, reliability, and billing. The baseline also established norms for customer expectations which were critical for identifying where the greatest gaps existed. For example, an area like “accurate billing” might receive a high performance rating from customers, but would have to meet a higher standard of excellence because customers would not tolerate problems. As part of the baseline analysis, eBrain developed a concise questionnaire based on a core list of attributes that capture all of the facets of customer need.
eBrain now surveys CPS Energy customers continuously, providing monthly toplines and quarterly reports. An overall SERVQUAL index is computed and used for establishing annual goals for the corporate scorecard. As a result of this initiative, CPS Energy and its Board have now a clear definition of quality for its residential and commercial customer base as well as ongoing feedback on where they need to close gaps. Since the baseline, the utility has been able to continually improve the quality of service, making San Antonio a better place for energy consumers.
Research to the Rescue
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eBrain's Path to Excellence: Your Company's Path to Customer Satisfaction, Loyalty, and Higher Sales
by Dave Glantz, Senior Research Director
Companies that meet their customers' needs are not only better at keeping those customers, but also have the inside track on future profitability and growth. While a seemingly obvious conclusion, accomplishing this goal can be tricky and takes commitment. All too often, companies make the wrong assumptions about what their customers expect in terms of products and service, or else over- or underestimate these needs, all of which can drain resources for little or no payoff. To succeed, companies must face three practical challenges head-on: 1) defining the customers' expectations; 2) determining which of these expectations are most likely to drive customer satisfaction; and 3) measuring the gap between those expectations and the company's performance in these key areas – and then working to close those gaps.
eBrain's Path to Excellence lays out a comprehensive five-step approach to solving these challenges. It gives management the tools to move forward with a unified strategy that channels resources toward increasing satisfaction in the areas that count most, and sets the stage for greater sales growth.
1. Problem Definition is the first step, and involves gathering input on the service environment from stakeholders (both management and front-line employees). CE manufacturers and retailers will find that this stage does more than capture valuable information; it not only ensures the results will ultimately meet customer needs, but by including these key players from the start, the research process will also have internal buy-in. Focus groups or in-depth interviews are the usual methods for collecting such feedback from stakeholders.
2. Discovery, or Exploratory Research, consists of allowing customers to identify, in an open-ended manner, the issues and expectations they believe are important in driving their satisfaction. This is an important departure from the more standard approach in which management decides – sometimes arbitrarily and erroneously – what criteria will be measured to define success. Instead, by way of focus groups or in-depth interviews, customers decide what constitutes the value of their relationship with the seller. And taken one step further, interviews with former customers can identify what precipitated their departure, why the seller failed to meet their needs, and what can be done in the future to win them back. The company might learn, for example, that what they may have considered a minor accessory to a larger product was in fact the driving force behind the purchase, and that no longer including that accessory led to a decline in sales.
3. Baseline Measurement consists of gathering an initial measure of customer perceptions and expectations using an exhaustive list of questions inspired by the information learned in the Discovery phase. Ultimately, this stage provides the basis for planning and goal-setting and is the starting point for ongoing tracking. In this stage, questions are administered to a larger, randomly selected group of current and lost customers. Quantifying the results in this manner allows for statistically supportable findings that can be used in decision-making. These surveys may be conducted in person (e.g., at trade shows or conferences), by telephone, mail or the Internet.
The aim of the baseline survey is to quantify gaps in meeting customer expectations in three broad areas:
- Tangibles, such as customer service accessibility and IVR or online help responsiveness, quick shipping of inventory, lack of product defects, warranty coverage, store hours, etc.
- Intangibles, such as product knowledge, staff friendliness and professionalism, cutting edge products, etc.
- Value, including price competitiveness and product quality
4. Planning consists of using the baseline results (including a quadrant map that plots importance in driving loyalty against satisfaction with performance) for goal setting and decision-making. In this stage, we can also administer the survey to employees and management and compare them with customer opinions to identify perception gaps. We may find, for example, that front-line sales staff perceive themselves to have insufficient product knowledge whereas customers feel very well informed (thus it may not be an issue to fix); but if the opposite were perceived, the implications could be serious and point to the need for added sales training – more so if this dimension is determined to be a key driver of customer satisfaction.
5. Tracking consists of continuously measuring customer satisfaction to identify progress towards meeting goals – that is, by addressing gaps that show low performance in areas customers see as highly important to their satisfaction. Thus progress is measured through a more streamlined version of the survey instrument that focuses on the service attributes most critical to driving satisfaction. Also, by this stage, the company will be ready to implement a comprehensive plan for improving services, meeting intangible needs, and enhancing value. The company will also have selected internal champions (ideally from among those involved in the first phase) to drive the improvement process, create action plans, and set goals.
The company's willingness and commitment to take the lead on meeting these goals is critical to successfully following the Path to Excellence. This is why the initial internal consensus-building stage is so important. From that starting point, all of these stages reinforce a culture of continuous improvement. They also consciously reposition customers to where they rightfully belong: at the center of attention, and as the ones best qualified to tell companies what they expect, and to what standard of excellence the company should be held. The company that places the customer's opinion at the center of their planning in this way will be rewarded by greater loyalty, an enhanced reputation, and above all, a stronger bottom line.
Building Customer Loyalty by Focusing on the “Why”: An Interview with Dr. A. Parasuraman, SERVQUAL author
By Mariel Molina and Joe Taliuaga
One satisfaction measurement approach gaining ground in the consumer electronics industry is SERVQUAL, a method for identifying gaps in the customer experience that affect loyalty. Although originally developed for services-based companies, consumer electronics companies have found wide application for this method. Companies are recognizing that it's not just the product the customer is buying, but also a service experience, documentation, and other intangibles. And, there is great potential for the method's application among manufacturers and distributors who are selling up the supply chain.
Dr. A. Parasuraman developed SERVQUAL with his co-authors (Zeithaml and Berry) and is a leading authority on customer satisfaction and loyalty. eBrain recently interviewed Dr. Parasuraman to discuss the origins of the research approach, its application to the consumer electronics industry and new developments in measuring customer satisfaction in an environment transformed by technology.
According to Parasuraman, the total customer experience for a CE product is affected by the information, documentation and interactions across the entire distribution chain. Marketers should examine gaps in meeting customer expectations at the manufacturing and distribution levels, as well as for web channels.
eBrain: When you developed SERVQUAL, what questions did you and your colleagues want to answer and what goals did you have?
Parasuraman: To answer that question I can begin by describing some of the background behind the development of SERVQUAL. The methodology itself has its roots in the conceptual GAPS model, which qualitatively describes internal organizational gaps in the service provision of a company and how those gaps contribute to external service deficiencies experienced by customers. SERVQUAL quantifies the external service deficiencies and provides diagnostics for improving customer service.
First of all, we wanted to apply the work we completed on the GAPS model to a method of measurement that would be robust enough to capture excellence standards and performance measures for all aspects of customer service we identified.
Second, we wanted to come up with a survey instrument that would be flexible enough to apply to any industry.
eBrain: In your mind, how does SERVQUAL apply to the questions consumer electronics manufacturers, distributors, and retailers might ask themselves about the quality of their products and service and their customers' perceptions of these?
Parasuraman: In general, companies in the consumer electronics industry have more than one customer level. There is not just an end-user customer. There is also the distribution stream that is looking for excellent service as well. SERVQUAL can be implemented across all levels. It can be applied from the consumer electronics manufacturer to the distributor (Best Buy, Circuit City, etc.) or those implementing their technologies, the distributor to the end-user and end user back to the manufacturer. All levels have differences in service and SERVQUAL can effectively measure service expectations and perceptions across and within each level.
eBrain: What are the basic decisions to be made based on the SERVQUAL results?
Parasuraman: SERVQUAL is a diagnostic tool that points out areas of strength and weakness in 5 robust, broad dimensions. These dimensions are reliability, responsiveness, assurance, empathy, and tangibles. SERVQUAL can identify which areas have major customer service deficiencies and what the specific problem within that area is.
eBrain: What would a consumer electronics company need to know about their customers, products, and service before beginning a SERQUAL research effort?
Parasuraman: Since SERVQUAL is flexible enough to be used across a wide variety of contexts, a consumer electronics manufacturer, distributor, or retailer does not need to know much more about their customers other than which customer segments they interact with and want to study. It's possible that a company would have many customer segments but they can strategically prioritize their importance by profitability or importance of their relationship to the company.
eBrain: What are the latest trends in measuring satisfaction, and how do they differ from SERVQUAL?
Parasuraman: The biggest trend in all types of service provision is the shift from human service to e-service. We are now focusing on customer interactions with technology, such as making online purchases where the customer is not interacting with a human being but instead, a website. To better measure satisfaction for this specific type of service interaction we developed E-S-QUAL, which is very similar to SERVQUAL but does a better job of capturing the intrinsically different aspects of the online interaction.
Another method making waves is the Net Promoter Score method. Based on a single question that measures customers' likelihood to recommend a service, the Net Promoter Score is a global indicator of the extent of customer satisfaction and loyalty. However, it does not provide rich diagnostics in terms of understanding why the score is what it is and how to improve it. A SERVQUAL-type tool can provide such diagnostically rich information.
eBrain: Have you seen any major differences in the results for E-S QUAL vs. SERVQUAL?
Parasuraman: There is some evidence that the Empathy or hi-touch aspect of a human interaction becomes less important for e-service transactions. However, there are two types of e-service transactions - routine and nonroutine (when something goes amiss with the routine transaction). For routine e-service interactions, Empathy is notably less important than it would be for a human-service interaction, but at the point where assistance is needed, for example when something goes wrong with a transaction online, the Empathy aspect becomes very important. At that point customers expect customer support to be readily available and very accommodating to their need for reassurance and information.
SERVQUAL can be a powerful tool to help consumer electronics companies understand their customers' needs and expectations to increase satisfaction and loyalty.
| Events |
Register for a Free CEA/eBrain Webcast on Customer Satisfaction and Loyalty to learn how to create and maintain an actionable customer satisfaction measurement process in your organization and hear how real companies have made it happen. The webcast will be on Thursday, March 29, 2007, 2-3pm ET / 11am-Noon PT. Click here to register for this free webcast. Please note: Registration ends Tuesday, March 27.
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