Which Customers Should a Six Sigma Company Listen to?

Focusing on market segments and product lines is intuitive for most marketers. However, there is an equally compelling argument for focusing on the intersection of market segments and product lines. Both market segments and product lines minimize the variance between segments and product lines respectively. This leaves only the within variance as a source of distortion, thus providing a more focused and clearer understanding of the voice of the customer.

Each cell in the matrix represents a strategic opportunity for the organization. Some opportunities are better than others. The task at hand is to identify which of these products/markets the organization will choose to serve and, in so doing, which will define its Six Sigma initiatives.

Now, Which Customers?

The question of which product/market to choose is answered by identifying specific strategic criteria and then applying an evaluation of these criteria uniformly across all products/markets within the matrix. Typical criteria include:

• Market size
• Market growth rate
• Competitive intensity
• Margins within the product/market
• Market share
• Downstream product/service revenues

First, eliminate all non-viable cells where selling a product or service to a specific segment makes little sense. For example, selling home mortgages to retired customers is probably not a viable opportunity. Next, evaluate the remaining cells in terms of the strategic criteria. The best opportunities are those cells that have the best scores on the various criteria. This may mean that, out of a 4x5 matrix (20 potential opportunities), the best opportunities are found within four or five cells.

Does that mean that the organization will no longer serve the other products/markets? No. But the matrix does indicate areas where the organization will not actively invest and therefore will not expend Six Sigma resources. This is where the alignment of Six Sigma and organizational strategy takes place.

Once the products/markets are chosen, the organization must select which voice of the customer to listen to and which will drive Six Sigma projects.

What Should a Company Listen to?

Conventional Six Sigma practice uses customer satisfaction as the key voice-of-the-customer metric. This metric is problematic on two counts:

• Satisfaction has little linkage to market performance. More and more organizations are forsaking customer satisfaction as the voice of the customer as they begin to understand that happy customers are not necessarily profitable or loyal customers. In fact, companies such as AT&T and Cadillac learned that while their customer satisfaction scores were increasing, market share was actually decreasing.
• Satisfaction does not account for the interaction between quality and price. This is an important point because too often organizations think that to increase market share they simply have to reduce price. In reality, they may not have a pricing problem but rather a value problem. Customers are not willing to pay the price that the organization is asking for the quality that they are going to receive. The interplay between quality and price is value, and value has proven to be one of the best predictors of market share.

For strategic applications of Six Sigma, getting the right voice of the customer is critically important. Understanding how Six Sigma initiatives are consistent with strategy is the first step. Knowing which customers will provide the correct voice and what to listen to also is important. Customer value is increasingly the metric of choice. It is being adopted because of its linkages to market performance and its ability to better understand the dynamics of customer behavior. It is a powerful metric for identifying and directing Six Sigma projects and initiatives.

About the Author: R. Eric Reidenbach, a principal and founding partner of Market Value Solutions, has pioneered development of techniques in value analysis, customer retention, and value linkages to Lean and Six Sigma. He has extensive experience in marketing research, measurement, instrumentation and modeling. Dr. Reidenbach, whose doctorate is in marketing, is the author or co-author of 14 books and more than 100 journal articles on marketing and measurement. He can be reached at Eric@marketvaluesolutions.com.