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Which Customers Should a Six Sigma Company Listen to?

Read any Six Sigma article, attend any Six Sigma conference or talk to any Black Belt and the message is clear – the voice of the customer is a core value of Six Sigma. When Six Sigma is applied with a strategic perspective, the voice of the customer is indeed the necessary starting point.

Six Sigma and Strategy

An important point about Six Sigma deployment is that it makes no sense to divorce Six Sigma initiatives from the organization’s strategy. If becoming the low-cost supplier is the strategy, then it makes sense to focus on those areas of the business where costs are out of line. Here the internal voice of the customer is worth listening to.

However, if the organization’s strategy is one of value creation and market leadership, then it makes much more sense to provide a way for the ultimate customer to direct the Six Sigma efforts. After all, who knows what value is better than the customer? In an interview, James Zimmerman from Kepner-Tregoe pointed out the need for consistency between Six Sigma and organizational strategy. Failure to establish this linkage, he said, “…can mean operationally implementing something that is strategically silly.”

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The question is which customer voice to listen to. Most organizations serve multiple sets of customers. For example, financial service institutions serve segments such as single, newly married and retired. Heavy equipment manufacturers serve miners, farmers and building construction companies. Each segment has a voice and the organization must choose which voice to listen to.

The communication process is somewhat more complicated than simply selecting a segment or two. The voice of the customer will vary depending upon the product line or service. In the financial services institution example, the voice of the customer varies between segments as well as within segments. Newly married customers will voice different needs than retired customers and also may voice different needs for different products such as credit cards or home mortgages. The voice of the customer is product/market specific, and the choice of which products/markets an organization chooses to serve is part of its strategy.

The Product/Market Matrix

To best understand the choices that confront an organization regarding the products/markets served, it is helpful to construct a matrix such as the one shown in Figure 1.

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Figure 1: A Generalized Product/Market Matrix
 

Market A

Market B

Market C

Market D

 

Total

Product Line A      
Product Line B      
Product Line C      
       
Total      

The matrix aligns the two factors that drive revenue within a profit-seeking organization – customers (markets) and the products and services that they buy. Product lines are groups of products that are similar to each other as defined by the customer. They are, for the most part, substitutable within the same product line but not between product lines. For example, different size tractors can be used to do a job but a manure spreader cannot do what a tractor does. Market segments are groups of like customers with similar needs. If the organization is focused on value, these segments will represent either different value criteria or different weights for the criteria.

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.

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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 4×5 matrix (20 potential opportunities), the best opportunities are found within four or five cells.

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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.
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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.

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