Zero Defections Quality Comes to Services.pdf – 8/23/2019 Zero Defections: Quality Comes to Services PRODUCT DEVELOPMENT Zero Defections: Quality | Course Hero

8/23/2019

Zero Defections: Quality Comes to Services

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PRODUCT DEVELOPMENT

Zero Defections: Quality Comes

to Services

by

Frederick F. Reichheld

and

W. Earl Sasser, Jr.

FROM THE SEPTEMBER–OCTOBER 1990 ISSUE

T

he

real

quality revolution is just now coming to services. In recent years, despite their

good intentions, few service company executives have been able to follow through on

their commitment to satisfy customers. But service companies are beginning to

understand what their manufacturing counterparts learned in the 1980s—that quality doesn’t

improve unless you measure it. When manufacturers began to unravel the costs and implications

of scrap heaps, rework, and jammed machinery, they realized that “quality” was not just an

invigorating slogan but the most profitable way to run a business. They made “zero defects” their

guiding light, and the quality movement took off.

Service companies have their own kind of scrap heap: customers who will not come back. That

scrap heap too has a cost. As service businesses start to measure it, they will see the urgent need

to reduce it. They will strive for “zero defections”—keeping every customer the company can

profitably serve—and they will mobilize the organization to achieve it.

Customer defections have a surprisingly powerful impact on the bottom line. They can have

more to do with a service company’s profits than scale, market share, unit costs, and many other

factors usually associated with competitive advantage. As a customer’s relationship with the

company lengthens, profits rise. And not just a little. Companies can boost profits by almost

100% by retaining just 5% more of their customers.

While defection rates are an accurate leading indicator of profit swings, they do more than

passively indicate where profits are headed. They also direct managers’ attention to the specific

things that are causing customers to leave. Since companies do not hold customers captive, the