Cost quality relationship in product development

¶ … Customer Dissatisfaction

Specifically identify three or more of the potential costs of customer dissatisfaction by type of cost. 2-Describe or explain each of these costs.

There are four types of costs of customer dissatisfaction:

Drop in satisfaction level causes even greater drop in loyalty level:

Many organizations confound the descriptives of "very satisfied" and "somewhat satisfied" clients, but the difference in loyalty is exponential. Very satisfied consumers are apt to return to the company and refer to others, whilst only somewhat satisfied consumers are often unlikely to return or, if they do return, to infrequently employ the service. Sometimes, the drop in loyalty between one and other classification may be as much as 50%, and whilst many organization add the 2 descriptors together in order to arrive at a "better satisfaction" score, they do not realize that the cost of customer dissatisfaction in the latter category is greater than in the former.

2. Problems drive customers away: Although customer loyalty varies according to the type of industry and other industry factors, research shows that there is typically a 25% drop in loyalty amongst clients who experience a problem. In revenue terms, this means that as much as one in every four clients will be dissuaded from returning to the company, hence the company will lose one in every four potential revenues. Even if the client will return infrequently, much of that revenue will be lost.

3. Negative reputation: Studies show that customers typically inform twice as many people about a bad service received as they do about a positive experience. Social networks and the Internet today amplify these phenomena. Therefore, a disgruntled consumer may more rapidly harm your reputation than a satisfied consumer will build your reputation. It is for this reason that research, too, indicates that the faster and more effectively the complaint is dealt with the more problems can be prevented.

4. The ratio of complaints are greater than you think: Awareness of customer complaints comes from the complaints department, but research shows that, generally, only 5% of those dissatisfied actually complain, and that as many as 50% of consumers may actually be experiencing problems. This 5% shows only the tip of the ice peak. This means that as many as 95% of your consumers may be experiencing problems, and customer dissatisfaction had, therefore, be speedily and thoroughly addressed before your company / service runs into unalterable difficulties (CTMAWorld.com.)

Costs of customer dissatisfaction are also know as external failure costs which includes warranties repairs and replacements, product recalls, liability arising from legal actions against a company, and lost sales arising from a reputation for poor quality.

3-Compare and evaluate the cost of preventing poor quality vs. The costs incurred through customer dissatisfaction.

Costs involved in preventing poor quality are called "quality costs" and fall into four categories:

1 & 2. Prevention costs and Appraisal (or inspection) costs: These two categories are costs that prevent defective goods from reaching customers. Companies implement many techniques to prevent defects from occurring such as Total quality management strategies, statistical process control, quality engineering, and training.

3 & 4: internal failure costs: costs that emerge as a result of defects being produced despite efforts to prevent them. These defects are caught before the product is actually shipped to the customer, therefore the costs here include items such as scrap, rejected products, reworking of defective units, and downtime caused by quality problem (Accounting for management).