Page 22 - Design for Six Sigma for Service (Six SIGMA Operational Methods)

6 Chapter One

10 types of service processes. More detailed discussions on service
processes are given in Chap. 10.

1.2 Success Factors for Service Organizations

For profit-earning service organizations, profitability is one of the most important
factors for success. High profitability is determined by strong sales and overall
low cost in the whole enterprise operation. It is common sense that
Business profit = revenue – cost (1.1)

In addition,
Revenue = sales volume × price (1.2)
Here price means the sustainable price, that is, the price level that customers
are willing to pay with satisfaction.

Many researchers (Sheridan 1994, Gale 1994) have found that both sales
volume and sustainable price are mostly determined by customer value. As
a matter of fact, it is customers’ opinions that will determine a product’s
fate. Customers’ opinions will decide the price level, the size of the market,
and the future trend of this product family. When a product has a high
customer value, it often is accompanied by an increasing market share,
increasing customer enthusiasm toward the product, word-of-mouth praises,
a reasonable price, a healthy profit margin for the company that produces it,
and increasing name recognition.

Sherden (1994) and Gale (1994) provided a good definition for customer
value. They define the customer value as perceived benefit (benefits) minus
perceived cost (liabilities), or specifically as
Customer value = benefits – liabilities (1.3)

The benefits include the following categories:
1. Functional benefits
a. Product functions, functional performance levels
b. Economic benefits, revenues (for investment services)
c. Quality and reliability
2. Psychological benefits
a. Prestige and emotional factors, such as brand-name reputation
b. Perceived dependability (for example, people prefer a known brand
product over an unknown brand product)