Download by R. Eric Reidenbach

The Next
Chapter?
In 50 Words
Or Less
• Traditionally, Six Sigma
is known as a method
to uncover ways to
reduce defects and cut
costs.
• A new version of Six
Sigma can help companies make smarter decisions related to product
and market strategy
and create customer
value.
• A key element of this
approach is a modified
DMAIC process.
by R. Eric Reidenbach
six sigma
Headline
Deckhead goes here
Six Sigma can be adapted to
grow
market
share
and
In 50 Words
Or Lesscreate customer value
• Text for 50 words or less is Vectora Roman 9 on 11 with hanging indents.
of Six Sigma—perhaps the next chapter of this popu• Text for 50 words or
lar improvement
method—shifts focus from reducing defects and cutting costs
less is Vectora
Roman
9 on 11 with
to hanging
growing an organization’s market share by identifying targeted products and
indents.
• Text for 50markets
words or and creating customer value.
less is Vectora Roman
Some may see Six Sigma marketing (SSM) as a significant departure from tra9 on 11 with hanging
indents.
ditional Six Sigma and marketing approaches. It bases decisions and strategies on
• Text for 50 words or
less is Vectora
factsRoman
learned from the voice of the market (VOM), not just individual intuitions or
9 on 11 with hanging
indents. agendas. It operates two elements of products/markets—things people buy and
A NEW VERSION
the people who buy them—that drive revenue and stock growth.
2
QP • www.qualityprogress.com
March 2010 • QP 41
The approach shouldn’t be dismissed as simply ap-
quantifiable market-share goals for the lowest cost.
plying Six Sigma to specific marketing activities, such
The approach does adopt some of Six Sigma’s tra-
as sales, order processing, promotional activities or
ditional goals of reducing defects. Instead of defects
distribution. The method applies a unified, consistent
in terms of products, however, SSM focuses on ele-
treatment of the entire value creation and delivery
ments that drive customer retention. Customers inter-
system—not just components or elements of it—and
act with an organization in many ways—for example,
integrates Six Sigma’s disciplined problem-solving
initial purchase inquiry, sales process, billing inquiries,
approach with a customer-focused, performance per-
repairs, service and parts purchase. Each interaction
spective.
or event can increase or decrease loyalty and market
Three differences between the traditional Six Sigma
and marketing approach and this new version are:
share. SSM monitors these events to ensure maximum
customer value.
1. Customer value replaces customer satisfaction as
Finally, SSM expands the traditional purview of
the driving strategic metric. Customer value has
marketing to include the traditional 4Ps (price, prod-
been shown to have a significantly stronger link to
uct, promotion and place) and a fifth P—processes.
market share and top-line revenues than customer
Value is delivered to the market in many ways, but
satisfaction.1 In other words, happy customers are
mostly through value streams and processes.
not necessarily loyal or profitable customers.2
2. A unique set of tools is used to measure value, value
First, second—and third?
opportunities and value-management strategies.
As mentioned earlier, Six Sigma has traditionally been
The tools focus on acquiring new customers, retain-
used to analyze activities within organizations. Some
ing current ones and providing incentives for cur-
have described the first generation of Six Sigma as fo-
rent ones to repurchase, sign new contracts and up-
cusing on defect reductions and the second generation
grade. These are the three drivers of market share.
on cost-cutting efforts.4 Many Black Belts, however,
3. A modified define, measure, analyze, improve and
are concerned with the finite nature of Six Sigma proj-
control (DMAIC) model is used to accommodate
ects and how cost-cutting activities are limited in the
the different arena in which SSM operates. Tradi-
extent to which they create real customer value and
tionally, Six Sigma has focused on internal aspects
actually grow an organization.
of organizational activities. SSM focuses on the ex-
“Six Sigma will need to be adapted to marketing to
terior: the market and the dynamics that drive mar-
account for increases in top-line revenues—sales in-
ket changes.
creases, customer acquisition and customer loyalty—
Often, marketing plans are based on intuition and
rather than being so singularly focused on cost cutting.
agendas, eventually falling short of goals. For instance,
Its value should be measured not only by how much
it is estimated that many marketing actions have an
it can save a company, but also in how much it can
average return on investment (ROI) of 58%. The new
earn a company,” said Renee Brandon, a marketing re-
version is designed to achieve both effectiveness and
searcher and consultant.5
3
efficiency. In other words, it seeks to achieve specific,
There is nothing inherent within the internally focused Six Sigma, however, that will allow it to transcend to the next generation of Six Sigma. The step
Product/market matrix / Figure 1
from reducing defects to cutting costs is minor compared to the leap from cutting costs to growing market share. Different mind-sets, tools and cultures gov-
Market
Market
Product
Product A
Market A Market B
Market C Market D
Total
ern each generation of Six Sigma. The integration of
marketing and its focus on markets, customers and
market share could provide an established organiza-
Product B
tional bridge for moving to the next generation of Six
Product C
Sigma—SSM.
Total
Sigma. Instead of phasing out their deployments, tran-
Many firms have already invested heavily in Six
42 QP • www.qualityprogress.com
six sigma
tunity to increase their ROI. SSM can offer an infinite
number of projects as the organization reacts to changing market dynamics.
Much of the impetus for this new approach comes
from the disappointing results of current marketing
practices and impatient CEOs who aren’t convinced
Value model / Figure 2
Customer
focus
0.394
Technical
0.361
competence
CQI
marketing spending makes a difference. Traditional
marketing, too, has come under attack by many who
view it as a cost instead of a revenue generator.6 The
Product
features
0.148
0.675
Image
new SSM approach is the answer to making marketing
more effective and efficient.
Billing
0.096
used in this new approach, along with brief descrip-
Price
Managerial component
Define: In the traditional version of Six Sigma, this
0.164
Explanatory component
Adjusted R2 = 0.87
tions of key tools that make each stage operational.
stage focuses on clarifying the goals and value of a
0.100
0.256
Modified DMAIC
Here are the stages of the modified DMAIC process
0.736
Value
sitioning to this next generation offers firms the oppor-
CQI = customer quality index
specific project. It has a predetermined value stream
or process. In the modified process, the define stage
• Margins within the product line and market.
begins with determining the specific market opportu-
• Future downstream product support revenues
nities for growing the business. These are the specific
competitive arenas the organization can choose to
(parts and repairs).
• Synergies with other products and markets.
target. At this point, a specific project hasn’t been se-
Each product/market can be evaluated using the
lected yet because the entire SSM process is informed
same subset of the above criteria. This ensures a con-
by the market.
sistent evaluation process, which becomes the first
The modified define stage begins by identifying and
prioritizing those products and markets that offer the
step in developing a competitive strategy for the organization.
organization the greatest opportunities for growth. The
In the end, it will be the VOM that drives decisions
principal tool is the product/market matrix in Figure 1.
and identifies which people, products or processes
The matrix juxtaposes the two elements that drive
should be targeted for enhanced value delivery.
revenues: the products and the people who buy them.
Measure: This stage is focused on defining value
The intersection of products and markets represents a
for the targeted markets identified in the define stage.
competitive arena with varying revenue opportunities
The principal tool for this phase is the competitive
in which the firm can choose to compete.
value model that captures the VOM.
Some areas could provide high economic return,
The value model is the information platform that
while others could be a potential drag. Identifying those
drives SSM, providing an uninterrupted flow of infor-
areas is critical. The opportunities must be evaluated us-
mation from the targeted products/markets to subse-
ing a quantifiable approach, not just guessing, formulat-
quent stages of the DMAIC process. It captures the
ing agendas or basing decisions on what the company
VOM, ensuring subsequent changes are directed by the
has done in the past. Quantifying opportunities requires
contingencies of the specific product/market. A value
choosing a set of strategic criteria, including:
model for a business-to-business wireless telecom firm
• Market share (current versus potential growth).
operating in large metro markets is shown in Figure 2.
• Current size of the market.
The value model performs two important func-
• Market growth rates.
tions. First, the explanatory component quantifies the
• Competitive intensity.
tradeoff between quality and price, based on how the
• Lost sales within a product line and market.
market identifies this tradeoff. In the example, quality
March 2010 • QP 43
Competitive value matrix / Figure 3
1.2
Expensive relationship
(customer quality index, or CQI) is more than four times
as important as price in defining value for the products
and the market (0.736 vs. 0.164). This eliminates much
Outstanding value
of the argument about which is more important to the
market—quality or price.
AT&T (strategic target)
Second, in the managerial component, the model iden-
Customer quality index
tifies and prioritizes the critical-to-quality (CTQ) factors
that drive the value equation and motivate buyers. The
Value gap
CTQs are customer focus (0.394), technical competence
XYZ
(0.361), product features (0.148) and billing (0.096). The
Nextel
Sprint
Cingular
Verizon
1.0
Alltel
CTQ weights indicate their relative importance to quality. Without this actionable information, few marketing
efforts can satisfy either the effectiveness or efficiency
criteria critical to SSM efforts.
T-Mobile
Analyze: The modified analyze stage requires learning and applying new tools designed to capture and use
the market’s perception of value. For instance:
• The competitive value matrix. Figure 3 depicts the
value propositions of one organization (XYZ) and its
0.8
0.8
Poor value
major competitors. In this example, AT&T has a value
Discount relationship
1.0
Price evaluation
advantage over its competitors within this product/
1.2
market. Its strategic challenge is to increase this gap
by enhancing its quality and value leadership, thus increasing market share. XYZ’s challenge is to close the
Competitive vulnerability
matrix / Figure 4
1.2
Expensive relationship
gap with the value leader. Improving performance on
the CTQs and pricing elements are keys to managing
the value gap.
• The competitive vulnerability matrix. Figure 4
Outstanding value
Outstanding 1
identifies the nature and degree of one competitor’s
value offering, as well as its strengths and weakness-
25%
es. The competitive vulnerability matrix is similar to
the value matrix, except that instead of locating firms
Customer quality index
on the matrix, it identifies groups of a competitor’s
customers (in this case, AT&T’s).
33%
Outstanding 2
The circles identify the percentage of customers
having certain perceptions of value they receive from
AT&T. In this case, 58% receive outstanding value,
leaving only 42% receiving less-than-outstanding val-
Poor value 4
ue. Each customer group can be profiled by its CTQ
18%
18%
Poor value 3
performance score, reactions to pricing policies, size,
geographic location and revenues. This allows a competitor to target groups or individual firms for acquisi-
6% Poor value 5
0.8
0.8
Poor value
tion.
Discount relationship
1.2
Price satisfaction
Note: Numbers correspond to the different value groups.
44 QP • www.qualityprogress.com
• The customer loyalty matrix. Figure 5 captures the
nature and degree of loyalty of an organization’s customer base. Market-share gains depend heavily on the
organization’s ability to retain its customer base. Similar to the previous two tools, this matrix plots groups
six sigma
Customer loyalty matrix / Figure 5
of an organization’s customers in terms of the value
they receive from the organization.
In Figure 5, only 33% of XYZ’s customer base re-
1.8
Expensive relationship
ceives outstanding value. These are the most loyal
Outstanding value
customers, who are least likely to leave, more likely to
recommend and more likely to repurchase or upgrade.
The remaining 67% of XYZ’s customer base is less loyal
Customer quality index
and more susceptible to accept a competitor’s superior
value offering. Each group can be profiled to identify
any systematic people, product or process problems.
In addition, groups can be profiled in terms of their
economic importance to the organization for the purpose of individual intervention if the situation warrants it.
These three tools provide an analysis of the value
Outstanding
value
33%
Poor value 3
13%
landscape within each product and market. They can
Average value
41%
Poor value 2
7%
Poor value 1
6%
provide the basis for identifying how changes in people, product and processes will enhance the organization’s competitive value proposition. These value tools
are designed to aid in the growth of market share and
Poor value
0.3
0.3
top line revenues.
Improve: This stage involves mapping targeted
Discount relationship
1.8
Price satisfaction
processes within specific value streams to improve value disadvantages or enhance value advantages. Some
In addition, the improve stage uncovers issues re-
value streams and processes will need to be improved
lated to people and products that can be improved or
to close the value gap that exists between an organiza-
leveraged. Principal tools in this stage are a modified
tion and its competitor. Processes that drive and sup-
cause and effect matrix, as shown in Figure 6, and val-
port a value advantage, however, should be enhanced.
ue stream mapping.
In other words, this is about leveraging strengths and
For SSM, the key difference between value streams
the complete opposite of the saying, “If it ain’t broke,
and processes is the involvement of the customer—the
don’t fix it.”
end user. Value streams begin with a customer request
Responsive to service
needs
Delivering above and
beyond expectations
Reps communicating
positive attitude
Reps making prompt
changes
Reps resolving problems
After the sale, resolving
problems the first time
Reps accurately
representing products
Reps providing clear
explanations
Reps providing timely
training
After the sale, reaching
the right person
After the sale, easy to do
business
Providing business
solutions
Understanding your needs
Proactively communicating
new products
Providing easy access to
product—retail
0.82
0.79
0.72
0.69
0.69
0.82
0.82
0.75
0.72
0.78
0.86
0.79
0.80
0.65
0.45
0.72
Sales
6
3
6
9
3
3
0
9
9
0
0
0
9
9
9
6
57
Delivery
3
3
6
3
0
0
0
0
0
0
3
3
0
0
0
0
16.2
Training
3
0
6
3
0
0
0
3
9
9
3
6
9
9
3
0
46.3
Invoicing
3
0
3
0
0
6
6
0
0
0
6
6
3
6
0
0
30.7
Attribute
importance
Process importance
Valued business partner
Cause and effect matrix / Figure 6
March 2010 • QP 45
six sigma
Six Sigma marketing seeks to achieve
specific, quantifiable market-share goals for
the lowest cost.
and end with the customer receiving something of value.
tions—sales, delivery, repair, parts purchasing—can
The cause and effect matrix links individual attri-
warn of potential problems that might be customer-
butes that comprise a CTQ (Ys) and the processes that
specific or systemic in nature.
impact them (Xs). The attributes are the performance
metrics that comprise the CTQ. In this case, the most
Time to transform
important CTQ attribute is customer focus. The chal-
As CEOs demand more effectiveness and efficiency
lenge is to identify processes that have the greatest im-
from their marketing dollars, and today’s Six Sigma
pact on improving the performance of these attributes.
practitioners seek new areas in which to improve their
For example, across the top of the cause and ef-
organization’s performance, SSM can play an integral
fect matrix in Figure 6 (p. 45) are individual customer-
role. Its strategic, market-driven approach offers a way
focus attributes. Attribute importance is shown in the
for many organizations focused on simply improving
first row. The individual processes that make up the
their internal operations to shift gears and look out-
customer-focus value stream are shown in the first
ward to become stronger and more competitive.
column. The individual cells contain estimates of the
process impacts on the attributes made by the team.
Competitive forces, faster innovation cycles, cost
constraints, increasingly sophisticated customers de-
In this example, 0 signifies no impact, 3 signifies
manding greater value, and changing regulatory and
minimum impact, 6 signifies moderate impact, and 9
legislative pressures are just a few factors that will
signifies strong impact. Process importance (the far-
force these organizations to transform themselves and
right column) is the sum of the weighted impacts on
become more market oriented. SSM can be the vehicle
each process (that is, [6 x 0.82] + [3 x 0.79] + [6 x 0.72],
to drive this transformation. QP
including all 16 columns of customer-focus attributes).
The sales process (57) has the biggest impact on
customer focus; therefore, the sales process should be
EDITOR’S NOTE
This article is based on an excerpt from Reidenbach’s Six Sigma Marketing:
From Cutting Costs to Growing Market Share, ASQ Quality Press, 2009.
the focus of change.
Control: This stage focuses on two factors:
1. After changes have been made to the value-delivery
system, SSM requires these changes be monitored
to ensure they are working. This is done with an
abbreviated customer value analysis questionnaire
used to develop the customer value model. It’s an
inexpensive way to track and monitor issues that
may arise, and if there are significant changes, a full
REFERENCES
1.Bradley T. Gale, Managing Customer Value: Creating Quality and Service
That Customers Can See, The Free Press, 1994.
2.Frederick Reichheld, “The One Number You Need to Grow,” Harvard Business Review, Dec. 1-11, 2003.
3.Renee Brandon, “The Power of Six Sigma and Marketing: Increased Marketing Effectiveness,” white paper, Aug. 8, 2006, www.tocquigny.com.
4.Dirk Dusharme, “Quality Conversations with Mikel Harry,” Quality Digest,
www.qualitydigest.com/feb04/articles/06_article.shtml.
5.Brandon, “The Power of Six Sigma and Marketing: Increased Marketing
Effectiveness, see reference 3, p. 6.
6.Yvonne Tocquigny, “The Quest for Quality: Applying Six Sigma Principles to
Marketing,” white paper, Nov. 2, 2005, www.tocquigny.com.
survey can identify the issues more clearly.
2. The multitude of customer interactions that take
place—which can represent an early warning sys-
BIBLIOGRAPHY
Pestorius, Michael, Applying the Science of Six Sigma to the Art of Marketing,
ASQ Quality Press, 2007.
tem regarding value performance—must be tracked
and monitored. Think of these interactions as rivets
on an airplane’s wing. The integrity of the wing and
aircraft can be maintained with the loss of a few rivets. As more rivets fail, however, the probability of
a complete failure of the wing and plane increases.
Monitoring customer interactions and transac46 QP • www.qualityprogress.com
R. ERIC REIDENBACH is the director of the Six Sigma
Marketing Institute in Hattiesburg, MS. He received a
doctorate in marketing from Michigan State University
in East Lansing.