Delivering Customer Value through Six Sigma

Identifying Critical-to-Quality Factors from a Market Perspective

Reg Goeke
Contributor: Reg Goeke
Posted: 04/16/2009
Six Sigma: Generation 3 Requires New Metrics

The third generation of Six Sigma demands an emphasis on value—the creation and delivery of value to your targeted markets through the products and services you provide. The Define phase of Six Sigma Marketing provides the fact-based, data-driven process for identifying and targeting your most important product/markets. Each of the market segments you target will define value differently—uniquely. That’s the very reason for segmenting markets in the first place—to group together customers with similar needs (similar ways of defining value), and to separate them from customers who define value differently. The challenge for the Measure phase of Six Sigma Marketing is to identify precisely how each of those targeted segments defines value so that you can begin to prioritize Six Sigma projects that will create and deliver superior value.

The Value Concept

The concept of value is not new. What is new is the ability to bring the same level of measurement rigor to it that is typical of other Six Sigma metrics. And that means that Six Sigma practitioners are now in a position to quantify the organization’s ability to create and deliver superior value.

At the most basic level, customers define value in terms of the quality they receive in a transaction relative to the price they must pay for that quality. The challenge for Six Sigma lies in understanding precisely what customers mean by "Quality." Customer definitions of quality go well beyond the physical characteristics of a product and typically include elements of service and support as well as the capabilities of channel partners such as sales personnel, branches and dealers. These components of quality are the Critical-to-Quality factors (CTQs) that Six Sigma practitioners have always sought to identify. The difference for Six Sigma: Generation 3 practitioners is that they must reach out to the Voice of the Market to identify those factors, rather than relying on internal perspectives that tend to be too myopic. (Click on diagram to enlarge.)



Leveraging a Six Sigma Marketing Metric: Using a Value Model to Identify CTQs

The foundational metric of Six Sigma Marketing is a Market Value Model. The Value Model must be market-based—that is to say, the model must reflect the perspective of all customers in the targeted market, not just the customers of your company. Increases in market share are a function both of keeping your current customers and acquiring new customers, so the Value Model must reflect that competitive reality. The Value Model is also unique to the targeted product/market—the relative importance of Quality, Image and Price will differ from one market segment to another, and from one product or service line to another. Similarly, the nature and importance of CTQs will vary from one product/market to another. Obviously, this begs the question: How is the Market Value Model generated? (Click on diagram to enlarge.)



Six Sigma Marketing Requires Redefining the Measure Phase of DMAIC

The Value Model captures the Voice of the Market and becomes the information platform that will define and prioritize Six Sigma initiatives. The Measure phase of DMAIC in Six Sigma Marketing, then, requires measuring market perceptions of value delivery—the value that you deliver as well as that of your competitors. This is done through a combination of qualitative and quantitative research.

Qualitative Research

Good measurement starts with asking the right questions, and this means conducting interviews or focus groups with customers to determine what those questions should be. Asking the right questions will produce a robust value model—one with a great deal of explanatory power leading to good decision-making. And this requires listening to customers tell you what issues they consider when buying or using the products or services you provide. Remember to stay focused on customers (users) within your targeted market segment. Relying upon internal judgments about what questions to ask can lead to very weak value models and/or unnecessarily lengthy questionnaires—either one of which will result in wasteful costs.

Quantitative Research

The qualitative research will enable you to identify the criteria customers use to evaluate the quality, image and price of their purchase options. These criteria will become the basis for a questionnaire asking customers to rate the performance of their provider. The actual survey can be conducted by telephone, on the Internet or in person, depending upon the product/market.

The survey should include a series of "screener" questions to ensure that the right person is actually responding, and various demographic or Firmographic questions for use during the Analyze phase of DMAIC. The performance ratings from the survey questions will feed into several statistical tools to produce the Market Value Model, revealing the relative importance of Quality, Image and Price in defining value within the targeted product/market, and identifying the Critical-to-Quality factors along with their relative importance. The result is a fact-based, data-driven determination of CTQs that will drive people, product and process improvements throughout the organization.

Implications of Market-Focused CTQs

Consider the following two Value Models. Both were focused on a single product line, but each came from a different market segment. In both cases, Quality is significantly more important than Price in defining value, and Image plays a relative minor role in each case. But the relative importance of the CTQs in each market segment is vastly different. In which segment would you focus on product development based on this information? In which segment on process improvement? In which segment would people skills be more important? Would you develop the same promotional materials for each segment? How would you ensure that your Six Sigma projects are aligned with your competitive marketing strategies? These are the questions that Six Sigma Marketing can help you address. (Click on diagram to enlarge.)



Challenge Your Own Organization: Is It Ready for Six Sigma Marketing?

One way to test your organization’s readiness for Six Sigma Marketing is to conduct a simple little straw man exercise. Select a product/market that’s important to your future growth, and then ask individual managers or groups of Black Belts to construct hypothetical value models for those product/markets. Be sure they can list some value performance criteria (typical questionnaire items) for each CTQ they include in the model, and have them specify the relative importance of the CTQs. Be sure, also, to specify the relative importance of Quality, Image and Price. Then compare the models. That should help you determine whether your organization is data-driven or agenda-driven, and whether you need the Voice of the Market to provide additional clarity.
Reg Goeke
Contributor: Reg Goeke
Posted: 04/16/2009

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