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Interactive Learning Activity
Section 1:
MGT 424
12.1 Learning Outcomes:
Re
Interactive Learning Activity
Section 1:
MGT 424
12.1 Learning Outcomes:
Recognize the importance of quality management theory, principles, and practices applied in businesses on national and international levels.
State the importance of standardization and quality standards.
12.2 Action Required: (Read)
Case: Customer Focus at Amazon.com
Warren Buffett, the well-known financier and CEO of Berkshire Hathaway, has never been a big backer of technology businesses. However, he owns $459 million worth of Amazon.com’s bonds, making him one of Amazon’s biggest debt holders. Buffet observes, “I’ve been using a computer for eight or ten years now and I still really pay for only three things on the Internet:
The Wall Street Journal, online bridge, and books from Amazon.com. That they are one of only three companies online that have gotten money out of my pocket tells me they are doing something right.” The concept of Amazon began in 1994 when Jeff Bezos, its founder and CEO, read a study that predicted the Internet would explode in popularity. He settled on selling books online because almost every book was already catalogued electronically, yet no physical bookstore could carry them all. Bezos has a rare talent for a relentless focus on the customer, and a studied disregard for short-term pressures to show results on the “bottom line.” The original Amazon model envisioned giving customers access to a gigantic selection without the time, expense, and hassle of opening stores and warehouses and dealing with inventory. However, Bezos quickly discovered that the only way to make sure customers get a good experience and that Amazon gets inventory at good prices was to operate his own warehouses so he could control the transaction from start to finish. In its 2002 Annual Report a letter from the 1997 Annual Report was reproduced, explaining Amazon’s customer-focused philosophy in these words:
From the beginning, our focus has been on offering our customers compelling value. We realized that the Web was, and still is, the World Wide Wait. Therefore, we set out to offer customers something they simply could not get any other way, and began serving them with books. We brought them much more selection than was possible in a physical store (our store would now occupy 6 football fields), and presented it in a useful, easy-to-search, and easy-to browse format in a store open 365 days a year, 24 hours a day. We maintained a dogged focus on improving the shopping experience, and in 1997 substantially enhanced our store. We now offer customers gift certificates, 1-ClickSM shopping, and vastly more reviews, content, browsing options, and recommendation features. We dramatically lowered prices, further increasing customer value. Word of mouth remains the most powerful customer acquisition tool we have, and we are grateful for the trust our customers have placed in us. Repeat purchases and word of mouth have combined to make Amazon.com the market leader in online bookselling.
In its 2002 Annual Report, Bezos’s letter made numerous points to explain how that
vision of customer service had developed and expanded, including:
We have deep selection that is unconstrained by shelf space.
We turn our inventory 19 times in a year.
We personalize the store for each and every customer.
We trade real estate for technology (which gets cheaper and more capable every year).
We display customer reviews critical of our products.
You can make a purchase with a few seconds and one click.
We put used products next to new ones so you can choose.
We share our prime real estate, our product detail pages, with third parties, and, if they
can offer better value, we let them.
Customer experience costs that remain variable, such as the variable portion of
fulfillment costs, improve in our model as we reduce defects. Eliminating defects
improves costs and leads to better customer experience.
Many of the customer-pleasing features of Amazon’s operations are not noticed, or even known, by Amazon’s customers. These fall into the categories of technology, order fulfillment, and retailing strategies. In technology, the company’s website has been, and remains, leading edge. In an effort to serve customer needs, Amazon was one of the early pioneers to develop software for collaborative filtering of customer data. Basically, the filter is used to suggest similar or related products to a customer after he or she has focused on a product or product category. For example, if a customer browses or purchases Managing for Quality and Performance Excellence, other books in quality management would then be suggested on the viewer’s Web browser. These suggestions are based on what other readers of the text had purchased, in addition to the target text. Web features and capabilities have expanded over the years, to include features such as “look inside the book” for a chapter preview, in-store pickup of orders, shipping choices (priority vs. regular), and affinity group selections (Wedding Registry, Baby Registry, personal Wish List, etc.).
In order fulfillment, the capabilities of its high-tech warehouses continue to drive costs down, as mentioned earlier. For example, Amazon has a nearly perfect process for sorting multiple item orders. As it expands its offerings and adds more retail partners, Amazon’s fulfillment capabilities pay dividends to its partners, as well as adding revenues to Amazon. By reducing the time it takes to get all the items in an order into the sorting system, Amazon shipped 35 percent more units with the same number of people than it had in earlier years. Its retailing strategy is based more and more on partnerships with those who, in most businesses, would be considered competitors. Amazon proclaims that it seeks “to offer Earth’s Biggest Selection and to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online.” However, at any time, its competitor partners may be offering the same item through their linked websites at a different price. For example, when a book is being viewed, the web page will also permit the viewer to go to a linking web page of a partner’s book company, where the same title used (or even new) book is being sold for a lower price. Its partners include well-known retailers such as Borders Books, Waldenbooks, Waterstone, Target Stores, Lands’ End, and thousands of other lesser-known organizations, large and small. In fact, through what is called their Associates Program, Amazon.com provides a link to 900,000 websites carrying specialty items and where online auctions are taking place every day.
With millions of customers and potential customers accessing its global sites in the United States, the United Kingdom, Germany, Japan, and Canada daily, Amazon.com’s sophisticated technology allows it to build an in-depth and potentially valuable database of many of its customers. In 1999, Amazon.com experimented with a highly controversial feature on its website. It started featuring thousands of individual bestseller lists categorized by Zip codes, workplaces, and colleges—wherever its customers were ordering from. With a mouse click on its website, browsers could peek behind the scenes at the books that specific groups were reading, the compact discs they were listening to, and the videos they were watching. Amazon described it as ‘’fun,’’ happily announcing the feature, Purchase Circles, in a press release. Soon, however, citing customer complaints, the company began backtracking. Customers were allowed to opt out of having their data collected, as long as they were savvy enough to read the fine print and send an e-mail to the company. Companies could choose not to be included by sending a fax.5 Despite the controversy, Amazon .com still has Purchase Circles on its website.
12.3 Test your Knowledge (Question):
1. How does Amazon.com’s CRM software help it to gain market share and maintain its competitive advantage?
2. How are operating efficiencies realized in order fulfillment activities of Amazon.com? Will costs continue to fall, given that their warehouses are currently operating at less than 50% of capacity? (Note: This measure is expected to change over time, depending on the state of the economy.)
3. What are the customer privacy risks, besides the ones mentioned in the case, that Amazon.com must guard against in order to continue to grow its business?
Answer:
Section 2:
MGT 424
13.1 Learning Outcomes:
Recognize the importance of quality management theory, principles, and practices applied in businesses on national and international levels.
State the importance of standardization and quality standards.
13.2 Action Required: (Read)
The Case of the Missing Reservation
Mark, Donna, and their children, along with another family, traditionally attended Easter brunch at a large downtown hotel. This year, as in the past, Donna called and made a reservation about three weeks prior to Easter. Because half the party consisted of small children, they arrived 20 minutes prior to the 11:30 reservation to ensure being seated early. When they arrived, however, the hostess said that they did not have a reservation. She explained that guests sometimes failed to show and that she would probably have a table available for them before long. Mark and Donna were quite upset and insisted that they had made a reservation and expected to be seated promptly. The hostess told them,
“I believe that you made a reservation, but I can’t seat you until all the people on the reservation list are seated. You are welcome to go to the lounge for complimentary coffee and punch while you wait.” When Mark asked to see the manager, the hostess replied, “I am the manager,” and turned to other duties. The party was eventually seated at 11:45, but was not at all happy with the experience.
The next day, Mark wrote a letter to the hotel manager explaining the entire incident. Mark was in the MBA program at the local university and taking a course on quality management. In the class, they had just studied issues of customer focus and some of the approaches used at The Ritz-Carlton Hotel, a 1992 and 1999 Baldrige Award winner. Mark concluded his letter with the statement, “I doubt that we would have experienced this situation at a hotel that truly believes in quality.” About a week later, he received the following letter:
We enjoy hearing from our valued guests, but wish you had experienced the level of service and accommodations that we strive to achieve here at our hotel. Our restaurant manager received your letter and asked me to respond as Total Quality Lead. Looking back at our records, we did not show a reservation on the books for your family. I have addressed your comments with the appropriate department head so that others will not have to experience the same inconveniences that you did. Thank you once again for sharing your thoughts with us. We believe in a philosophy of “continuous improvement,” and it is through feedback such as yours that we can continue to improve the service to our guests.
13.3 Test your Knowledge (Question):
1. Were the hostess’s actions consistent with a customer-focused quality philosophy? What might she have done differently?
2. How would you have reacted to the letter that Mark received? Could the Total Quality Lead have responded differently? What does the fact that the hotel manager did not personally respond to the customer tell you?
Answer:
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