Tag: Service profit chain

Marketing Services

Marketing services requires a different set of tools than when you market goods. This is because services are different to goods.

When Philip Kotler first defined the marketing mix, he named four criteria; Product, Price, Promotion and Place. Today we talk of the extended marketing mix adding People, Physical Evidence and Process to the mix. These are the service elements of a marketing plan. We apply the extended mix to goods because these days, very few goods are sold without additional services. You do not buy a car, you buy a car with finance, a servicing package, roadside assistance, wi-fi connectivity, a warranty and a host of other additional services.

So what makes services different from goods when delivering them to customers:

  1. Service Intangibility: Services cannot be seen, or touched, or tasted or smelled. You cannot handle a service before you purchase it. So before you sell a service to your customers you need to transmit signals which declare service quality only then can consumers define service quality.
  2. Service Inseparability: Services cannot be stored. You cannot have a warehouse filled with spare services. Customers don’t just buy a service; they play a part in its delivery. Services need provider-customer interaction. Both the customer and the provider are affected by the service outcome.
  3. Service Variability: Even the best actor has a bad performance. Services rely on people. People vary. Their mood varies. A hotel receptionist can be bright and breezy one day and in a bad mood the next. If you staff’s mood can vary, so can your service quality.
  4. Service Perishability: As stated, you cannot store services. Once a service has started, you can’t add more customers to that service. When a jumbo Jet has taken off, you cannot put more passengers on that plane. When a restaurant sitting has finished, you can’t fill those empty tables. That is why most service firms aim for 100% capacity. that is why package travel firms and budget airlines operate flexible pricing strategies.

So what strategies are suitable for the marketing of services?

The aim of service marketing strategies is to leverage the service profit chain:

  1. Develop internal service quality through training and improving service standards
  2. Create employee satisfaction. Satisfied employees leads to satisfied customers
  3. Develop greater service value
  4. Encourage increased customer satisfaction and loyalty.
  5. Leading to better levels of turnover, profit and growth.

This profit chain is an extension of the Kaplan and Norton Balanced Scorecard which has already been discussed in this blog.

There are three main aspects to services marketing:

  • Internal Marketing: You need to orientate your staff to your organisational vision and values. You need to support service providers through your admin and support staff. You need a charismatic leadership group. You need to develop a customer centred organisation.
  • Interactive Marketing: You need to develop the provider-customer interface. That means dialogue not monologue. It means involving your target customers with your organisation. This means forums, social media groups, customer events. Your customers need to be involved in the setting of your service standards. Customers need to help define your service quality. Your loyal customers should matter. They should see your organisation as having a ‘passion to serve’.
  • External Marketing: You need good external marketing as you would if your business was supplying goods.

It is often difficult to differentiate services in the market place. How do you differentiate a boiler service, or a haircut, or a restaurant meal, from the offer of your competitors?

But to stand out in the marketplace, you need to differentiate your offer, how it is delivered and your corporate image.

By providing innovative service features, you can differentiate yourself from the competition. For example, the Japanese restaurant chain, introduced sushi conveyor belts into the UK, a new way of delivering food to UK diners. Others have tried to install self-service beer taps (and faced issues with UK licensing laws). Cinemas introduced ‘bonkettes’ and leather arm chairs. One of my favourite cinemas re-introduced the intermission and bar service at your seat. Tyre fitters and vehicle valets began mobile services where they come to your home or place of work to di car maintenance. Services can be differentiated through the physical evidence of your brand e.g. logos, brand statements, etc.

It is important when delivering services that you aim for consistent service quality. Service standards and their communication are critical. You should aim for consistently higher standards than your direct competitors. Your target customers must drive your service quality. So customer feedback and retention statistics are crucial measures of service standards. You should strive for zero defects. A service standard of 98% sounds good, but if Royal Mail operated at such a target, that would be millions of misdirected parcels and letters annually. One of the most reliable services in the world is the Mumbai tiffin tin lunch service, where Indian office workers have a homemade lunch delivered in a stacked series of tins. If the tiffin service can use the Indian railway system and porters with little or no modern technology; and achieve staggering levels of service quality; so can you.

It is also important to have good service recovery processes. On the odd occasion something goes wrong, you need to be able to reinvigorate the customers trust in your brand. You need more than an apology. You need to explain what has gone wrong and how you intend to put things right. You need to offer suitable compensation including gifts and discounts off future purchases.

You need to continually improve service productivity. This means staff training, recruitment processes and your technology needs to continually improve. Marginal gains are important. Often small changes in service efficiency leads to big increases in productivity and customer retention.

But don’t push productivity so hard it harms service quality. The more you rush staff, the more work you pile on their plate, the more likely service standards will slip. It is amazing how often efficiency drives and cost-cutting backfires. Rather than improving productivity you harm service provision and your brand promise.

the aim of productivity changes should be to create customer value and so, once again, tools like value chain analysis are useful.

Why Customer Service Matters – The Service-Profit Chain

A few years ago, I was reading an article by the motoring journalist Jeremy Clarkson about why he changed the format of the television programme Top Gear from one of journalism to one of entertainment.  One of the reasons he gave was that aerodynamics and mass manufactured components meant that many mass market cars were all but identical. To review these cars often meant focusing in minor details whilst over all performance was all but identical across the market.

So if products across a market are increasingly a homogenous mass, how do you differentiate your offer from that of your competitors. Increasingly service has become the prominent source of differentiation in developed economies.

Customer service, before and after purchase is an increasingly important part of a differentiation strategy.  When Kotler defined the marketing mix for goods, he included only 4 ‘Ps’.  Other marketing academics extended Kotler’s model by adding three more ‘Ps’: People, Process and Physical Evidence; but only in relation to services.

Today, all firms, both those who produce and supply goods, and those in service industries, need to develop a marketing mix which includes the service elements of the extended 7P marketing mix.

There is logic in making customer service matter in your organisation:

  1. Satisfied employees provide better customer service quality.  Satisfied employees stay longer in your organisation and they are more productive. they become more knowledgeable and are more committed to the goals of the organisation.
  2. Service quality is noted by customers and customer satisfaction is increased.
  3. Customers become more loyal and are ‘stickier’, they stay longer with your offer and its is harder for your competitors to prise them away.
  4. Loyal customers are more profitable.  The longer you keep a customer, the more you earn from them. Loyal customers spend more.  They cost less to serve and to promote to.  They are less likely to leave on the basis of price.
  5. There is a positive feedback loop: As employees become further satisfied, this reinforces customer satisfaction.

Developing strong customer service which is closely linked to your brand and corporate identity doesn’t just differentiate your company from your competitors, it is a source of improved revenues at reduced risk.

Kaplan and Norton, when they developed the Balanced Scorecard were thinking along these lines.  Remember, they directly linked:

  1. Better company learning and innovation; to
  2. Better systems and internal processes; to
  3. Better customer results: to
  4. Better financial returns, and those returns could be invested back to:
  5. Better company learning and innovation.

This leads us to the five dimensions of Servqual, the quality assurance system focused on reducing cognitive dissonance in the processes of interaction between an organisation and its stakeholders:

  1.  Reliability:  Your ability to provide services dependably and reliably.
  2.  Responsiveness:  Your willingness to help customers and other stakeholders.  Your willingness to act promptly.
  3.  Assurance:  Customers know you have knowledgeable and courteous staff who inspire trust and confidence.
  4.  Empathy:  You provide caring, individualised attention to stakeholders
  5. Tangibility:  Your service standards are reflected in the physical attributes of your facilities, equipment, and the appearance of your staff.

Running a successful business today is more than maximising profit margins or increasing manufacturing output.  You need a holistic view of your market and your organisation.  You need to improve service in a way which individualises your organisation and which differentiates your business from that of your competitors.  Bad customer service is far more likely to lead to loss of business and company failure that other factors.

 

 

Customer Service – Why it Matters

I have spent the vast majority of my career working in the field of consumer protection and trading standards.  As a result I have dealt with literally thousands of consumer complaints relating to poor customer service.

Marketing is about developing a customer-focused organisation.  Therefore developing strong customer service capabilities is crucial to commercial success.

Customer service is critical to the development of successful strategic marketing processes.  The development of strong customer service policies and procedures are critical to the development of a strong brand image.

We live in a world where the core of a product offering is becoming increasingly commoditised.  If you are seeking to add value to your core products and you wish to differentiate your products from those of your competitors, product halo elements such as the development of differentiated and strong service elements is a prominent option.

Previously in this blog I have discussed the work of Treacy and Wiersema.  In particular, the three potential strategies for excellence, Product focus, Managerial Excellence and Customer Intimacy.  Managerial excellence is an inward looking strategy and developing excellence in product focus can be expensive and risky.  Therefore for many firms, particularly SMEs, the development of customer intimacy through the development of excellent customer service provision is critical to success and growth.  Developing excellence in customer service is critical to the creation of customer intimacy.

In his book, Marketing Plans, Professor Malcolm Macdonald describes the service profits chain; how the development of strong customer service strategies can be central to the growth of a firm’s profitability:

  1.  Employee Satisfaction:  Satisfied employees provide better service quality. If you have satisfied employees, you have less staff turnover.  This means your staff are better trained and more knowledgeable about your products and services.  Satisfied employees are more productive.  Satisfied employees have a greater commitment to the company and they present themselves better.
  2. Improved Service Quality:  Satisfied employees provide better quality service which leads to greater customer loyalty.
  3. Service Quality:  If you have satisfied employees you have better service quality.  Customers exhibit greater satisfaction with your brand.  They buy more.  They buy more often.  They are retained for longer.  The exhibit greater loyalty.
  4. Customer Retention:  Increased customer loyalty leads to greater customer retention.  This creates an opportunity to increase profitability.  Loyal customers are less likely to switch to your competitors simply because of a change in price.  They are willing to spend more as they have familiarity with your products and processes.  Loyal customers cost less to serve.  They can offer opportunities to lower marketing costs through lower promotional budgets than those required to gain new customers.  The longer a customer stays with your firm, the greater their lifetime value.  Customer retention also creates greater shareholder value through improved revenues and reduction in risk.
  5. Positive Feedback Loop:  Satisfied customers treat staff better.  They develop a positive relationship with your employees and with your brand.  There is a positive correlation between customer satisfaction and employee satisfaction.

I see a parallel between the positive feedback loop of the service profit chain and the feedback loop of the balanced scorecard developed by Kaplan and Norton. The theory of the balanced scorecard is that improved organisational learning leads to better internal processes; better internal processes leads to better customer service; better customer service leads to improved financial performance and in turn, better financial performance means that you can invest more in improving your organisational learning and development.

Macdonald outlines five dimensions of service quality:

  1. Tangibility:  This is closely linked to the physical evidence elements of your marketing mix.  Good service quality is linked to the physical equipment used by customers and to the appearance of your staff.
  2. Reliability:  Quality service provision must be performed dependably and accurately.  It must be accurately repeated.
  3. Responsiveness:  You must show willingness to help your customers and you must serve their service needs promptly.
  4. Assurance:  Your staff must be knowledgeable and courteous.  They must have the ability to inspire confidence amongst your customers.
  5. Empathy:  Your employees must care about customers concerns and offer them individual attention.  They must show that customers concerns are important to them.

These five dimensions of service quality are critical if you are following the principles of SERVQUAL.

Today, it is often said that consumers, in particular the incorrectly defined market segment ‘millennials’, buy experiences not goods or services.  Consumers now want products which are engaging, robust, compelling and memorable.  Customer experience goes beyond the development of service.  To develop quality experiences, you need to go beyond exceptional service quality.  You need to recognise:

  1.  Usage Processes:  This is how customers access  and use your goods and services. Usage processes influence how your customers think about your firm.  Their concept of product value develops through their use of your goods and services not at the factory gate.
  2. Peer to Peer Interactions:  The interactions between your customers are important.  They are an important part of developing robust experiences.
  3. Relationships:  Too many satisfaction/service quality services erroneously focus on individual customer transactions and encounters.  they do not examine longer term relationships over time and across multiple transactions.
  4. Brand Image/Communication:  People don’t own an iPhone or a BMW because of their functionality.  They own them because those products make a statement about the owner.
  5. Emotions:  Customers are not entirely rational.  Emotions have a big effect on their relationship with a firm and their rating of the experience you offer.

When developing a marketing plan, you need to be cognisant of customer service needs and concerns in each of the above areas.