Introduction
Many firms have sought to stabilise their customer bases by focusing on service quality. Some of the earlier claims - that it might singly be a source of competitive advantage - have become more muted. Although an important part of competitive strategy, for many it has become a cost of staying in business. Not just a one off cost but a continuing competitive pressure.
The drivers on this journey have been maturing markets underpinned by
growing customer sophistication, a decline in the reach of advertising as viewing and reading habits fragment and perceived product equality.
New entrants using new technology have focused on price competition leading to a commodity marketplace.
So, service quality today is accepted as essential to corporate profitability and survival. But, how many senior managers - let alone customers - continue to be appalled by the breakdowns in service quality after all that has been done? Management advocacy, satisfaction figures in the 90’s and automated response technology are wearing thin..
It’s time to strip this issue back to the basics and look for a better smarter way of dealing with this issue. The first step is to present a first composite view of the components:-
What is Service Quality?
As a base point, the so called ‘Manufacturing Model’ defines quality as-
- conformance to requirements;
- the system for quality improvement is prevention;
- a quality performance standard of zero defects;
- the measurement of quality is the price of non-conformance.
Much of this is embedded in such schemes as BS5750 and ISO 9000. It has been taken to further heights by companies such as Motorola and interestingly Citibank who use the ‘six sigma’ specification (there is a Six Sigma Academy in Arizona!). Not exactly zero defects this targets a benchmark of 3.4 defects per million which equals 99.99% fault free activity.
Many product based companies are realising that they have to provide a service quality wrapper - not just after sales guarantees - but managing the total experience - commonly referred to as the augmented product offering. Car manufacturers are a good example with many like BMW, Ford and Rover moving down the distribution chain to engineer not just the cars but the delivery standards also. The reasons for this are self explanatory, for example:-
Figures from Toyota showed that the intent to repurchase increased from:
- 37% to 47% with a positive buying experience
- 37% to 79% with a positive service experience
- 37% to 90% where both were positive.
Service industries like banking and fast food with their essentially intangible or increasingly experiential products have been grappling with the issues for much longer. Whilst different models abound much attention has been paid to the potential dissonance caused by gaps between the customer’s expectations and their perceptions of a service encounter. Perceived quality is what customers see and is a result of comparisons between expectations and the actual service received.
The classic model - although it is not without its detractors as you would expect from academics - is SERVQUAL. This was developed by A…. Parasuraman, Valerie Zeithaml and Leonard Berry in the mid 80s. They identified a number of potential gaps in the delivery of service quality which we will look at later and synthesised the customer needs in to five key areas using the acronym ‘RRATE’:
- Reliability: ability to perform the promised service dependably and accurately;
- Responsiveness: willingness to help customers and provide prompt service;
- Assurance: knowledge and courtesy of employees and their ability to convey trust and confidence;
- Tangibles: physical facilities, equipment, appearance of personnel;
- Empathy: the caring, individualised attention provided to customers.
Subsequent researchers found this too be too limiting and, for example, a typical expanded list of factors might include:
Access Comfort Friendliness
Aesthetics Commitment Functionality
Attentiveness/Helpfulness Communication Integrity
Availability Competence Reliability
Care Courtesy Responsiveness
Cleanliness/Tidiness Flexibility Security
These 18 factors can be broadly categorised in to core (competence, functionality etc.) and relational elements (friendliness, responsiveness etc.) From a practical point of view a focus on critical incidents helps bring them in to sharper relief with the distribution and weight of these is clearly both industry and situation related - we will look at this again shortly.
What is clear is that improved service quality in itself is not enough. Convenience and accessibility, perception of rates and overall competitiveness are relevant. Linked to this also is the continuing escalator of customer expectations which do not stand still as they move from being users to clients to even guests of the supplier organisations.
Managing Service Quality Investment
Many claims are made to justify the investment in service quality. These include market share increases, better profitability, price premiums and repeat purchasing. Some optimists believe in turn it will also lead to willingness to recommend, praise, and even unwavering customer loyalty.
Others argue that the relationship between service quality is largely intuitive. However, the need to build a relationship with the end user by whatever means is an urgent prerequisite of marketing advantage in today’s environment.
Let’s essay an objective for service quality:-
‘Consistently meeting or exceeding customer’s expectations
at a price which is acceptable to customers
and at a return which is acceptable to the company’.
It is this last phrase which we will concentrate on here and which raises a number of problematic issues - amongst others:-
- Does service quality translate in to bottom line profit?
- Which customers are we targeting?
- How much service quality is enough to retain customers?
Let’s deal with these in turn.
1. Does service quality translate in to bottom line profit?
Although intuitively persuasive and despite some apparently quantitatively appealing data the jury is out on this. For example PIMS (Profit Impact of Marketing Strategies research work) suggests that relative perceived quality is more positively related to a company’s financial performance than such things as relative market share.
But detractors point to some underlying weaknesses in the research methodology used to construct the PIMS database. Another issue is the real difficulty of streaming out service quality costs which can consume 30% to 50% of sales revenue in service companies. Here it is often easier to focus on failure and inspection or compliance costs.
2. Which customers are we targeting?
Acquisition, retention and recovery are the key words here.
Whilst firms may need to acquire customers to replenish a wasting customer base or to encourage switching in a mature market, the economics of customer retention are powerful. The costs of acquisition are often difficult to quantify given the ‘spray and pray’ approach of much marketing activity. On the other hand oft quoted research suggests that, for example, in the credit card market a 5% increase in retention can increase profits by 85%.
Given that retention is the key how do we determine which customers we want to keep? Here a simple matrix - simple in concept but probably difficult to complete in practice - provides some guidance.
This fundamental segmentation is crucial as is linking this to some form of attitudinal analysis. Why? Because what is the point of recruiting or retaining customers who will not fit your chosen level of service quality? It is important to control the kind of customers that enter the service process. In this way the process can be adapted to conform to the model of a certain group of selected customers - those you most want.
This preferred model may imply some training of not just staff but customers also. Think of how we have been ‘trained’ by the banks, supermarkets and petrol companies. Customers are generally creatures of habit and it can pay to get along side them. Some observers talk about the ‘rites of integration’ - helping customers understand how they should behave and what their role is in the process. Clearly there is a trade off here - price maybe - but more importantly giving time and place control to customers.
Another key part of this is lowering customer defection rates. Zero defections of key customers must be the objective. Where behavioural databases exist
propensity modelling can be used to predict the likely leavers. In other areas hooks may have to be used to try and encourage that repeat purchase - service guarantees, loyalty cards and the such like.
Complaints are also a key warning sign. Appropriate recovery procedures, taking the problem off the customer and the right authority at the right levels are important. Some believe a well handled complaint helps cement customers. Researching exited customers provides useful data. Often though they disappear in to the night never to be seen again.
3. How much service quality is enough to retain customers?
Looking at the 18 factors we identified earlier it is possible to group them in to satisfiers and dissatisfiers but these are not equal and opposite. For example with some factors which can cause dissatisfaction like integrity and reliability (which are expected as norms) more of these does not mean more satisfaction. Other areas such as responsiveness and empathy can be very positive. An implication of this is that a great deal of responsibility and decision making may have to be left with the contact person. Additionally there is thought to be a zone of tolerance - a buffer where customers are broadly indifferent to more or less service quality investment.
Many of these breakpoints will probably be specific to the firm’s business but analysis of the factors through research could lead you to the following sort of factor distribution:-
This can be seen as a valuable precursor to considering which factors to focus attention on. It can also lead to competitive advantage if you develop a richer understanding and perhaps re-definition in industry terms of what customers value.
Uniting Customers and Staff
The concept of the positive relationship between customer satisfaction and staff satisfaction is now well understood as is its’ virtuous circle impact on improved performance:-
Recent literature has tended to concentrate on the role of employees particularly as their attitudes, behaviour and responsiveness count heavily in customer’s perceptions of satisfaction. As one MD remarked ‘you need winners at the front line not just warm bodies’.
Many understand that the ability of an organisation to reduce the size of its service gaps is directly related to their relationship with employees. Open communications, involvement in job design and standards specifications and an appraisal process that focuses on teamwork are key ingredients. If changes are viewed by staff as purely cosmetic then they are unlikely to be enacted with conviction.
Thinly veiled cost reduction exercises in the name of service quality simply increase the agitation of staff. Inevitably this agitation is conveyed to customers. Staff are in an invidious position acting as they do as ‘boundary spanners’ between the firm and its customers. As such they are potentially a strength and a weakness if the firm is not aligned internally to support the key customer interactions.
Training is a key part of this and here the news is potentially disturbing. An Industrial Society survey in 1997 said that UK employees needed more customer handling skills. A 1998 report from ISR (International Survey Research) giving the employees view on Investors in People commented:-
‘ employees in UK firms seem far less positive now than four
years ago about the link between training and improving
service quality within the organisation, with only a third
thinking that their management are doing a good job in
investing in training to achieve quality improvements’
In particular in a service quality context, frontline employees must be trained to find out what customers do and don’t like and this information must be fed up and down the organisation.
To underpin the linkage between customers and staff some companies seek customer input in to recruitment, selection, assessment and promotion. Some companies are also seeking to understand the relationships between customer retention and staff employment life cycles.
Key Enablers
Satisfaction Measurement: there is clearly a need to distinguish for the important issues how well your firm is doing over time. But what comfort can a string of figures give you particularly if nonetheless 65-85% of customers who defect say they were satisfied. Suitable customer satisfaction constructs must be designed so that total satisfaction can be graded into those who are:-
- completely satisfied
- would definitely recommend
- would definitely repurchase.
Few companies have attempted to develop an holistic view of customer behaviour linking in such areas as purchase behaviour, cross sales ratios, persistency, loyalty and new business introduced for example through member get member schemes. This needs to be further analysed by key segments. Timeliness of response is critical and here technology is helping to provide point of time exit responses. The closer to the point of delivery a complaint can be made the better.
Standards Specification: Customer service expectations must be defined in a way that is meaningful to employees and indeed it helps if they are involved in the specification process. Service guarantees are an explicit way of promoting standards and help address the issue of when and what to tell customers.
In many service industries waiting time is an issue. Uncertain waits seem longer than known finite waits and unexplained waits seem longer than explained waits. Sometimes service can be too quick - airline meals served at the machine gun pace of a fast food outlet for example. One financial service company built delays in to its loan approval process so customers wouldn’t think that proper consideration had not been given to their application.
Benchmarking: Benchmarking has been dismissed by some critics as a recipe for enduring mediocrity on the basis that over time all firms will become the same. Many companies, however, treat it seriously and if you have had a string of serial experiences in a particular area, hotels, airlines, car buying then you quite quickly build up a mental frame of reference against which you measure experiences.
Many companies who are wanting to be world class use it. BA for example benchmarks against Ford, BT and Thomas Cook. Some use a range of companies in particular areas say 3M for innovation, P & G for team working and IBM for customer satisfaction.
Gap Analysis: Earlier reference was made to a number of gaps which can exist between a firm’s perceptions and delivery of service quality versus customer’s. In summary these are:-
In a sense this provides a structure for internal research and resolution. Clearly it has an impact on how staff are able and want to perform in customer contact situations.
Internal Processes: Satisfactory service quality delivery demands a shift from a focus on organisation to a focus on process. The top down silo approach needs to be replaced by horizontal cross functional working typically through teams. This recognition of an overarching goal - that of customer satisfaction - rather than functional excellence is an intrinsic part of the learning curve.
Tongue in cheek one might consider leadership as one of the internal processes. This together with the prevailing management style is fundamental. Quite simply a high standard of service will not be given unless the whole organisation believes in it and marches to the same drumbeat.
Experience too suggests that some form of high level traffic controller is needed to oversee and structure the plethora of initiatives that will be occurring at any one time within large organisations. Given that stress is an endemic and often necessary part of organisational change it still makes sense to know whether the last initiative or plane has actually landed.
Technology: technology is an essential supporting resource for face to face service delivery - but for overall service delivery it’s just one part of the package. Its’ impact is universal:
- customer interfacing: automated self service, internet, telephone response systems;
- staff support: process support; knowledge databases e.g. product details;
- customer information systems: databases, datamarts, datamining including activity records, product holdings, service history;
- marketing management systems: in particular to support segmented direct marketing - Tesco for example sends out some 60 variations.
Market research both internally as well as externally underpins much of this activity. The ability it has to as tool to diagnose, categorise, model and proffer customer focused solutions objectively speaks volumes for its utility in the right hands as a management tool.