Over eighty percent of our economy falls into what can be loosely defined as the service sector. Owing to their labour intensity, need to cater to fickle and demanding customers and process complexity, improving performances in services requires an approach and a strategy that focuses on key business drivers. While the uniqueness of each service business belies a "one size fits all" strategy, one starting point is to identify common success traits among high performing firms. These traits focus on the customer interaction, value-based pricing, needs-based offering, and the front line employees.
This article combines the insights from our work with 'best in class' service firms as well some earlier research conducted by Frances Fei at Harvard Business School in Boston.
The customer is (usually) right
Although Customers are the life-blood of any service business, how you manage them is crucial to profitably meeting their expectations and delivering a compelling "experience." To manage customers effectively and efficiently so they return, you need to answer some key questions:
- Is sales and marketing targeting the right customer segments where you can win? A mismatch between customer needs and your value proposition is a recipe for failure
- How can we "train" our customers to quickly and effectively use our services? Poor performers often require excessive effort by the customer to understand, purchase and use the service.
- How do you exceed customer expectations at a minimum cost and brand risk?
The price is (almost) right
What and how to price services often beguiles executives. Firms must simultaneously charge a price that is competitive in the marketplace, delivers target margins given "true" costs, and that reflects the brand's positioning. The difficulty lies in collecting and analyzing the data. For example, what customer value does the firm really deliver?; what is the real cost of labour including recruiting, training, and turnover?; how do you determine your firm's productivity? and; what is the hidden cost of rework and customization. To help get the price right, 'best in class' service firms:
- Develop a pricing strategy that captures the benefits the customer receives by "experiencing" your service and then communicate it as part of the brand promise.
- Focus pricing strategies on delivering loyalty and up sells. Market experience has shown that tools like bundles and loyalty programs deliver higher profits and lower costs through the power of the experience curve and input discounts.
- Encourage the customer to perform part of the work. This allows you to deliver lower prices on the unique and core value your service delivers. As well, creating self-service elements in your value chain empowers your customers through increased control, offloads some of your costs on to them, and provides you important insights on purchasing and usage behavior.
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Service Offering – Six of one or half dozen of another
Managers often find themselves in a quandary about what is the ideal service offering. High efficiency often requires standardized services, inputs and processes. Satisfying many customers, on the other hand, complicate this goal since their diverse and fickle needs translate into a variety of custom offerings and higher complexity. A proven approach taken by service sector leaders is to design the service offering back from the customer's full slate of functional, emotional and associational needs. For example:
- Design the offering with the total customer experience and competitive differentiation in mind, not just the functional attributes they get. This encompasses areas like: convenience, packaging, point of purchase service levels, delivery model and after sales support. In addition to enjoying higher margins and price premiums, experience-oriented companies tend to have higher employee retention, premium pricing as well greater customer loyalty.
- Choose what needs to satisfy with excellence and what needs should be reprioritized or ignored. Where a firm can not profitably deliver part of the service offering, it should be scaled back or even excluded (of course, assuming it is not crucial to the buying decision). To understand the impact of needs on the service offering, Marketers must be adept at uncovering the full range of service needs for the most profitable market sub-segments.
Employees – Power to the People
Fewer business clichés ring louder than that of service firms being all about the people. Most service firms rise and fall on the skill, passion and retention of employees with direct customer contact. High performance service firms turn their front line people into strategic assets by:
- Designating the Human Resources group as a strategic business driver. Typically, successful firms direct significant investment and attention towards recruiting, training, leadership training and designing the right incentives program.
- Requiring senior management to serve as front line employees. Not only does this give management a window into job requirements and employee challenges but it also yields a better understanding of customer behaviour as well as operational flaws.
- Designing a service offering and process flow that can be effectively and efficiently delivered in a repeatable fashion by a typical employee in their given area. Not only will this improve morale, but it will likely lead to higher employee retention, fewer errors and higher system productivity.
As was the case with analyzing 'best practices' in the manufacturing world, we can now benefit from research and experiences that uncover common traits and strategies that accelerate service business performance while at the same time improving customer value.
Copyright 2007 Quanta Consulting Inc.
For additional strategic planning insights and a discussion of our relevant client experience, please contact us-
Mitchell Osak
Managing Director
Quanta Consulting Inc.
99 Bideford Ave
Toronto, ON
M3H 1K5
mosak@quantaconsulting.com
www.quantaconsulting.com
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