Managing People for Service Advantage

Service Personnel: Source of Customer Loyalty and Competitive Advantage

Customers perspective: Encounter with service staff is most important aspect of a service Firms perspective: Frontline is an important source of differentiation and competitive advantage. It is:
A core part of the product the service firm The brand

Frontline is an important driver of customer loyalty

Anticipating customer needs Customizing service delivery Building personalized relationships

Frontline in Low-Contact Services

Many routine transactions are now conducted without involving frontline staff, e.g.,
ATMs (Automated Teller Machines) IVR (Interactive Voice Response) systems Websites for reservations/ordering, payment, etc.

Though technology and self-service interface is becoming a key engine for service delivery, frontline employees remain crucially important
Moments of truth drive customers perception of the service firm

Cycles of Failure, Mediocrity, and Success

Cycles of Failure, Mediocrity, and Success

Very often, bad working environments translate into dreadful service, with employees treating customers the way their managers treat them. Businesses with high employee turnover are frequently stuck in what has been termed the "Cycle of Failure. Others ,which offer job security but little scope for personal initiative, may suffer from an equally undesirable "Cycle of Mediocrity."

However, there is potential to overcome both vicious circles and install virtuous cycles in service employment, with the latter being termed the "Cycle of Success."

Cycle of Failure
The employee cycle of failure

Narrow job design for low skill levels Emphasis on rules rather than service Use of technology to control quality
The customer cycle of failure Managers short-sighted assumptions about financial implications of low pay, high turnover human resource strategies

Cycle Of Mediocrity
Most commonly found in large, bureaucratic organizations Service delivery is oriented toward
Standardized service Operational efficiencies Prevention of employee fraud and favoritism toward specific customers

Cycle of Success
Longer-term view of financial performance; firm seeks to prosper by investing in people Attractive compensation packages attract better job applicants

More focused recruitment, intensive training, and higher wages make it more likely that employees are:
Happier in their work Provide higher quality, customer-pleasing service

How to Manage People for Service Advantage?

Staff performance involves both ability and motivation How can we get able service employees who are motivated to productively deliver service excellence?
Hire the right people Enable these people Motivate and energize your people

The Inverted Organizational Pyramid

Fig 11.11

Customer Base Top Mgmt Middle Mgmt Frontline Staff Frontline Staff

Middle Mgmt And Top Mgmt Support Frontline Inverted Pyramid with a Customer and Frontline Focus

Traditional Organizational Pyramid

Legend: = Service encounters, or Moments of Truth

Managing Customer Relationships and Building Loyalty

Why Is Customer Loyalty Important to a Firms Profitability?

Customers become more profitable the longer they remain with a firm:
Increase purchases and/or account balances
Customers/families purchase in greater quantities as they grow

Reduced operating costs

Fewer demands from suppliers and operating mistakes as customer becomes experienced

Referrals to other customers

Positive word-of-mouth saves firm from investing money in sales and advertising

Price premiums
Long-term customers willing to pay regular price Willing to pay higher price during peak periods

Understanding the Customer-Firm Relationship

Effective Tiering of Service The Customer Pyramid

Good Relationship Customers
Which segment sees high value in our offer, spends more with us over time, costs less to maintain, and spreads positive word-of-mouth?

Platinum
Gold

Iron
Lead Poor Relationship Customers

Which segment costs us time, effort, and money, yet does not provide return we want? Which segment is difficult to do business with?

Source: Valarie A Zeithaml, Roland T Rust, and Katharine N. Lemon, The Customer Pyramid: Creating and Serving Profitable Customers, California Management Review 43, no. 4, Summer 2001, pp.118142.

The Customer Satisfaction Loyalty Relationship (Fig 12.7)

Apostle
100

Zone of Affection

Loyalty (Retention)

80

Zone of Indifference
60

Near Apostle

40

Zone of Defection

20

Terrorist

0 1 2 3 4 5

Very Dissatisfied Dissatisfied

Source: Adapted from Thomas O. Jones and W. Earl Sasser, Jr., Why Satisfied Customers Defect, Harvard Business Review, November-December 1995, p. 91.

Neither

Satisfied

Very Satisfied

Satisfaction

Creating Loyalty Bonds

Strategies for Developing Loyalty Bonds with Customers

Deepening the relationship
Bundling/cross-selling services makes switching a major effort that customer is unwilling to undertake

Reward-based Bonds
Incentives that offer rewards based on frequency of purchase, value of purchase, or combination of both

Social Bonds
Based on personal relationships between providers and customers

Customization Bonds
Customized service for loyal customers

Customer Bonds by Membership and Loyalty Programs

Achieving Service Recovery and Obtaining Customer Feedback

Customer Complaining Behavior

Customer Response Categories to Service Failures

Complain to the service firm Take some form of Public Action Take some form of Private Action Complain to a third party Take legal action to seek redress Defect (switch provider) Negative word-ofmouth

Service Encounter is Dissatisfactory

Take No Action

Any one or a combination of these responses is possible

Importance of Service Recovery

Plays a crucial role in achieving customer satisfaction Tests a firms commitment to satisfaction and service quality
Employee training and motivation is highly important

Impacts customer loyalty and future profitability

Complaint handling should be seen as a profit center, not a cost center

The Service Recovery Paradox

Customers who experience a service failure that is satisfactorily resolved may be more likely to make future purchases than customers without problems (Note: not all research supports this paradox) If second service failure occurs, the paradox disappears customers expectations have been raised and they become disillusioned Severity and recoverability of failure (e.g., spoiled wedding photos) may limit firms ability to delight customer with recovery efforts Best strategy: Do it right the first time

Service Guarantees Help Promote and Achieve Service Loyalty

Force firms to focus on what customers want Set clear standards Highlight cost of service failures Require systems to get and act on customer feedback Reduce risks of purchase and build loyalty

How to Design Service Guarantees

Unconditional Easy to understand and communicate Meaningful to the customer Easy to invoke

Credible