Service Excellence in Organizations, Volume II: Eight Key Steps to Follow and Achieve It 1949991172, 9781949991178

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Service Excellence in Organizations

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Eight Key Steps to Follow and Achieve It, Volume II

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Service Systems and Innovations in Business and Society Collection Jim Spohrer and Haluk Demirkan, Editors

Fiona Urquhart This book explores the basic tenets of service excellence, opening to distinguish customer service from service excellence, and explore the driving aspects of strategy and philosophy. The brand promise to customers creates expectations; hooks targeted and segmented customers into a relationship. Service operations deliver expectations, delight, or on occasion, disappointment, and marketing responds to create loyalty, further delight, or recover the relationship. Freshness of product or service offering, the injection of a characterful sense of fun, and sensitive personalization of service combine to deliver an authentic, pleasurable and memorable service experience prompting much sought loyalty and advocacy. In turn, staff are happy, profits rise and the organization has longterm sustainability. The first volume offers some theoretical background, while the second suggests mechanisms, tools, and techniques to help embed to excellence as the foundation of value that the organization delivers. Both contain practical examples and a self-assessment diagnostic tool to identify organizational areas of strength, and aspects to improve. Fiona Urquhart, MBA, FCIM, FIC, after a retail grounding with the John Lewis Partnership, Fiona gained an MBA from CASS Business School. She leads Durham University’s MBA module on service excellence, having previously taught for the Open University. She developed AC Nielsen’s EPOS based research service, Scantrack, and a pilot EFTPOS service for retail clearing banks. Fiona provides consultancy to diverse service and manufacturing companies, and does charitable work. She supports service excellence projects and training at various corporations, making use of problem based learning to create practical learning situations and encourage reflective learning. She has delivered a series of interactive workshops for several European universities to research PBL in the context of entrepreneurial learning, and will present her findings at a number of global conferences. You can see more about Fiona here https://www.linkedin.com/in/fionaurquhart1/

Service Systems and Innovations in Business and Society Collection Jim Spohrer and Haluk Demirkan, Editors ISBN: 978-1-94999-117-8

SERVICE EXCELLENCE IN ORGANIZATIONS, VOLUME II

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Service Excellence in Organizations Eight Key Steps to Follow and Achieve It Volume II

Fiona Urquhart

Service Excellence in Organizations

Service Excellence in Organizations Eight Key Steps to Follow and Achieve It Volume II Fiona Urquhart

Service Excellence in Organizations: Eight Key Steps to Follow and Achieve It, Volume II Copyright © Business Expert Press, LLC, 2019. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means—electronic, mechanical, photocopy, recording, or any other except for brief quotations, not to exceed 400 words, without the prior permission of the publisher. First published in 2019 by Business Expert Press, LLC 222 East 46th Street, New York, NY 10017 www.businessexpertpress.com ISBN-13: 978-1-94999-117-8 (paperback) ISBN-13: 978-1-94999-118-5 (e-book) Business Expert Press Service Systems and Innovations in Business and Society Collection Collection ISSN: 2326-2664 (print) Collection ISSN: 2326-2699 (electronic) Cover and interior design by Exeter Premedia Services Private Ltd., Chennai, India First edition: 2019 10 9 8 7 6 5 4 3 2 1 Printed in the United States of America.

Dedication This book is dedicated to Dr. Don Watts, a beloved friend, an inspirational teacher, and the first person who made me love learning. His field of academic study was a long way from mine, but he captured my imagination and gave me the greatest gift—belief in myself. Sadly, he died a week before I completed the book, but his memory lives in the book and in my heart. Managing the end of a product’s life is important to keep loyal customers feeling they are valued by the organization, by offering them alternative solutions.

Abstract This book is structured in two volumes. Volume I deals with the basic tenets of service excellence, while Volume II suggests mechanisms, tools, and techniques to help embed to excellence as the foundation of value that the organization delivers. Both contain practical examples used by some of the companies we know and love; both also contain a self-assessment diagnostic tool that enables organizations to identify where they have built significant strengths in terms of service excellence and where opportunities to enhance their operations exist. This second volume of the book focuses on approaches that will embed excellence, promote loyalty and advocacy, and ensure freshness of a product or service offering. These are all aspects that help to deliver sustainability for the organization, representing some of the robust strategies available to organizations, building on earlier robust strategies of outside-in thinking, branding, segmentation, quality, and trust building explored in the first volume. The first chapter explores ways in which drama and excitement can provide a more rewarding role for staff, resulting in added value and relevance for the customer, and helping cement the relationship, and promote loyalty. The second chapter explores the shift from transactional marketing to relationship building and ways in which this can be made part of the genetic make-up of the organization, rather than a top dressing. The final chapter considers how innovation in products and services, but also in systems, can ensure that the organization maintains its relevance for staff and existing customers, whilst also presenting them with new and exciting alternatives.

Keywords customer delight; brand engagement; service drama; servicescape; customer activity cycle; brand authenticity; customer relationship management; loyalty; advocacy; partnering; customer lifetime value; touchpoints; product/service lifecycle; change drivers; innovation; design thinking; ­service development; service blueprint; service dominant logic

Contents Overview����������������������������������������������������������������������������������������������xi Chapter 1 Energize, Excite, Elate�������������������������������������������������������1 Chapter 2 Embed����������������������������������������������������������������������������25 Chapter 3 Extend����������������������������������������������������������������������������65 About the Author��������������������������������������������������������������������������������113 Index�������������������������������������������������������������������������������������������������115

Overview This second volume addresses the way in which an organization that has established itself with sound principles of excellence can extend this to the mutual benefit of the customer, themselves, their supply chain, and the wider community by going beyond adopting excellence in service, into ensuring that a passion for service is the dominant logic for the entire business, so that it is truly embedded into the business model. Chapter 1 focuses on how outstanding service can add value to whatever the product or service offering of the organization may be, and how the environment, customer roles, and the team contribute to that service offering. Chapter 2 explores how loyalty creates mutual benefit, and value to all stakeholder groups. The final chapter considers the role played by innovation, and effective management of the product life cycle, including discontinuation or phasing out.

CHAPTER 1

Energize, Excite, Elate Chapter Objectives • To outline the role repeat business plays for company, staff, and customer, and its link to service excellence • To offer frameworks for continuing brand engagement • To suggest techniques to deepen the customer relationship • To introduce ways of keeping the brand fresh and exciting for the customer • To offer suggestions for bringing joy to customers, and ­making them feel that the organization has gone the ­proverbial extra mile • To consider the excitement offered by new technologies

Chapter Profile Repeat business is the lifeblood of any organization, and also the most profitable business the organization does, as the staff know the customer, and the sale reinforces the relationship, rather than having to start the relationship as with a first purchase. Engaging the customer over time needs to be based on the quality of the relationship, rather than merely the quality of products or s­ ervice. This chapter will explain how drama can play a role in the customer experience, making it memorable, and drawing customers back repeatedly. It  will also explore how engaging staff creates the sort of climate and ­culture that encourages staff to go the extra mile, and truly engage the hearts and minds of customers. Key areas addressed in the chapter include the following: • How drama can make the customer experience memorable • Drawing customers back again and again • Keeping your service fresh and relevant to customers’ needs

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• Energizing staff to enjoy the customer experience • Anticipating and responding to changing customer needs/environment • Connecting with your customers at point of purchase • Turning customers into advocates • Inspiring customers by jumping into their activity cycle • Building trust through authenticity • Turn complaints into committed and delighted customers

The Importance of Repeat Business Many businesses focus on winning new business, rather than servicing existing clients, but this is misguided and counter to service excellence. Looking after repeat customers is more cost-effective than chasing new ones; you might have to spend thousands on marketing and customer research to win new clients, but, for existing customers, the hard work is already done. As they come back time after time, their trust rises, and they buy more, boosting the value of their purchases. A repeat customer may become an ambassador for your brand, spreading the word about your company among their friends, family, and supply chain. There are 10 simple ways you can maximize the value of your existing client base, and cash in on the work you did to entice them in the first place. Here are the top 10 ways to get repeat business: 1. Get it right first time If you don’t get it right the first time you sell to a particular customer, they won’t buy from you again, so a great first impression is crucial.   With a first-time customer, make sure every little detail is dealt with as professionally as possible. Handle all correspondence in a formal language, with a personal greeting on each e-mail, and assign a specific member of your team (if you have one!) to deal with the customer, so they build up a rapport and provide a clear point of contact.   If you are to deliver something, keep the customer informed of every development in the delivery process, and, if the product or service you’re selling is particularly complex, offer proactive advice to



Energize, Excite, Elate 3

help the customer understand it. A week after the product has been delivered, phone or e-mail the customer to ask if they’re happy with it. 2. Spend money on after-sales support This may seem slightly basic, but it’s not; many companies put all their eggs in the presale basket and don’t spend any time or money on ensuring the customer is happy after they buy.   If you’re handling after-sales support yourself, make sure you treat each request as urgent and aim to respond the same day. If you have staff handling after-sales for you, give them clear deadlines for responses, and brief each of them on all your products, so they can give the customer real insight. 3. Keep customers’ details on file Again, this might sound obvious, but you’d be surprised how many firms fail to keep accurate records for the customers they sell to.   Create a contacts log book for all your customers. For each one, include the following: • • • •

The name of the person you’ve dealt with Their personal phone number and e-mail address Full postal address details A brief description of what they’ve previously purchased from you • Details of any feedback they provided—if they liked a particular aspect of the product/service, you can use this as a reference point for future business. • Any personal information you think relevant—if you think their age, gender, budget, company progress, personal background, or buying preferences will make a ­difference to the products they buy in the future, keep a note.   Alternatively, you might think about investing in customer relationship management (CRM) software. This can be expensive and may be beyond the budget of a startup business, but it will create permanent electronic records for each of your customers and organize your customers into clear groups. There are even some free ones available now!

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Service Excellence in Organizations

4. Tailor your alerts Use the information you’ve stored in your contacts book, or CRM software, to deliver relevant, targeted alerts on each new product or service.   Don’t just send out a blanket mailshot to all your existing ­contacts. Make sure you only send information on new products to ­customers who have bought similar things from you before and have the resources to purchase this new item.   If possible, create tailored e-mails for each individual customer, explaining why they’ll like your new offering. Mention their previous purchases, and the specific benefits the new product or service will bring to their business or personal life. 5. Maintain contact Although product/service alerts are often effective, many customers will think repeated sales pitches are intrusive and annoying, so intersperse your pitches with relevant, objective information.   Ask them for feedback on the product/service they originally bought from you; direct them to a particular news story, or that might be of general interest or simply ask them how they and their business are doing. 6. Think about special offers By offering, say, a 10 percent discount or a three-for-two offer to existing customers, you’re demonstrating to them, and the wider world, that your company really values the people who buy from it.   Also, think about offering free trials of new products/services to your existing products—even if they don’t choose to buy what they try, they’ll be pleased you’ve thought about them. 7. Add little touches Think about little ways you can recognize existing customers, and show them their business matters to you.   You might wish to send a handwritten letter, thanking them for their custom; alternatively, consider sending a small gift, such as flowers or chocolates or something from your product range, or a voucher; if you have a shop, try inviting clients to an out-of-hours party; or, if you have tickets for an entertainment event, invite them along.



Energize, Excite, Elate 5

8. Increase your profile The more visible you are in your locality, the more people will trust you—and the more likely people are to buy from you repeatedly.   Make sure you join a local trade body, donate or volunteer for local charities, and organize networking events. Nothing should be too much trouble—if it elevates your profile, it’s worth doing.   Badge your vehicle, and park it strategically, so that people see you as a part of their world. 9. Maximize your online presence In addition to creating a top-notch website, you need to think carefully about utilizing the online space. Here are some things you can do: • Create a forum on your website, so customers can report any problems or ask questions about what they’ve bought and make sure you monitor it actively. • Create an online newsletter, and invite your customers to sign up—so they can receive news about your business. • Encourage user generated content. both on your own ­platform, but alos selected other relavant ones such as ­Tripadvisor for reestaurants, hotels and tourist venues. • If you are in B2B, link to your customers’ websites—this will boost your own search engine ranking, and create a clear bridge between you and your clients. • Use social media—follow your customers on Twitter, or add them as a friend on Facebook. 10. Keep re-evaluating Even if you give each client the red carpet treatment, they might still ditch you if they can find a cheaper, or better, product elsewhere.   Keep a constant eye on your competitors—the way they change their prices, their offers and discounts, and the products they bring to market. Never, ever take your existing customers’ loyalty for granted.   Rather than drop prices to meet competition, can you add value in a way that is meaningful for customers?

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The Role of Drama in Service Provision Staff in service environments often say they feel like frustrated actors and actresses, seeking an audience for their performances. From a c­ ustomer perspective, to be served by a member of staff who clearly enjoys a bit of drama and interaction brings life and meaning to the experience. Pike Place Fish Market in Seattle has made drama such an element of its service that it has become a tourist destination in its own right. Staff engage customers creating drama by throwing fish between themselves, or using the fish as puppets and generally having fun while they work, to the benefit and delight of customers who come along to watch the spectacle. Services and drama have many shared elements. Both are concerned with the tactics and strategies employed by people to create and sustain desirable impressions before an audience. Both, also, suggest that one way to achieve this is by careful and prudent management of the actors’ expressive behavior and the physical setting in which it occurs. (Grove 1992) The Servicescape For a drama performance, the scenery creates an atmosphere that influences the audiences’ attitude; so too the servicescape or retail environment provides a context against which service delivery takes place. Retail atmospherics, which includes store décor, store layout, background

Figure 1.1  Hard rock café, Istanbul



Energize, Excite, Elate 7

Figure 1.2  Orvis store using props to transport customers to where they will use the products sold 1. Package: • The servicescape’s key job is to convey an external image of what the brand promises consumers. It is the outward appearance of the organization and forms initial impressions and customer expectations. • This role is particularly important for new customers and for newly established service businesses trying to build a particular image.

2. Facilitator: • The servicescape can facilitate the performances of staff and customers. The design can enhance or inhibit the efficient flow of activities in the service setting, enabling or hindering customers and employees to accomplish their goals.

3. Socializer:

4. Differentiator:

• The servicescape can promote socialization of both employees and customers by conveying expected roles, behaviors, and relationships. New staff take cues from the way the organization presents itself. • A well-designed environment suggests to customers how to relate to employees, what parts of the servicescape are for them, and which are for employees only, what behaviors and what types of interactions are expected.

• The physical environment is a powerful tool that can enable a brand to connect effectively to its target audiences, and chosen market segments, as well as create a distinctive persona that stands out from other brands in the marketplace. • Within the same servicescape, differences in service level can be expressed through subtle differences in design to indicate, for example different dining options within a hotel.

Figure 1.3  Four roles of the servicescape

music, merchandise displays, and point-of-sale materials play a huge role in putting the customer in the right frame of mind for receiving a service. Figure 1.1 shows how Hard Rock Café uses this in their Istanbul outlet; the lighting, and rock-star costumes make the customer feel as though they are at the center of a performance created for their exclusive benefit. Orvis are using props, such as a rowing boat to transport their ­customers to the locations in which they might use the fishing rod, ­waders, and so on that are offered in the merchandise selection. The use of wood also suggests links to the natural environment in which hunting, shooting, and fishing enjoyed by their target market takes place.

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Service Excellence in Organizations

The servicescape plays many roles simultaneously. Essentially, it gives physical evidence of the service, and this is an important element of building trust in the customer relationship.

The Actors: Staff and Customer Roles in Service People, whether staff or customers, are an element of the marketing mix too, and require planning and management if they are to contribute ­effectively to the service process. Staff In a service environment, unless it is highly automated, the staff are themselves the means of service delivery, and represent the organization from the customers’ perspective. In many ways, they embody the brand, and much of the marketing communications message conveyed by the organization comes from the type of staff it employs. The attitude, enjoyment, and enthusiasm expressed by staff is a major component in creating the customer experience. Hence a large part of the role of a service manager is to create an environment both physically and emotionally that can free staff to deliver a sensitive and characterful service. Selecting staff that align with the target customer group can promote harmony, and recruiting staff for an attitude that focuses on customers is likely to produce a favorable engagement and the basis for an enduring relationship with customers. Company (Management)

Internal marketing enabling promises

Employees

External marketing setting promises

Interactive marketing keeping promises

Figure 1.4  The service marketing triangle

Customers



Energize, Excite, Elate 9

Effect of Employees’ Behavior on Service Quality Customers’ perceptions of service quality are affected by the level of ­customer-oriented behavior they see in employees. Although this is hard to assess, evaluations using the RATER model of service quality can be influenced by service employees’ attitudes and behavior. Reliability: Ability to perform the promised service dependably and accurately Assurance: Knowledge and courtesy of employees and their ability to convey trust and confidence Tangibility: Physical facilities, equipment, and appearance of p ­ ersonnel Empathy: Caring and individualized attention the firm provides its customer Responsiveness: Willingness to help the customer and prompt service Although not included in the original model, “sustainability” and “resilience” might be added. The world has moved on considerably since 1985 when this model was proposed by Parasuraman, Zeithaml, and Berry; we have seen pressure on natural resources, damage to the environment, natural disaster, and man-made disaster. Sustainability offers an evaluation of the organization’s harmony with environment, and ­Resilience indicates the organization’s capacity for springing back after a natural disaster. The Federal Emergency Management Agency (FEMA) in the United States uses “Waffle Houses” reopening as a measure of recovery speed after natural disasters. In event of natural disaster, the Waffle House Index, or test, uses the operating conditions of the resilient Southern restaurants as a barometer for how well an area will recover from a hurricane, tornado, or other hazards. The test indicates how quickly a business might rebound, but also how the larger community is faring. When restaurants, grocery and corner stores, and banks can reopen, local economies can start generating revenue again. Frontline service employees link external customers and the external environment with internal operations of the organization, acting as boundary spanners. Boundary spanning positions are often high-stress positions, demanding extraordinary levels of emotional labor and an ability to handle interpersonal and interorganizational conflicts. The term emotional labor refers to work that exceeds the physical or mental skills needed to deliver quality service. This includes friendliness, making eye

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Service Excellence in Organizations

contact, engaging in friendly conversation, empathizing, and so on. Clearly, these are all key elements in making customers feel valued and that they have had an outstanding service encounter. Boundary spanners are important for organizations because they help: • • • • • • •

Improve knowledge management Increase external visibility Provide internal coordination Resolve conflict Build trust Speed decision making Uncover new possibilities.

The servant leadership model is especially relevant in such environments, as it acknowledges this, by giving frontline staff the authority to make decisions relating to customers and complaints in a meaningful way, promoting long-term customer relationships, based on trust, reliability, and commonsense. The difference manifests itself in the care taken by the servant-first to make sure that other people’s highest priority needs are being served. The best test, and difficult to administer, is: Do those served grow as persons? Do they, while being served, become healthier, wiser, freer, more autonomous, more likely themselves to become servants? And, what is the effect on the least privileged in society? Will they benefit or at least not be further deprived? -Robert K. Greenleaf

Roles and Competencies for Boundary Spanners Reticulist

• Networking
• Managing accountabilities
• Appreciates different modes of governance • Political skills and diplomacy

Entrepreneur

• Brokering
• Entrepreneurial
• Innovative and creative • Tolerates risk

Interpreter

• Interpersonal relationships
• Communication, listening, and empathizing • Framing and sense making
• Building trust
• Tolerance of diversity and culture



Energize, Excite, Elate 11

Boundary spanners are also referred to as T-shaped people, describing their dual characteristics. The vertical stroke of the “T” represents depth of skill facilitating contribution to the creative process in a variety of capacities from design to engineering. The horizontal stroke of the “T” addresses collaboration across disciplines and comprises two things. First, empathy, which essentially allows people to imagine the problem from another perspective. Second, enthusiasm about other disciplines, to the point that they may begin to adopt them. T-shaped people offer depth and breadth, and can as a consequence, be highly adaptable to new situations. Customers Some level of customer participation is inevitable in service delivery, because services are actions or performances, typically produced and consumed simultaneously. In many situations, employees, customers, and others in the service environment interact to produce the ultimate service experience. As the customer receiving the service participates in the service delivery process, he or she can contribute to the possible gaps in the service through appropriate or inappropriate, effective or ineffective, productive or unproductive behaviors. When customers are uncertain of their needs, they can soak up the customer service representative’s time seeking advice. Similarly, shoppers who are not prepared with their payment details can “put the conversation on hold,” while they search for their cards in another room or even to their cars to get them. Meanwhile, other customers and calls are kept waiting, causing potential dissatisfaction. Participation in Service Delivery The level of customer participation—low, medium, high—varies across different services. In some cases, participation is low, requiring just the customer’s physical presence, with the service production work carried out by employees, as in case of a theater production or musical concert; the audience must be present to receive the entertainment service.

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Service Excellence in Organizations

High touch (People intensive)

High tech (IT and resource based)

Continuously rendered services

Lots of opportunities to develop good customer relationships

Few opportunities to recover mistakes made

Discrete service

Hard to create a relationship customers value

Tends to be transactional but benefits from the relationship approach

Table 1.1  Framework for classifying services (Urquhart adapted from Grönroos 2011)

In high-involvement cases, such as hairdressing, or education, consumer inputs are an essential component in creating the service d ­ elivery. ­Grönroos ­categorizes services as high tech, and high touch, and each ­category needs particular understanding and sensitivity to design an ­effective ­customer experience. Customer inputs may include information, effort, or physical possessions. Hairdressing requires information, such as customer preferences for ease of care, and lifestyle, and the commitment to spending time. Accounting services use all three to prepare a client’s income tax return effectively. Information in the form of income data, tax history, m ­ arital status, and number of dependents. Effort in putting the information together meaningfully. Physical possessions involve expenditure receipts and past tax returns. Longer term consulting engagements frequently involve ­ customers as co-creators. Increasingly, as more d ­isposable income is spent on experiences, rather than possessions, co-creation will feature highly in service delivery, and it needs to be managed effectively so that customers’ data is effectively protected, and they do not feel they are exposing themselves to potential reputational or financial risk. True customer engagement works at multiple levels, engaging hearts and minds, and predicting environmental trends so that marketing ­interventions are wholly relevant to each target segment. This maps on to the wheel of consumer analysis proposed by Peter and Olsen, which identifies the interplay between cognition, affect, and consumer environment as determinants in consumer behavior, and sees marketing strategy interacting with all three in a reciprocal arrangement. This is shown on the following Figure 1.5.



Energize, Excite, Elate 13

Affect

Cognition

Marketing strategy Marketing environment Figure 1.5 The wheel of consumer analysis, adapted from Peter and Olsen

Customer’s Roles Part of the Productive Process Service customers may be seen as “partial employees” of the organization; a human resource playing a role in the organization’s productive capacity. If they contribute effort, time, or other resources to the service production process, they should be considered as part of the organization. In consultancy projects, they will often be given access to a shared platform for the project, promoting transparency and inviting involvement. Poor quality or insufficient customer inputs can reduce the organization’s productivity. In the consultancy environment, customers who get better service can • • • • •

provide needed information in a timely manner; clearly articulate the problem they are experiencing; communicate openly; gain the commitment of key internal stakeholders; and raise the issues during the process before it is too late.

Customers as Quality Contributors to Service Delivery and Satisfaction Another role customers play in service delivery is that of the contributors to their own satisfaction and the ultimate quality of the services

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Service Excellence in Organizations

they receive. Customers may care little that they have increased the productivity of the organization through their participation, but they likely care very much about whether their needs are fulfilled. Effective customer ­participation can increase the likelihood of success in meeting their needs, and that the benefits the customer seeks are attained. In delivery of services such as health care, education, personal fitness, and weight loss, the service outcome is highly dependent on the customers’ participation; unless the customers perform their roles effectively, the desired service outcomes cannot be achieved. Research has shown that in education, active participation by students—as opposed to passive listening—increases learning the desired service output significantly, yet students who fail to attain their desired grades as a result of inability or lack of application often feel let down by the service provider. They feel that as customers, they are entitled to the qualification, rather than having to earn it. University staff have the ­additional responsibility of maintaining standards in their gatekeeper role for the organization, so need to manage student expectations. Customers as Competitors A final role played by service customers is that of a potential competitor. Self-service customers can be viewed as resources of the firm, or “partial employees.” They can partially perform the service or the entire service for themselves and may not need the provider at all. Customers in a sense become competitors of the companies that supply the service. Whether to produce a service for themselves (internal exchange) or have someone else provide home services for them (external exchange) is a common dilemma for consumers in fields such as child care or home maintenance. More commonly, similar internal versus external exchange decisions are made by organizations. Firms frequently choose to outsource service activities such as payroll, data processing, research, accounting, maintenance, and facilities management. They find it advantageous to focus on their core businesses and leave these essential support services to others



Energize, Excite, Elate 15

Figure 1.6  The action: Service scripts Source: Co-creation of service outcomes adapted from Hubbert (1993).

with greater expertise. Alternatively, a firm may decide to stop purchasing services externally and bring the service production process in-house ­(Figure 1.6).

Follow the Fish Principles Visiting Seattle in 1997, John Christensen, owner of ChartHouse Learning, observed fish sellers at Pike Place Fish Market, tossing trout and salmon through the air and energizing passers-by. Staff gave their complete attention to each customer and ensured every visitor enjoyed the show. Christensen saw that selling fish was repetitive, cold, and exhausting. He also saw that despite these negatives, the fishmongers chose to bring joy to how they approached their jobs and sold a lot of fish. He and his team made a film and wrote several books and identified four simple practices that work in any environment. The four concepts of choosing your attitude, play, make someone’s day, and be there have the power to kick-start a culture of positivity, creativity, and fun, and combine to make The Fish! Philosophy (Figure 1.7).

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Service Excellence in Organizations

Be there

Choose your attitude

Make someone's day

Play

Figure 1.7  Fish! principles

Choose Your Attitude We all choose our attitude but often without much thought. A positive choice to create a good impact by being an enthusiastic and reliable person who puts the individual in control. For each person, this may involve: • • • • •

Writing a reminder of your attitude Checking your attitude throughout the day Planning ahead for situations that test your attitude Listing what you’re grateful for Looking for examples of the best.

Play We spend a great deal of time at work and making it fun adds to the reward we feel, as well as enhancing the customer experience. April Fools’ Day creates a fabulous opportunity for organizations to play with their staff and their customers. Bravissimo is a UK company that produces and retails (online and offline) lingerie for well-endowed women. In April 2018, its April fool joke featured a blow-up air bed with space for large breasts. This proved to be a great hit with customers, resulting in the e-mail below being sent out at the end of June 2018, just in time for summer holidays (Figure 1.8). Such was the success of this that the airbed has been featured in the 2019 catalogue as a product to purchase!



Energize, Excite, Elate 17

Figure 1.8  Excerpts from a customer e-mail sent by Bravissimo reproduced with kind permission from Bravissimo

Make Someone’s Day This aspect of the Fish! principles is really about finding ways to go above and beyond a customers’ service expectations and takes them into the realms of delight. This is another way in which servant leadership and empowering frontline staff can truly create outstanding customer experiences that will live in peoples’ minds, and be related to friends and family. It is about transforming an everyday encounter into a pleasant and memorable experience for someone. It can be as small as holding a door open for a customer struggling with a pushchair, or just smiling at someone who looks apprehensive. Often life presents opportunities to do something exceptional for a ­customer.

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Service Excellence in Organizations

On one occasion, a customer bought all of her baby’s layette from John Lewis, Cambridge, but upon arriving home was unable to find it in her car. She phoned the store, in the hope that it had been handed in, but it had not. The store managed to find duplicates of everything that she had bought and arranged to deliver it to her home later that week. This delivery coincided with a baby shower that the prospective mother was holding in her home. The mother was enchanted, and her friends (also all expecting mothe rs) all came in to the store to buy their own layettes. This story circulated for several years afterward as an example of John Lewis exercising its Goodwill budget, a fund designed especially for such opportunities. The cost was about £250—very small compared with the impact on a highly relevant audience, and the duration of the message! The cosmetics organization, Lush, awards its employees one “random act of kindness” a day; this may be a very simple thing, or it may be something more dramatic, such as donating some of their products to women’s charities (Figure 1.9). Be There Most of us in our working day have multiple demands on our time, and in this situation, truly being present for a customer, or another staff m ­ ember may fall in our list of priorities.

Figure 1.9  Posting from Lush Facebook page (accessed July 29, 2018) reproduced with kind permission from Lush



Energize, Excite, Elate 19

“It means getting out of your own ‘world’ so you can BE THERE for someone else. It means setting aside emotional baggage from the past and worries about the future in order to appreciate the opportunities you have available to you, right now.” —Fish Philosophy handout Figure 1.10  Fish Philosophy handout adapted from Fish! Principles

This principle means you are focused, listening, and even empathizing with someone. It means blocking out anything not relevant to the person you are speaking to, not typing or making coffee at the same time, but being fully available for the person in front of you. It requires mental presence, being focused on the present moment, and the task you’re doing, not daydreaming or thinking about other work tasks ­(Figure 1.10). Fish! encourages us to choose the positive attitude that’s so important in customer service. Customer-facing roles are hard work, over which the representative of the organization has little control of what is going to happen. One day you can come across rude customers, sometimes you will have very difficult cases to deal with. The bottom line is to consciously choose the attitude that will make you happier. Try to find joy in your work, befriend your colleagues, laugh and try to have some fun—this is what Fish! is about. But you can also take your “Fish! Training” to a higher level: this philosophy inspires you to look for joy in daily events and can make you a happier person in the end. The good thing about this philosophy is that it’s not only about ­engaging people and creating positive change in their workplaces, it also applies to our daily lives every time we have to deal with something we dislike.

The Role Played by New Technologies Many forms of new technology have a key role in service delivery, from customer-operated devices that record purchases as they go into the shopping trolley, to holographic images capable of greeting customers by name as they enter the store.

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Artificial intelligence (AI) is the real newcomer in this arena increasingly reshaping service by performing various tasks, constituting a major source of innovation, yet threatening human jobs. Technology, when used imaginatively, creates an exciting environment for the customer and frees up staff members so that they can spend more time with customers, building up relationships. Service tasks can be divided into four areas: mechanical, analytical, intuitive, and empathetic. AI is developing in a predictable order, with mechanical mostly preceding analytical, a­ nalytical mostly preceding intuitive, and intuitive mostly preceding empathetic intelligence. AI job replacement mostly occurs at the task level, rather than the job level, and mostly for “lower” (easier for AI) intelligence tasks first. By replacing some of a service job’s tasks, AI can augment human labor, replacing it entirely when it has the ability to take over all of a job’s tasks. As this shift occurs, it prompts predictable shifts in the relative ­importance and roles of service employees. Predictions are that human analytical skills will become less important, as AI takes over more ­analytical tasks, raising the importance of the “softer” intuitive and empathetic for service employees. Eventually, AI will be capable of performing even the intuitive and empathetic tasks, which enables innovative ways of human–machine integration for providing service but also threatens human employment. We all use AI regularly when we interact with our smart phones and home computers; service organizations are rapidly embracing AI in a variety of capacities, often in a manner that is transparent to consumers. Just a few years back, a fully automatic car was a dream; however, now Tesla and other automotive companies have made so much progress that semiautomatic cars are already on the road. All the Tesla cars are connected and what one car learns is shared across all the cars. So, if a driver has to take an unanticipated hard-left on a cross-road, all the Tesla cars will know how to maneuver that turn after they are updated. There are already more than 50,000 Tesla cars running in the United States alone and that number is set to increase exponentially. For social media users, most decisions are impacted by artificial intelligence. From the feeds that appear in timelines to the notifications from these apps, everything is curated by AI. AI takes past behavior, Web



Energize, Excite, Elate 21

searches, interactions, and everything else done on these websites and ­tailors the experience for the user. AI makes the apps so addictive that users come back to them again and again. Amazon and Walmart are heavily investing in drone delivery programs and these will soon become a reality. Any system using Google or Apple Maps for navigating, or calling an Uber, or booking a flight ticket uses AI. Both Google and Apple and other navigation services use AI to interpret multiple data points to give real-time traffic data. For Uber, both the pricing and the car that matches a ride request is decided by AI. Online advertisements use AI to track user statistics and to serve us ads based on those statistics. Without AI, the online ad industry can only show random ads to users without personal tailoring. This tailoring is so successful that the global digital ad industry has exceeded $250 billion and is projected to pass the $300 billion mark in 2019. AI and chat bots create personalized experiences and facilitate intelligent, accessible engagement with the customers. End users can achieve their objective or find solutions to their problems, driving satisfaction and improving the overall customer experience. Businesses can use it to gain insights into consumer behavior by analyzing big data to better understand, and enhance the sales or customers’ journey. Comprehension of consumer behavior and traits through customer analytics can streamline the customer interaction process by making information available and accessible across several touchpoints. Businesses can personalize customer experience by leveraging interactive applications such as chat bots. These advanced computer programs can simulate an online conversation with humans. AI combines individual touchpoints and completes customer journeys to enhance and redesign customer experiences. Does this mean humans will become redundant? Unlikely any time soon—but humans will be valued for different skills—instead of the manual skills of the nineteenth and early twentieth century, and the analytical skills valued in the baby boomer era, the 2020s will recognize the value of some of the softer skills such as creativity, empathy, and networking that are so fundamental to creating and securing long-term relationships. These skills will help businesses engage both customers and staff in a three way mutually beneficial relationship.

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Quotations from Key Practitioners and Leaders of Excellence Businesses Let’s take most of the money we would’ve spent on paid advertising and paid marketing and instead of spending it on that invest it in the customer experience / customer service and then let our customers do the marketing for us through word of mouth. —Tony Hsieh, CEO of Zappos Customer experience is the next competitive battleground. —Jerry Gregoire, previously CIO at Dell The single most important thing is to make people happy. If you are making people happy, as a side effect, they will be happy to open up their wallets and pay you. —Derek Sivers, Founder CD Baby

End of Chapter Summary This chapter has explored aspects of the relationship organizations establish with their customers that can transform the purchase experience from a mundane transaction, to one of the highlights in the customer’s day. This can be achieved through various means, including doing something extraordinary and memorable for the customer, but also includes doing things that create a sense of drama, and fun that benefits to the customer and staff members. The roles of the servicescape, and customers and staff in the purchase process are discussed, with some supporting examples. The contribution these make to creating are fun and energetic environment is a key element in delivery service excellence. New technologies, especially AI when used judicially, can both enhance the customer experience, and free up staff time to enable them to deliver the empathy that can forge long-lasting relationships.



Energize, Excite, Elate 23

End of Chapter Review Questions Interfunctional coordination

Yes

No

Do you have interfunctional customer calls? Is information shared among functions? Do all functions contribute to customer value? Are resources shared among business units? Does the strategy cover functional ­responsibilities? Is functional integration addressed in your ­corporate strategy? How well do your key departments coordinate? (Functional integration) Operations–marketing Marketing–production Marketing–HR and so on. Are there points of friction in the organization? Do all your team have a concept of how their role delivers customer service? Do all functions have a set of objectives that flow from corporate objectives? Based on Narver and Slater (1990, pp. 20–35).

References Bitner, M.J., W.T. Faranda, A.R. Hubbert, and V.A. Zeithaml. 1997. “Customer Contributions and Roles in Service Delivery.” International Journal of Service Industry Management 8, no. 3, 193–205. https://doi. org/10.1108/09564239710185398 Greenleaf.  https://www.greenleaf.org/what-is-servant-leadership/  (accesssed February 25, 2018)

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Grove, S.J., and R.P. Fisk. 1992. ”The Service Experience As Theatre.” In NA— Advances in Consumer Research, eds. J.F. Sherry Jr. and B. Sternthal, 455–61, 19 vols. Provo, UT: Association for Consumer Research. Huang, M.H., and R.T. Rust. February 5, 2018. “Artificial Intelligence in Service.” Journal of Service Research 21, no. 2, pp. 155–72. Hubbert, A.R. 1995. “Customer Co-creation of Service Outcomes: Effects of Locus of Causality Attributions.” Doctoral Dissertation, Arizona State University, Tempe, Arizona. Hubbert, A.R., A.G. Sehorn, and S.W. Brown. 1995. “Service Expectations: the Consumer Versus the Provider.” International Journal of Service Industry Management 6, no. 1, 6–21. https://doi.org/10.1108/09564239510146672 Jo Bitner, M., W.T. Faranda, A.R. Hubbert, and V.A. Zeithaml. 1997. “Customer Contributions and Roles in Service Delivery.” International Journal of Service Industry Management 8, no. 3, 193–205. https://doi. org/10.1108/09564239710185398 Lundin, S.C., J. Christensen, and H. Paul. 2002. Fish! Tales: Real-Life Stories to Help You Transform Your Workplace and Your Life. Hachette, UK. Narver, J.C., and S.F. Slater. 1990. “The Effect of a Market Orientation on Business Profitability.” Journal of Marketing, pp. 20–35. https://startups.co.uk/top-10-ways-to-generate-repeat-business/ Slater, S.F., and J.C. Narver. 1995. “Market Orientation and the Learning Organisation.” Journal of Marketing 59, no. 3, pp. 63–74.

CHAPTER 2

Embed Chapter Objectives • To understand the benefits of loyalty to the customer • To appreciate the importance of loyalty to profitability and growth • To identify the shift from transactional to relationship ­marketing • To outline the different customer loyalty strategies • To appreciate how Customer Relationship Management (CRM) can promote customer loyalty • To understand how loyalty is created and how easily it can be lost • To appreciate the way service recovery can support loyalty • To identify means of building loyalty

Chapter Profile The aim of this chapter is to introduce a basic framework for the importance, management, and development of customer loyalty strategies. It will explore why customers are important and why customer loyalty strategies need to be developed to help cement relationships and deliver excellent customer service. It outlines why customers should be viewed as a business asset and customer expectations. The importance of loyalty to both the customer, and the organization are considered. The value of loyalty to the organization is generally quite well-recognized; however, the value to the customer is often overlooked. Understanding the benefits the customer gains from being loyal and building on this mutuality can enable organizations to establish a much deeper level of loyalty.

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Every connection with the customer creates the opportunity to build, or destroy loyalty, so frontline staff need to be aware of this, but also need to have the power to respond to opportunities to build loyalty when they arise. Finally, it looks at how to nurture and protect customers so that they remain loyal to the organization, and how to manage the service expectations of customers to deliver service excellence. Why Are Customers Important? Previous chapters have shown how customers, good management of ­individual relationships, and the whole customer base underpins service quality and innovation within the organization. The customer base is an asset, worthy of investment of time, money, and creativity as any other business asset. Different customer groups and their expectations can be used as a means of building loyalty and lasting relationships. Customers as a Business Asset Traditional sources of competitive advantage—innovation, economies of scale, production technology—have been eroded as all players learn the rules, so companies need to evolve a new basis for securing market share. Of all the business sectors, the service sector is the one which most needs to develop and maintain an intimate knowledge and understanding of customer needs. The customer is part of the production process, and so too are other customers, who may be present when the service is being provided and can enhance or undermine the service. A traditional butcher establishes a relationship with individual customers, based on the quality of the meat they select from him, and his ability to meet their specific needs. He uses his knowledge of their preferences to recommend what is especially good on a particular day, or to suggest something his knowledge of the customers’ preferences tells him will be well received. As he does so, he is aware of other customers waiting for service in the shop and must be sensitive to their needs as well. If he can make the wait informative and entertaining, he is adding value to their experience, as well as making the waiting time appear shorter. Posters and leaflets around the shop can provide information about the origins of the



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meats, giving assurance to the customer, or can give recipes to inspire the customer about how to prepare the raw ingredients. Any service relationship works best when it can be managed face-toface; a national service provider, with many branches gathers and stores information on customer needs in a quite different way from a traditional high-street retailer, but if the face-to-face encounter does not support the customer relationship in a way that feels personal and rewarding to the customer, the whole relationship breaks down. Similarly, all other encounters (touchpoints) must act to secure the interpersonal connections associated with the relationship. Certain sectors struggle to achieve a customer focus; high-technology companies driven by research and development claim that customer focus stifles creativity and inhibits innovation, while some of the professional services feel customers lack the knowledge and understanding of what is needed. Academics see a conflict between their professional ethics and what they hear their customers—students—asking for. Ultimately though, an understanding of customer needs and anticipating them by using a customer persona is vital to success. This is one area in which the moderating effect of external stakeholders, such as educational awarding bodies, or academic gatekeepers fulfill a useful function. Benefits of Customer Retention It is a truism to say that customers are the life blood of any organization, and yet, it is astonishing how many companies will invest resources to maximize financial assets, or premises, and yet do not appear to regard their customer base, and existing customers as a valued asset that also needs to be nurtured, developed, and harvested. Given that it can be demonstrated that it costs five times as much to attract a new customer as it does to service an existing customer, it would be reasonable to assume that organizations would invest considerable resources in ensuring that they are meeting the needs of a loyal customer base effectively. Too often, though, the culture of organizations focuses on rewarding staff that attract new customers, while ignoring staff that satisfy and grow the needs of existing customers. And businesses have schemes to attract new customers but not reward loyal ones—the insurance industry is renowned for

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increasing premiums annually rather than offering a loyalty bonus, and the telecom industry acts in a similar manner. This is shortsighted to say the least! There are many reasons why existing customers should be treasured, and why staff that do so should be rewarded, building internal loyalty, as well as external. It is also curious that, given that customers are such a valuable asset, the frontline staff who deal with them, are generally not only the bottom of the organizational heap, but also the lowest paid. Whilst the servant leadership approach to management acknowledges the need for frontline staff to be empowered to make autonomous decisions, there are few organizations that have gone so far as to raise remuneration to fully acknowledge the responsibility placed upon the shoulders of service staff.

Segmentation as the Basis for Building Long-Term Loyal Relationships Segmenting the market enables the organization to present a completely relevant offering to its customer, whether in B2C, or B2B, through a clear understanding of who the customer is and their specific needs. Through this understanding, and the resulting relevance of the offering, the organization can forge a durable, loyal relationship, which will withstand competitor approaches offering price cuts and short-term “deals.” This ultimately creates a win-win situation for the customer, who gets a tailored service, and for the organization, which is able to maintain its profit margins. Over time, a customer’s needs may change, the business objectives may change, and it may be that segments the organization serviced well in the past become more difficult to service effectively making them less attractive. Without regular monitoring of the productivity of the s­ egments they serve, organizations have no means of knowing that the profitability has altered. When a segment becomes unprofitable, the organization has a responsibility to customers in the segment to manage the relationship in such a way that it remains positive, even while it is terminating. This allows the departing customer to retain a positive feeling about the company (and still to be an advocate), while having the opportunity to secure a better provider for their future needs. Such customers will not then speak negatively about the organization. It also frees the organization from the



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burden of an unprofitable relationship. Often, providers seek out alternative provision for customers in this situation—for example, when an optician closes a branch in a town, it may introduce the nearest alternative, rather than leave the customer high and dry.

Matching Service Specifications to the Needs of Segments A clear picture of which segments the organization wishes to focus on, and what customers within the segment need or want from the service, enables the organization to adapt their service offering. This may be as radical as a completely new service, or it may be a matter of adapting other aspects of the marketing mix, especially marketing communications in such a way as to attract the attention of the target segment and encourage repeat purchase and loyalty. The best method of understanding ­customer needs is to use a customer persona to identify their key concerns, their interest and habits. This is valuable not only for service or product design, but also for effective communication with customers.

Figure 2.1  Example of B2B customer persona reproduced with kind permission of Buyer Persona Institute Source: https://uk.images.search.yahoo.com/yhs/search;_ylt=AwrIRhayx01bckUAzQd3Bwx.;_ ylu=X3oDMTEycGpzbnVxBGNvbG8DaXIyBHBvcwMxBHZ0aWQDQjUxNTFfMQRzZWMD c2M-?p=customer+persona&fr=yhs-Lkry-SF01&hspart=Lkry&hsimp=yhs-SF01#id=0&iurl=https%3A%2F%2Fblog.usertesting.com%2Fwp-content%2Fuploads%2F2016%2F02%2Fcustomerpersona-example.png&action=click

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Figure 2.2  Example of A B2C customer persona reproduced with kind permission from blog.alexa.com Source:  https://blog.alexa.com/wp-content/uploads/2017/10/Buyer-Persona-Examples-B2CRetail.jpg

Managing Customer Expectations In the context of loyalty, management of customer expectations is fundamental, since continued custom is based upon continuing to meet customer expectations. These are dynamic, so loyalty is forged by maintaining regular, useful communication with the customer to ascertain whether, and how, needs and expectations may have changed. Such discussions enable the organization to keep its offering fresh and relevant, so that customers need not look elsewhere to have their expectations and needs met.

The Move from Transactional to Relationship Marketing (CRM) There has been a shift from transactional marketing into relationship marketing. The transactional approach was to purchase goods or services from the market seeking the “best” supplier on every purchase occasion.



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Transaction One off No relationship Little customer care or service

Fails to take account of profitability of repeat business and the benefits it offers customers

Figure 2.3  Transaction marketing

Each purchase decision becomes an individual transaction in its own right. The relationship between the buyer and the seller was quite short term, lasting for as long as the buyer and seller interacted to agree terms, hand over payment and agree delivery information. Once goods and services were delivered, there was usually no further relationship between the two parties. The transactional model focuses on the single sale rather than generating repeated sales over time and having many interactions with the customer to change or adapt the goods and services you offer to meet changing customer needs. Transactional marketing puts a value on each customer relative to their transaction frequency and value. Sometimes with transactional marketing, it is seen as better to secure a large oneoff sale rather than deal with lots of small transactions, as the costs of servicing each small transaction can equal those required for a single large sale. Transactional marketing relies heavily on the organizational ability to attract attention in the marketplace and prompt purchase. It is less concerned with developing relationships and lifetime value. Often the effort you put into the “transaction” depends on the amount the transaction is worth. Such relationships could be passive or long term in nature, but the focus of organizational effort is on securing individual transactions rather than satisfying long-term customer needs. However, transactional marketing is counterintuitive; it encourages the customer to spread their purchasing habits between many competitors in order to receive as many benefits from each as possible. Organizations

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want customers to patronize their establishment because it is pleasurable to do so. Sometimes customers expect special treatment and free services or have a hidden motive of getting as much as they can out of each organization they deal with. One of the features of transactional marketing is that customers have a brand repertoire from which they select on each purchase occasion. So each service provider enjoys only a percentage of the available business from each c­ustomer, rather than securing the full potential. The transactional model favors what the producer can produce, rather than what the customer wants. Henry T. Ford (1863–1947) famously said, “You can have any car as long as it is black.” In the early days of American car production, cars could only be made in one color, black; today colors for cars are researched in detail to find out which colors are most fashionable and what customers would be most likely to purchase. Even products such as cars are beginning to acquire elements of customization that indicate a degree of service inherent in their design. The Fiat 500 marketing program is testament to this, where customers can design their own vehicle online. Nissan is currently researching color changing paint to enable customers to adapt the color of their cars during their ownership. Services lend themselves less to the transactional approach than products. As technology advances, it enables ever greater personalization and customization of products and services.

Advantages of the Transactional Model • Constant drive for supplier to provide the “best” value through the competition for customers. • A supplier specializing in a small number of products or ­services and supplying them to many customers can gain n ­ atural economies of scale, so may be able to offer lower prices. • If supply is short, customers can simply switch to other ­suppliers. • Specialist suppliers are more likely to have innovative ­products and services, which can be bought in faster and cheaper than an organization can make.



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• Organizations can specialize in one thing rather than spreading their time and talents thinly.

Disadvantages of the Transactional Model • There may be supply uncertainties in stocking the product or delivering the service and once an order is placed it is hard to guarantee its quality. • Gathering information on which supplier is offering the “best” deal takes time and resources. • There are strategic risks of subcontracting to others without a guarantee over the service level. • The relationship does not allow partners to establish their respective needs apart from delivery or price information. • There is little customer service and limited customer ­commitment to use the same supplier. • There is little or moderate customer contact. • Quality is the concern of those producing the goods or ­services, not the company selling them to the customer. • It is short-sighted and does not value the consumer. • As customers become more sophisticated, they are less likely to be swayed by the usual hype (Ours is the Best!) and more influenced by the organization that they believe cares about them. Transactional marketing is the traditional method of selling a product or service with its focus on the four Ps (product, place, price, and promotion) to maximize the benefit of the transaction to the organization with customer needs as secondary. With this method, the organization is not concerned with any future exchanges, customer satisfaction, or ­customer loyalty to the organization. Marketing, quality, and customer service departments are seen as separate entities and are not linked to share information about customers and their specific needs. This lack of coordination between the three departments creates a fragmented approach to achieving customer satisfaction. The transactional approach often delivers less market share than is enjoyed by more relationship-focused organizations.

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The Change from Transactional to Relationship Marketing Transactional marketing focuses all marketing efforts on attracting the customer for a one-off sale. However, loyal customers end up spending more in the long term, so it makes sense to keep existing customers happy. A single sale repeated over and over a customer’s lifetime can significantly add profit to the organization. Customers often make a small purchase to “try” a supplier out; if the first small transaction is dismissed by the organization as paltry, a potential long-term customer can be lost. Moreover, each repeat sale does not require additional persuasion, there is less administration for sales staff, such as setting up a credit account, and customers tend not to be tempted by special deals, so profits rise. Relationship marketing offers more revenue potential than transactional marketing. It builds long-term, committed, loyal, and profitable relationships with potential/existing customers through communication and the provision of quality goods and services. Relationship marketing is often represented as a developmental process, aiming to increase customer loyalty, and improve the relationship with customers. The process evolves through a series of stages that reflect the customers’ increased importance or value to an organization. The six stages are shown in the model below; an organization’s ultimate aim should be to gain as many partner customers as possible. To retain customers, organizations must keep up to date with their changing needs. If the organization can provide these, the desired customer relationship can be continued into the future. The organization benefits from increased profit, market share, and brand awareness; the customer benefits from having their changing needs anticipated so they do not need to conduct a new supplier search. Regularly ensuring that customers continue to receive what they want is important; very few dissatisfied people complain, but they just quietly choose another supplier to purchase from. This is especially true when there is no investment of loyalty to draw them back. Managing customer satisfaction in a proactive manner and responding to any customer complaints is crucial to customer retention. A complaining customer is, in effect, saying that they generally like what the company does, but are



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Partner

Partner: Someone who has the relationship of partner with you.

Advocate

Advocate: Someone who actively recommends you to others, who does your marketing for you.

Supporter

Supporter: Someone who likes your organisation, but only supports you passively.

Client

Client: Someone who has done business with you on a repeat basis but may be negative, or at best neutral, towards your organisation.

Purchaser

Purchaser: Someone who has done business just once with your organisation.

Prospect

Prospect: Someone whom you believe may be persuaded to do business with you.

Figure 2.4  The ladder of loyalty adapted from Christopher, Payne, and Ballantyne

disappointed on this occasion with the experience of doing business. Putting right a problem provides the organization with an opportunity to show how much it values the customer by putting the problem right, and also by doing something to exceed expectations.

The Customer Relationship Management Model (CRM) The term CRM can be considered from a number of perspectives; there is a wide variety of definitions incorporating software, management, ­people, and processes, which encompass CRM. Relationship marketing seeks to build a friendship with the target market and focuses on customer retention and lifetime value for the desired market segment. Examples of tactics to establish a relationship might be the car dealership that gives out free oil-change coupons after the purchase of a new car or the restaurant that subscribes customers to an e-mail list offering frequent dining discounts. CRM can be a powerful tool to build customer relationships thereby enhancing customer loyalty. Managing services excellence and relationship management are philosophies rather than systems, and both are adolescent, rather than mature; their future offers many exciting openings.

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Relationship marketing uses tactics to retain customers. Customer ­satisfaction must be exceeded to build a healthy two-way relationship with customers where customers feel feedback comments are welcome, and the company uses them to improve future customer service or ­product offerings. CRM (UK) Ltd (2002) defines relationship marketing as follows: The establishment, development, maintenance and optimisation of long-term mutually valuable relationships between consumers and organisations. The key to this definition is long-term mutually valuable relationship. This considers marketing as a mutually satisfying system of exchanges. So relationship marketing is the building and maintenance of long-term customer relationships, delivering value to customers, and profits to organizations. Relationship marketing involves a number of important activities. First, tactics to attract customers; methods include promoting the brand, offering good quality products/services, and competitive prices (marketing responsibility). Second, for the first purchase, customer expectations must be met (operations responsibility). Third, customers who are attracted to the organization have to be retained; methods may include loyalty cards, customer service departments or even an individual account manager for large clients, along with product variety and quality (making marketing the responsibility of every member of staff helps ensure that the customer experience is always one that will encourage repeat purchase). Attracting customers is wasted if they are not retained; the organization must continue to satisfy. However, it is very difficult to keep 100% of customers satisfied all of the time. Some die, some move away, and others switch to better offers or promotions from competitors. Often organizations forget that customer needs change over time. To keep the customer satisfied organizations must continually monitor the customer environment. Instead of simply researching a customer’s purchasing patterns to guide marketing decisions, understanding existing relationships can help



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Loyalty Empowerment Personalisation Bonding Satisfaction

Figure 2.5  The customer loyalty pyramid

determine strategy. This is particularly true of services where the customer is part of the production process. Customers should be segmented and selected on the basis of relationships rather than by the size of their transactions. For both transactional and relationship marketing, the effort of managing customers should focus on long-term profitability. Relationship marketing requires the customer to commit to the organization with the reward of personalized attention and service. The organization enjoys marketing to a satisfied customer who brings more customers to their organization as well as making repeat purchases. Relationship marketing is growing in popularity because it exposes one flaw with transactional marketing; the high spenders are not necessarily the best, they may not be loyal to the organization and may seek additional services such as immediate delivery, better terms and so on. which may be extremely costly over time.

Advantages of the Relationship Model • Retaining customers offers many benefits, most importantly, and the lifetime value they bring long-term customers. • Transactions become more profitable as time is not spent gathering information or selling. • Loyal customers recommend the organization, expanding sales through “word of mouth” recommendation, the most powerful promotion tool.

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• Buyers and sellers interact and improve communication. • Loyal customers will try new products and services, because of the trust built up. • Customers will pay more for your services/products because of loyalty and trust. • Loyal customers share problems with you, creating opportunity for improvement, and new products. • The ultimate benefit is increased sales, market share, and ­dominance.

Disadvantages of the Relationship Model • There may be additional costs in holding and storing information about customers. • Information about customers and purchasing patterns must be analyzed and used effectively. • The relationship model needs to be supported (but not driven) by cutting edge IT, which needs resources and ­management commitment. • The additional task of managing the CRM database is required.

Customer Relationship with the Brand Loyalty grows through relationship not just with employees, but with the brand itself. Branding began as a differentiator of commodity products, such as flour, sugar, petrol; customers trust the brand to be consistent and deliver their expected benefits. Homepride flour is not substantially different from own label flour, but the concept that Homepride’s little men’s “Graded grains make finer flour” has stuck, enabling the manufacturer to charge a premium price. This was reinforced by the free gift of a Fred Pie funnel, so the brand was recalled every time a customer baked. Branding has assumed part of the responsibility for communicating with customers, and for engendering loyalty. There are a range of branding models, but Keller’s brand resonance pyramid is the most r­ elevant to the loyalty concept. It shows the stages of brand development, and branding objectives, as well as the increasing loyalty as the brand establishes greater meaning for the customer and complements their self-­concept.



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Figure 2.6  Fred the Homepride flour grader and complimentary pie funnel. Reproduced with kind permission from Homepride Flour

Establishing a powerfully resonant brand is one of the means by which organizations create perceptions of quality and embed emotions of commitment and loyalty in their customers. Loyalty is the greatest contribution marketing makes to boosting profitability for the organization. Both branding and loyalty are long-term, durable marketing approaches espoused by quality conscious organizations.

Customer Loyalty and CRM It is important to acquire customers for the first time purchase, to retain for second and third purchases of a similar product or service, then to

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Stages of brand development 4. Relationships what about you and me?

3. Response what about you?

3. Meaning what are you?

1. Identity who are you?

Branding objective at each stage Resonance Loyalty Attachment Community Engagement Judgment Feeling Warmth, Fun Quality Excitement Credibility Security Consideration Social approval superiority Self-respect Performance Primary characteristics and secondary features product reliability durability, and serviceability, Servive effectiveness, Efficiency, and Design price

Imagery User profiles Purchase and usage Situations Personality and values History, Heritage and experience

Salience Category identification needs satisfied

Intensive, active loyality

Positive accessible reactions

Points of parity and difference

Deep, broad Brand awareness

Figure 2.7  Keller’s brand resonance pyramid. Reproduced with kind permission from Vizual.blog

offer additional or extension products and services that will be bought longer term. Customers must be moved from simply being satisfied with the service given toward loyalty; this can be achieved through the use of software to manage knowledge about the customer’s preferences relating not only to the product or service, but to how they relate and communicate with the organization.

Technology and CRM The proliferation of different software CRM packages tends to focus attention on the technology. CRM is more an attitude of mind from the organization to the customer at each stage of interaction, than just computer software. There are three key elements: customer touch points, applications, and data stores.

Customer Touch Points Think of a small tea or coffee shop selling light refreshments throughout the day. Every time a customer walks in, they are greeted by the person serving; this is the first of many customer touch points during the service experience. Next the order is taken, another person may take



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payment, and another may be tidying tables for the next customer. So within a small tea or coffee shop, there could be three or four different customer touch points each delivering service in a slightly different way. Other contact points can include advertisements, telephone, Internet, letters, information leaflets, and for larger organizations contact points can include 5G telephones, video conferencing, websites, and interactive TV. All present opportunities for information gathering, which should be used to deepen the relationship with customers as knowledge of their preferences builds. Ensuring message consistency across touchpoints will give the ­customer a harmonious impression of the organization. Different messages create a mismatch in cognitive beliefs for the customer, and are unsettling.

Applications These are the software and computer programs that support the process of CRM. The term CRM covers applications that serve marketing (e.g., data mining software1 and permission marketing2), sales (e.g., monitoring customer touch points), and service (e.g., customer care). Data Stores These contain information on every aspect of the customer, and the customer life cycle (CLC). An organization can keep information or data on what customers buy, when they buy, where they buy, and where goods are sent. Every transaction through an electronic checkout with a swipe   Data Mining is where an organization evaluates large data stores for patterns, or relationships between groups or individuals (or segments). Applications present “patterns” in a format that can be used for marketing decision-making. 2   Permission marketing is where a customer elects to “opt-in” to marketing material from an organization, for example, an insurance vendor asks if you wish to receive further details from them, or similar organizations. Marketers need your “permission” to market to you. Permission marketing can occur at any of the customer touch points. 1

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Pause For Thought Some retailers such as TESCO in the UK have a club card system for customers, who gain points with purchases. These points can be traded in for discounts, and TESCO stores data and customizes offers to ­customers based on their purchasing habits. However, they need your permission to store information about you the customer. What loyalty schemes do you participate in? What benefits do you derive? How do you feel about sharing your personal data?

card records, stores, and processes information enabling retailers to make tempting money off promotions or new product offers based on the types of goods and services already purchased. Organizations can track visitors to their websites and products/services they have bought or considered. On membership websites, more information can be stored about age, location, purchasing habits, interests and so on. Information can be kept on customers’ lifetime value and analyzed using software applications to establish purchasing profiles for segmentation and targeting. CRM is about relationships between people, not technology. Business happens between people, and technology’s role is to allow quicker and more effective operations. The good practices of relating with customers and their needs did not emerge with the introduction of computers; all that has changed is the tools—organizations can use the same practices but speed things up with technology or see how the customer is navigating through a website to gain an insight to their search process. Data can also reveal a great deal about what is going on in a consumer’s world through their purchases—dietary supplements for pregnancy indicate a new baby, with many new products needed in the future. Too often, companies purchase off-the-shelf packages or use software developers who claim to understand the needs of a business sector and sell something that constrains the way the organization relates to customers. The CRM system should mirror what is already taking place; however, it takes time for an external supplier to analyze the knowledge and processes within the organization. CRM goes beyond automating sales, customer



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service, and call handling; it moves into managing relations and improving the quality of information flowing between the customer and the organization. Changing market needs require organizations to update the CRM system to mirror changes in information needs. Often the realization that the system needs updating does not emerge until it is already overloaded with traffic and data records. The implementation of a new or updated system may take longer, cost more in hours, and reduce time available for customers. A CRM system can help document and analyze historical data to establish service usage levels. An organization can take remedial action to improve services or provide information to new customers, helping increase satisfaction and loyalty. At a customer helpdesk, the majority of questions are repeated—if information can be provided to answer commonly asked questions at the point of sale, customers may not need to use the helpdesk as much. Importantly, this will also help to reduce customer frustration, improve satisfaction, and free staff to work with customers.

Customer Loyalty It is important for organizations to develop strategies for moving ­customer relationships forward into the zone of loyalty. This can be achieved both by taking care of existing customers and establishing loyalty ­programs. Most successful long-term relationships are based on win-win situations, and, like a good wine, they improve with age. Marketing and the ­customer relationship is no exception. Loyalty benefits the customer and the organization.

The Makeup of Loyalty Loyalty is an everyday, if somewhat old-fashioned concept, applied to any kind of relationship including an intimate personal one, through to a professional or commercial one. The Concise Oxford English ­Dictionary defines loyal as “showing firm or constant support or allegiance to a ­person or institution.”

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For a marketer, it is a customer’s willingness to continue the relationship of purchasing goods or services on a repeat (and preferably unique) basis, and ideally recommending the organization and its services to ­family, friends, and colleagues. Loyalty is a long-term objective for a customer relationship, and academic literature abounds with discussion on the components of ­loyalty. A  study of loyalty in the airline industry suggested that to reach the ­Nirvana of loyalty, certain prerequisites combine to create feelings of ­loyalty. Customer satisfaction, trust, and perceived value are identified as antecedents of loyalty. Benefits to the Customer For a customer, loyalty is a convenient habit, saving the effort of searching for a new provider on each purchase occasion. It gives security; the customer stays within their comfort zone, with no need to deal with new people, explain their needs anew. Over time, any initial issues or problems can be resolved, and special requirements can be accommodated. The more complex the service, the more this aspect gains importance, so for services in the legal, medical, or educational sector, customers particularly value continuity and longevity of the relationship. In services that have a high level of ego involvement, such as a hair stylist, a tailor, or a health club this is equally true. The monetary value of the service provided can also make trust a big issue, and this requires to be built over time. In some personal services such as hair styling, alternative therapy, child care, the service provider becomes a personal friend, and switching would create a rift in the personal relationship as well as the business one. One of the most stressful things we undertake in our lives is to move house. If a house move also involves a change of location, to another town, or even another country, the stress is higher still, in part because a whole range of regular service providers will no longer be accessible, and the customer must embark on a search process to replace them. This takes time, and the uncertain outcome creates stress. Organizations capitalize on this by offering a nationwide network of service branches so that customers can continue the relationship with a known and trusted brand.



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Even if the organization cannot grow organically, franchising can enable it to extend its services geographically. Saks and Toni & Guy are examples of franchised global hair salons that acknowledge loyalty to the brand in addition to the individual stylist. Generally speaking, as long as the customer receives a service that at least meets their expectations, they do not look for alternatives. Switching providers is costly in terms of search time; there may also be costs associated with switching, for example, moving phone and broadband provider may require investment in new equipment, or commitment to a long contract. Benefits to the Organization There are many advantages to an organization of having loyal customers. Ultimately, although some appear to be “soft” benefits, they all make a Insulates customer from competition Encourages repeat patronage and loyalty

Can create sustainable advantage Customer satisfaction (and service quality) Reduces failure costs

Enhances/promotes positive word of mouth Lowers cost of attracting new customers

Figure 2.8  Benefits of customer satisfaction and service quality Source: Adapted from Christopher, L., P.G. Patterson, and R. Walker. Services Marketing ­Australia and New Zealand 1998 reproduced from L. Christopher, S. Vandermerwe and B. Lewis. Services Marketing a European Perspective Prentice Hall, 1999.

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contribution to profitability. Customer service creates a virtuous circle; satisfied customers give positive feedback and increased sales, staff morale rises, and creates a more pleasant atmosphere for customers, who visit more often, becoming more committed.

Releasing the Profit Potential of a Customer Relationship It is possible to assess the profitability of a loyal customer, and two researchers, Reichheld and Sasser, in 1990 analyzed the profit per ­customer in a range of service businesses over the years of loyalty. They found that the longer a customer had been with the organization, the more profitable it became to serve them. The figure below shows the results of their findings comparing customers of a credit card, an industrial laundry, an industrial distribution firm, and an auto servicing firm. The main benefits are as follows:

400

Profit index (year 1=100)

350 300 250 200 150 100 50 0 Year 1 Credit card

Year 2

Year 3

Industrial laundry

Year 4 Industrial distribution

Year 5 Auto servicing

Figure 2.9  How much profit a customer generates over time Source: Based on data in Reichheld, F.F., and J.W. Sasser. 1990. Zero Defections: Quality Comes to Services. Reproduced in Bitner. MJ Services Marketing, Zeithaml, V., and L. Berry, 177, 1996. New York, NY: Reproduced with kind permission from McGraw-Hill.



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Lower Servicing Costs As customers learn the process of purchasing and using the service, they develop a pattern of purchasing that becomes more straightforward for them, and less demanding in terms of staff time for the organization. The costs of servicing them reduce, giving greater profitability on a per capita basis for loyal customers than for new ones. Increased Purchases As customers gain confidence in the organization, they see it as a source of as many of their needs as the organization’s services cover. A loyal banking customer is open to purchase other financial services: pensions, insurance, stock purchases, and so on. Industrial customers grow and continue to source their services from the same provider, whose revenues expand as it meets the increased demand. Word-of-Mouth Advertising A recommendation from a loyal satisfied customer is far more likely to result in a new customer making a first purchase than a chance viewing of an advertisement. Advertisements are expensive, personal recommendation is free, costing only what it costs to provide service to the desired standard anyway. Word-of-mouth advertising saves advertising costs and delivers a better conversion rate. The John Lewis Partnership, for many years, relied almost entirely on word of mouth as a means of promotion. Its renowned Christmas advertisements now generate as much excitement as Selfridge’s and Fenwick’s Christmas windows, and that generates word of mouth for the brand. Lifetime Value of a Customer Few corporate accounting systems are able to readily calculate the lifetime value of a customer, yet this is one of the key dimensions of securing long term profitability of the organization. Without it, it is hard to determine which the best customers are and which warrant investment to retain. Each transaction subsequent to the first costs the organization less, so it is possible to calculate the impact on profits of customer retention.

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Tom Peters calculated the lifetime value of his organization’s value to FedEx by multiplying the average monthly spend by the average lifetime of a relationship in the industry. He assumed an average lifetime relationship of 10 years, and his average monthly spend in 1987 for a 20-person business was $1,500. The hard monetary value of his business to FedEx can be calculated as: $1,500 × 12 months/year × 10 years = $180,000 A relatively small account suddenly assumes much greater significance, quite apart from the kudos of serving a management guru well (or the bad publicity of providing a less than stellar performance). Employee Retention Part of the virtuous circle created by excellence is that, when an organization has a loyal customer base, staff turnover falls. Working in an organization where customers are satisfied gives a higher level of job satisfaction, staff become more relaxed, and can invest time in making existing customer relationships profitable and fun, rather than chasing new ones. As a result of a stable staff base, continuity of communication is ensured, service standards improve, and profits rise further still. Profiting from Loyalty Companies have always recognized the value of monetary assets and invest time and money in maximizing those assets. The use of property is exploited, so an arts venue, such as a cinema, which conducts its main business in the evenings, will extend its daytime use through targeting groups who are free during the day, such as pensioners, stay-at-home mothers, and by attracting organizations who can also use the facilities at off-peak times for sales conferences and the like. Although there have always been excellent organizations who have nurtured and valued their customers on an individual basis, the concept of treating them as a resource, that can be leveraged in a similar way to money, property, and manpower is relatively new. Technology has facilitated this; databases enable the mining of data, digging beneath the surface to find gems of opportunity. These can also come from innovative ways of looking at the information.



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A Framework for Customer Loyalty Loyalty requires much greater definition. Zeithaml and Bitner’s model (Figure 2.10) suggests the components of loyalty, and the order in which they make their contribution. The model below explores varying degrees of loyalty, based on the benefits that the customer perceives he or she is likely to derive from making a choice to be loyal to a brand or an organization. This framework uses two dimensions to measure loyalty: relative attitude and repeat patronage, producing four levels of loyalty behavior: true loyalty, latent loyalty, spurious loyalty, and no loyalty. Satisfaction

Perceived value

Loyalty

Trust

Figure 2.10  The makeup of loyalty, adapted from Zeithaml and Berry (1996) REPEAT PATRONAGE RELATIVE ATTITUDE

High

Low

High

Loyalty

Latent Loyalty

Low

Spurious loyalty

No Loyalty

Figure 2.11  Loyalty framework adapted from Dick and Basu (1994, pp. 99–113)

True (Sustainable) Loyalty High repeat patronage and relative attitude produces the brand loyalty all marketers strive for. Customers are committed to the brand on a variety of levels, with a strong emotional attachment. A clear brand proposition delivers long-term benefits for the customer and is built over time by

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Service Excellence in Organizations

effective performance and communications. This is the type of two-way loyalty gained from a relationship marketing strategy. Ideally, an organization seeks to move as many as possible of its customers to this status. This also links to a concept proposed by Roberts (2006) of a “Lovemark”; these are brands about which customers feel really passionate, beyond simple loyalty and include Apple, Harley-Davidson, and Nike. Latent Loyalty Latent loyalty indicates a high relative attitude to the service, but for various reasons, repeat purchase is inhibited by circumstance. A customer may prefer to shop at Waitrose, but if there is not a branch nearby, he or she probably shops elsewhere the majority of the time. The recession has turned many shoppers away from their preferred grocery retailer toward Aldi, Lidl, and Netto based on price. The customer, despite a willingness to be loyal, has to search for a compromise that meets the more practical needs of the situation. Organizational strategy should attempt to remove the constraining factors, enabling customers to exercise their brand preferences. Until recent years, Waitrose was a southern only grocery retailer, unable to service the whole country from the existing Milton Keynes warehouse; a new warehouse in Leicestershire enabled them to serve the North of England. Spurious Loyalty Repeat purchase is high, but relative attitude is low. Repeat purchase is driven by situational factors such as price promotions, habit, and peer pressure. Customers in rural areas often have little option but to buy their petrol at the local station regardless of their feelings about the company. There is no emotional attachment to the brand, or maybe even a negative attitude. Loyalty programs can lock customers in despite their lack of emotional attachment to the brand by forming a significant financial investment that the customer feels unable to abandon. It is relatively easy to woo a customer away with better deals, but unless there is a more significant investment in building the relationship, it will only result in brand switching and not in brand commitment and loyalty. Since deregulation in the energy supply industry in the UK, a



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plethora of websites enable customers to select the best price deal. Switching, rather than giving long-term relationships, has resulted in customers pursuing ever lower prices. In part, this is because the service is hard to differentiate, so companies now offer incentives such as energy use ­monitors to help customers reduce their energy use. No Loyalty Low relative attitude may simply be as a result of a service that is new to the market, so its brand is untried. It could flag up a communications strategy that is failing to reach its target market. Alternatively, if the market is a commodity market, as with energy supplies, there may be little basis for customers to select one brand from another. Strong communications campaigns to build awareness, to offer ­purchase incentives, or, as in the case of grocery items such as washing powders, simply to proliferate brands in the interest of securing shelf space in retail outlets can allow loyalty to develop. Package holiday companies produce many differentiated or segmented brochures for holidays. Where there is no loyalty, a free trial promotion campaign can induce trial, moving customers into spurious loyalty, which can in turn, develop into a longer term relationship, and sustained loyalty.

Loyalty % customers scoring and organisation 9 or 10 on intention to remain a loyal customer Recommendation Percentage of customers scoring 9 or 10 on intention to recommend the organisation Trust Percentage of customers who gave an organisation a 9 or 10 trust rating Reputation Percentage of customers who give an organisation 9 or 10 when asked “ how do you rate the reputation of this organisation?”

Customers who score an organisation 9 or 10 for customer satisfaction

Customers who score an organisation 8–8.9 out of 10 for customer satisfaction

96%

66%

91%

46%

96%

48%

85%

36%

Figure 2.12  The differences between levels of net promoter scores for loyalty, recommendation, trust, and reputation reproduced with kind permission of the Institute of Customer Service

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Measuring Loyalty The benefits of loyalty to both organizations and customers have been considered, but it is also useful to explore how loyalty can be measured. The diagram shown below explores a model for doing this, where loyalty is segregated into different factors. This study proposes a model for measuring brand loyalty in English newspapers. It is based on a survey of 180 respondents in three major cities in India. The model was based on the factors that influence loyalty. The study also examines the loyalty behavior of customers, especially from an Indian perspective, and measures the brand loyalty score of three major English newspapers by using the developed model, concluding with suggestions for promoting high loyalty among customers.

Customer Loyalty Strategies FedEx is renowned for the standards of its service, and its website features many video examples of how its service quality service has generated loyalty. Many service providers have recognized the advantages of building customer loyalty in the form of loyalty cards. Airlines offer free air miles; supermarkets offer loyalty cards: Tesco’s Clubcard is probably one of the

Emotional value

Social value Brand trust

Price worthiness

Satisfaction

Functional value

Involvement

Commitment

Brand loyalty

Figure 2.13  Model for measuring brand loyalty Adapted from Punniyamoorthy and Raj (2007, pp. 222–33).

Repeat purchase



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best known programs. Nectar Cards provide a loyalty scheme for Sainsbury’s, DFDS, Sky, Virgin trains, and several others. Most programs use a selection of tools in a rather tactical way. Establishing true loyalty demands a combination of strategic design supported by relevant techniques. There are a number of steps to inspiring loyalty in the customer base: • The process starts with effective segmentation and targeting to ensure that the organization woos customers that are relevant to its long-term objectives. • It moves into strategies designed to retain customers through understanding their needs. • Staff and employees are critical to building loyalty and they need to be empowered to be innovative about meeting ­customers’ needs and anticipating potential problems. • Monitoring customer relationships enables the organization to flex to meet customer needs. • Creating an environment in which learning can take place, and where experimentation is allowed helps keep things fresh for customers and embeds improvements. • Evaluation of the loyalty program is important to ensure that it remains current and relevant. • Finally, rewarding customers for their loyalty and front line staff for maintaining the relationships helps embed the program, and can be financed through savings made by not chasing expensive new customers. Some aspects of the characteristics of services make loyalty schemes and relationship marketing especially beneficial both to the provider and to the consumer.

What Customers Think of Loyalty Programs Many customers expect a brand to reward their loyalty. “Almost six in 10 (59%) British adults think all brands should offer a loyalty program, and over three quarters (77%) are subscribed to at least one program—a figure that rises to 85% among women (vs 70% of

The provider needs to communicate the benefits offered by the service effectively

At times when it looks as though the service has not been sold at its usual price, or demand is anticipated to be low, the organization can offer discounts to loyal customers.

Using the brand to extend the reach of the organization, perhaps through franchising can help overcome the perception of customer risk. When a customer’s usual hairdresser is not available, providing an alternative has the support of the brand, which helps to overcome perceived risk of using somebody new

Companies can guard against variability inherent in service delivery from both different Service providers, and different Service events by designing a set of robust standards that can offer a degree of uniformity.

Intangible

Perishable

Inseparability

Variability

Provider

Consumer

Each service encounter is different, based on who is providing the service, their mood on the day, the mood of the customer themselves, external factors, such as the weather, the impact of other customers on the experience.

There is a perceived risk of having to establish new relationships with service providers.

Perishability has meant that customers can benefit from last minute deals in the travel and hospitality industries, as organizations seek to at least make a contribution to over heads by selling seats and rooms below the normal market price. The company last minute.com has capitalized upon this.

Intangibility of services means that the consumer has to depend on either existing knowledge of the service provider, or the brand itself to understand what they are likely to receive in terms of quality.

Table 2.1  Characteristics of services from customer and company perspectives

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men). More than seven in 10 (72%) think loyalty programmes are a great way for brands and businesses to reward their customers.” and the more mature (over 55) are likely to favor loyalty more, with a take-up of 83%, contrasting a 61% take-up in the 18–24 group. Young men are the least likely to be members of loyalty schemes. So it seems schemes are failing to attract the new users which will be essential for their survival. Loyalty programs have been around for ages (toys in Happy Meals, buy-one-get-one-free perks, come-back coupons handed over following a purchase, or credit card points). However, effective customer loyalty programs and other retention tactics are as much about customer service as they are about rewards. • 68% of millennials say they wouldn’t be loyal to a brand if it doesn’t have a good loyalty program. • The top two reasons why consumers disengage with a loyalty program are: the program did not provide offers that were of interest (56%), and it was too hard to earn points for rewards (54%). Effective loyalty should be supported in in every phase of the customer journey, not just at the end of the purchase process. It needs to start with building a mutually friendly and rewarding relationship, and work at strengthening it. The Importance of Loyalty Programs A customer loyalty program that rewards customers who make repeat purchases or spend their time, money, and social currency with a company can be the cornerstone of competitive advantage, because: • The perks could initiate sign up or first purchase, acting as the driver behind acquiring a new customer. • Reinforcing the perks during a customer’s first few experiences with a brand may be the start of a life-long relationship. • Customers who are rewarded with relevant perks, supported by targeted communication linked to their individual needs

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and preferences are more likely to continue to support the company through repeat business but also importantly through advocacy, bringing in new groups of first time ­customers. The loyalty program drives personalized rewards and recommendations throughout a customer’s evolving relationship with a brand. Overview of Loyalty Schemes Established programs can learn from newer entrants that are adopting innovative methods of engagement. Virgin Red uses gamification to engage members, while Pets at Home VIP Club talks directly to pets instead of owners, engaging the emotional elements of the decision making process, as well as the cognitive. Partner rewards represent a new approach for loyalty programs; partnerships can create attractive members’ rewards, often more cost effectively than the brand itself. Partner rewards have gained most traction in airlines, petrol stations, retail, pharmacies, and supermarkets. These brands are viewed as commodities that people need, rather than brands they love. Partner rewards could offer added excitement, emotional engagement, and inspiration in this sector. Two sectors that stray from this pattern are hotels where both partner and the brand’s own rewards are valued equally (59%), and beauty salons where uniquely the brands own rewards are favored (62% want partner rewards vs 67% who want the brand’s own). Supermarkets dominate the loyalty scheme arena; two programs have competed for 20 years leading to two of the most successful UK loyalty programs. The Tesco Clubcard, launched in 1995, and the Nectar Card, launched a year later, are extremely successful for a number of reasons. Both programs use very simple points per pound spent system, 1, or 2 points per pound respectively, which allows customers to clearly understand what rewards are available to them when they spend a set amount. Both offer a wide range of rewards through partnership arrangements to offer discounts at restaurants through to days out at theme parks. Smaller businesses may struggle to team up with other businesses but offering a range of rewards that you can personally deliver will still



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help make your loyalty program appealing to as many potentially loyal ­customers as possible. Loyalty schemes successfully increase recommendation and spend, with almost half (48%) of loyalty program subscribers feeling greater affinity to the brands they hold membership with. They spend more and are more likely to recommend a brand whose program they are a member of. Still, a scant 28% feel emotional connection to a brand despite their affiliation by membership. A small group, the superloyal (13% of the nation), tick all three boxes, being more likely to recommend, spend more, and feel emotionally connected to a brand whose loyalty scheme they are a member of. Some schemes have a higher proportion of these people than others. The key to engagement may lie in understanding people’s redemption habits. The table below shows the differences. There is a group of tech-savvy customers who are • always actively on the lookout for new tech devices and ­services (10% vs 3%); • interested in video games (33%), websites (47%) and mobile apps (31%); • keen to use new technology products as soon as they enter the market (12% vs 9%); and • believe that there is a technological solution to humanity’s problems (37% vs 25%). Brands could usefully adopt gamification or app supported schemes to attract this group.

M&S 33% Vs 24%

Boots 61% Vs 53%

Figure 2.14  Schemes favored by the superloyal

Superdrug 29% Vs 23%

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Service Excellence in Organizations

Table 2.2  Redemption habits of loyalty scheme members Category

Habit

Percentage

The collectors

Collect points, save them up, aiming for a higher reward

44%

The regulars

Collect and redeem regularly

27%

The early redeemers

Early users, redeeming their points at regular intervals

20%

Responsibility for Excellence Within the Organization In the initial stages: responsibility for excellence falls to the brand; the brand makes a promise to the customer of what they will receive upon purchase. At this point, operations, and importantly, staff take over ­delivery of the promise, as they perform service activities. This process will either meet, exceed, or fail to meet the expectations established by the initial encounter with the brand. After the first purchase, excellence becomes again, the responsibility of marketing, to deepen the relationship with the customer, with the expectation of repeat purchase. Staff will ensure that feedback is obtained about the level of customer satisfaction felt from the first purchase. Too often, this is done by means of an anonymous e-mail, requesting customer feedback. This rather lazy way of gathering feedback has led to consumer apathy in responding, resulting in a potentially distorted picture of the service that is delivered, as customers tend only to respond in the event of an exceptionally good, or exceptionally bad experience. Many stores now offer free entry to a prize draw for customers who complete online evaluations.

Excellence in Staff Relations Embedding excellence should be focused equally on making staff happy, as on making customers happy, or, arguably, even more so, as a happy workforce with a spring in their step and a smile on their faces, enhance the customer experience. Zappos, the online retailer follows this principle to the letter, fully empowering staff to spend as long as needed on calls, rather than timing them to measure productivity. As a result, they are revered by customers and enjoy high loyalty and advocacy. For more than 30 years, organizations have been searching for a formula that works, appreciating the many potential benefits of flexible

Establish engaging brand

Putting service delivery aspects in place, liaising with marketing to give consistency with brand messages

Marketing

Operations

Responsibility

Initial awareness

Ensure staff are ready to delight

Ensure purchase processes work Ensure necessary supplies are available

Sensory aspects of brand engagement

Communicate brand values

First Transaction

Deliver service at or above the promised level

Provide supporting marketing materials

Service delivery Service/ PPProduct use

Receive, ­interpret, and act on feedback

Design feedback process

Customer feedback

Table 2.3  Marketing and operations roles throughout the customer relationship

Ensure processes continue to deliver the ­promise and delight customers

Design reasons for relationship, for example., fun, rewards

Relationship building

Encouraging advocacy

Staff training, frontline staff empowerment

Welcome people introduced by advocates

Offer incentives Offer incentives for for loyalty introducing people, or for blogging, vlogging and so on.

Embedding loyalty

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working. Technology has become an enabler, since most of us carry the tools required for efficient flexible working with us as a matter of course. What is holding organizations back is an inability to create the right culture to deliver flexible working schemes and policies. Flexible working is often more of a compromise or exception: a way of integrating workers who have time or mobility restrictions into the workplace. This has led to creation of policies that define boundaries around flexible working arrangements, making flexible working seem like an arrangement for lower level staff. For flexible working to become a valuable element in meeting variable levels of demand, and enabling the organization to adapt rapidly, three factors can help: 1. Organizations don’t need a policy: Where flexible working succeeds best, flexibility is available to all, with a high degree of trust, rather than having meticulously crafted, individual arrangements. This also reflects the servant leadership principles of employee empowerment. 2. Employees take control: Successful flexible working has to be focused on the requirements of the organization, and its team members, so organizations need to surrender control and put employees in charge of their time. 3. Organizations that are flexible from the top-down: Flexibility works best when an organization endorses it openly by getting senior management involved. When this level shows that they enjoy working flexibly, the rest of the team will soon follow. Flexible working empowers organizations to welcome a more diverse workforce, and helps employees advance and strengthen their collaboration skills, facilitating gatherings of the richest talent in whichever ­format best suits the work at hand. Empowered staff are best equipped to ­provide outstanding service that goes beyond customer expectations into the realms of customer delight.

Quotations from Key Practitioners/Leaders of Excellence Businesses Make a customer, not a sale. —Katherine Barchetti, Founder of K. Barchetti Shops, ­Pittsburgh



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Every contact we have with a customer influences whether or not they’ll come back. We have to be great every time or we’ll lose them. —Kevin Stirtz, Strategy Manager at Thomson Reuters, Author: More loyal customers

Disenchantment Example Royal Caribbean’s sub-brand, Celebrity makes loyal customers take six Celebrity cruises before applying for Royal Caribbean rewards. Select and Elite members just recently received Internet and laundry privileges that Princess cruise line customers have had for a while. The behind-the-scenes tours and increased access offered by Royal Caribbean look insubstantial when compared to the $75 to $400 credits that customers receive on competing line Oceania.

Enchantment Example

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Amazon Prime’s loyalty scheme is so successful people are willing to pay £79 a year for it. Few other loyalty programs offer enough value to make people willing to pay to receive its benefits. Amazon Prime offers perks such as free access to their streaming service, free two-day delivery, and even one-hour delivery in some cities exclusively to Amazon Prime members who therefore feel more valued compared to the average customer. An estimated 7 million Amazon Prime users spend twice as much on average as non-prime members, so clearly, both customer and Amazon find value in the closer relationship.

End of Chapter Summary This chapter has investigated why it is important for organizations to focus on their customers and place customer loyalty strategies at the heart of their operations. It explored why organizations need to cement relationships with their customers and to deliver excellent customer service. If customers are viewed as a business asset and treasured for their lifetime value, organizations may pay more attention to ensuring customer satisfaction. Nurturing customer relationships over time can deliver significant revenue, profit, and market share to organizations. The shift from transaction marketing to relationship marketing and ensuring customer satisfaction has begun. Organizations must now move from delivering satisfaction into having loyal customers who actively support the organization and promote it. Organizations need to plan a CRM program that covers the whole organization from shop floor to senior management. Effective CRM will enable organizations to reap rewards in customer loyalty and profitability. Successful implementation of CRM requires organizational-wide, cross-functional, customer-­ focused business process reengineering. Although a large portion of CRM involves technology, managing a successful CRM implementation requires an integrated and balanced approach to technology, process, and people.



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End of Chapter Review Questions Customers Loyalty building

High

Low

Is loyalty part of corporate strategy? Do you actively promote loyalty through your marketing? Does your segmentation, targeting, and ­positioning actively seek customers who are open to collaboration? Do you reward loyal customers? Do you maintain a CRM system? Is it maintained at SBU level, or corporate level? How do you deal with duplication? How do you deal with communication? Is the CRM integrated with other intelligence systems? Are all staff trained to use CRM? Do you calculate CRM performance? Do you monitor the impact of CRM strategies on trust, commitment, loyalty, and satisfaction? Do you give special attention to key accounts? Is the concept of loyalty embedded in your brand? Do you craft a unique service for each customer? Does the quality of your service support your brand promise and engender loyalty?

References Christopher, M., A. Payne, and D. Ballantyne. 2013. Relationship Marketing. Routledge. Dick A.S., and K. Basu. 1994. “Towards an Integrated Conceptual Framework.” Journal of the Academy of Marketing Science 22, no. 2, pp. 99–113. Peters, T., and R.H.Waterman. 2004. “In Search of Excellence.” Lessons from America’s Best run Companies. Punniyamoorthy, M., and M.P.M. Raj. 2007. “An Empirical Model for Brand Loyalty Measurement.” Journal of Targeting Measurement and Analysis for Marketing 15, no. 4, pp. 222–33.

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Roberts, K. 2006. Lovemarks: The Future Beyond Brands. Zeithaml, V., and L. Berry. 1996. Bitner. MJ Services Marketing, 177. New York, NY: McGraw-Hill. https://instituteofcustomerservice.com/research-insight/research-library/ ukcsi-the-state-of-customer-satisfaction-in-the-uk-january-2017http:// hotspotsmovement.com/uploads/newsletters/understand-flexibility.html https://d25d2506sfb94s.cloudfront.net/r/53/what-the-british-think-of-loyaltyprogrammes.pdf https://salesforce.com/blog/2016/10/customer-loyalty-program-examples-tips. html https://sciencedirect.com/science/article/pii/S1057740814001089 https://uk.images.search.yahoo.com/yhs/search;_ylt=AwrJ7B0W3k1bjLgAzLCe 3olQ;_ylu=X3oDMTBsZ29xY3ZzBHNlYwNzZWFyY2gEc2xrA2J1dH Rvbg--;_ylc=X1MDMTM1MTIxMjcwMgRfcgMyBGFjdG4DY2xrBG JjawNhazF1OTRwYnZmNWJvJTI2YiUzRDQlMjZkJTNEVXdo V k J S T n B Z R U o 1 W F h X b F F y c W F s U 1 h m W k p B W F h We m t E b E9GSEthXyUyNnMlM0RrMiUyNmklM0QxdWUxVC5ZS2 55ZFZXa05RdGQ0MQRjc3JjcHZpZ ANlaUtMVVRFd0xq S 3 F C O G t t V l 9 l V m V B b 0 R P V E F 1 T Wd B Q U F B R H F D a G F Y B G Z y A 3 l o c y 1 M a 3 J 5 L V N G M D E E Z n I y A 3 N h LW d w B GdwcmlkA0cxYjdjdTc5VHNXU0MzTjFNekJEcUEEb XRlc3RpZ ANudWxsBG5fc3VnZwMxMARvcmlnaW4D dWsuaW1hZ2VzLnNlYXJjaC55YWhvby5jb20EcG9 zAzAEcHFzdHIDBHBxc3RybAMEcXN0cmwDMzAEc X V l c n k D a 2 V s b G Vy I G J y Y W 5 k I H J l c 2 9 u Y W 5 j Z S B w e XJhbWlkBHRfc3RtcAMxNTMxODMxMjIzBHZ0ZXN 0 a WQ D b n V s b A - - ? g p r i d = G 1 b 7 c u 7 9 Ts W S C 3 N 1 M z B D q A & p v i d=eiKLUTEwLjKqB8kmV_eVeAoDOTAuMgAAAADqChaX&p=keller +brand+resonance+pyramid&fr=yhs-Lkry-SF01&fr2=sb-top-uk.images. search.yahoo.com&ei=UTF-8&n=60&x=wrt&hsimp=yhs-S F01&hspart=Lkry&y=Search#id=12&iurl=http%3A%2F%2Fvizual. com%2Fwp-content%2Fuploads%2F2012%2F04%2Fbrand_pyramid_ CBBE1.jpg&action=click

CHAPTER 3

Extend Chapter Objectives • To identify the importance of innovation to the company and its staff • To identify how innovation can add excellence for the ­customer • To appreciate the importance of the external environment, especially technology in delivering service excellence • Explore sources of change at various levels that can act as a driver for change • To ensure existing services continue to meet customer ­expectations • To identify strategies to help innovation and service ­development • To define an effective process for developing and delivering new services • To explore how innovation can be delivered in organizational settings • To introduce design thinking principles • To consider the role of service-dominant logic

Chapter Profile This chapter covers the need to innovate within services for the future survival of the organization. It explores the process of innovation within a service environment, and some of the complexities caused by the differences of services versus products. It discusses the design and delivery of new services, as well as the integration of new services alongside existing services, showing how management can manage expectations of both simultaneously. The introduction of services is facilitated or hindered by

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environmental conditions, which play a part in determining strategy for innovation. It also discusses some of the new technologies emerging to deliver services in innovative ways.

Why Innovation Matters Marketing is the management process that identifies, anticipates and satisfies customer requirements profitably. —The Chartered Institute of Marketing The elements of this are: • Identifying customer needs (research and relationship ­building) • Satisfying them (short-term) • Anticipating future needs (long-term retention). This provides ample justification for organizations whether product or service targeted for innovation, both short-term and long-term, in order to provide customer satisfaction and excitement.

What Is Innovation? Definition Innovation is a product, service, or idea that is perceived by consumers as new. There are differing magnitudes of innovation. Adding bran to an established brand of breakfast cereal is considered a continuous innovation in that it constitutes a small change to an existing product with little market impact, as opposed to discontinuous innovations like the personal computer, which caused great societal impact. The public outcry against the “new” Coca-Cola belied the relatively small continuous innovation that it was. An innovative strategy uses both forms of innovation to stay one step ahead of the competition. (http://allbusiness.com/glossaries/innovation/4953136-1.html)

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In the context of service excellence, innovation is critical to the long-term health of the organization. It can be prompted by changes in demand, sociology, or technology, and is strongest and most likely to succeed when all three coincide (Freeman 1987). The fax machine was developed many decades before the telephone, but no application became apparent until a telephone network was in place, and people were comfortable using it. Technology alone cannot drive innovation; other factors need to support it. As the definition suggests, innovation happens to varying degrees, in services as well as in products, and the bulk of innovation is low-level incremental. Innovation should not be the province of the marketing department alone, nor the Research and Development department, although it is often driven by marketing or R&D. Innovation can occur in any area of the business and have a dramatic effect on business fortunes. Service characteristics tend to make innovation rather more challenging than in products, although there are a number of steps that can be taken to enhance the success rate.

What Drives Innovation in Services? Innovation is driven by the need to gain a competitive edge, to offer something new and different to draw new business to the organization. In services, more often than in product marketing, innovation is driven by customer needs. Because services have such an extensive customer interface, the organization has the opportunity to listen to what customers say in a variety of ways, feed it back, and use it as the basis of innovation. This does demand that the organization has a culture and structure that ready it for learning. Learning organizations have become a hot management topic in recent years, and a service organization is best equipped to embed this in the culture. It is a key facet of service excellence because it involves listening to customers and consulting staff. The table below shows companies in the service sector and their innovations with the drivers behind them. It also shows the diversity of the service sector.

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Table 3.1  Innovative companies taken from CBI report Case study Examples of innovation company highlighted by company

Innovation drivers

Arup

Development of the Dongtan ecocity concept in China

Foresight and long-established company culture, which balances public good with “reasonable prosperity”

Aviva—­ Norwich Union

Developed telematics insurance product for individual customers and fleets

Need to respond to rapid change in insurance market, strategic decision to seek out organic growth, “inevitability” of telematics provided opportunity

Benoy

Internal business ­reorganization

In response to rapid company growth and need to free up key staff to focus on core architecture work

BT Wholesale

New ways of bundling services and providing software (rather than hardware) solutions

Declining opportunity in core market and strategic decision to grow, rather than have a managed retreat

Clarks

Development and introduction of 3D foot scanning technology

To replace existing foot measurement equipment at the end of its useful life, to reduce costs and ­determination to create a leading retail experience

Fujitsu ­Services

Moving from technological solutions to business-based outcome services

Company culture and strategy, foresight—looking for trends and “tipping points,” to reduce costs, requests for innovation from clients, to differentiate themselves from the competition

HSBC

Sharia-compliant banking, green banking, self-service banking in branches and borderless banking

To improve customer experience, meet demands of new markets while reducing costs and environmental impact

KPMG

Developing a new ­internal innovation framework ­incorporating skills, behavior, and process

To help them keep ahead of a rapidly changing business environment where some traditional services have become commoditized and clients are more demanding

Legal and General

Starting underwriters’ academy To gain advantage over c­ ompetitors in collaboration with Cardiff with better training, thus University ­raising standards, brand image, and ­reputation while reducing costs, and offering better career ­progression opportunities to retain the best staff

Extend 69 Loch Lomond Seaplanes

Bringing seaplanes as a mode of transport to the west of Scotland

Company culture, identified a gap and sought to create a new market

Steria

Business process improvement for Norwich City Council and black cab scheduling system for BAA

To stay ahead in competitive sector where intellectual property is difficult to protect; responding to the changing market where managed services are now seen as a commodity and customers are more demanding

Magic Lantern

Providing a bridge between traditional and digital media with a focus on participative engagement

Company culture, proactively identifying audience needs that seem underserved, to grow by focusing on their areas of expertise in new technology, innovation, and creativity

Muckle

Complete organizational culture Change internally

Changing market environment becoming more competitive, desire to differentiate themselves on service delivery, and need to retain staff

Newcastle International Airport

Increase “dwell time” in key parts of the airport

To improve overall customer experience while also maximizing revenue opportunities and meeting changing regulatory demands on security, etc.

Nike

Unique brand experience from social networking to a service allowing customers to design their own footwear—process of mass customization

Company culture, which promotes innovation as one of four core values. To create a brand that enhances the customer experience and grows Nike’s market-leading position

Texperts

On-demand expert answers to customer questions by text service

Company culture, to grow the business, reduce costs, and stay ahead of fast-moving competition

Source: Adapted from http://cbi.org.uk/pdf/Excellenceinserviceinnovation.pdf

Service-Dominant Logic One driver for innovation is to create more profit while at the same time delivering superior meaningful value for the customer. This requires a coordinated understanding of the purpose and nature of organizations, markets, and society—a true piece of “outside-in thinking.” The origins of this go back to the mid-19th century, and many marketing gurus have added their voices to the conversation, including Philip Kotler, Evert Gummesson, and Christian Grönroos. The work of Vargo and Lusch in 2004 brought together the thinking of many scholars in the field to

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produce a concept of the mindset shift required to deliver enhanced benefits to buyers, sellers, and society simultaneously. The cornerstone of service-dominant logic is that organizations, ­markets, and society are essentially focused on exchange of service—using their combination of competences to the benefit of another party: effectively, recognizing the need for reciprocity, exchanging one service for another; making all firms service organizations; centering all markets on service exchange, placing service at the heart of all economies and societies. This shifts marketing thinking and practice away from goods marketing into service logic, principles, and theories. Whereas service marketing was historically seen as a progression from goods marketing, and a sort of subdiscipline, the whole focus of marketing is shifting from its goods-dominant (G-D) logic toward service dominant (S-D) logic. This new paradigm embraces value-in-use and co-creation of value rather than the embedded-value concepts of G-D logic. Instead of seeing buyers and sellers on opposite sides of the fence, co-creation of value means that they work together, with possibly other partners in the firm’s value network to achieve an overall enhanced value. This creates a new orientation for businesses, moving them beyond seeing service as an add-on to a product to viewing value creation as the key achievement. Innovation has two strands, first the process of creating something new and second the outcome of that process, maybe an improvement or a modification to an existing service. Service innovations may be radical or incremental; radical innovations are new to the world, while incremental innovations are adaptations of existing and much more common services. The new service development process divides also into planning and implementation. Planning focuses on development and analysis while execution phase moves into design and launch. The service design creates a blueprint connecting customers with employees and creating a shared understanding of what will be given and what will be received. Design thinking approaches are valuable in this regard, as they bring together all the stakeholders with an interest in the problem, so that any proposed solution is informed by all perspectives. Tier one suppliers increasingly co-create throughout their supply chain to ensure better endto-end solutions, and more robust outcomes. An example of this is seen in the UK water industry, where large players such as Northumbria Water Group engage their smaller partners and the local communities to design

Extend 71

solutions. This has the further advantage that whilst Northumbria Water is too large to be able to access any government funds, its supply chain members are mostly able to draw on these. Co-creation requires comprehensive communication with a wide variety of audiences; early proponents of SD logic, and even its champions, Vargo and Lusch in 2004 did not have the advantage of an all-pervasive communications network to make reaching all stakeholder groups a relatively quick and easy process. The last decade has seen a huge spread in terms of social media, which now offers both a technology and a methodology that can effectively utilize service-dominant logic. Social media gives scale; companies can focus well on a single customer, but struggle to replicate this globally, when many customers are on the other side of the world. Social media not only enables conversations with millions of people at the touch of a button, but also creates a resource of searchable data. Businesses can track trends in online discussions and anticipate potential issues early. Interaction, collaboration, and co-creation are fundamental to service-dominant logic. Social media provides an effective infrastructure for this interactive communication and collaboration, enabling SD logic to compete with low-price value derived from centralized manufacturing and scale benefits seen in goods-dominant logic. Dell, previously available directly only, increased production because of online demand for its Linux laptop. Dell adjusted its value proposal based on customer collaboration through social media to co-create a successful product. Social media driving traffic to the Dell IdeaStorm website gave the opportunity for Dell to gather the information needed for the product launch offering customers the value they desired. Using an online “suggestion box,” collecting some 1,800 new product and service ideas from users, Dell has taken ideas forward to create a new line of certified, user-ready Linux-loaded desktop and laptop computers. Vargo and Lusch (2004, p. 13) predicted a shift in market communications from one-way communication to dialog: Historically, most communication with the market can be characterized as one-way, mass communication that flows from the offering firm to the market or to segments of markets. A service-centered view of exchange suggests that individual customers increasingly specialize and turn to their domesticated market relationships for services

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outside of their own competences. Therefore, promotion will need to become a communication process characterized by dialogue, asking and answering questions. Their work also highlighted how the entire organization can cement customer relationships: Relationship building with customers becomes intrinsic not only to marketing but also to the enterprise as a whole. All employees are identified as service providers, with the ultimate goal of satisfying the customer. Online collaboration augments partnering attempts; no longer are conversations limited by room size, since online chat rooms can accommodate any number of stakeholders. Conversation is held with the entire market, opening interactions with customers and other stakeholders not previously accessible. For a global company, this change is even more notable. As all employees build relations and take part in the conversation, the conversation happens across all levels, and gains authenticity. As more organizations adopt service-dominated culture they will create networks of supporting suppliers facilitating stronger solutions for customers. Co-creation of value requires an alignment of the organization’s offer with the lives of their customers, rather than just an invitation to collaborate.

Customer Reaction to Change and Innovation Although customers may openly claim to want innovation, in practice, they are often somewhat resistant to try new things, especially until they feel they have been tested. This applies more strongly in services because the customer is so involved with the process of service delivery, and many services are personal. In general, people adopt new services based on five criteria: • • • • •

Relative advantage Compatibility Communicability Divisibility Complexity.

Extend 73

That means that a service that is clearly better than others fits in with existing behavioral norms, can be explained, is straightforward, and that can be tried as a sample without a full commitment will be more readily accepted than one that falls short in any of these areas. Services are harder to explain in a communication, or offer as samples. They are usually more complex, and, increasingly, as they become technology based, less compatible. They are unique to each buyer, and even between visits; medical, legal, and accountancy services are especially hard to offer as taster sessions. Gyms and sports clubs often give vouchers to members to invite their friends to free sessions, offering benefit at little cost as the facilities are there anyway. Compatibility with customers’ existing values and behaviors is an important part of acceptability. Women may find it acceptable to have someone to clean the house, but are more likely to resist having someone to prepare family meals, because they feel this is part of their homemaker role, and a mechanism for expressing love. In introducing new services, organizations should appreciate all these aspects of innovation diffusion to compensate for them, and assess demand levels as the service is launched.

Changes to Customers The customer base is not a static entity, but moves through various phases, so the last few decades have seen the emergence of new groups, with new purchasing preferences, and also new work preferences.

Helps to maintain the relationship, with something fresh—e.g. cook chill food companies offering the latest “taste sensation”

Help customer adapt to environmental changes— e.g. legislation

Makes customer’s lives easier—e.g. screenshot of cheque deposit for mobile banking

Help customer gain added value from product/service

Customer can participate in innovation

Helps customer feel innovative

Figure 3.1  The benefits to the customer from innovation

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Table 3.2  Categories of the population Term

Data

The Baby Boomers

Born: 1946–1954 Coming of Age: 1963–1972 Age in 2004: 50–58 Current Population: 33 million

Boomers II or Generation Jones

Born: 1955–1965 Coming of Age: 1973–1983 Age in 2004: 39–49 Current Population: 49 million

Generation X

Born: 1966–1976 Coming of Age: 1988–1994 Age in 2004: 28 to 38 Current Population: 41 million

Generation Y, Echo Boomers, or Millennials

Born: 1977–1994 Coming of Age: 1998–2006 Age in 2004: 10–22 Current Population: 71 million

Generation Z

Born: 1995–2012 Coming of Age: 2013–2020 Age in 2004: 0–9 Current Population: 23 million and growing rapidly

The most marked differences in attitude to purchasing come from what is known as Generation Y, shown in the table below. We don’t know much about Gen Z yet, but we do know a lot about their adolescent environment. This highly diverse environment will make the schools of the next generation the most diverse ever. Higher levels of technology will enable customized instruction, data mining of student histories will enable diagnostics, remediation, or accelerated achievement opportunities. Gen Z shoppers will be more Internet savvy and expert than their Gen Y forerunners. 1. Email In 2010, at the launch of Facebook’s then-new messaging service, Mark Zuckerberg predicted the decline of electronic mail.

2. Beer Light beer has become to the current generation of youth what regular beer was just a few decades ago.

3. Newspapers The country’s younger generation has abandoned the medium the most.

4. Cars 46% of 18 to 24 drivers would choose Internet access over owning a car (Gartner Research).

5. Landline phones Generation Y are happy to have only wireless phones.

6. Cigarettes 18 to 24 age showed the largest decrease among any age group.

7. Desktop computers Millennials are more likely to own a laptop computer than a desktop.

8. Television 18 to 24s watch less traditional television than any other age group (Nielsen’s Cross Platform Report.)

Figure 3.2  Changing tastes: eight things Gen Y won’t buy

Extend 75

This demonstration of purchasing preferences indicates some of the changes in direction required of organizations if they are to meet, and especially anticipate the needs of this new customer group, and the Gen Zs that follow them.

Benefits to Organizations from Innovation Innovation is a costly and time-consuming activity, so there must also be significant benefits to the organization from undertaking it. The table below summarizes some of these.

“Innovate or die” indicates that long term survival of brands demands constant innovation and new offerings

Design-centric firms like Apple, IBM, Coca-Cola have delivered extraordinary performance in the last 10 years by achieving 219% in Standard and Poors500

Improved productivity and reduced costs

Better quality

Building a product range

To handle legal and environmental issues • E.g. reduce carbon emissions, produce less waste or perhaps comply with changing product legislation.

More added value

Improved staff retention, motivation and easier recruitment

Figure 3.3  Benefits to the company from innovation

External Drivers for Change Change, and hence the need for innovation within an organization and its product or service range, can be initiated from many sources within the external environment, using the acronym STEEPLE; these are identified as, which includes the generation shifts described in Figure 3.2. Table 3.3  The meaning of the acronym STEEPLE Change driver

Description

Sociocultural

Social factors include demographics, lifestyle, age groups, and education levels, as well as the generation shifts described in Figure 3.2. Shifts in culture resulting from immigration or other population shifts also play a part.

Technological

Factors include the state of the technological advancement and trends in technology (Continued)

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Table 3.3  (Continued) Change driver

Description

Economic

GDP growth rate, inflation rates, interest rates set up by the central bank

Environmental

Weather and climate of the region, the flora and fauna of the region

Political

The type of government that exists and its ideology exhibited by the various tariffs imposed, incentives given, and the stability of the government

Legal

Covers the laws of the land, for example, competition law, minority protection act.

Ethical

The general code of ethics followed by most of the people in the region, and the tendency of the people to be ethical

Demand

Innovation most likely to succeed when all 3 present

Technology Sociology

Figure 3.4  Conditions in which innovation is most likely to succeed (adapted from Freeman 1987)

Across all domains of the external environment, innovation is most likely to succeed when three elements combine. Figure 3.4 demonstrates that when sociology and technology change simultaneously to ­produce a level of demand for something, successful innovation is most likely to happen. The classic example of this was during the Industrial Revolution in the United Kingdom, when factories attracted workers from the country to the town, and at the same time, steam rail travel became available; demand came from ambitious workers moving to maximize their income, but also wishing to stay in touch with families. This, and the need to transport the manufactured goods to their markets was the basis of the success of the railways.

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A clear understanding of STEEPLE is an invaluable tool for organizations to predict and anticipate customer needs. If an organization uses innovation as its differentiating factor, then it must always have what ­management guru Rosabeth Moss Kanter describes as “the 15-minute advantage” to keep it one step ahead. That means not simply being responsive to customer requests, but working to predict them, and developing services to meet them, so that customers feel the organization really understands them. Forward thinking organizations use extensive scenario planning, based on environmental scanning, to understand change drivers and how they combine to create new service opportunities.

Changing Business Practices The business world is also constantly evolving in response to environmental change, so maintaining parity with the competition is an imperative for organizations, or better still, gaining what has been described as a 15-minute advantage over the competition, can keep the business at the forefront of its industry. The table below shows some of the changes that have taken place in recent years in the business to business community. Example Eight years ago, we managed real estate and rooms where the value of the properties drove the value of the company, now, what we own are brands, which means that the primary asset to be managed is the customer relationship, which drives the value of the company. —Jeff Diskin, Senior VP for brand marketing at Hilton Hotels • The website, Hilton.com, provides information for customers who want to know whether there is a room available on a particular night at a particular place at a given rate. • Hiltonjourneys.com enables consumers to explore the deeper meaning of travel. • By using online to offer both the practical and philosophical aspects of travel, customers are exposed to Hilton’s branding message in multiple contexts.

Customer focus

Marketing orientation

Emergent planning

Participative management

Flat structure

Telecommuting

Fast-paced change

Grassroots leadership

Stressed workers and unemployment

Production orientation

Deliberate planning

Autocratic management

Many levels of organization

Office based

Stable state

Top-down leadership

Work–life balance

New paradigm

Cost focus

Old paradigm

Table 3.4  Changes to workplace practices

Caring organizations have the opportunity by adopting ethical HR procedures to secure and retain the best staff and gain a competitive edge by enhancing their employer brand.

This makes it more important than ever to recruit for attitude, rather than skills, and to recruit people who have high levels of creativity.

This means that staff need to be flexible, adaptable, creative in their approach.

This will result in a need for smaller offices, and greater use of mobile technologies.

This also encourages the development of a servant leadership based approach.

Service excellence takes this one step further, moving into the concept of servant leadership, where frontline staff are empowered to make their own decisions.

Emergent planning means that all staff in the organization needs to have an understanding of the business strategy in order to be able to spot opportunities and respond to them

Businesses need to present the benefits of their product or service, rather than the features

Businesses need to make the customer central to their operations

Implications

78 Service Excellence in Organizations

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• Hilton has built harmonized websites that attempt to connect the practical (“I need a room”) to the aspirational (“I want to experience something unique”). Pause for Thought Think about the way in which environmental changes have brought about the demise of some services, and the rise of others, and what the environmental drivers have been. Was there an existing service, replaced by a new one? Have traditional service companies managed to survive, and what has facilitated this? Rington’s sells tea on a monthly round, fish vans offering a monthly service to rural villages, and library vans survive. How have they adapted? A couple of examples are given; think about others. Change driver

Old service

New service/ Adaptation

Rising car ownership

Village shop Good public transport

Superstore Mobile car repairs

Work–life balance and clogged transport systems

Mass commuting to cities

Home working

Results from Innovative Service Organizations The 10 industries with the most dramatic salary growth are all in this service-providing sector, ranging from employment services to education to health care. In contrast, employment in the manufacturing sector is expected to drop 5 percent by 2014, and goods-producing industries will decline to 13 percent of total American employment in the decade 2004–14, down from 15 percent in 1994–2004. And the trend is global: service workers now outnumber farmers for the first time, according to the ­January 2007 issue of Global Employment Trends, a newsletter published by the International Labour Office. Companies engaged in the services sector enjoy significant growth in revenue and profits, although the recession has curtailed that. ­Service innovation is the new direction, and in combination with a service excellence

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approach represents a robust strategy offering long-term survival. Services excellence delivers increased revenues in the short term as well.

Strategies to Help Innovation and Service Development Strategic Management of Service Development The types of new service that are appropriate depend on the objectives of the organization, its capabilities, vision, and growth plans. Each organization needs to define a strategy for the development of new services that identifies the type of service, type of market, and timeframes. Strategies to Help Innovation Any organization with aspirations about market leadership needs to continually improve existing products and develop new ones. Achieving innovation especially in the core service is costly and time-consuming, and often demands huge research commitment. More mature business sectors struggle to be innovative.

Hygiene factors (do or decline)

Parity

Core service (do or die)

Superiority

Figure 3.5  Service elements and competitive leverage: adapted from Services Marketing: A European Perspective, Lovelock, Van der Merwee 1996

Extend 81

Major innovation is relatively rare; most occurs within supporting aspects of service, and it is here that organizations have the best opportunity to increase customer perceptions of value. Performing the core task is seen as a given; if the organization fails here, it will go out of business. Innovation in the surrounding services can help organizations differentiate. Supporting services can be divided into hygiene and enhancing ­factors with a further division of the latter into parity and superiority. Hygiene Factors Although not part of the core service, these are things that customers take for granted, and a shortfall can lead to dissatisfaction. Strategically, they are “do or decline” factors. They include clear billing, effective order taking, and so on. Failure in these makes the organization look incompetent. Enhancing Factors Other aspects can be seen as optional extras, which can help create satisfaction but are not prerequisites for satisfaction. When matching competitors, they are parity factors, and when used for competitive advantage, they are superiority factors. The creation of new enhancing factors is where organizations seek to differentiate, for example a bank giving free travel insurance with a current account. Enhancing factors are soon adopted by other players and become parity factors. The Open University MBAs stood out from the competition because they were done through distance learning, now, most business schools offer this route. Managers have to decide between distinctive additions and enhancing core service performance.

Strategies for Market Development—Ansoff’s Matrix Ansoff’s matrix, originally developed as a framework for identifying strategic direction for products, can be applied to services. The matrix also indicates risk factors for each strategy, shown in the table below. Just being in business, working to build share carries a risk factor of one, offering

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Table 3.5  Ansoff’s matrix showing risk factors and service application Markets Offerings

Current customers

New customers

Existing services

Share Building (1)

Market development (2)

New Services

Service Development (4)

Diversification (16)

the same service to a new group of customers is twice as risky because of investment in getting to know the new group and its needs. Developing new services is twice as risky again, because the organization has to invest money in development, which is wasted if the new service proves unpopular. Diversification is the riskiest because neither the target market nor the service are known quantities so much research is required. The service excellence approach minimizes risks associated with developing new services and new markets. Consultation, collaboration, stepping into the customer’s activity cycle help the organization identify service enhancements, or even completely new services that would make a material difference to the customer, and are likely to be well received. In B2B contexts this may mean joint development. Service excellence can help open new markets, as the organization works with existing loyal customers to help open doors in new areas, either geographic, or sectorial. The matrix can also be used as a catalyst to generate potential ideas for services by focusing management’s attention on it. Location of NPD in the Organization It is important that new product development (NPD) is located strategically in the organization if it is to be seen as an integral and valued activity. It should report directly to senior management, and should be a discrete activity, rather than merely an adjunct. Better still, it should be the province of all members of staff, who should feel able to contribute ideas for innovation across the board. Organizations, which operate a matrix structure, struggle with NPD, because it is the province of product managers so NPD tends to be limited to incremental improvements, such as new colors, flavors, sizes, or packaging and the organization misses out on real innovation.

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Internal Innovation Strategies These usually develop and nurture the attributes of innovative corporations, such as prioritizing and encouraging innovation. The figure below are some strategies from highly successful corporations. Market-based Strategies The most common market-based innovation strategies include: • the leader, • quick follow, and • slow follow (or no follow) strategies A leadership strategy means being the first to introduce the innovation to the market. The risk is that the product or service will be rejected by the marketplace, possibly undermining the brand through failure and wasting costly resources. The benefits of this approach include: • Companies often introduce an innovation to an existing product or service, calling it “new” or “improved,” to breathe new life into it. • An improved product may discourage the competition from trying to steal market share, or to “leapfrog” their c­ ompetitors. • For completely new products or ideas, the innovation may try to establish market dominance and attain leadership status.

Figure 3.6  Internal innovation strategies

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Figure 3.7  Northumbria water’s innovation festival reproduced with kind permission from Northumbria Water Group

Northumbria Water in 2017 launched a Festival of Innovation, bringing together companies from across the utilities sector to explore common problems, and in doing so, positioned themselves as thought leaders in the entire infrastructure sector, not just water. In 2018, this became more ambitious, covering more areas, and attracting a wider, worldwide audience. The quick-follow strategy is often used by established market leaders to avoid the risk of leadership strategy, allowing a competitor to introduce an innovation, then following with a substitute or improvement. Quick followers are confident in their ability to crush the competition with their established reputation and marketing and distribution channels. They risk being unseated by a hugely successful introduction or losing reputation as an innovator. This may include smaller competitors trying to keep up with the competition. They may try to target select market niches, offering a cheaper version of a new innovation to lure buyers who can’t afford the leader’s product or service. Car manufacturers often adapt the best qualities from each other by changing the style of the vehicle. Technology adapters include Dell and Sony who have products in the laptop market but adapt from their closest competition. Adapters can soon become leaders as well because they can learn and make a better product than the higher competition. Japanese camera companies built much of their market success on emulating ­German camera products back in the 1960s and 1970s.

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A slow- or no-follow strategy may result because competitive pressures or slow market growth make an investment unappealing. Or, the company may realize it lacks the resources or technology to compete with the new innovation. Some companies refuse to introduce or adopt an innovation because they know existing customers have made large capital investments in its existing product line and will be hesitant to buy new equipment. Other companies are so strong in marketing or manufacturing that product innovation is simply not a chief concern—they would prefer to wait until the new innovation is accepted by the market before they follow. Strategies for Profit Growth Profit growth can be achieved through a number of means: increasing revenue, decreasing costs, spreading overheads across a wider range of ­services will all increase profitability. When service first emerged as a key differentiator, it was almost a matter of trust that it would deliver improved financial success. Companies of the standing of FedEx and Xerox made the commitment to service before documentary evidence could prove them right and were rewarded by leaping ahead of their competitors. Recession puts organizations under pressure, and there has been a temptation for organizations to look at lowering service levels to reduce costs. Tools to measure effectiveness of service excellence have been developed, and forward-thinking organizations no longer put services into the cost category but see them as major contributors to profits. In the same way as it is hard to attribute increased sales to advertising, the exact contribution of service to the bottom line is disputable. Results build slowly; it is one of a number of variables, along with p ­ ricing, communications, and efficiency that combine to raise profits. Above all, spending on service alone delivers nothing if the core service fails to satisfy. Organizations have used fairly constant measures of profitability throughout history, profit, and return on investment. Modern organizations now see the value of measuring other factors as the ­weather-vanes of organizational health. The approach is called the balanced performance scorecard and takes into account customer perceptions and operational indicators such as core skills and competencies. Triple bottom line businesses focus on profits, people, and the planet—not just profits as some

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companies do. These include Patagonia, climbing equipment, ­Better Books, and Namaste Solar, all of whom have a social or environmental purpose in addition to making money. Corporate entrepreneurship or intrapreneurship is entrepreneurship within an established organization. Growth is essential to all organizations, but very few have a process to support and maintain growth overtime, and a supportive framework is essential. Corporate entrepreneurship takes a systems perspective of the collective resources, processes, and environment that can nurture and engage all members of staff in entrepreneurial thinking and action. A strong entrepreneurial orientation enables better performance, enhancing productivity, innovation, growth, and ultimately, financial returns. Many organizations are wary because it challenges traditional ­organizational practices. Three components combine to enable corporate entrepreneurship: people, process, and place. • People—leaders with action focused skills and behaviors • Process—to support entrepreneurial approaches • Place—a collaborative environment to encourage entrepreneurship, learning, and growth These elements combine to enable the success of corporate entrepreneurship over time. The organization adopts a mindset that encompasses failure by seeing it as a source of learning, rather than a condemnation of the people or processes involved. Corporate entrepreneurship enables organizations to accelerate new business growth, whilst at the same time, making the work environment a more rewarding and exciting place for employees, and helping deliver greater relevance and freshness for customers. Continual collaboration also avoids the risk of marketing myopia as organizations are continually refreshing their offering in line with changing market trends.

New Service Development Process The development of new services stems from the organization’s mission statement in the first place. Some organizations desire market leadership, and use innovation as the means of achieving it, others are happy to let them take the lead (and incur the risks and costs). The development

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Idea generation

Develop new ideas

Concept development & evaluation

Test concept with customers and employees

Business analysis

Test for profitability and feasibility

Service development & testing

Conduct service prototype test

Market testing

Test service

Commercialisation

Post introduction evaluation

Screen ideas against new service development strategy

Test marketing mix elements

Figure 3.8  Idea generation process: Adapted from Booz-Allen Hamilton

of new services is most likely to be successful when a logical process is ­followed. The diagram below indicates a possible process. Idea Generation This stage should be very open, and all ideas should be allowed. It can begin with a brainstorming session, maybe using a framework to focus ideas on market extension, product extension, etc. Often in companies working closely with customers, ideas are generated as a result of cooperating on client processes, talking to operators, or observation of end-user experience. Customer feedback forms, complaint forms, customer focus groups, and other forms of eliciting customer opinion also form valuable sources of new product ideas. Only once there is a group of new service ideas should they be put through the filter of the organization’s goals for service development. Does the idea fit with the objectives in terms of new

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services, new markets, and diversification? Does it match the values of the organization and its clients? Concept Development Once a potential service is deemed a good fit, it can be developed into a blueprint, outlining the sequence of what happens. Costs can be determined, and views of staff who would deliver the service gathered. The ­service moves from idea to a realizable entity. The prerequisites and hygiene and enhanced factors must be clearly identified for the service at this stage. Table 3.6 shows a blueprint for an arranged parcel delivery through a courier company for a nonaccount customer. Business Analysis After favorable evaluation, the service is analyzed with a view to its profitability and profit implications. Demand forecasts, revenue, and cost ­projections are done, and the concept is graded against profit criteria. Service Development and Testing Services can’t be prototyped in the same way as products, but they do need testing. This involves everyone who has a stake in the product, including customers, staff, and third parties, representatives from marketing, operations, and HR. The blueprint is amended according to outcomes of this stage. Market Testing This stage establishes whether the new service will be well received, so it might be trialed in a number of areas, with perhaps, different emphasis on the various elements of the marketing mix. A prototype test is often run with staff, or with a group of loyal customers who have perhaps been involved all the way through.

Courier company H/W and S/W

Telephone or online booking

Office staff answer and organize collection

Call requirements routed to dispatch

Booking system

Physical evidence

Customer activity

Frontline staff

Back office staff

Invisible Supporting system Parcel tracking system

Courier collects parcel

Hands over parcel

Van and Courier livery, handheld terminal

Table 3.6  Blueprint for a parcel delivery service

Mechanized sorting and tracking system

Handling customs and data entry

Courier delivers parcel to warehouse hub

Warehouses

Billing system

Billing customer freight charges and customs charges

Courier delivers parcel and receives signature

Parcel delivered to recipient

Van and courier, waybill and parcel

Payment system

Take payment

Office staff resolve any queries

Receive and pay bill

Receipt

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Commercialization This is the point at which the service goes live and is launched. The key objectives are to • build awareness and acceptance of the new service and • monitor aspects of the service during introduction, and throughout the service cycle. If the service lasts over several months, then so should the monitoring. Postintroduction Evaluation Information gathered during the commercialization phase is reviewed, and adjustments made to aspects of staffing, the marketing mix, operations etc. The service blueprint should be amended to reflect these changes. Strategies for New Service Sectors or NPD When an organization opens up a new service sector, it needs to reduce the perceived risk the customer feels as a result of the unknown. Relevant strategies include an education program, creating awareness of the benefits offered by the new service. When the Internet first emerged, few business managers were aware that it existed, much less how powerful it was to become. Web designers held free education seminars to create awareness of the capabilities and the approaches before securing clients. Service trial is another approach that helps break down resistance, because customers experience the benefits without the risk of financial commitment. When a gym or health club opens, it offers free sessions for people to see the quality of the facilities and equipment before signing up. Design thinking is a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success. — Tim Brown, CEO of IDEO

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This approach can short circuit development of products, services, processes, and strategy. it unites what is desirable from a human point of view with what is technologically possible and economically advantageous. Everyone is able to use creative tools to address a vast range of challenges without specialist training. This approach can reduce the time to market by ruling out ideas without stakeholder appeal early in the process, creating simple prototypes and getting early feedback without the usual level of investment. A successful brand name is a huge advantage for opening up a new service sector. Existing loyal customers can be used to spearhead trial of the new service, and act as ambassadors. The organization’s reputation, based on a history in the marketplace can create credibility and open doors. Some organizations take advantage of these assets when launching new services, but some elect not to, in case the new service is a failure and might risk damaging the existing brand by association. They might develop an entirely new brand for the new service. Alternatively, they may opt for a half-way house using a group brand to give them security but a new subbrand as part of the family to provide some distance in the event of failure.

Combined Strategies Where an organization is going for new service development as well as opening up a new market, this is diversification and the riskiest strategy of all. Effectively, this is what every new business does, and accounts for the high failure rate of new businesses. This may be the only possible option, but ideally organizations identify areas of knowledge and strength they can build on to minimize the risks. They may have worked with the customer base as employees of a larger organization and be offering something new to them but will still benefit from trust built up in the previous relationship. Many universities run incubator units for new high-tech businesses, and organizations in these locations benefit from an extended contact network, increased business support advice. Universities now also subcontract organizations to offer specialized business services, helping to minimize the risk of new business startups. The universities are extending their understanding of business into providing practical support and getting rental money at the same time.

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Developing and Delivering New Services Technology has made a phenomenal contribution to the ways in which companies do business with their customers, not to mention automation of behind-the-scenes processes. The Internet has created all sorts of opportunities both to enhance communication with customers, and to deliver aspects of the service. Even small organizations have a website, so are no longer limited geographically unless they choose to be. Some companies, such as eBay have developed as a result of the new opportunities created by the Internet. Customers need to be educated on how to use new technologies and given an appreciation of the benefits they can gain from them, and this is a continuing challenge for marketers. Technology has the means to enhance the efficiency of existing services and to deliver radically new service concepts. Technology to Design and Deliver New Services eBay did not exist before the World Wide Web made it possible, but auctions existed. eBay cleverly used new technology to extend and vastly update an accepted approach to selling. It did not require customers to step outside their norms, except in computerizing the service, but the majority of the population had become computer literate through work. Its big selling point for purchasers was that it offered goods at very competitive prices, and also created some of the drama lost from the retail experience through the auction method of purchasing. Amazon also offers a traditional service using the Internet as a communication and in place of a conventional retail outlet. Rolling these two together has the dual advantage of providing a service to the customer in the home, and at the same time, reducing overheads of the operation. The Internet abounds with a range of services previously ­delivered only in an immediate locale, but which are now available around the globe. These include everything from business advice, to fortune telling. Some services only emerged as a result of new technologies. Computer games software advanced dramatically with the arrival of virtual reality software that allowed the graphics to resemble real places, or make imaginary ones appear convincingly real. Remote control technology has made keyhole surgery possible, so patients no longer have the extended stay in hospital that followed many AI and robotics can now mean that surgery is done remotely, ­supervised

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from another country procedures. Satellite technology has vastly improved weather forecasting services, as well as beaming a multiplicity of TV programs around the world. One of the tenets of innovation has always been that organizations could gain first-mover advantage by being the first to adopt new technologies. Research into the mobile phone industry suggests that Just being first, you don’t get anything. Being first brings the possibility that you will be able to pre-empt scarce resources if there are any, and to build technology leadership, if there is any to be had. If you cannot leverage these mechanisms, to matter much less whether you come first, second or third into the market. (Lanzolla 2010, quoted in Wray 2010, “Get in first for a lead that lasts,” Cass Alumni magazine.) Lanzolla goes on to cite O2, which tied up the rights to sell the iPhone with Apple, as an example of a first mover grabbing a scarce resource. Design Thinking Design thinking is an iterative process which involves users, challenges assumptions, redefines problems, and creates prototyped and tested ­solutions. The method comprises five phases—empathize, define, ideate, prototype, and test; it comes into its own when problems that are ill-­ defined or unknown need solution. In an increasingly dynamic world created by VUCA (variable, uncertain, complex, ambiguous) factors, organizations need skills to ­ understand and act on rapid changes. By capitalizing upon complexity and interconnectedness design thinking offers a human-centric way of meeting this change head on. Poorly defined or unknown problems (otherwise known as wicked problems) reframes problems in human-centric ways, focusing on what matters to users. Design thinking short-circuits traditional design processes which involve before customer testing and acceptance by ­ involving end users in the design process. Design thinking has gained popularity in recent decades because many high performing global organizations including Google, Apple, and

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Airbnb see it as fundamental to their success. It opens up revolutionary ways of thinking and a completely new mindset, and is now widely taught in universities around the world. A key feature is the willingness to accept failure early in the process so that the end result is as good as it can be, and there are no costly product or service launches that ultimately fail.

Pause for Thought Think of as many new services as you can that have been enabled by the following technologies: Remote control Laser Satellite Internet Refrigeration Laser scanner Holograms Virtual reality Mobile communications Voice over Internet Protocol (VOIP) Technology to Facilitate Service Management Technology has affected many areas of the service sector by enhancing services provided to the customer and improving management information gathering without inconveniencing the customer. New service concepts have altered the landscape of service in service organizations, and in product-based organizations, which now widely use service as a means of ­differentiation. Mobile phones, text messaging, and e-mail have speeded up communications with customers as new delivery methods for existing services and information about them. Mobile phone technology combined with GPS technology enables social media services such as Four Square to alert customers to the presence of associates in local coffee bars, creating more footfall for participating venues. Entertainment venues use ticketing systems that capture data about customers. Hotels use similar systems for checking guests in.

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The information generated allows them to tailor their services to particular segments, to make price offers to select targets. Retail technology has enabled service enhancements over the last several decades. The introduction of product barcodes and the scanning point of sale terminals that read them revolutionized stock control, as well as allowing retailers to identify their most profitable lines, or slow-movers that do not justify shelf space. Piggybacking on this technology, retailers developed loyalty programs, which, like the Tesco Clubcard enabled them to create customer-specific special offers. Customers receive rewards and choose how they take them; the retailer builds a database of shoppers, with a personal profile, and a pattern of shopping habits that form the basis of marketing campaigns, for store products and financial services such as car and home insurance. Tracking cameras show the routes customers take through the store, which guides store design and merchandise layout. Piped smells of freshly baked bread and ground coffee entice the customer into spending ever more money. Piped music slows progress around the store ensuring that more products are seen, and the café offers respite to weary customers. Distance learning was a process involving dispatch of course materials and receipt of assignments. Now, although students still like to have printed materials, resources and marking are online. Students participate in various learning activities, facilitated by the Internet; webinars, online seminars, and podcasts allow students to choose their preferred learning medium. The process has become much easier as a result of Internet technology. Courier firms, led by FedEx, developed real-time systems, allowing customers to track shipments anywhere in the world, and in the system. This is now seen as important as the physical logistics of moving the parcel around the world. Improvements have been made in booking deliveries and payment. These enable continual improvement in service standards. Centralization of many support functions has further reduced costs. Virtual reality has greatly enhanced services such as plastic surgery, kitchen and bedroom design, and interior design consultancy, by enabling customers to see what the finished product will look like with various permutations of design, so that prior to purchase, they have a good idea what they will receive.

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Changing Nature of Technology in Delivering Service Excellence Manufacturing industries emerged during the Industrial Revolution as the result of new technologies—steam engines, the Spinning Jenny, and other means of automating manual tasks. Services are now undergoing a similar, though less radical revolution. The bank teller is supported by computer technology, the car mechanic uses computer diagnostics, and the lecturer uses PowerPoint slides to explain, and so on. Some applications of technology enhance presentation, rather than change the actual service. A training or education session uses PowerPoint to replace blackboards, whiteboards, and flipcharts, but the learning content is much the same. (Some recorded videos of training sessions now go back to the dynamism of a facilitator writing on flipchart paper.) Others though, actually manage the process—the banking and parcels delivery services really struggle in the event of computer failure as so much is now driven by computer. Manufacturing identified key measurements to enable an automated process to control the quality of system inputs and outputs, using statistical process control (SPC) for example, to measure the mix of ingredients in beer production. In a similar way, services have sought, using a variety of measures to control service quality. There has long been recognition that financial and numeric measures feel short of what was needed, and the balanced scorecard approach and later, Servqual based on the RATER model discussed in Chapter 3 of the first volume emerged to help monitor services performance.

Ensuring Old Services Meet Expectations Innovation can also be used to keep existing services up-to-date and able to meet new expectations. Service Expectations with Old Services Although people value some aspects of traditional service provision, they still expect to see things delivered in a smooth manner, taking the best that technology can offer while retaining good old-fashioned standards. Used wisely, technology takes the drudgery out of many tasks through automation and

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frees up frontline staff to spend time offering a personal touch to customers. This perhaps also changes the nature of job roles, and alters the type of skills required by businesses, so education needs to adapt to meet these changes in work by focusing more on soft skills, empathy, and creativity. The banking industry has continually updated its services to overcome escalating costs and take advantage of new technologies. The driver has been largely cost, so although some facilities do benefit customers, such as Internet banking, and “hole in the wall” automated teller machines, many do not. Many customers depended on the period it took for a cheque to clear, whereas debit cards immediately take the money from the account. Online payments and direct debits have taken the place of cheques for items such as household bills, tradesmens’ payments, etc., but many p ­ eople, especially elderly people, prefer the control of having a cheque book. From a cost perspective, the banks were keen to move to full electronic payments, and technically this was feasible 35 years ago. That it did not happen was down to the power of the consumer, and the banks’ need to manage the demise of the cheque service. Service Expectation Through the Product Life Cycle (PLC) Service providers use the life cycle concept to manage service expectations and price in a similar manner to product manufacturers. The life cycle concept presupposes that products and services have a lifecycle, starting with birth, and ending in death. The skill of the marketer is to take the product/service quickly through introduction and growth, capturing maximum market share, and establishing position as market leader, and then to prolong the maturity phase. Maturity for products can be prolonged by developing color, flavor, scent variants, by strong branding, and other devices. Marketers have to determine where on the graph the product in question falls, and what strategy is appropriate. The life cycle concept can be used in a variety of ways: • To assess when sales of a new service are likely to begin to take off, when they are likely to plateau, when decline, and when profit is likely to accrue. This helps forecasting.

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• To plan the portfolio of services by understanding the PLC of each and ensuring that new ones are available to replace dying ones. • To assess whether a given category is attractive, based on where other services in the category are on the PLC. Services adopt a similar approach to products, and some of the same strategies: early entry into the market place can help secure market share, especially if the organization can tie up scarce resources. Strong branding and well planned marketing communications prolong the maturity phase. Technology can manage the life cycle for services too—when the mobile phone industry first emerged, there were few options in terms of service packages, and handsets themselves. Over time, both have become ever more sophisticated, but there are still basic contracts, pay-as-you-go, and basic handsets. These are sold to segments of the market less sophisticated in their communication needs, and more price conscious than early adopters who crave the latest technology regardless of price. They are also sold in markets that lag behind Western markets in terms of technological sophistication. Because technology moves so quickly in certain fields, it may be a matter of only months before a service becomes obsolete—as with computer games. Whilst a service provider has to capitalize on sales of the new service, there remains the opportunity to discount former services to segments of the market which are less image conscious or more price conscious. The costs of developing the service have been incurred, so any additional sales are mostly delivering profit, and spreading development costs further. In cable TV and broadband communications, the basic service is in the mature phase of the life cycle, but service providers are adding facilities such as the option to catch up with missed programs without having to record them. The basic service acts as a cash cow, generating revenues to support newer services as they emerge. The customer database allows the organization the opportunity of persuading customers to “trade up.”

Product Management Product management sits between engineering/production and product marketing, strategically translating market requirements into product

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plans for development. They feed information to the product marketing group to support product launches. A key part of the role is to introduce new products and manage the portfolio. An additional, often overlooked is the management of product end-of-life. Products have a full product life cycle. There are multiple publications about how to identify a market opportunity, concept and prototype a product, outline a roadmap for development, and launch into the market but few on the phasing out process when a product is no ­longer needed or newer products have made it obsolete. As businesses grow, this part of the process becomes a requirement. For early-stage companies without official documented customer support plans, end-of-life may be that it is no longer sold, a new product offered to existing customers, offer discounts for upgrades or updates. For larger businesses, the situation becomes much more complicated. Often, customers make regular repeat purchases of items that play a role in their operations. Customers will be critical of businesses that cannot smoothly manage the transition from older products to new versions. Areas for consideration would include the following: 1. When to discontinue guaranteed maintenance or warranty terms 2. Providing an upgrade or update path 3. How to phase out old terms and conditions, rules, benefits, etc. 4. Directions for customers to use old and new products together, if applicable 5. Documentation of historical release path (for software/hardware technical products) 6. Obsolescence of product accessories This is far from an exhaustive list, but enough to give an idea of the challenge. Basically, you cannot simply let customers down when your product is a key part of their operations without some negative reaction. In order to grow a product portfolio, it is essential to usher customers along from to product version, release to release, etc. For customers who will not upgrade, clear communications about when and what is being eliminated can smooth relationships. Providing ample time for customers to upgrade or find another solution makes your organization look caring end of life (EOL).

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The concept of an EOL product has been around for a while, symbolizing the last stage of a product’s life cycle. The rapid emergence of technology and other factors have led to bigger issues surrounding EOL products, so manufacturers and vendors must anticipate the consequences of designating an EOL product. Disposal is a key concern. Defunct hardware devices require physical disposal and installation of newer versions. Software systems involve “weaning” legacy systems or migrating applications to newer platforms in order to replace old systems. Microsoft Windows operating systems are regularly managed by ­Microsoft. Often users have systems that rely on certain Windows versions to support all sorts of processes, including security protocols, municipal or government agency programs, business processes, and individual PC systems. When software is phased out, all of this must change. To address the challenges of EOL products, businesses create detailed EOL support policies to clarify what happens after a product reaches the end of its life. Such policies outline available user support and provide advice on migrating systems, avoid loss, and mitigate vulnerability as a result of EOL situations and loss of support.

Importance of Meeting Customer Needs A customer whose needs are not met by the service purchased is unlikely to remain a customer for long—they will simply find a provider that can meet their needs. In terms of managing services excellence, the reasons for meeting customer needs center on the wish to delight the customer, rather than simply satisfy, the need to contain costs by “getting it right first time, every time” and the hope that delighted customers will blossom into ambassadors generating positive word of mouth for the organization. A dissatisfied customer, apart from transferring loyalties will tell at least 10 other people, becoming a walking bad advert. Innovative products must meet customer needs or they will wither. Customer Acceptance of Innovations Customers do not all accept innovation with equal readiness; the diagram below shows the spread of perspectives of customers’ acceptance.

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34%

34%

13.5%

16%

2.5%

Innovators

Early adopters

Early majority

Late majority

Laggards

Figure 3.9  The diffusion of Innovation curve (Rogers 1962)

Understanding this, and building strategies around it, winning the hearts and minds of the innovator and early adopter group can facilitate the speedy acceptance of a new product or service launch. Convincing opinion formers can you help spread the word about the value of the service quickly. Technology Acceptance Model (TAM) TAM focuses on perceived usefulness and perceived ease of use determine someone’s intention to adopt something new; intention to use acts as a mediator of actual system use. Perceived usefulness is directly impacted by perceived ease of use. TAM assumes that when someone forms an intention to act, they will be free to act without limitation. In practice, action is limited by limited ability, time, environmental or organizational limits, and unconscious habits. The elements of this that are relevant to service excellence are the particular aspects of perceived usefulness and perceived ease-of-use. When introducing a new service, clearly the organization needs to demonstrate to potential customers the benefits of the service, and to convey its ease of use. Perceived usefulness

Perceived ease of use

Behavioural intention to use

Actual system use

Figure 3.10  Technology acceptance model adapted from Venkatesh et al. (2003)

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Organizational Culture and Its Contribution to Innovation Boston Consulting Group (BCG) regularly conducts a survey of innovative companies. According to BCG’s research, successfully innovating companies approach innovation as a system rooted in experimentation; like all adaptive systems, it evolves over time as the external environment and internal needs change. Adaptability and Innovation Culture Global research suggests corporate culture is a more important driver of radical innovation than labor, capital, government, or national culture. Adaptability appears to be the most critical pillar of successful organization cultures. Adaptive cultures encourage: • • • • • •

risk-taking willingness to experiment innovation personal initiative fast decision-making and execution ability to spot unique opportunities

Corporate entrepreneurship is one example of an adaptive culture. Adaptive cultures also minimize some behaviors usually seen as advantageous, such as being careful, predictable, avoiding conflict, and making your numbers. An adaptive culture, emphasizing experimentation, is the most advantageous for innovation. Startups tend to place all their hopes on a single invention but established companies have to secure their previous success. They can draw on resources to conduct market research alongside their existing business. In  some instances, organizations simulate the startup model, thus avoiding exposure for the main brand, and gaining some of the benefits of lean operations. IBM’s Emerging Business Opportunity (EBO) initiative, set up in 2002, set out to include exploration experiments in their portfolio. Like actual startups, some failed, but from seven at the start, enough survived

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that in the first five years alone, the EBOs added $15.2 billion to IBM’s top line, or more than twice as much as acquisitions. Balancing exploration and exploitation activities enables companies to thrive on the short- and long term. Including collaborating with external partners, for example, teaming up. Multinational companies with SMEs give the greatest adaptability to changing environmental conditions, as it provides multiple options to address any emerging challenges. Organizations that focus heavily on standardizing their systems risk driving out creativity and experimentation; often, the best i­nventions come from nonstandard situations and the flexibility required to cope with that. Experimentation is one of the key sources for innovation. As many industries move into periods of dynamic change, there is extensive demand for experimentation to generate new services to address changing market needs. An organization that is surrounded by change, and unable to respond to it is likely to get left behind. Although adaptive culture has a strong link to organizational survival and performance, many companies struggle to establish a culture of exploration, experimentation, and variability. Organizational Barriers to Innovation Culture Organizational culture rewards behaviors congruent with organizational values, producing a collective mindset, referred to as a “social contract” or set of values that guides people’s organizational life. In many organizations, there is a tension between opposing social contracts one based on exploitation, predictability, and efficiency, and the other based on exploration, uncertainty, and variance. This tension results in a clash of approach as outlined below: • • • •

Break rules and dream vs. excel at your job Open doors and listen vs. be loyal to your team Trust and be trusted vs. work with those you can depend on Experiment and iterate together vs. do the job right the first time • Err, fail, and persist vs. strive for perfection • Pay it forward vs. return favors

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Companies need to learn how to capitalize upon the creativity generated by this tension, and yet, for an organization to develop a collective mindset, it needs to present congruent rather than conflicting messages. A  common approach is to create an integrative culture that places an explorative culture on top of an (existing) exploitative one. This may be done by introducing a “x percent rule,” allowing staff to dedicate a ­portion of time to explorative projects beside their “core business,” to generate ideas and develop them up to a certain stage. Generally, this leads to misaligned and inefficient incubation, making any innovations hard to scale. A more robust approach may be to shape distinct cultures with dedicated values, requirements and people, and encourage each group to behave as though the future of the organization rests on their shoulders. Google, for example famously allowed staff 20% of their working week to focus on a project of their own, resulting in some of the company’s most successful products such as Gmail, AdSense and Google Talk. The cultures are separated, but with some overlapping “touchpoints” where capabilities, ideas, and knowledge are exchanged in order to avoid isolation and to achieve mutual benefit. Examples for touch points can be idea management platforms, portfolio management boards, corporate strategy teams, or company-wide events and communication platforms. These touch points are to be staffed with adaptable people—the T shaped people discussed in the first chapter of this volume, capable of ­integrating both world views. Many energy providers and electric utilities are undergoing this organizational and cultural tension. Having operated an entrenched, monopolistic, and highly predictable business model with a “production-­centered mindset” for decades, they are now being forced to transform into ­customer-oriented service providers. They are seeking novel, customer-­ centered business models and exploring emerging markets. This need for innovation is driven by overturning value sets that made the companies ­successful, as they no longer serve the organization well. Such transformation processes risk leaving staff disorientated and demotivated without careful management.

Become a Learning Organization The best chance to succeed and thrive is to become a learning organization, defined by Peter Senge as:

Extend 105

Organizations where people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning how to learn together. To promote a learning organization environment takes time, commitment, and resources, but the following act as starting points. Systems Thinking The basic structure and connected components of our work systems, shape much of the behavior of the individuals within the work system. Dr. W. Edwards Deming suggested that when something goes wrong, rather than laying blame, it is productive to explore what about the work system caused that individual to fail. This is further reflected in the concepts of design thinking, where failure is viewed as a necessary part of innovation and progress, and the source of much valuable new knowledge and insight. Personal Mastery Personal mastery is the discipline of continually clarifying our personal vision, of focusing our energies, of developing patience, and of seeing reality objectively. An organization’s learning can only be as great as the sum of its individual members. Personal mastery and the desire for continuous learning deep in each person’s belief system can give competitive advantage in the future. Mental Models These are the deeply held pictures each of us holds in our mind about how the world, work, our families, and so on—work. Mental models influence our vision of how things happen at work, why things happen at work, and what we are able to do about them. Building a Shared Vision Shared vision refers to a process in which the original vision for an ­organization, probably determined by the leader, is translated into shared

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pictures around which the rest of the organization finds meaning, direction, and reasons for existing. Team Learning Teams not individuals are the fundamental learning unit in modern ­organizations. The dialog among team members results in stretching the ability of the organization to grow and develop. The Role of the Leaders The behavior and contribution of leaders the starting point for creating a learning organization. It is then possible to bring in everyone else in the organization to support their actions. There are four critical contributions needed from the leader to develop a learning organization. • To provide the initial vision of why the organisation exists, and where it is going • To clearly communicate their vision, and their belief that continuous growth, learning, improvement will accomplish the vision • To build consensus and ownership around the vision and incorporate views of others in the organization • To model the actions, they want to develop in others Leaders who want a learning organization continually learn themselves. They read books and articles, attend training sessions and conferences, and share the learning with the rest of the organization. They foster an environment in which people are empowered to make decisions about their work, where intelligent risk-taking is the norm. They ensure that all information people need to make good decisions is available. They promote an organizational environment that supports learning and personal mastery. Interfunctional Coordination Interfunctional coordination is the other area that can help an ­organization become more robust and more adaptable to the changing environment.

Extend 107

It is the cooperation of the various internal business functions to achieve the overall goals of the firm and ensure its responsiveness to environmental changes. To achieve an acceptable degree of interaction and collaboration among the specialized functions of the firm, Mintzberg proposed six basic coordinating functions: • Mutual adjustment: the process of informal communication in which people interact with one another to coordinate. • Direct supervision: one person coordinates by giving orders to others. • Standardization of work processes: direct specification of the content of the work, and the procedures to be followed in order to tightly control different people. • Standardization of outputs: specification of what is to be done (i.e., the results of the coordination) so that interfaces between jobs are predetermined. • Standardization of skills: loose coordination of people through education on a common body of knowledge and a set of skills that are subsequently applied to work. • Standardization of norms: coordination of people through a common set of beliefs. In conjunction with the principles of becoming a learning organization, functional integration can help manage the essential tension between the two conflicting mindsets described above. Effectively done, the tension itself can become a source of great creativity and innovative ideas.

Quotations/Interviews from Key Practitioners/Leaders of Excellence Businesses Do not follow where the path may lead. Go, instead, where there is no path and leave a trail. —Ralph Waldo Emerson Organisations, by their very nature are designed to promote order and routine. They are inhospitable environments for innovation. —T. Levitt

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What we’ve done to encourage innovation is make it ordinary. —C. Wynett, Procter and Gamble

Case Study Analyzing Good and Weak Aspects Norwich Union is the largest provider of insurance services industry and is part of Aviva, the world’s fifth largest insurance group. Their core ­business is about risk and claims resolution constitutes the bulk of the costs of running the business. In the 1990s traditional insurance business models started to evolve rapidly. Companies like Direct Line altered the insurance market for good, while the broker market also changed with the likes of Web-based moneysupermarket.com enabling customers to compare quotes from hundreds of insurers online, very rapidly. Norwich Union quickly realized that it had to change. Throughout the 1990s they had grown the business through acquisition and now realized it should focus investment on innovation. It was recognized that detailed analysis of data trends using the latest technology could transform the underwriting business, providing them with a real competitive advantage, and so they set about developing and protecting innovative algorithms to analyze data. At about the same time, car manufacturers were focusing on technologies to improve car safety. Telematics was one such technology, which involves capturing and analyzing data from vehicles. It seemed to offer great potential for insurers and Norwich Union discovered that other insurers internationally were already trying it out. Following the ­success of Direct Line, Norwich Union understood the importance of

Extend 109

first-mover advantage and provided an R&D budget for the development of a pay-as-you-drive telematics product for the UK insurance market. The telematics offering was initially piloted with 5,000 volunteers from its own customer base and the trial proved a great success. It also attracted far more interest from customers than they could possibly imagine. In 2006, the first pay-as-you-drive product, aimed at “young drivers” (aged 18–23), was launched to great media interest. A package for other drivers then followed. Norwich Union has now used this expertise to create a telematics product for the commercial fleet insurance market. Managing risk is a key part of any insurance business and this responsibility extends to ­customers, with increasing focus being given to Duty of Care. Fleetwise Care, Norwich Union’s Telematics-enabled fleet product, is targeted at this. The system presents information on journeys such as duration and speed, road types covered, and claims information. This enables an assessment to be made on such things as driver fatigue and the exact timing and location of any incident involving that vehicle. Fleet managers can also look back at historical driver data to try to understand more about journey and driver behavior or why a driver may have had several accidents. The fleet-side system also has a sensor fitted, which can provide an immediate alert if the vehicle has been in a serious accident. Norwich Union believes that, in the future, telematics boxes will be built into all cars as standard and that this will help to reduce accident rates. Recent changes in health and safety policy associated vehicles, and also changes in corporate manslaughter legislation, increase the focus that businesses need to place on duty of care. Telematics technology is an enabling technology to help.

Enchantment Example GE leads the way in implementing different open innovation models. Their GE Open Innovation message highlights their keenness to address world problems through implementing crowdsourcing innovation. Their Open Innovation Manifesto promotes collaboration between experts and entrepreneurs worldwide to share ideas and passionately solve problems. Their Ecomagination project addresses environmental challenges through innovative solutions.

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One of GE’s projects is the First Build a co-create collaboration ­platform, which connects designers, engineers, and thinkers to share ideas with each other. First Build focuses on solving problems and ­creating new home appliances products. Winning ideas are made available for ­purchase. The manufacturing of the ideas is done through GE’s micro ­factory places where members can get access to machines and tools required to turn their ideas into real products. First Build employs a co-create collaborative model, which is one of the open innovation models that provides a platform for external and internal individuals to collaborate in ideas sharing and manufacturing to reach innovative ideas for products and services.

End of Chapter Summary This chapter has explored the way in which service innovation can ensure that the organization continues to meet the needs and expectations of its customers with its service offering. It looks at the way that expectations evolve throughout a customer relationship, and at some of the c­ ustomer behavior around innovations that organizations can use to guide their strategy. It considers the way in which technology can promote innovation in services, and some of the impacts this may have on the organization and its customers. Various approaches to innovation are discussed, together with organizational conditions likely to foster successful innovation within an organization.

End of Chapter Review Questions Organization Culture

Mark where you are

Fast to change

Slow and methodical

Entrepreneurial

Stable, steady

Reactive

Proactive

Management style ­empowering

Management style control

Dictatorial

Democratic

Secretive

Open

Creative

Traditional

Extend 111 How good are you at learning?

Very

high

Very

Low

Is there a learning culture in your organization? Is your organization committed to continuous improvement? Do all staff members have a development ­program? Is time allocated to staff and team development? Does your organization attach a high value to knowledge? Is there encouragement of knowledge sharing within the organization? Is there an external vision to learn from the ­environment in which the business operates? Based on Slater and Narver (1995, pp. 63–74).

References Davis, F.D., R.P. Bagozzi, and P.R. Warshaw. 1989. “User Acceptance of Computer  Technology: A Comparison of Two Theoretical Models.” Management Science 35, no. 8, pp. 982–1003. Eyal, N. 2014. Hooked: How to Build Habit-Forming Products. Penguin. Lovelock, Van der Merwee, S. 1996. Services Marketing; A European Perspective. Prentice Hall. Narver, J.C., and S.F. Slater. 1990. “The Effect of a Market Orientation on Business Profitability.” Journal of Marketing, pp. 20–35. Senge, P. 1990. The Fifth Discipline: The Art and Practice of the Learning Organisational Learning. New York, NY. Slater, S.F., and J.C. Narver. 1995. “Market Orientation and the Learning Organisation.” Journal of Marketing 59, no. 3, pp. 63–74. https://sld.com/what-we-do/design-innovation/ https://slideshare.net/PowerPoint-Templates/innovation-product-designplanning-process-style-2-powerpoint-presentation-templates https://think360studio.com/what-is-design-thinking-and-design-thinking-process/ http://referenceforbusiness.com/encyclopedia/Inc-Int/Innovation. html#ixzz4nqDK3X00 http://businessmodelalchemist.com http://businessmodelalchemist.com http://timkastelle.org/blog/2015/02/innovation-and-organizational-culture/ http://kilkku.com/blog/2011/08/social-media-is-an-essential-tool-for-servicedominant-logic/ http://sdlogic.net/index.html https://pcworld.com/article/129363/article.html

About the Author Fiona Urquhart MBA, FCIM, FIC, from a grounding in retail with the John Lewis Partnership, Fiona gained an MBA from CASS Business School. She is currently MBA Module Leader for Durham ­University on Service Excellence Design, and previously taught for the Open U ­ niversity. She gained experience of applied marketing innovation work, developing AC Nielsen’s EPOS-based research service, Scantrack, and a pilot ­EFTPOS service with a consortium of the retail clearing banks. Fiona now provides consultancy support to diverse service and ­manufacturing companies, as well as doing charitable work with start-up companies in the most deprived wards of Newcastle Upon Tyne. She also supports marketing and service excellence projects at various c­ orporations, as well as delivering elements of degree apprenticeships for a number of infrastructure companies. In both her teaching work and her corporate training work she has developed expertise in problem-based learning to create practical learning situations and encourage reflective learning. She has delivered a series of interactive workshops for several European universities to research the topic in the context of entrepreneurial learning and will be presenting her findings at a number of global conferences. You can see more about Fiona here https://linkedin.com/in/ fionaurquhart1/

Index Adaptive cultures, 102–103 Advocacy, 56 AI. See Artificial intelligence (AI) Ansoff’s matrix, market development collaboration, 82 consultation, 82 diversification, 82 internal strategies, 83 market-based strategies, 83–85 NPD location, 82 profit growth, strategies for, 85–86 risk factors and service application, 81–82 Artificial intelligence (AI), 20 and chat bots, 21 consumer behavior and traits, 21 delivery programs, 21 job replacement, 20 online advertisements, 21 predictions, 20 service tasks, 20 social media users, 20 Boston Consulting Group (BCG), 102 Boundary spanners, 10 Boundary spanning positions, 9 Change driver, 75–77 Commercialization, 90 CRM. See Customer relationship management model (CRM) Customer as a business asset, 26–27 as competitors, 14–15 delight, 60 importance of, 27 inputs, 12 loyalty (see Loyalty, customer) participation in service delivery, 11–13 productive process, 13

as quality contributors, 13–14 retention, 27–28 touch points, 40–41 Customer life cycle (CLC), 41 Customer lifetime value, 35, 42, 47–48 Customer relationship management model (CRM) applications, 41 with brand, 38–39 customer loyalty, 39–40, 43 customer retention and lifetime value, 35 customer satisfaction, 36 data stores, 41–43 profit potential employee retention, 48 increased purchases, 47 lifetime value of a customer, 47–48 lower servicing costs, 47 profiting from loyalty, 48 word-of-mouth advertising, 47 relationship marketing, definition, 36 target market, 35 technology and, 40 Design thinking, 70, 105 Distance learning, 95 Diversification, 82 Emerging Business Opportunity (EBO), 102–103 Empathy, 11 End-of-life (EOL) product, 98–100 Enhancing factors, 81 Enthusiasm, 11 Federal Emergency Management Agency (FEMA), 9 Fish principles, 15–16

116 Index

April Fools’ Day, 16–17 cosmetics organization, 18 customer-facing roles, 19 empowering frontline staff, 17 The Fish! Philosophy, 15, 16, 19 Lush Facebook page, posting from, 18 positive attitude, 19 servant leadership, 17 Goods-dominant (G-D) logic, 70 Hygiene factors, 81 Information, customer inputs, 12 Innovation benefits to organizations, 75 changes to customers, 73–75 changing business practices, 77–79 companies in service sector, 67–69 customer reaction, 72–73 definition, 66 delivering service excellence, changing technology, 96 developing and delivering new service behind-the-scenes process, 92 design and deliver new services, 65, 92–94 facilitating service management, 94–95 elements, 66 enchantment example, 109–110 external drivers sociology and technology change, 76 STEEPLE, 75–77 good and weak aspects analysis, 108–109 learning organizations, 67 interfunctional coordination, 106–107 mental models, 105 personal mastery, 105 role of leaders, 106 shared vision, 105–106 systems thinking, 105 team learning, 106

market development, Ansoff’s matrix collaboration, 82 consultation, 82 diversification, 82 internal strategies, 83 market-based strategies, 83–85 NPD location, 82 profit growth, strategies for, 85–86 risk factors and service application, 81–82 meeting customer needs customer acceptance, 100–101 technology acceptance model, 101 new service development process business analysis, 87 combined strategies, 91 commercialization, 90 concept development, 87, 88 idea generation process, 87–88 market leadership, 86 market testing, 88 new service sectors, 90–91 postintroduction evaluation, 90 and testing, 87, 88 organizational culture and contribution adaptability and innovation culture, 102–103 Boston Consulting Group, 102 organizational barriers, 103–104 product management, 98–100 quotations/interviews, 107–108 service characteristics, 67 and service development enhancing factors, 81 hygiene factors, 81 strategic management, 80 strategies to help innovation, 80–81 service-dominant logic, 69–72 service expectations with old services, 96–97 through product life cycle, 97–98 from service organizations, 79–80

Index 117

services vs. products, 65 Interfunctional coordination, 106–107 Latent loyalty, 50 Learning organizations, 67 interfunctional coordination, 106–107 mental models, 105 personal mastery, 105 role of leaders, 106 shared vision, 105–106 systems thinking, 105 team learning, 106 Loyalty, customer, 25–26 benefits to customer, 44–45 benefits to organization, 45–46 characteristics of services, 54 components of, 49 CRM (see Customer relationship management model (CRM)) customer expectation, management of, 29 customer touch points, 40–41 definition, 43 disenchantment example, 61 enchantment example, 61–62 excellence quotations/interviews, 60–61 responsibility for, 58 in staff relations, 58–60 framework, 49 latent loyalty, 50 measuring, 52 no loyalty, 51 programs, 53, 55 importance of, 55–56 schemes, 56–58 segmentation, 28–30 spurious loyalty, 50–51 strategies, 52–53 transactional marketing advantages, 32–33 counterintuitive, 31 degree of service, 32 disadvantages, 33 goods/services purchase, 30 personalization and customization, 32

purchase occasion, 31, 32 to relationship marketing, 34–35 transaction frequency and value, 31 true (sustainable) loyalty, 49–50 Market-based innovation strategies, 83–85 Market leadership, 86 Market testing, 88 Mental models, 105 New product development (NPD) location, 82 strategies for, 90–91 New service development process business analysis, 87 combined strategies, 91 commercialization, 90 concept development, 88 idea generation process, 87–88 market leadership, 86 market testing, 88 new service sectors, 90–91 postintroduction evaluation, 90 service development and testing, 87, 88 NPD. See New product development (NPD) Online collaboration, 72 Parity factors, 81 Personal mastery, 105 Physical possessions, customer inputs, 12 Piggybacking, 95 Product-based organizations, 94 Product life cycle (PLC), 97–98 Profit growth, strategies for, 85–86 Quick-follow strategy, 84 RATER model of service quality, 9 Relationship marketing. See also Customer relationship management model (CRM) activities, 36

118 Index

advantages, 37–38 customer loyalty pyramid, 37 definition, 36 disadvantages, 38 personalized attention and service reward, 37 revenue potential, 34 stages, 34–35 Repeat business, 1–2 artificial intelligence, 23 and chat bots, 21 consumer behavior and traits, 21 delivery programs, 21 job replacement, 20 online advertisements, 21 predictions, 20 service tasks, 20 social media users, 20 boundary spanners, 11 cost-effective, 2 customers as competitors, 14 inputs, 12 participation in service delivery, 11–13 productive process, 13 as quality contributors, 13–14 employees’ behavior, 9–10 fish principles, 15–16 April Fools’ Day, 16–17 cosmetics organization, 18 customer-facing roles, 19 empowering frontline staff, 17 The Fish! Philosophy, 15, 16, 19 Lush Facebook page, posting from, 18 positive attitude, 19 servant leadership, 17 quotations/interviews, 22 service marketing triangle, 8 service provision, role of drama in Pike Place Fish Market, 6, 15 servicescape, 6–8 value maximisation adding little touches, 4 after-sales support, 3 customers’ details on file, 3 increasing profile, 5

maintaining contact, 4 maximizing online presence, 5 re-evaluation, 5 right first time, 2–3 special offers, 4 tailor your alerts, 4 Retail technology, 95 Segmentation, loyal relationships price cuts, 28 service specifications, 29–30 short-term deals, 28 Servant leadership model, 10 Service blueprint, 89, 90 Service development enhancing factors, 81 hygiene factors, 81 strategic management, 80 strategies to help innovation, 80–81 and testing, 87, 88 Service dominant (S-D) logic, 70–71 Servicescape, 6–8 Shared vision, 105–106 Slow-/no-follow strategy, 85 Spurious loyalty, 50–51 Statistical process control (SPC), 96 Strategic management, 80 Superiority factors, 81 Systems thinking, 105 Team learning, 106 Technology acceptance model (TAM), 101 The Fish! Philosophy, 15, 16 Tracking cameras, 95 Transactional marketing advantages, 32–33 counterintuitive, 32 degree of service, 32 disadvantages, 33 goods/services purchase, 30 personalization and customization, 32 purchase occasion, 31, 32 to relationship marketing, 34–35 transaction frequency and value, 32 True (sustainable) loyalty, 49–50

Index 119

Value maximisation adding little touches, 4 after-sales support, 3 customers’ details on file, 3 increasing profile, 5 maintaining contact, 4

maximizing online presence, 5 re-evaluation, 5 right first time, 2–3 special offers, 4 tailor your alerts, 4 Virtual reality, 95

OTHER TITLES IN OUR SERVICE SYSTEMS AND ­INNOVATIONS IN BUSINESS AND SOCIETY COLLECTION Jim Spohrer, IBM and Haluk Demirkan, Arizona State University, Editors • Service Design with Applications to Health Care Institutions by Oscar Barros • How Can Digital Technologies Improve Public Services and Governance? by Nagy K. Hanna • The Accelerating TechnOnomic Medium (‘ATOM’): It’s Time to Upgrade the Economy by Kartik Gada • Sustainability and the City: The Service Approach by Adi Wolfson • Everything Old is New Again: How Entrepreneurs Use Discourse Themes to Reclaim Abandoned Urban Spaces by Miriam Plavin-Masterman • The Interconnected Individual: Seizing Opportunity in the Era of AI, Platforms, Apps, and Global Exchanges by Hunter Hastings and Jeff Saperstein • T-Shaped Professionals: Adaptive Innovators by Yassi Moghaddam, Haluk Demirkan, and Jim Spohrer • The Value Imperative by Gautam Mahajan • Virtual Local Manufacturing Communities: Online Simulations of Future Workshop Systems by William Sims Bainbridge

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Service Systems and Innovations in Business and Society Collection Jim Spohrer and Haluk Demirkan, Editors

Fiona Urquhart This book explores the basic tenets of service excellence, opening to distinguish customer service from service excellence, and explore the driving aspects of strategy and philosophy. The brand promise to customers creates expectations; hooks targeted and segmented customers into a relationship. Service operations deliver expectations, delight, or on occasion, disappointment, and marketing responds to create loyalty, further delight, or recover the relationship. Freshness of product or service offering, the injection of a characterful sense of fun, and sensitive personalization of service combine to deliver an authentic, pleasurable and memorable service experience prompting much sought loyalty and advocacy. In turn, staff are happy, profits rise and the organization has longterm sustainability. The first volume offers some theoretical background, while the second suggests mechanisms, tools, and techniques to help embed to excellence as the foundation of value that the organization delivers. Both contain practical examples and a self-assessment diagnostic tool to identify organizational areas of strength, and aspects to improve. Fiona Urquhart, MBA, FCIM, FIC, after a retail grounding with the John Lewis Partnership, Fiona gained an MBA from CASS Business School. She leads Durham University’s MBA module on service excellence, having previously taught for the Open University. She developed AC Nielsen’s EPOS based research service, Scantrack, and a pilot EFTPOS service for retail clearing banks. Fiona provides consultancy to diverse service and manufacturing companies, and does charitable work. She supports service excellence projects and training at various corporations, making use of problem based learning to create practical learning situations and encourage reflective learning. She has delivered a series of interactive workshops for several European universities to research PBL in the context of entrepreneurial learning, and will present her findings at a number of global conferences. You can see more about Fiona here https://www.linkedin.com/in/fionaurquhart1/

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SERVICE EXCELLENCE IN ORGANIZATIONS, VOLUME II

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