Breaking the Trade-Off
Between Efficiency and Service
• Manufacturing Environment: Variability
MUST be eliminated
• Services Environment: All variability
CANNOT be eliminated
– Customers measure quality of service by how
their variability is accommodated
– Impossible since customers are an input
• Reality: Customers introduce variability but
complain about inconsistency
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Five Types of Customer Induced
Variability
1. Arrival Variability
•
•
Customers request service at different
times
Do not always want service when
convenient for company
2. Request Variability
•
Represented by
substitutions/customizations
2
Five Types of Variability (Cont’d)
3. Capability Variability
•
Extent of customer knowledge, skill, etc.
4. Effort Variability
•
Degree of customer willingness
5. Subjective Preference Variability
•
Customers have different opinions or
preferences as to how they evaluate
service
3
Reduction Strategy
• Classic reduction strategy: the restaurant menu
– By their nature are a way to constrain variability
– For customers to order “off menu” is part of a premier
dining experience
– When the restaurant does not accommodate special
orders:
• They reduce the complexity of the operating environment
• May diminish service quality
• Companies that use the reduction strategy tend
to attract customers, who are willing to trade-off
an excellent service experience for low prices
4
Uncompromised Reduction
• Companies can reduce the impact of variability
by targeting customers on the basis of variability
type
• e.g., colleges choose students whose test
scores fall within a narrow band, therefore the
school does not have to support more than one
curriculum
• Companies can benefit from reduced variability
without requiring customers to adjust
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Accommodation Strategies
• Involves experienced employees to compensate
for the variations among customers
• Employees are making adaptations to “protect”
the customer from making their own adjustments
• Costs more and force the company to bear the
brunt of the variability
• Only high-end companies can command such a
premium
• Success of the strategy hinges on the
company’s ability to persuade customers to pay
more to cover the added expenses
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Low-Cost Accommodation
• Companies are persuading customers to
serve themselves
• The service experience varies with
customers’ capability and effort
• Effective for high arrivals or request
variability
• Customers need to feel compensated in
some way: low prices, greater
customization
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Matrix of Classic Trade-Off
• Managing customer –
introduced variability
does not have to come
down to a stark trade-off
between cost and quality
• Other options exist –
those above the
diagonal which let
companies offer a high
level of accommodation
at low cost or reduced
variability without
damaging the service
experience
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Solutions in Practice
• Arrival and Request Variability
– Dell
• New products would demand responsive service
• Options: reduce variability or accommodate variability
• Solution:
– Third Party Service
– Risk
– Successful
Strategy: low cost accommodation
9
Solutions in Practice (Cont’d)
• Capability Variability
– Starbucks
• Customers have many options
• Solution:
– Teach customers proper way to order
– Successful
Strategy: uncompromised reduction
• Effort Variability
• Instrumental Means
– Zipcar, daycare center, video rentals
• Normative Means
– Ebay
Strategy: Changing customers’ behavior
10
Solutions in Practice (Cont’d)
• Subjective Preference Variability
– Tiffany & Company
• Crowded stores
• Solution:
– Beepers
– Not successful
– Southwest Airlines
• Chaotic boarding process
• Solution:
– Experimental assigning seats
– Not successful
11
Steps in Managing Customer Behavior
• Diagnose the problem
– Must understand the roof cause of the
problem
• Design a mutually beneficial operating role
for customers
• Test and Improve on the solution
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