Chapter 9: Managing Services for Business Markets PowerPoint by: Ray A. DeCormier, Ph.D. Central Connecticut State University A. B. C. D. What is the value of systematically monitoring the customer experience? What is the central role that business services assume in customer solutions? What do the roles of service quality, customer satisfaction and loyalty assume in service marketing success? How offerings that combine products and services can be created to deliver value to customers From Products to Solutions Many companies, especially smaller ones, start by developing a product to replace an existing product. This is the “building-a-better-mousetrap” mentality. Many companies also think that the best way to win customers is to develop a superior product and continually work to make it better. In other words, they start with the product & services first and consider customer relations as an afterthought. This is an error in thinking! A better approach is to understand the customer by mapping out experiences. Customer Experience Approach Recent research discovered that only 8% of customers think that their experience with their vendors were superior, whereas 80% of vendors think that they delivered a superior one. This research points out an obvious disconnect. By focusing on core products instead of understanding the customer’s experience, many companies lose their customer and never know why. Also, by not understanding the customer, companies lose an opportunity to create value and cement relationships. One way to understand the customer better is to “Map” out experiences at various “touchpoints.” Touchpoints are spots where a seller has direct or indirect contact with the customer about the product or service over time. The map points out what is most important in the seller/customers’ experience. Ultimate Goal of Experience Map The ultimate goal of an Experience Map is to identify: 1. The value that customers place on different levels of performance for each element of the experience. 2. The customers’ minimal expectations for each element. 3. The customers’ perception of the firm’s performance versus that of key competitors. Once the map is developed, the next step is to meet with the customer and pare down the list to the most critical issues. Customer Experience Life Cycle Map Figure 9.1 The First Step in Understanding a Customer’s Experience is to Develop a Life Cycle Map A representative set of customer-company interactions Relationship initiation The company exposes the customer to its marketing message The customer seeks relevant information Provider evaluation Account setup The customer gets initial price and lead-time quotes The customer obtains materials for account setup The customer puts out an RFP The customer provides account profile information The customer evaluates providers and negotiates terms and pricing The customer selects the provider The company confirms setup and activation The company performs courtesy followup The customer requests product information Order placement Product reception and use The customer selects the product The customer tracks order status The customer places the order (fills out the order form The company and the customer arrange the final delivery terms The customer prepares specialty documents when required (for example, for rush delivery) The company and the customer arrange initial delivery terms The customer receives and inspects the product The customer refuses or accepts the product Problem resolution Payment Account maintenance The customer files a claim and obtains resolution The customer receives and validates the invoice The customer maintains profile information The customer notifies the company of a problem and obtains resolution The customer makes the payment The customer maintains supplies The customer seeks an invoice adjustment and obtains resolution SOURCE: David Rickard, “Winning by Understanding the Full Customer Experience,” The Boston Consulting Group, Inc., 2007, p. 6. Accessed at http://www.bcg.com The company provides general support (not related to problems) The customer obtains ongoing price quotes Product- to a Solution-Centered Approach Don’t start with product first. Instead, start with understanding the customer’s problem and end with products and services that solve that problem. The exchange should not be transaction-based but rather be an interactive exchange with the objective of developing a relationship around c0-creating value with the customer. Work with the Customer ◦ Co-creating value means that products and services are developed in concert (integrated) with the customer such that its benefits provides solutions to customer problems. ◦ Services are a critical feature of the solution: It provides a valuable basis for competitive advantage. It’s an important driver of profitability. From a Product to a Solutions Perspective Product Perspective Solutions Perspective Value Proposition Win by creating innovative products and enriching features of existing products Win by creating and delivering superior customer solutions Value Creation Value is created by the firm Value is co-created by the customer and the firm Designing Offerings Start with the product or service, and then target customer segments Start with the customer problem, and then assemble required products and services to solve the problem CompanyCustomer Relationship Transaction-based Interaction-based and centered on the co-creation of solutions Focus on Quality Quality of internal processes and company offerings Quality of customer-firm interactions DETERMINE UNIQUE CAPABILITIES Before developing solutions, B2B firms must: Define their own capabilities 2. Figure out how to use them to help customers to: 1. a. b. c. d. Reduce costs Increase responsiveness Improve quality Maybe even contract to do some of the work Products provide the platform for the delivery of services. The authors suggest that many sellers think that providing a solution is a customized and integrated combination of products and services for meeting customer needs. However, customers view a solution as a set of customercompany relational processes that involve: 1. Defining customer needs 2. Customizing, integrating and deploying products & services 3. Providing post-deployment customer support Aimed at meeting (solving) business customers’ needs (problems). DO SERVICE TRANSITION STRATEGIES PAY OFF? 1. 2. 3. To improve competitiveness many firms add services to their existing product offerings to make… 1. The firm’s value offering more unique 2. Duplication difficult for rivals 3. Products more valuable to customers … thereby enhancing profitability and firm value. Does it pay off? Confirmation comes when firms that add services see an increase in sales from 20 – 30%. Adding services is more effective for firms that relate the service to their core products. Adding services is effective in turbulent or slow growth industries, but counterproductive in stable or high growth industries. 14 Defining Customer Requirements and Business Needs Customizing and Integrating Good and Services to Fit Customer’s Requirements Deploying and Installing Products in a Customer’s Environment Providing Ongoing Post-deployment Customer Support Customer adaptiveness refers to the degree to which a customer is willing to adjust its routines and processes to accommodate a supplier’s products. Solution effectiveness is enhanced if the customer provides information and guidelines concerning the priorities and sensitivities of various stakeholders in the customer firm. Solution effectiveness can be enhanced if the customer provides counseling to a supplier concerning the unique elements of its operations. It offers: I. II. III. New avenues of growth New ways to differentiate Higher customer loyalty Growth Opportunities Services, by their very nature, offer far more than core products can offer. However, marketers need to understand the true need (problem) that core products presently solve. Next, when looking at the core need, ask, “Are there other ways to solve that problem?” Other ways can lead to new products. Service Solutions Facilitates Differentiation Business marketers who emphasize solutions sustain differentiation because solutions offer a wider variety of services that can be customized to meet customers’ unique needs. By co-creating solutions, business marketers enhance loyalty resulting in the customer creating barriers for competition. All Products Are Services Most marketers know that all products are really just wrapped-up services. So how do we distinguish between services and products? Generally, 1. Services are intangible. 2. Products are tangible. They consist of… Deeds, Processes, and Performances …that are intangible. Continuum – Tangible to Intangible The Continuum suggest that there are very few pure products or very few pure services. It’s a useful tool for understanding the product-service definition issue. Many services are a combo of services and products. Example: hotels – offer sleeping service to food products BUSINESS PRODUCT-SERVICE CLASSIFICATION BASED ON TANGIBILITY CONTINUUM 22 How Services Differ from Goods Inseparable – produced and consumed simultaneously Non-standardized Heterogeneous Perishable – Use it or Lose it Intangible – Lacks ownership Business services that are intangible-dominant market offerings. Few services are totally intangible – they often contain elements with tangible properties. What is a good service? A good service is one that meets or exceeds the customer’s expectations. Therefore, marketers should position their service a bit below what they, in fact, can deliver. Under-promise and over-deliver! 5 Dimensions for Business Services • Customers tend to focus on five dimensions in evaluating business service quality. 1. Reliability 2. Responsiveness 3. Assurance 4. Empathy 5. Tangibles • Among these dimensions, reliability – delivery on promises – is most important to customers. 5 Dimensions of Service Quality Developed by Cool Pictures and MultiMedia Presentations Copyright © 2007 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Customer Satisfaction and Loyalty Customer-linking processes that affect satisfaction: 1. Basic elements of the product or service that customers expect all competitors to provide. 2. Basic support services, such as technical assistance or training, that makes product more effective. 3. A recovery process for quickly fixing product or service problems. 4. Extraordinary services that so excel in solving customers’ unique problems or in meeting customer needs that these services make the product or service seem customized. Service Recovery Sometimes there are problems. The firm did not do everything it promised. What should they do? The way to address this is to institute a service recovery strategy. Service Recovery Strategy Service recovery strategy encompasses procedures, policies, and processes that firms use to resolve customer service problems promptly and effectively. One way of resolving a discrepancy is to negotiate the resolution. “What’s it going to take for you to be very satisfied with the resolution of this complaint?” Service providers who satisfactorily resolve service failures often see their customer’s level of perceived service quality rise. Also, solving service problems helps correct shortcomings in the first place, and Can lead to the development of a new feature or even a new product. Zero Defections There is no such thing as zero defections, however providing high quality service has an effect of keeping customers longer. It is beneficial in terms of sales and profits because: 1. 2. 3. The firm can charge more. The cost of doing business is reduced. Long-term customers provide word-of-mouth advertising. Therefore, the strategy is to: 1. 2. 3. Track defections to find out “why.” Recognize that continuous improvement is not a cost but an investment in a customer that generates profits. Measure return on quality. Marketing Mix for Service Firms Meeting the needs for the service market requires an integrated marketing strategy that: 1. 2. 3. 4. Selects a target segment. Customizes the service marketing mix (4 P’s). Promotes a relationship vs. a transactional approach. Emphasizes the total buyer-seller interaction process. Segmenting Services Segmentation demands that a group must be large and homogeneous enough to support a marketing effort. First, service segments are often narrower because customers expect services to be customized. Second, service segmentation focuses on what business buyers expect as opposed to what they need. Third, segmenting service markets help firms adjust their service capacity more effectively. Total demand is made up of many small segments, thus they are able to control them more easily and predictably. Developing the Service Package The service package can be thought of as the product dimension of service, to include: 1. Essential concept of the service 2. Range of service provided 3. Quantity, quality and level of service In addition: Service package must consider some factors unique to services – personnel, physical product and a process for providing the service. Conceptualizing the Service Product 36 Customer–Benefit Concept is understanding those service attributes that are important to the customer. They include… a. Functional, b. Effectual, and c. Psychological components … that result in a successful service experience. Consistent quality is the goal so quality-control is of utmost importance. Service Concept The service concept defines the general benefits that customers will receive from the service provider’s bundle of goods and services. Notice the future tense: “will” Service Offer The service offer spells out in more detail the who, what, where, when, and to whom the service will be provided. The service elements make up the total service package to include both tangible and intangible components. Service Delivery System The final element addresses: “How is the service going to be provided?” This includes: 1. Jobs that qualified people are going to do 2. Necessary equipment, facilities and layout 3. Carefully developed procedures that insure successful delivery of the service Service & Delivery For tangible products that demand service, both the service performance and the delivery system create and deliver product benefits to the customer. For example: The tangible product (copy machine) needs to be cleaned and serviced. If either the service or delivery system fails, the product fails. If both are good, then customers consider the total package good. Service Personnel Finally, the importance of employing good people cannot be emphasized enough. In short, personal qualifications, i.e.: 1. Attitude 2. Skill 3. Knowledge 4. Behavior have a critical effect on customer’s level of satisfaction with the rendered service. Hybrid Offering Combination of one or more goods and one or more services that together offer more customer benefits than if the good and service were available separately The installed base of products at customer organizations represents a unique asset for most manufacturing firms. Four resources: 1. Installed base; 2. Product development assets; 3. Sales force; and Field service organization 43 Distinctive Capabilities to Launching Hybrid Offerings • Service-related data processing and interpretation capability • Execution risk assessment and mitigation capability • Design-to-service capability • Hybrid offering sales capability • Hybrid offering deployment capability Hybrid Service Offerings Classification • Product life cycle services • Asset Efficiency services • Process support services • Process delegation services