The Four Things a Service Business Must Get Right

 Four main service elements  The Offering  The Funding Mechanism  Employee Management System  Customer Management System

The Offering

 The service must meet the needs and desires of an attractive group of customers in terms of customer experience and service features.

 E.g. Convenience and friendly service vs. price.

 E.g. Bank’s extended hours.

 Identify customer operating segments in terms of attribute preference .  E.g. Walmart’s customers preference for low price and wide selection over ambience and customer service.

 Managers must choose areas to excel .

The Funding Mechanism: Service comes at a cost (1) Charge the customers in a palatable way: rarely a la carte.

  Imagine if Starbuck charged its customers per hour for the uses of its lounge area? What if Commerce Bank charged customers explicitly for having longer operating hours? Avoid charging your customers explicitly for added service Find creative ways to fund the added service

(2) Create a win-win between operation savings and value added services

  Progressive Casualty Insurance: Sends van out to accident Lowers fraud risk and increases service How to find win-win solutions?

Look at largest costs Attempt to remove time

The Funding Mechanism: Continued (3) Spend now to save later

Offer free customer support - feedback leads to a better product Automation Investment in technology

(4) Have the customers do the work

Self service: Turn labor into an activity for customers E.g., Airlines self check in. Improve customer experience ( access to useful tools such as seat maps) and lowers costs

Employee Management System

    Recruiting and Selection Process Commerce Bank: “Hire for attitude and train for service.” Combination of attitude and aptitude expensive – Place preference.

Training (see above) Job Design Make sure that employee is not set up for failure but allows an average employee to thrive.

Should have fault tolerance built in, i,e., able to compensate for lack of either aptitude or attitude Performance Management Consistent with goals of organization and achievable by employees

Customer Management System

   Employees aren’t the only people affecting the cost and quality of service.

The customers themselves can be involved in operational processes, and their input influences their experiences (and often other customers’ too).

E.g., a customer who is slow at a fast food counter makes the service less fast for everyone behind him.

Customer involvement in operations alters the traditional role of business in value creation   Product based business buys materials and adds value to them and deliver to customers who pay to receive it In a service business, employees and customers are both part of the value-creation process .

Customer Management System

  Benefits of Service Organizations:  A main benefit is that customer labor can be far less expensive than employee labor  It can also lead to better service experiences Example: When students participate more in a classroom environment, they learn more.

Challenges: Designing a system that explicitly manages these challenges of customer involvement is essential to service success

Customer Management System

Challenges 1. The issue of customer selection Service designs may call for customers to perform important tasks, but for the most part customers have no interview, no background check, and no personality profile.

2. Customers are not as easy to train as employees  There are usually many times more customers than employees  Creating effective training for a large, dispersed, unpaid, and irrelevantly skilled workforce is difficult

Customer Management System

Challenges (continued) 3. Customers have a great deal of discretion in their operational activities, usually far more than employees Example: Zipcar, the car sharing service  To keep costs low, its service model depends on customers to clean, refuel, and return cars in time for the next user  Motivating employees to perform these tasks would be routine  Motivating customers requires a complex mix of rewards and penalties

Customer Management System

Ways to meet the challenges:

1) Simplify the system   Example: self-service airlines check-in, supermarket check-outs An airline employee performs many keystrokes when checking-in a customer The check-in role was greatly simplified when it was transferred to the customer 2) Provide limited training 3) Provide additional on site assistance

Customer Management System

  Key Questions to address when managing customers in your operations  Which customers are you focusing on?

 Which behaviors do you want?

 Which techniques will most effectively influence behavior?

Techniques used to modify customer behavior can be divided into two basic categories 1. Instrumental: the carrot and sticks we commonly see played out as discounts and late fees 2. Normative: the use of shame, blame, and pride to motivate us to return shopping carts and pick up the trash, even when no one is looking