What is Service Good For?

The Service Revolution of the 1990’s promised a basketful of rewards for companies that excelled in customer service quality. They would achieve competitive differentiation, increased customer retention, lower costs and more word-of-mouth advertising. In addition, their profit margins would go up, with customers happily paying a premium for superior service.
The reality was not always so rosy. While a handful of companies launched successful initiatives and realized at least some of the promised benefits, many more struggled to make their investments in service pay. A variety of explanations have been offered for these failures, from a lack of commitment at the executive level to a shortage of high-quality personnel at the front-line.
A more likely explanation is that companies often fail to subject their service strategy to same level of analytical rigor as their other investments. They take it on faith that “good” service will provide a positive return, rather than analyzing the mechanism by which service changes will affect consumer behavior. Organizations that understand the functions of customer service, and that can apply those functions to their overall corporate strategy, are best able to design an effective service “style” that will result in positive payback.
Any company wishing to invest in service improvements should begin with the question, “What is service good for?” While this can be answered in a variety of ways, it is useful to view customer service in terms of four main functions: Delivering the goods, Cleaning up the mess, Expressing the brand, and Influencing behavior.

1.    Delivering the goods. The primary function of service is to make sure that goods get into the hands of customers and that money gets into the hands of the company. Shelves must be stocked, questions answered, guests seated, orders taken, money collected. These are basic consumer expectations, and a necessary part of doing business. Failures and inefficiencies in this function result in lost customers and expensive recovery efforts.
2.    Cleaning up the mess. All organizations need to have some mechanism for complaint resolution and service recovery when something goes wrong. Customers require a conduit of communication for resolving issues, and a predictable, fair and consistent process for putting the relationship back on track. Deficits in this function result in customer turnover, negative word-of-mouth and high transaction costs.
3.    Expressing the brand. The first two functions might be considered basic costs of doing business. Beyond these fundamental activities, however, customer service can be viewed as a key component of a company’s brand.

In the early stages of the customer relationship, the brand identity is defined and reinforced through a wide variety of cues, including logos, advertisements, slogans, public relations and signage. However, once the customer is acquired and starts doing business with the company, these cues become progressively less relevant as they are replaced by actual customer experiences. In many industries, the service encounter is the primary branding cue for existing customers.

Relatively few companies make full use of customer service’s potential to express and reinforce the brand message. Service standards are typically defined by Operations managers who have little communication with the marketing or branding functions of the organization. As a result, service delivery may be competent but indistinguishable from that of other companies. Lacking a distinctive service “style” that reinforces the brand message, many companies have been unable to realize two major promises of the service revolution: differentiation and loyalty. However, those that have successfully incorporated service into the branding effort, like Starbucks and Southwest Airlines, have realized a significant return on their investment in customer service.
4.    Influencing behavior. Service initiatives often focus on increasing customer satisfaction, loyalty and delight. Changes in these feelings or attitudes will, in theory, result in more profitable customer behaviors. Unfortunately, these presumed correlations are often weak, and in some cases are non-existent.

The most reliable way to change customer behaviors is to take the direct route: determine which behaviors to focus on and develop a strategy for changing them. Profitable service initiatives ask the questions: “What do we want customers to do more of, and what do we want them to do less of?” The service strategy must then explicitly spell out the path to influencing these changes through the medium of customer service. Service training, process and policy must then be aligned with these goals.

Both revenue-enhancing and cost-reducing behaviors can be influenced through customer service. Customers can be persuaded to buy more, to purchase more frequently, to purchase higher margin items and to attract new business through positive word-of-mouth. They can also be influenced to use lower cost purchasing and information channels, to use support services more efficiently and to return items less frequently. All of these efforts to influence can be misused, of course, and may cause more harm than good. Thus, a company’s strategy for influencing behavior must be carefully crafted to avoid clumsy, inappropriate or gratuitous service situations.

The most successful service initiatives delineate these four functions and identify specific strategies for each one. They treat service improvement as an investment that must provide a positive, competitive and measurable return. Thus, they clearly spell out what service investments needs to accomplish, and how the service plan will fit into the company’s overall strategic goals. The handful of companies that have taken this approach have seen the promises of the service revolution delivered. For most companies, however, these are lessons still to be learned.