Trimillennium Management; Customers; Services: Power of service loyalty

TRIMILLENNIUM MANAGEMENT: SERVICES
Power of service loyalty

By J.Rajagopal & Ajitakini

Customers have never had it so good, and it is only going to get better. Over the last few years, the Indian customer has received some unfamiliar, but welcome, attention. The customer is reaping the benefits of a free market through a flood of special offers, free gifts, lucky draws, and even lower prices.

Worldwide, product quality and low prices have already become qualifiers-something customers expect in every offering. Therefore, companies are turning to service quality for that something extra that will tip the buying decision in their favour. Besides, as they struggle to stand out, the brand is growing in importance as a distinguishing factor. Good service quality works to protect and improve the brand image, which can be ruined by even a handful of dissatisfied customers.

In this millennium, service will be the key differentiator for both manufacturing and service companies. To attract and retain customers, companies need to improve their service quality by focusing on 4 main areas. The first thing companies need to do is satisfy the customer's need for more involvement and choice. Today's customers are more involved in the products they buy. They want to define for themselves what is appropriate.

In the entertainment industry, for example, customers are no longer passive consumers of movies or plays. Instead, computer game parlours, entertainment arcades, or theme parks put customers in charge of the timing, the duration, and the form of entertainment. To satisfy this need for involvement and to combat competition, companies will have to offer more choice. Customisation will no longer be restricted to high-priced designer products, but will extend to cheaper, mass-produced products. Increased involvement and choice bring benefits not just to customers, but to companies too. For example, in the banking sector, home-banking, telebanking, ATMs, and Net banking offer flexibility to customers and lower the costs and increase the efficiencies of the banks.

The power of superior service quality is not merely that it satisfies customers in a particular transaction. Rather, it gives companies a real shot at acquiring an on-going customer relationship. In the future, owning the customer relationship will be the real source of competitive advantage. The incremental cost of servicing an existing customer is far below the cost of acquiring a new one. Selling more products to the same customers allows companies to maximise the use of their distribution channels or salespeople. This realisation is driving a big trend: convergence. For example, the distinctions between banks, investment services-providers, and insurance companies are blurring. Organisations in one of those categories are offering products from the other, betting that the customer relationship will transcend the product-category. In an age of decreasing customer loyalty, companies should place a premium on managing customer relationships so that they can cross-sell more products to their existing customers.

To support and manage these changes or, indeed, to drive them, companies must use technology intelligently. Mass-customisation will only be possible through technology that allows the factory or product-development unit to interact smoothly with the point of sale. Technology offers new distribution-channels-such as the Net-that will support more customer choice and involvement. The real goldmine that technology offers is the ability to collect and analyse customer information. Using technology, companies can identify their most profitable customers and products, and concentrate on them.

Technology will also help companies in an important task: measuring their customer service quality. Companies need to assess their performance especially as they experiment with new service initiatives. The following parameters are good indicators of customer service quality.

CUSTOMER ATTRITION RATE. The rate at which customers withdraw is a good indication of satisfaction-levels.

PROFITABILITY TRENDS. By closely tracking the profitability of individual customer accounts over time, companies will know if they are, in fact, reaping the cost and profit benefits of an extended customer relationship.

FIRST-MOVER ADVANTAGE. The duration for which a company is able to retain the first-mover advantage is an indicator of the difficulty the competition has in matching the service offering. This is the period when the organisation can demand a premium.

LEADER IMAGE. If all competitors are compelled to offer the same or similar service, it is a good indication of the acceptance of a service-offering. At fixed intervals, an organisation can track the number of players who have introduced similar services.

RECOVERY RATE. Customers will forgive some mistakes. What is important, however, is the ability to recover from them. Companies can track the frequency of various types of service-failures and the time taken to recover.

This millennium will truly be an age of service. Service is going to be so integral that it will, often, be indistinguishable from the product. Only companies that can upgrade their customer service quality will be in a position to earn that all-important share of mind, market, and wallet in the future.

J. Rajagopal is Managing Director, & Ajita Kini is Manager (MCS Division), at KPMG India

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