Delivering Cost-effective Customer Service

Research on customer loyalty suggests that only 14 % customers stop patronizing stores
based upon product quality dissatisfaction whereas 61% defect based upon indifferent or
unhelpful service. Most retailers usually articulate the importance of customer experience
at the store as a critical dimension of their retail offering. But customer experience often
suggests otherwise. I conduct an experiment with my MBA students. On one day I send
them wearing casual clothing to Saks. And on another day the students visit the same
store well groomed and wearing formal clothes. The students’ in-store experience
dramatically differs. So why is there a disconnect between retailer intention and customer
experience? And is ‘delivering quality customer service’ getting adequate managerial
attention in comparison to branding, location strategies, and marketing activities? The
business as war metaphor is quite irrelevant in business today. Companies in an industry
don’t confront each other and fight to death. Retail competition is more like figure
skating where each retail company is attempting to impress a panel of customers who
walk through the door and who are the real judges.

The traditional emphasis of marketing on brand strategies has focused upon the four Ps –
product, promotions, place, and price. A large proportion of the retail brand experience is
contributed by the in-store experience. This has some unique characteristics. The retail
experience is created through dynamic and unpredictable interactions of the products,
frontline sales staff, and customers. The customer experience is intangible, experiential,
and perishable, and exists only as a feeling in the mind of the customer; a feeling about
all aspects of the experience e.g. product, price, person with whom the interaction
occurred, the layout of the store, the procedure at the till, the post-purchase pre-departure
greeting, etc. This feeling, positive or negative, does have the propensity to significantly
influence retail operating results. Retail branding, therefore, requires the addition of three
more Ps to the 4Ps of marketing – physical ambience, people and processes.

It has been my experience that often organizations are hesitant in making investments (I
consider commitment to service quality as an investment and not a cost) in improving the
quality of service delivery for two reasons. Firstly, they are less sensitive to how
improvement of service quality results in improved profitability based upon customer
conversion, and improved staff productivity. Secondly, improvement in service quality
requires strategic interventions in management of human resources are managed; a
process that requires creation of unique organizational processes, and continual top
management engagement to often create, change and disseminate a service culture to the
frontlines of an organization.

Measurable outcomes of service quality improvement

I first recapitulate some aspects of the retail service encounter (interaction between the
product, store salesperson and the customer) to pin-point how the service personnel can
directly contribute to improving operating results (Table 1). Service quality improvement
has a direct influence on the buying and selling process. A retailer exists not as an ‘agent’
of the supplier but an ‘agent’ of the customer; a retailer improves operational efficiency
(measured directly in stock turns or full margin sell-through, etc.) if the retailer buys
merchandise not based upon what the supplier or franchisor makes but based upon what
the retailer’s customers want. Once the correct merchandise is displayed it is necessary
for the customers to encounter the product (role of merchandising and display), touch and
feel the product, and understand it (product features), and perceive the value of the
features in meeting their needs. Improvement in service quality directly influences
customer conversion and average invoice value.

Table 1 – Some dimensions of the buying process

The customer Issue How the service Examples Outcomes if
purchasing process personnel contribute service
quality is
improved
Selection of the right How to get feedback Store sales staff Zara is world Improves sell
merchandise about customer usually has famous for doing through at
perceptions tremendous latent this. Other higher
knowledge. organizations like margin and
Organizations need to Al Shaya use inventory
develop processes to frontline staff as turns
capture and transform members of the
it for timely action buying team
Encounter with the All products Store sales staff have It is often difficult Improves
product displayed in a store a role in to encounter sales conversion of
don’t have an equal understanding the staff in customers
opportunity to be needs of the customer Debenhams who
seen by the and enabling the can assist
customer, and what customer to find customers through
is seen sells products that fulfill the maze of
the needs fashion brands
Identify the features Features of products Store staff assist in Try comparing Improves
of the product and their utility is understanding PDAs and cell conversion
not always apparent product features phone combos in
any major
electronics store
like Plug Ins or
Jumbo or DG
Sharaf
Evaluation of Customers not Store staff assist in Very rare to find Improves
products always able to evaluation of retail sales staff conversion
evaluate product products and / or trying to upgrade and invoice
features to discern brands my purchase value
utility and value
Assessment of value Enabling customer Customers often need Sales staff usually Improves
develop a price / assistance in this has not used the conversion
value insight process and the role product they are and invoice
of salesperson trust is selling and are value
crucial unable to develop
customer trust
about product
features and post
purchase service.
Improvement in retail conversion is a measure that captures the outcomes of the quality
of the in-store process but is also indicative of the impact service quality improvement
has on retail operating results (e.g. an increase of buying customers from 20 to 22
increases sales by 10%). In addition to the direct impact of improving service quality on
operating results, a number of indirect influences also exist. The indirect influences are
based upon the premise that the service component as experienced by the customers is
dependent upon the attitude, understanding, commitment, and motivation of the
organization’s staff, and any steps undertaken to improve service quality will enhance
organizational climate reducing employee turnover and associated costs of recruitment
and training. It is also generally believed that enhanced customer service as a
consequence of improved service quality also influences customer loyalty, reducing costs
of customer acquisition and increasing life time value of customers.

Designing for service delivery

Before we design for service delivery we need to understand a major difference between
the execution of service brands and product brands. In product brands the organizational
processes that deliver brand value are invisible to customers. In contrast in service brands
the service delivery process is visible (i.e. service is experienced as it is delivered in
interactions with customers), dynamic (i.e. the service is co-created in continuous
engagement with customers), intangible (i.e. service outcome is a feeling in the
customers mind), and heterogeneous (i.e. service is delivered to a customer at a time and
can vary from customer to customer). And in order to tailor the service delivery to meet
the needs of customers, the personnel who deliver service need to have a clear and
unambiguous understanding of the brand promise, have capabilities to respond to
emergent customer needs, be adequately trained to respond to diverse customer needs,
and empowered to be adaptive to consumer needs. In the classical product-based
branding, therefore, less emphasis is placed upon the management of the internal
organization to consistently deliver brand promise. Whereas service brands are much
more sensitive to how people within the organization are managed.

Three steps have been identified to deliver a service brand - understanding what
customers want, selecting the standards of service, and focus on human resources.

The first step in organizing for delivering quality service is to understand how customers
define good or bad service quality. All of us as consumers have an internal unarticulated
benchmark basic level of service expectation when we visit a store. If we get less service
than expected we don’t make a purchase and usually never return. If the basic level of
service is provided then we are indifferent amongst different stores. But if we are
provided exceptional or unexpected high level of service then we do return to the store
often or become loyal. As customers we intuitively frequent stores where we are treated
well and often are willing to pay a premium for service. We also modify our service
expectation based upon the store being visited. What I expect from a Carrefour is
different from what I expect in an Armani or a Saks. Expectations also differ across
cultures. In Taiwan, service is a function of how goods are delivered at the store and how
the customer is treated in the store, and the key issue is respect. In Netherlands, even
though these themes are reflected in customer feedback, different themes are emphasized
e.g. ability to provide information. In the US service quality is skewed towards a
perception of merchandise quality and price when compared to both Taiwan and
Netherlands. But two themes are common across all cultures - first, the need for friendly
knowledgable staff, and second, what constitutes poor service - impersonal staff, lack of
merchandise, and product knowledge. Service expectations also vary across demographic
groups based upon age, income, gender, etc.

In order to define service standards one needs to identify what constitutes service quality
and establish standards for service quality. Research has identified the following
dimensions of service quality.
Table 2 - Dimensions of service quality
Dimension Characteristics
Reliability Consistency of service delivery – accuracy in billing etc.
Responsiveness Willingness of employees to deliver service
Competence How to deliver service (skills) and content of service (knowledge)
Access Approachability and ease of contact
Courtesy Of contact personnel
Communication Actual delivery of service
Credibility Winning trust of the customer
Security Confidentiality
Understanding Understanding customer needs
Tangible Physical aspects of service delivery

Customers don’t usually go to a store with explicit expectations. The expectations are
tacit habituated expectations. It is also unusual for customers to consciously evaluate
each service encounter. But when a service failure occurs, something as innocuous as the
non availability of the correct merchandise, then the customer starts evaluating the
service encounter and the responses of the organization. Recovery from service failure is
an important contributor to positive or negative perceptions / expectations of customers.
It is financially not prudent for each store to be a full service delivery store, and rank high
on each service quality dimension. It is also impossible to define all possible situations
that will arise during service delivery and then stipulate appropriate roles and behavior in
detail to deliver consistent service. It is a lot easier to help staff absorb the espoused
values of service and implications for their roles, and leave them free to adapt and
respond to contingent situations focused upon ensuring consistency of service delivery
and more importantly response to service failure. Delivering quality service is therefore
more about ‘managing’ customer expectations on service quality at the store, and not
about delivering the best possible service. Every organization, therefore, has to decide its
service positioning in the market place e.g. service in a Zara is different from a service in
a high fashion store like Prada or Hermes. To establish service benchmarks all the factors
(table 2) need to considered and categorized into two broad categories - basic ‘minimum
quality standards’ that will be achieved, and which basic ‘expectations beyond the
minimum quality standards’ will be met. The organizational processes to meet the basic
minimum service quality standards will then need to be engineered into the organization
as processes for managing ‘consistent’ service delivery. Whereas ‘managing’ of
expectations will need to be in-built into the organization processes as ‘flexible responses
of the organization staff’ to emergent situations through delegation of responsibilities to
frontline staff.

Since service quality is an outcome of efforts of frontline employees then designing for
service delivery requires an understanding of what drives frontline staff to deliver high
quality service. Many factors like employee loyalty (identification with the company),
employee belief that serving customers results in sales (and enables them earning
incentives), employee beliefs that the company believes in providing hi-quality service to
customers, and that the organization has empowered them to independently take
decisions to satisfy customers, etc. have been identified. In addition to the customer
interaction the individual needs to be responsible for quality of service delivery and its
outcomes, be answerable to the supervisory manager for the service quality, and act
within the norms of the organization. The individual who delivers service is embedded in
an organization and is influenced by the staffing process, the training process,
interactions with supervisors, performance parameters, performance measurement and
reward systems, and organizational culture. Each of these linkages has a direct influence
on the thinking process of the individual, and in turn influences the quality of service
delivery.

Managing service delivery

In order to ensure that delivering service quality becomes a strategic organizational

process, it is necessary to identify measures to monitor outcomes of delivering service
quality, measure or assess organizational processes that contribute to delivering quality,
and keep track of inputs to the quality delivery process. Table 3 is an initial list.

Type of Measures Measures

Outcome measures Customer conversion, staff productivity, average invoice value, sales / sq ft,
and customer feedback
Process measures (these Staff satisfaction, and staff beliefs (organizational commitment to service,
are staff perceptions) empowerment to deliver service, linkage of rewards to service quality etc.)
Input measures Staff selection and training, incentive plans

Conclusions

Customer service is something we all experience since we are all customers at one time
or another. But when it comes to managing retail (or other service) organizations we
often find ourselves a little diffident to support organizational commitments to improve
service quality. Reasons for this are not difficult to identify. Service is an intangible
thing. Service quality is heterogeneous, is different across cultures, and is a function of
demographic variables. I have sought to demystify this by identifying customer
conversion as a measurable goal of service delivery and as an indicator of in-store quality
process, identified how service goals may be set both as basic minimum standards and
flexible responses to emergent situations, and identified how service delivery could be
organized and tracked to ensure that investments in service delivery are financially
justified.