Service Recovery & Empowerment

It refers to the actions by an organization in response to a service failure.

Deviations in Services

Quality can be engineered with a very high precision in goods. Great strides have been achieved in this regard with automation and mechanization. ‘

A major difference between product marketing and service marketing is that we can't control the quality of our products as well as P&G control engineer on a production line can control quality of his product. When you buy a box of Tide,you can be reasonably sure that it will work to get your clothes clean. When you buy a Holiday Inn room, you are sure to some lesser percentage that it will work to give you a good night's sleep without any hassle, or people banging on the walls and all the bad things that can happen to you in a hotel. This observation very profoundly highlights inconsistent nature of services. Things can go wrong to upset the service delivery. A 100 per cent consistency in service delivery is not possible. Causes within the firm or outside can create positions of departure.

Service Failures

Service firms must reconcile with one reality: things can go wrong. Uncertainty shrouds the services. Due to a variety of reasons, service experience can vary inequality. When things go wrong, what should be the response of the firm? The response to the situations of failures can take two forms: ignore failure and do nothing or recognize failure and be prepared to recover from it. The process of getting back into shape or regaining the balance is called recovery. In the context of service businesses when service delivery is not right the first time, firms can choose to try second time. Though initial failure has happened yet the second try can be made to minimize the negative impact on the customer. For instance, Dominos promises pizza delivery within 30 minutes. But when promise is not kept and delivery is delayed due to unforeseen event, the pizzas are given free to compensate for the disappointment. Many good airlines have policy of making comfortable stay arrangements when flights get delayed.

Types of Service Encounters

Service encounter is an event when customer interacts with the service provider. It is the moment when customer expectations meet with service delivery and quality perceptions are formed. Encounters can be brief involving one employee and few seconds to long running into hours and multiple employees. Customer forms perceptions about the service quality at these moments of truths.

A clear hierarchy of outcomes from service encounters can be established. An interaction of customer with the service system can yield customer experience ranging from the best outcome to the worst outcome with different shades in between: Best encounter: The best service encounter is the one where the service is performed as expected without any problem. The service is delivered in an anticipated fashion. It is this situation when customer expectations are met. For instance, a packet sent thorough FedEx is delivered before 10 AM the next morning as promised.

Effective Recovery

First strategy for a service firm is to make sure that failures do not happen. The system planning and implementation must make sure that things should not go wrong in the first place. But when they do, then efforts must be made to recover from the slide in the best possible manner.

Ingredients of Recovery

An effective recovery requires as many as five ingredients.

 The first two are a must for annoyed customers, whereas all of these ingredients are necessary for working with victimized customers.

Apology

Whenever things go wrong, the service personnel must acknowledge the error as soon as possible. Once the admission of the failure has been made that firm is wrong, an apology must be tendered. An apology, when made in person, is more appropriate from the customers’ perspective. Standardized signboards or banners must be avoided to convey repentance. It makes a lot of difference when one tenders a personal apology than when a cut-out is raised in front of grumbling people. Though signboards do fulfill the formal purpose yet when it comes to their impact they are impersonal and san emotions.

Recovery Capability

Failures can damage the customer base of a firm. Dissatisfaction can cause customers to look for alternate sources of supply. Customer defection can be a risky proposition. Defection can be minimized if the firm develops the capability to recover from occasional failures. Effective recovery can minimize damage to bottom line by winning customers when service slips. Hart, He skett and Sasser propose how companies can develop recovery capability by paying attention to the following:

Measure the cost of lost customer

Often customer attraction takes big share of top management attention and resource. Little attention and resources are committed in keeping current customers happy. Managers underestimate the value of defecting customers. Perpetually attracting customers to fill the void created by defecting customers can be an unprofitable proposition. Maintaining existing customer economically may be more desirable. Measurement is essential before jumping onto any strategy. The cost and losses associated with defections and cost and profit potential associated with customer attraction must be calculated.

Failure Types

Service encounter is the focal point in services. It is the moment when the service firm and customer interact to co-create service experience. All resources assembled in the service firm come together at the moment of service encounter to create the desired service experience. Individually anything that has potential to satisfy also would have the potential to offend or dissatisfy. In a typical service creation process, customer comes in contact with people atmospherics, processes, technology, equipment and other customers. All these capabilities and resources require pre-engineered performance to deliver desired satisfactions. Any deviation in their movement could cause failures, as the system would also deviate from the determined path.

Recovery Service

When service firms’ stumbles doing the service the first time, it can try to restore customer confidence by doing it right the second time. Firms must have the capability to spring into action with a sense of urgency to correct the problems. Service recovery strategy must aim at first problem resolution and second improving the system so that problem reoccurrence is minimized. A four-step approach for designing recovery service strategy is proposed by Berry

: teaching importance of recovery service, identifying service problems, problem resolution and system improvement.

Teaching importance

In services, many things are attitudinal. Quality is a matter of attitude. Like quality, service recovery is also an attitude. The importance of customer to the business must be taught across the system especially to the employees who come in contact with customers. Employees must be educated on the virtues of customer retention. A frustrated customer on account of failure can spread negative word of mouth and block future business. In this context, the virtues of service recovery should beshared and transmitted.

Learning from Failures

Failures are inevitable. These cannot be completely done away with. It is highly unlikely that a system could be fail proof. Even in goods marketing where the systems have become highly evolved and reached a great level of sophistication even the top companies like Toyota, Nokia and Sony had to announce large-scale product recalls. The largest car maker Toyota Motor Corporation has recalled 2.3million vehicles in the US which were fitted with faulty accelerator pedals. These fault in these paddles caused them to stick. Earlier Nokia had to recall phone chargers which posed shock hazard to its customers. The company promised to replace these chargers for free. Other well-regarded brands such as Apple, Cadbury, Lenovo and Mattel made product recalls when their products failed to perform in the expected way, exposing customers to different types of risks.

Service Guarantee

Most of the manufactured goods come with some kind of warranty or guarantee. These words are often used interchangeably, but legally these may imply different meanings. A warranty or guarantee is an assurance provided to the customer of a good that it would perform in a certain manner or meet specification provided in the contract. These are often assumed in a contract of sale of goods and are also stated expressly. For instance, it is implied that a camera is not a camera if does not click the pictures, it is implied. However its defect-free operation may be guaranteed expressly for a period of one year. Car companies give warranty against any manufacturing defect on its engine for a certain number of kilometers or a given time.

Empowerment

Service firms should wake up to the shortcomings associated with traditional centralized decision-making structures. The assembly line top-down approach did pay off in achieving efficiency gains for manufacturing firms. The efficiency gains and familiarity associated with top-down model subtly influenced the choice of service firms and they also modeled their organizations along the manufacturing lines. The discretion and decision making is concentrated at the top and people at the bottom represented ‘hands’ with no discretion and influence over what they did. The old hierarchical structure symbolized concentration power at the top and people at the bottom carried execution. This division continued as a dominant framework in manufacturing.

Meaning

Empowerment means committing to employees and the customers. Stated plainly, it is the removal of obstacles and barriers that prevent employees from doing their jobs in order to create satisfied customers. This involves pushing down and distributing the decision making to the lowest levels of the organization. The front line personnel are invested with authority and resources necessary to carry out their jobs. Employees are liberated from the highly standardized and mechanized processes and are given leeway in evolving their own roles as dictated by the situation.

How Companies Use Empowerment

There are numerous examples of actions by empowered employees which have fabled stories. Empowered employees when they give high ratings to the statement indicating ‘feel empowered’ lead to improved performance with a corresponding effect on customer rating high on ‘feel served well’. Kressaty cite examples of empowered action and their results. One such action by an empowered employee relates to an episode of a burn victim. In Hawaii, customer service department of ask in care firm received a call from a hospital. The case involved a 9-year-old who suffered from burns but local suppliers had run out of stock of a crème needed to reduce the discomfort of the patient. They could not find the needed crème anywhere. The customer service representative of the skin care firm promised to make available the crème the next day despite the fact it was a Saturday. The representative also knew that minimum required quantity for any shipment should be at least 50 cases and hospital in question was also not set up as a direct customer.

Benefits and Costs of Empowerment

Bowen and Lawler provide a framework for answering some of the critical questions associated with empowerment. The benefits associated with empowerment must be weighed against the costs.

Benefits

A company can gain in more than one ways by empowering its employees. The important benefits associated with empowering people are: faster response to customer needs, faster recovery, employee happiness, warmth and enthusiastic performance, employee loyalty and commitment and suggestions for improvement from employees.

Quicker response to customer needs during delivery: The rule book model does not permit employees to bend rules in any condition. Strict regimentation does not allow any deviation even when there is a potential to delight customer without involving any cost.

For instance, a customer placing an order with the waiter asks for a change, the typical response in this case would be ‘sorry sir, we can't do that, our rules do not allow’. But any empowered employee would turn this situation into an opportunity to earn goodwill and enhance customer satisfaction. Empowerment is particularly beneficial when customer wants quicker response in a situation when paucity of time does not allow the matter to be taken to somebody ‘up in the hierarchy’.

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Relationship marketing

Introduction

One of the most expensive and difficult tasks facing any business is acquiring new customers. Earning a potential customer's attention, making a convincing pitch, and then facilitating the accompanying sale can leads to huge expenses when every step is considered. According to business authors Emmett C. Murphy and Mark A. Murphy, acquiring a new customer can cost five times as much as retaining an existing customer.

This presents a serious dilemma for many companies. With finite resources, is it better to attract new customers or try to hold onto the ones they already have? According to those same authors, a 2% increase in customer retention can decrease costs by as much as 10%. No company can survive and grow if they are not constantly adding to their customer base.

Relationship marketing

Relationship marketing is about forming long-term relationships with customers. Rather than trying to encourage a one-time sale, relationship marketing tries to foster customer loyalty by providing exemplary products and services. This is different than most normal advertising practices that focus on a single transaction; watch ad A and buy product B. Relationship marketing, by contrast, is usually not linked to a single product or offer. It involves a company refining the way they do business in order to maximize the value of that relationship for the customer.

Relationship marketing mainly involves the improvement of internal operations. Many customers leave a company not because they didn't like the product, but because they were frustrated with the customer service. If a business streamlines its internal operations to satisfy all service needs of their customers, customers will be happier even in the face of product problems.

Technology also plays an important role in relationship marketing. The Internet has made it easier for companies to track, store, analyze and then utilize vast amounts of information about customers. Customers are offered personalized ads, special deals, and expedited service as a token of appreciation for their loyalty.

Social media sites allow business to engage their customers in an informal and ongoing way. In the past, it would have been impossible to keep useful records about every single client, but technology makes it easy for companies to automate their marketing efforts.

Branding is the final component of relationship marketing. A company can form a long-term relationship with a client if that client feels like the brand they purchase reflects who they are or who they want to be. Customers are less inclined to switch to a different brand if they think that switch makes a statement about their identity.

Why we need to build relationship with clients?

People work with individuals who they like. So of course our objective as a business is to improve the life of a customer. The idea here is to tell how important relationship building is and how you can adopt it in your day-to-day life.

Relationships are not built overnight, it takes time to nurture. Strong, enduring client relationships are the lifeblood of the most organization. Understanding what your customers like, dislike or care helps serving the business. As a solution provider, we also need to think from customers’ perspective in order to better understand “what they need?”

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Value chain analysis and Competitive Advantage

Definition

Value chain analysis (VCA)

is a process where a firm identifies its primary and support activities that add value to its final product and then analyze these activities to reduce costs or increase differentiation.

Value chain

Represents the internal activities a firm engages in when transforming inputs into outputs

Value chain analysis is a strategy tool used to analyze internal firm activities. Its goal is to recognize, which activities are the most valuable (i.e. are the source of cost or differentiation advantage) to the firm and which ones could be improved to provide competitive advantage.

In other words, by looking into internal activities, the analysis reveals where a firm’s competitive advantages or disadvantages are. The firm that competes through differentiation advantage will try to perform its activities better than competitors would do. If it competes through cost advantage, it will try to perform internal activities at lower costs than competitors would do. When a company is capable of producing goods at lower costs than the market price or to provide superior products, it earns profits.

M. Porter introduced the generic value chain model in 1985. Value chain represents all the internal activities a firm engages in to produce goods and services. VC is formed of primary activities that add value to the final product directly and support activities that add value indirectly.

Although, primary activities add value directly to the production process, they are not necessarily more important than support activities. Nowadays, competitive advantage mainly derives from technological improvements or innovations in business models or processes. Therefore, such support activities as ‘information systems’, ‘R&D’ or ‘general management’ are usually the most important source of differentiation advantage. On the other hand, primary activities are usually the source of cost advantage, where costs can be easily identified for each activity and properly managed.

Using the tool

There are two different approaches on how to perform the analysis, which depend on what type of competitive advantage a company wants to create (cost or differentiation advantage). The table below lists all the steps needed to achieve cost or differentiation advantage using VCA.

Competitive advantage types
Cost advantage	Differentiation advantage
This approach is used when organizations try to compete on costs and want to understand the sources of their cost advantage or disadvantage and what factors drive those costs.	The firms that strive to create superior products or services use differentiation advantage approach.
·         Step 1. Identify the firm’s primary and support activities. ·         Step 2. Establish the relative importance of each activity in the total cost of the product. ·         Step 3. Identify cost drivers for each activity. ·         Step 4. Identify links between activities. ·         Step 5. Identify opportunities for reducing costs.	·         Step 1. Identify the customers’ value-creating activities. ·         Step 2. Evaluate the differentiation strategies for improving customer value. ·         Step 3. Identify the best sustainable differentiation.

Cost advantage

To gain cost advantage a firm has to go through 5 analysis steps:

Step 1. Identify the firm’s primary and support activities. All the activities (from receiving and storing materials to marketing, selling and after sales support) that are undertaken to produce goods or services have to be clearly identified and separated from each other. This requires an adequate knowledge of company’s operations because value chain activities are not organized in the same way as the company itself. The managers who identify value chain activities have to look into how work is done to deliver customer value.

Step 2. Establish the relative importance of each activity in the total cost of the product. The total costs of producing a product or service must be broken down and assigned to each activity. Activity based costing is used to calculate costs for each process. Activities that are the major sources of cost or done inefficiently (when benchmarked against competitors) must be addressed first.

Step 3. Identify cost drivers for each activity. Only by understanding what factors drive the costs, managers can focus on improving them. Costs for labor-intensive activities will be driven by work hours, work speed, wage rate, etc. Different activities will have different cost drivers.

Step 4. Identify links between activities. Reduction of costs in one activity may lead to further cost reductions in subsequent activities. For example, fewer components in the product design may lead to less faulty parts and lower service costs. Therefore identifying the links between activities will lead to better understanding how cost improvements would affect the whole value chain. Sometimes, cost reductions in one activity lead to higher costs for other activities.

Step 5. Identify opportunities for reducing costs. When the company knows its inefficient activities and cost drivers, it can plan on how to improve them. Too high wage rates can be dealt with by increasing production speed, outsourcing jobs to low wage countries or installing more automated processes.

Differentiation advantage

VCA is done differently when a firm competes on differentiation rather than costs. This is because the source of differentiation advantage comes from creating superior products, adding more features and satisfying varying customer needs, which results in higher cost structure.

Step 1. Identify the customers’ value-creating activities. After identifying all value chain activities, managers have to focus on those activities that contribute the most to creating customer value. For example, Apple products’ success mainly comes not from great product features (other companies have high-quality offerings too) but from successful marketing activities.

Step 2. Evaluate the differentiation strategies for improving customer value. Managers can use the following strategies to increase product differentiation and customer value:

• Add more product features;
• Focus on customer service and responsiveness;
• Increase customization;
• Offer complementary products.

Step 3. Identify the best sustainable differentiation. Usually, superior differentiation and customer value will be the result of many interrelated activities and strategies used. The best combination of them should be used to pursue sustainable differentiation advantage.

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