In a service encounter, customers obtain value from __________ without any __________.

Reprint: R0702G

Anyone who has signed up for cell phone service, attempted to claim a rebate, or navigated a call center has probably suffered from a company’s apparent indifference to what should be its first concern: the customer experiences that culminate in either satisfaction or disappointment and defection.

Customer experience is the subjective response customers have to direct or indirect contact with a company. It encompasses every aspect of an offering: customer care, advertising, packaging, features, ease of use, reliability. Customer experience is shaped by customers’ expectations, which largely reflect previous experiences. Few CEOs would argue against the significance of customer experience or against measuring and analyzing it. But many don’t appreciate how those activities differ from CRM or just how illuminating the data can be. For instance, the majority of the companies in a recent survey believed they have been providing “superior” experiences to customers, but most customers disagreed.

The authors describe a customer experience management (CEM) process that involves three kinds of monitoring: past patterns (evaluating completed transactions), present patterns (tracking current relationships), and potential patterns (conducting inquiries in the hope of unveiling future opportunities). Data are collected at or about touch points through such methods as surveys, interviews, focus groups, and online forums. Companies need to involve every function in the effort, not just a single customer-facing group.

The authors go on to illustrate how a cross-functional CEM system is created. With such a system, companies can discover which customers are prospects for growth and which require immediate intervention.

Anyone who has signed up recently for cell phone service has faced a stern test in trying to figure out the cost of carry-forward minutes versus free calls within a network and how it compares with the cost of such services as push-to-talk, roaming, and messaging. Many, too, have fallen for a rebate offer only to discover that the form they must fill out rivals a home mortgage application in its detail. And then there are automated telephone systems, in which harried consumers navigate a mazelike menu in search of a real-life human being. So little confidence do consumers have in these electronic surrogates that a few weeks after the Web site www.gethuman.com showed how to reach a live person quickly at ten major consumer sites, instructions for more than 400 additional companies had poured in.

A version of this article appeared in the February 2007 issue of Harvard Business Review.

In a service encounter, customers obtain value from __________ without any __________.

In a service encounter, customers obtain value from __________ without any __________.

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Reprint: R0804D

Many of the management tools and techniques used in service businesses were designed to tackle the challenges of product companies. Although they are valuable to service managers, they aren’t sufficient for success. In this article, Harvard Business School’s Frei explains why and urges companies to add some new ones to the mix. After years of extensive research and analysis, she offers an approach for crafting a profitable service business based on four critical elements: the design of the offering, employee management, customer management, and the funding mechanism.

Just like a product that’s going to market, a service needs to be compellingly designed, and management must field a workforce capable of producing it at an attractive price. Additionally, however, service firms must manage their customers, who do not simply use the service but also can be integral to its production: Because customers’ involvement as producers can wreak havoc on costs, companies must also develop creative ways to fund their distinctive offerings, by providing a self-service alternative, for example, or by offsetting expenses with operational savings.

A close look at successful service businesses—Wal-Mart, Commerce Bank, the Cleveland Clinic, and others—reveals that effective integration of the four elements is key. There is no “right” way to combine them; the appropriate design of one depends upon the other three. If managers don’t get all four pulling together, they risk pulling the enterprise apart.

Incumbents can fend off attacks from highly focused upstarts by becoming multifocused—that is, by pursuing multiple niches through optimized service models rather than trying to cover the entire waterfront with one model. Shared services within a firm (functions such as HR and finance) can help, since they will enable it to generate economies of scale and experience across models.

All successful firms must design a compelling offering and manage the workforce to deliver it at an attractive price. But service firms must do even more: deal with the frustrating fact that their customers can wreak havoc on service quality and costs.

For example, a customer dithering at a fast-food counter slows things down for everyone else waiting in line. An architect’s client struggling to clarify how a new facility will be used drags out the design process.

To tackle this challenge, Frei advises aligning four key elements of your business:

  • What your service offering consists of
  • How you fund the excellence you want to provide
  • How you manage employees to deliver quality service
  • What you do to help customers enhance—not erode—service

Get these elements pulling together, and none of them can pull your business apart—as service stars like Wal-Mart, Commerce Bank, and Cleveland Clinic have discovered firsthand.

The Idea in Practice

To consistently deliver service excellence, ensure that each of these four elements reinforces the others:

Service Offering

Determine how customers define “excellence” when it comes to your offering: Convenience? Friendliness? Flexible choices? Price? Identify what you’ll do to deliver that excellence—and what you won’t do. Example: 

Commerce Bank decided to serve customers who prized pleasant, face-to-face service and convenience. It offers evening and weekend hours, buildings with high ceilings and natural light, and a fun contraption for redeeming loose change. Despite its relatively unattractive interest rates and narrow product range, its retail customer base has expanded dramatically.

Funding Mechanism

Think about how you’ll pay for the increased cost of the excellence you’re seeking to provide through your service offering. Possibilities include:

  • Charging the customer. For example, Starbucks customers value lingering in the company’s coffee-house setting. To fund this inviting atmosphere, Starbucks charges a premium for its coffee.
  • Spending now to save later. For instance, Intuit offers customer support service free of charge. It uses callers’ input to improve future versions of its software, so customers will ultimately need less support.
  • Having customers do the work. For example, airlines’ self-check-in kiosks not only reduce costs; they also enhance the service offering by liberating travelers from long lines at staffed counters and by providing convenient tools such as seat maps.

Employee Management

Ensure that your workforce management activities (recruiting, selection, training, job design) empower employees to deliver the excellence embodied in your service offerings. Example: 

Commerce Bank competes on extended hours and friendly service, not on low price or product variety. It knows it doesn’t need straight-A students to master its limited product set, so it hires for attitude and trains for service. For instance, it uses simple recruiting criteria, such as “Does this person smile in a resting state?” And it encourages employees to recruit people they see providing great customer service in other industries.

Customer Management

Articulate which behaviors customers must demonstrate to get the most value from your service. Then design your service specifically to foster those behaviors. Example: 

To get customers using the new self-check-in kiosks, airlines ensured that travelers could complete the transactions with far fewer keystrokes than check-in personnel used to need. By contrast, retail stores that offer self-service checkout machines haven’t made using those machines easy for shoppers. Moreover, the stores expect shoppers to shoulder responsibility for fraud prevention by weighing bags during checkout. Result? Anxious customers avoid the machines.

As the world’s major economies have matured, they have become dominated by service-focused businesses. But many of the management tools and techniques that service managers use were designed to tackle the challenges of product companies. Are these sufficient, or do we need new ones?

A version of this article appeared in the April 2008 issue of Harvard Business Review.

In a service encounter, customers obtain value from __________ without any __________.

In a service encounter, customers obtain value from __________ without any __________.

Learn More & See All Courses