Revisiting The Service Paradigm

Was everything okay? When asked that at the end of a restaurant meal, how often have you responded, Just fine, even though you were unimpressed or even somewhat disappointed with your dining experience? If youre like many others, your answer is probably Often! And given the choice between returning to that restaurant and trying a new one, youd probably opt for the new one.

Change the scenario to customers being offered a menu of communications products and services and you have a picture of the dilemma confronting telecommunications service providers today. Because, while a vast majority of customers are reporting that their current vendors meet or exceed expectations, many of those same customers are opting to try new vendors.

 

The Service-Loyalty Connection

Today the cost of winning a new customer is about five times the cost of retaining a current one. Its no wonder the mantra of the 90s is customer loyalty, customer retention. In fact, customer loyalty has been demonstrated to be the single most important driver of long-term financial performance. Other benefits of increased loyalty can include an increased share of each customers telecom budget, an improved position in the newly competitive marketplace, and greater brand equity for new lines of business.

How do you build loyalty? With customers having more choice than ever in the increasingly competitive telecom marketplace, communications services providers are seeking to upgrade customer service in order to minimise the chance their customers will turn to other providers. They know that, just as in other industries, consistently superior customer service inevitably rewards a company with higher levels of customer satisfaction. And a satisfied customer stands a good chance of becoming a loyal customer -- the most sought-after entity in business today.

Selecting a Value Discipline

How and why has customer service become such a critical differentiating factor in the telecom industry? Consider three traditional ways of creating value in any business: product, price, and service (Figure 1). Achieving unrivalled excellence in product quality, for example -- as evidenced by superior features, functions, performance, and reliability -- is difficult for any company. Most telecommunications service providers, however, rely on common sources of network infrastructure (i.e., product). It is therefore questionable whether any service provider could build and sustain a strong competitive advantage by relying on product differentiation alone.

On the other hand, a pricing strategy might seem to offer a clear advantage. It makes sense that the economies of scale enjoyed by the major incumbents in the worlds telecommunications markets could be used to leverage substantial price differentiation. But despite all the industrys reengineering efforts in recent years, using price competitiveness as a means of sustaining a long-term advantage is still problematic. Decades without competition have created infrastructure, business processes, and, more important, cultures that do not produce the lowest-cost alternatives. It is ironic that new entrants to the market -- operating on a much smaller scale -- have often become the low-cost providers.

Clearly, there are inherent limitations in using product or pricing as competitive differentiators. Thats why service has become the value discipline incumbent telcos can best use to create value for their customers. Price and product quality are, of course, still vitally important, but it is in the service arena that the greatest rewards now lie. Service is a particularly challenging value discipline to manage because, unlike price and product, it cannot be objectively compared. Each experience is unique, and a customers perception of service quality could be based on a single experience in just one service area. This could help incumbents if service quality is high across the board, but could be very damaging if quality falls on even one or two of the many key service attributes.

Raising the Bar

Arent many telcos already providing excellent service? Thats what customer satisfaction surveys seem to be telling them. The truth, however, is that satisfaction surveys are often not really meaningful and may actually conceal important and damaging information. Like a waiter asking, Is everything okay?, telcos have traditionally not asked for specifics, but have been content with the vague knowledge that most of their customers are, in general, reasonably satisfied. If surveys are to be truly useful, they must probe more deeply and seek more details, asking about customer expectations at all the key touch points (Figure 2) where your processes touch customers and trigger satisfaction.

Another reason traditional satisfaction surveys are not useful is that the marketplace has changed. In the less than fully competitive marketplace of the past, a drop in customer satisfaction did not produce a corresponding drop in customer loyalty. The reason was simple: If its the only game in town, you play it. But in a competitive market where choices abound, anything less than complete satisfaction or delight leads to a dramatic drop in loyalty and customer retention (Figure 3).

Even without a drop in the quality of customer service, telcos could be in trouble. If service remains at its present, seemingly high level, they will actually lose customers in a truly competitive market. Stated another way, satisfaction levels that were sufficient to retain customers in the non-competitive marketplace of the past will not be enough to retain customers in todays market.

Listen and Act

Given this reality, and the need to create true customer satisfaction, how does a telco start the process of raising customer satisfaction levels? The key is listening to the voice of the customer, and then re-engineering business processes to delight customers by responding to their specific expectations (Fig 4).

Listening involves the research a telco does to improve service. This must focus carefully on the touch-point processes for sales, service activation, repair, billing, customer inquiry, and product development. To gain meaningful answers, its necessary first to carefully zero in on segmented groups of customers, to avoid average answers. The distinction between different groups of customers is critical: segmentation is a tool that has long been recognised and applied to product planning and design, and is now being applied effectively to customer service design.

A good listening process addresses these elements:

nAbsolute performance (e.g., on a scale of 1 to 10)

Relative performance (where an appropriate comparison vendor is selected and rated by the customer)

nPerformance expectations (what it takes to achieve delight or stimulate dissatisfaction)

To utilise this information fully, an impact model must also be developed, showing how the investment made in improving each service attribute compares with other investment options (such as advertising, lower prices, or new products).

The key, though, is not only to gather accurate data on customer satisfaction, but to use that data. This is where many companies fall down. Using a touch-point driven voice-of-the-customer process really helps. Armed with knowledge about touch-point expectations and satisfaction, a service provider can prioritise improvements in the way service is delivered using cost-benefit analysis akin to that used for investments in plant and equipment. In some cases, only selective improvements can be justified. However, in many cases, an across-the-board push for improvement is mandated by the interdependence of many factors in achieving customer delight. And it is delight that delivers the most powerful economic benefits by producing the greatest protection against the prospect of losing customers to lower-priced competitors (Figure 5).

The final step in the process of raising customer satisfaction levels is to measure and manage the change process. These efforts should be ongoing throughout the reengineering effort. Perhaps the greatest obstacle to change, as in other endeavours, is human nature -- in this case, the human nature of employees. Successful reengineering of customer service requires employees who are committed to the process. Employee buy-in is critical because these are the people who deliver customer service -- who are your touch points, and who, more than any specific process or strategy, produce satisfied customers.

One route to creating satisfied customers is ensuring that you are creating satisfied employees. This includes not only employees in the customer service department, but a much broader group, including installers, repair technicians, dispatchers, bill adjustment clerks -- everyone who comes into contact with customers. A company may build a base of satisfied employees by involving them in important decision-making, minimising their stress levels, rewarding their contributions to the change process, or all of these and more. However its done, getting employee buy-in is a prerequisite to success.

A company like AT&T Universal Card Services epitomises this approach. Because UCS is a young company (less than five years old), it was able to engineer exceptional customer service from the start, rather than having to reengineer it. UCS succeeded by developing employees who buy in to the system because they are motivated by a shared vision of excellence and empowered by managements confidence in their judgement and ability to resolve customer problems. That confidence is achieved with help from a system that measures employee performance on more than one hundred separate processes every day. This level of scrutiny has created some tensions, but these have been offset by managements commitment to involving employees in many decisions, listening to their ideas, establishing a substantial reward and recognition program, and providing generous fringe benefits. Powerful evidence of the approachs success is the fact that in less than four years, UCS became the number-two credit card issuer in the US, servicing

12 million accounts, earning revenues of $1.2 billion, and winning the most prestigious US quality award the Malcolm Baldrige Award.

The Bottom Line

The process of improving customer service will become more and more vital as the telecommunications market becomes increasingly competitive. The satisfied customer of the past is likely to become the defecting customer of today when offered competitive alternatives. To retain customers, telcos must plan and implement an all-important investment in their own competitive futures by following these four steps: nmeasuring company performance and identifying customer expectations at key touch points nreengineering the appropriate processes to deliver complete customer satisfaction at those touch points ndoing the financial analysis to ensure that the investment in reengineering will pay off nmanaging the change process while rewarding employee contributions n

(The author is a partner at

Coopers & Lybrands US office)

Voice of the future wireless customer

Churn levels among cellular customers have run as high as 40 per cent to 50 per cent per year in some markets. By using tactical approaches, such as annual service contracts, cellular providers have reduced churn to about 25 per cent. Although these tactical approaches have minimised costs associated with churn, they have not addressed the underlying causes of customer loyalty and defections. Few cellular providers have considered, in the course of designing their core business practices, the linkages between customer satisfaction, loyalty, and long-term retention.

Recently, Coopers & Lybrand teamed with Response Analysis Corp. to gain a better understanding of customer satisfaction and loyalty in the wireless market, exploring such issues as why customers stay with a carrier, what drives them to switch, and how they might be retained when they have decided to disconnect.

One of the highlights of the study was the identification of a potentially important segment of customers whose needs may signal the satisfaction and loyalty drivers that will be key in three to five years the cellphone-as-perk user.

Overall, a majority of cellular customers surveyed ranked price as the single most important factor driving satisfaction. Beyond price, quality and reliability of network services are the second most important issues in driving customer satisfaction. Therefore, improving network quality and effectively resolving problems appear to be important activities in increasing satisfaction levels and retaining customers in the long term. The study contains insights into the ways in which consumers value perceptions are shifting from price toward customer service.

Identifying customer segments

Identifying customer segments is not easy for wireless service providers, but it is increasingly important. In the C&L study, demographic, behavioural, and attitudinal data collected from the customer interviews were analysed to identify five segments of customers on the basis of need and value.

* The value-seeking segment is most concerned about the cost of service and about value-for-money. These customers are not heavy users of cellular service; their bills tend to be lower than $50 per month. They express average satisfaction with their providers and tend to have average loyalty.

* The productivity segment tends to use cellular service heavily as a business tool to increase productivity. The chief concerns for these customers are reasonable cost and technical quality. Productivity users tend to spend more than $200 per month on service, and they are the most likely of the segments to both make and receive calls. These users tend to be the least satisfied with their providers, and are the most likely to switch in pursuit of value.

* The safety and simplicity segment tends to use cellular service for personal emergencies only. These customers are most likely to make calls on evenings and weekends. They seek good service in terms of signal quality and customer service and are only moderately price-sensitive. These users have had cellular service the least amount of time of all the user groups, and are among the least likely to switch providers.

* The bargain-hunter segment consists of price-sensitive users who seek to control their cellular costs with tailored service plans to meet their needs, rather than limiting usage. They are among the least loyal users and are less likely than the average to recommend their current provider highly. They are more willing to switch to a company that offers greater flexibility and variety in pricing plans.

* Customers in the cellphone-as-perk segment are the least likely to pay for cellular service from their own pockets. Consequently, they are the least concerned with price; they were the only users that did not rate price as the most important satisfaction driver. They use cellular service for both personal and business calls, and they make more calls per week than the average. They tend to be satisfied with and loyal to their providers.

Voice of the future

Prices in all cellular markets are likely to fall as new competitors and technologies emerge, and it is important for service providers to understand the customer needs that will be critical as price becomes less important. Coopers & Lybrand believes that the cellphone-as-perk segment may provide that glimpse into the future. For these users, price is already less important, and they have a variety of network and service concerns that can steer providers to important future service attributes.