Service System Design
Regardless of your firm’s choice of fulfillment strategy, success depends on how well you design and manage your customer-experience system to deliver a uniquely positive experience. Figure 1-8 introduces customer-experience design to the expectancy disconfirmation model. Everything still begins with a deep understanding of customers’ initial expectations. Managers use this insight, along with a knowledge of their company’s value-added capabilities, to develop attractive value propositions. Value propositions are the promises a company makes to customers about how it will meet their needs.45 Value propositions serve two roles:
- They shape customer expectations, influencing customer purchase decisions as well as how the customer will assess the actual service experience.
They define what the company must do to earn a customer’s business, setting the parameters for the design of the company’s customer-experience system.
Satisfaction emerges as the customer touches a company’s value system at various points of the experience. Jan Carlzon, CEO of Scandinavian Airlines, coined the phrase “moment of truth” to help employees grasp that each touch point is vital because it may be the moment that sets forever customer impressions of the firm.47 Two types of touch points exist. Acquisition touch points, which are consistent with the economic concept of value-in-exchange, occur as customers learn about and make purchase decisions. For instance, as you make vacation plans, you likely compare alternative flight schedules and costs and then make flight reservations. Utilization touch points, the equivalent of value-in-use, occur as the service is experienced. In-flight service exemplifies a utilization touch point (as does lost luggage).
To design winning customer-experience systems, you must explicitly consider how each type of touch point influences customer assessments of satisfaction. A. G. Lafley, CEO at Procter & Gamble, emphasized that acquisition and utilization touch points are equally critical. He called them the “two moments of truth.” The first moment culminates in the store, when the customer places a product in her shopping cart. If she does not choose a P&G product in the first moment of truth, she will never experience the product’s performance in use—the second moment of truth. If the product does not live up to expectations, she will not buy the P&G product the next time she is in the store. Lafley recognizes that acquisition touch points—which allow customers to express their a priori value assessments—enable, or end, a company’s opportunity to shape customers’ satisfaction perceptions. Success requires that the entire customer-experience value system must be designed to deliver remarkable customer experience.
To deliver remarkable customer experience, your company has to do the right things right—the first time, every time. How you design your service system determines whether or not your company builds the right capabilities to earn—and keep—a customer’s business. In all but the most basic satisfaction scenarios, value-creation capabilities are orchestrated capabilities. Simply stated, no company has sufficient resources and skills to do everything needed to meet customers’ needs. Companies therefore rely on a network of suppliers, service providers, and customers for needed skills to fulfill the company’s value proposition. Orchestration is the skill that enables companies to bring the resources of the network together. Orchestration consists of three core steps:
- Select team members—Knowing what value you need to create, you need to identify the right players—those with key resources—to participate as members of your value-added team.
- Assign team roles—Based on a correct understanding of each player’s skills, you must assign the right roles and responsibilities to each team member to create optimal value.
- Build team cohesion—You need to remember that having the right players does not mean they will play well together. You therefore need to invest in team chemistry by establishing the right relationships among team members.
Your firm’s orchestration skills as well as the resources possessed by each member of the team will determine both how and how well you execute each of these three steps. It takes very different skills to execute orchestration’s three steps. Selecting the right team members requires extensive scanning and comparative evaluation skills. These are largely analytical, left-brain skills. By contrast, building team cohesion requires careful coaching (and sometimes coddling) to get different members of the team to want and be able to play together. This requires strong right-brain collaboration and creativity.48
The third step is perhaps the most difficult. The nature and intensity of relationships varies greatly.49 If, for example, a customer possesses deep insight into changing market demand, a collaborative planning relationship may be appropriate.50 If a supplier possesses distinctive technical know-how, intense and early supplier involvement in product design may be appropriate.51 This may include colocation of workers. Of course, some relationships are necessary but do not offer unique value-creation potential. These are better suited to fair and efficient arms-length transactions among members of the network. Ultimately, building the right team makes all the difference in creating a remarkable customer-experience system.
Because of its centrality to service system design, let’s reiterate a point you cannot afford to forget or misinterpret: Only the customer determines satisfaction. You may incorporate extensive customer feedback into the design of your company’s customer-experience system and be confident you got everything just right, but the customer alone assesses the experience, providing the post hoc appraisal of value. At times, your company may deliver to promise, exceed industry standards, and meet customers’ a priori expectations; however, having experienced both moments of truth, the customer determines that she overestimated the anticipated benefit. Disappointment and dissatisfaction follow—largely because an unexpected value gap emerged.
Because value gaps are so important, let’s briefly discuss the different types of gaps that hinder service quality. Figure 1-9 identifies six gaps that affect satisfaction perceptions and can damage buyer/supplier relationships:52
- A knowledge gap often exists between customers’ real expectations and your perceptions of those expectations. If you do not accurately assess what customers really want, you will fail to design the right customer-experience system. Gaps here perpetuate gaps throughout the design and execution of winning customer-experience systems. Investments elsewhere are destined to deliver less-than-desired results.
- Sometimes you possess accurate insight into customer needs, but fail to translate your understanding into operational standards. The translation or specification gap emerges when you focus too intently on industry standards or internal capabilities that are not aligned with customers’ real needs. They are thus common in basic service strategies.
- Even if standards are set appropriately, poor execution can lead to a performance or service delivery gap—for example, the standard calls for 98 percent on-time delivery, but you only deliver 95 percent of shipments on time. Because service systems, especially orchestrated systems, are complex, you need to design for visibility and traceability. Constant effort is needed to identify and remove the root sources for service failure.
- When it comes to shaping expectations, some companies are their own worst enemies. Marketing may fail to communicate to logistics the promises it has made. More common, someone makes promises beyond the systems’ capabilities. Communication gaps always emerge when you overpromise and underdeliver. These gaps sour a relationship quickly. Sadly, despite the fact that they can be easily avoided, they frequently occur.
- Although not in the original gap model, customers sometimes interpret operating results differently than reality. This perception gap can easily undermine the relationship. For example, customer measurement systems may not capture actual performance. Sometimes, customers place extra emphasis on the most recent service. You may feel intense pressure to always perform because your customers constantly tell you that, “You are only as good as your last performance.”
- The final gap, known as the satisfaction or service quality gap, occurs when the customer’s perception of service and expectations are not aligned. Because word of mouth, operating requirements, and past experience affect expectations, you must understand where customer expectations are coming from and work to proactively shape them. Constant measurement and active communication are key.
The key takeaway: Negative value gaps at any point in the customer experience can undermine repeat business. Service systems must be designed not only for outstanding performance, but also for reproducible performance.
Loyalty and Competitive Advantage
Your goal in designing your company’s experience system is to achieve competitive advantage. Figure 1-10 ties customer experience to loyalty—a key precursor to advantage. Relationship marketing argues that it is often more important to retain customers—earning a larger share of their business—than to cultivate new customers.54 One data point that supports this assertion is that it costs five to seven times more to acquire a new customer than it does to retain an existing one.55 Cultivating loyal customers is, therefore, very important. Further, the experience attributes that drive loyalty also help drive new business.
Customer experience occurs along a continuum from inferior to comparable to distinctive. Customers defect when they experience inferior service. If companies don’t change quickly, they go out of business in a hurry in our information-drenched economy. Comparable experience—that is, experience meets expectations and is viable vis-à-vis competitor offerings—delivers satisfaction. However, parity and indifference result. After all, such service acts as an order qualifier not an order winner. Although repeat business may occur, customers will defect to rivals if it is convenient. Too many managers mistake convenience-driven customers for loyal customers. Only when satisfaction springs from uniquely positive experience are customers motivated to establish closer, deeper relationships with a company.56 These relationships are powerful for three interconnected reasons:
- They are characterized by larger, more frequent purchases—a fact that drives both top-line revenue growth and operating efficiencies (e.g., truckload shipping).
- They often lead to the design of innovative “tailored” services and business models. Companies that work closely together build more trusting relationships and are willing to share resources to create unique value. They often become partners in experimentation. Procter & Gamble works closely with both Walmart and Wegmans—two retailers that operate at vastly different scales—because they each bring process and product innovation to the relationship.
- They help recruit future business. Loyal customers often become guerilla marketers and evangelists—endorsing preferred suppliers and becoming part of these companies’ marketing apparatus.57
In summary, to profit from customer service, you need to provide customers a truly distinctive end-to-end customer experience. Both moments of truth must be remarkable. Building and managing such a customer-experience system creates loyalty. But, distinctiveness is very hard to achieve. Xerox, in a widely related study, asked customers to rate satisfaction on a 5-point scale. Largely satisfied customers—those who rated their Xerox experience a 4—were six times more likely to defect than those who rated Xerox a 5—completely satisfied/delighted.59 The lesson: To achieve outstanding satisfaction ratings, you must build the systems that enable you to understand and influence customer needs—including those needs customers do not yet know they have. However, beyond meeting and exceeding customer needs, you must ensure that your value co-creation systems are both efficient and robust. Efficiency is needed to make sure that investments in service systems provide an adequate return. Higher service often, but not always, costs more. To charge more, you need to persuade customers that your service contributes to their own success in a meaningful way and is better than that of rivals. Robust means that you can deliver the positive experiences repeatedly over time. The inability to reproduce remarkable experiences will turn delight into disappointment as future experiences disconfirm elevated expectations.