DrChristopherLovelock

Click to edit Master text styles,Second Level,Third Level,Fourth Level,Lovelock Associates,Click to edit Master title style,ADDING VALUE THROUGH SERVICE:STRATEGIES FOR COMPETITIVE ADVANTAGE,Dr Christopher Lovelock,Yale University,Beijing,16 September 2002,Overview,Success factors in service-driven businesses,Creating value for customers through service,The Flower of Service: core and supplementary,elements,Customer loyalty creates value for the firm,Some strategies to improve success,Why Effective Management of Services Will Become More Important for China,More demand for services from domestic consumers,as per capita income rises,Tourism stimulates demand for many services,Increased sophistication in manufacturing may,involve emphasis on value-added services,Entry of international service firms into Chinese,market transfers expertise,Government economic and social policies often,emphasise improved services,The Many Faces of Service,Service is the core product of the industry,(e.g., insurance, transport, hotels, banking),Service supplements and adds value to a manufactured good,manufacturer provides service to end users,intermediary provides the service (e.g., retailer),Service to intermediaries,- help them to do a better job selling products to end users,Service to suppliers,- builds relationships and makes purchaser an attractive customer,Internal services,- within firm to other departments, branches, employees (e.g. legal, accounting, human resources),Ten Characteristics of Successful Service Businesses,Clear statement of market position relative to competitors and target customers,Easy to do business with for customers and suppliers,Focus on building customer loyalty by creating value,Open to innovation and new ways of working,Seek continuous improvements on quality and productivity,Ten Characteristics of Successful Service Businesses,(cont),Make intelligent use of technology,Invest in recruitment, training, and motivation of employees,Actively seek feedback from employees and customers,Exceptional at anticipating and resolving problems,Take a long term view,2,Success factors in service-driven businesses,Creating value for customers through service,The Flower of Service: core and supplementary,elements,Customer loyalty creates value for the firm,Some Strategies to Improve Success,Creating and Keeping Customers:Value is the Key,“,There can be no corporate strategy that is not marketing oriented.,The purpose of a business is to create and keep a customer.,To do that you have to do those things that will make people want to do business with you.”,THEODORE LEVITT,THE MARKETING IMAGINATION,How Perceived Value Affects Customer Choice,Customers relate value of benefits received from,a good or service to the costs of acquisition/usage,“Bad value” or “good value” assessments relate to,net value,after deducting costs from benefits,Customers choices are shaped by:,what they can,afford,(more than just money),how well,benefits,offered match their,needs,which competing alternative offers the,highest perceived net value,Perceived,Benefits,P,e,r,c,e,i,v,e,d,Costs,Time,e,Effort,Customers Weigh Perceived Benefits against Perceived Costs to Assess “Net Value”,Five Types of Costs,Money,Time,Physical effort,Mental effort and negative feelings,Sensory burdens,Unattractive sights,Unwanted noises,Uncomfortable feel,Nasty taste,Unpleasant smell,“,Time is Money”,There are no time billionaires,Busy people have less disposable time,We use the same verbs for time and money:,Spend,Save,Invest,Lose,Waste,Are you,stealing,your customers time?,Net Value = (Benefits - Costs),Net value drives relationships,Net value is a function of both costs and benefits,Value can be added or lost at each step in service delivery,In a competitive market, higher financial prices must be justified by:,more benefits,and/or,better quality of benefits,and/or,lower time, effort, and sensory costs,Understanding the Customer Experience:Flowcharting a Hotel Visit,Customer,Actions,Employee,Actions,Face-to-face,Front stage,Phone,Contact,Backstage,Make,reservation,Rep. records, confirms,Arrive,Check-in,at reception,Doorman greets, valet takes car,Enter,data,Valet Parks Car,Make up,Room,Register,guest data,Receptionist,verifies, gives,key to room,Go to,room,Bellhop leads,way to room,with bag,Increasing Net Value by Reducing Non-financial Costs of Service,Consider each step in delivery of service,Reduce,time costs,of service at each step where customer sees passage of time as a burden,Minimize unwanted,psychological costs,of service,Eliminate unwanted,physical costs,of service,Decrease unpleasant,sensory costs,of service,3,Success factors in service-driven businesses,Creating value for customers through service,The Flower of Service: core and supplementary,elements,Customer loyalty creates value for the firm,Some strategies to improve success,Two Definitions of Service,“,A service is an act, a deed, a performance, rather than an object or a thing”,LEONARD BERRY,“,Service is all actions,and reactions that,customers perceive they,have purchased”,FEDERAL EXPRESS,Core Products and Supplementary Services,Most firms offer customers a package of benefits:,core product (a good or a service),supplementary services that add value,In mature industries, core products often become commodities,Supplementary services help to differentiate core products and create competitive advantage,Well-designed supplementary services may:,facilitate use of core product,enhance core product and add benefits,The Flower of Service:Eight Groups of Supplementary Services,Core,Information,Consultation,Order-Taking,Hospitality,Payment,Billing,Exceptions,Safekeeping,Facilitating,Enhancing,KEY,:,How Well-Executed Supplementary ServicesAdd Value for Customers,Enable customers to obtain maximum benefits,from core product,Add new benefits,Reduce unwanted costs (e.g. time and effort),associated with purchase and use of core product,Make seller “easy to do business with”,Distinguish core product from competition,Facilitating Services - Information,Core,Customers often require,information about how to,obtain and use a product or,service. They may also,need reminders and,documentation,Facilitating Services - Order-Taking,Many goods and services,must be ordered or reserved,in advance. Customers need,to know what is available and,may want to secure,commitment to delivery,Core,Facilitating Services - Billing,“,How much do I owe you?”,Customers deserve clear,accurate and intelligible,bills and statements,Core,Facilitating Services - Payment,Core,Customers may pay faster,and more cheerfully if you,make transactions simple,and convenient for them,Enhancing Services - Consultation,Value can be added to goods and services by,offering advice and,consultation that are,tailored to each customers,needs and situation,Core,Enhancing Services - Hospitality,Customers who invest time,and effort in visiting a,business and using its,services deserve to be,treated as welcome guests,(after all, marketing invited,them there!),Core,Enhancing Services - Safekeeping,Customers prefer not to worry,about the personal possessions,that they bring with them to a,service site.,They also expect firms to help,them gain full advantage from,goods that they purchase or rent.,Core,Safekeeping: Examples of Supplementary Services for Manufactured Goods,Caring for customers new purchases,Packaging,Transport, delivery,Installation,Work under warranty,Caring for customers existing possessions,Cleaning, trouble-shooting, repair,Upgrades,Storage,Disposal,Enhancing Services - Exceptions,Customers appreciate some,flexibility in a business,when they make special,requests. They expect help,when not everything goes,according to plan,Core,Opportunities to UseInformation Technology,Exceptions,Billing,Payment,Information,Processes,Information,Consultation,Safekeeping,Physical Processes,Order-,Taking,Core,Hospitality,Key Roles for IT in Delivering Supplementary Services,Speed processes to save customers time,Permit access from anywhere (convenience),Simplify processes to reduce mental effort,Facilitate self-service,Leverage employee knowledge, skills,Remember customer preferences,Reduce problems, correct them faster,Streamline billing and payment systems,4,Success factors in service-driven businesses,Creating value for customers through service,The Flower of Service: core and supplementary,elements,Customer loyalty creates value for the firm,Some strategies to improve success,The Value of a Customer,“,The value of a customer lies not in the purchase that he makes at any given time, but in the the discounted cash flow of all future purchases made during his life cycle as a customer-if he remains loyal.,All this, multiplied by the number of friends to whom, if satisfied, he may recommend the product.”,ERIC MEYER,LEntreprise,Profits Generated by a Loyal Customer,Industrial Distribution Services,Source: Reichheld and Sasser,$0,$50,$100,$150,$200,Annual Profit per,Customer,1,2,3,4,5,Year of Patronage,Profits Generated by a Loyal Customer,Credit Card,Source: Reichheld and Sasser,($60),($40),($20),$0,$20,$40,$60,Annual Profit per,Customer,1,2,3,4,5,6,Year of patronage,Profits Generated by a Loyal Customer:,Car Maintenance and Repair Services,Source: Reichheld and Sasser,What Makes Loyal Customers More Profitable?,Tend to spend more as relationship develops,business customers may grow larger,may consolidate purchases from one supplier,Cost less to serve,less need for information and assistance,make fewer mistakes,Recommendations win new customers for firm (act as unpaid sales people),Trust leads to willingness to pay regular prices vs. shopping for discounts,Why Customers Are More Profitable over Time,Source: Reichheld and Sasser,Calculating Customer Value,Value at Acquisition,revenues,(application fee + initial purchase),less,costs,(marketing +credit check + account set up),Annual Value,(calculate each year),revenues,(annual account fee + sales + service fees + value of referrals),less,costs,(account management + cost of sales + write-offs),Are YOU loyal? If So, Why?,Think of a small business, retail shop, or professional office that you have patronised for some time.,Now, complete the following sentence:,“ I stick with my,- hairdresser/barber,- dry cleaner/laundry,- service garage,- accountant or dentist,because _”,or,“I left them for another provider, because.”,How Customers See Relational Benefits in Service Industries,Confidence benefits,less risk of something going wrong, less anxiety,ability to trust provider,know what to expect,get firms best service level,Social benefits,mutual recognition, known by name,friendship, enjoyment of social aspects,Special treatment benefits,better prices, discounts, extra services,higher priority with waits, faster service,Source: Gwinner, Gremler and Bitner,5,Success factors in service-driven businesses,Creating value for customers through service,The Flower of Service: core and supplementary,elements,Customer loyalty creates value for the firm,Some strategies to improve success,Learning More about Customers,What costs do customers incur to use our products? (money, time, effort, etc?),What supplementary services surround each of our core products?,How do our offerings (and the costs to customers) compare to our competition?,How might we best add value for customers?,Which will appeal more to each of our customer segments: greater benefits or lower costs?,Improving Value by Educating Employees and Customers to Be Better Performers,Training employees improves productivity and quality,Well-trained customers perform better in their relations with the supplier and get better use from the products they buy,Splitting Responsibilities in the Distribution Channel,Core,Core,+,=,As created by,originating firm,As enhanced,by distributor,As experienced,by customer,Core,Avoiding Service Quality Failures that Destroy Customer Loyalty,Lack of reliability,-,service is undependable, inaccurate,Lack of customer orientation,-,no effort made to,understand customer needs or treat people as individuals,Poor communications,-,failure to keep customers well,informed and to use language they understand,Incompetence,-,managers and,other staff,lack skills and,knowledge required to serve customers well,Unresponsiveness,-,employees are slow, rude, unhelpful,Poor appearance,-,facilities are dirty, poorly maintained;,machines dont work; employees look unprofessional,Conclusion,Everything Will Become a Service,“,Technology changes us as producers;,it changes us as consumers. I believe that,technology is creating a marketplace where,everything is going to become more service-like.”,REGIS McKENNA,How Does,Your,Service,Look?,They Love Me! They Love Me Not!,Do You Know What Your Customers Are Saying?,