When a new service is being developed a lot of effort is put into designing the ultimate customer experience. There is a lot of investigative work done on understanding the customer needs and also working through the customer journey and touchpoints.
These activities are essential. Unfortunately they are also a waste of time if the service you are providing is not profitable. Someone has to pay for the service or it will not be around for very long.
This is why it is critical at the design phase to consider the business side of the service in addition to the customer experience. You need to design profitability into the service.
There are a number of ways you can do this:
When you are designing the service offering you need to consider what service levels you are going to provide, and crucially, what levels you will offer your customers to choose from. For example, you may decide to offer Bronze, Silver and Gold levels of service. Each with specific levels of service included and priced accordingly. This allows customer to see what they get and, more importantly don’t get, with the level of service that they choose to purchase and is an important mechanism in managing customer expectations. This is also very important in helping you to ensure that your costs and revenue are more closely aligned. That is, you are not incurring high costs on supporting low revenue generating customers.
It is obvious that you can improve service profitability by reducing costs and increasing revenue. But can you deliver the service at a cost that allows you to charge a fair and reasonable price?
At the design stage you need to ensure that you have fully considered the cost of providing service excellence (there is no point in designing any other type of service is there?). If the cost of providing excellence is too high then no-one will pay the price you need to be profitable. The design phase is when you get the chance to really understand if you have a viable business. It also gives you an opportunity to identify key service attributes that will be cost sensitive if you ever find yourself in the position of having to reduce costs.
Why do you have to sell for a fair and reasonable price? Because if you don’t then your customers will stop buying from you as soon as they can because they won’t feel they are getting value for money.
There are other mechanisms that can be used to fund the level of service that you want to provide and these should be considered at the service design stage. If your service offering is offered in conjunction with a product sale then there is an opportunity to cover part or all of the service costs in the product price. This is typically how new product warranty works. Alternatively, you can consider getting the customer to do the work for you by training them to be self-sufficient and taking care of certain steps of the service delivery themselves. We all do it now when purchasing goods on the Internet.
Once your service is designed, from both the customer experience and business perspectives, you can continue to improve profitability in services by ensuring that you remain engaged with your customers. The closer you work with your customers the more feedback you will get on how to improve your service and this feeds into your service improvement activities.
So don’t forget, you may have the best customer experience in the business but if you don’t design profitability into your services you may not be able to afford to offer the service for very long.
20. April 2009 at 19:02
Hi Aidan,
I agree with what you’re saying, particularly around working with customers to inform your service improvement.
In my experience though, if you’re a service company (and not an airline, for instance), excellent service costs far less than its poor alternative.
You might be able to charge more for it if your market will tolerate it, but essentially this effect just intensifies the problems with delivering bad service.
20. April 2009 at 22:31
Thanks for the comment,
I agree that excellent service doesn’t cost more than poor service, and as you say it can cost far less.
Excellence in providing the service should be the baseline. The problem sometimes is that in trying to provide excellence and in trying to be all things to all customers you can find yourselves relying heavily on the heroism of certain employees instead of being able to consistently deliver service excellence with your average employees. In this case it can be expensive to maintain that level of service.
Thanks for the reply,
Aidan
22. April 2009 at 19:56
Hi Aidan, interesting and often neglected obvious point you raise here. I’d take a little issue with the ‘excellent service is the only service worth designing’ though. Of course, excellence is great, and most customers will tell you that they want it, but they’ll also always tell you that it depends on the price. When you’re balancing the cost/service level question up during the design phase it is possible to design a service that people will rush to purchase (although they may not love it) simply because it’s cheap. Ideally, really really cheap. Witness the budget airlines who’ve relentlessly designed the service experience out of flying. It’s cramped, stressful, inconvenient and people love it because its filthy cheap. Of course, designing and managing the operational excellence that lets you offer services at that price does require excellence - but its not customer service excellence. Susan Dybbs (Twitter @dybbsy ) linked to a great piece on this in the new york times the other day: http://bit.ly/3tEtdz
23. April 2009 at 15:19
Hi Nick,
Thanks for the comment. As you say, service design (and excellence) is not the same as “customer service” design (and excellence).
I was thinking about it last night as I flew back to Dublin from Frankfurt (on Lufthansa). It’s interesting how the low fares airlines have quite different perspectives on “customer service” than the traditional flag carriers.
On BA, Lufthansa or similiar airlines you do get the feeling that you are a customer and they are trying to deliver customer excellence - as a result their service design is based on this desired outcome.
On the budget carriers the feeling is more of being a passenger (like on a bus) and the service design focuses on having the processes and procedures in place to get the passengers from A to B cheaply. So, excellence in service design (not customer service design) for these budget airlines is around service efficiency for the airlines purposes.
It reminds me of the differences between delivering services in the B2C environment compared to the B2B environment.
Thanks for your interest,
Aidan