Customer service -- not lip service Featured

10:50am EDT July 30, 2006
Customer service is universally regarded as key. Yet it’s in decline in many industries as a frequent casualty of initiatives to cut costs and become leaner. A new generation of MBA students under Dr. Len Berry, distinguished professor, M.B. Zale Chair in retailing and marketing leadership at Texas A&M University, is learning why good service is good business.

Smart Business spoke with Berry, a published author of books on business success, who explained how service can create a competitive advantage, how to avoid common service management mistakes and how to beat Wal-Mart.

What fundamentals of good service tend to get overlooked?
First is showing basic fundamental respect for the customer. This includes respecting the customer’s time and showing respect for common courtesy.

For instance, what if a bank only has two of its seven teller windows open at noon, which is the only chance a lot of us have to go into the bank? That’s a basic failure to respect the customer’s time.

The second is basic fairness. Berry’s Law is that if customers hate a policy that is designed to save the company money, the policy will end up costing the company money.

The airlines are a great example. Frequent fliers routinely become enraged because of what they consider unfair policies about pricing and reservation changes. The airlines’ perfection of Berry’s Law is a primary reason so many of them are in bankruptcy or on the edge of it.

Do executives have common misperceptions about service?
Again, there are two. The first is that improving service will cost a lot of money -- which is a very damaging misperception because it discourages investment.

Excellent service contributes to profitability in many ways. Better service improves the top line, but it increases efficiency because you’re doing things right the first time. It also strengthens loyalty and builds good word-of-mouth, which is like free promotion.

The second widespread misperception is that customers only care about low price. What customers really care about is getting a good value. Price is a component of value, but not the equivalent.

If companies think customers only care about price, they concentrate on cutting costs. Focusing on price takes the focus off the value part of the equation.

Unfortunately, the trend is for lower price and less service. I call this the ‘Wal-Mart Effect.’ But it’s been proven that the absolute best way to compete against Wal-Mart, regardless of your business, is to give the customer a better shopping experience.

Is there a correlation between quality of service and profitability?
Absolutely. A lot of research in the past five years from multiple sources clearly shows that service leaders are more profitable than average performers.

There are only three ways to increase market share: get more customers, get more business from existing customers, and/or reduce customer attrition. Many initiatives focus on one of these areas. Improving service is very powerful because it addresses all three.

How difficult is it to go from being average to making service a competitive advantage?
It’s a series of large steps. Companies shouldn’t think in terms of making quantum leaps, they should focus on getting better every day.

To excel at service, companies need service-centric values, and values don’t change overnight. Service excellence needs to be more than a top-level initiative. The key is having mid-level leaders in the organization who want to provide good service.

Companies also need to take a long look at all their HR practices: hiring, pay and recognition. True service excellence requires treating employees well, so they will want to serve customers well.

How should organizations measure their service effectiveness?
Whether the company is large, small or somewhere in the middle, it needs to create a customer listening system, including multiple listening posts. These can be formal, such as regular customer surveys, or informal, such as a store manager walking the store with a customer every day. If done daily, that can be incredibly powerful.

There are three types of customers to listen to regularly: current customers, because they’ve actually experienced the service; competitor’s customers, to know what they want; and internal customers -- the employees who have, in effect, ‘purchased’ a job or career from the organization.

Have you seen any new methods organizations can use to differentiate their service?
There is a lot that’s new, but nothing that particularly excites me. We don’t need a lot of new. We need to better execute the old.

LEN BERRY is Distinguished Professor, M.B. Zale Chair in retailing and marketing leadership at Texas A&M University. Reach him at (979) 846-1007 or berryle@tamu.edu.