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The point of good service

Service lies at the heart of business. This truth has long been acknowledged and celebrated.

By Stuart Crainer 10 May 2012

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“In healthcare, innovation in service delivery has the potential to greatly reduce costs and at the same time dramatically improve outcomes with no new science, new drugs or new procedures,” explains Professor Ramdas.


And yet, despite all this attention, and the acceptance of the importance of service in business and beyond, standards of service are often perplexingly and frustratingly poor.


This was brought home to me when we recently bought a new family car.  The decision was straightforward. We knew the car we wanted. We looked at the clever website where we could assemble the car and pick various extras.  Armed with a rough idea of potential prices we arrived in the showroom of the garage where we had bought two previous cars.  We sat down with the salesman  and said what we wanted. "How much did you envisage spending?" he asked.  "You tell us," we said.  He disappeared to see his boss and after some toing and froing a deal was reached.


"We’re losing money on this," the senior salesman told us before explaining the various percentages and mark ups he had reduced to secure the sale.  "We don’t care," we said.  He pointed out that we could actually save £1000 if we took the company’s finance deal before the end of the month and then spent five minutes running through an elaborate insurance scheme we might like to buy. "I’ve got to tell you about it," he explained.


Putting in our details, he saw that we had bought two cars from the dealer in the last ten years. No comment.  Then he told us that it would take four to five months for our car to be delivered. "Where are they made?" we asked. "Germany," was the answer.  In this age of high-tech production and elaborate supply chain management, it takes five months to build a car in Germany and transport it 300 miles.


It was clear throughout this process that our needs were secondary.  As we hadn’t taken out the full finance deal or the insurance package, we were failures as customers.  The fact that we were loyal and had cash on the table was neither here nor there.


There is nothing unusual in such discussions. Every other time we have bought a car the dealers have complained about losing money on the deal, have tried to sell as many additional packages as possible and have moaned about lengthy delivery times.  Loyalty means nothing.  The system which stores our details is there as a comfort blanket rather than a means of building a relationship. There is a huge disconnect between customers and retailers.


In business after business, such situations are commonplace but it is difficult to see how they are sustainable or commercially sensible.


In the Spring issue of Business Strategy Review, Marco Bertini and Ricardo Cabornero (“The perils of popularity”) look at the similar issues surrounding the huge success of the iPhone.  The iPhone is often used as a lure by retailers, such as Carphone Warehouse and Vodafone, to attract new customers.  This can irritate existing customers who find that they do not have access to the best deals.


They are not the only ones irritated.  Because of the success of the iPhone, mobile operators find themselves underwriting the marketing and sales of the product.  This means that selling iPhones can actually be unprofitable for them.  The solution?  Bertini and Cabornero suggest that companies need to think about the optimum allocation of their marketing budgets between retaining and gaining customers.


In the case of the iPhone they identify three basic customer segments.  The first is iPhone lovers or switchers.  They are high-value customers who will seek out the best iPhone offer.  The second group is made up of smartphone lovers.  They are non-switchers, only interested in the iPhone if they can get it at a discount.  Finally there are the indifferent customers who have no existing interest in having an iPhone.


Bertini and Cabornero advise that companies should focus their attentions on switchers and avoid price wars around non-switchers.  “The optimal iPhone market share penetration is the point at which the value created from retained/gained switchers doesn’t offset the margin dilution on non-switchers,” they say.


This is the point of good service.

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