Will the credit crunch kill customer service?

When shopping for a new refrigerator, for example, I’m looking for a model that that a) will be fit for purpose b) will not break down and c) if it does break, will not cause me excessive time and stress to have repaired. Anything less than this will not tempt me to buy - irrespective of price discounts and special offers.

But at a time when both businesses and consumers are tightening their belts, can we still afford this ‘luxury’? Or will we be so driven by price that our concerns for the longevity of the product take second place?

A shifting economic landscape

Before ‘credit crunch’ entered the vocabulary of UK manufacturing, one of the key challenges was to differentiate increasingly commoditised consumer products. From white goods and kitchen appliances to home entertainment systems, OEMs fought to stand out in a blurred market wherein brands struggled for superiority. One of the key differentiators, which could set one brand apart from another, was service. Whether it was the assistant selling the product or the aftermarket warranty that helped keep customers happy, good service, and the related reputation, would drive future sales.

But with the current economic climate, will consumers overlook the service agreement and knowledgeable staff and go straight for the lowest price-point, prioritising initial savings over product and service longevity? And what will this mean for the manufacturers and retailers of these products - is it time to scrap the support and cut the prices, self-service above customer satisfaction? Will the credit crunch kill customer service?

Dwindling margins

In the face of dwindling product margins for commoditised goods, forward thinking companies have seen how service delivered after the initial sale of a product can provide a key competitive advantage - and have built upon this for increased profitability.

Take Dell as an example. With a real-time business intelligence solution akin to NASA’s mission control, service personnel enjoy the required visibility into all service calls. Imagine a large regional map with coded lights indicating the status of each service call. Overlaid on that map is data on local/regional weather and traffic. As soon as a service request comes in, Dell begins the field technician and service part dispatch process. Every dispatch consists of a series of time stamps that track the technician and parts. If a service call is running tight against the customer commitment, then a yellow alert appears. If the service call is going to be missed, then a red alert appears on the map. If bad weather holds up a delivery, Dell knows about it and can alert the affected customers and service partners that the shipment will be delayed, but that other service parts can been located and are on their way. No more wondering when the part or the technician will arrive.

Critically, this is a key area where analysts such as AMR expect investment to continue. Research has shown that there will be "continued investments in business intelligence and performance management software to support decision making", a solution that perfectly befits Dell’s system outlined above. So, if you will let your decision-support tools slip, you can rest uneasy that your competitors won’t.

This should not come as a surprise. While products and features can be duplicated, post-sale service is very difficult to replicate and can have a substantial impact on a company’s revenue, profitability, and customer satisfaction and loyalty levels. After all, there are plenty of refrigerators of equal feature and function on the market, but customers want to know who will provide the best service on that asset... don’t they?

It’s all a matter of risk management, both for the consumer and the business. The risk for the consumer is clear; buying a product on price alone with no guarantee of after sales service means that the potential risk of costly call out fees and repairs, or the price of a replacement model are potentially high, and near impossible to forecast. For the business, the risk runs deeper.

By offering a competitive Service Level Agreement - the promise to deliver the right replacement part, to the right place at the right time, with an engineer qualified to do the job - consumers are offered an attractive alternative to buying on price. But without the right approach, this can be costly for both the buyer and seller. As in reducing one risk another comes to the forefront. By sticking your head above the crowd and offering extraordinary service, a manufacturer exposes itself to criticism - the inability to deliver on commitments can seriously damage brand, reputation and ultimately future sales, taking far longer than any service call to remedy.

Brand Loyalty Risk - long term damage

Bruce Richardson, the dean of software analysts from AMR Research, recently demonstrated this risk to a company’s brand. Richardson blogged about the problem he encountered with a refrigerator purchased from Best Buy, and his blog stats hit 12,000 visits. Following an exasperating service call, then waiting around the house during work hours only to have a technician arrive and depart, unable to fix the problem due to the lack of a spare part; Richardson called again to set up the second service call. When the second technician finally arrived and inspected the problem, he discovered that it was only a piece of Styrofoam stuck in the door. No need for the spare part, or the service technician, or the unnecessary customer service charge, after all.

Now that’s risky business, especially considering the amount of time and profit lost; not only the cost associated dispatching an engineer, but also the cost of two useless service calls. Not to mention the loss of customer loyalty and the risk to brand based on the blog that was viewed by 12,000 consumers.

Strategic Service Management

So as a business fighting to compete in a tough economic climate, is the solution to drop prices for short term gains, ensuring cash-flow, but risking long term brand damage? Or is it to risk standing out by not dropping prices and maintaining good service, but having to ensure that promises made are promises delivered?

With the right tools to manage this risk, there is, in my opinion, one way which will not only maintain brand reputation, but will improve efficiencies, turning your service business from a necessary evil to a profit centre.

To achieve this, businesses must commit to a business strategy built around the understanding of the power and value associated with delivering on the service commitments it has made to its customers. Strategic Service Management, or SSM, optimises the strategy, processes, human resources, technology and knowledge involved in the delivery of service. The aim is to control, monitor and evaluate the service supply chain risk, which will serve to safeguard and maximise profitability. For example, Sun Microsystems, a manufacturer of servers, storage devices, and microelectronics, saved $47 million in its first year after implementing SSM by reducing inventory and eliminating purchases. That’s an enormous saving in any climate.

As the AMR Research blog demonstrates, without SSM, the service supply chain is fraught with risk. Business-to-business customer commitments pose an even greater risk due to the harsh penalties for failure to deliver on that commitment. With SSM, instead of the service chain being a liability or a risk centre, it can become a profit centre if all of the processes are aligned in order to provide a "single version of the truth."

The Strategic Service Management approach is as critical in a tough economic climate as in more prosperous times. To some extent, it requires a leap of faith from your customers to trust the ongoing delivery of excellent service that your company has a reputation for delivering. But it is the customers who have returned time and again, not those who take up a one off special offer, that will continue to do so, and drive your future sales, through word of mouth recommendation. And these are the kind of customers you want to attract.

As with any key business decision, a short-term (or short-sighted) outlook, where immediate gains stack up against long-term survival, will neither win over the board, or your customers. Where’s your focus?

Kevin Tingey is vice president and general manager EMEA, Servigistics

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