Friday, October 29, 2010

Customer Service vs. Process Management

Customer service and process management are often at odds with one another: the desire to improve gross margin requires creating a product as cheaply as possible (regardless of quality), whereas the desire to improve customer satisfaction requires creating a product that's as good as possible (regardless of cost). As such, the market offerings of most companies represent a compromise between the two - or at best, a calculated decision about the level of quality-versus-price that a given product represents.

On one end of the spectrum is the company that offers a very low-quality product, so poorly suited to the needs and desires of the consumer that no-one would be willing to buy it if it were even a little bit worse. On the other end of the spectrum is the company that offers a very high-quality product, but one that is very expensive, so much so that no-one would be willing to buy it if it the price were even a little bit higher.

My sense is that neither extreme is the "natural" winner in all instances: a company chooses to produce a product that balances quality against price to provide an offering that is appealing to a given market segment. Some customers are willing to pay a premium price for a high-quality product, whereas others seek to pay the lowest price possible and will accept a product that is barely sufficient.

And at this point, I'm going to stop writing: I suspect that I am merely rehashing a hackneyed argument of price versus quality and have forgotten what it was that entered my mind that brought something new to the conversation. I'll return to it later if it re-occurs to me.

Monday, October 25, 2010

Phases of Innovation

I've been struck by a notion, which probably needs much more refinement, that the nature or character of "innovation" is heavily influenced by environmental factors - it's not quite as simple as the level of economic development or the phases in the product lifecycle. Though it's similar in a number of ways, it's different enough that the character of innovation can't be neatly ascribed to those existing theories.

Discovery Phase

During the earliest phases of the product lifecycle, development and introduction, innovation is largely a matter of invention: an entirely new product is invented, which was never before in existence, and it's also discovered that the product serves some human need (which is important, as many of the "discoveries" of science have little application to human needs, at least initially).

The "discovery" phase also carries over to the second phase of the product lifecycle, introduction, in the sense that , while the supplier has discovered a new product by a process of invention, the buyer must also discover it - traditionally, by the supplier communicating information to the market to advertise the product, but more recently by word-of-mouth.

In this phase, innovation is characterized by invention and application: a product is created, and it is matched with a consumer need.

Manufacturing Phase

The manufacturing phase of innovation occurs during the introduction and growth periods of the product lifecycle, during which time innovation is geared toward developing methods of producing a product (or a service) in sufficient quantity to satisfy market demand.

The transition from discovery to manufacturing is a vulnerable period, during which a company that discovers a product seeks to bring it to the market before its competitors. My sense is that there are many instances in which one company has invented something is beaten to market by another, especially in the technology industry.

In this phase, innovation is characterized by entrepreneurship: the product must be produced and delivered to the consumer.

Efficiency Phase

The efficiency phase of innovation may occur during the last three phases of the product lifecycle: growth, maturity, and decline. It's generally characterized by multiple producers entering the market, competing largely on the basis of price.

Competition in this phase is for share of market: efficiency can take the form of the least costly manufacturing process (by cutting costs, price can be lowered to gain competitive advantage) or the most productive manufacturing process (being able to supply in quantity, such that customers who want the product immediately can buy from you rather than waiting for a competitor to catch up to back orders).

As such, innovation in this phase generally consists of cost reduction and supply-chain management, with the goal of gaining share of market.

Service Phase

The service phase may, in some products, be substituted for the efficiency phase, though for most products that come to mind, it generally occurs afterward, when firms are more or less equal in their ability to produce a good cheaply and in sufficient quantity and seek to differentiate themselves from competitors in ways that customers value.

Customer preference is of primary importance: given that the good is readily available from multiple sources, and there is little differentiation in product price, competitive advantage is won by the firm that best satisfies customer needs in terms that have less to do with the physical properties of the product or its price, but have to do with the success of the product in satisfying consumer needs other than those directly addressed by the product itself (core value is not sacrificed, but augmented).

As such, innovation in this phase consists of quality improvement and customer relationship management, with a goal of gaining customer loyalty and improving share of wallet.


I'll concede that this is very early thinking, and as such may be a bit half-baked and ill-defined. I expect I'll return to it later for more detailed consideration - just wanted to jot it down in this notebook for now.

Friday, October 22, 2010

Proactive Service Recovery

I got an interesting e-mail from Netflix:
Yesterday, you may have had trouble instantly watching TV episodes or movies due to technical issues.

We are sorry for the inconvenience this may have caused. If you attempted and were unable to instantly watch TV episodes or movies yesterday, click on this account specific link in the next 7 days to apply your 2% credit to your next billing statement.

... we apologize for any inconvenience, and thank you for your understanding. If you need further assistance, please call us ...
That's very close to a perfect service recovery - the "very close" is on account of the minor inconvenience of having to click a link to claim the credit. I expect anyone who overlooks the message until it's too late to claim the credit will have quite a different impression - and even though I claimed the credit in time, it's left me with the distinct impression that there was at least one weasel in the meeting who didn't feel the customer was owed anything at all and wanted to minimize cost rather than maximize customer service.

That minor flaw aside, their prompt reaction demonstrates a level customer service and responsibility that many companies are unwilling to provide, and seem incapable even of conceiving.

It also calls to mind the significantly lower level of concern shown by other companies that offer a 24/7 service: electricity, water, internet access, cable television, cell phone service. In general, they offer a high level of service availability, and outages are very rare - but when an outage occurs, they demonstrate a complete lack of concern and make every attempt to dodge responsibility. The cable company has never bothered to apologize for a power outage, have certainly never sent me a refund, and when I've had to call them to report a problem, they offer up some lame excuse in an irritated tone.

Netflix's example in this instance is one for the books - specifically, the "customer service" textbooks: when even a minor problem arises with your service...
  1. Be proactive: don't make the customer call you to report a problem you already know about.
  2. Accept responsibility: apologize and don't offer lame excuses or try to shift the blame
  3. Provide concession: preferably, without putting the burden on the customer to claim it
Do these things, and the customer will likely be more impressed by your reaction than disappointed by the problem. It's really not that hard, and doesn't cost that much, to not only salvage the relationship, but leave the customer with a long-term impression that your company is genuinely concerned about customer satisfaction (how many advertising and social media dollars would you have to spend to build that much positive sentiment?)

Fail to do them, and you can save the embarrassment of having to admit the problem occurred, and the cost of any concession - but you'll disappoint the customer. While you may not lose their business, don't kid yourself: the reason they remain "loyal" to your company is only their own apathy, coupled with the failure of your competitors to do any better, and it lasts only as long as no-one else does any better.

Monday, October 18, 2010

Never Outsource Competitive Advantage

I felt it was worth jotting down this axiom in my notebook, because recently I've seen a few articles advocating a bad practice - and over the years, I've seen (and worked for) a number of companies who undertook this very practice, and the outcome was never happy.

"Never outsource competitive advantage" seems like a straightforward statement, and is a basic concept of strategy, that there are certain qualities of a business that make it a leader in the field, whose customers prefer it over its competition and evidence that preference in their choice of vendors.

But in operations management, where fast and cheap is the order of the day, outsourcing seems like a good idea: if you buy an off-the-rack solution and tweak it a little bit, you can gain capabilities (or streamline operations) very quickly and cheaply.

And in general, there's nothing wrong with that ... so long as what you're outsourcing isn't the very thing that gives your company an edge over the competition.

For example, unless you're an accounting firm, your ability to do payroll and tax accounting isn't what gives you a competitive edge over the competition. It's a routine task that needs to be addressed, and done with a reasonable amount of competence, but doing it a little better or worse, faster or slower, isn't going to harm the top-line revenue.

But on the other hand, if your company's competitive advantage comes from having a highly efficient logistics system to streamline the movement of raw materials through the production lines in a just-in-time fashion, you definitely don't want to put this into the hands of a vendor, who will provide you a solution that's not significantly better than the competition, because you've immediately lost your competitive edge.

This is especially true of user experience: unless you have a unique product offering, or the absolute lowest prices on the Internet, the quality that attracts new customers to your business and keeps your current ones from jumping to a competitor is the relationship they have with your company, which itself is largely derived from the user experience they have, each time they visit your site.

If you put that site, or some significant component of it, into the hands of a vendor who provides a standard solution, no better than what anyone else is using, then you've lost your edge. And in a competitive environment where one difficult transaction or one botched order will cost you the business of a few customers, then a few more, then a few more, the cost you save in hiring a vendor to roll out a shrink-wrapped solution will be undermined by the damage you'll do to your top-line revenue as customers, who once thought you were better than the rest, find that you're no different in the ways that they most value.

And so, it bears repeating: never outsource competitive advantage.

Thursday, October 14, 2010

Why Service Stinks

In the spirit of unearthing traditional knowledge about customer experience that is applicable to the new medium, I've recently read T. Scott Gross's Why Service Stinks, which examines common causes of customer service failures in brick-and-mortar retailing, focused primarily on the quick-service restaurant (QSR) industry, though it does stray into other areas of retailing as well.

While the book is primarily directed to front-line retail managers, many of the notions are applicable to the electronic channel ... though it would require a change in attitude on the part of Web storefront operators who must (and should) shift from the mental model of "enhancing" what is essentially a computer interface to their inventory and ordering systems to more of a comprehensive approach in which delivering an appropriate customer experience is foundational.

If you consider the experience of shopping on the Web, and ask yourself how you would feel if an in-store experience followed the same pattern, took the same tone, and put you through the same processes, you will quickly recognize a number of areas in which the online experience is failing, miserably, to deliver the same level of customer satisfaction (and earn the same level of customer loyalty) as meatspace retailers.

If you consider the communications you receive from retailers via e-mail and the myriad of social media, and ask yourself how you would feel if a clerk in a physical store delivered the same information, in the same tone, you will quickly recognize the reason that you feel more manipulated, alienated, and patronized by the Web-based brands that reach out to you with pretenses of wanting to serve your needs and earn your trust.

Granted: not all of the elements of the B&M retail experience are applicable to the online channel - and not all of them would be helpful or even welcome by the online shopper - but many of them are applicable, and should be applied, to improve the user experience in the online channel.

Sunday, October 10, 2010

The Fifth "P" of Marketing

Chris Borgan, a UX blogger I follow, recently posted out the basics of marketing, namely, the "four Ps" that everyone learns in the "Introduction to Marketing" class - product, price, place, and promotion - and that reflecting on them periodically, as basic as it may seem, is a good exercise for identifying fundamental shortcomings.

However, the four-P model is from the perspective of product marketing, particularly in the manufacturing sector where there is little interface with the buyer or consumer of a commercial product. My sense is that UX on the Web is more akin to services marketing and retail marketing, both of which add a fifth "P" to the list: people.

In services and retailing, this is recognized as the most critical element of competitive advantage: any other source can provide a customer with the same items, at the same prices, in the same locations, and reach them with the same messages. The reason people prefer one supplier over another is the buying experience, which is driven primarily by the people with whom them interface.

My sense is that, when it comes to online experience, this has been largely forgotten, mainly because interacting a Web site is a person-less experience in which the customer is interfacing with the inventory and ordering systems of a supplier. It's a very cold, impersonal, and unfulfilling experience - and that's just the problem.

To go a bit further down the same line of logic, it seems to make sense that the Web sites that deliver "good" experience act do so because they act as surrogates for the forgotten fifth "P" - the online channel isn't a surrogate for "place" so much as a surrogate for "person."

I'm in danger of anthropomorphizing the computer interface, granted, but what I'm getting at is that the interaction between user and site is not as closely related to the interaction between consumer and product, or place, or price, or promotion as it is to the interaction between customer and clerk, or cashier, or salesman.

It seems to me an exercise well worth undertaking to consider the customer interaction they have (or would have) with staff in any other channel, and assessing how well their interactions with a Web site stack up.

Wednesday, October 6, 2010

The Relationship Edge

I've added reading notes on a book called The Relationship Edge, which turned out to be about meatspace salesmanship rather than online relationship management. Given my recent rant about the lack of experience in books about Internet marketing, I decided to keep reading, and am generally glad I did.

The book is about relationship management in person-to-person sales, primarily in the business environment where the instances of contact between seller and the stream of revenue are both sufficient to enable the salesman to develop a relationship with regular customers whose accounts he will service over time.

Resource planning systems with automated ordering systems have sought to dispense with the inconvenience of face-to-face encounters - at the loss of the productive aspects of a less sterile interface between buyer and seller, as well as the competitive advantage gained by a vendor that provides a higher degree of service than merely filling orders.

But on the dark side, salesmanship has its unsavory characteristics, and the book is chock full of unctuous tactics that exploit social psychology to manipulate the client like a con-artist works his victim. Even so, the author express higher motives for doing so, though whether that's merely a smokescreen or earnest intent is a matter of opinion.

There are some concepts that lend themselves well to online relationship management, others that are entirely unique to face-to-face salesmanship, and a general weakness on the application of new media that comes with an air of luddite disdain ... and even the greasy bits are good to know for times when you find yourself getting worked over by a salesman who applies them to pressure you into making a bad decision.

Saturday, October 2, 2010


I've been disappointed by some of my recent readings in Internet marketing. The trade books are often bad, and the blogs are even worse. That's not to say that what I'm reading is fundamentally wrong, but that it is shallow and often misguided, based on a handful of anecdotes and the personal experiences of an author-practitioner, utterly lacking a consistent theoretical base.

Case in point, in reading about online brand relationship management, the practitioners seem to have a pioneer attitude - as if, before the Internet, no-one put much thought into these issues, and the "old ways" are shortsighted and bad, in favor of the "new way" they have discovered. And yet, their discoveries are merely a haphazard rehash of the traditional approaches they are castigating ... they don't know the "old ways" and assume that what they are suggesting is an entirely new approach.

I've noticed this about relationship marketing and e-commerce in particular. Much of the "new" knowledge is not new at all, but hearkens back to the basics of retail and B2B marketing, in which the shop owner or sales representative deals with customers in a face-to-face manner - which, in terms of age, is an even older practice than mass-marketing. Anyone who has ever provided (or to some degree, received) face-to-face customer service recognizes the value of customer relationships and brand experience to satisfaction and retention, and there is a substantial amount of theory that can be adapted to the new media.

And while much of this has been brushed-aside during the era of mass-marketing, it's not been entirely forgotten. There are still books and courses on retail and B2B marketing, though they've been largely marginalized in favor of the efficiency of dealing with customers as a faceless mass.

So in the end, my sense is that what we are experiencing is not the end of traditional marketing, but a return to traditional marketing - before the era of mass-marketing and the amalgamation of consumers into large groups who were assumed to be homogeneous - and that rather than experimenting haphazardly to "discover" or "invent" effective methods for treating them as individuals, what's needed is to blow the dust off the old textbooks and re-discover what was known before the profession took a turn.