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Quality or compromise? Using analytics to tailor customer service

July 9, 2008

When it comes to customer service, success is as much about quality as it is about compromise. That is, companies should focus on a few key areas they can do well and forget the rest.

"When managers understand that inferior performance in one dimension fuels performance in another, the design of excellent service is not far behind," says Harvard Business Review.¹

Good and bad performance may seem a different way of thinking about customer engagement. But it can go a long way to building a winning service strategy.

"Wal-Mart: Low prices keep customers happy

Consider Wal-Mart, writes HBR. The retail giant is renowned for its low prices and wide selection. At the same time, it places less emphasis on store ambience and sales help these attributes are least valued by customers.

"The company optimizes specific aspects of its service offering to cater to its customers' priorities, and it refuses to over-invest in underappreciated attributes."²

Consumers who don't like the store's focus are likely to shop elsewhere. But those who prefer the low-price shopping experience tend to "self-select into its customer base." And those shoppers make up a large portion of the retail market.

Commerce Bank: Winning on hours and friendly staff

Meanwhile, Commerce Bank has been able to significantly grow its retail customer base even though, as HBR observes, its rates are among the "worst in the market."³ The bank's customers want convenience and friendly service above all, so that's where it focuses its efforts.

"When it comes to attributes less important to the bank's customers – price and product range – management is willing to cede the battle to competitors."⁴

Cleveland Clinic: Service drives competitive moves

Customer-driven service can also inform an organization's competitive strategy. Instead of doing what rivals are doing, the customer base can help determine what trends to follow and what not to worry about – so organizations are less likely to spread themselves too thin.

Cleveland Clinic is consistently ranked as one of the top hospitals in the U.S. and is a leader in providing leading-edge cardiac care.

One of its strengths is that it examines its existing service model in relation to any plans for expansion.

In one instance, it dropped the idea of adding a wellness spa because the offering didn't fit with its core operational mandate.⁵

What the customer wants

Service compromises aren't made lightly, since the wrong strategy can mean complaints and lost customers.

At bottom, the right approach should be informed by an in-depth understanding of what customers want. Gaining that perspective requires segmentation – not based on consumer differences but on commonalities.

"Rather than stressing differences that enable increasingly targeted and potent messaging, this type of segmentation aims to find populations of customers who share a notion of what constitutes excellent service," says HBR.⁶

Insight from analytics

Customer analytics can provide this kind of insight.

Interview with Martha Rogers

CRM, ERP, and other transaction systems present valuable customer data – purchase history, satisfaction levels, returns, demographics, and so on. Business intelligence leverages this information to help companies better understand their customers so they can in turn tailor services to their needs and interests.

Call center metrics also provide a key source of customer service information. Categorizing complaints or issues can help to identify causes of dissatisfaction and areas to focus better service. What are acceptable delivery times? Does the customer value higher quality over cost?

For example, if customers complain most often about product quality, it may be a sign that cheap prices aren't the key attribute consumers want.

Managing customer profitability

The flip side of service performance is compromising on your customers. That means understanding who is most profitable to your company and who isn't, and shaping a service model from there.

"Some firms are taking advantage of new segmentation approaches and technologies that have made it easier to focus on retaining the right customers – those who will bring in the most revenue over time – and, by extension, to show problem customers the door," says HBR.⁷

While customer divestiture is extreme, companies can at least assess customer value in this context to inform their service strategy.

That is, they should be "putting each customer relationship in context and deciding the best course of action."

For lower-value customers, companies might want to offer a lower-tiered level of service, reassess the relationship, find new ways to increase their value, or in some instances, migrate customers to subsidiaries or other providers.

Lifetime value scores and other metrics

How to determine who is most beneficial to the company?

"Some organizations are systematic about separating the profitable customers from the unprofitable ones," says HBR. "They use analytical tools and approaches to compute lifetime-value scores and other relevant metrics."⁸

Analysis and metrics can uncover the most profitable customers and their history, including interests, satisfaction levels, and lifetime buying patterns.

Armed with the information, businesses can allocate resources and service strategy accordingly.

The key here is to segment customer service issues by who – the customers that matter most to your current and future bottom line. When you include the relative value of the customer, you have a useful framework to maximize service rewards.

For example, if your expertise in complex channels is a differentiator, you may want to offer it free to high-value customers in return for their greater loyalty.

Summary

When considering customer service, instead of being all things to all people, companies should adopt a mandate of "being specific things to specific people," says HBR.⁹

To ensure such focused service outcomes, organizations have to know and respond to what its most profitable consumers want. Deeper customer insight is the touchstone that can provide the answers.

Find Out More Cognos Performance 2008: Sign up now! Learn more: Cognos solutions for customer service

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Sources

¹ Frances X Frei, The Four Things a Service Business Must Get Right, Harvard Business Review, April 2008.

² ibid.

³ Thomas L. Friedman, The World is Flat: A Brief History of the Twenty-first Century, Farrar, Straus and Giroux, New York, 2006.

⁴ ibid.

⁵ ibid.

⁶ ibid.

⁷ Vikas Mittal, Matthew Sarkees, Feisal Murshed, The Right Way to Manage Unprofitable Customers, Harvard Business Review, April 2008.

⁸ ibid.

⁹ ibid.