Managing Productivity CU _ C7 ^ ­•

Managing Productivity CU _ C7 ^ ­•

Rising costs put service firms under great pressure to increase service produc­ tivity. The problem is particularly acute where the service is labour intensive. Productivity can be improved in several ways:

1. The service providers can train current employees better, or they can hire new ones who will work harder or more skilfully for the s;ame pay,

2. The service providers can increase the quantity of their service by giving up some quality (e.g. doctors having to handle more patients by giving less time to each).

3. The provider can 'industrialize the service' by adding equipment and standardizing production, as in McDonald's production­line approach to fast­ food retailing. Commercial dishwashing, jumbo jets and multiple­unit

einemas (i.e. cincplexes and megaplexes) all represent the use of technological advances to increase service output.

4. Service providers can also increase productivity by designing more effective services. How­to­quit­smoking clinics and exercise recommendations may reduce the need for expensive medical services later on.

5. Providers can also give customers incentives to substitute company labour with their own labour. For example, business firms that sort their own mail before delivering it to the post office pay lower postal rates. Self­service restaurants are another case in point. Pay­and­display facilities in car parks alleviate the need to employ attendants (as well as reducing waiting time).

6. Service providers that have to deal with fluctuating demand can increase productivity by increasing flexibility anil reshaping demand. Supplier flexibility ­ the ability to improve supply capacity ­ is increased by using part­time workers and shared facilities, and by rescheduling peak­time facilities and work. Demand movements are reshaped by differential pricing, reservation systems and stimulating non­peak usage.

However, companies must avoid pushing productivity so hard that doing so reduces perceived quality. Some productivity steps help standardize quality, increasing customer satisfaction. But other productivity steps lead to too much standardization and can rob consumers of a customized service. Attempts to industrialize a service or to cut costs can make a service company more efficient in the short run, but reduce its longer­run ability to innovate, maintain service quality and flexibility, or respond to consumer needs and desires. In some cases, service providers accept reduced productivity in order to create more service

differentiation or quality. 14 We have looked at strategies for handling the particular marketing problems that service organizations face, given the specific characteristics of services. Import­ antly, to be successful, service firms must practise internal and interactive market­ ing, in addition to adopting an external marketing focus. The key lies in management's ability to develop a quality culture and to operation a lize effectively an extended marketing mix that results in superior service differentiation and quality.

International Services Marketing

An Italian sportswear manufacturer calls her advertising agency in London to confirm plans for new billboards in Venezuela. A German businessman checks

662 • Chapter 15 Markering Services

Marketing

Turning Customer

Organizations must develop a

Complaints into non­threatening culture that does Highlight

not penalize the 'mistake', in order

Opportunities

15.2 to encourage staff to analyze,

resolve and learn from complaints. Customers like to see things right

Apart from there being a 'no­blame first time. But if things go wrong,

policy', staff must be rewarded for companies must he responsive and

Creating se rv ice ­recovery oppor­ remedy poor service to recover

tunities.

customer confidence and loyalty. Consider the following exam­ Leading service companies not

ples.

only believe strongly in giving the One company, British Gas, customer good service, they have

recognizes the benefits of a cus­ systems and procedures installed

tomer complaint scheme. British to offer a high level of customer service and care

Gas, a privatized utility provider, now faces in service­recovery situations, especially in hand­

mounting competition in the marketplace. It ling complaints. Finns that view complaints as a

therefore has to develop a policy to help it retain valuable source of opportunities establish effec­

customers in a competitive environment. In the tive complaint procedures to capture these oppor­

current tight economic environment, a profitable tunities. Customer complaint programmes pay off

company like British CJas can be seen as a natural because the complaint points to possible improve­

target for complaint and, indeed, a service ment areas. They offer another chance to give ser­

provider of this stature has a moral and ethical vice and satisfaction to the dissatisfied customer.

duty to be a good corporate citizen. Complaints that are put right to the full satisfac­

A survey among customer managers in ali the tion of the customer prevent customer loss and

districts covered by British Gas South Eastern are an excellent opportunity to strengthen loyalty.

area revealed the overwhelming consensus Moreover, they can enhance the firm's standing

among the managers that complaints deserved to and may generate further businesses as a result of

be dealt with individually and that remedies to recommendations made by satisfied customers.

customer complaints should be rapid and ad­ The firms must therefore develop strategies

equate. There was even a sense of resentment or to ensure that complaints are received, listened

hurt about some of the ways in which customers to and resolved to the satisfaction of the cus­

chose to complain. However, the managers were tomer. The latter is crucial because the customer

also found to be protective towards their staff and may still be dissatisfied or the level of the com­

systems. Managers responded adversely to sar­ plaint raised if the complaint was badly handled.

castic, carping letters and also to complaints that Because only a small minority of dissatisfied

were directed through more than one channel. customers ever complain, the firm should pro­

Nonetheless, all managers claimed not only to actively attract complaints from disenchanted

have investigated and resolved complaints, but to customers. Channels of communication should

have learned from them and applied the lessons.

be kept open to give customers access and to But there was no follow­up of complaints and make it easy for them to offer feedback. Free tele­

'learning' is sometimes fed back only to the man­ phone calis, regular follow­up of customer sur­

agement team.

veys and staff training all help. Customers

A series of standards of service has been themselves may use different channels of com­

agreed with Ofgas, the industry watchdog. In plaint: telephone, fax, letter or personal call.

some cases, breach of these standards will give Whatever the tone of the complaint, it is impor­

rise to a fixed compensation payment. However, tant for the firm to respond with the urgency and

the company will not wait for payments to be seriousness that is expected by the customer ­ an

claimed, but adopt a proactive stance. Publication abusive customer is as valuable over a lifetime as

of these standards and of the complaints and any other and is more damaging if not satisfied.

compensation scheme is consistent with the

International Services Marketing • 663

ideals of the Citizen's Charter. (In the United thank you for bringing the matter to the Kingdom, the Competition and Services Utilities

attention of Marks & Spencer, and for our Act 1992 requires the utility monopolies to relate

part, we apologise for any inconvenience to the principles set out in the Citizen's Charter ­

which you may have been caused. legislation that enshrines the ethos of customer

(Technical Manager, care and service satisfaction.)

Jaka Foods Group Limited) Another quality­conscious service organiz­

ation is Marks & Spencer. The following excerpts

A week later, the response from Jaka Foods reflect the seriousness with which die retailer

(the parent company in Denmark) arrived. and its supplier lake customer eomplaints. A cus­ tomer returned a can of 'Danish Lean Ham' to the

We were most concerned to learn that you local M & S store after he discovered a piece of

had reason to complain about the product... paper in the product. The store manager apolo­

We have passed on your complaint to our gized, promptly issued a full refund of £1.45,

quality control department for examination. offered a replacement can of lean ham and a sales

However, they are unfortunately at a loss to voucher made out to the same value as the

explain the origin of this piece of paper. The 'returned item', and then informed the customer

production lines ... are subject to very high that he would expect a full explanation from IIQ:

hygienic standards which include an hourly soon. The letters arrived within days of the com­

wash­down of all machinery ... we believe plaint being made:

this to be an isolated, but not less regrettable incident. We apologise for any

I very much regret that despite this care inconvenience this matter may have caused [numerous quality cheeks], you were

you and thank you for bringing it to our unfortunate enough to experience a problem

attention ...

of this natxire. Please accept our apologies (Export Manager) for tliis lapse in our quality. ... Thank you for having taken the trouble to bring this

Marks & Spencer and its supplier clearly take matter to our attention. I would like to

customer complaints very seriously. Consistently assure you that the problem will be reported

to resolve customer complaints quickly, effi­ to our Buying Department and Supplier as a

ciently and effectively, the firm has a clear policy matter of urgency. The investigations ... will

on solutions and compensation. Resources are set help to ensure the elimination of problems

aside and planned beforehand to ensure that, of this kind in the future. We always wish

when complaints occur, departments handling our customers to enjoy the food products

these complaints are able to resolve them quickly. they purchase from us without experiencing

Staff must be both aware and knowledgeable of any problems. Therefore I have pleasure in

company policy, and have sufficient network con­ enclosing Marks & Spencer gift vouchers to

tacts within the firm and with outside suppliers to the value of S3.00 as a sincere gesture of our

exercise chosen solutions with a minimum of customer good will,

argument and paperwork.

In conclusion, unless the firm is open and (Customer Advisor, Pood Division,

Marks & Spencer pic)

honest with its customers, agrees solutions and keeps its promises of customer care and service

The same day, the customer also received a recovery, its complaint programme will not letter from the company that supplied Marks &

achieve the goal of customer retention through Spencer Danish Lean Hani:

customer satisfaction.

We are sorry to learn about your complaint

SOURCES: Peter Barbey. 'Looking for trouble', Marketing

... Our Parent Company will be informed of Business (September 1994), pp. 21­4; 'Effective complaint

systems', leaflet (London; HMSO, 1993); see also David

this immediately and you can expect to bear

Clutterbuck, Graham Clark and Colin Armistead, Inspired

from them in the very near future ... we

Customer Service (I^indnn: Kogan Pa£e, 1993).

664 • Chapter 15 Marketing Services

into his hotel room in Atlanta ­ the hotel is owned by a British company and managed by an American firm. The Zurich branch of a Japanese bank participates in a debt offering for an aircraft­leasing company in Ireland. A British construc­

tion firm builds an airport in Japan, and an American insurance company sells its products in Germany. These are just a few examples of the thousands of sendee

transactions that take place each day around the globe. A lot of trade no longer involves putting things into a crate and sending them abroad on ships! More and more, the global economy is dominated by services. The World Trade Organ­ ization estimates that commercial­service trade was worth around ecul.07 trillion in 1996, almost one­quarter of the value of trade in goods. Indeed, a variety of service

industries ­ from banking, insurance and communications to transportation, travel and entertainment ­ now account for well over 60 per cent of the economy in developed countries around the world. The worldwide growth rate for services (16 per cent in the past decade) is almost double the growth rate of manufacturing. 15

Some industries have a long history of international operations. For example, the commercial banking industry was one of the first to grow internationally. Banks had to provide global services in order to meet the foreign exchange and

credit needs of their home­country clients wanting to sell overseas. In recent years, however, as the scope of international financing has broadened, many

banks have become truly global operations. Germany's Deutsche Bank, for example, has branches in over 41 countries. Thus, for its clients around the world that wish to take advantage of growth opportunities created by German reunifi­ cation, Deutsche Bank can raise money not just in Frankfurt, but also in Zurich, London, Paris and Tokyo.

The travel industry also moved naturally into international operations. American hotel and airline companies grew quickly in Europe and the Far East

during the economic expansion that followed World War II. Credit card com­ panies soon followed ­ the early worldwide presence of American Express has

recently been matched by Visa and MasterCard. Business travellers and holiday­ makers like the convenience and they have now come to expect that their credit cards will be honoured wherever they go.

Professional and business services industries such as accounting, manage­ ment consulting and advertising have only recently started operating on a world­ wide scale. The international growth of these firms followed the globalization of the manufacturing companies they serve. For example, increasingly globalized manufacturing firms have found it much easier to have their accounts prepared by a single accounting firm, even when they operate in two dozen countries. This

set the stage for rapid international consolidation in the accounting industry 1 . During the late 1980s, established accounting companies around the world quickly merged with America's 'Big Eight' to become the international 'Big Sis' almost overnight. Similarly, as their client companies began to employ global marketing and advertising strategies, advertising agencies and other marketing services firms responded by globalizing their own operations."'

The rapidly expanding international marketplace provides many attractive opportunities for service firms. It also creates some special challenges, however. Service companies wanting to operate in other countries are not always welcomed with open arms. Whereas manufacturers usually face straightforward tariff, quota or currency restrictions when attempting to sell their products in another country, service providers arc likely to face more subtle barriers. In some cases, rules and regulations affecting international services firms reflect the host

country's traditions. In others, they appear to protect the country's own fledgling service industries from large global competitors with greater resources. In still

other cases, however, the restrictions seem to have little purpose other than to make entry difficult for foreign service firms.

Summary • 665

Most of the industrialized nations want their banks, insurance companies, construction firms and other service providers to be allowed to move people, capital and technology around the globe unimpeded. Instead they face a bewildering complex of national regulations, most of them designed

to guarantee jobs for loeal competitors. A Turkish law, for example, forbids international accounting firms to bring capital into the country to set up offices and requires them to use the names of local partners, rather than prestigious international ones, in their marketing. To audit the hooks of a multinational company's branch in Buenos Aires, an accountant must have the equivalent of a high school education in Argentinian geography and history ... India is perhaps the most [difficult] big economy in the world [to enter] these days ... New Delhi prevents international insurance companies from selling property and casualty policies to the country's swelling business community or life insurance to its huge middle class. 17

Clearly, service organizations face plenty of difficulties when seeking to enter foreign markets. The most recent round of the General Agreement on Tariffs and Trade (GATT), the Uruguay round, which ended in 1993 (see Chapter 5), began to address some of these problems by extending international trade rules to cover services in addition to manufactured goods. New service agreements should ease the barriers that limit such trade. Thus, despite the difficulties in international service marketing, the trend towards growth of global service companies will continue, especially in banking, telecommunications and professional services. Today, service firms arc no longer simply following their manufacturing customers. Instead, many are taking the lead in international expansion.