Demystifying the supplier-customer interface

Citation

Wrennall, W. (2001), "Demystifying the supplier-customer interface", Measuring Business Excellence, Vol. 5 No. 1. https://doi.org/10.1108/mbe.2001.26705aab.003

Demystifying the supplier-customer interface

Introduction

Today's customers have grown to expect good service. As suppliers, our competitive success depends on our ability to provide customers with quality service. But what is the difference between a product and a service? A product becomes a service at the point of consumption. Comparing services with tangible goods, someone said, "With services, you don't know what you aren't going to get until you don't get it". This comment reflects customers' unclear expectations. In customers' understanding of service there appears to be a distinct difference between product and service transactions. So what is customer service?

Customer service is often equated to customer satisfaction. But customer satisfaction is subjective. When we are providers of products we can state our goal as to please our customers with the quality of our products. Is that enough to achieve our competitive edge? A product of high quality that is not available in the customer's time-frame may not be pleasing. In this case, the product may be fine, but the delivery service is unsatisfactory.

Service has become a scarce resource. For instance, have you ever been told that your doctor cannot see you for another week? The appointment clerk fills the doctor's time and creates an unsatisfied demand. When you call for an appointment, you know that the system is controlling you.

Economists tell us that scarce resources attract higher prices and competitive suppliers. Unfortunately, the demand, price and supply may be spread over time. When the service is not provided and the supplier becomes reluctant at best and resentful at worst, the climate is not very comfortable. In fact, the supplier, particularly of professional or pseudo-professional services, may expect or even demand that the consumer provide theservice.

For example, when you contact your bank or other provider by telephone, you find that the answering service has been "automated or depersonalized". You are instructed to follow the supplier's procedures. The message you get is probably something like this: "We are not able to answer your call at the moment, but your call is very important to us"; or "Our agents are busy attending to other customers"; or "Your call will be answered in the order in which it was received". You are now so important that your supplier has limited the service to maximize their productivity or reduce their costs, but waste your time, and you have difficulty even talking to a real person.

Customer satisfaction may be a flawed term. A common belief is that customer satisfaction is achieved when you deliver exactly what the customer needs. Deming has extended this to the desired business objective of delighting the customer. Thus, the term customer satisfaction causes confusion. What does it really mean? As the "customer revolution" continued, further confusion was caused by the term "customer loyalty". That is, it is more appropriate for businesses to focus on lifetime customers' value than on managing customer-contact events.

The satisfaction-loyalty debate can be disheartening for two main reasons. First, aiming only for customer satisfaction is a prescription for mediocrity. If satisfying customers means performing at their level of expectations, then any company that does this will be perceived by customers as no better or no worse than its competitors. Second, parity with rivals offers no competitive advantage whatsoever. Customers might as well choose among these suppliers at random – and many do.

There can be a big difference between meeting customer expectations and creating the perception of value. If the customer is accustomed to abuse, indifference, deceiving, cheating, lying and bullying, a company can probably meet that customer's level of expectations fairly easily. However, the latent desire for value goes unsatisfied. Expectations and desires vary significantly from one customer to another. Age, gender, income, lifestyle, education, social values and experience with a particular product or service all influence a person's desires, expectations and standards. If an organization does not know what those expectations are, how can it meet them? We know that in many businesses customers themselves often do not know what to expect. For example, some people may go for a medical procedure in the hospital not knowing what to expect. On the other hand, some doctors help the patient to understand what will take place; others believe that the patient does not have a need to know.

The basic theory of service relativity formula is V = R – E (customer perceived value equals results minus expectations). In other words, the customers' perceived benefits of any experience with a business are relative to their expectations prior to their experiences and the results they actually experience. If the results fall short of the expectations, then the customer-perceived value is negative. The surprising implication of this basic quality equation is that, when results are about equal to expectations, customer-perceived value is zero. Customer preference results from the accumulation of many such episodes or, for some businesses, a critical few episodes. This means the battle for future business has to be fought at every transaction.

There is danger in relying on customer loyalty. The term "customer loyalty" invokes a flawed concept, just as "customer satisfaction" does. Both terms are equally misleading because they can lead to assumptions about customer behavior. Customer loyalty, as most of us like to think of it, usually exists only at the level of one-person businesses, such as hairdressers, insurance agents, travel agents and chiropractors. Loyalty implies a personal bond rather than merely an ongoing convenient relationship. People may do business regularly with a bank, but they will take their business elsewhere if the bank fails to meet minimum standards. The larger the business, the less sense it makes to speak in terms of customer loyalty.

Of the possible avenues to customer preference, customer comfort offers a special appeal. It is, however, more feasible in some types of business than others. However, it is worth exploring ways in which any firm can develop customer ties. The following five-level hierarchy of strategic customer values, each with its own characteristics, is suggested:

1. 1.

   Transactions. The simplest form of customer contact. The customer shows up, such as at a post office or a gas service station, a one-time transaction is completed, and it is over. Transactions have no past and no future; they exist only in the present.

2. 2.

   Products. Tangible items the customer takes custody of, such as a TV, or a computer game. In many cases, a tangible product's appeal accounts for almost all the customer's perception of value received. However, the transaction surrounding the product can and should add value to the greatest extent possible.

3. 3.

   Solutions. Unique sets of ideas, information, designs, products and transactions that meet an individual need. We call these capability (competitive advantage) clusters. The firm must understand the customer's particular problems, needs, preferences and constraints in order to sell a designed package of value that answers a particular set of needs. Examples include cruise packages, orthodontic treatment or the restoration of a home damaged by a tornado.

4. 4.

   Relationships. These are the ongoing interactions, exchange of ideas, empathy, response to changing needs, mutual understanding of deliverable value and joint participation in creating value. Examples include value packages offered by consultants, financial advisors and trading partners.

5. 5.

   Mutual benefits. The business environment in which both customer and provider benefit and value their interdependence. This might be between a farmer and produce wholesaler, an automotive manufacturer and its dealers.

Not all businesses are equally suited to achieving customer closeness and shared success. In general, however, the search for customer preference has to move toward creating the perception of significant value. Companies must do everything possible to differentiate their offerings from those of their competitors, and one place to start is by reviewing the nature of their relationships with their customers.

"There is no security in this life, only opportunity", commented General Douglas MacArthur, at the end of World War II. We have no God-given right to our customers' business. As the level of hyper-competition moves ever higher in this increasingly chaotic business environment, ideas such as customer satisfaction and customer loyalty give way to delivering value, earning customer preference and building customer intimacy. Success at developing these qualities, results in retaining customers.

Customer retention

It costs five times as much to create a new customer as it does to make the same sale to an existing one. With service customers, it can be cheaper to sell to a customer you know – the learning effect – than someone you are learning to know. That always assumes that the customer you now know should be retained. Some customers seem always to be dissatisfied. Keeping and developing relationships with current customers is a key business strategy. Yet problems and complaints are bound to occur over the lifetime of customer relationships. Handling these effectively is vital to maintaining customer satisfaction. Recovery strategies can have a great impact. Customers who complain and have their complaint heard are likely to remain customers. Unfortunately, many do not complain. They just find another supplier.

Despite the benefits offered by effective service recovery strategies, research shows that the majority of customers are dissatisfied with the way companies resolve their complaints. The conclusion is consistent with other findings, indicating that most customers have more negative feelings about an organization after they go through the service recovery process. Furthermore, the vast majority of companies do not take advantage of the learning opportunities afforded by service failures. They are busy in denial.

Just as customers drop vendors, vendors drop customers. The small, proud family business owner is likely to give short shrift to anyone who criticizes the business. But a customer who does complain with good reason, and diplomatically, and has the problem resolved, often continues as a customer. A total of 68 percent of customers leave businesses because of rudeness, indifference, or lack of service. However, the opportunity for a great service is a customer with a problem. How a company handles the problem turns the customer into either a terrorist or an apostle. To err is human. To treat customers badly is inexcusable, particularly as a 5 percent increase in customer retention has the same impact on net profits as a 25 percent increase in market share.

Another view is, do not listen to your customers because companies get into big trouble by listening to their customers too well. For instance, the customer may be pushing you to invest in the production and supply of obsolete technology products.

Service failures: to complain or not?

The greatest barrier to effective service recovery and organization learning is that only 5 percent to 10 percent of dissatisfied customers choose to complain following a service failure. Most silently switch providers or attempt to get even by making negative comments about a problem supplier to others. Why are customers reluctant to complain? Research has identified six key reasons:

1. 1.

   customers believe that the organization will not be responsive;

2. 2.

   they do not wish to confront the person responsible for the failure;

3. 3.

   they are uncertain about their rights and the firm's obligations;

4. 4.

   they are concerned about the high cost in time and effort in complaining;

5. 5.

   they do not want to cause trouble and anticipate negative ramifications; and

6. 6.

   they may be labeled as troublemakers.

It may be counter-intuitive, but the practice of leading firms highlights several approaches to assist customers to communicate their complaints. Have you noticed, though, how adept some people are at handing off complaints? For instance, an underlying factor here is that when people do complain they often receive responses that seem to have been selected from a standard list:

• •

  the computer is down;

• •

  it is not my department;

• •

  what you need to understand is …;

• •

  have you completed the complaint form?;

• •

  they all do that; and

• •

  you must have misread the instructions.

After encountering these, customers may almost be convinced that they are the ones who are at fault, not the supplier. It may be helpful to illustrate how these have influenced customers and suppliers in various situations.

In the health care industry, patients (the word itself is enlightening as is the doctor "practices") often are reluctant to complain because they fear that it may result in lower service quality either immediately or when the need for care arises again. This may be especially critical when medical services are of the extended category.

Customer service as a business strategy

A business strategy of customer service has an indirect and significant effect on business performance through its direct effect on productivity. High customer service (differentiation strategy) may enable higher pricing and growth rate in sales in a service setting to be used as a surrogate measure of customer satisfaction.

Customer satisfaction at the project level may be inconsistent with management satisfaction or, indeed, the ultimate paying customer. A recent business relocation project, where the old site yielded a high sale price and operations at the new site provided economies in production, lower utility costs, fewer product defects, organization flattening, and shorter product customer order response times, resulted in the departure of the chief executive. The customers were the owners – a venture capitalist group. They wanted even quicker profits to position the company for sale.

Gatekeepers

In many business situations, filters decide with whom you will be allowed to communicate – the security guard, the mail clerk, the purchasing officer, the secretary, and more recently "the team". If you are unable to get past the gatekeeper to the person who decides whether you are a good supplier or who decides if you will be given the opportunity to submit a productivity improvement proposal, you may never know how you are viewed, except by the gatekeeper.

Recently, a director of operations invited us to submit a project proposal to his team leader. Our proposal was not accepted. We asked for reasons. The answer was that our consultants did not have the necessary experience, with the exception of one of our junior staff whom they named. We further learned that the contract had been awarded to a nearby solo consultant friend of one of the team members. The point here is that the proposal had been written for a director level and was above the junior engineer level of the team. The "team concept" changes the rules.

Selecting customers: is the customer always right?

By and large, our market-oriented approach that always puts the customer first has been very effective. But recently there have been quantum leaps in how customer service is viewed. Just-in-time manufacturing and delivery concepts have seriously taken hold, accelerating the pace at which suppliers strive to satisfy customer needs. In fact, rapid customer service is now an ethic for companies wanting to be competitive. And, as customers want less to do with inventory, suppliers' trucks become rolling warehouses that bring materials to customer locations on demand.

Is there a limit on how far we go to meet demands that may be unnecessary? Who is to decide that? Racing to fulfil perceived customer needs may be based on artificial criteria. Customers may need to rethink how realistic their demands are. Even though quicker is often cheaper, the demand is sometimes seen as power; this is well known by young children.

If you only do what your customers want, your investments will be totally intertwined with theirs. Disruptive technologies usually emerge as inferior products when compared to the current state. Expanded products and services sometimes have to anticipate or even create the need of the marketplace; whereas, customers can respond only within the limits of their own knowledge and experience.

How do we know if we are providing good customer service? If people buy our products they must like our products/services. Not necessarily. We do not know how they would react if a similar product were available at a better price. Nor do we know if they have already defected to our competitors. With the advent of benchmarking, haste was made to do what best-in-class companies do. Good quality and customer service became the price of admission to the game – qualifiers. Focus has been on quality; do it faster, do it a little better and with incrementally better quality for the customer. However, these companies have been working under the misguided assumption that happy customers are loyal customers. Surveys have shown that customers may say they are satisfied, but that does not mean they are loyal.

Discourtesy and dishonesty

With the newer telephone technology it has become acceptable not to answer telephone calls. If you ask to speak to a nurse at a doctor's office in the morning, you may be told the nurse is with patients and you may be asked to leave a message. If you call back an hour later, you may be told nurses do not return calls until 4.00 pm. At a solicitor's office we are told that Mr X has not returned his calls this week. The customers are "batched and held". Even with e-mail, impatience leads to strongly worded exchanges, and imprecise language results in "flaming", the electronic equivalent of being chewed-out in public. This is all part of a larger trend of rude behavior. No society anywhere in human history grew to greatness by placing a premium on discourtesy. Discourtesy goes hand-in-hand with dishonesty and a climate of deceit.

The increased access to information, increased quantity of information, decrease in quality from the Internet and proliferation of voice-mail fosters an increase in barriers – an excuse to dodge person-to-person interaction. The result is that when a real person is contacted there is likely to be a marked decrease in courtesy.

Those who use the Internet for deceit, tend not to have the know-how to do their own work. This leads to a decrease in skills since the ability to access rather than discover information does not create an ability to evaluate it.

Summary

Companies who have been able to engender and retain customer loyalty have worked hard for it and no doubt will continue to do so.

Integrity in developing and maintaining service to our customers, both internal and revenue-producing, is key. This means providing fast, fair-priced, reliable service in every kind of provider – customer environment, handling complaints and identifying service failures. Yes, we should expect good customer service and, equally important, we must provide it.

William WrennallThe Leawood Group, Leawood, Kansas, USA

Action points

• •

  The battle for future business has to be fought at every transaction.

• •

  In development of customer ties companies can focus on the five-level hierarchy of:

  • •

    – transactions,– products,– solutions,– relationships,– mutual benefits.

• •

  Integrity in terms of good customer service involves fast, fair priced and reliable provision.