From Knowledge@W.P. Carey — W.P. Carey School of Business
"Attract more customers, retain the ones you have, and expand existing relationships." That is the magic formula for growth, according to Synovate's Chief Loyalty Architect Dr. Larry Crosby.
"Everybody wants growth," he said, but with limited budgets and fierce global competition, attracting and retaining customers is easier said than done. The real key, according to Crosby, is the third part of the equation — the cultivation and development of existing relationships.
"Relationship management and service provide a great opportunity to customize a company's offer to its customers, and in doing so, to show that it understands their needs," he said.
Crosby was one of the featured speakers at the "Creating Value Through Service" symposium organized in Shanghai by the Center for Services Leadership at the W. P. Carey School and Fudan University's Center of Service Marketing and Management.
From provider to partner
One company that has used this growth formula successfully is Xerox. Founded in 1906, the company started out as a manufacturer of photographic paper and equipment and became a household name after the introduction of its first commercial photocopiers in the early 1960s. When the Federal Trade Commission forced Xerox to license its technology to competitors in the mid-seventies, the company lost much of its market share and turned its attention to computing research, publishing, and finance.
The company struggled until the mid-nineties, when it was revitalized by its introduction of networked laser copiers and a fresh service-led ethos reflected in its new corporate signature -- The Document Company. Realizing that digital technology was resulting in unprecedented numbers of documents, Xerox recast itself as an expert document manager, expanding existing customer relationships beyond machinery and into services. Soon, customers who had called Xerox only when something went wrong were calling to ask for help making sure everything went right.
This transformation from provider into partner is increasingly common.
"Customers are demanding services," says professor Stephen Brown, executive director of the Center for Services Leadership at the W. P. Carey School, and that allows the companies that provide them "to get far closer to their customers than they've ever been before."
Expanding customer relationships allows companies to differentiate themselves successfully from their competitors and tap new revenue streams, but it also has long-term loyalty benefits. Companies that only provide products tend to rely heavily on selling and marketing communications to interact with their customers, but companies that also provide services have the added intimacy of customer experience.
Romancing the Customer
The relationship between provider and customer goes through stages which Crosby likens to a romance. Communication -- what the company says about itself -- is very important in the early stages of the relationship, but eventually a customer's experiences of a company come to define it. "When everything is considered, the customer's experience trumps communication," he said.
According to Crosby, a lasting relationship is the result of the marriage of communication and experience. The closer a company is to its customers, the better it will understand their needs and, if it can address them, the more likely the customers are to remain loyal.
A manufacturer cannot simply start offering its customers services and assume that closeness and loyalty will follow.
"Even today, a lot of companies, in the name of improving service, are offering services that are based on hunches about what the expectations of customers are, rather than a true understanding of those expectations," said University of Miami marketing professor A. Parasuraman during his talk at the Shanghai symposium.
Parasuraman, whose work centers on the systematic measurement of service quality, blames what he calls the "market information gap" between what customers expect and what companies think they expect, for the ultimate failure of many service offerings. As an example, he cites pillow menus in hotels. "Probably no hotel customer has an expectation to be offered a choice of ten different pillows," he said.
Companies need to really listen to their customers and tailor their offerings accordingly if they want to expand their role in their customers' businesses, and Parasuraman takes this idea to its logical extreme.
"The only standards against which the performance of a company should be judged are the customers' expectations -- not internal standards -- and customers' expectations are not going to be uniform," he said.
Discerning Customer Expectations
Discovering those expectations requires companies to rethink how they talk to their clients. One particularly illustrative example Parasuraman suggests is the customer satisfaction survey. Imagine that a customer is asked to rank his satisfaction with various aspects of a company on a scale of one to ten. The customer circles sevens and eights. Company executives might look at that survey and feel that while there is obviously some room for improvement the customer is relatively satisfied.
Not so, says Parasuraman. The survey measures the customer's perceptions, not his expectations. If the customer was expecting the company to deliver nines and tens across the board, then the company failed to meet his expectations; he might actually be fairly unsatisfied.
Even when they're listening closely, companies aren't always able to act on what they hear from their customers. "Sometimes, customers tell us that they want to behave loyally: they want to buy again, they want to buy more, they want to cross-purchase, they want to recommend, they want to cooperate. We need to pave the path to allow them to do that," said Crosby.
Paving that path means getting involved in customers' businesses. Say a customer is having trouble with IT and asks advice from the company that manufacturers its computer hardware. That provider can offer advice, but given its solid IT expertise, it can also offer to actually take over some of the IT functions in the customer's organization. Establishing interconnections of this sort is essential to creating lasting relationships that will foster continued growth and realize their long-term value.
Or as Mark Wheeler, VP of Global Services at Abbott Diagnostics, put it: "It doesn't really matter what we think and I don't care what our employees think, it's what the customer thinks that really matters."
The Bottom Line:
* Expanding existing relationships with customers by taking a more active role in their businesses is the key to continued growth for many companies. Companies such as IBM, Xerox, and UPS have successfully relied on services to push forward their transition from provider to partner.
* Services allow companies to interact with their customers much more frequently and significantly. The quality of those interactions, more than the quality of the product or its price, is ultimately more likely to determine a customer's loyalty.
* Closer customer relationships give companies a front-row seat in their customers' businesses, which allows them to uncover new customer needs and develop services to address them, thereby strengthening the relationship even further.
* If companies start offering services, it's essential that those services address actual customer needs. Companies cannot assume they know what their customers want; they need to find out by asking.