C hapter 11 P EOPLE I SSUES: M ANAGING S ERVICE C ONSUMERS

1. Chapter 11PEOPLE ISSUES:MANAGING SERVICE CONSUMERS

2. CUSTOMER MANAGEMENT ISSUES • Managing customer participation • Managing customer waits • Managing uncooperative customers • Introduction to customer relationship management (CRM)

3. MANAGING CUSTOMER PARTICIPATION • Facilitating co-production (transforming customers into partial employees) • develop customer trust • promote the benefits of self-service • stimulate trial • understand customer habits

4. MANAGING CUSTOMER PARTICIPATION • Facilitating co-production (transforming customers into partial employees) • pretest new procedures • understand the determinants of consumer behavior • teach customers how to use service innovations • monitor and evaluate performance

5. MANAGING CUSTOMER WAITS • The Psychology of Waiting Lines • Unoccupied time feels longer than occupied time • Preprocess waits feel longer than in-process waits • Anxiety makes the wait seem longer • Uncertain waits are longer than known finite waits

6. MANAGING CUSTOMER WAITS • The Psychology of Waiting Lines • Unexplained waits are longer than explained waits • Unfair waits are longer than equitable waits • The more valuable the service, the longer the customer will wait • Solo waits are longer than group waits

7. MANAGING UNCOOPERATIVE CUSTOMERS • Customers from Hell (Profile #1) www.customerssuck.com • Egocentric Edgar • appeal to his ego • demonstrate action • don’t talk policy • rephrase: “for you, I can …….(policy)” • don’t let his ego destroy yours

8. MANAGING UNCOOPERATIVE CUSTOMERS • Customers from Hell (Profile #2) • Bad-Mouth Betty • ignore her language • force the issue (hang-up) • use selective agreement (with some statements)

9. MANAGING UNCOOPERATIVE CUSTOMERS • Customers from Hell (Profile #3) • Hysterical Harold • let him vent • take it backstage • take responsibility for solving the problem

10. MANAGING UNCOOPERATIVE CUSTOMERS • Customers from Hell (Profile #4) • Dictatorial Dick • break up his game (fulfill his request) • stick with your game • be consistent with customers • tell him what you can do for him

11. MANAGING UNCOOPERATIVE CUSTOMERS • Customers from Hell (Profile #5) • Freeloading Freda • give it to her • don’t let the 1% dictate action for the 99% who actually have problems

12. CUSTOMER RELATIONSHIP MANAGEMENT • CRM is the process of: • Identifying, • Attracting, • Differentiating, and • Retaining customers • CRM allows the firm to focus its efforts disproportionately on its most lucrative clients

13. CUSTOMER RELATIONSHIP MANAGEMENT • Reasons for CRM • The old rule that 80% of a company’s profits come from 20% of its customers. • Customers have done it to themselves by opting for price, choice, and convenience over high quality service. • Priceline.com, Geico and a host of others • Some believe service doesn’t really matter, it’s a commodity

14. CUSTOMER RELATIONSHIP MANAGEMENT • Reasons for CRM • Labor costs have risen yet competitive pressures have kept prices low. • The end result is that gross margins have been reduced to 5 to 10 percent in many industries. • Markets are increasingly fragmented and promotional costs are on the rise. • Bass Hotels & Resorts reduced mailing costs by 50%, meanwhile response rates have increased by 20%.

15. CUSTOMER RELATIONSHIP MANAGEMENT • CRM OUTCOMES • Coding • Routing • Targeting • Sharing

16. CUSTOMER RELATIONSHIP MANAGEMENT • Coding: • Customers are graded based on how profitable their business is. Service staff are instructed to handle customers differently based on their category code.

17. CODING OUTCOME • A New York customer travels to New Jersey to buy a table from an Ikea store. • After returning home, he discovers that the table is missing necessary brackets and screws. • The store refuses to mail him the missing parts and insists that he must return to the store. • The customer does not own a car. In comparison…

18. CODING OUTCOME • A “platinum” customer of Starwood Hotels & Resorts Worldwide wants to propose to his girlfriend in India. • Starwood arranges entry into the Taj Mahal after hours so that he can propose in private. • Starwood also provided a horse-driven carriage, flowers, a special meal, and upgraded suite and a reception led by the hotel’s general manager.

19. CODING OUTCOME • Sears, Roebuck & Co’s most profitable credit card customers get to choose a preferred two-hour time window for repair appointments. • Regular customers are given a four-hour time window

20. ROUTING • Routing • Call centers route incoming calls based on the customer’s code. Customers in profitable code categories get to speak to live customer service representatives. Less profitable customers are inventoried in automated telephone queues.

21. ROUTING OUTCOME • Call this particular electric utility company and depending on your status, you may have to stay on the line for quite awhile. • The top 350 business clients are served by six people. • The next tier, consisting of the next 700 most profitable customers, are handled by six more people. • The next 30,000 customers are served by two customer service representatives. • The final group, consisting of 300,000 customers, are routed to an automated telephone system.

22. ROUTING OUTCOME • Charles Schwab Corp’s top-rated “Signature” clients, • consisting of customers who maintain $100,000 in assets or trade at least 12 times a year • never wait more than 15 seconds to have their calls personally answered by a customer service representative. • Regular customers can wait up to 10 minutes or more.

23. TARGETING • Targeting • Profitable customers have fees waived and are targeted for special promotions. Less profitable customers may never hear of the special deals.

24. TARGETING OUTCOME • Centura Bank Inc. of Raleigh, N.C ranks its two million customers on a profitability scale from 1 to 5. • The most profitable customers are called several times a year for what the bank calls “friendly chats,” and the CEO calls once a year to wish these same customers a “Happy Holiday!” • The retention rate of the most profitable group has increased by 50%. • In comparison, the most unprofitable group has decreased from 27% to 21%.

25. TARGETING OUTCOME • First Bank in Baltimore, Maryland provides its most profitable customers a Web option that its regular customers never see. • The option allows its preferred customer to click a special icon that connects customers with live service agents for phone conversations.

26. TARGETING OUTCOME • First Union codes its credit card customers with colored squares that flash on customer service representatives’ screens. • “Green squares” means the customer is profitable and should be granted fee waivers and given the “white-glove” treatment.

27. SHARING • Sharing • The sharing of customer information to other parts of the organization, and the selling of information to other companies. Although the customer may be new to the organization, their purchase history and buying potential are well-known to insiders.

28. SHARING OUTCOME • A United Airline’s passenger was shocked when a ticketing agent told him: “Wow, somebody doesn’t like you.” • The passenger was involved in an argument with another United employee several months earlier. • The argument became part of the passenger’s permanent record that follows him wherever he flies with United. • The passenger, who is Premier Executive account holder feels that the airline has been less than accommodating following the incident.

29. SHARING OUTCOME • Continental Airlines has introduced a Customer Information System where every one of Continental’s 43,000 gate, reservation and service employees will have access to the history and value of each customer. • The system suggests specific service recovery remedies and perks such as coupons for delays and automatic upgrades. • The system provides more consistent staff behavior and service delivery.

30. LIMITATIONS OF CRM • Customers do not like hearing that they are not treated equally • in service operations where service discrimination is common, customer satisfaction is taking a “nosedive” and customer complaints are on the rise. • Privacy issues are also a problem • Vice-President of Continental Airlines proudly boasts…”We even know if they [the customers] put their eyeshades on and go to sleep.”

31. LIMITATIONS OF CRM • What someone spends today is not a good predictor of what their behavior will be tomorrow. • Life situations and spending habits do change over time. • Customers can be more than 377% more profitable after they are retained 4-5 years. • Is service discrimination a form of red-lining— • the practice of identifying and avoiding unprofitable types of neighborhoods or types of people.