Customer service strategy

Customer service strategy is not just for consumer product businesses.
All businesses have customers. Therefore, in a sense all may need a strategy for customer service. However, many do not appreciate how customer service affects overall firm performance.

Where we are in the strategic planning process

After the SWOT analysis, planners look at strategic options. Now it is time to decide strategies for the business.

Your SWOT analysis may show that customer service is a strategic elephant. You may need a strategy to make major improvements in customer service.

Two broad approaches

Cost savings and customer value adding are the two broad approaches taken by most enterprises. To put it crudely, they try to minimize the cost of interacting with customers, or they try to extract higher prices.

Often, cost reduction or pushing price is unbalanced. The focus should be on managing costs to create customer value that would lead to revenues that are more profitable.

Does customer service strategy mean
quality at any price?

Products and services deliver some value to the customer, in terms of their usefulness for the price. This may yield value to the shareholders. This would be returns on their investment derived from profit on the customer offerings.

As shown in the following figure, there are strategies S1 and S4 that can cause both customer satisfaction and shareholder value to increase or decrease simultaneously. In these cases, there would be no conflict between the two groups. However, there are also strategies S2 and S3 that would cause a direct conflict of interest.

Strategy S1 serves both customers and shareholders. This means the revenue growth linked to improving customer satisfaction, more than covers the costs of the investment to deliver the improvements.

Strategies like S2 present a clash of interests. Increased customer satisfaction comes at the cost of a negative impact on value for the shareholders.

An example from the automobile industry of this strategy is General Motors’ introduction of the Saturn car. This ranked so high in customer satisfaction that the company had trouble meeting demand. Shareholders were less well served. The nearly $6 billion investment in the project was too much. The firm would have had to run plants at unrealistically high capacity, and dramatically cut allowances to dealers for many years to begin to earn a modest return.

Can customers have too much of a good thing?

When shareholders subsidize customer service beyond certain levels, you put the firm at risk.

Satisfying customers is vital to the future of a business. Excessive cost to achieve this may disadvantage other ‘stakeholders’, as well as shareholders.

Not all may be lost. A business that overshoots the peak and past the value sweet spot can climb back up the hill. This is S3 in the diagram. This means identifying and reducing those costs that contribute little or nothing to customer satisfaction.

This was the course chosen by Compaq Computer. See Open: How Compaq Ended IBM's PC Domination and Helped Invent Modern Computing. In late 1991 the board forced out the founding chief executive and abandoned its “follow and upgrade IBM” strategy. Through a combination of reengineering and outsourcing, management cut costs by more than 30 percent and introduced more than 70 new models at far lower price points. This change in strategy enabled the company to recapture more than the share it had lost previously and produced a 140 percent return to shareholders during a period when the market return was 25 percent.

Once near the peak, there is a risk of declining to the left, as in S4. Both customer satisfaction and shareholder value are declining. This signals that the company’s customer service strategy needs a major overhaul.

Align customer service strategy
with intended results for investors.

Managers can do this with more solid evidence on the contribution to profitability of individual products and services.

See for example Customer Profitability Management.

A useful preliminary diagnostic look at the effectiveness of your current customer service strategy is the Net Promoter Score (NPS). See The Ultimate Question 2.0 (Revised and Expanded Edition): How Net Promoter Companies Thrive in a Customer-Driven World.

Return from Customer Service Strategy to Business Strategy.

Return from Customer Service Strategy to Simply Strategic Planning Home Page.

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