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.
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.
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.
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.
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.
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.
Managers can do this with more solid evidence on the contribution to profitability of individual products and services.
See for example Customer Profitability Management.
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