What if you are confident you are underserving your market -- you have anecdotal reports that paying customers are unhappy or subscribers are turning off your service or going dormant -- but you don't know how to fix it?
What's the right service level? What's the right threshold? How can you establish it? Does it become an internal metric, a KPI, intended to drive improvements and modify employee behavior? Or must it be implemented in your product or service design, specification or operational capability? Can any change be easily rolled back? Or is a change that, were it not to work, were it not to satisfy customers, it will simply have increased your costs? It turns out that we can learn a thing or two from Ferrari.
Circa 2009, there were very long wait times for delivery of new cars -- typically around 27 months. Consequently, some customers were canceling orders, and the cancellation rate had risen to concerning level that prompted action from the company's senior executives.
It had always been important for Ferrari not to overserve the market, but a 27-month wait time was clearly too long. The way they approached improving service delivery by increasing production to reduce the delivery wait time was iterative and incremental. With month-by-month increased production volume, the delivery waiting times fell. They monitored the cancellation rate and how long a customer had waited prior to cancellation.
When the cancellation rate fell to an acceptable level, they then paced production to the new order rate to stabilize the delivery waiting time, or customer lead time, to 21 months. Ferrari knew there was alignment between the improvement driver -- the cancellation rate -- and the lead time as the fitness criterion because they’ve collected and analyzed reasons for cancellations. If they weren’t confident of this alignment, they’d need to monitor customer satisfaction and use it as part of their feedback loop.
There are lessons to be learned from how Ferrari improved service that you can bring back to your team, depending on your product or service. In this blog post, we'll outline some best practices to improving your ability to offer customer service to customers who've made it clear they expect more.
How to Improve Customer Service to an Underserved Market
1. Start incrementally.
You should improve service levels incrementally. Establish an improvement driver metric -- something you can measure, ideally quantitatively, on a regular basis. Put in place the instrumentation to get feedback on whether your changes are affecting your improvement driver. Assuming you have confidence that an improvement driver is aligned to a customer fitness criterion, you can use that to establish whether your product specification, service design, or service delivery is at an acceptable level. If you aren’t confident of alignment -- a direct causal relationship between your improvement driver and your fitness criteria -- you will need to continue sampling customer sentiment to know whether you’ve improved service sufficiently.
2. Measure results.
You may also want to put in place instrumentation to assess the return on investment of improvements. Can you quantify the value of improved customer satisfaction? That’s a tough one to put a monetary value on. You may, for example, be able to correlate an investment to improve fitness-for-purpose with an improved Net Promoter Score®, and hence, you are more likely to win referral business. Quantitative analysts or operational research analysts should be able to provide a risk-adjusted value to the likelihood of a referral. At the same time, quantifying the costs of improvements should be relatively straightforward. This will enable you to make informed decisions about improvement opportunities. Would you prefer to refresh the training to teach your flight attendants to smile more, and authorize them to serve free drinks, or would you rather reconfigure your aircraft to add a premium economy cabin with two extra inches of legroom for each row of seats? Of course, the costs here aren’t always equivalents -- the former is a variable cost, an operational expense, while the latter is a fixed cost, a capital expenditure.
However, if you believed the impact of either change was similar, you might prefer to spend the money on training and alcoholic beverages rather than refitting the interiors of a hundred aircraft. Once you’ve achieved fitness-for-purpose, stop there -- at least for the time being. There is no need to overserve a market. Your focus can switch to improving margins without loss of customer satisfaction. Inevitably, competitors or market innovation will change customer expectations and the cycle will repeat; you will once again need to focus on improvements. The tighter you can make your feedback loops, the greater agility you can exhibit as a business, the faster you can sense and respond. This will minimize the negative periods of poor customer satisfaction and maximize the good times when customers love you, your brand, your products, and your services.
3. Do the work.
If you're not sure of where or how to get started on these broader objectives, here are some initiatives to consider:
- Use customer narratives to identify your customer segments by purpose.
- Position your business with respect to different customer segments:
- Some segments are central to your business. Encourage and grow them.
- Some are important, but you may not be able to advertise or sell directly to them.
- Some are worth a neutral stance.
- Some are not your target segments.C\- Some segments are central to your business. Encourage and grow them.
- Some are important but you may not be able to acknowledge their existence or advertise or sell directly to them.
- Some are worth a neutral stance.
- Some are not your target segments. Consider switching them off when they become problematic.
- Bring your front-line staff into strategy discussions.
- Identify fitness criteria and thresholds separately for each segment.
- Reducing service levels and hoping customers won’t notice is dangerous unless you’ve got a very strong brand.
- If you’re overserving your market, validate this first and then reduce the service levels.
If you’re underserving your market, increasing the service level is a more difficult problem. It will take:
- A combination of KPI, health, and improvement indicators
- An iterative and incremental approach
- Determining the right threshold
- Deciding where to focus: design, implementation, or service delivery
- Considering the costs and the ease of rollback
4. Segment Your Market Using Customer Purpose
This is the big new idea in market segmentation -- segment your customers based on their purpose -- the “why” they select you. When you understand your customers’ purpose, you can tune your product and service offering to best serve that purpose. For each product or service, you should be able to explain how its design elements serve the customer’s purpose. You should be capable of providing an implementation of the product or service at the required quality levels based on your understanding of the customer’s fitness criteria thresholds for each purpose. If your current capability isn’t well matched to your customer’s expectations, you are likely to fail in that segment.
Without a capability to identify your customers’ purpose you may be flying blind! If yours are unfit-for-purpose, your customers will select your competitors’ products and services. Unable to sense why they’ve done this, your strategy will flail around, randomly seeking the new formula to win back business. You’ll waste vast sums of money guessing and speculating while your competitors use data to stay focused on superior customer satisfaction. The fittest will survive. Survival is not essential, it’s a choice.
Segmentation based on customer purpose -- based on “why” -- should be your new go-to-market strategy, and correctly identifying your customer’s fitness criteria is core to your success. An ability to correctly identify fitness criteria and respond to them with appropriate designs, implementation, and service delivery is what will make your business robust in the coming years.
Net Promoter, Net Promoter System, Net Promoter Score, NPS and the NPS-related emoticons are registered trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc.