Serving Customers for Long-Term Success

In a commercial landscape marked by volatility and uncertainty, the old rules of strategic advantage are being re-written in front of us. One of the big shifts, reflected as the first point of many company Beliefs, is that customers determine success — higher quality service can be a competitive edge, so long as service is tuned to longer-term objectives.

That is what three professors at Harvard Business School identified in a study of more than 80,000 retail banking customers in more than 600 geographic markets over a five-year period. Through this detailed analysis of quality of service and customer defection, HBS Profs Frances X. Frei, Ryan W. Buell, and Dennis Campbell explain that there is a “positive relationship between the relative level of service quality sustained by a firm in a given market and the profitability of customers it attracts and retains over time”. In other words, there are long-run effects of service positioning: organizations that focus on delivering and sustaining higher quality service, over time, outperform their peers.

Prof Frei adds a few more important caveats to their research on serving customers and sustaining long-term success in this 16-minute video. She summarizes her four main points in the first three minutes, and these are:
(1) In order to be great, you have to be courageous to choose the trade-off (“the well intentioned desire to be great at everything is precisely what leads to exhausted mediocrity” and is also “what will stop us from dominating the industry.”)
(2) It costs money to deliver service excellence — you need to identify means to assure steady revenue to sustain this service
(3) You need to set up your team members for service success (“design jobs for the team members you have, not the team members you wish you have”)
(4) You need to manage and train your customers along the way

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Among her examples are Commerce Bank, Southwest Airlines, Walmart. In the end, Prof Frei says you have to be really smart about which elements are critical to your customers and your strategy.

 

 

Customer-Focused vs Competition-Focused

If you’ve been fortunate enough to sit in on lectures and training from visionary cloud services companies like Amazon Web Services (AWS), throughout the training, the Amazon/AWS leadership principle of “customer obsession” will be referenced. The principle states that “Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.”  It is the principle’s last sentence – being customer-focused versus competition-focused – that truly distinguishes Amazon within the industry.

When you are competitor-focused, where is your energy directed? It is directed toward beating the competition, not on serving customers. When you are customer-focused, where is your energy directed? It is directed toward making customers say, “wow.” In fact, Amazon’s mission statement is to be “earth’s most customer-centric company.” Customers are never truly satisfied. They always want higher quality products and services delivered faster, cheaper and better. Relentless focus on continually satisfying customers is where energy should be directed. Other thoughts:

  • Always ask customers for feedback. Feedback helps develop and shape strategy to better serve them. Feedback helps companies evolve from thinking about customers to thinking like customers.
  • Being customer-focused is easy to say, but difficult to do. Companies must institutionalize the customer being at the center of everything that they do.
  • Bring an empty chair into meetings to represent the most important person in the room – the customer. The empty chair will ensure that everyone remains conscious about how their decisions impact customers.
  • Make taking care of customers your personal obsession. Treat them the way that you would want to be treated. If you do not take care of customers, someone else will (remember: customers pay the bills).
  • What should business leaders bet on? They should bet on what customers are telling them. They should listen to customers. They should invest where the customer is going, not where the customer has been.

Using The Kano Model To Augment Product Development Strategy

This beautifully simple model, distinguish between basic and differentiating features was developed by Noriaka Kano in the 1970s and 1980s while studying quality control and customer satisfaction. It challenges the conventional belief that improving every aspect of your product or service leads to increased customer satisfaction, asserting that improving certain aspects only serves to maintain basic expectations, whereas improving other aspects can delight customers with less effort.

The Kano model is a simple two-axis grid, comparing product investment with customer satisfaction. The power of the Kano model comes in mapping your different features against this simple grid.

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Basic Features
Basic features that a user expects to be there and work will never score highly on satisfaction, but can take inordinate amounts of effort to build and maintain.

A great analogy is the hot water in a hotel. Modern hotels spend a fortune ensuring that every room has hot water instantly available, night and day. The boiler in the basement is going all night and day and there are recirculating heat pumps on every floor to circulate water throughout the pipes to keep it hot. Now, no customer is going to rave on Twitter or TripAdvisor about how good the hot water in their hotel was, but if it wasn’t there, or it wasn’t hot enough, or took too long to get hot, you bet there would be a complaint, and a loud one.

No matter how much effort you put into this feature you will only ever be able to meet basic expectations. Investment in this area is all about downside protection. This doesn’t make them any less important, but it becomes crucial to understand at what point you’ve met the users’ expectations and to stop there. Any further development is a wasted effort.

One challenge with basic expectations is that a user will never tell you about them. If you sat someone down and asked them to design their perfect hotel they’d probably talk about comfortable beds, a nice TV, maybe the view, etc. They would never think to mention that they’d expect to be able to have a hot shower at 3am. You have to observe and research to find these basic expectations.

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Delightful Features
At the opposite end of the spectrum are features that delight the user. These score very highly on satisfaction and in many cases may not take as much investment. Small incremental improvements here have an outsized impact on customer satisfaction.

Returning to the hotel example, you can see a lot of features that were developed to delight the customer – from the concierge to a complimentary glass of wine on arrival to the Doubletree Hilton chain that has made giving every customer a freshly baked chocolate chip cookie on check-in a central part of their experience. They bake and give out more than 60,000 cookies per day. Checking in can be a delight when you get a freshly baked cookie to go with the paperwork.

The beauty is that these features can deliver so much more user satisfaction per unit of investment than basic features. That cookie probably costs pennies compared to the hundreds of thousands of dollars spent to build and maintain the hot water system in the hotel.

Migration From Delight To Expectation
One of the most challenging aspects of the Kano model is that it predicts that all features will migrate from delightful to basic expectations. Once a user has come to expect that delightful feature – whether because you’ve had it for a while or because all their other products have it – the feature has become something they expect. The absence of that feature would now be a frustration, and you need to discover new delightful features.

By giving everyone a cookie every time they check in, and making it part of their brand promise and advertising, the cookies stop being special. Pretty soon their guests just expect the cookie and cease to be surprised or delighted by it. Again, they’d probably be pretty cross if they didn’t get it though.

Lessons For Product Managers

  1. Define your users’ needs in light of the Kano model. What are the basic expectations that they simply expect to be there and where would the absence of these features lead to frustration?
  2. Map your products and features against the Kano model. Which features are meeting basic expectations? Only invest in developing or maintaining those to the extent that you need to satisfy the customer. Which features are your delighters? Focus your efforts here and make sure you’re constantly developing new ones.
  3. Monitor your customer satisfaction and competition to ensure that features you think delight users haven’t slid into basic expectations and no longer help your customer satisfaction.
  4. Find and focus on sustainable delighters that truly differentiate your product and continue to deliver customer satisfaction over time.

Keep in mind, Kano analysis without an overarching product strategy can lead to a fractured, incoherent product. A product should stand for a single idea that differentiates it from other products in the competitive landscape of the mind of the prospect. It’s important to evaluate features not just in terms of their potential to satisfy or delight, but in terms of supporting and strengthening a larger value proposition.