In today’s ultra competitive business environment merely meeting customer expectations is not enough.

In order to effectively differentiate themselves from the competition, service providers need to focus on exceeding customer expectations to create customer delight and create a pool of loyal customers.

Therefore, when deciding on a service delivery design, it is imperative for the service provider to consider the targeted customer base and their needs and expectations. This will help in developing a service design that will help the provider to effectively manage customer expectations leading to customer delight.

Customer Needs and Expectations

Customer needs comprise the basic reason or requirement that prompts a customer to approach a service provider. For instance, a person visits a restaurant primarily for the food it serves. That is the customer’s need.

However, the customer expects polite staff, attentive yet non intrusive service and a pleasant ambience. If these expectations are not properly met the guest would leave the restaurant dissatisfied even if his basic requirement of a meal being served has been met.

Thus knowing and understanding guest expectations is important for any service provider.

Customer Satisfaction, Dissatisfaction and Delight

Based on the quality of the service experience a customer will either be satisfied, dissatisfied or delighted. Knowing a customer’s expectation is instrumental in developing a strategy for meeting and exceeding customer expectations.

1. Customer Dissatisfaction: This is a situation when the service delivery fails to match up to the customer’s expectations. The customer does not perceive any value for money. It’s a moment of misery for the customer.

2. Customer Satisfaction: In this case, the service provider is able to match the customer’s expectations and deliver a satisfactory experience. However, such a customer is not strongly attached to the bran and may easily shift to a competing brand for considerations of price or discounts and freebies.

3. Customer Delight: This is an ideal situation where the service provider is able to exceed the customer’s expectations creating a Moment of Magic for the customer. Such customers bond with the brand, are regular and loyal and will not easily shift to other brands.

Meeting and Exceeding Customer Expectations

Exceeding customer expectations is all about creating that extra value for the customer. The hospitality industry specializes in creating customer delight.

Example, most 5 star hotels maintain customer databases detailing room order choices of their guests. So if a guest has asked for say orange juice to be kept in the mini bar in his room, the next time that he makes a reservation at the hotel, the staff ensures that the juice s already kept in the room. Such small gestures go a long way in making customers feel important and creating customer delight.

Another novel way of exceeding guest expectations is often demonstrated by travel companies. Since, they usually have details on their customers’ birthdays, they often send out an email greeting to their guests to wish them. This not only makes an impact on the guest but also helps to keep the company acquire ‘top of the mind recall’ with the guest.

At first glance, one can see that there are as yet many opportunities available for Services Marketing to evolve and gain in relevance as the role of the service economy continues to expand. A large chunk of Third World economies are now beginning to move into the service domain. The role and share of the service sector in these economies is growing with an increased monetization of services

However, there are several challenges also. There has been a change in the basic nature of services. Services, today, can no longer be described according to the parameters of – intangibility, heterogeneity, inseparability and perishability. These changes are detailed below:

1. Intangibility: While services maybe intangible, the process of delivery and even the customer experience of the service is not necessarily so. Thus while service providers focus on pre purchase behavior they often fail to pay attention to customer experience during the process of service delivery, the nature of output (which may manifest in an observable physical change) or the learning outcomes of the delivery process.

2. Heterogeneity: Heterogeneity of services is also not applicable to the services domain today. Across sectors and industries we see an increased pressure for standardization of services. This is being achieved in some instances through automation such as through ATM’s and vending machines. Even in cases where automation is not possible there is greater focus on standardizing the service delivery process by way of service scripts and strict adherence to service cycles. For example, most fast food outlets and quick service restaurants follow the & steps of the service cycle that starts with greeting the customer (using standard phrases) through to saying good bye.

3. Inseparability: Even this criterion does not hold true for all services rendered. Inseparability implies that the production and consumption of services is simultaneous. Thus, consumers need to be present and/or involved in the production process. In reality however, there are several services that are separable. Example: insurance, repair and maintenance where production happens prior to consumption and the customers need not necessarily be present at the time the service is rendered. The same is witnessed in the phenomenon of outsourcing of services.

4. Perishability: even though this is true for a lot of services, there are several notable exceptions. In today’s information era there are several information based services that can be recorded and saved in electronic media and reproduced on demand. Moreover, for greater clarity in this regard it is necessary to have a distinction between the perishability of productive capacity, of customer experience and of the output.

Thus the definition of services is not as clear cut as it was once assumed to be. Consequently this is one of the major challenges lying ahead for the field of Services Marketing.

Log into any customer service portal and, chances are that you would come across what is known as bot that responds to you and engages you in providing answers and solutions to your questions and problems.

Even when the customer calls the IVR or the Interactive Voice Response System, chances are that he or she would be greeted with an automated voice and help system.

These are instances of how automation is taking over the Customer Service function across industries and verticals and ensuring that the firm providing the same gains from cost reductions due to elimination of the human interfaces.

While this might be beneficial to the businesses in terms of salaries and emoluments saved, but, the effect that it has on their customers, some of whom would like to hear a real human voice at the other end.

Indeed, much like everything else that automation impacts, the moot question is whether it makes customer service better or worse.

Of course, as technology evolved, successive waves of technological change ensured that humans were gradually replaced with automated response systems and bots and hence, some might very well say that this inexorable march is inevitable.

The Benefits of Automating the Customer Service Function

Having said that, there are many benefits of automating the customer service function.

For one, it speeds up the response times as customers no longer need to wait for their turn in everything from the front desk to IVR and Bot enabled portals.

Indeed, with Bots replacing humans, there is a seamless integration of various customer service touch points.

Moreover, automation helps businesses save costs and scale up and synergise.

To explain, Bots can be replicated across an infinite number of customer service touch points and integrate various aspects of customer service that is beneficial to them.

Therefore, businesses can reap the efficiencies from the economies of scale and the synergies from the resultant integration.

In addition, customers who do not speak the language of the service reps can be handled easily by Bots that are Multilingual and can also multitask.

Apart from this, customers need not have to deal with surly service reps and instead, chat and interact directly with automated responses that remove the friction that sometimes erupts in human to human interaction.

Thus, it is the case that automation of the customer service function has tangible and intangible benefits to both businesses and their customers.

The Flipside of Automating the Customer Service Function

On the other hand, interacting with Bots can be a frustrating experience. There is no scope for creativity and out of the box solutions and answers to the queries of the customers as Bots can only function in a linear manner.

To explain, supposing a customer is facing a minor problem that can easily be solved with common sense thinking.

If he or she interacts with Bots, there are chances that the interaction would go in a loop as the linearity of responses does not help the customer.

What this tells us is that technology has still some distance to cover before it replaces humans and given that AI or Artificial Intelligence is still evolving, there are downsides to automating the customer service function.

Moreover, elderly customers would still want the human touch in customer service apart from the High Value clients who need personalised and dedicated relationship management.

Of course, already these are being factored into the equation of automation as some banks now provide a Hybrid version of automated customer service touch points along with dedicated human element and relationship management.

Therefore, while one cannot escape the steady progress of technology, one can still retain some elements of the old along with the new.

Automation Should Not Lead to Stratification of Access based on Customer Wealth

Going forward, it is more than likely that the entire customer service function would be automated across industries.

Moreover, it is also likely that relationship management would be retained only for the High Net-worth Individuals and the rest would have to do with automated and Bot driven customer service.

This has several implications for society and business as we would then be witnessing a stratification of customers and creation of hierarchies based on wealth and privilege.

Already, technology, instead of levelling the gap between classes is widening it.

With even customer service being automated, it is more than possible that this layering of the customers would lead to privileges of access.

Even now, walk into an office for service and, chances are that if you are a high value customer, you would be met by your relationship manager, while those who are not have to wait for their turn.

With automation, we would be alienating those at the bottom further and chances are that when they face intractable problems that technology cannot solve, they would be running from pillar to post for solutions.

Therefore, it might need some responsible business practices before automating the entire customer service function.

Conclusion

Last, this ties into the overall approach that businesses must take when automating their functions and in case of the customer service function, it is better to go with a hybrid strategy rather than an all out and monochrome Bot driven method.

In addition, businesses have a social responsibility as well and it is better for them to remember this when they automate the customer service function and not act from a purely profit minded objective.

To conclude, automation makes customer service better at times and worse at times and hence, we recommend a pick and choose method for businesses.

The difference between services and products in software is that whereas the former involve work done for clients that are not the intellectual property of the vendor, the latter are patented by the vendor and sold in terms of licenses to the users.

Further, the difference between products and services in software is that whereas products usually represent high end work done by the vendors, services are usually middle to low end work that is done by the vendor.

Apart from this, products entail higher value adding activities whereas services are lower value adding activities. Moreover, products need time and money to be invested to take them to fruition whereas services are usually measured in terms of the projects delivered within months or a year at the maximum.

The key aspect about products and services in software is that products represent the culmination of several years of effort by the vendor who focuses on a specific niche to develop the products. On the other hand, services are usually projects that are done at the behest of the client and are billed according to time and material accounting or fixed cost accounting.

The Reason why the US is ahead and Asia lagging behind in Innovation

When we talk about software products and services, it needs to be mentioned that countries like the United States are ahead of the others in terms of innovation as the software and technology companies in the US make products instead of services.

Think Microsoft or Apple and their game changing products. On the other hand, though countries like India are behemoths in the software industry, it is hard to find many companies that have developed products.

Indeed, one of the reasons for outsourcing of services work from the West to the East is that the west can concentrate on higher value adding work like making products and by outsourcing the lower value adding work, they derive cost benefits as well as freeing up of resources that can be deployed for focusing on products.

Further, the reason why the US is way ahead of the rest of the world in terms of innovation is that right from its inception, entrepreneurs were always on the lookout for game changing innovations and thus, when the software and technology industries and companies were being incubated, naturally the entrepreneurs in these sectors started to focus on products as a source of innovation.

Changing Trends in Products in Asia

However, some recent trends seem to suggest that Asian companies have realized the importance of software products as their software industries mature and hence, services become too low end to sustain them.

Further, now that they have significant capital reserves, they can deploy these resources in investing on product development.

Remember that software products take a lot of investment of time and effort and hence, the Asian software industry is now finally realizing that as they have the needed capital as well as funding from venture capitalists from the west that sense an opportunity here, they can focus on building software products.

Indeed, one of the best-known Asian companies that have a solid banking software product is Oracle Financial Services or the company that was previously known as i-Flex.

This Indian company is a trailblazer as far as software products are concerned and because it invested a lot of time and money apart from effort in building the banking software product, it is now reaping the rewards of all that investment in terms of sales and reputation of its flagship product, Flexcube that is the largest selling banking software product in the world.

Concluding Remarks

Now that we have discussed how products and services square up against each other, it would be worthwhile to note that not all companies can afford to build software products because of the reasons mentioned in the previous sections. Therefore, the role of venture capitalists and angel investors is especially crucial in this respect.

When you think of service, the picture that easily comes to your mind could be the McDonalds or Pizza-hut or the next best picture would be that of an airline. Our life has been made easier thanks to the service industry. Customers are pampered with the best quality service making them demand more and more in terms of quality of services.

Services as we all know offers intangibles and can be qualified through the experience delivered to the customer. Service industry in the past few years has gone places. Automation and technology have helped standardize and bring in efficiency in service. Service Organizations not only excel in offering timely and standardized service, they have gone one step ahead in offering personalized service to the customers too. Today every customer is recognized individually by the hotel or the airline he visits. The hotel knows the customer’s preferences and likes and are prepared to give him the best of customized service and engaging him in a relationship.

In a bid to offer the best of customized services and maintain the market share, service organizations have aggressively pursued various strategies internally. From Business process re-engineering, standard operating procedures, outsourcing and quality programs as well as all of the operational efficiency programs have been adopted and pursued aggressively in order to deliver faster and cheaper customer service performance. In the bargain to stay ahead of competition and increase their sales revenues, the companies have pursued marketing strategies more akin to that of product companies. The question that each of the companies have to ask themselves today is whether all of these have helped them become ‘Market Leaders’. Companies may be operationally efficient and give the best service at the best price, but that hardly gives them the competitive edge over the others to lead the pack.

Take the case of Southwest airlines and Bank of America who have looked different from their competitors in their respective segments. Bank of America literally monopolized the American market with their fastest processing and delivery times for credit cards along with the best of customer service. South west airline managed to position themselves differently from the rest of the airlines in terms of value for money and no frills flying. While the rest of the competitors spent thousands of dollars in re-engineering processes and bringing in operational efficiencies to become profitable, this airline simply positioned itself differently.

What makes Southwest airlines as well as the other market leaders such as Wal-Mart, IKEA and Mc-Donald’s is that they look at doing their business differently from the rest of the competition. When service offering is duplicated easily and every competitor is able to offer the same service at cheaper cost, it calls for service companies to think differently in order to retain their market leadership.

As already discussed, services are inherently intangible, are consumed simultaneously at the time of their production, cannot be stored, saved or resold once they have been used and service offerings are unique and cannot be exactly repeated even by the same service provider.

Marketing of services is a relatively new phenomenon in the domain of marketing, having gained in importance as a discipline only towards the end of the 20th century.

Services marketing first came to the fore in the 1980’s when the debate started on whether marketing of services was significantly different from that of products so as to be classified as a separate discipline. Prior to this, services were considered just an aid to the production and marketing of goods and hence were not deemed as having separate relevance of their own.

The 1980’s however saw a shift in this thinking. As the service sector started to grow in importance and emerged as a significant employer and contributor to the GDP, academics and marketing practitioners began to look at the marketing of services in a new light. Empirical research was conducted which brought to light the specific distinguishing characteristics of services.

By the mid 1990’s, Services Marketing was firmly entrenched as a significant sub discipline of marketing with its own empirical research and data and growing significance in the increasingly service sector dominated economies of the new millennium. New areas of study opened up in the field and were the subject of extensive empirical research giving rise to concepts such as – the product-service spectrum, relationship marketing, franchising of services, customer retention etc.

Importance of Marketing of Services

Given the intangibility of services, marketing them becomes a particularly challenging and yet extremely important task.

• A key differentiator: Due to the increasing homogeneity in product offerings, the attendant services provided are emerging as a key differentiator in the mind of the consumers. Eg: In case of two fast food chains serving a similar product (Pizza Hut and Domino’s), more than the product it is the service quality that distinguishes the two brands from each other. Hence, marketers can leverage on the service offering to differentiate themselves from the competition and attract consumers.

• Importance of relationships: Relationships are a key factor when it comes to the marketing of services. Since the product is intangible, a large part of the customers’ buying decision will depend on the degree to which he trusts the seller. Hence, the need to listen to the needs of the customer and fulfill them through the appropriate service offering and build a long lasting relationship which would lead to repeat sales and positive word of mouth.

• Customer Retention: Given today’s highly competitive scenario where multiple providers are vying for a limited pool of customers, retaining customers is even more important than attracting new ones. Since services are usually generated and consumed at the same time, they actually involve the customer in service delivery process by taking into consideration his requirements and feedback. Thus they offer greater scope for customization according to customer requirements thus offering increased satisfaction leading to higher customer retention.

1. Product: In case of services, the ‘product’ is intangible, heterogeneous and perishable. Moreover, its production and consumption are inseparable. Hence, there is scope for customizing the offering as per customer requirements and the actual customer encounter therefore assumes particular significance.

   However, too much customization would compromise the standard delivery of the service and adversely affect its quality. Hence particular care has to be taken in designing the service offering.

2. Pricing: Pricing of services is tougher than pricing of goods. While the latter can be priced easily by taking into account the raw material costs, in case of services attendant costs – such as labor and overhead costs – also need to be factored in.

   Thus a restaurant not only has to charge for the cost of the food served but also has to calculate a price for the ambience provided. The final price for the service is then arrived at by including a mark up for an adequate profit margin.

3. Place: Since service delivery is concurrent with its production and cannot be stored or transported, the location of the service product assumes importance. Service providers have to give special thought to where the service would be provided.

   Thus, a fine dine restaurant is better located in a busy, upscale market as against on the outskirts of a city. Similarly, a holiday resort is better situated in the countryside away from the rush and noise of a city.

4. Promotion: Since a service offering can be easily replicated promotion becomes crucial in differentiating a service offering in the mind of the consumer.

   Thus, service providers offering identical services such as airlines or banks and insurance companies invest heavily in advertising their services. This is crucial in attracting customers in a segment where the services providers have nearly identical offerings.

   We now look at the 3 new elements of the services marketing mix – people, process and physical evidence – which are unique to the marketing of services.

5. People: People are a defining factor in a service delivery process, since a service is inseparable from the person providing it.

   Thus, a restaurant is known as much for its food as for the service provided by its staff. The same is true of banks and department stores. Consequently, customer service training for staff has become a top priority for many organizations today.

6. Process: The process of service delivery is crucial since it ensures that the same standard of service is repeatedly delivered to the customers.

   Therefore, most companies have a service blue print which provides the details of the service delivery process, often going down to even defining the service script and the greeting phrases to be used by the service staff.

7. Physical Evidence: Since services are intangible in nature most service providers strive to incorporate certain tangible elements into their offering to enhance customer experience.

   Thus, there are hair salons that have well designed waiting areas often with magazines and plush sofas for patrons to read and relax while they await their turn. Similarly, restaurants invest heavily in their interior design and decorations to offer a tangible and unique experience to their guests.

Service Encounter/Moment of Truth

A moment of truth is usually defined as an instance wherein the customer and the organization come into contact with one another in a manner that gives the customer an opportunity to either form or change an impression about the firm. Such an interaction could occur through the product of the firm, its service offering or both. Various instances could constitute a moment of truth – such as greeting the customer, handling customer queries or complaints, promoting special offers or giving discounts and the closing of the interaction.

Importance

In today’s increasingly service driven markets and with the proliferation of multiple providers for every type of product or service, moments of truth have become an important fact of customer interaction that marketers need to keep in mind. They are critical as they determine a customer’s perception of, and reaction to, a brand. Moments of truth can make or break an organization’s relationship with its customers.

This is more so in the case of service providers since they are selling intangibles by creating customer expectations. Services are often differentiated in the minds of the customer by promises of what is to come. Managing these expectations constitutes a critical component of creating favorable moments of truth which in turn are critical for business success.

Moments of Magic and Moments of Misery

Moments of Magic: Favorable moments of truth have been termed as ’moments of magic’. These are instances where the customer has been served in a manner that exceeds his expectations. Eg: An airline passenger being upgraded to from an economy to a business class ticket or the 100th (or 1000th) customer of a new department store being given a special discount on his purchase. Such gestures can go a long way in creating a regular and loyal customer base. However, a moment of magic need not necessarily involve such grand gestures. Even the efficient and timely service consistently provided by the coffee shop assistant can create a moment of magic for the customers.

Moment of Misery: These are instances where the customer interaction has a negative outcome. A delayed flight, rude and inattentive shop assistants or poor quality of food served at a restaurant all qualify as moments of misery for the customers. Though lapses in service cannot be totally avoided, how such a lapse is handled can go a long way in converting a moment of misery in to a moment of magic and creating a lasting impact on the customer.

Note: Moments of Magic and Moments of Misery are trademarks owned by Shep Hyken. Used with permission. For more information go to http://www.hyken.com.

There are basically two approaches that any organization can have towards maintaining service standards – a proactive approach or a reactive approach.

Proactive: A proactive approach entails actively reaching out to customers and trying to gather their feedback on service quality and suggested areas of improvement. This can be done by way of

• Surveys and administering questionnaires
• Gap Analysis, and
• Staff training

1. Surveys and questionnaires: Such an approach helps a brand to anticipate customer demands and expectations and align its service offering accordingly. Also, the findings of such surveys can help to identify common issues and demands of customers hence helping a company to customize its service offering.

2. Gap Analysis: Another approach that is adopted for analyzing service quality is that of the gap analysis. The company has an ideal service standard that it would like to offer to its customers. This is contrasted with the current level of service being offered. The gap thus identified serves both as a measure and as a basis for planning a future course of action to improve the service offering.

3. Staff Training: Another crucial aspect of the proactive approach is staff training. Companies nowadays spend generously on training their personnel to adequately handle customer queries and/or complaints. This is particularly true if a company is changing its service offering or going in for a price hike of its existing services. For example, when a fast food chain increases the price of its existing products, the staff has to handle multiple customer queries regarding the hike. Lack of a satisfactory explanation would signify poor service standards and lead to customer dissatisfaction.

Reactive: A reactive approach basically consists of resorting to a predetermined service recovery mechanism once a customer complains about poor service quality. It usually starts with apologizing to the customer and then taking steps to redeem the situation. The fundamental flaw with this approach is that, here the customer has already had a bad experience of the brand’s service.

Measuring Service Quality

Another crucial element to be kept in mind while seeking to maintain service quality is to have in place a metric for ‘measuring’ quality. The particular parameters selected would depend on the type of business, service model and the customer expectations. For example: at a customer service call center of a telecom provider, the metric for measuring service quality could be the average time taken for handling a call or rectifying a complaint. For a fast food outlet, the metrics for measuring service quality of the sales staff could be the number of bills generated as a percentage of total customer footfalls or the increase in sales month on month.

Once a system is put in place for measuring quality, a standard can then be mandated for the service standard the organization is seeking to maintain.

The gamut of services that make up for the significant contribution towards the GDP of the economy are numerous ranging from financial services, health care, hospitality, travel, insurance, information services, retail, utilities, information technology enabled services including social network and media services etc.

One of the prominent features of service industry that we see is the use of technology and standardized processes to drive operations.

Every company makes investments into technology and offer gamut of services to the customers. Every service company tries its best to increase its operational efficiency and protect its bottom line while trying to increase its market share.

Doing business efficiently and offering best service at the cheapest rates is what these companies are aiming to achieve.

In the bargain most service organizations tend to lose out in the longer run and fail to see a real healthy growth in revenues. This happens only because they have failed to perceive the right direction and leadership strategies for service companies.

Most often these companies are found to have adopted the strategies and plans that are appropriate for the ‘Product’ companies.

A service company needs to create that edge by doing things differently from the others, while continuing to strive for operational excellence and efficiency from within.

While competition can easily duplicate the service offering, maintaining leadership calls for a different mindset and thinking in terms of continuous innovation and providing enhanced value of customer experience and service.

Southwest Airlines, McDonald’s, Wal-Mart and credit card companies like Bank of America, Citi Bank credit cards have grown to become leaders in their market segment globally not only because of their service offerings and competitiveness, but by design to become customer centric Organizations that is driven to innovate all the time and outperform themselves all the time.

The major difference is that these organizations are built and think differently than the rest of the companies.

These organizations too are driven by the same philosophy of operational efficiency, excellence and quality etc. But the difference lies not in their procedures but in the people that manage the operations and the management.

Each of these Companies have tried to achieve excellence by choosing to focus few value propositions and create customized service experience that is difficult to be copied or matched by competition.

When Bank of America introduced its credit cards in the market, they chose to build such robust processes and equipped with technology they promised fastest delivery of credit cards to the customers, which no other company could match at that point of time.

The pain of having to apply and wait for the card to reach the customer through mail after due verification and authentication was something that this bank chose to attack and work to address this major pain point.

While the rest of the credit card offerings would have been the same as the others in the market, they managed to score over the others and managed to establish their leadership overnight. This was not all, the company further went on to provide enhanced value to personalized customer service to customers.

Any customer could expect the customer service to be flexible and go out of the way to facilitate the customer’s special requests. The bank being a service industry had got their focus and strategy just right.