I am teaching service operations this quarter and for the first class I have the students read Frances Frei’s “The Four Things a Service Business Must Get Right” (HBR, Apr 2008). I have in the past said how much I like this article. Now, Frances and her collaborator Anne Morriss have developed the framework presented in that article into a full-fledged book, Uncommon Service: How to Win by Putting Customers at the Core of Your Business. It just came out. The two sentence synopsis of the book is as follows: Successful service firms first must decide at what they are going to be excel while recognizing that there will consequently be some competitive dimension on which they must seriously compromise. The resulting service offering must then be supported by an appropriate funding mechanism paired with well-designed employee and customer management systems.
Part of what I like about this framework is the way it turns up the brightness on two features that are particular to managing services. First, just how you get money from customers matters. When you buy a physical good, there is a clear point of exchange. I give you the cash and you give me the item. Services are not so clean. You may share some expertise with me, and I may or may not have to pay you for that. Indeed, not buying something that would compensate you for your time might be the advice you give me (as in an honest mechanic recommending replacing the whole car and not just the transmission). The second feature is worrying about how customers can muck up a perfectly good service process design. Again, this is something that firms making products don’t have to worry about. Sure, they may allow factory tours, but they make sure the civilians stand behind the yellow line and don’t touch anything.
So as if to coordinate with the release of Frei and Morriss’ book, the Wall Street Journal had two articles this week that hit on these points. One is on bandwidth-hogging smartphone users (Confessions of an iPhone Data Hog, Jan 27). The other is on “showrooming” consumers who look in person but buy on-line (Showdown Over ‘Showrooming‘, Jan 23).
Here is the data-hogging reporter discussing how she ended up on AT&T’s list of top 5% of data users.
Vodpod videos no longer available.
The key point here is when her colleague describes her as one of AT&T’s best customers. That just isn’t so. Using a service a lot is not the same as paying a lot. The reporter is one of those who has one of the no-longer-offered unlimited data plans.
Oddly, this isn’t great news for AT&T, which over the years signed up millions of users with the promise of unlimited data access.
When data use was relatively low, this made business sense for the carrier. Now, voracious data use is making those unlimited plans less profitable—and harmful to AT&T’s wireless network.
AT&T gets a fixed sum from her and she gets to use (or in their eyes, abuse) the network all she wants. AT&T’s answer to this is frankly a little coercive: They are threatening to slow down her data if she doesn’t change her ways or move to a more expensive plan that has capped usage. (Read the fine print in the picture above.)
Now strong-arming consumers may not seem like the most customer friendly approach but if you accept that AT&T has tight capacity and limited ability to expand, they may not have many other alternatives. Unilaterally ripping up their unlimited usage contracts is probably the fast track to litigation. That said, being part of the top 5% of users requires some particular habits — you’re using your phone all the time. Of course, that would include times in which AT&T has plenty of capacity. Stated another way, AT&T has an interested in reneging on what is now an overly generous deal and moving customers to plans that cost more. However, I am not convinced that there is an economic efficiency argument story here. Being an overall heavy user is not necessarily the same as hogging spectrum when the system is congested.
Now for showrooming!
In one of the starkest signs yet that chain stores fear a new twist in shopping, Target is asking suppliers for help in thwarting “showrooming”—that is, when shoppers come into a store to see a product in person, only to buy it from a rival online, frequently at a lower price.
Last week, in an urgent letter to vendors, the Minneapolis-based chain suggested that suppliers create special products that would set it apart from competitors and shield it from the price comparisons that have become so easy for shoppers to perform on their computers and smartphones. Where special products aren’t possible, Target asked the suppliers to help it match rivals’ prices. It also said it might create a subscription service that would give shoppers a discount on regularly purchased merchandise.
“What we aren’t willing to do is let online-only retailers use our brick-and-mortar stores as a showroom for their products and undercut our prices without making investments, as we do, to proudly display your brands,” according to the letter, which was signed by Target Chief Executive Gregg Steinhafel and Kathee Tesija, Target’s executive vice president of merchandising.
Here is the reporter giving a few more details.
Vodpod videos no longer available.
So here is a direct clash between managing customers and making sure the firm gets paid. I am not at all convinced that Target’s approach is going to work. For one, they already have a fair amount of house goods, apparel, and such that are designed specifically for them. If that doesn’t woo customers now, why will more make a difference? (For what it’s worth, J. C. Penney is supposed to be cutting its private label offerings.)
The alternative is that they are aiming for special versions of branded electronics that would offer better margins. This too seems unlikely to make much of a difference. Suppose Vizio gives them a TV that is theirs and theirs alone. How long will it take for blog postings to explain just how the Target TV stacks up against what is available elsewhere? Internet-savvy customers then will only buy the Target version if it is really a steep discount relative to the market.
A loyalty/discount program (as discussed in the article) may make more sense so there is a reason to consolidate purchases at one store. More aggressively one could imagine something more like a membership model. At Costco one has to show a membership card to walk in the door. Target cannot do that for general merchandise but, say, electronics brands could choose to deal with showrooms that charge admission but provide real service to customers. The admission fee would fund the salespeople so that the cost of the goods could compete with on-line prices.