Customer Service Dimensions
The ultimate or primary objective of any business in to provide excellent service. It follows then that the main purpose of any logistics system also is to satisfy customers. It is an activity that might not be well understood if you are a manager responsible for production scheduling or inventory control which are activities that seem to be some distance from the marketplace.
The objective of supply chain should be to establish a chain of customers that links people at all levels in the organization directly or indirectly to the marketplace.
The marketing and logistics interface
The right product at the right place at the right time has rarely been considered in mainstream marketing to be very important. However, there are sign to show that this is quickly changing.
The power of the brand has steadily declined and customers are willing to experiment with substitutes even technology differences between products has been removed so that it is harder to maintain competitive edge through the product itself.
The source of competitive advantage is found firstly in the ability of the organization to differentiate in the eyes of the customer, from its competition and secondly from operating at lower cost and hence at lower cost and greater profit. In these situations it is customer service that can provide the distinctive difference between the company’s offer and that of its competitors.
In the now famous management book ‘In search of excellence’ it was identified that excellent companies are those that can attract customers and maintain long term relationships with them.
Secondly, it is also recognized that there is a slow but indubitable movement to commodity type markets. By this it is meant that increasingly the power of the brand is diminished as technologies of competing products converge, thus making product differences difficult to perceive at least to the average buyer.
What is customer service?
In practice many companies have varying views of customer service. A major study conducted recently has suggested that customer service could be examined under the following 3 headings:
- Pre-transaction elements
- Transaction elements
- Post-transaction elements
Pre-transaction elements of customer service relate to corporate policies or programs i.e. written statements of service policy, adequacy of organizational structure and system flexibility.
The transaction elements are those customer service variables directly involved in performing the physical distribution function e.g. product and delivery reliability.
The post transaction elements of customer service are generally supporting of the product while in use e.g. product warranty, parts and repair service, procedures for customer complaints and product replacement.
In any particular product market situation, some of these elements may be more important than others and there may be factors other than those listed above which have significance in a specific market.
Customer service and customer retention
It is apparent from issues discussed that organizations that compete only on the products features will find themselves at a severe disadvantage to those companies that augment the basic product with value-added services.
The concept that should be recognized here is that the product in the warehouse is very different from the product in the customers hands since the customer looks at the benefit from the product rather than the product itself.
For example the core product can be said to be quality, product features, technology, durability and augmented product can be delivery and lead time flexibility, delivery reliability and consistency, single point of contact, ease of doing business and after sales support.
Another important concept that should be clearly recognized is the lifetime value of a customer is much greater than the profit generated from just a single deal with that customer. A simple formula follows:
Lifetime value = Average transaction value * Yearly frequency of purchase* customer life expectancy
More on customer service and customer lifetime value can be found here.
Service driven logistics systems
The role of logistics can be seen as the development of systems and the supporting co-ordination processes to ensure that customer service goals are met. The main idea of service driven logistics systems is to meet predefined service goals.
Ideally all logistics service systems are defined along the following lines:
- Identify customers’ service needs
- Define customer service objectives
- Design the logistics system
Identify customers service needs
The approach to service segmentation suggested here follows a three stage process:
- Identify the key components of customer service as seen by customers themselves.
- Establish the relative importance of those service components to customers.
- Identify ‘clusters’ of customers according to similarity of service preferences.
Identifying key components of customer service.
Establishing relative importance of customer service components
Identify customer service segments
Defining customer service objectives
Setting customer service priorities
As the new competitive context of business continues to change, brining with it new complexities and concerns for management generally, it also has to be recognized that the impact of these changes on logistics can be considerable. Of the many issues facing organizations today perhaps the most challenging are in the area if logistics.
Setting service standards
We are entering the era of supply chain competition – the fundamental difference here is that the company cannot act individually but must act as a supply chain entity to ensure competitiveness in the marketplace.’