THE FOG ISLIFTING The changing face

of customer service

1 An OC&C Insight The Fog is Lifting – The changing face of customer service

Customer Service deserves more attention:it is a major area of investment forconsumer-facing businesses, and deployedright can deliver substantial returns interms of immediate sales, customer loyaltyand colleague engagement. Theemergence of low-cost business models(notably in retail and travel) and thetechnology-driven explosion in the numberof service channels (online, mobile, etc.)have shaken up customer service and ledboth consumers and companies toquestion established norms.

The future of customer service is becomingclearer, and it poses important questionsfor any consumer-facing company. Fourmegatrends underpin the next ten years ofcustomer service, but how you shouldrespond to them varies profoundlyaccording to your business:

1. Polarisation2. Personalisation3. Whenever/wherever4. Smart investing in Service

STUCK IN THE PASTFor decades, customer service has been poorly understood – anafterthought to the proposition, a cost to be managed, or worse aseries of independent and uncosted decisions which add up to anunplanned customer service experience

Spend and returns on

service not well understood

Differentiationfocused on

product / price, not customer

service

Consumerscan’t articulate

impact of service

An OC&C Insight The Fog is Lifting – The changing face of customer service 2

MEGATREND #1:POLARISATION

Polarisation has resulted from the interplaybetween changing consumer attitudes toservice and supply-side developmentswhich have occurred in parallel.

On the demand side, consumers havebecome more sophisticated about choosingwhat service they want. Crucially, this is nolonger driven solely by affordability:individual consumers will mix and match,making different decisions about servicelevels in different situations. The factorwhich drives this decision about servicelevels is the consumer’s level of intellectualand emotional engagement with thepurchase. Where the consumer is engaged,the service experience is a core part of thepurchase; for more functional andeveryday purchases (toilet roll, utilities) theconsumer has limited desire to engage,and wants an efficient “vending machine”.

On the supply side, consumers ten yearsago had little choice about the standard ofcustomer service they received. Providersin a given industry aspired to similarservice standards, and any differences inservice level were closely in line with theproduct’s price. Customer service wasconsidered a cost of doing business asopposed to an opportunity to differentiate.

Now, however, consumers are beingoffered considerable options in servicelevels when buying exactly the sameproduct: from no frills service (and lowprice) to a full service proposition alignedto what consumers value.

l In personal banking, direct-only bankshave pioneered no-frills service, whilehigh-service models are emerging eg,Metrobank or the recent customerservice repositioning by NatWest

l In utilities, many suppliers now offerexplicitly low-cost tariffs where accountservicing is available only via the onlinechannel

l In grocery and in airlines, where thecore product (baked beans, say, orgetting to Paris) is often substitutablebetween providers, ultra-low-costservice models have been engineeredto support price differentiation (eg,Ryanair, Lidl)

Interestingly, both ends of this spectrumcan be considered as “good customerservice” by consumers, but the underlyingapproach to deliver this variesconsiderably.

Impact of Service Polarisation on Different Industries

CONSUMERS HAVEBECOME MORESOPHISTICATEDABOUT CHOOSINGWHAT SORT OF SERVICETHEY WANT, AND WHEN

Cut costs now, before you

become uncompetitive Less immediate need to

optimise costs, but will bemedium-term advantage

Differentiateon Service

Commodity Product

(eg electricity /cornflakes)

UniqueProduct

(eg pay TV)

A ‘Service’(eg dry cleaning,

haidressing)

What is Being Purchased

High

Low

Level ofConsumer

Engagementwith Purchase

3 An OC&C Insight The Fog is Lifting – The changing face of customer service

MEGATREND #2:PERSONALISATION In many ways, personalisation is a regressive

trend: a partial return to the personal-touch,bespoke service relationship of the past. The“mass production” of service over recentyears has driven significant cost reductionbut made service impersonal. Today,technological innovation means that manyelements of bespoke service can now be re-introduced cost-effectively, especially inonline businesses.

Equally, enlightened businesses with people-based service interactions are realising thevirtue of empowerment: back-tracking onthe strictest process adherence andconsistency policies (eg, mystery shopping),and allowing their staff to demonstratepersonal touch and take the initiative more –with positive impact on both customerservice and staff engagement.

The customisation element ofPersonalisation is evolving rapidly, withcustomer expectations now set by online-only businesses which are structurallyadvantaged in being able to offer a bespokeexperience (by tracking customer activity,and being able to deliver a bespokeexperience at low cost). A number of factorsare now driving customisation across otherchannels:

l More sources of information to enablepersonalisation eg, loyalty schemes,social media and other data collectiontools

l Evolution of identification technology,from the increasingly universal use ofcaller ID in contact centres, through tomore innovative solutions such assmartphones (eg, Shopkick’s partnershipwith Best Buy), through to number plate,voice and face recognition

l Increasing understanding of customerbehaviour drivers/life-time value eg, theuse of specific scripting and linguisticanalysis to reduce credit risk in the debtcollection industry

l The implementation of ERP/CRM systemscentred around a single customer view,even in traditionally weak customerservice industries (eg, utilities)

A personalised service experience isunderpinned by technology, organisationdesign and well-designed processes.Implementing it successfully does notnecessarily drive a cost saving. However,knowing more about your customers andbeing able to treat them differently enablesyou to be smarter about who you spendmoney serving, and who you don’t. This isalready being implemented in a rudimentaryway in a number of industries eg,

l A major utility whose entireorganisational structure is aligned todifferent customer lifetime valuesegments

l O2’s call centre dedicated to its (highvalue) iPhone customers

l Most High Street banks offeringdedicated customer service routes forpremium banking customers

l In airports, fast-track through passportcontrol and access to lounges

In future, much smarter, more granularpersonalisation will become the norm, oftenaccompanied by a more human interactionbetween customers and front line staff.Today’s service winners need to invest now tomaintain their lead.

THE MOST SUCCESSFUL CUSTOMER SERVICECOMPANIES ARE AGGRESSIVELY PURSUING WAYSTO TAILOR SERVICE LEVELS TO EACH CONSUMERAND MAKE SERVICE FEEL MORE PERSONAL

MEGATREND #3:WHENEVER /WHEREVERThe last decade has seen a proliferation ofservice channels. Phone and face-to-face arestill key channels, but SMS, email, Facebook,Twitter, webchat and the rest are jostling forattention. No doubt more will emerge overthe next 10 years too.

The challenge posed by these new channels isnot participating in them: it is managingcustomer service across them in a profit-optimising way. This is difficult for four reasons:

l Consumers don’t segment neatly bychannel. They interact across all ofthem, and for a given interaction willtrade off the benefits of each of thechannels in terms of convenience, time,reliability, confidentiality, etc in decidinghow to interact

l Consumers expect a joined-upexperience. Fulfilling the channel withstandalone systems does not meetconsumer expectations

l The characteristics of the channels arecomplex, changing and poorly quantified

l Multi-channel access availability oftenprompts more, not less, interaction – andcan make costs harder to managedespite growth in ‘low-cost’ channels

The businesses that do this well today tend tohave started from scratch (Ocado and FirstDirect are good examples), though there aresome older businesses who have proved itcan be done (eg, British Airways, encouragedby a tough competitive environment).

However, other major consumer brandsconspicuously struggle to provide a seamlessexperience, or are doing so with “stickingplaster” solutions. In five years time,customers will expect much more.

CONSUMERS ARE ALLCHANNEL-HOPPERSNOW, AND EXPECT ASEAMLESS MULTI-CHANNEL EXPERIENCE

An OC&C Insight The Fog is Lifting – The changing face of customer service 4

5 An OC&C Insight The Fog is Lifting – The changing face of customer service

MEGATREND #4:SMART INVESTINGIN SERVICEThe impact of the three previous mega-trends (Polarisation, Personalisation andWhenever/Wherever) mean you have to thinkmuch harder about where to put yourcustomer service £s.

Gone are the days when customer servicewas simply a cost area to be cut as hard aspossible (no-one is blithely offshoringeverything nowadays or focusing theircontact centres purely on Average HandlingTime). Beating the competition now meansgrappling with the complicated arithmetic of

Lifetime Value and a detailed understandingof the costs and benefits of customerinteractions across journey stages, channels,customer segments and missions.

It’s not necessarily easy, but it is worth it, asOC&C’s experience with our clients testifies:

OC&C advised a client to reverse the decision to push traffic online– every £1 of additional contact centre cost was delivering £4incremental profit from cross sales

CROSS-SALES IN THELEISURE INDUSTRY

In a cost constrained environment, OC&C advised a major groceron what initiatives to pursue to improve their customer servicerating. Many of these initiatives were low cost, delivering bigreturn on investment (eg, changing the Service KPIs), others savedmoney while enhancing customer service (eg, an evolution of self-serve checkouts) and some were directly revenue-generating aswell as benefiting service ratings (eg, better promotion of multi-channel purchase options)

CUSTOMER SERVICESTRATEGY FOR AMAJOR GROCERY

Our client’s customer base had several segments with a highpropensity to use self-serve channels (online, SMS and mobile),representing >30% of customers, and had made aggressive plansto reduce its contact centres in anticipation of a switch to self-serve. Thinking about what the customer cared about in differenttypes of interaction showed that even customers with a highonline propensity would continue to use (and value) call centrechannels for most interactions

PLANNING THESWITCH TO SELF-SERVEIN A UTILITY

Impact of Customer Service Rating on EBIT Growth (UK Retailers), 2008-10

0.2 ppts

-0.4 ppts

-1.4 ppts

Laggards(Customer Service

Bottom Third)

Champions(Customer Service

Top Third)

Smart investing in customerservice isn’t just a catchphrase:it has a proven link to financialperformance. During therecession, customer servicechampions sustained theirEBIT margins, while thelaggards suffered significantmargin compression

Source: OC&C’s Annual Retail Proposition Index

An OC&C Insight The Fog is Lifting – The changing face of customer service 6

SO WHAT?The megatrends identified pose some tough questions for any company inthe customer services business, including retailers, leisure companies,banks, utilities and indeed any other company where consumers need orwant some level of service.

Each megatrend poses some pertinent questions, which OC&C haveworked with clients to address:

3. WHENEVER / WHEREVERl Do you understand which channels consumers want to use for

each interaction? Are you making this choice easy for them?

l When do you need to deliver on the multi-channel promise in yourindustry? What is the cost / benefit of a totally joined-upexperience for consumers?

1. POLARISATIONl What type of service do your customers actually value, and how

does this vary by segment and mission?

l Do they want to engage with you, or is it a functional purchase?

l Is your business philosophy (and cost base) aligned with this?

4. SMART INVESTING IN SERVICEl Do you understand where you spend your customer service £s?

l Is this spend optimised versus consumer segments and evolvingbehaviours?

l Where should you cut, and where should you invest more?

It’s an exciting time to be involved in customer service, with opportunities to gain competitiveadvantage. We would love to hear about the challenges your company is facing, and share viewson the future. Please get in touch on CustomerService@occstrategy.com

2. PERSONALISATIONl Are you keeping up with consumer expectation in terms of level of

customisation, and empowering your staff to deliver great service?

l Do your 3-5 year plans include further strides towardspersonalisation (eg, culture, org re-design, new customerinformation sources, major CRM enhancements)?

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