provide customer service?
an enormous emphasis in business literature on the
provision of service as being key to the success of a
business. They suggest that success is a "product of
being market (i.e. customer) driven rather than marketing
driven" (Webster 1994).
The Profit Impact of Market Strategy database (PIMS)
shows that companies in the top third of perceived
quality have prices 5-6% higher relative to competition
than the bottom third:- Customers are willing to pay for
quality. The PIMS database also shows that companies that
are considered by their customer to offer superior
service also have a substantially higher return on
investment (30% against 15%):- It's clear that
service leads to improved profitability.
There are a number of reasons for this:
- Improved service quality leads to greater
efficiency. Audits by Technical
Assistance Research Programs Inc (TARP) suggest
that poor service and ineffective customer
communication cause up to one third the total
workload (Zeithaml 1990):- Improved service
- Service quality results in lower costs of
sales: Research shows that 97% of
customers who have had a bad experience
dont complain, but that 91% of those that
dont complain dont come back (Peters
1981) poor service results in high
customer turnover. Gaining a customer costs five
times as keeping an existing one (TARP). Thus
higher service levels lead to reduced turnover
and reduced costs.
- Lower advertising costs.
Customers will tell their friends about good
- Service quality will differentiate a
business from its competitors. "Competitors
commonly offer the same services and different
service" (Zeithaml 1990). Because
service offerings are easy to copy it is
important to seek methods of differentiation.
Service quality provides a significant barrier to
entry for potential competitors.
- Dealing with complaints effectively can
actually enhance loyalty Research by
TARP shows that "A well handled problem
usually breeds more loyalty than you had before
the negative incident." Quoted by Tom
While good Customer Service is not necessarily
"getting it right first time" a badly
handled problem can lead to less loyalty than if
it were not handled at all. (Nicolson Kemp and
Perception of quality
leads to customer loyalty and results in a sustainable
This drive towards generating loyalty through customer
service can be contrasted with the traditional sales
focused approach which concentrates resources on turning
prospects into customers. Figure 3.1 shows the conceptual
gap that companies need to overcome between the easily
understood drive for customer volumes against the
possibly less intuitive, but stronger, benefits for
The customer loyalty 'chain'
(Leppard and Molyneux 1994)