Customer Service - The New Differentiator

The creation of a new business in any industry is followed by closely analyzing what the competitors are doing and then doing it better – typically by cost-cutting, or building superior products. This is what has now come to be known as the “Red Ocean Strategy”. Market share can be captured only at the expense of another business, as the size of the industry is limited and known.

As the industry matures however, businesses need to move beyond traditional competition strategies, because the industry becomes far too crowded to sustain existing competition. Once existing growth opportunities have been exhausted, new ones must be created by exploring “blue oceans”, or hitherto unknown market spaces. A “Blue Ocean Strategy” involves shifting the focus from competitors to customers. It entails unlocking value by expanding the current boundaries of the industry, achieved through innovation of product (or service) offerings. The strategy inherently assumes that industry size and scope is not known and value can actually be created, rather than simply be distributed as in a “Red Ocean”. This essentially renders the competition irrelevant with respect to capturing the market.

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A classic example from the restaurant industry would be that of Starbucks. For too long successful restaurants were synonymous with low prices and a wide variety of menu items. But this particular company started on the idea of providing the best possible experience to customers, even if this meant charging a premium above the market prices. The brand Starbucks is a promise of exceptional service and experience to the customers. No wonder, customers are willing to await their turn in a long queue and pay double the price at the Starbucks outlet rather than just grabbing a cup of coffee from the café across the street. Over the years the rapid success and growth of Starbucks bears testimony to the successful execution of the “Blue Ocean Strategy”. By entering into the arena of “customer service management”, Starbucks shifted the focus from traditional competitive areas (low prices and broader menu offerings) to the customer, and in the process expanded the restaurant industry to include customers who come to restaurants for enjoyment of the overall experience, rather than simply quenching their thirst.

With the dissemination of free knowledge over the Internet, restaurants can no longer claim the title of market leader by simply cutting down their prices or expanding their menu options, as everyone in the industry would already be doing that. The focus will now to shift on the customers, with customer experience management becoming more prominent in the service and hospitality industry, now more than ever, as customer expectations of what constitutes good service are increasing by the day, thanks to the rapid advent of social media. The rise in loyalty programs over the past few years just goes to show that customers are increasingly expecting their vendors to capture all relevant information about them and offer them personalized service whenever they visit their premises. This trend is only projected to grow over time as customers are becoming more aware than ever of their service experience. Immediate addressal of customer complaints will no longer be sufficient as customers expect a more proactive approach by the businesses, thus rendering the traditional restaurant feedback system meaningless. The mantra for success in the harsh new F&B world will be stronger and more versatile guest feedback management that can resolve customer’s complaints even before they arise!

The following facts indicate these changing trends:

In 2013, 62% of consumers around the globe switched brands due to poor customer service experiences.
Coming to hard numbers, positive customer experiences can also impact business revenue directly – a study by Forrester Research shows that an improvement of 10 percentage points on a customer’s experience score can translate into an increase of over $1 billion in revenues, which is probably why an estimated 84% of companies expect to increase their focus on customer experience measurements and metrics.
Business intelligence firm Walker Info has even suggested that by 2020, customer experience may well overtake price and product to become the key brand differentiator.

Going by these research reports, logic implies that the next “Blue Ocean” in service based industries (restaurant and hospitality) is going to be customer service management. It is a reasonable assumption that all value and growth possible from price cutting and huge ranging product offering has been (or will have been by 2020) captured and further value may be unlocked on the back of superior customer feedback capturing and real-time feedback management.