On January 15, the online retailer Zappos woke to chilling news. Its computer network had been hacked and account information for 24 million customers exposed. Normally that’s a recipe for fleeing customers and a plummeting stock price. But two days later, shares of parent company Amazon were up 2 percent. And while some shoppers made for the virtual exits, there was no indication they were leaving en masse. In part that’s because Zappos acted quickly to inform customers and advise them how to protect their accounts. But more significant, it’s a reflection of the company’s almost unequaled customer loyalty, built on years of top-notch customer service.

Customer service is everything you do before, during and after a sales transaction to give customers a good experience. “Our research has shown that service quality is a key contributor to customer loyalty,” says A. “Parsu” Parasuraman, holder of the James W. McLamore Chair in Marketing and professor of marketing at the School. Recent economic trends have made service more crucial than ever.

An increasingly global marketplace means companies have to compete across markets. New technology has raised customer expectations for service speed and quality. And a continued soft economy is driving unprecedented demand for value. Yet when budgets need to be trimmed, service is often the first item on the chopping block. That’s a mistake, insists Parasuraman, an internationally recognized customer service expert. In fact, he says, rising expectations and greater competition mean that organizations need to continuously improve customer service. To do that, they should take four key steps: focus on service fundamentals, understand customer expectations, build a service culture and measure progress.

BACK TO BASICS

Markets change, technologies come and go, but service fundamentals remain, and companies should first focus on those. Parasuraman tells the story of a visit to Madrid, where his hotel offered nine different choices of pillow in its “pillow menu.” The hotel clearly was hoping to delight him. But in the meantime it neglected to place his wake-up call or deliver a document he was waiting for. It tried to do something special but failed at the basics.

Parasuraman has developed a customer service approach called SERVQUAL, based on decades of research. The most successful companies, he says, tend to be those that focus on SERVQUAL’s five key components:

1. Reliability. First and foremost, customer service is about keeping promises. “If companies would simply do what they say they’re going to do, it would go a long way toward ensuring customer satisfaction,” Parasuraman says.
2. Responsiveness. Customer service is also about showing a willingness to be helpful. Customers should always feel like their questions and input are welcome.
3. Empathy. Striving to always view interactions from the customer’s perspective is a good way to uncover hidden problems and improve customer relationships.
4. Assurance. Assurance involves employees’ knowledge, skills and credibility, and their ability to inspire trust.
5. Tangibles. Physical aspects such as stores, equipment and uniforms are part of service. Although this is the least important of the five attributes, it’s the one companies are most apt to emphasize. 

Companies need to maintain their focus on those components over time — not always an easy proposition. “Some companies, like Starbucks, are founded on providing an excellent customer experience,” observes Ram Krishnan, research professor of marketing at the School. “But as they grow, they often find it difficult to maintain that.” In Starbucks’ case, a sales drop brought early leader Howard Schultz back to the company in 2008 to refocus it on fundamentals. Sales have surged as a result.

Ultimately, service fundamentals are about an organization’s core values, says Marlene Santos (BBA ’81, MBA ’84), vice president of customer service at Florida Power & Light. All FPL customers really want is reliable, affordable electric service. But that doesn’t mean the utility’s 4.5 million customers aren’t demanding. “We have three key values: commitment to excellence, doing the right thing and treating people with respect,” Santos says. “When they think of customer service, people normally think about the employees who answer the phone when there’s a problem. But for us customer service is much broader. It’s about delivering the services that are most important to our customers.”

MIND THE GAPS

After simply missing the fundamentals, the No. 2 service problem companies face is a gap between what customers expect and what they get. “One of the most common mistakes companies make is assuming they know what customers consider good service,” Parasuraman says. “If you don’t ask customers what their expectations are, you’ll invest in the wrong areas.” His research has shown that service is degraded by four critical gaps:

1. The gap between customer expectations and management’s understanding of customer expectations
2. The gap between management’s understanding of customer expectations and service-quality standards
3. The gap between service-quality standards and service delivery
4. The gap between service delivery and what’s communicated to customers

One spectacular example of failure to meet customers’ expectations comes from Netflix. Last July the company announced a price hike for its mail-to-home DVD-rental service. Then in September it split DVD rentals and streaming video into two services that required customers to maintain separate accounts.

Neither move was market-tested, apparently, and customers responded with outrage. The missteps cost Netflix at least 800,000 customers and a nearly 75 percent drop in its share price. A company that had enjoyed a loyal customer base was forced to apologize and change course. In this case, Netflix was guilty of gap No. 1, the discrepancy between customer expectations and management’s understanding of those expectations.

SHINING A LIGHT
FPL’s Marlene Santos says service fundamentals should reflect a company’s core values.

“We have three key values: commitment to excellence, doing the right thing and treating people with respect.”
— Marlene Santos, FPL

“Research shows that often what’s most important to customers is a sense of fairness,” Krishnan explains. “If they feel they’re being treated fairly, they’ll be more forgiving of customer service lapses. If they feel they’re being treated unfairly, you’ll have a much harder time retaining their loyalty.”

The focus on service needs to start at the top and cascade throughout the organization. “The customer service mind-set should be instilled in all employees, not just service reps,” says Dan Sarel, associate professor of marketing at the School.

That often comes back to core values, says Bernie Fernandez, MD (BS ’83, MBA ’11), CEO of Cleveland Clinic Florida. “You can have strategies and initiatives, but it’s the underlying values that unite your team and what you’re doing,” he says. For the nonprofit hospital, that team involves 2,200 staff Members, including 200 full-time physicians, who admit 11,000 patients and handle 330,000 outpatient visits a year. Fernandez works to ensure all those employees are equally dedicated to customer service. But each of them is asked to think the same way Fernandez does.

“I have two roles at the Clinic,” he explains. “My second role is CEO. My principal role is as a physician and caregiver. In fact, all of our employees have the word ‘caregiver’ on their ID badge. This isn’t a marketing concept. Our goal is to satisfy patients from the moment they schedule an appointment to when they receive a bill. At every touch point, every employee should feel like a caregiver.” That begins with recruiting people who have a passion for your business, research shows. At Cleveland Clinic Florida, for instance, Fernandez personally emphasizes the importance of customer service with every employee.

“We have a formal training process that all employees must go through,” he says. “We assemble teams that include a physician, an administrator, someone from plant operations and so on. We put them together and discuss what’s important from a customer service perspective. Everyone on the team understands that nothing they do is too small.”

To promote an organization-wide service mind-set, the Florida center’s parent, Cleveland Clinic, has even created the Office of Patient Experience, headed by a “chief experience officer.” The department serves as an advisory center to ensure customer service standards and consistency at its facilities around the world.

TRAIN AND MEASURE

Despite the clarity of the research on the importance of service in retaining customers, companies don’t always invest in the right areas. “Companies are reluctant to provide in-depth training to service employees, who often have a high turnover rate,” Krishnan observes.

“But if you hire the right people and give them incentives, you’re more likely to recoup your training investment.” Those incentives are key. “Customer service is hard work,” Sarel says. “You need to reward employees for good customer service behavior.” To reward the right customer service behavior, a company must define and measure it.

But many companies focus on the wrong metrics when they do so, often valuing speed rather than actual customer satisfaction. Sarel points to a basic mistake many companies make: awarding bonuses to service reps for how quickly they can get off the line with a customer, rather than for how many problems they truly resolve or how many service calls they handle that don’t require follow-up.

To create truly useful customer service metrics, a company should start by learning how customers perceive service levels. You can do that by tracking social media sites, recording and analyzing service calls, conducting customer surveys, deploying “undercover” shoppers to pose as customers, and similar means. Add in other research that’s relevant to the particular business. For instance, retailers should gather data on how often items are out of stock, how often items are returned and the reasons for those returns.

“Measure service from two perspectives,” Sarel advises. “Measure on a customer-by-customer basis, so you can respond to individual needs, and measure more broadly to uncover trends. If multiple customers are having the same problem, you might need to make systemic changes.” Cleveland Clinic Florida, for example, sends a questionnaire to all patients after they’ve received care.

It also uses tablet computers to randomly survey patients while they’re onsite. It takes a broad measure of what the surveys report to uncover trends, and to keep individual patients happy, a customer service manager immediately follows up if someone expresses dissatisfaction.

At FPL, service success is measured both internally and externally. Internal measures include customer satisfaction surveys and employee focus groups. “We find out from our employees what they’re hearing from customers,” Santos says. “They’re the voice of the customer, and they can drive changes to improve customer service.” FPL also carefully analyzes call-center interactions. “We can even measure by call types,” Santos says, “so we know satisfaction levels for customer installations, when there’s an outage, when there’s bill collection and so on.” Externally, FPL participates in customer service benchmarking and awards programs.

It has received the ServiceOne Award, bestowed by PA Consulting Group for excellent customer service among U.S. and Canadian utilities, for eight consecutive years. In 2011, it won the Edison Electric Institute’s National Key Accounts Award for Outstanding Customer Service. If it sounds like truly good customer service requires a significant investment, that’s true — which is why it’s important for companies to measure how service investments are paying off. “The true measure of your return on investment in customer service is the bottom-line impact,” Parasuraman says. “That’s not something you can determine in the short term. But over time, if you’re investing appropriately you should start to see an improvement on the bottom line.”

In fact, Parasuraman notes, research shows a strong correlation between excellent service and profitability. In large part that’s because good service leads to customer loyalty. And it’s a lot more costly to constantly look for new customers than to keep the ones you have. For Zappos, the breach of its computer network — and of its customers’ expectations for service quality — was not without consequence. Lawsuits were filed, of course, and plenty of disgruntled customers took to social networks to express their outrage. But just as many declared their undying love for all things Zappos, and some even expressed sympathy over the company’s cyber-woes.

DUAL ROLES Bernie Fernandez, MD, of Cleveland Clinic Florida says CEO is his second role — his first is caregiver.

Most business leaders would swoon over that kind of customer loyalty. But, as organizations like Cleveland Clinic Florida and Florida Power & Light have learned, when it comes to customer service, you get only as good as you give. But when what you give is good, what you get is fine indeed.

“If you hire the right people and give them incentives, you’re more likely to recoup your training investment.”
— Ram Krishnan, research professor of marketing

4 KEY STEPS TO IMPROVING SERVICE

• Focus on service fundamentals.
• Understand customer expectations.
• Build a service culture.
• Measure progress.

PING AND RESPONSE

Technology has pervaded every aspect of customer service — but not everyone embraces it. That means your customer service technology has to accommodate a range of users. “We’ve developed a way to quantitatively segment customers by their technology-readiness,” says A. “Parsu” Parasuraman, holder of the School’s James W. McLamore Chair in Marketing and a professor of marketing.

To meet the most needs, make sure your technology is customer-focused. “Companies are replacing human-based customer service with technology,” Parasuraman notes. “But in many cases the goal is to save money, not provide better service.” That can backfire.

“How many times have you heard a customer service rep say something like, ‘The system won’t let me do that’?” says Robert Plant, associate professor of computer information systems at the School. “You can’t blame the computer. It took a human to design the system and specify what it can and can’t do.” The goal of any customer service investment should always be to improve the customer experience. “If the technology won’t let you do that,” Plant says, “then you need to change the technology.” — E.S.

IS THERE AN APP FOR THAT?

New technologies offer new customer service opportunities. “Not every experiment will work out,” warns Robert Plant, associate professor of computer information systems at the School. “But the most successful companies are those that aren’t afraid to try new things.” Many of those experiments now involve smartphone and tablet apps.

Plant’s research has identified three app categories:

• Informational. These apps simply deliver useful data. An example is GE Appliances, which provides details on GE’s Energy Star-rated products.
• Motivational. Some apps are about building customer relationships. For example, Philips BatterySense assesses smartphone usage and predicts remaining battery time.
• Aspirational. Ideally you want customers to aspire to your brand. Virtual MINI, for instance, lets car shoppers determine whether they’re right for a MINI Countryman.

All of these apps deliver some level of customer service. But some organizations are taking even more innovative approaches. The global retailer Tesco is testing a unique application of quick-response (QR) codes, those pixilated squares that appear on ads and other promotions. In South Korea, the company has posted wall-length billboards in train and subway stations that give  commuters a “virtual” shopping experience. The billboards feature photographs of grocery items on store shelves, along with a QR code for each item. Shoppers use their smartphones to scan the items they want, and the purchases are automatically delivered to their home.

Other retailers are trying similar strategies. Whole Foods, for example, lets shoppers scan codes on merchandise to instantly watch a video about the item. “It’s all about enriching the customer experience,” Plant says. “And that’s good customer service.”