What is value to a customer?

Value equation

Or, Why Value Is Not about Money.

In the old economy, the one dominated by goods, value was created through the transfer of ownership. I create or produce something; and when I transfer the ownership to you, you give me money in return. The way you check the value of what you bought has to do with the specifications. Whether you are looking for strawberries or a new car, it is about product attributes. This ‘widget’ is _______ (stronger, faster, slimmer, tastier…) than the other ones you have looked at.

In the new economy, the service economy, value is created in use.
When I rent a car, use a consultant, or search for a great place to stay for my vacation, there is no transfer of ownership. It is all about utility – I need something, and my preferred service is the one that best takes care of that need. When my need is met, it translates into a result for me. And most of us are more than happy to pay for getting the result we need.

So, if our aim is to create a great customer service experience, the starting point is to make sure that what we are offering matches the value expectation of the customer.

In order to do that, we use the Value Equation – a tool that originates from the research conducted to produce the Service Profit Chain framework. The Value Equation has four elements:

R Is for Result.

What is the result that the client is expecting or looking for? Do we understand the need? If I buy an airline ticket from Paris to Rome, and we end up in Berlin, the airline did not deliver the result that I was expecting. So, no matter how cheap the ticket is or how many drinks they serve, it is a lousy service experience. Do you book a table in a restaurant because you are hungry? Maybe. More often, you have a different need. Maybe you are looking for a special moment, an occasion to celebrate or an ideal setting for a special conversation. Whatever it is, the food is just an instrument in providing the real result that you are looking for.

This means that for every service product we create, we need to ask ourselves, “What is the result they are looking for?”

P Is for Process.
You can fly from A to B with many different airlines. In general, they will all get you to where you planned to go; but each one does it their way. The difference comes out in their process.

From a customer’s point-of-view, process has five elements. Each plays a part when evaluating to what extent the value proposition actually covered their needs.

Time: How does time play into the need or result that they have? Is it important that we are on time? Is it important that we are fast or slow? If my wife and I are having dinner before the cinema, we are looking for one kind of time experience. If we are celebrating her birthday the following week, we are looking for a different kind of time experience. Same people, same restaurant, but different situations.

Reliability: Do we do what we say we will do? Are we consistent?

Competence: How does the customer experience the competence level of our employee at a given touch point? How well do our frontline teams respond when asked a question or a request for help?

Empathy: To what extent are our employees able to see the situation from the client’s point-of-view? When a customer feels understood, we are more than halfway to solving their needs.

Proof of service: Do we provide a service that the client does not notice? Are there ways that we could remind the client that we are servicing them?

Under the fraction line we have:
 $ for price and E for effort: The client pays a price for our service; but depending on the service package, they also put in more or less effort themselves. If you buy a sofa from IKEA, the price is low; but you put in quite a bit of effort yourself. If you fly Virgin Upper Class, they will pick you up at your office and take you and your stuff right to the plane; A different experience than flying Ryanair, and, to be fair, also at a different price point.

So, there you have it.
If you want to understand how customers perceive value, the value equation is your key. And, your starting point for developing a great customer experience is to understand how you tailor your customer value proposition to each segment using the Value Equation.

You can download a copy of this checklist here for free. Just click it.


This blog post is part of a series of answers to frequent questions that I get around the concept of the Service Profit Chain. In future post, we will continue to explore other key points. If you would like the full concept served up in one go, you will find Mike’s book “Best! No need to be cheap if…HERE.

What do you mean by service?

Service

It’s a word we use all the time: “Went to the coffee house yesterday, great service!” Or “Our local post office just has the worst service.”

In order to really benefit from the thinking behind the concept of the Service Profit Chain, we need to be clear about what we mean when we say service. Because it is sort of implicitly understood from the term Service Profit Chain that there is a connection: Great service leads to great profits. And that is true. That is the whole point.

So let’s take a look at what we mean when we say: service

If you go to the literature, there are various ways you can define service – my preferred one is this one:

 

Liseberg 24 Feb 2016 Extract.001

When we use this definition, we see that service is so much more than just a robotic: “Have nice day”.

In fact, there is no notion of service if the guest or customer has not achieved their primary result (We will look more at this when we get to the questions on how we create value).

So when I go to my favourite coffee house with this craving for a really leeker flat white and they serve what I would describe as wishy-washy latte, then it does not help that they smile, play smooth music and are sweet and all that good stuff.  I did not achieve my primary result and that is really bad service. As a consequence, I will find a different coffee shop that does know how to make a smooth velvety flat white with a kick.

In the same way, it is not much better if they serve a perfect flat white, but do it in a rude way. On top of that, the tables are not cleared and the toilet is disgusting. That is also terrible service – and I won’t be back because the experience did not live up to my expectations despite the coffee.

So in order for service to happen, both need to be in place. The result needs to live up to or exceed our expectations and ALL the experience touch-points from entering the store till leaving it again (and all that happens in between) need to be great. When that happens, we tell our friends: “Have you tried the new coffee house down the road? The service is amazing!” That is when service becomes the foundation for profits and growth.  But let’s be honest, it is quite hard to do consistently.

And why is that?

Well just think of how many different results could someone be looking for when they enter a coffee shop. My example above was easy. I focused on the quality of the core product – the coffee. But lots of guest in a coffee house don’t go there for the coffee, they go there for … ( Company, workspace, kill some time, feeling cold) you fill in the blank. The list is endless.

And a coffee house is a relatively simple service, think of a theme park, then it gets really complex

We live in an era of mass customisation. As service providers, we need to understand and adapt to the result expectation that each customer has, otherwise it is not service – in their eyes…

This is why products and services are so different. Products you sell on their specification – it’s about the product. It’s within your control. Services are about a need. Their needs. And you don’t necessarily understand what it is. First you need to decode it – and that means it’s all about them.

So we are back to my favourite subject.

Great service is produced by frontline employees who are able (and willing) to empathise with their customers – to read them and understand the result they are looking for – that is when service becomes an art form.

So how do we achieve that? We implement the concept of the Service Profit Chain as a strategic way of understanding the business we are in.

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This blog post is part of a series of answers to frequent questions that I get around the concept of the Service Profit Chain. In future post, we will continue to explore other key points. If you would like the full concept served up in one go, you will find Mike’s book “Best! No need to be cheap if…HERE.

 

Why the Service Profit Chain concept is more important now than ever before?

Service Business

Check out Google trends, the interest in customer service and customer experience is steadily rising year by year and has been for the past 5 years.

Why?

Because we live in an age of abundance – this is one of my key points when I give live presentations. By abundance I mean that there is too much of everything. There are more hotel rooms, restaurant seats, cars for hire or consultants etc. than the market actually needs. So we are all trying to survive in a hyper-competitive environment.

In a hyper-competitive environment, it is not enough to try and compete on product specifications. Because within a given price bracket, the specifications for most product are more or less identical. So in order to differentiate, we need to look at the experience and that typically means that we add some service components.

On top of that, we are rapidly moving away from products and into services (Just think cars, in a few years when cars become self driving, they will no longer be products but we will see them as a service). So society is moving to service dominant logic. And when products are turned into services, the focus shifts, it is not about the product spec but the customer need.

If we want to compete on experience and service, we need to focus on the interaction between the frontline staff and the guest/customer – what we also call the touch points. That is the critical interface – that interaction can lift what is otherwise just a bland run of the mill experience into a memorable experience. And when that happens, we create loyalty. High customer loyalty is the key profits a growth.

So some companies launch major initiatives around creating loyalty. They see that as their main objective.

But that is only because they are not paying attention to the principles of the Service Profit Chain – in a sense they have got the wrong end of the stick.

There is no shortcut to the profits and growth. You need to take the long haul and that starts with creating an inspiring and engaging workplace, and that is what the concept of the Service Profit Chain can help you do – and that is why understanding this key framework is the best way to survive in a hyper competitive environment.

Check our my course The Service Profit Chain explained!

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This blog post is part of a series of answers to frequent questions that I get around the concept of the Service Profit Chain. In future post, we will continue to explore other key points. If you would like the full concept served up in one go, you will find Mike’s book “Best! No need to be cheap if…HERE.

Are you a Service Profit Chain champion?

img_5733

It’s a new year! Happy 2017!

All of 365  days of opportunity. What are you going to do with them?

If you are in  the service industry, I am sure that you are  focused on how to do an even better  job  building customer loyalty. The key to profit and growth is customer loyalty that has been well documented with the principles of the Service Profit Chain (if you have never heard of this concept you can learn more here).

But the real challenge is not knowing,  is it? —  The hard part is the doing.

Just knowing about the Service Profit Chain is not going to get you to where you need to be this year – you need to actually also do it. So what are the areas for improvement in your business? Do you know?

Because in order for you to improve, you need to identify the gap – I have covered that in a previous post – so here is a short little quiz for you to start  thinking about where are the gaps.

The questions will help you see what you need to focus on  this year.

Have fun and I hope that 2017 will turnout  wonderful and productive year for you.


1. Profit & Growth

We are more profitable and are growing faster than most of our competitors in the sector/region. ( '0' not at all -> '10' Absolutely)

 

0

2. Customer Loyalty

We are excessively focused on developing deep one-to-one customer relationships ( '0' no, not at all ->  '10' Yes, absolutely)

0

3. Customer Satisfaction

We focus on excellence in our execution, not just on the front line but also internally throughout the organisation. We take pride in service and that includes servicing our colleagues.

( '0' no, not at all ->  '10' Yes, absolutely)

0

4. Value creation

We go out of our way to understand what really has value for our customers. And we translate that into highly customised solutions for them

( '0' no, not at all ->  '10' Yes, absolutely)

0

5. Employee capability

We spend more time than most of our competitors on ensuring that our team members train and understand what they need to do to deliver  true value.

( '0' no, not at all ->  '10' Yes, absolutely)

0

6. Employee loyalty

The people who work here are  known for their “can do” attitude and they seem  stay with our company for years.

0

7. Employee satisfaction

We are the preferred employer in our industry and region and have no trouble finding new, competent people to join us when we need them. For some positions we even have a waiting list.

( '0' no, not at all ->  '10' Yes, absolutely)

0

8. Internal Quality - The dream team

We go to great lengths in our recruiting efforts to hire for attitude more than for skills.

We are known for providing more training than most and have clear plans for training and development at all levels of the organisation.

We are focused on supporting the frontline employees in any way we can that will enable them to do the best possible job.

( '0' no, not at all ->  '10' Yes, absolutely)

0

 

Why my fear of roller coasters does not keep me out of amusement parks

Helix - Liseberg - Gothenburg
Helix – Liseberg – Gothenburg

They scare the living daylight out of me those roller coasters.

Intellectually I understand that they are safe, probably safer that taking a taxi to the airport, statistically… but still. It’s always been like that, so maybe in a previous life I was traumatised by a roller coaster gone wild. Anyway that is not the point of this final blog post of the year. The reason I mention it is because paradoxically this year I have seen more incredible roller coasters and heard more delighted shrieks from thrilled crowds than at any time previously in my life. More on that in just a minute.

Yes I am in a reflective mood.

You see, technically, this week is just like all the other weeks, but somehow in our mind it’s quite special. It marks an ending and a new beginning and we all get in this mood of yearly review and even more importantly setting new bold goals for the coming year.

All my lovely blogging colleagues are probably bombarding you with: The ten best books you should have read, the eight new trends that you must understand or (flavour of the year) the twelve point action plan that will make this your best year ever!

So why the roller coasters?

Well believe it or not, this was the year that I got to spend considerable time in amusements parks!

Seriously!

As always I have been doing work with my loyal gang of regular hotel clients, but I also got to spend time at Efteling in Holland introducing the Service Profit Chain for IAAPA. In Copenhagen, we introduced a new approach to leadership development at Tivoli gardens and I had the honour for 16 weeks to take a group of seriously enthusiastic managers from Liseberg in Gothenburg through the GROW leadership program.

So what am I learning?

I think my key takeaway this year has been confirmation that at the end of the day, being a great manager is deceptively simple on the surface, and incredibly hard to do well in practice. It’s like juggling. You see the guy rotating 5 oranges in the air and you think: “That’s neat. I can do that.” You pick up the oranges and you understand that there is a gap between knowing and doing.

The 5 oranges of management that you need to juggle have been elegantly formulated by the Gallup organisation based on their extensive research of hundreds of business and managers.

Great managers have these talents/skills/abilities:

  • They motivate every single employee to take action and engage them with a compelling mission and vision.
  • They have the assertiveness to drive outcomes and the ability to overcome adversity and resistance.
  • They create a culture of clear accountability.
  • They build relationships that create trust, open dialogue, and full transparency.
  • They make decisions that are based on productivity, not politics.

That’s it! But again this is just more information, and I am sure you don’t need more information.

What you need is probably execution, the HOW part.

So that brings me to next year. Early 2017, we will be launching the Team Leader’s Toolbox – a training program aimed at helping busy mangers learn quickly how they juggle their ‘oranges’. Leave me a note here if you would like to be notified when we launch that program.

We have been exploring this theme of Leadership and Management over the year on the blog as well and if you missed some of the posts you can download a compilation in the form of ebook HERE.

Thank you for reading my blog. If there is anything you would like to see more (or less) of next year, don’t hesitate to drop me a line. I love hearing from my readers.

Merry Christmas and my best wishes for the coming year!

team-leaders-toolbox2Enter your email address below and we will notify you when we launch the Team Leader’s Toolbox!

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This post is one of a series where we are exploring the notion of leadership and how this is different from management. Our starting point is the Service Profit Chain and the understating that the management part of our job will only take us so far. If we really want to create an organisation that is capable of delivering outstanding customer experiences, we need to develop an organisation that delivers outstanding employee experiences – and that requires leadership. You can check out other articles of the series below:

  1. Are you an inspiring leader to work for?
  2. What does it require to be an inspirational leader?
  3. The something for something system is at the heart of the uninspiring workplace.
  4. How is team management different from team leadership and why should I worry?
  5. Teams are organic systems, and therefore, by definition unstable.
  6. How you can help you team manage their states
  7. Do you understand the stages that your team goes through?
  8. What the h… went wrong?
  9. Who gets the last chef?
  10. Progress drives engagement – So how do you focus on progress?

Progress drives engagement – So how do you focus on progress?

Progress

Of all the things that can boost emotions, motivation, and perceptions during a workday, the single most important is making progress in meaningful work. And the more frequently people experience that sense of progress, the more likely they are to be creatively productive in the long run. Whether they are trying to solve a major scientific mystery or simply produce a high quality product or service, everyday progress, even a small win, can make all difference in how they feel and perform.

The Progress Principle

This quote which makes so much sense to me brings us to another aspect of not just why we need to focus on developing the people around us, but also how we can do it.

Focus on progress

In order to progress, we need a baseline to progress from. Once we have a baseline, we can start thinking about what we need to learn or practice in order to get better.

For learning actually to happen, there must be a gap between your current capability and the results that you desire.

So in order for our people actually to learn they need to:

  • Have an awareness of the gap
  • Be willing to declare their incompetence (I don’t know how to do that.)
  • Commit to learning

(I have written about this in a previous post some time ago.)

So if I sneak into your business and tap any one of your team members on the shoulder and ask them: “What are you working on at the moment in order to get better?”, or I ask them: “In what ways does your boss feel you have made progress last month?”, do they know?

Or is progress something that is randomly observed and then celebrated: “Oh look isn’t this nice!”?

Focusing on progress is an important part of your leadership role. And your most important tool for this is not a dashboard in excel but conversations, one-on-one conversations (According to Gallup research, team members who have no or very few one-to-one sessions with their direct supervisor are 67% more likely to be disengaged at work. I mention this just in case you have the notion that one-on-one is a waste of time and it is easier to tell them all at once.)

If you happen to be a manager of managers, this is even more import – you are the role model. If you are not having one-to-one conversations (about progress) with your direct reports, there is little chance that they are having them with their team members. In fact, if you are not talking to them about how they are progressing with their approach to manage progress with their team, I am pretty sure it is not happening at all.

How to structure an engaging conversation

What would be a good way to structure these conversations?

Establish the gap. Once we have a gap, we can establish a goal. Moving toward our goal is what progress would look like. Then we can have a chat about so what is going on now compared to that goal. Once we agree on how what is going on is different from the goal, then we can talk about what options there could be in order to make progress towards the goal. Finally, we pick an action and commit to doing that.

The following conversation will be a follow up / feedback on how this is going. If you are familiar with coaching, you will have recognised that what I have described here as a framework is in fact the GROW coaching model – you can check it out in more details HERE.

In any case, in my upcoming course The Team Leaders’ Toolbox, we will be exploring this model more in details. If you would like to be notified when we launch that, sign up with the link below!

team-leader-toolbox-1Enter your email address below and we will notify you when we launch the Team Leader’s Toolbox!

__________________________________________________________________

This post is one of a series where we are exploring the notion of leadership and how this is different from management. Our starting point is the Service Profit Chain and the understating that the management part of our job will only take us so far. If we really want to create an organisation that is capable of delivering outstanding customer experiences, we need to develop an organisation that delivers outstanding employee experiences – and that requires leadership. You can check out other articles of the series below:

  1. Are you an inspiring leader to work for?
  2. What does it require to be an inspirational leader?
  3. The something for something system is at the heart of the uninspiring workplace.
  4. How is team management different from team leadership and why should I worry?
  5. Teams are organic systems, and therefore, by definition unstable.
  6. How you can help you team manage their states
  7. Do you understand the stages that your team goes through?
  8. What the h… went wrong?
  9. Who gets the last chef?