As Technology Advances, Companies Must Find Their 'Sweet Spot'
Advancing technology has opened new possibilities for customer service delivery, giving companies more options when setting strategy.
Research co-authored by Roland Rust at the University of Maryland’s Robert H. Smith School of Business helps service companies make sense of the changing landscape, which now includes chatbots, self-service kiosks and data aggregators that can track consumer preferences across multiple devices.
“The ability to communicate with customers is enhanced, along with the ability to store and analyze customer data,” Rust says. “Companies must choose a strategy that fits within this environment.”
He and coauthor Ming-Hui Huang at National Taiwan University provide a roadmap for identifying a “sweet spot” strategy. The paper, published in the Journal of the Academy of Marketing Science, lays out critical factors to consider in two dimensions, which intersect to form a grid divided into four quadrants.
The first axis captures the degree to which service is standardized or personalized, representing opposite ends of a continuum. When choosing a strategic position along this line, companies must consider the level of heterogeneity they face in terms of service demand.
Fast food restaurants, for example, rely on standardization to reduce wait times and keep costs down, and diners are fine with that. When they go to upscale restaurants with extensive waiter services — or when they pay for high-touch services such as haircuts and athletic training — they expect more personalized care.
“When customer demand is homogeneous, then personalization is of little use, and standardization is sufficient,” the authors write.
The second axis captures the degree to which a continuing relationship with the customer is maintained, with transactional interactions on one end of a continuum and relational interactions on the other.
When choosing a strategic position along this line, companies must consider a customer’s potential lifetime value over multiple interactions.
If customer interactions are infrequent or produce low value per occurrence, then a transactional service strategy might be sufficient. If interactions are frequent or if a big-ticket customer shows potential for repeat business, then companies should invest in a relational strategy to build loyalty.
The sweet spot for any firm will shift with changing technology, so leaders should revisit their position on the map from time to time.
“Because technological capabilities inevitably advance, firms will tend to move from standardized to personalized and from transactional to relational over time, implying that firms should be alert to technological opportunities to personalize their relationships with customers,” the authors write.
The lower-left quadrant in the framework represents the “McService Strategy,” which promises standardized, transactional service for maximum efficiency.
The upper-left quadrant represents a relational service strategy, which combines standardization with investment in relationship management for growing customer lifetime value. Examples include grocery store loyalty programs, which keep customers coming back without offering personalized service.
The lower-right quadrant represents a customized transactional strategy, which promises personalization without investment in relationship building. The strategy works well when customers make diverse demands on a service provider, but their potential lifetime value is low.
Social media sites like Facebook or Twitter fit this description. They respond by using big data analytics to track consumer preferences and make personalized suggestions without investing heavily in relationships.
The upper-right quadrant represents an adaptive personalization strategy, which personalizes service based on an ongoing relationship designed to maximize customer lifetime value. The strategy works well for delivery of complex services such as consulting and healthcare, and high-touch services such as hair salons and athletic training.
“With the continuing advancement of technology, an increasing percentage of services can be personalized and relationalized to better meet individual customer needs,” the authors write. “Our positioning map links marketing practice to the conceptual evolution of the service literature, showing how the historical trends toward continuing customer relationships and co-productive personalization should drive strategic thinking in service.”
Read more: Technology-driven service strategy, Huang, MH. & Rust, R.T. J. of the Acad. Mark. Sci. (2017) 45: 906.