Opportunities for Action in Consumer Markets. Consumer Services: The Master Brands of the Twenty-First Century

Transcription

1 Opportunities for Action in Consumer Markets Consumer Services: The Master Brands of the Twenty-First Century

2 Consumer Services: The Master Brands of the Twenty-First Century For many years, consumer service brands were considered the poor cousins of product brands. Services were often undifferentiated and claimed little brand equity in consumers minds. Choosing a brand meant deciding between Huggies and Pampers, Folgers and Maxwell House. Packaged-goods brands ruled. No longer. Today the most exciting stories in branding are coming out of the service sector. Almost all new blockbuster brands, like Dell and Starbucks, are primarily service oriented. E-commerce is creating instant service brands such as ebay, Amazon, and Yahoo! And the service environment in which we shop has itself become a brand: before we choose a brand of diapers or coffee, we decide whether to make those purchases at a Tesco supermarket, a Carrefour hypermarket, or a Wal-Mart supercenter. Service brands are also starting to go global. Witness the recent cross-border growth of Carrefour and Wal- Mart, consumer banks Citibank and HSBC, and mobile phone companies Vodafone and Orange. The enthusiasm for service brands has shown up in other ways as well. Over the past ten years, the market capitalization of consumer service companies in the United States has grown considerably faster than that of consumer product and retail companies. And spending on advertising for service brands has increased at a rate that is more than five times higher than that for product brands. (See Exhibits 1 and 2.) The rise of service brands presents new challenges for providers of services and products alike. Service providers face mounting competition as a result of dereg-

3 ulation, e-commerce, and globalization not to mention growing pressure from shareholders to deliver on the sector s increasing valuation. For their part, product marketers are under intense pressure from assertive service providers, who are using their strength to demand large concessions for retail support or for placement in the service environment. As a result, some product marketers are beginning to experiment by offering services over the Internet to reach consumers directly. Given this increasing competition, all marketers need to pay close attention to what the best service companies are doing today. In essence, these companies are creating master brands trusted names that signify a rewarding experience and can extend across many consumer categories. Their recent success offers important lessons in capturing the inherent advantages of service brands. Exhibit 1. The Market Value of U.S. Consumer- Service Companies Has Soared Index = Service 600 Product 500 Retail CAGR (%) SOURCES: Datastream; BCG analysis.

4 Exhibit 2. U.S. Consumer-Service Companies Spend Heavily on Advertising Index = Service Product Retail CAGR (%) SOURCE: Advertising Age. NOTE: Owing to the mix of businesses, AOL Time Warner and IBM are not included. The Service Brand Advantage Service brands have a potentially powerful advantage over product brands. Why? Because a service is an action, performed over and over again with the consumer, whereas a product is a thing that is given to the consumer, usually without his or her involvement in the production process. From that broad distinction, several other important differences follow. (See Exhibit 3.) These differences add up to the potential for more frequent and complex interactions between the service provider and the customer, and thus more opportunities for the service provider to create a positive impression. The corollary, of course, is that there are also more opportunities for the service provider to create a negative impression.

5 Just think about your most recent international flight. You probably paid a premium for a flexible ticket had contact with many airline employees in a series of environments, including the check-in counter, the frequent-flier lounge, the boarding gate, and the plane itself received your preferred seating and meal choice read the in-flight magazine and watched the inflight program purchased some duty-free items In all, you spent several hours with the brand and probably came away with a lasting positive or negative impression. A lot is at stake for the airline every time Exhibit 3. Services Versus Products A service is an action Services cannot be stored Production and consumption occur simultaneously The consumer is often involved in the production process Services are usually consumed in the provider s environment Service consumption is often continuous A product is a thing Products can be stored Production and consumption can be separated The consumer tends not to be involved in the production process Products are consumed wherever the consumer wants Product consumption is usually discrete SOURCE: BCG analysis.

6 you travel. If your impression is positive, the airline not only will retain a particularly profitable customer but also might get an unpaid ambassador of goodwill. The opportunity for an airline or other service provider to create such strong brand equity is founded on four advantages that flow from the service interaction. Time with the Consumer. Every moment that a consumer spends directly or indirectly with a brand whether it is time flying on a plane, paying a bill, or dealing with a service agent is an opportunity to reinforce the brand s value. Rich, Personal Connections. The brand environment and the people who staff it can influence consumers directly and personally. Unlike advertising, effective brand environments appeal to all of the senses, and a good staff can respond to an individual s needs. Advantaged Information. Successful branders use the customer information their services generate to improve the brand experience and support personal marketing initiatives. Even such services as utilities, which do not involve much personal interaction, know more about their customers (addresses, usage patterns, profitability) than do many product businesses. The Segmentation Multiplier. Not only are service businesses in a better position to segment customers on the basis of information about them, but also the rewards that flow from such segmentation can be greater than they are for product businesses. Because services tend to be more perishable yesterday s airline ticket is no good today and costs are generally fixed, customer profitability varies more in services than in product businesses. And because service providers know which customers are most profitable, they can devote resources to attracting them.

7 Developing the Service Advantage The best service brands are beginning to make the most of their advantages by developing three capabilities. First, they are aligning their processes, organizational structures, and environments to deliver a consistently superior brand experience. Second, they are harnessing the power of customer information to enhance the experience. Third, they are leveraging that information to expand their offerings into additional categories. Here is a six-step process that master branders follow to build those capabilities: Take responsibility for the entire service experience. When receiving a service, a customer may come in contact with many different parts of an organization. Mapping those points of contact, analyzing the value that is delivered, and orchestrating all the connections in between provide the basis for a consistent and highly differentiated experience. Delivering that experience requires taking brand management beyond the traditional marketing functions into such areas as human resources, property management, information systems, and customer service itself. In fact, the most successful service brands place responsibility for those functions at the highest levels of the organization. Make sure that facilities and employees amplify the brand s values. The brand environment whether it is a store, an airplane, or a Web site and the people who staff it determine how well a brand lives up to its promise. A well-designed environment can facilitate service delivery and provide important visual cues for the brand s values. McDonald s, for instance, is famous for its detailed instructions on store cleanliness and its processes for ensuring that employees follow those instructions all of which reinforce the brand s family-oriented image. Recruitment and training initiatives, rewards programs, and monitoring and

8 measuring systems are designed to make sure that employees subscribe to and consistently communicate the brand s values. Build in the flexibility to manage moments of truth. Each contact with a consumer is an opportunity for a brand to make or break its promise. But some interactions are more important than others either because problems have previously occurred at those points or because great value is on the line, as when a customer files an insurance claim for the first time. Companies should look closely at all contact points and note which might be the most sensitive. Then they should make sure that their service format, information systems, and staff policies are flexible enough to let employees handle those moments smoothly. Service recovery can be as important as service perfection. Use information about consumers to improve the service experience. Leading service brands use up-tothe-minute information not only to personalize each customer s experience but also to tailor the service, making it less expensive and more relevant and enjoyable. They might even use such information to develop more attractive products. Powerful brands have systems to help them learn about their customers, and they use that information to improve their offerings. As a result, their customers become increasingly loyal as the service distinguishes itself from that of competitors. A successful supermarket chain, for example, uses information about the purchasing behavior of its customers to refine its individualized mailings and help determine the products and brands each store carries. Aspiring service brands should note, however, that although many companies have invested in databases for customer relationship marketing, few have fully exploited them. Gathering data is only the first step:

9 the payoff comes from using the data to create the right kind of service experience. Develop segmented branding strategies. Given the wide range of customer profitability in services and the availability of detailed information, the most successful service brands have come to understand the art of acquiring and serving the best customers while maintaining good relationships with the rest. They understand the key levers for increasing a customer s profitability such as cross-selling, up-selling, reducing churn, increasing transaction size, and enhancing channel usage and they design segmented strategies to manipulate those levers. They invest selectively and profitably in the elements of the service that matter most to high-value customers. Use the service advantage to move into new categories. Powerful service brands are increasingly able to monetize their contact with customers by expanding their offerings into new categories. Virgin is no longer an anomaly. Indeed, many service providers are now capable of leveraging the information they collect, the location of distribution facilities, and relationships with their current customers to create competitive advantage in new businesses. Leading grocery retailers such as Tesco and Sainsbury s, for example, are branching out into gasoline retailing, financial services, and mobile telephony. The trick is to identify the needs of a category s consumers, determine the sources of competitive advantage in meeting their needs, and then develop an offering that is consistent with the service brand s core values. * * * The imperative for all brands service and product alike is to deliver a compelling experience. The service interaction is increasingly important for

10 achieving that goal. Service providers have a natural advantage, and some are on their way to becoming true master brands: highly trusted signifiers of quality, value, and emotional connection across a variety of products and services. Product marketers should also strive for a stake in the service interaction. Direct sales, assisted by the Internet and wireless technology, will offer product companies many more opportunities to deal directly with consumers and thus incorporate service interactions into their offerings. As for service providers that have yet to capture the full value of the service interaction, the gauntlet has been thrown down. Why not make your brand one of the master brands of the twentyfirst century? Brad Banducci Ben Keneally Brad Banducci is a vice president and Ben Keneally a manager in the Sydney office of The Boston Consulting Group. You may contact the authors by at: banducci.brad@bcg.com keneally.ben@bcg.com The Boston Consulting Group, Inc All rights reserved.

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