The customer introduced variability in the service sector

1. BreakingtheTrade-offbetweenEfficiency&Services
Group 4
Abhishek Kumar
Digvijay
Jayant Madhav
M Neeraj Kumar

2. Breaking the Trade-off between
Efficiency & Services
• Wide variety of service companies were studied
• This article captures the five distinct types of
variability that customers can introduce as a result of
their presence in production
• Paper aimed to develop a framework to help
managers make better decisions about how & how
much to accommodate the variability customers
introduce
Author-FrancesX.Frei
“Research aimed at helping organizations
overcome the challenge of customer-
introduced variability”
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3. Customerintroducedvariability
Five Types of variability
Arrival Variability- Service not together-appointments
Request Variability- Not in standard pipeline
Capability Variability-some performs easily, others handholding
Patient to Doctor
Effort Variability
Effort customers are willing to exert – brining trolleys from parking area
Subjective preference variability Subjective preference of customers
for how service should be delivered.
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4. OvercomingtheTrade-Off
Either accommodate customers’ various desires and
behaviors at high cost or refuse to accommodate
variability & risk customer defection
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5. 5
Uncompromised
Reduction
Classic
Accommodation
Classic Reduction
Low cost
Accommodation
Cost to serve
QualityofServiceExperience
Four basic strategies
Strategies for Managing Customer Introducedvariability
UR – College student
segregation
LCA – ebay properties

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2.
Request
Train employees
Automate Tasks
Persuade customers to compromise
Target customers as per their requests
4.
Effort
1.
Arrival
•Plenty of employees to handle
•Self-service / hire low cost - labor
•Off-peak pricing
•Create complimentary demand
3.
Capability
Employee adapt to customers varied
level of skill levels
Self service
Requires customers to increase their
capability
Target
5.
Subjective
Preferences
Use rewards & penalties.
Target on the basis of motivation.
Use normative approach to get
customers to increase their effort
Persuade Customers to adjust
their expectation to match the
value proposition
Target specific.
StrategiesforManagingCustomerIntroducedvariability

7. Business scenarios
Dell Customer service operations (Low cost accommodation)
• High Arrival & request variability
• Expanding servers
• Outsource On-site customer service to 3rd party providers
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Starbucks (Uncompromised reduction in variability)
• Capability Variability
• Train counter clerks to call out orders to beverage makers in desired sequence
• Teach customers its ordering protocol using “guide to ordering” pamphlet
Tiffany & Company(Failed)
• Subjective Preference variability
• Increased footfall undermining traditional customer experience
• Failed to distinguish prestige from mass customers – use of beepers
• Silver jewellery (segmented service on basis of product type)

8. SouthwestAirlines
• Unusual boarding policy – No assigned seats
• Reason: SA prefers Efficiency over customer experience. To reduce average turnaround time. (40%
lesser than competitors.)
• Problem: Not suitable for Business Travelers who board last minute & customer who value experience
• Problem Description:
• In June 2006, SA experimented assigned seats in few flight services without considering its effect on customer
experience. It raised lots of criticism among its loyal customers who are accommodated to “No assigned seats”
policy.

9. Reason–Managementofcustomerinducedvariability
• While trying to cater the preference of elite flyers, SA introduced a system which threatened a negative
feedback from its loyal customer base.
• Without identifying the customers mindset, making such decisions would hamper the customer
relationship, SA has been enjoying over the years.
• Management of variability in service operations requires a company to influence customer’s behavior.

10. ManagingOperationalBehaviorofCustomers
• Diagnose the problem – Understand the root cause of problematic customer behavior
• E.g., When the self-service options such as ATM, Voice response units of Retail bank First Union failed,
the managers assumed that the problem is lack of knowledge to use those options and used Greeters
to train them. But when the problem was traced back to its cause the identified that most customer
preferred effortless experience over time saving.
• Factors to be considered: Customer’s current problematic behavior, Hypotheses of cause of behavior,
Validity of hypotheses.

11. Test&Improvesolution
Mistakes:
1. Dissimilarity between real and testing environments
2. Creating incentives for the test to have positive outcome
3. Designing a test without controls
Solution: Challenger Champion model
For new initiative select a sample to test (Challenger sample) and simply matched sample (Champion
sample). Test challenger sample and compare difference in behavior between the two samples.

12. Throwingacustomerintheworks
• Netflix’s understanding of customer, led to its success over rental DVDs.
• Traditional rentals levied fines on customers who make late return of DVDs, which was creating anxiety to
customers and strong dissatisfaction. Netflix made late fee obsolete by allowing people to keep movies long as
they want. The incentive to return is being able to get the next movie on their request list, because they figured
that customers prefer to have control over how long they keep a movie.
• Hence deeper understanding customer behavior helps service businesses to thrive and vice versa.

13. ThankYou
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