Breaking the Trade-Off Between Efficiency and Service Manufacturing Environment: Variability MUST be eliminated Services Environment: All variability CANNOT be eliminated Customers measure quality of service by how their variability is accommodated Impossible since customers are an input Reality: Customers introduce variability but complain about inconsistency

Five Types of Customer Induced Variability Arrival Variability Customers request service at different times Do not always want service when convenient for company Request Variability Represented by substitutions/customizations

Five Types of Variability (Cont’d) Capability Variability Extent of customer knowledge, skill, etc. Effort Variability Degree of customer willingness Subjective Preference Variability Customers have different opinions or preferences as to how they evaluate service

Reduction Strategy Classic reduction strategy: the restaurant menu By their nature are a way to constrain variability For customers to order “off menu” is part of a premier dining experience When the restaurant does not accommodate special orders: They reduce the complexity of the operating environment May diminish service quality Companies that use the reduction strategy tend to attract customers, who are willing to trade-off an excellent service experience for low prices

Uncompromised Reduction Companies can reduce the impact of variability by targeting customers on the basis of variability type e.g., colleges choose students whose test scores fall within a narrow band, therefore the school does not have to support more than one curriculum Companies can benefit from reduced variability without requiring customers to adjust

Accommodation Strategies Involves experienced employees to compensate for the variations among customers Employees are making adaptations to “protect” the customer from making their own adjustments Costs more and force the company to bear the brunt of the variability Only high-end companies can command such a premium Success of the strategy hinges on the company’s ability to persuade customers to pay more to cover the added expenses

Low-Cost Accommodation Companies are persuading customers to serve themselves The service experience varies with customers’ capability and effort Effective for high arrivals or request variability Customers need to feel compensated in some way: low prices, greater customization

Matrix of Classic Trade-Off Managing customer – introduced variability does not have to come down to a stark trade-off between cost and quality Other options exist – those above the diagonal which let companies offer a high level of accommodation at low cost or reduced variability without damaging the service experience

Solutions in Practice Strategy: low cost accommodation Arrival and Request Variability Dell New products would demand responsive service Options: reduce variability or accommodate variability Solution: Third Party Service Risk Successful Strategy: low cost accommodation

Solutions in Practice (Cont’d) Capability Variability Starbucks Customers have many options Solution: Teach customers proper way to order Successful Strategy: uncompromised reduction Effort Variability Instrumental Means Zipcar, daycare center, video rentals Normative Means Ebay Strategy: Changing customers’ behavior

Solutions in Practice (Cont’d) Subjective Preference Variability Tiffany & Company Crowded stores Solution: Beepers Not successful Southwest Airlines Chaotic boarding process Experimental assigning seats

Steps in Managing Customer Behavior Diagnose the problem Must understand the roof cause of the problem Design a mutually beneficial operating role for customers Test and Improve on the solution