1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

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

12. 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