There are two aspects of a product that determine the total customer experience: the core product, which consists of the price and quality of a finished item, and the product surround, which is measured by how a firm serves the item to its customers.
Product surround averages about 20% of a typical manufacturing firm's costs but would account for 80% of the total customer experience. A customer's impression of a product would be determined greatly by how well it is served. Firms are well-advised, therefore, to put as much emphasis on service as on price and quality.
In reality, however, this often does not happen. Customers complain about long waiting lines at banks and fast-food restaurants and, as a result, are left with negative impressions about these institutions. Stores that sell appliances may offer high-quality television sets and refrigerators, but if repair times take too long, or if it's hard to contact agents for inquiries, customers may also feel negatively about the products.
In the past, institutions such as banks and fast food chains introduced self-service systems and/or installed automated ordering systems to streamline customer transactions. While these systems have reduced costs and provided customers better means to place orders or pay bills, customers have not gained any real improvement in service. A majority of customers still waits the same amount of time at a bank or fast food chain.
Executives of these and other establishments may disagree that service is an equal factor to price and quality in the customer experience. They may cite that their sales have grown significantly due to continuing improvement in quality and affordable prices, without any real focus on service. While this may be true, one should consider the following examples if service is not emphasized.
A thrift bank that started operations in the 1990s immediately gained more clientele when it set longer banking hours, 8:30 a.m. – 6:30 p.m., versus the 9:00 a.m. – 3:00 p.m. hours of most other banks. Small-business customers found the schedule more convenient, as they could deposit most of their earnings nearer to their closing hours. Within a few years, competing banks had to similarly schedule their hours to stem the loss of clients to that bank.
An online food delivery business offers customers menus from a variety of restaurants. Customers can order food from multiple restaurants — selecting the best food from their favorite establishments — and have the entrees delivered to the home or office in one delivery. Even though the delivery service's prices may be higher than those of fast food chains, the former has grown rapidly in Metro Manila and promises to challenge establishments that do not improve their customer services.
These examples show that if companies remain complacent on their product surround, it may only be a matter of time before they meet a more nimble competitor that will beat them in their own game.
For a firm to enhance a customer's total experience via its product surround, it should regard the following as important:
Customer order policies. What is the minimum quantity a customer can order? How much leeway does a customer have to change or cancel an order? Are customers required to submit hard-copy purchase orders? Can they transmit orders via the Internet? What lead times are promised to customers?
Delivery policies. How much flexibility is given to customers for delivery schedules; for example, does the firm allow for partial deliveries, or must deliveries, as much as possible, be made only once? Will firms deliver in the early mornings or evenings if customers are willing to receive? What are the rules on less-than-truckload (LTL) deliveries to customers; do trucks have to be full before they can be delivered, even if there is risk of delivering late?
After-sales services. What is the policy on customer returns? What warranties are offered to customers? How efficient is the firm in accepting and processing returns? How fast are repairs? How well do firms give access to and respond to customer complaints?
Customers do not measure products by price and quality alone but also by how good the service is. Firms face the danger of being overtaken competitively if they ignore the opportunities to improve their product surround.
Jovy Jader is a consultant and regional speaker on supply chain management. He has directed and implemented supply chain management projects both local and international, which have resulted in company-wide improvements in inventory, total cost, response time, quality, and on-time delivery. Mr. Jader was formerly with Procter & Gamble Philippines and Coopers & Lybrand/PricewaterhouseCoopers. For questions or comments, e-mail email@example.com.
Reference: The Handbook of Logistics and Distribution Management (Kogan Page, 2006)
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