Executive Thought Leadership

Services Improve Loyalty and Profit

In recent years, the services landscape has been changing and becoming more complex. Globalization and market trends such as personalization drive the need to deliver highly tailored service offerings around the world to customers with diverse capabilities, skill sets, and requirements. Additionally, the fact that companies have entrusted their businesses to complex, technological solutions is driving the need for specialized services to support those solutions at each stage of their lifecycle; it is also driving the need for greater investments in technician training, certification, and specialization.

Clearly, one size no longer fits all in the service industry. This means that services organizations, which have traditionally managed "break-fix" service delivery on the back-end of the sales cycle, can no longer afford to focus their efforts solely on that reactive support model and still expect to maintain or improve customer satisfaction. In fact, the very notion of customer satisfaction as the end goal is no longer appropriate in today's competitive world.

The services model as we know it needs to change and in so doing, services organizations will be able to bring new levels of value to their companies and customers alike.

The Need for Change

Historically, services organizations have not been viewed within businesses with the same value and relevance as other organizations that more directly drive profit. Even though services are widely considered an important functional foundation of the company and an important driver of customer satisfaction, the seemingly indirect impact on profit has kept the value of services from being properly recognized. Fortunately, recent trends in the business landscape have created an opportunity to change that perception.

Today's services organizations must evolve and innovate in order to move services from a back-end, reactive function to a proactive, intrinsic part of the customer experience throughout the product and technology lifecycle. When organizations are able to make this shift, they can transition from focusing on satisfaction to loyalty. And loyal customers are the most profitable for the company.

A 5% increase in loyalty-based customer retention yields a staggering 75% increase in the net present value of an existing customer, according to Fred Reichheld, widely recognized as one of the world's leading authorities on customer loyalty. The significant financial impact of this "loyalty effect" makes customer loyalty one of the most important factors in a successful business.

Segmentation is the third component of our successful support structure. Once the proper systems infrastructure is in place, support offerings can be readily tailored and delivered according to the differing needs of unique customer sets. At Cisco, we're implementing a Support delivery model that directs tiered service offerings according to specific customer needs and capabilities. In this way, customers across all geographies can receive the right level of support through the best support channel for them.

To help explain how customer loyalty leads to increased revenue, consider the following:

• In many industries, customer spending tends to increase over time. This growth reflects a greater appreciation of the product line, increased customer buying power, and comfort with the purchasing format.
• As customers learn about a business, they require less and less help. This is particularly true for industries that rely on technology to deliver their goods or services. For the company, help-related expenses tend to decline as customers understand how the technology works, how the company operates, what products the company offers, and how to get the information they need efficiently.
• Loyal customers place a higher value on goods or services. This is because new customers often come in with price promotion. Also, established customers greatly value the service and may be willing to pay a higher price.
• It costs less to serve loyal customers because companies avoid the typical marketing, advertising, selling, and promotional expenses that are necessary to acquire new customers. Furthermore, they refer other customers, also lowering acquisition costs and helping to generate more revenue.
• Because services organizations have close contact with a customer, quality services help create positive customer experiences that increase customer satisfaction, leading to the increased customer loyalty. This means that services organizations are more valuable and relevant than ever before.

The need for change is clear. The challenge for service organizations is to determine not if but how to implement the kind of proactive, innovative services model that will help develop a loyal and profitable customer base.

The New Services Model

Given the close connection between services organizations and customers, services organizations are in a unique position to proactively gather critical feedback that can then be used to improve the overall customer experience, which then ultimately leads to customer loyalty. The following initiatives can have a significant impact:

• Learning and Applying Critical Information: Service organizations have access to critical customer data and knowledge via CRM systems, customer feedback, service representative feedback, transactional logs, and so forth. This information can be tracked and analyzed by market segment and geography. When mined and fed back into the product business units, marketing, and the services organization itself, this data can identify end-to-end improvement opportunities in product and service quality, pricing, and features. It can also influence the product roadmap, go-to-market strategy, and service offerings. Because customers see the company responding to their feedback, such enhancements, in turn, strengthen customer satisfaction and loyalty which ultimately impacts the company's bottom line.
• Positioning Services at the Front End: As previously noted, services organizations have historically managed operational service delivery on the back-end of the sales cycle. But given the direct connection that they have with customers, it is more helpful to position services at the front-end of the sales cycle. In this way, companies can proactively drive value-added improvements that can positively impact the customer experience and customer success. Services to plan and prepare the deployment of technology are as important as operational services.
• Appointing a "Chief Services Officer": In order to stay at the forefront of the changing market landscape, services executives need to evolve their roles. Where they have been functional, they need to become thought leaders; where they have been tactical, they need to provide strategic vision; where they have been reactive, they need to be interactive; instead of focusing on cost centers, they can help drive go-to-market strategies along with their peers in sales, finance, and marketing. In other words, they need to become "Chief Services Officers" with a seat at the executive table. This will provide the influence and visibility they need to put their customer access to the best possible use.

Proactive and Profitable

The increasingly sophisticated needs of customers and their global reach make services more critical than ever. Services organizations, which have a close relationship with customers, are thus ideally positioned to partner with a company's sales force, channel partners, and other key business groups to leverage services at a strategic level and continuously improve the customer experience. By working proactively to understand customer requirements, anticipate problems, and take action, services organizations not only help strengthen customer loyalty and enable customer success, they also help drive improvements and profits throughout the entire company.