Friday, October 14, 2005

Market Research in services marketing

All companies have a genuine interest to beat customer’s expectations, yet in several of my encounters as a customer with various service providers I found that, companies routinely fail to meet customer expectations or fare even worse when they turnoff the customer.

As a marketing professional, I am interested to write about how a firm can improve its service offering and beat customer expectations. In my observation, I have noticed that companies often fail on customer satisfaction - for a simple reason that they do not know what the customer wants! In other words, services providers do not listen or observe what the customer wants and instead they insist on offering what they think the customer is asking.

To explain this in easier terms, I want to quote a recent example: I often visit a restaurant near my house. So far I had good experience every time I visited. But on one occasion it was vastly different. My friend had ordered "Vegetable Noodle Soup". But the waiter returned (after a long long wait) with "Vegetable Noodles". Since that was not what we ordered, we called for the manager. The manager on hearing our complaint, absolved the waiter of nay mistake and in turn insisted on us to have the "Vegetable Noodles", claiming that it was what we ordered. The end result, a bad customer experience and loss of reputation!

Though the above was such a lame example, the same is repeated in technology services as well. A IT services firm delivers a software with different set of features than what the customer wanted, or the software works in a different manner, etc.

The reasons on such service failures are several. In this article I will not write about the reasons for service failures. Instead this article is all about how to detect, measure service failures, how to track service performance and gain insights to improve the quality of service and hence the level of customer satisfaction: Market Research

Market Research

The most common tool available for all marketers is market research. Market research being such a complex exercise, it has to be used carefully to avoid creating additional customer agony and at the same time make research valuable to the company.

The term "Market Research" tends to invoke a feeling of an expensive exercise which is best done by an outside firm or consultant. Small firms with limited resources often choose not to indulge in it. This could be true if the world was flat and if the sun were to go around the earth. But that’s just a myth. Any firm can (and must) do market research. It can be as simple as the owner of a small firm talking to a customer, or the salesman talking to the customer. The cost of market research is insignificant when compared to the cost of not doing it. i.e., lost sales & profits.

So depending on the impact to the firm, select an appropriate research methods & budgets.

Research Objectives

Like all other research, Market research should be driven by objectives. The most common research objectives ( for services) are:

  • To identify dissatisfied customers, so that service recovery can be attempted
  • To discover the customer’s expectations for the service
  • To monitor or track service performance
  • To assess gaps between customer expectations and perceptions
  • To compare the company’s service offering with that of the competitor
  • To setup norms for performance appraisal within the company
  • To track changes in customer expectations in the industry
  • To forecast future expectations of the customers
  • To determine customer expectations for a new service

The above list is not exhaustive, but is just a pointer. Individual firms can further redefine or refine their objectives for their market research.

The objectives for Market Research in services differs from that of products in several ways. One must be aware of these differences to make the results of the market research valuable. The main differences are:

  1. Service performance is subject to human variability. People providing the service may provide varying levels of service. Thus measuring a service quality only once is insufficient. To understand, consider the above example in a restaurant: The waiter might have had a busy day and were really tired thus confusing Vegetable noodles for Vegetable Noodle soup.

  2. The process under which services are provided may vary - even though the waiter was doing his best. In our example, the hotel manager would have told the waiter not to return the food or make the waiter bear the cost of his error.

  3. Customer’s expectations is also subjected to variations. Customer will have different levels of expectations and different levels of perceptions of what constitutes a good service.
  4. Service quality measurement has to be carried out several times to give a meaningful results. (for goods a one time survey on a set of products will work)

An effective market research in service industry must therefore:

  • Include Qualitative and quantitative research. Research must be done to define what constitutes "Quality Service". This must be based on customer’s perception of quality. In addition, research must be done to determine the number of samples to be taken that will make the survey statistically valid. The sample size must be large enough to test specific hypothesis.
  • Include perceptions and expectations of Customers
    Customer expectations is the reference point to what is called as "quality". Customers set their expectations based on their perceptions of quality. Perceptions are often influenced by the competitors, customer’s past experience, by the company’s communication (advertisements, presentations etc.) to the customer, and by customer’s innate nature.
    Balance the cost of research and the value of the InformationCost of research must be driven by the economic goals of the research. With a huge budget, a company can discover huge amount of information, but that information may have little economic value.For example, a small IT services firm cannot spend a huge amount of money to find out how to alter the buying pattern of the customer behavior - which has no value to the firm’s immediate sales.
  • Measure the importance or priorities of customer
    Customers will have various service needs, but not all are of equal importance. For example, in IT services there are several sub services: documentation, presentation, architecture development, testing, coding etc. The importance of each of the service offering will be different for the customer.
  • Include measures of customer loyalty
    Loyal or regular customers or long time customer will have different level of expectations and will have different customer behavior when compared to customers who are purely looking for a price break or migratory customers.To understand this better, consider our restaurant example: Since I have been visiting that particular restaurant often, I am willing to give it another try. If the service level is unsatisfactory, I will stop visiting the restaurant. On the other hand, a casual customer who is visiting the restaurant for the first time may never patronize the restaurant in future.

Establishing the norms for conducting market research is tough. Deciding on all the parameters to be measured takes considerable effort and time. Once the norms and objectives for market research are established, the next step of data collection can be started.

Data Collection

A good services market research will include multiple data collection points, with each point collecting data for various objectives of the research. Some of the common or widely used data collection points are:

  1. Customer complaint Solicitation
    Have a well established process to hear customer grievances. Collect all the customer complaints/suggestions and record all interactions with the customer during complaint solicitation. Complaint Solicitation is essential for service recovery. Handling customer complaints efficiently and in timely manner such that customer grievance is addressed in such a way that the customer is satisfied is an absolute must. By recording customer complaints and using that data for analysis is critical in services market research. In high tech services, firms often overlook the fact that customers complain. Even when customer complains to the account manager or the sales manager, the complaint is never fully documented for future analysis. This finally leads to customer loss. Only when there is excessive customer turnover or loss of a important customer, the firm does data analysis.
  2. Regular customer feedback Study
    In case of IT services or high tech services, the service delivery will have several milestones. A customer satisfaction survey at every milestone has to be done to capture various aspects of customer satisfaction and customer perceptions. Service quality survey consisting of 10-12 questions for which answers are on a relative scale must be done. Customers are often more than willing to take part in such a survey.
  3. Post Transaction Survey
    This must be undertaken at the end of the transaction i.e. When the firm has provided all the services to the customer. For example, at the end of the project or when the customer checks out of a hotel. Post transaction survey should also be carried out after some time of providing the service. This will capture the memory of the customer - and rate how the customer remembers the interaction with the service provider.
  4. Critical Incident Research
    Sometimes a service offering will fail and customer will be very annoyed and threatens to walk out. When such incidents happen, a complete and exhaustive study has to be done to analyze the incident and determine the root causes and means to eliminate them in future.Often, many companies do critical incident research - but fail to implement the leanings. I should also point out that if regular customer surveys are carried out, analyzed and improvements are implemented, the number of critical incidents will drop dramatically. The corollary is also true: If a firm does Critical Incident research often, then it is not effectively listening to its customers.
  5. Service Expectation meetings
    In complex high tech services, it is essential to meet with the customer before providing the service and establish common norms of what constitutes good quality service. Such meetings help set customer expectations before providing the service. This helps the service provider to measure the service level expected by the customer and provide more than the promised level of service.
  6. Lost Customer Research
    Even the best firms lose customers. It is therefore important to know why these customers dropped out or why customers stopped buying from you. This involves going and meeting the lost customer and getting their opinion or view points as to why they moved to your competitor. This research helps to identify the failure points or common problems. The research also provides an insight to the cost of losing a customer and the cost of retaining the customer.

  7. Future expectations research
    Customer’s expectations are always undergoing changes. It is therefore essential to know what their future expectations are. For example, a leading manufacturer of automobiles expects their IT service provider to have technologies to implement RFID system in future. Intel’s Developer Conference is a great example of collecting customers future expectations.

  8. Customer Forum's
    Companies encourage and sponsor user groups. The user groups becomes a platform for customers to interact with each other and share their experiences. Customer forums also serves as a platform for customer interaction at various levels. Marketers can interact with people at various levels of the customer firm and understand their needs, expectations and perceptions. For example, Synopsys User Group (SNUG) is very popular among ASIC designers. This fourm provides Synopsys with customer insights and acts as platform for customer market research.

Analyzing the Market Research Findings

Analyzing the data is a big challenge. The market research data has to be analyzed quickly and the findings has to be communicated to various people within the organization to make the research useful. The reports generated from the research must be easy to read and understand by executives, managers and stakeholders who will make decisions from the research.

I will write about various standards and procedures used in data analysis in my future blogs.


Unknown said...

Thanks for the post.
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