Today, products are becoming increasingly similar and there are no significant differences in prices either. So how can companies set themselves apart from the competition? Through service orientation, say Frank Bunge and Michael René Weber, the authors of the article "With Servitization to Customer Success - Business Transformation for Customer Enthusiasm and Growth" in Volume II of the Enterprise Transformation Cycle. This is because customers today no longer just buy a product, but also an experience and a clear conscience.
Note from the TCI editorial team: Read part 2 of the interview with Frank Bunge and Michael René Weber here: Focus on services: "From producer to service provider: this is a paradigm shift" - Interview with Frank Bunge and Michael René Weber
The power lies with the customers
Katja Heumader: Service orientation is becoming increasingly important for customer loyalty. Why is this aspect becoming so important?
Michael René Weber: The background to this process, in which service orientation is becoming increasingly important, is the changed balance of power in our economic system. In contrast to the past, when we had to wait a year for a Mercedes and ten years for a Trabbi, we no longer manage shortages! Products and services are available in abundance, with a few exceptions such as computer chips and special vaccines.
So if a customer can choose between two equivalent products - why should they choose A or B? Let's take the example of buying furniture. A delivers the wardrobe, B delivers and assembles - oh, and I don't have to pay the same for C and he also assembles? We all realize it. The tradesperson who is working at full capacity answers the phone grumpily or forgets to call back. The other one is friendlier - is he/she also better? How can I be sure? Thanks to online reviews from customers and guests, it's easy to make sure these days. The balance of power between provider and customer has shifted.
Three components have an impact on purchasing decisions today:
- Result: Promised services must be provided. For example, the diesel should not consume more than promised, rather less.
- ExperienceWhen I buy a product or use a service, my loyalty to the provider increases if I associate it with a special experience. For example, a menu in a top restaurant is prepared with humor and charm in the guest's field of vision and served with outstanding professionalism! I then talk about it with friends and boost the restaurant's image and my own at the same time.
- EffectHow does my supplier behave from a socio-ecological perspective? Does he:she donate to social projects? Does he/she buy regionally? Does he/she contribute to my personal well-being - after all, I have to be able to tell friends where I shop and that this was climate-friendly.
The unity of result, experience and effect on the environment or a social commitment are the yardstick by which customer loyalty is made possible nowadays. And this applies not only in the B2C sector but also in B2B - the current discussion about the Observance of working conditions in supply chains makes it clear how opinions are changing and decisions are being altered.
If customers' needs then change, they ask for other solutions - so if investing in a PC or iPhone is more important than a car, then car sales will fall and the desire to get from A to B will be fulfilled by car sharing... why do I need to own a car when there will soon be Uber worldwide - via an app at every airport in the world?
The path from a product provider to a service provider is known as the servitization process. One of the most important characteristics of this is service orientation - only when I am interested in my customers do I look for solutions for them that are more convenient, cheaper, simpler and better. So at its core, it is a mindset change for many companies at all levels, starting with the CEO or shareholder.
Frank Bunge: When we wrote the book article, nobody had thought about COVID-19. Even without COVID, it was already foreseeable that customers would not only need to be addressed professionally and factually according to their needs in order to build lasting loyalty, but that their emotional expectations would also need to be met. These emotional expectations relate to an individual approach, the feeling of being addressed personally by the supplier's offer and not just being random. Companies can only achieve this through a pronounced service orientation. The pandemic has once again significantly increased the demand for and necessity of service orientation. Customer expectations and customer needs have changed - partly forced by the lockdown, but partly also deliberately, because awareness of and expectations have changed as a result of the pandemic. Sustainability and availability are just two examples. The power of customers has increased even more in many areas as a result of the pandemic. The powerlessness of not being able to influence external effects shifts the focus to areas that are within their own sphere of influence.
Service orientation in the sharing economy
KHE: The sharing economy was seen as the new, up-and-coming trend. Using instead of owning was the motto. Has the coronavirus pandemic now stifled this trend?
FBU: Quite the opposite. What use is property if it's not available? Take a look at the vacation home owners on the Balearic Islands: The vacation homes could not and cannot be used for months. Dead capital. The fixed costs of cars have a significantly higher effect if the car is just parked - as was the case in 2020 and will continue in 2021. Working from home means I don't have to drive to the store. The young, urban generation in particular will now be even more reluctant to invest in a car. This effect is even being exacerbated by the increasing 'car-phobia' of cities. The only opposing trend is the search for affordable living space to reconcile family and work. This is often only possible in the surrounding areas. And the need for a car may increase again there - but that doesn't mean that it can't also be used via sharing.
MRW: Frank shows the user's point of view here. The view of the providers, i.e. car manufacturers or producers of compressors such as Boge, is developing in parallel. Numerous cab apps or shared car providers have long been owned by the manufacturers of these products. They are no longer selling, but renting for a certain period of time. Incidentally, this means that the focus is no longer on the car as a product, but on the user and customer - it has to be easier, more convenient and more available for them. These are the attributes that bring success, not more beautiful, bigger or faster.
For us as a society, this will lead to more resource-conserving behavior on the part of industry in the long term. Who builds cars on stockpiles that can no longer be sold? Manufacturers are shifting their focus from production optimization and sales to user-optimized offerings with additional services for greater convenience or speed. For example, car sharing now offers the option of booking a driver or having the car delivered to your door. Rewe brings the shopping to your home, and wayfair.de does the same with furniture.
Servitization complements products
KHE: So is it still worthwhile for companies to focus on becoming service providers?
FBU: Production companies must continue to ensure that their product not only generates added value for the customer, but also that this added value meets a specific need. As outlined above, this need, this expectation, must not only be met functionally, but also emotionally in order to retain customers in the long term. It is precisely these emotional services, which preferably go beyond the customer's real expectations, that create the enthusiasm that sets you apart from the competition and thus secures customer loyalty in the long term.
MRW: Yes, that's how I see it for companies that continue to focus on production and their products - the success of these companies is determined by a triad that exceeds the customer's expectations: Result, experience and effect!
And it affects the many customers who prefer to buy and own their heating systems in the basement of their family home or the machines in their factory - often so that they can decide for themselves what should happen in their factories or at home. Servitization is welcome when good services are offered alongside products - the core unit is purchased, but customer loyalty is built up and expanded through services.
Service orientation: a question of mindset
KHE: How does the business model of a service company differ fundamentally from a company that sells physical products?
MRW: Some take care of their products and sell them to customers. They still offer warranty and repair if the customer does not have their own maintenance - in any case, they sell spare parts. Others see the customer processes and are willing to get involved in them - as a service provider that optimizes processes together with their customers or even as an operator of sub-processes.
Let's take a look at examples of the difference: Let's take the producers of towels, sailing yachts or laptops. They all think about what the customer needs, what they want and produce it in their factories or have it produced. Once the customer has bought it, they deliver it - and provide a warranty or guarantee. These producers are not responsible for the operation or the correct or incorrect use of their products. The delivered result is a towel, a yacht or a laptop. The wow effect, the experience is achieved through the type of delivery, instruction in handling the yacht or other "goodies". The producer can also pay attention to the effect by using wood from sustainable forestry, organic cotton for the towel and so on.
With a service company, for example an optician, a hospital or a public authority such as a vehicle registration office or residents' registration office, the situation is completely different. The optician, the hospital or the authority: none of them can achieve a result on their own!
A result is only achieved through collaboration with the customer. Co-creation is the magic word. Those who master this as a provider will gain an edge over their competitors. Good co-creation requires that employees want to provide an "honest" service in direct customer contact that helps. The decisive factor for service orientation is the mindset, which must be based on really wanting to help the client, customer or patient and putting their needs at the center. The level of service orientation that some offices have achieved when citizens and service providers work together to find a quick solution for a visa is tremendous. It is also tremendous how Fielmann manages to achieve the same high level of service in all branches and thus consistently build on its own reputation.
And now there are the third parties who are mutating from producers to service providers, for example when they provide a hotel with all the towels, collect them daily and wash them or replace them if they are broken. The service level is defined and when they need to be replaced. Now a hotel lets the "service provider towel manufacturer" into the hotel, who has not sold the linen but provides it. In this way, both are interlinked in day-to-day operations and achieve the intended result in co-creation.
Even yacht builders - if they have a service gene or want to expand it - can become yacht rental companies and then create results and experiences through co-creation with customers. Laptop manufacturers will also mutate into service providers if they not only sell the device, but also provide a user service and support the installation with partners - Apple and the like have long practiced this with extensive dealer networks.
KHE: What are the prerequisites for a successful transformation from a product to a service company?
MRW: The core is the company's self-image. If the focus is on products, their properties and functions, if customers buy the performance of a machine, then this company has an understanding of the product. All departments in the company focus on compliance with the machine's measurement data, which is guaranteed to the customer. Such production companies use their service departments to underpin the product price. They usually do not know the customer's processes in detail - after all, it is the customer's production process for which they are not responsible.
Service-oriented companies think from the customer's perspective and are interested in customer processes - not only to align their own product with them, but also to find the best possible solution together, for the best possible result for the customer. Of course, these companies must also ensure that their own processes are optimized. Otherwise, economic production would not be possible.
Employees of service-oriented companies are constantly trying to generate better solutions for and with customers. Either through the integration of partners or their own supplementary offerings that help the customer to strengthen and expand their process and business.
Every company can transform itself into a service company. In order for this to be successful, the prerequisites must be created, starting with the company's self-image. It quickly becomes clear that this initiates a cultural change that entails many further steps. New service structures, product management, new tasks and positions and, finally, new and sustainable earnings in relation to the product area. This form of cooperation with customers usually also leads to recurring business, which is also one of the goals. These contracts continue to run even in times of crisis. Many learned this in 2008/10 and are currently experiencing it again when they have concluded corresponding service agreements with customers.
Part of a servitization process can be cushioned and realized through professional partner management - which also requires that the CEO and all employees have developed a service gene in order to be successful.
KHE: Mr. Bunge, Mr. Weber, thank you very much for this comprehensive interview.
The interview with Frank Bunge and Michael René Weber was conducted by Dr. Katja Heumader for the TCI editorial team.
"Mastering transformation projects with the Enterprise Transformation Cycle" - published August 2020
The Transformation Consulting International has been supporting national and international transformation projects in companies for many years. Based on this extensive wealth of experience in practical implementation, the second volume entitled "Mastering transformation projects with the Enterprise Transformation Cycle: Successfully planning, implementing and completing projects" has been published by the renowned Springer-Verlag following the first volume "The Enterprise Transformation Cycle". As a continuation of the first volume, it takes into account further requests and suggestions from readers and presents specific transformation projects and situations in which TCI experts use the ETC in their daily work. The editors of this 500-page volume are Mario A. Pfannstiel and Peter F.-J. Steinhoff. You will find numerous theoretical and conceptual contributions as well as practical case studies on the "Enterprise Transformation Cycle".
Source cover image: © EtiAmmos | Adobe Stock
