It’s fascinating to see how industry after industry is becoming more commoditized — from car rental to hotel rooms and airline seats. Even home and auto insurance, banking and investment services are more commoditized than before.
Typically, products and services in a commoditized sector are quite similar — in distribution, relationship to customers, pricing and presentation. Variances may result from differences in demand or market segments, as well as differences in brand, marketing and revenue strategies. Affinity programs may also be a factor, although they are diminishing in value and increasingly difficult to navigate.
In this environment, people and process typically have the greater impact on customer experience, ergo loyalty (retention) and advocacy. As such, customer experience becomes a critical driver for success. The voice of the customer takes on greater significance.
A beginning point is to gain greater clarity in the distinction between customer service and customer experience. Customer service is more static, while customer experience is more dynamic. Service comprises the various elements or steps in the process of delivery, how well employees execute those steps, and how each step and the people affect the service level received by the customer.
Customer experience concerns the effectiveness of these steps and their delivery by personnel. It is also tied to the relationships between the employees and the customer, the customer’s perceptions of service and brand, and the effect these relationships have on the customer’s total experience.
In addition, there are lesser and greater levels of service and experience. While a customer may have one bad experience (the lesser experience), the overall experience with the brand may be positive (the greater experience). [PAGEBREAK]
When Service Steps Fail
Take, for example, this real-life customer experience. After a long road trip, a premium affinity customer arrived by shuttle in a deep winter freeze and had to walk with a heavy suitcase to the end of the parking lot for the car. It was clean but frozen. It had not been turned on. There was no key in the car. The trunk was not open.
The customer had to walk all the way back in freezing weather to the counter, pulling the heavy suitcase through the snow. The agent stated that the keys were just taken to the cars. This meant the customer had to walk all the way back to the car, pulling the suitcase through the snow again.
Instead, the customer found the airport manager in another building to state the obvious. The manager began to explain how the bad weather had created a lot of problems for employees. Not impressed, the customer gave up and walked all the way back to the car.
Why was the car at the end of the parking lot for the premium renter? Why did the employee who parked the car not scrape off the frozen windshield and side mirrors? Why didn’t the employee leave the keys in the car? Why was the car not running? Why did the agent or manager not offer to drive the customer back to the car? How much did the customer really care about the impact of weather?
In this instance, many service steps did not work. The service level was poor. However, while the customer’s lesser experience was diminished, the overall greater experience with the brand remained positive because this was an exception.
In addition, the customer did not really believe there would be material difference at a competitor. Switching brands was not worth the time or effort.
The customer will continue using this rental company, although his opinion of the brand may have slipped a bit. But it’s risky to confuse degrees of customer tolerance and indifference with levels of loyalty and advocacy. [PAGEBREAK]
Making Exceptional Service an Expectation
Best-in-class service companies such as Avis, Enterprise, Hertz and National make exceptional service part of their corporate culture. It is simply the way things are done.
One common goal is making the rental experience simpler for the customer. Time wasted can never be recovered, and consumers are increasingly pressed for time. They want products and service relationships that consume less time. They simply don’t have the time to deal with poor service.
Of course, a strategy for customer experience cannot be static. Consumers are more sophisticated. They take notice and remember how they are treated.
While companies are busy changing strategy against competitors and for consumers, consumers are changing their behavior to adjust to market conditions. They want to ensure they’ll continue to get the best deal and value possible. Change and adjustment are constant. It’s important to continually track and measure these changes in order to respond to consumer demands and segment conditions.
The customer experience strategy also needs to be consistent with the brand, value proposition and market segments targeted. A value brand should not try to wow the customer because the expectation from the “value” is not that. The return on investment for wowing a value customer cannot be justified. However, the customer experience can still be exceptional, within the context of a value experience strategy.
The challenge for best-in-class service companies is the limited opportunity for improvement. The benchmark of wowing a customer five to 10 years ago has now become the baseline expectation. The danger in reaching this standard lies in the laws of diminishing returns.
Hertz Gold customers now expect to board the shuttle, give their name, arrive at the rental facility, look for the spot number next to their name on the board, go to the car and find the trunk open, with the rental agreement and keys in the car. In a cold environment, the customer expects the car to be running.
What more can be done to improve customer service and experience for these business customers? What made the rental experience great 10 years ago is today the baseline expectation.
Meanwhile, the greatest opportunity exists for next-tier competitors such as Alamo, Budget, Dollar and Thrifty. For these companies, improving experience levels can increase acquisition, retention and advocacy. They can gain market share and drive growth faster than top-tier rental companies.
When a brand develops a reputation for consistently delivering high standards of service, that’s a major competitive advantage. This is one of the reasons why Thrifty and Budget have opted to acquire franchises and transition toward a more corporate enterprise. Ownership of customer experience, particularly at the senior ranks of the organization, is unquestionably one of the weightiest drivers of success. The organization cannot afford to have leadership that “talks service” but “walks operations.” [PAGEBREAK]
Commitment from Management
It’s important that front-line employees recognize management’s commitment to service excellence. One sign of this commitment is how quickly and effectively managers respond to customer complaints. When authority is decentralized, local managers can address service problems directly. The closer to the front line of the organization, the more time is spent with the customer. This is why best-in-class companies find people with the right skills, provide them with the necessary tools and environment, and empower them to achieve excellence.
One characteristic that sets Enterprise apart from many competitors is the company’s value-centric business model. Values such as service and empowerment are eternal. In a decentralized organization, managers are free to apply these values as needed, taking into account the specifics of a market segment or situation. The approach is more organic than systematic. A focus on customer experience isn’t just a part of the corporate culture; over time it has become central to the corporate DNA.
The impact of customer experience on business value is significant in the current environment. The car rental market is not expanding. Encroachment on competitor market space continues. Companies emerging from Chapter 11 have a new lease on life. Acquiring and retaining satisfied customers can lead to sustained growth and profitability.
Studies demonstrate that improving service can translate into a significant increase in business value:
• A 1% increase in retention at a major insurance carrier translates into a $35 million increased top line and $15 million increased bottom line.
• 71% of customers who experience outstanding (a perfect score of 10) service will definitely rent from that rental company again.
• Only 24% of customers who rate their experience as 8 out of 10 will definitely rent from that rental company again.
• Companies lose 15% to 20% of revenues each year to ineffective, inefficient processes.
• A dissatisfied customer will tell nine to 10 people about an unhappy experience. The same customer will tell only five people if a problem is handled satisfactorily.
• 31% of customers who experience service problems never complain. Of that 31%, as few as 9% will do additional business with the company.
Further improvement in performance can be measured by the right ratio of share of renters to share of rentals. Each business model or segment may determine its own unique ratio. [PAGEBREAK]
In leisure, the benchmark may be a higher share of renters than share of rentals. However, in business, the share of renters may be lower than the share of rentals. Each has unique ramifications for specific brands and market segments.
With a clearer understanding of the implicit value of customer experience, as compared to customer service, you can take steps to better understand the customer’s voice. That customer perspective can be integrated into the enterprise to further improve performance.
One of the most challenging tasks is identifying what to measure and how to measure it. Business 101 says, “Ask your customer.” Of course, the focus must be on measuring the reasons why a customer rents from you, will return for more rentals, and will recommend you to others. These are the three core questions at Enterprise.
An index approach can address the answers to these questions. The pickup process, according to the voice of business travelers, is the second biggest factor (25%) determining whether a rental car experience is positive. The biggest factor is rate/value at 26%.
The factors that determine the quality of the pickup process include:
• Speed of rental pickup process
• Line wait at rental pickup counter
• Walking distance to car from rental counter or drop-off
• Knowledge of pickup counter personnel
• Condition or cleanliness of rental car counter.
Among these factors, which ones separate the industry leaders from their challengers? By addressing this question, next-tier companies can start to take steps to further close the gap. Priorities come into greater focus more quickly.
Ultimately, measuring and understanding the voice of the customer is worthless if you fail to use that knowledge to improve performance and business value. Each organization, therefore, needs to decide how it perceives the value of customer experience in the context of its business model and market segments.
Vafa Akhavan is executive director of consulting for J.D. Power and Associates. He can be reached at [email protected]