Service industry – predicting customer and client trends

11 December 2014

In today’s multimedia world, predicting customer and client trends − and shaping your business model to meet them − can mean the difference between success and failure. In this special report, Jo Causon, chief executive of the Institute of Customer Service, explains how CEOs can gain invaluable insight into their market and employ an abundance of new tools to stay ahead of the curve rather than chasing it.

Organisations are always on a journey, going backwards or forwards, growing or shrinking, but never standing still. In an era of unprecedented complexity, measures of business performance can be deceptive. Sustainable and long-term success, not just for individual organisations but for the UK economy as a whole, requires leaders to look to the future, assess potential impacts and scenarios, and make decisions about where to invest, deploy resources and change their organisations.

The 21st-century pervasion of information technology - particularly mobile networks and social media - has given the individual unprecedented levels of power over traditional 'top-down' authorities. Customers no longer accept a merely transactional experience with organisations they choose to buy from. They expect the company to understand, be available and responsive, and adapt to their needs and preferences at any time of the day and night.

In this complex and rapidly changing world, the virtues of trust, transparency and being easy to do business with have moved sharply into focus. With this in mind, I believe that the UK has entered the era of the relationship economy, where an organisation's success is increasingly determined by the quality of its relationships with customers, partners, suppliers, stakeholders and indeed its own employees. Improving business performance is no longer just about getting the basics right; it is about increased collaboration and innovation, greater knowledge and deeper personal understanding of the customers we serve across different industry sectors.

In a relationship economy, companies that excel in customer service are increasingly able to cross into and disrupt marketplaces. With rising customer expectations, the balance of power has shifted in favour of the consumer. To succeed, leaders must therefore ensure that they understand the expectations and changing behaviour of their customers, and how their relationships with them, partners, suppliers and stakeholders are developing along with their changing needs.

A focus on service

Service, particularly customer service, is central to the relationship economy and the future performance of the UK. A total of 78% of UK GDP is generated by the service sector and 25% of manufacturing companies' revenue comes from service.

As customer needs and preferences evolve gaining understanding is critical to continual improvement. The success of individual organisations and the UK as a whole depends largely on how good we are at delivering exceptional service.

Worryingly, we have seen a third consecutive fall in customer satisfaction - this should be a major concern for organisations. As the economy continues to recover there is significant variation in the satisfaction scores related to individual organisations and a clear signal that there will be winners and losers as the economy continues to improve.

Organisational leaders must be wary of the temptation to let strategic focus shift from retaining customers through a deliberate focus on customer service, to aggressive and rapid growth strategies aimed purely at increasing customer numbers. This is particularly important as consumers become less tolerant and more demanding of the organisations they deal with and where dissatisfied customers are increasingly likely to express and escalate that frustration using all the tools at their disposal.

During 2013 and 2014, the UK Customer Satisfaction Index (UKCSI) illustrates a consistent link between customer satisfaction and sales, particularly in the retail food sector. Those retailers who score above the sector average in the UKCSI achieved higher sales growth than those with lower-than-average scores by a margin of at least 3%.

When customers have a bad experience, 70% subsequently warn others about the organisation and 77% will actively avoid it if a choice is available.

With such high stakes it is increasingly important for leaders to be aware of the impact service delivery can have on their organisation and the elements that affect customer satisfaction.

Employee engagement

The Institute of Customer Service (ICS) now has a significant amount of research that demonstrates the importance of employee engagement in driving customer satisfaction. Unfortunately, according to customers questioned in a recent ICS entitled 'Are you being engaged?', employees appear slightly less engaged than they did in 2012. Slight decreases were recorded for all eight positive indicators of employee engagement, meaning the overall rating fell from 6.8 in 2012 to 6.5 in 2013.

In addition to basic levels of engagement, skills such as analysis, problem solving, interpretation and empathy will become increasingly important as customers look for the relationship connection and technology continues to transform business.

Organisations must be ready and willing to empower their employees to make real-time judgements and demonstrate enhanced customer service skills. Employees will be able to combine insight, emotional intelligence, commercial acumen and technological awareness to deliver time-critical, personalised service on the global stage of social media.

"The success of individual organisations and the UK as a whole depends largely on how good we are at delivering exceptional service."

There will continue to be a growing need to recruit, develop and promote employees and leaders who reflect and understand the needs of the various customer segments, and have the aptitude to develop a flexible mix of specialised and generic skills.

There is much to gain by a consistent and genuine focus on employee engagement, this is not just about the costs related to absenteeism and re-recruitment, but the affect employee behaviour has on customer satisfaction, retention and recommendation.

The importance of trust

Trust is and will continue to be a key element of the relationship economy, with the power to improve organisational reputation, influence potential shareholders, media and analysts, and provide support in times of crisis. It is central to an organisation's ability to acquire and retain customers, and there is a strong link to customer service. An increase of ten percentage points in an organisation's UKCSI score correlates to an average of 12 percentage points in the trust rating from its customers.

Similarly, organisations with higher UKCSI scores have significantly larger numbers of customers who are very likely to remain loyal compared with those with lower scores.

Organisations are, I believe, becoming more aware of the impact that trust and loyalty can have in the short to medium term, but critically in the battle for insight we know that customers will be more likely to share their data with a trusted organisation. With increased customer satisfaction and trust scores, an organisation's recommendation rate also grows, as well as its potential to gain greater understanding and insight to support innovation and product development. The majority of customers in the UKCSI who gave an organisation an overall satisfaction rating of nine or ten points also stated that they had recommended the organisation - creating an indicator of future growth.

As technology continues to advance and consumers demand that organisations become more transparent, leaders will need to prepare themselves and their companies for crises that have the potential to be global in minutes thanks to social media. Developing and building the trust that customers have in organisations will open doors for more personalised services and act as a buffer when things go wrong.

Data and insight

Concerns regarding big data, privacy, measurement and genuine service delivery can be greatly reduced with heightened levels of trust.

Consumers and organisations alike are nervous about the implications of big data, particularly how information is collected, what it is used for and who has access to it. Customers need to be comfortable supplying their information and organisations must understand what they are collecting and how it can be used. One of the many opportunities born from increased volumes of information is the delivery of greater levels of personalisation, which, in a relationship economy, is what many customers crave.

On the other hand, organisations must take care to ensure that there is a choice between accepting a personalised service and opting out. Every customer has different needs and requirements, and organisations will benefit by offering a choice of options that are clear and easy to understand.

In order to take advantage of these new opportunities, it will be important for organisations to invest in customer insight and apply it with greater speed and agility. This includes customers acting as co-creators of products and service experiences, advanced segmentation and personalisation determined by bespoke preferences.

Insight will need to be shared throughout organisations to ensure that staff are trained and prepared to deliver service as required by the customer. This information will also need to be made available to other organisations and, potentially, competitors; benchmarking with similar operators as well as organisations from other industry sectors should be combined to develop best practice and innovation.

There is so much information available that only with increased understanding will organisations be able to develop the right performance measures and encourage innovation from within.

Business models and collaboration

In order to gain deeper understanding, our research shows that organisations will need to seek new forms of collaboration and partnerships, and that will involve looking at other sectors and business models.

Although it is acknowledged that no single model guarantees success, we believe that the best-performing organisations are those that understand the potential weaknesses of their ownership and governance structure, and are willing to continually review structures and operating models in order to gain opportunities for greater flexibility, responsiveness and agility.

Although not without its risks, organisations and leaders gain greater potential for success by prioritising collaboration over competition, and demonstrating that they are authentic, inclusive, responsible and consistent in their approach.

Effective leadership

ICS research investigating the effect of business models on customer service found that strategy and leadership were also considered to be more critical than the business model itself. A number of business leaders who were interviewed claimed that effective leadership and management can actually compensate for any disadvantages inherent in an organisation's ownership model, especially if customer service leadership has significant influence at board level.

Above all, organisations that focus on strategic leadership, a commitment to customer service and the whole customer experience, and where employees understand the strategy and their role in delivering it will succeed where others do not.

Key actions for organisations wishing to stay ahead

  • Ensure you have appropriate customer service skills and experience in the boardroom.
  • Invest in customer insight to identify and profile the customer segments you wish to serve.
  • Enhance technology and environmental scanning capabilities.
  • Involve customers and other stakeholders in the co-creation of services and product design.
  • Ensure a consistent customer experience is delivered across all relevant channels.
  • Ensure data management is robust, transparent and trusted.
  • Create robust measurement and benchmarking of customer experience, organisational culture and agility.
  • Develop 'always on' service capability.
  • Ensure your recruitment processes are aligned to your target customer segments.
  • Ensure your performance management, reward and retention processes incentivise the behaviours required by your target segment.
  • Identify collaboration and partnership opportunities to improve the customer experience and responsiveness to changing needs.
  • Look globally for new opportunities to benchmark with competitors.