Thursday, September 24, 2009

Low Cost Competition or Differentiation?

On September 14th, IMD organized a business forum in Stockholm, Sweden. Professor Winter Nie, who arrived in the Swedish capital only hours earlier that same day, shared her thoughts and latest research findings with the close to 100 people attending. The event was sponsored by the Business School at Stockholm University and as people took their seats in the Wallenberg auditorium, Jesper Hörnberg, a recent IMD graduate, said a few welcoming words. Nie led off her presentation by explaining how low cost competition is becoming a big challenge in many industries. (see above post for details on low cost competition) Besides discussing the latest trends in low cost competition with the group she also highlighted how companies could work succeed in option number three, to differentiate through creating a strong relationship -- specifically by adopting a service excellence approach.

Why does service matters?

According to NIe, the foundation for excellent service are buildt on ten pillars:

1. Instill and communicate beliefs and values
2. Develop a customer-oriented philosophy
3. Leaders should walk the talk
4. Invest in people
5. Use process and standard-setting to ensure consistency
6. Empower and involve
7. Implement service recovery
8. Measure and link incentives to customer orientation
9. Pursue the continuous improvements
10. Communicate and celebrate the customer culture

Delivering outstanding service is however not easy. It is all about people. Employees must know what the customers expect and what this requires of them. They must be willing to meet the customer’s expectations. Providing excellent service requires head, heart, and hand.

However, in the downturn we are currently facing, the concept of service excellence might sound both complicated and expensive. Nie therefore discussed a few examples from successful companies that have managed to cut costs while keeping its service level high. An interesting example is hotelier Ritz-Carlton, known for its customer centric approach, which has chosen to do its laundry at night in order to save electricity and replaced fresh flowers with potted plants. Good illustrations of trimming costs in ways customers are unlikely to detect. Another example comes from a company who installed in-store webcams that link customers with remote tech experts that were able to serve multiple locations at a minimal cost.
Business Forum Stockholm September 14

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