Businesses that offer their customers the highest levels of service might like to believe that all their efforts to pamper and please will pay off with an extremely loyal following.
But as new research from Harvard Business School demonstrates, the customers you think are your best and most loyal are likely to be the first to cast you aside when a challenger to your service superiority barges into the market.
“Our results suggest that this is due to increasing expectations for service in these markets—the longer a firm has held a service advantage in a local market, the more sensitive are its customers to it service levels relative to those of competitors,” says Harvard Business School’s Dennis Campbell. In other words, you reap what you sow.
In How Do Incumbents Fare in the Face of Increased Service Competition?, Campbell, fellow HBS professor Frances X. Frei and doctoral student Ryan W. Buell explore this dance between service levels, customer loyalty, and competitive strategy. The study drew on extensive data gathered from a large US domestic bank operating in more than 20 states from 2002 to 2006.
In addition to proving what earlier models only hinted at—that new challengers offering high levels of service can siphon off the best customers of long-standing incumbents—the researchers learned something else: Firms rated lower in service quality are more or less immune from the high-end challenger.
These findings suggest that before mounting a counterattack on a competitor’s incursion, it’s important to understand your customer priorities and your business’s place along the service cost continuum. In some cases it can be advisable or even necessary to invest in a response. In other cases, you may as well save your money, according to the researchers.
The study also concluded that even though high-end customers can be fickle, a company that sustains a superior service position in its local market can attract and retain customers who are more valuable over time.
“One prescription from all of this is that managers should avoid service complacency—or the tendency to rely on preexisting service advantages—and invest more in proactively increasing relative service levels when they’re faced with even the potential threat of increased service competition,” says Campbell.
Read the full article here.