Let's put it into context.
If you're buying a $13 million jet aircraft engine, is getting the cheapest price or the best service more important?Reveries
reports that Rolls Royce
proves that customers want and need service.
"Over the past 15 years," Rolls-Royce "has clawed its way up from bit player to No. 2 in the market for commercial airliner engines" via a deft combination of product, and -- even more important -- service, reports Stanley Reed in BusinessWeek
(11/14/05). You may recall that Rolls nearly went out of business "in the 1970s before the British government took it over," keeping the aircraft engine business and selling off the motor car division. The critical moment for Rolls (which has been around 101 years) actually came in 1996, when "John Rose, a reticent former banker" became chief executive officer. Rose not only "pushed hard to broaden Rolls's product offerings" but also to provide maintenance services to match.
For Rolls, the service-and-maintenance part was key, because the margins in it are in the 30 percent range, far outstripping "those for original engine sales (monster turbofans, which may list for as much as $13.5 million a piece, are often sold at big discounts to win orders)." As a result, Rolls-Royce, www.rolls-royce.com, today has "one of the world's most sophisticated help desks. Using live satellite feeds displayed on video screens, its technicians continuously monitor the health of some 3,000 engines for 45 airline customers." Naturally, product design figures prominently into the service side, as "the layout of Rolls-Royce engines makes them easy to work on." Rolls packages it all up in a plan "called TotalCare
, under which" customers pay them "a fee for every hour the engine is in flight.
In return, Rolls assumes the risks and costs of downtime and repairs." The upshot: "Rolls is incentivized to put expensive modifications into the engine to improve reliability," notes Bob Reding, svp for technical operations of American Airlines, "which operates 178 Rolls-powered planes." Some customers gripe that Rolls's "maintenance costs are well above those of the competition," but for the most part that doesn't seem to be hurting them any: "The company says it has clinched 86 percent of engine orders for the new Boeing 787, and orders for the Airbus A380 are evenly split with GE." According to analyst Sandy Morris of ABN Amro, Rolls Royce Group is poised to enjoy "a 65 percent year-on-year increase in operating profits in 2005" and investors "have bid them up 46 percent since the beginning of this year."
Does this work just for complex business-to-business companies? Nope. Customer service gets right down to the level of the grocery store. An independent researcher discovered that the vaunted TESCO, the leading UK supermarket, is vulnerable to a competitor's superior customer service.
As TESCO announces record profits and consolidates top ranking in the UKgrocery retail market, figures released today from independent customer loyalty experts TARP UK, show that TESCO`s business remains vulnerable to ASDA on service. But the general lack of service quality across the industry is costing the supermarkets GBP20billion P.A. as 3/4 of supermarket shoppers would happily shop at another retailer. The defining factor is staff availability and checkout service - not price or store location.
-- 43% of ASDA customers were very satisfied, compared to
-- 34% of Sainsbury`s customers, and
-- ONLY 37% of TESCO customers were very satisfied.
-- 32% would ALWAYS use ASDA if at all possible, compared to only
-- 19% of Sainsbury`s shoppers, and
-- ONLY 25% of TESCO shoppers.
Which is to suggest that when you're building any marketing program, you should be putting as much effort into improving customer service as you put into product development. Given the option, customers will opt for service.