Monday, November 07, 2005

Selling Customer Service at a Premium Profit

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.

5 Comments:

At 4:54 PM, Anonymous katie said...

Interesting post. I agree that customers opt for service – people want to be served, not sold. As a public relations student, I have been taught that customers are always your most important public, because if a company doesn’t succeed in attracting customers and building relationships with them, then it serves no purpose and will soon be out of business. Ironically, the customer first mindset sometimes pushes public relations into the background and marketing into the foreground. (I suppose this is why public relations students are required to take marketing classes). Regardless, it all comes down to customer delight.

While I don’t see the need to purchase a $13 million dollar airplane engine in my future, I would expect potential customers to assume that service is included in such a large purchase. As you mentioned, it appears that Rolls Royce has a grasp on this particular consumer need.

I visited the company's website and came across a short description of the company’s customer training program. It was interesting to see that in three short paragraphs, the company had outlined a program that ensures customer delight by promising customer benefits. First, Rolls constantly involves employees to guarantee they deliver. Additionally, the program is designed to maintain a customer base, as well as service. Finally, Rolls has met customer expectations by “providing cost saving and life-saving insurance for people and production equipment utilized in today's world.”

Proof that selling customer service is a priority.

 
At 6:31 AM, Blogger Virgilio Y Paralisan said...

The fact that the writer even comments on issues of customer service is already a plus on itself. Very few people in marketing or even in high-technology sectors consider customer service as a strategic component of growth. Although many studies on the cost of building a strong customer base points to the need to come up with a cohesive customer service programs, organizations still see customer service as an incidental facts of business life they have to live with.

Time and again, former giants of many industries have seen their market share eroded by their own narrow-minded perception of who is their customer and how this customer is to be serve.

The issue of customer service can be a boon or a bane depending on who is behind the sights of the marketing targeting system. If you are proactive, customer service can be a boon but if you think customer service is not a program worthy of investment, this could be a bane with lessons usually learned painfully and often times the hard way.

 
At 6:32 AM, Blogger Virgilio Y Paralisan said...

The fact that the writer even comments on issues of customer service is already a plus on itself. Very few people in marketing or even in high-technology sectors consider customer service as a strategic component of growth. Although many studies on the cost of building a strong customer base points to the need to come up with a cohesive customer service programs, organizations still see customer service as an incidental facts of business life they have to live with.

Time and again, former giants of many industries have seen their market share eroded by their own narrow-minded perception of who is their customer and how this customer is to be serve.

The issue of customer service can be a boon or a bane depending on who is behind the sights of the marketing targeting system. If you are proactive, customer service can be a boon but if you think customer service is not a program worthy of investment, this could be a bane with lessons usually learned painfully and often times the hard way.

 
At 1:24 PM, Anonymous sara said...

I enjoyed reading this post and I agree with Rolls on the customer service. Customers are the most important part of a business. If you don't have customers then you won't have a business. It plays an even bigger role when purchasing expensive products such as engines, cars and even airplanes. They have become the No. 2 company because they keep their customers happy and when customers are happy they keep buying your products.

As a public relations student, I have been studying cases of customer relations. Rolls Royce is a great example of how to treat people. Customers won't their products to be able to be fixed as soon as possible and with a customer hotline Rolls can do just that.

All manufactures of expensive products need exceptional customer service. I company can define itself by its customer service. If a company has poor customer service then consumers won't want to buy their product. I think Rolls Royce has mastered customer service and other companies should look at them as a good example.

 
At 1:54 AM, Anonymous Anonymous said...

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As of December 30, 2007, 1.319 billion people use the Internet according to Internet World Stats. Writing in the Harvard International Review, philosopher N.J. Slabbert, a writer on policy issues for the Washington, D.C.–based Urban Land Institute, has asserted that the Internet is fast becoming a basic feature of global civilization, so that what has traditionally been called "civil society" is now becoming identical with information technology society as defined by Internet use. - web design company, web designer, web design india

 

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