Tag Archives: customer portfolio

Service Excellence: Creating Customer Experiences that Build Relationships. Interview with Dr. Ruth Bolton

Podcast Transcript

This podcast is brought to you by the Center for Services Leadership, a groundbreaking research center in the W.P Carey School of Business at Arizona State University. The Center for Services Leadership provides leading edge research and education in the science of service.

Darima Fotheringham: Welcome to the CSL podcast, I’m Darima Fotheringham. Today I’m talking to Dr. Ruth Bolton, Professor of Marketing at the W. P. Carey School of Business at Arizona State University. She is the author of the new book “Service Excellence. Creating Customer Experiences that Build Relationships.” Ruth, thank you so much for joining me today, and congratulations on the new book!

Dr. Ruth Bolton: Thank you. It’s my first book, so I’m very excited.

Darima Fotheringham: It is very exciting! And I really enjoyed reading your book. It covers a lot of ground but it’s not a textbook. It is a very engaging and informative read that you can finish quickly. And it is the type of book that you want to hold on to so that you can go back to it again and again. Can you tell our listeners about what led you to write this book?

Dr. Ruth Bolton: Markets have been changing very rapidly, and I hear from the managers that there are many new opportunities and challenges. However, amidst all this change, managers kept emphasizing the importance of the customer experience. And I was intrigued that this term came from business not from academics. So what was it that managers were seeing that was so important? After thinking about it for some time, I realized that service researchers have a really important perspective to offer on the customer experience. So I decided to write a book about it!

Darima Fotheringham: Great! And it’s very timely. So as you said, customer experience is a really hot topic these days, and in your book, you emphasize a service-centered view of the customer experience. Can you talk about that? Why is this distinction important?

Dr. Ruth Bolton: Well, managers and academics who have been studying services really have a head start and understanding the customer experience. The reason is that, for many years, services research started from the premise that customer experiences are co-created by participants in a network. The participants, of course, are the company, its customers and other partners, such as suppliers. The key idea is that from a co-creation perspective, the goal of each participant is to use the resources and capabilities to support other actors in achieving their goals. So that’s how companies create value for customers.

In a service-centered view, co-creating customer experiences builds profitable relationships. But the emphasis is on innovating, designing and producing experiences that create value for both. So customer participation and engagement become key. Now if you stop and think about it, it explains the emergence of some of the innovative new business models in many industries such as the entertainment industry which is going through tremendous disruption.

Darima Fotheringham: Most companies are fairly up to speed on topics of customer satisfaction, value, loyalty, word-of-mouth, and so forth. I can imagine these are still very important when we talk about the customer experience, but what’s new today?

Dr. Ruth Bolton: Many people are fascinated by the new collaborative services such as Airbnb and Uber. These companies are co-creating with their suppliers, the people who rent out their homes or cars, and with customers, the people who travel. I think that many of us start by thinking that the technology platform, which enables the service, is important. However, the real challenge is how these three partners share information, develop group norms, and work together to achieve their goals. Uber recently recognized the Drivers Association in New York City to facilitate discussions on workplace issues. And if you stop and think about this from a service center perspective, it makes really good business sense.

Darima Fotheringham: Speaking of technology, as you note in your book, technology and new media enable customers and companies to engage in these new ways. Other than Uber, what other interesting and innovative examples can you share about how companies have been able to enhance customer experience using technology?

Dr. Ruth Bolton: I’m especially interested in how B2B companies have leveraged data driven insights to innovate and create value with customers. DuPont Pioneer was able to leverage its expertise in biotech to identify new services that help farmers map and plan how best to replace nitrogen in their fields. It lead to a new service channel and a new market that provides insights and solutions for land management. And the latest I read in the news is that folks are using drones to look at very large properties.

In China, Alibaba Group has built rural service centers in hundreds of Chinese villages so that people can search for products online and place orders as well as sell products through its online marketplaces. With an economic slowdown in China in 2015, the rural service centers are an important opportunity for new growth. So I really find the data driven insights fascinating. And an interesting feature about both these examples is that they improve societal wellbeing as well as creating benefits for customers and profits for firms.

Darima Fotheringham: Which is really great! In the chapter “the Building Blocks of the Customer Experience”, you discuss practical and emotional motives of the customers as they engage and develop relationships with companies. I think companies are usually well aware of the practical motives of their customers, but emotional motives are often much harder to identify. Why is it important that service experience is designed around both practical and emotional motives? And does this mostly apply to B2C companies or does it also matter in the B2B world?

Dr. Ruth Bolton: Oh, emotions matter for business customers too.  Businesses are composed of human beings, and human beings experience a variety of emotions such as fun, excitement, boredom, and frustration when they interact with companies. The starting point is that the business customer and its supplier are each pursuing their own goals, which may or may not be aligned. And within the business-customers organization, employees have specific roles and identities and they have their own goals.

There’s some really solid research showing that people interact with the company to achieve their goals, and when they do achieve them, they’re happy and feel in control. When they can’t make progress towards achieving their goals, look out for annoyance or even customer rage. Take a simple example, imagine a courier service is late in delivering an important package. The employee receiving the package can’t carry out his responsibilities and then there are ripple effects throughout the organization. Will we see customer rage? Quite possibly!

The effects of emotions can magnify aspects of the customer experience that might otherwise seem like small details. For example, I’ve been participating in research for the global retailer that’s been studying shopper satisfaction with the customer experience. We’ve discovered that people’s feeling of fun and frustration play a big role, no matter whether they are shopping in the store, online, or using a catalog. It’s crucially important to meet shoppers’ goals, say whether they’re browsing, searching, or buying, so that you can satisfy them. Interestingly, despite the fact that there are so many technology-enabled services, people still feel emotions in computer mediated environments.

Darima Fotheringham: I personally found the chapter “Managing Customer Relationships to Achieve Growth and Profitability” packed with great and useful insights. In that chapter, you give an example of IBM, how it successfully used the portfolio approach to managing their customers. Can you talk about that and share what we can learn from this example and this kind of approach?

Dr. Ruth Bolton: Yes, IBM successfully navigated the dot-com crash through better management of its customer portfolio, whereas Sun Microsystems did not. I’m really proud of our work looking at customer portfolios. This was a joint effort with Crina Tarasi and other colleagues at ASU, and it’s won some important awards.

You may have heard people talk about the customer asset and how customers produce cash flow streams over time. However, our research team identified an important issue that’s often overlooked, namely that customers’ cash flows are variable over time and that exposes the company to risk. Just like a stock portfolio, a customer portfolio should be diversified to minimize risk for a desired rate of return, and we were able to identify a number of strategies to reduce risk while maintaining profits.

One way is to manage the mix of customers, which is what IBM did. The general approach is to balance the market segments that your company serves so that its decreases in cash flows over time from one market segment are offset by increases in cash flows from another market segment, so that the average cash flow of the organization remains stable. This insight gives an entirely new perspective on market segmentation strategies. It’s particularly helpful for B2B companies because often they segment their markets by small, medium and large customers who have very different cash flow patterns.

Another approach is to work to increase customer satisfaction with their experiences. It turns out that satisfaction has a double whammy effect, lower cash flow variability and higher cash flow levels. I know it sounds too good to be true, but it’s backed up by solid research by many academics. And surprisingly loyalty programs may not always be the answer. Some loyalty programs lead to more variable cash flows, but not higher average cash flows. So companies need to think about designing loyalty programs to improve the experience or the intangible benefits, for example, membership recognition for consumers rather than offering economic incentives.

Darima Fotheringham: Very interesting! In conclusion, what one advice can you give companies that strive to achieve service excellence?

Dr. Ruth Bolton: I think you’re right that most companies know all about service quality, customer satisfaction, loyalty, and so forth. So my advice is: look forwards not backwards. What does the customer want for the future? Customers have goals they’re trying to accomplish by partnering with you so it’s crucial that companies understand what customers want next. In other words:

  • Understand and align with customers goals.
  • Generate trust that you can deliver experiences that satisfy these goals.
  • Offer products that are relevant to customers’ future needs not what they wanted yesterday.
  • And match the customer’s future circumstances.

Darima Fotheringham: Very helpful! Thank you so much. We were talking to Dr. Ruth Bolton, the author of “Service Excellence. Creating Customer Experiences that Build Your Relationships.” Ruth, thank you so much for your time!

Dr. Ruth Bolton: You’re welcome.

For more information on the science of service visit the Center for Services Leadership on the web at wpcarey.asu.edu/csl

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Ruth_BoltonRuth N. Bolton is Professor of Marketing at the W.P. Carey School of Business, Arizona State University. She previously served as 2009-11 Executive Director of the Marketing Science Institute. She studies how organizations can improve business performance over time by creating, maintaining and enhancing relationships with customers. Her recent research has focused on high technology, interactive services sold in global business-to-business markets. She has extensive experience with survey research design, as well as the econometric analysis of large-scale, integrative data bases. Her research is typically conducted in partnership with businesses, such as the Marriott Corporation, Hewlett-Packard and Schneider National Inc.

Managing the Customer Portfolio to Improve Service and Financial Performance

By Beth Walker and Crina Tarasi

Few firms consider “whether all of their individually desirable customers are, from the standpoint of risk, desirable collectively” (Dhar and Glazer 2003). Dr. Beth Walker, Arizona State University, and Dr. Crina Tarasi, Central Michigan University, present the findings of two papers that highlight the importance of considering the likely variability of revenue streams produced by customers when thinking about who to target with your marketing segmentation efforts.

Although risk management is central to financial portfolio theory, and occupies much of the thinking of a CFO, in marketing, researchers have given little attention to thinking about risk as it relates to market segmentation and selecting the portfolio of customers that we choose to serve. In this presentation, Dr. Beth Walker and Dr. Crina Tarasi share their research that demonstrates how the fundamental tools of analysis used by professional investors to manage the risk and variability of a stock portfolio can be effectively applied to managing a firm’s portfolio of customers. Borrowing from financial portfolio theory, the research centers on approaches to reducing the variability or risk associated with a firm’s customer portfolio without sacrificing the level of cash flows.

This webcast presentation draws from research papers published in Journal of Marketing and Journal of Service Research: