Services have become an integral part of business, driven by two major trends: customers becoming more powerful and companies realizing that they need to change their business model to look beyond just products and at the life-time value of customers, and outsourcing.
Customers, armed with an amazing amount of information through the Internet, are now more knowledgeable and demanding. They are able to interact with companies through multiple channels, expecting that companies will know who they are and what they want. This can work well for companies also, as they can now tailor their offerings to what customers want. As the actual product offerings become more similar due to technology and knowledge diffusion, the differentiator comes from the services that companies are able to offer.
The product purchase is only the start of the relationship. Thus, a car company is not just selling a car, but offering a transportation service to the customer. Customers buying a washing machine actually want clean clothes. So, a company can actually craft a new service relationship with the customers. Andy Mulholland of Cap Gemini Ernst Young elaborates on this (as summarized in FTDynamo):
What kind of business model and what kind of machine might emerge from such thinking? Let’s call the business model “cleanclothes.com” and the product “the internet washing machine”. The machine has a display panel and is linked to the Internet. Faced with a wine-stained sweater and shirt on the morning after the office party, you do not need a handbook to work out the right setting. Key in the type of stain and the material and let the machine consult the manufacturer via the Internet, get a reply and set itself accordingly.
With the manufacturer in direct, interactive contact with the user in this way, other things become possible. Why not “pay as you wash” and avoid all the problems associated with owning and servicing a machine? This would be tantamount to outsourcing the washing process; to paying a fee to ensure the desired experience of ever-clean clothes.
The future model is thus “service and transactions”, which is profoundly different to the traditional “product and purchase” model. This is evident in many industries. For instance, banks and financial services companies now offer a multitude of options and services to better manage money, including home-delivery of cheques and drafts, extended banking hours, Internet and telephone banking and ATMs to suit the customer’s convenience. Courier companies are not just delivering packages but also providing precise information on where the package is at any instant of time. Airlines offer alert services on cellphones in case of flight delays.
In many of these service extensions, technology is helping either customers service themselves via online forms and personalised pages, or provide direct communications and interactions with customers without the need for human intervention. Even in the case of people-intensive service tasks, there is now a cost-effective option available: outsourcing.