Types of Customer Variability and Strategies How to Tackle Them
In case of PRODUCT purchase, customers can't customize their experience a lot, they choose the products which best suits their needs. But in a SERVICE business, customers may have more unpredictable behavior. They may have various wants which might change from time to time, they may request the service at any unpredictable time, etc. All these things can be included under a broad term known as customer variability.
To manage customer variability, the first step is to understand what forms it can take. The following are the types of customer variability:
- ARRIVAL VARIABILITY: This is one of the most common types observes by the service providers. It happens when a customer wants the service at times other than what is specified by your company, they want it according to their convenience. Suppose, at the reception of a hotel or at the billing counters of a daily needs store at a specific time there is a long queue as all the counters are busy, while at other times, they may be all empty. One solution to this situation is to make the customers make prior appointments.
- REQUEST VARIABILITY: This means that customers can request a range of things for which a company may have to be flexible for providing the services. For example at a resort, a customer may want to avail of various services. If a customer demands the same request every time, its easier for a company to meet that request, but in a service industry every customer has different requests and this creates request variability.
- CAPABILITY VARIABILITY: Some customers are able to perform certain required tasks (easily) while some others require assistance in completing that task. For example, a particular patient might not be able to clearly tell the symptoms of a disease that impacts the quality of the health care he gets. Another example is that some customers may not know the proper way to customize their order when they are given a lot of options, an example is ordering a drink at Starbucks as they have a large number of permutations and combinations of size, flavors, toppings, etc.
- EFFORT VARIABILITY: This is somewhat similar to capability variability, but it doesn't talk about the ability of the customer to complete the tasks required to receive a service but the actual effort put in by customers if they are performing a role in some service delivery system. Everyone puts a different level of effort and this creates effort variability. For example, one supermarket customer may not not return the shopping cart to the specified place in the parking lot. That adds to the cost of the company and also effects the experience of another customer.
- SUBJECTIVE PREFERENCE VARIABILITY: This means different customers have a different opinion about a similar service. This may happen because every customer has a different definition of "good service". Some customers might like soothing music in the background while having dinner, while other people may not like it. The choice for music makes the service experience different for both cases.
Understanding these five forms of customer variability helps managers undertake measures to tackle it. Some of these might seem obvious, but understanding them in more detail will help them apply the appropriate strategies to reduce such customer behavior or handle such situations. Whenever managers face issues of customer variability and it seems they might lead to operational inefficiencies, they have 2 choices, whether to accommodate the variability or attempt to reduce it.
Usually, companies that have an image of a good service experience tend to accommodate the variability, while the company that emphasizes operational efficiency, try to reduce the variability and thus keep the operational cost low. Managers have a tough choice because if they decide to accommodate the needs of the customer, they will probably face higher costs and if they refuse to accommodate the demands of the customer, there is a risk of customers defection as they feel the quality of service is low.
We can understand the relation between the cost to serve and the quality of service experience from the following matrix and how the classic accommodation and classic reduction strategies work. We will also try to understand two other strategies to tackle customer variability which are low-cost accommodation and uncompromised reduction.
A manager has to figure out which type of customer-induced variability is creating operational inefficiencies and then decide which of the following measures he/she should take to tackle those.
- CLASSIC (ABSOLUTE) ACCOMMODATION: Classic accommodation is a strategy where every customer-induced variability is addressed at a cost which the company has to bear. This is done to provide the best service experience to a customer as possible. Usually many 5-star and 7-star hotels use this strategy where every customer means a major business of the hotel and an extremely satisfied customer leads to repeat purchase.
- CLASSIC (ABSOLUTE) REDUCTION: This is the strategy where you reduce the customer variability totally where customers won't have many options and would have to follow the rules. This increases the operational efficiency of the company and it may even allow the company to provide the service faster and at a lower cost. One of the best examples of this type of service is Mc Donald's where the menu is specified and you cannot order anything other than from the menu. But once you place an order you get it faster than regular restaurants because every order requires pre-defined fulfillment steps and gets to you in the specified time. In this strategy sometimes a penalty can be imposed on customers if they go outside of the terms. For example, Uber has a penalty-based system where, if you are canceling the ride after a specific time (when the driver has already left to pick you up), you get a penalty of a small amount, depending on when you canceled the ride.
- LOW-COST ACCOMMODATION: This strategy involves spending a little cost to accommodate variable customers. For example by creating self-service options for customers that are not much of a hassle for the customers and also involves only limited cost for the company. For example, Dell accommodates the request and arrival variability of customers by outsourcing on-site customer service. Thus, they can provide fast and convenient service as per customer demands at a lower cost.
- UNCOMPROMISED REDUCTION: This is the strategy where customer variability is reduced without compromising the customer experience. Customer variability can be adjusted by targeting a specific type of variability. For example, Starbucks has a large number of options to order from where customers can customize their drinks from various sizes, flavors, etc. To reduce the capability variability, they train the employees to call out the orders in a particular order even if it's not presented to them in such a way. This eventually teaches customers the protocol and reduces the capability variability. Also, there are pamphlets which mention the "guide to ordering" given to the customers.
These strategies to reduce or to accommodate the customer variability can be used to either improve the
customer service (intimacy) or to improve
operational efficiency. It will depend on the managers to decide which strategies work best in various cases. They will often have to make some
tradeoff between customer service and the cost to serve those customers.
Sources:
Frances. X. Frei, "Breaking the Trade Off Between Efficiency and Service", HBR, November 2006
Sven, "The 5 types of customer variability", Userlike
Smriti Chand, "5 forms of customer variability", Yourarticlelibrary
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