Managers must determine which attributes to target for excellence and which to target for poor performance when developing a successful service offering. Customers’ needs should heavily influence these decisions. Managers should determine the relative importance of attributes to customers and then align their investment in excellence with those priorities. Customers at Wal-Mart, for example, value ambience and sales assistance the least, low prices and a wide selection the most, and several other attributes rank somewhere in the middle. (See the exhibit “Wal-Value Mart’s Proposition” in the article “Can You Say What Your Strategy Is?” by David J. Collis and Michael G. Rukstad.) Wal-trade-offs Mart’s are purposefully informed by these preferences. The company improves certain aspects of its service.
Of course, the phenomenon is circular in nature. Shoppers whose preferences align with Wal-strengths Mart’s self-select into the company’s customer base. Meanwhile, those who dislike Wal-characteristics Mart’s shop elsewhere. It is therefore critical to identify customer segments based on attribute preferences—or, as some marketers prefer, customer needs. Identifying what could be referred to as customer operating segments is not the same as traditional psychographic segmentation. Rather than emphasizing differences that allow for increasingly targeted and potent messaging, this type of segmentation seeks out populations of customers who share a common understanding of what constitutes excellent service.
Once an appealing customer operating segment has been identified, management’s mission is clear: design a new offering or tweak an existing one to align with that segment’s preferences. Consider the fit achieved by Commerce Bank, which has been able to significantly increase its retail customer base despite having some of the lowest rates in its markets and making few acquisitions. Commerce Bank targets customers who value the experience of visiting a physical branch. These clients come in all shapes and sizes, from young, first-time bankers to time-crunched city professionals to elderly retirees. However, as an operating segment, they all believe that convenience is the most important feature of a bank and prefer Bank of Commerce
It’s tempting to think, “If I’m a great manager, I won’t have to give anything up to the competition.” This well-intended logic can, ironically, lead to mediocrity in all areas. The only organizations I’ve seen that excel at most service attributes charge a 50% price premium over their competitors. Because most industries do not support this type of premium, trade-offs are required. I like to tell managers that they have a choice between excellence paired with poor performance on the one hand and mediocrity across the board on the other. When managers recognize that poor performance in one dimension fuels superior performance in another, the development of excellent service is not far behind.