Productivity in Services

Prof. Fred Phillips

April 20, 2014

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Introductory Talk: Productivity in Retailing

Agenda

• The sad state of US retail - details

• Customer rage

• The service “cost disease”

• Can we find our way out of this

mess?

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If news media didn’t sugar-coat the headlines, we’d see:

16% Lower Than 2013, as Store Traffic Declines by 2.3%

Target Profit Plunges by $80 Million

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And... • Wal-Mart Profit Plunges By $220 Million as US Store

Traffic Declines by 1.4%• Sears Loses $358 Million in First Quarter as

Comparable Store Sales at Sears Plunge by 7.8% and Sales at Kmart Plunge by 5.1%

• JC Penney Thrilled With Loss of Only $358 Million For the Quarter

• Kohl’s Operating Income Plunges by 17% as Comparable Sales Decline by 3.4%

• Costco Profit Declines by $84 Million as Comp Store Sales Only Increase by 2%

• Lowes Misses Earnings Expectations as Customer Traffic was Flat

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Doubling of available retail space in the US even as..

• Incomes are dropping • Online shopping is growing • US population ages with little saved for

retirement• Retail space per consumer in the US is

47 square feet, – 3 to 8 times more than anywhere else in the

developed world– The number is 12 square feet in Germany.

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Empty malls

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Service as a “white box” input-output process

ServiceProcedures

ResourceInputs

EffectiveOutputs

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Frontier vs. Regression Line

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The Customer Rage Survey*

• The number of households experiencing "customer rage" — very or extremely upset about the company response when they complained — jumped to 68% from 60% in the last survey, in 2011.

* Unless otherwise noted, text and data are from CNBC, 12/2013

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“The trend toward prompting customers to do it all themselves: make

reservations, do their own banking, solve their own problems, may have just

reached its natural limit.”

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• More people than ever are dissatisfied with the products and services they buy, according to Arizona State University study. – And when there is a problem, we're less

happy with the customer service we receive.• People who receive poor response

become 12% less brand loyal than if they didn't complain at all.

• "Given that most complaints are not satisfied, corporate America is spending billions of dollars on customer care programs that are actually losing them customers." -UA study director

Rage

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Social media make it even worse!

• “Businesses no longer hold absolute sway over the decisions and behavior of consumers.

• “The longer companies refuse to accept the influence of consumer-to-consumer communication and perpetuate the old ways of doing business, the more they will alienate and drive away their customers.”

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Automatically nurture!

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Automatically nurture??!

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Lessons

• Most businesses see customer service as an expense. They need to consider it as way to improve the bottom line.

• "There's clearly a benefit to better customer service and a real cost for poor service," Broetzmann said. "Businesses are losing billions of dollars a year because of lousy customer service."

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Prices in Higher Education Tend to Rise Faster Than in the Overall Economy

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

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HEPICPI

Source: The Common Fund

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5/8/14: SAN DIEGO OPERA IS FIGHTING FOR ITS FUTURE AND YOUR HELP WILL MAKE IT

A REALITY!

Thank you for your generous support of San Diego Opera through High-Tech Night @ the Opera. For 15 years, it’s been our industry tradition to come together at the opera for exceptional networking and great performances.

The Board of Directors are pleased to share that we [can] save San Diego Opera, but we need your help! If you believe in the value that San Diego Opera brings – not only to your own life, but to the economic health and vibrancy of our region, please make a contribution, whether $10, $100, $1000 or more. Click here to donate or call Patron Services at (619) 533–7000 Monday–Friday 8:30am–4:30pm.

http://www.youtube.com/watch?v=HM84l5uru1M&feature=youtu.be&sc=19665 San Diego opera asks donations

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Colorado Symphony, cannabis industry, find harmony with concert series

By Ray Mark Rinaldi, Denver Post. POSTED: 04/29/2014 24 COMMENTS

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$$Revenues $$$$Expenses$$

Mainten-ance,

upgrades

SalaryIncreases

Leases,Insurance,

etc

New Regula-

tions

“The Ratchet”

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$$Revenues $$$$Expenses$$

New Program

More Faculty

ImproveTechnology

Betterservice

NewProgram

MoreStaff

More Options

“The Lattice”

This implies...

• ... It’s hard to find investors for service businesses,

• because labor-intensive activities are not “scalable.”– That is, revenues to not grow

appreciably faster than payroll.

Answers seem to involve:

• Planning for the future: – Demographics; Disruption

• Aligning government policies: – Fiscal; Monetary

• Investing in people and process• Managing risk, managing

relationships, managing expectations• These are the topics we’ll focus on

today.