DETERMINANTS OF EFFECTIVE SERVICE QUALITY IN PRICING RATE DESIGN IMPLEMENTATION

INTRODUCTION

Total quality management involves providing customers with ongoing improvements in quality, and it surrounds all aspects of a business’s products and services. Specifically, service quality concerns the services a business provides and whether they meet customer expectations and needs. Although each industry differs in what providing its service looks like, 10 dimensions are commonly attributed as determinants of service quality: reliability, responsiveness, competence, access, courtesy, communication, credibility, security, understanding and knowing customers, and tangibility.

We analyze these determinants of service quality, then go on to apply this framework to other sectors, including the energy sector. We give recommendations for ProRate Energy Inc.’s innovative rate design, called ProRate/CLEP, and these recommendations can benefit and improve their service quality when they implement their pricing rate design as an alternative rate structure for rate payers.

1. RELIABILITY

Reliability ensures that the customer regularly experiences the same service. If a business is unreliable in the quality of service it offers, a customer will experience inconsistencies surrounding the quality of service. Customer satisfaction surveys are an excellent means by which to make sure the voice of a customer is collected, and they also serve as an avenue for unsatisfactory performances to be heard by a business:

One tool many companies use to gain insight into customer attitudes is customer satisfaction surveys. It’s laudable to conduct the survey, but it’s laughable that many companies don’t follow through and implement an action plan to address issues uncovered by the survey. (Entrepreneur Media, Inc, 2010, p. 1–2)

Using action plans to address customer satisfaction surveys allows tasks and timelines to be specified, defined, and communicated for exactly how and when changes to a service or the addressing of a service recovery incident will be accomplished. The severity of related risks involved in lapses in service vary greatly across industries. For example, in the restaurant and healthcare industries, an accident might result in compromising a customer’s or patient’s health, whereas in sales, a mere financial harm might occur due to a lapse in service. For many businesses operating in the former industries, such as healthcare, becoming a high reliability organization (HRO) is important. The goal of an HRO is to have zero preventable deaths. Stralen et al. (2018) identified the following HRO principles that ought to be adopted by companies aiming to achieve this level of safety:

• Preoccupation with failure embodies vigilance towards system vulnerability and the early engagement of problems.

• Reluctance to simplify recognizes the complexity of multiple interactions at the local level that the organization is reluctant to simplify or to keep simple.

• Sensitivity to operations describes the priority of local discrepancies, disturbances, and interruptions while maintaining strategic operations.

• Deference to expertise recognizes the importance of local knowledge gained from interacting with the situation.

• Commitment to resilience supports the open-ended working of a problem until it resolves.

2. RESPONSIVENESS

Customers will often set their expectations across business and industries based on the current best-in-class services, and having speedy responses to customer queries has become the norm. If Amazon, as an e-commerce company, provides easy-to-use, one-click access to purchasing products, customers will naturally expect such ease for other businesses that they interact with. Typically, customer service response times are expected within one business day: “…respond to e-mails within 24 hours. And don’t use business cards as cues to bombard new contacts with pitches” (Gallo, 2007, p. 1).

For businesses that interact with many customers, rather than concierge services that have a small, select set of customers, utilizing a standard response time for both your internal and external customers (fellow employees as well as non-employed customers) is best for meeting customer’s expectations, and it is also a way for a company to be efficient with its own customer service resources. Conner identified that

“…to create a formal and written policy on standard response time, your policy should accomplish the following:

• 1. To clarify expectations for after-hours work, rather than relying on the unspoken policy.

• 2. To assist an employee outside the office on business travel to know how often to check in.

• 3. To relieve the employee taking the infrequent vacation, so she can truly unwind (or not).

• 4. To assist organizations in managing projects, overtime payments, and inter-office communication.

• 5. To allow employees who tend to over-work to truly clock out when they leave the office without fear for their job if they fail to deliver immediately on the extra work, or risk being labeled and treated like a weakling or suck-up if they choose to comply.” (2013, p. 5)

3. COMPETENCE

Consumers are more discerning and less trusting than in the past regarding the quality of services provided. When customers interact and engage with a business, their first impressions are often shaped by marketing or vague descriptions of the service that rely on the service provider’s reputation and expertise to justify trust in the services provided. For example, a patient requiring a heart surgery might shop around hospital systems to find a surgeon that he or she trusts, whereas a mere generic check-up might generate a more relaxed approach in finding a qualified practitioner.

Taking customer discernment in mind, businesses can train their employees and promote continuing education to promote trust in consumers. While initially, training seems best done surrounding a learner’s interests, Paul (2012) recommends that training should be focused on getting workers to remember everything they need to know to do their jobs. Furthermore, we have greater access to information, in general, than we did previously. So, learners memorizing didactic information is less important if they can quickly access or reference certain codes and compliances. As a result, when a trainer considers what a learner particularly needs, he or she should distinguish between content that is need-to-know versus content that is need-to-access. In other words, training should teach people where and how to find that information, rather than seeking to have them retain that information in memory, which needlessly adds extraneous cognitive load for the learners. Although training is not always needed and job aids are useful for completing in-the-moment tasks and tasks that merely require reminders, a well-resourced learning and development training department, including instructional designers, developers, and facilitators, is useful for skilling-up and orienting employees to a business’ best practices and processes.

4. ACCESS

Similar to the responsiveness determinant of service quality, accessibility is important for customers interacting with any business. The slogan we promote for accessibility is “be available” so that customers can contact the business, regardless of geographic location and capability. Steinkirchner (2012) suggests that we be available, as a customer being unable to reach a business when he or she needs to will cause the customer to lose his or her loyalty to the business as a service provider and, ultimately, to leave the business to find other services. Many companies are available day or night if a catastrophe happens for their customers, which is comforting and builds loyalty and trust, due to the accessibility of the business.

Customers might become frustrated with businesses that take half a dozen contact attempts (i.e., phone calls) to get their questions resolved. To save on cost and resources, many businesses will opt for third party companies to handle customer service needs, but this approach might result in generic, ineffective service that does not take into account the needs of the particular locale in which a customer is located.

5. COURTESY

Courtesy might seem like a soft skill that does not matter for a business; however, a lack of courtesy can deeply effect a business. If a patient gets the impression that a doctor looks at them as an inferior or does not take their requests or concerns seriously, the hospital may lose a valuable customer and an opportunity to provide services. Even smaller, non-verbal gestures can be interpreted as a disinterest in the customer. Adams (2013), in analyzing body language, posited that when you slouch and jam your hands into your pockets, when you or shuffle your feet and avoid eye contact, people will infer that you do not want to communicate with them. The solution to such an impression is to ignore electronic devices and actively engage with those around us.

Conveying an attitude of help and excitement for your customer’s needs being met is necessary for providing a level of service quality that attracts loyalty from customers. McDonald’s used metrics surrounding service recovery incidents to discover that it indeed affects whether loyalty is built within a potential returning customer. Derose (2013) used McDonald’s as an example of the importance of attitude by pointing out that 20 percent of customer complaints are due to unfriendly service, with rude or unprofessional employees being the number one complaint. Derose (2013) then concluded that the final customer touch point will often determine whether customers return. Twenty percent may translate to a financially black, instead of red, financial month or quarterly forecast and may relate to whether a new franchise opens or existing ones close.

6. COMMUNICATION

When communication occurs, there are typically two parties involved: a speaker and a listener. A common mistake people make is assuming that when something is spoken, communication has occurred, regardless of whether what was said was understood by the listener. As such, businesses sometimes describe their products or services with jargon that obfuscates the meaning being conveyed to the customer. A failure to communicate your product or service well can also lead customers to not recognize how to use your product or service or not understand whether your product or service can suitably meet their needs.

Instead, businesses should make sure their external customers (the buyers) as well as their internal customers (i.e., employees) can effectively communicate and that the information surrounding their products or services is easily understood.

Concerning communicating with employees:

Employees are more likely to believe what leaders say when they hear similar arguments from their peers, and conversations can be more persuasive and engaging than one-way presentations. Designate a team of employees to serve as ambassadors responsible for delivering important messages at all levels. Rotate this group annually to get more people involved in being able to represent the strategy inside the company. (Everse, 2011, p. 4)

Executive sponsorship surrounding internal messaging is important for all levels of leaders to adopt a company’s initiative, project, or mission more readily.

Concerning communicating with customers, building brand recognition and reinforcing advertising messages will help reassure consumers that your product or service can indeed deliver on its promises.

7. CREDIBILITY

Similar to the competence determinant of service quality, credibility is essential in providing effective service quality. As mentioned in the section above that covered competence, consumers are more discerning and less trusting of the quality of services provided than they were in the past: “Customers are less loyal and far less trusting than they used to be. This is especially true in industries whose reputations suffered during the financial crisis—including banking, pharmaceuticals, energy, airlines and media” (Schoemaker, 2013, p. 1).

For businesses that operate in used car sales, explaining and breaking down what percentage of sales goes to commission for potential car buyers is one tactic used car salesmen will employ to gain credibility with customers, as is comparing their prices with other comparable companies within their industry. Before making a purchasing decision, customers are often interested not only in the final product but also in “how the sausage is made” and where their dollars are going.

8. SECURITY

Security and cybersecurity are essential for effective service quality. Protecting customers’ private information is not merely a courtesy but can sometimes be legally imposed. For example, healthcare workers have to follow the Health Insurance Portability and Accountability Act (HIPAA) to ensure patient confidentiality. However, for general security, following the confidentiality, integrity, and availability (CIA) triad model will help businesses assess whether their information governance practices respect customer information.

C – Confidentiality: The confidentiality of customer data ensures that details are kept secret and are not public facing. A data breach, whether due to a physical breach or a cybersecurity breach, may compromise confidentiality.

I – Integrity: The integrity of data involves situations when customer data are stored or transported across information system. The data must remain the same before and after being received through communication. If data are manipulated as they are stored or transferred, then the integrity of the data has been compromised.

A – Accessibility: The accessibility of data concerns that only the user and those who need access to the data have access to the data. If users are not able to access their personal information, or if they are prevented from accessing their data, then accessibility has been compromised.

9. UNDERSTANDING AND KNOWING CUSTOMERS

Understanding one’s customer should be the first question any business asks before seeing how to best meet the needs of that customer. Customers now have more choices than ever, with respect to many products and services. According to Schoemaker (2013), consumers have more choices and power than ever before, thanks to social media and easy online comparison shopping, through which there exist many avenues and choices by which customers can receive their products and services. In addition, customer diversity continues to increase, putting a premium on micro-segmentation and deep customer insight. Because of this abundance of choice, building a personal relationship with customers is important for a business to provide effective service quality. Knowing the name of the client, how they like to be addressed, and what their specific needs are allows businesses to better tailor their services to meet customer needs. One way to gather this information is through surveys, and another is by listening to customers themselves.

According to Michaels (2011), one of the keys to successfully sharing and selling a product, service, or idea is to ask questions and then listen quietly and carefully to the answers; treat feedback as gold. A common mistake that is made among sellers is to attempt to convince people to buy instead of discovering what future customers or clients really want, need, and desire from them and then going on to meet those wants, needs, and desires.

Michaels (2011) continues in articulating that to succeed in sales, one should remember these three listening and relationship building skills:

S – Sincerity – Listen without an agenda; it’s not about your needs, but meeting theirs.

E – Ethics – Stop trying to talk someone into something, listen to what they want, and fully understand them.

A – Asking – Serve others through asking earnest questions that will lead them to making wise buying decisions.

In following these principles, a business operating in sales will better narrow its focus to customers who will benefit from its product or service.

10. TANGIBLES

Tangibles of service quality are tactile aspects of service. For most services, there are physical features that a customer experiences. Visually, the customer sees how clean a restaurant is when they enter, and they may notice the appearance of the wait staff and servers. Even before entering, customers can visually see the outside of the building, and they can also smell the surrounding area. The tangibles of service quality remind us that in providing a service, all aspects of physical features and qualities with which a customer interacts affect the customer’s experience and satisfaction with the overall service provided.

CONCLUSION

In analyzing the 10 determinants of service quality that businesses examine to ensure that the services they provide meet the needs and expectations of their customers, we recommend ways in which one business in the energy sector, namely, ProRate Energy Inc., can improve its service quality when implementing a pricing rate design, namely, ProRate/CLEP. Service quality is a specific aspect of total quality management, and future research can include expanding upon the aforementioned techniques as well as validation through customer feedback, via either surveys or focus groups that assess whether the techniques were effective in meeting customers’ needs.