Excerpt
Table of contents
List of figures
1. Introduction
2. Comparison of online fashion retailing to retail banking and management consulting regarding Silvestro et al.’s classification model
2.1 Comparison to retail banking
2.2 Comparison to management consulting
3. Comparison of online fashion retailing to retail banking and management consulting regarding the service profit chain
3.1 Comparison to retail banking
3.2 Comparison to management consulting
4. Discussion whether the classification of the service operations explains and justifies their applicability with regard to the service profit chain
References
List of figures
Figure 1: Visual classification of online fashion retailing, retail banking, and management consulting
Figure 2: Modified model for the classification of retail banking
1. Introduction
The service operations online fashion retailing (OFR) are compared to are retail banking (RB) and management consulting (MC). RB refers to financial services provided for individual customers, including personal loans and ATMs (Investopedia, 2014). MC shall be defined as the provision of external advice for organisations, which are in need of specialist expertise and/or an unbiased view on their business (UK Institute of Consulting, 2014). The classification model used in chapter two is that of Silvestro et al. (1992). In chapter three, OFR is compared to RB and MC with respect to the service profit chain (Heskett et al., 1994). Following the group assignment, the discussion concerning the service profit chain focuses on frontline employees’ contribution to external service quality and the links between customer satisfaction and customer loyalty, customer loyalty and revenue growth, and customer loyalty and profitability, respectively.
2. Comparison of online fashion retailing to retail banking and management consulting regarding Silvestro et al.’s classification model
2.1 Comparison to retail banking
Online fashion stores often serve entire countries. RB, in contrast, partly takes place in branch banks, which inevitably limits the number of customers processed per day. Besides, RB tends to feature more customer-employee contact than OFR, particularly regarding services that involve financial advice. This focus on people in some RB services further restricts the number of customers processed per day. A bank employee cannot, say, discuss individual credit terms with multiple customers simultaneously. On the contrary, an online fashion store can be used by many customers at the same time.
However, contactless forms of banking have gained in importance with regard to routine financial transactions, thereby reducing the value added in the front office as well as the customer contact time per transaction. In the UK, for instance, mobile and online banking are on the rise with more than 14 million mobile bank apps having been downloaded in total and nearly £1 billion being transferred online per day (British Bankers’ Association, 2014). Moreover, RB services are highly heterogeneous. For example, discussing the advantages and disadvantages of different types of credit is more time-consuming, involves more customer contact, and tends to leave more room for customisation than a cash withdrawal using an ATM.
In conclusion, RB is classified as a service shop. On the one hand, it shares some characteristics of mass services with OFR, most notably the increasing degree of standardisation and number of customers processed per day due to contactless forms of banking. On the other hand, potentially time-consuming face-to-face advice provided by frontline employees still plays a pivotal role with regard to rather complex, non-routine financial services like mortgages.
2.2 Comparison to management consulting
MC clearly corresponds to Silvestro et al.’s (1992) definition of a professional service.[1] Although the duration of MC projects may differ depending on the nature of the project, it is evident that customers in MC spend considerably more time in the service system than in OFR. A lower number of customers processed per day is the logical consequence. Furthermore, the degree of customisation and the value added in the front office, i.e. by consultants, in MC is very high. As to the former, MC projects may differ as to the availability of relevant data, the cooperativeness of the client, the scope and complexity of the problem, etc. Hence, it seems to be plausible that customers in MC cannot be “pushed through” a largely predetermined, uniform service process, as is usually the case in OFR. This goes hand in hand with the high importance of consultants. It is they who actually create service value by analysing the problem, interacting with the client, and eventually finding a “solution”. In contrast, the main value-creating entity in OFR is the online store, which is usually organised and run from the back office.
The above findings are visualised in figure 1, which is based on Silvestro et al.’s (1992) visual classification of services.
illustration not visible in this excerpt
Figure 1: Visual classification of online fashion retailing, retail banking, and management consulting
3. Comparison of online fashion retailing to retail banking and management consulting regarding the service profit chain
3.1 Comparison to retail banking
It is worth mentioning that RB has been a popular object of study regarding the applicability of the service profit chain, partly because employee, customer, and financial outcomes can all be measured at the level of individual branches (Loveman, 1998). Although correlations between some of the concepts in the model were found, strong, unequivocal evidence for the applicability of the model as a whole could not be provided (Loveman, 1998 and Gelade and Young, 2005). In the following sections, the applicability of the service profit chain to RB is discussed in light of more recent developments.
Frontline employees’ contribution to external service quality According to a study by Capgemini, the percentage of customers who are likely to stop using branch banks is expected to increase by 6.1% globally from 2012 to 2017. Over the same time period, the percentage of customers who are likely to use online banking is expected to grow by 6.4% (Choudhary, 2013). To some extent, this trend mirrors the development in fashion retailing. An increasing number of customers purchase fashion-related products online, thereby limiting the amount of customer-employee contact and, consequently, frontline employees’ contribution to external service quality. However, RB differs substantially from OFR regarding the services offered. The core service in OFR is, regardless of fashion blogs and other additional features, the automated processing of a product purchase. Besides, this purchase does usually not entail much risk because of the availability of product reviews ex ante and online fashion retailers’ generous return policies ex post. On the contrary, numerous transactions in RB are much more complex, risky, and long-term, and thus require financial advice (Omarini, 2011). Therefore, the impact of frontline employees on external service quality is, unlike in OFR, not only of a supportive nature. Naturally, customers highly appreciate the convenience of digital channels for routine tasks, such as checking one’s account balance, and slightly more advanced features like remote bill paying (Cochrane, Ott and Spruit, 2013). When it comes to non-routine, more complex financial decisions that exhibit a great deal of uncertainty and therefore require financial advice, face-to-face contact is, however, still essential. Moreover, frontline employees may not only advise customers on financial, but also on technological issues, thereby creating new moments of truth in the service process (Bain & Company, 2013).
Link between customer satisfaction and customer loyalty Comparable to OFR, it can be said that bank customers who are satisfied with the service they receive are more likely to become loyal. Since the product offering is very homogeneous across retail banks, satisfaction with the quality of service may even be a more important driver of a customer’s decision to stay with a particular bank than it is in OFR (Yell et al., 2012). However, increasing price sensitivity can, as in OFR, prevent satisfied customers from becoming loyal. For instance, customers in the UK are actively comparing deals across banks in their “hunt for value” (TNS, 2013c). Therefore, as in OFR, low prices may be more influential concerning the future purchasing behaviour of some customers than satisfaction with a bank’s level of service.
Link between customer loyalty and revenue growth On the one hand, the widespread use of digital banking combined with the growing ability to mine customer data effectively has created new cross-selling opportunities for retail banks (Bain & Company, 2013). Just like in OFR, customers who make use of a retail bank’s services repeatedly reveal a great deal of information about themselves. Banks can then analyse and aggregate this information in order to create and sell new financial products and services that are tailored to customers’ specific needs. Besides, research conducted by Ittner and Larcker (1998) indicates that satisfied bank customers may stimulate new customer acquisition by spreading positive word-of-mouth, which is an important characteristic of loyal customers (Heskett et al., 1994). On the other hand, the use of the expression “loyalty” itself has become debatable in the context of RB. For example, the “loyalty” of today’s bank customers in the UK is in fact not more than inertia, caused by relatively high switching barriers and the pure need to have a bank account (TNS, 2013a). It is highly unlikely that these customers engage in cross- and/or up-buying, not to mention positive word-of-mouth communication.
Link between customer loyalty and profitability As in OFR, the sophisticated analysis and use of customer data may increase a retail bank’s profitability. This is because it can tailor its advertising efforts to customers’ product and service preferences, which may increase the efficiency of the bank’s advertising activities (Iyer, Soberman and Villas-Boas, 2005). Besides, retail banks may save the usually high cost associated with winning new customers if they manage to keep their existing ones (Reichheld and Sasser, 1990). However, retail banks have to deal with an increasing number of competitors, not only from the banking sector itself. In the UK, for example, large retailers like Tesco and Marks & Spencer have long begun offering financial services, such as lending or debit cards (TNS, 2013c). This increasing level of competitiveness may put pressure on the prices retail banks can charge their customers and consequently lower the sector’s profitability.
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[1] In fact, Silvestro et al. (1992) even name management consulting as a textbook example of a professional service.