Customer Involvement in New Service Development

Table of Contents

Table of Figures

1 Introduction
1.1 Nature of the problem and objective
1.2 Methodology and structure

2 Customer orientation and service development
2.1 Market oriented product development
2.2 The limits of marketing and customer satisfaction measures
2.3 Differences of product and service development
2.4 The innovation process in services

3 The customer’s role in the service innovation process
3.1 Benefits and challenges related to the customer
3.2 Creating customer experience
3.3 Observing the customer
3.4 Including the customer

4 Concluding remarks and outlook

References

Table of Figures

Figure 1: Service Development Process by ALAM/ PERRY (2003)

1 Introduction

1.1 Nature of the problem and objective

“There are three kinds of companies; those that simply ask customers what they want and end up as perpetual followers; those that succeed for a time in pushing customers in directions they do not want to go; and those that lead customers where they want to go before customers know it themselves”^[1]

The perception of the customer in business has changed in the course of history, from a mere passive buyer and price taker to an active and vital participant in the market. Today consumers have access to a variety of information about companies and their products, therefore companies need to center their activities on this important market participant.^[2] Companies must take advantage of this development and include customers throughout their business model. Leading customers refers to discovering their current and future needs and engaging in joint activities. In the light of this, it is no longer enough to simply use marketing to create interest in the company and to built reputation^[3] ; consumers have to be involved from the beginning of the process on, i.e. the innovation of new products and services.^[4] Therefore, companies face the challenge of creatinge an interface to their customer, thus enabling customers to shape products according to their needs.^[5]

While possibilities of consumer involvement in new product development have received a lot of attention^[6], the opposite has to be said concerning new service development^[7]. This is surprising since in services the customer himself is an important part of the service delivery and thus is of great importance.^[8]

Therefore, this paper aims at investigating the importance of customer involvement and the role customers can play in new service development as well as why and how a company can benefit from this procedure.

1.2 Methodology and structure

In chapter two the theoretical framework based on the concept of market orientation is presented. This is followed by a short description of the shortfalls of traditional marketing tools to collect the necessary information from the customers and possible ways to overcome this deficit. Next, product and service development are observed and the differences in development between these two are described. In addition, fundamental requirements and difficulties in developing new services are shown. Afterwards, a brief introduction to service development process is given and a model for development is further shown which helps putting customer involvement in a holistic perspective. Chapter three starts out with describing the basic benefits and challenges related to customer involvement in new service development. Afterwards, the basic idea underlying customer involvement and some general concepts are presented. This is followed by a description of the use and benefits of the “observing” technique. Finally, a framework for actual user involvement supported by examples is shown. The paper concludes with a critical summary of the most important issues and provides an outlook of future research possibilities in service innovation.

2 Customer orientation and service development

In order to ensure sustainable growth, companies have to focus on discovering the consumers’ needs, both expressed and latent. This “market-oriented”^[9] approach aims at thoroughly understanding the customer and making him part of the process instead of only the recipient of the final product.

2.1 Market oriented product development

The customer is the centrepiece of the market oriented approach. Therefore, understanding customers’ current and future needs as well as what influences their needs is a cornerstone for success.^[10] In order to achieve this, next to customer orientation, a company also needs to monitor competitor behaviour and create cross-functional coordination. This leads towards collection of information and processing it in all functions throughout the company.^[11] If given the right information, all parts of the company can possibly contribute value to the overall process.^[12]

Customer orientation has been criticized for not being applicable under all market conditions.^[13] Nevertheless, the general concept of customer orientation aims at discovering customers expressed and latent needs and thereby creating holistic understanding of target markets, in the end ensuring long term growth.^[14] In addition, it has been argued that such a focus sacrifices short-term performance for long term performance and incurs high costs.^[15] Studies have found contrary evidence on these issues supporting the general benefit of market orientation.^[16]

As stated, creating value for the customer refers to fulfilling customer needs and providing solutions to customer problems. These needs and solutions can roughly be classified as either expressed or latent. Expressed needs refer to all needs and possible solutions for problems a customer can think of and therefore display current customer needs. On the contrary, latent needs refer to needs and solutions a customer is unaware of and these include future customer needs.^[17]

Related to these categories a customer values product or service specifications in three categories.^[18]

- Must-be attributes
- One-dimensional attributes
- Attractive attributes

Must-be attributes refer to all specifications customers assume as given when buying or consuming these type product or services. Failure to provide these attributes creates massive dissatisfaction, e.g. a new car is undamaged. One-dimensional attributes refer to attributes which actually add value if present and create dissatisfaction if missing, e.g. adjustable car seats. At last, the absence of attractive attributes does not lead to dissatisfaction because they are not expected or known by the customer but can create additional value if present, e.g. plasma monitors in the rear seats. Moreover attributes can change categories over time. An attractive attributed once discovered by the customer can change to a one-dimensional and in the end become a must-be attribute, e.g. air-condition in cars especially in the US.^[19] Classifying needs in these categories has been found to be a quick and effective way to identify different groups of customer desires.^[20]

Further, by definition, must-be and one dimensional attributes can be seen as expressed needs and solutions while attractive attributes relate more to latent needs and solutions.

Market oriented product development primarily aims at gaining information about customer needs, both expressed and latent, and include and process this information both at individual stages in the development process and for the process as whole.^[21] Nevertheless, while both the identification of latent and expressed needs have been found to influence new product success, identifying latent needs has a greater influence on success. Moreover, identifying expressed needs is considered to be easily achieved and finally can not create a long term competitive advantage.^[22]

Therefore, in order to create sustainable advantages, “[…] the challenge for every business is to improve constantly in its skill in learning more effectively and efficiently the specifics of, and superior solutions to, its target customers’ expressed and latent needs”^[23].

2.2 The limits of marketing and customer satisfaction measures

It has been shown that obtaining customer information is vital for successful product or service development. In terms of the traditional marketing tools, such as focus groups and surveys, it is questionable whether these can discover all information, especially concerning latent needs, on the customers.^[24] “Market research is always one step behind. It provides yesterday’s solutions to today’s problems, or today’s responses […] to tomorrow’s opportunities”^[25].

Moreover, traditional marketing and product research like surveys fail to gather certain types of information related to user experience.^[26] Information gained through these channels usually only brings upon minor improvements instead of innovative ideas.^[27] In the end, these techniques fail precisely to provide creative ideas because customers find it hard to give feedback about things they never experienced.^[28] Because of this, proactive research techniques such as customer observation or via experiments should be used to reveal all possible information on and of the customer.^[29]

[...]

^[1] HAMEL/ PRAHALAD (1991), p.85.

^[2] Cf. PRAHALAD/ RAMASWANY (2000), p.4-7.

^[3] Cf. GRÖNROOS (1982), p.40.

^[4] Cf. ALAM PERRY (2003), p.524.

^[5] Cf. PRAHALAD/ RAMASWAMY (2000), p.85.

^[6] Cf. THOMKE/ VONHIPPEL (2002), p.74; MORTIMER (2005), p.24.

^[7] Cf. ALAM/ PERRY (2002), p.516; MARTIN/ HORNE (1995), p.41.

^[8] Cf. GRÖNROOS (1982), p.32.

^[9] Cf. SLATER/ NARVER (1994), p.22.

^[10] Cf. KOHLI/ JAWORSKI (1990), p.2.

^[11] Cf. SLATER/ NARVER (1994), p.22.

^[12] Cf. SLATER/ NARVER (1994), p.23; PORTER (1985), p.48-49.

^[13] Cf. CHRISTENSEN/ BOWER (1996), p.198.

^[14] Cf. SLATER/ NARVER (1998), p.1005.

^[15] Cf. CONNOR (1999), p. 1161-1162.

^[16] Cf. SLATER/ NARVER (1990), p.32; PELHAM/ WILSON (1996), p.27; SLATER/ NARVER (2000), p.71.

^[17] Cf. NARVER/ SLATER/ MACLACHLAN (2004), p.336.

^[18] Cf. KANO ET AL (1984) according to TAN/ XIE/ SHEN (1999), p.275-276.

^[19] Cf. KANO ET AL (1984) according to TAN/ XIE/ SHEN (1999), p. 275-276.

^[20] Cf. BHATTACHARYYA/ RAHMAN (2004), p.137.

^[21] Cf. KOK/ HILLENBRAND/ BIEMANS (2003), p.143-154.

^[22] Cf. NARVER/ SLATER/ MACLACHLAN (2004), p.336.

^[23] NARVER/ SLATER/ MACLACHLAN (2004), p.336.

^[24] Cf. GRIFFIN/ HAUSER (1993), p. 22-23; HARARI (1994), p.44.

^[25] HARARI (1994), p.42.

^[26] Cf. SLATER/ NARVER (1998), p.1001; HARARI (1994), p.44.

^[27] Cf. HARARI (1994), p.43.

^[28] Cf. LEONARD/ RAYPORT (1995), p.103.

^[29] Cf. SLATER/ NARVER (1998), p.1001; LEONARD/ RAYPORT (1997), p.105; THOMKE (2003), p.71-72.