The traditional e-commerce paradigm based on e-tailing, commodity goods, and transaction sales, has largely failed and taking the international stock markets down with it (Dotcom bubble). Those organizations that have survived this meltdown have one thing in common – they learned quickly to embrace the e-service paradigm. The new e-service paradigm takes advantage of the inherent nature of the online environment to feature information flows and computation, as a means of learning more about customers and building long-term customer relationships. Its profitability model is based more on revenue expansion than on cost reduction, and those revenues come from enhancing the service experience rather than just replacing people with automated systems.
E-service is a customer-centric concept, and thus, the strategic and tactical components of an e-service orientation focus on increasing value defined at the customer level. An e-service orientation is all about taking advantage of the electronic environment and the technology advancements to stay competitive, nimble, and customer- focused in a turbulent business landscape. Dell Computers is a good example of how a firm selling products in an increasingly commodity market can follow an e-service orientation to build its customer equity. Its performance in the recent slump has repeatedly confounded analysts but to someone following its customer-focused strategy this should come as no surprise.
E-service is becoming increasingly important not only in determining the success or failure of electronic commerce, but also in providing consumers with a superior experience with respect to the interactive flow of information. At the strategic level, an e-service orientation calls for moving the emphasis from products and transactions to service and relationships, and building customer equity. These are supported at the tactical level by personalization and customization, self-service strategies, privacy and security risk management, and e-service measurement.
From Physical Product to Service
As the nature of market offerings changes from the physical product to the service product, the structure of markets changes to accommodate intermediaries (such as ASPs) who are service providers. We argue that organizations across many industries will have to embrace such transformation to remain competitive. This is especially true of firms in the information products realm. Software producers such as Microsoft are viewing software as a service to which customers can subscribe. The contracts for software purchase are looking very similar to service contracts. The music recording industry is being forced to offer subscription-based music service over the e-channel in reaction to peer-to-peer media sharing, transforming their product offering to a service offering. But this necessity is not limited to information products. Grocery chains are looking to use loyalty cards and electronic purchase tracking to use service as a differentiators to ease price competition. Focused one-to-one promotion and marketing efforts based on information gathered using these cards allow the grocery chains to develop relationships with their customers. They provide value to customers through focused information provision, reduced search time, increased convenience, and a perception of control in their transactions, as much as music subscribers could one day derive in their Internet transactions with music service providers. They sell a grocery service with value derived from service components rather than commodity-like products. In transforming product to service, organizations are forced to be customer-centric. A one-time transaction becomes a longer-term relationship providing opportunities for focused selling of products/services that increase customers’ value. Firms must understand the customer better as the focus changes from brand equity to customer equity. This transformation also applies to the B2B domain. In changing the software product to a rent-able software service, firms are forced to understand how the customer uses a piece of software. The design of the software becomes more customer-centric. By providing a software service in addition to selling it as a product, the firm learns more about the usage of its software and becomes more attuned to the needs of the customer, which contributes toward a competitive advantage. We predict that firms clinging to a product-centered orientation (such as the record labels), resisting the customers’ call for control, are not likely to remain in business very long in the electronic environment. Firms should take advantage of the e-service opportunities offered by the network environment to transform products to service.
Building Customer Equity
The other strategic underpinning of an e-service orientation is the focus on customer equity defined as the “total of the discounted lifetime values summed over all of the firm’s current and future customers.” Thus, an e-service orientation implies a firm’s strategic opportunities are best viewed in terms of the firm’s opportunities to improve the drivers of its customer equity. Since customer equity is a function of the value customers provide for the firm over the lifetime, the focus of the firm should be on understanding how to choose the right customers, provide value (superior as compared to competition) to them over subsequent transactions, thus building switching costs and strengthening the relationship with customers. This orientation is more pronounced in the B2B domain where suppliers view customers as the best relationships to be cultivated over time. An e-service orientation calls for the same approach in the B2C domain. This implies that every investment made by the firm is viewed by its impact on customer equity. How does it increase value to customers? How does it increase switching cost? How does it strengthen the relationship with the right customers? The tactical components of e-service provide the best approaches to make the investments pay off.
Personalization and Customization
Electronic environments are ideally suited to gather information from customers-details of their transactions over the Internet or using smart cards, or preference information through surveys and inferences using data from other sources-and provide personalized and customized offerings. Focused, relevant offerings reduce overall costs for customers (less search costs, risk costs, and transactions costs) and builds switching costs. In a supply chain environment it could be customized as just-in-time deliveries; for a grocery chain it could be personalized promotions based on transaction history; for an ASP it could be a customized outsourced computing environment. Information-based service products and service delivery through personalization and customization technologies build customer relationships through superior value and higher switching costs leading to higher customer equity. They also provide effective means to understand the customer needs better.
Customers increasingly seek control in their timing and process of conducting transactions and interacting with businesses. Many of the recent self-service offerings such as 24/7 service, order status transparency, remote problem diagnosis, among others, are geared toward providing customers the control they want. Appropriately designed and implemented self-service technologies can increase customer satisfaction, reduce customer defections, and lead to higher customer equity. It also raises the bar for competition.
Privacy and Security Risk Management
In as much as the e-service orientation rests on the benefits derived from personalization and customization, it also requires that customer privacy and security risks be effectively minimized. Eradicating these risks is an e-service requirement, as they influence not only the acceptance of e-service by customers, but also the design of e-service by firms. E-service orientation calls for designs of systems and processes that minimize the feeling of discomfort with technology in general and the degree of insecurity regarding electronic transactions. In an electronic environment the consumer’s need for control and protection of privacy is quite intense. This implies organizations should resist using the customer information they have to take advantage of customers through indiscriminate cross-selling and up-selling; focus instead on providing value to customers. Security and privacy concerns have a critical impact on the consumer’s perceived control in online situations, which in turn determines the consumer’s perceived e-service quality. In the era of e-service, a firm effectively managing these concerns builds the trust of its customers and contributes to their lifetime value. The desire for privacy also makes viable a market for the maintenance of e-privacy-itself an e-service.
The focus of e-service orientation is external measures of customer assessment of an organization’s services and products, not only specifically focused on them, but also in interfacing with other products/services in the value chain. This implies an organization cannot limit its responsibility just to its products, but should be more customer-focused in providing customers a solution. The measurement of customer assessment, in turn, consists of a customer satisfaction/dissatisfaction measurement and perceived service quality on all these dimensions. These measures are in turn related to measures based on sales and profit. The key focus is on understanding how investments in various firm-level activities affect customer-level assessments and, in turn, customer equity. While many of the internal measures used in the context of electronic environment-ranging from effective access, response times, to delivery times, reliability, time spent in the system-are useful, all of them have to be related to the customer-level assessment measures. For example, it is well established that customers may have different patterns of response to technology. Customers are true assessors of the competitive advantage of the firm and thus the returns from any activity of the firm. Their expectations are set by what they encounter in the marketplace, and they provide a true assessment of how the firm stands relative to their expectations. Thus, a customer-focused measurement is a key component of an e-service orientation.