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This is an MIT Sloan Management Review article. Customers are often involved in the design or delivery of services, and in this respect, they function as co-producers of the service. What happens when customers fail to perform their roles effectively? Customer failure is not uncommon; research indicates that customers cause about one-third of all service problems. To study the issue of customer failure and its prevention, the authors conducted interviews with managers and customers in a variety of industries about experiences of customer failure, developed case studies related to the topic, and conducted secondary research to identify examples of best practices in customer-failure prevention. The authors conclude that recovering from instances of customer failure is difficult and that companies should focus instead on preventing them. An effective three-step approach is: collect diagnostic data about where customer failures occur, analyze the root causes of cases of the failure (e.g., technology, people, process issues), and establish preventive solutions, such as process redesign. The authors cite examples of companies that try to prevent customer failures. For instance, Weight Watchers International Inc. customers may offer each other encouragement at meetings and, thus, help prevent one another from failing in their weight-loss plans.

This is an MIT Sloan Management Review article. When people think of services, they often think about offerings that are neutral or routine. These tend to be services they use regularly--for example, dry cleaning, haircutting, or gardening. However, there is a third type of service that is not often considered or well understood. The authors refer to these as "negative" services because they are related to events most people hope they will not have to deal with: toothaches, leaky roofs, or collision repairs, for example. Because the events that trigger the need for negative services are not everyday occurrences, many people are not equipped to diagnose the needs or to make informed judgments about the solutions required; furthermore, even after the service has been provided, most people are in a poor position to judge its quality or the price they paid for it. Many kinds of companies in many industries, including health care, insurance, household repair, pest control, and ambulance use, offer negative services. Companies hoping to build positions in negative services face two major challenges: how to access inexperienced customers who are not in a strong position to evaluate the service being provided and may have a poor idea of its cost; and how to organize and deploy their services to meet customer needs when demand is unpredictable.

Designing services that deliver memorable personal experiences is a science and an art that is poorly understood. Borrowing from the masters of managing performances, the theatre industry, the authors examine the process for staging plays. Based on their study, the authors draw inferences that can help service experience managers create more memorable face-to-face service encounters. Illustrates seven steps managers should follow to ensure service experience success.

Presents a typology of customer-introduced variability and offers guidance on how to manage each type. Central to the ideas developed is how to mitigate the effects of the apparent trade-off between reducing variability and diminishing the service experience or accommodating variability and compromising operational efficiency.

Explores ways in which service firms can influence the behavior of their customers. Drawing from research on employee motivation and applying it to customer motivation, the note describes two levels of managerial control: instrumental control, which shapes behavior through the use of rational incentives, and normative control, which engages human emotions, motivating through the near-universal desire to be perceived in a positive light.

The Inn at Little Washington, a top U.S. restaurant, takes "know the customer" to a new level. Co-owner and Executive Chef Patrick O'Connell explains.

Supplements the (A) case, 906034.

This is an MIT Sloan Management Review article. Service businesses now make up about 70% of the aggregate production and employment in the OECD nations, yet true innovation is rare in the service sector. Many companies incrementally improve their offerings, but few succeed in creating service innovations that launch new markets or reshape existing ones. By thinking about a service in terms of its core benefits and the separability of its use from its production, managers can more easily see how to out-innovate their competitors. Before they can do so, though, they must understand the different types of market-creating service innovations as well as the factors that enable them. Introduces and describes a two-by-two matrix whose taxonomy helps managers think strategically about service innovations that can create new markets. The dimensions of the matrix refer to the type of benefit offered and the degree of service separability. References best-practices examples to illuminate each cell of the matrix and explain the value of understanding the dynamics of the cell that is most applicable to a service innovation effort.

In 2001, McDonald's launched a new venture by opening two hotels in Switzerland (Zurich and Lully) under the name "Golden Arch Hotel." The hotels were positioned as four-star accommodations with cutting-edge in-room technology and unique, modern interior design. Testimonials of guests were mixed following their stays in the Golden Arch Hotels. Most seemed to agree, however, that the four-star rating didn't seem to match with McDonald's image. Given the saturated world hamburger market, McDonald's headquarters in Chicago had decided to launch a "diversification" strategy to foster new ideas and concepts worldwide. Urs Hammer, McDonald's Switzerland long-time CEO, proposed a foray into the hotel business building on McDonald's image of cleanliness and fast, friendly service. With McDonald's strong global brand recognition and the transferable competencies from restaurant to hospitality, Hammer was convinced the project would be a success. The hotel market in Zurich was booming with multiple building projects under way. The growth was happening so rapidly, in fact, that analysts predicted overcapacity in the very near future. In a fiercely competitive hotel market, Golden Arch Hotels was faced with the challenge of how to profitably target the key customer segments: travel groups, business travelers, and frequent travelers (FITs). With only two locations in one highly competitive country, how well is Golden Arch positioned in Switzerland, and how can the model be expanded and launched throughout the world? The case addresses: global marketing, positioning, segmenting, service marketing and profit model.

Describes the successful turnaround of the restaurant company Yum! Brands after its spin off from PepsiCo and covers how the company's leadership planned and executed on virtually every dimension of the employee experience. The main dilemma centers on what the company should do in terms of multibranding--housing two brands in one physical location.

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It's easy to conclude from the literature and the lore that top-notch customer service is the province of a few luxury companies and that any retailer outside that rarefied atmosphere is condemned to offer mediocre service at best. But even companies that position themselves for the mass market can provide outstanding customer-employee interactions and profit from them, if they train employees to reflect the brand's core values. The authors studied the convenience store industry in depth and focused on two that have developed a devoted following: QuikTrip (QT) and Wawa. Turnover rates at QT and Wawa are 14% and 22%, respectively, much lower than the typical rate in retail. The authors found six principles that both firms embrace to create a strong culture of customer service. Know what you're looking for: A focus on candidates' intrinsic traits allows the companies to hire people who will naturally bring the right qualities to the job. Make the most of talent: In mass-market retail, talent is generally viewed as a commodity--but that outlook becomes a self-fulfilling prophesy. Create pride in the brand: Service quality depends directly on employees' attachment to the brand. Build community: Wawa and QT have made concerted efforts to build customer loyalty through a sense of community. Share the business context: Employees need a clear understanding of how their company operates and how it defines success. Satisfy the soul: To win an employee's passionate engagement, a company must meet his or her needs for security, esteem, and justice.

Majestica Hotels Inc., a leading European operator of luxury hotels, was trying to reach an agreement with Commercial Properties of Shanghai regarding the management contract for a new hotel in Shanghai. A series of issues require resolution for the deal to proceed, including length of contract term, name, and staffing. Majestica was reluctant to make further concessions for fear that doing so might jeopardize its service culture, arguably the key success factor in this industry. At issue was whether Majestica should adopt a contingency approach and relax its operating philosophy or stick to its principles, even if it meant not entering a lucrative market.

In addition to its world-class supply and demand chain management practices, Toyota Motor Co. Ltd excels in managing its service chain. The service chain, which the company views as key to its long-term success, is responsible for providing products in the form of service parts for maintenance and repair, and services in the form of improving the value that a customer derives from a vehicle. Service chain management is based on establishing strong links with customers, both through the dealer channel and directly. Describes the network that Toyota has created to provide reliable supply of service parts to dealers in an efficient manner and how the company proactively helps dealers improve their service offerings to customers. Also discusses how Toyota uses advanced technologies, such as e-commerce and telematics, to build strong relationships directly with the vehicle owners. Focuses on Toyota's operations in Japan and the United States.

Describes how to use the Data Desk software package to perform statistical analysis.

Describes the underlying mathematics of regression.

At Zipcar, customers share the use of cars and, as a result, rely on each other for their service experience. Customers are required to keep the car clean and the gas tank full and to return the car on time. Told from the perspective of two customers: Sal Fishman, who has a car and is running late at an interview, and Anita Karr, who has just arrived at her reserved car's empty parking spot.

Spreadsheet supplement for case 605-054.

Provides an opportunity for students to design a new service offering, paying careful attention to the link between strategic position, service offerings, and operations design. The corresponding module note further describes the exercise.

Most companies serve customers through a broad array of interfaces, from retail sales clerks to Web sites to voice-response telephone systems. But although the typical company has an impressive interface collection, it doesn't have an interface system. That is, the whole set does not add up to the sum of its parts in its ability to provide service and build customer relationships. Too many people and too many machines operating with insufficient coordination (and often at cross-purposes) mean rising complexity, costs, and customer dissatisfaction. In a world where companies compete not on what they sell but on how they sell it, turning that liability into an asset is what separates winners from losers. In this adaptation of their forthcoming book by the same title, Jeffrey Rayport and Bernard Jaworski explain how companies must reengineer their customer interface systems for optimal efficiency and effectiveness. Part of that transformation, they observe, will involve a steady encroachment by machine interfaces into areas that have long been the sacred province of humans. Managers now have opportunities unprecedented in the history of business to use machines, not just people, to manage their interactions with customers credibly. Because people and machines each have their strengths and weaknesses, company executives must identify what people do best, what machines do best, and how to deploy them separately and together. Front-office reengineering subjects every current and potential service interface to an analysis of opportunities for substitution (using machines instead of people), complementarity (using a mix of machines and people), and displacement (using networks to shift physical locations of people and machines), with the twin objectives of compressing costs and driving top-line growth through increased customer value.