Service as a Marketing

Strategy: A Case Study

at Reliance Electric
M, P. Singh

Faced with diminishing returns on resources applied to gain INTRODUCTION

signihcant advantages in technology, costs, promotion, or
sales channels in today’s crowded industrial markets, indus- Marketers have traditionally relied on technology
trial marketers may $nd the best returns on resources applied (product), price (cost), promotion, and channels as the
to gaining an edge in service to forge ahead of the competi- mix for a marketing strategy to gain a competitive
tion. The value of a service strategy lies in its implementation. edge in the market. Now marketers, especially those
This implementation requires defining service and dejining in the industrial sector, are realizing that the tradi-
a way to control it. Service can be affected by almost any- tional approach to developing a marketing strategy
one in the organization. Managing all the possible “moments may not be very effective for gaining the much-
of truth” is required for controlling service quality. This needed edge over competition. Almost all markets are
requires a commitment from top management and an inter- full of products with essentially the same features and
nal marketing program. The objective of the internal market- benefits. Even in the fast-moving high technology
ing program is to focus all of the organization on the same markets, where the marketers tend to be almost over-
goal. The organization’s structure and technology also play dependent on technology to pull themselves ahead of
a crucial role in the implementation of the service strategy. the competition, most of the products are based on
The case study of an industrial company, which successfully the same microprocessors, same operating systems,
used “offering the best service in the market” as its market- and so on. It has become increasingly difficult, if not
ing strategy to significantly increase its market share and impossible, to have significantly different (and supe-
profitability, is used to illustrate the concepts developed in rior) products. Similarly, cost (price) differentials
this paper. among the market leaders are either nonexistent or not
significant. Many cases can be recounted where a
marketer mistakenly assumed a cost advantage over
the competitors and inadvertently started a price war
with totally disastrous consequences for all. The tradi-
Address correspondence to Mr. M. P. Singh, Mechanical Group,Reliance tional thinking of relating mass production to lower
Electric, P.O. Box 81085, Seattle, WA 98108. costs has also caused problems for marketers. The

IndustrialMarketing Management19, 193-200 (1990) 193

0 Elsevier Science Publishing Co., Inc., 1990
655AvenueoftheAmericas,NewYork,NY 10010 0019-8501/90/$3.50
 Service can be affected by everyone
in the organization

mind-set of “if you cannot compete, produce more to factor, once the cost differentials disappear. The Japa-
lower your cost” ultimately resulted in 20%-30% ex- nese succeeded in carving out a significant portion of
cess capacity throughout the industrial sector in the the U.S. automotive market by having a significant
United States (and possibly all of the industrial world) quality edge over domestic manufacturers.
by the mid- 1980s. Finally, the elements of promotion In the fourth stage, when the market leaders can offer
and channel, although of vital strategic significance, the same (similar) costs and quality, the issue of service
may not be effective tools for the market leaders to emerges as the dominant factor affecting the purchase.
improve their positions. Market leaders usually have a Most of today’s markets are in this stage now. We must
reasonably optimum mix here. Once again, the old note here that each of the four stages may not happen
mind-set of “if you cannot sell what you have (over- one at a time, or in the same sequence. In the final phase,
produced by mass production), sell harder” had re- though, service tends to stand out as the most strategic
sulted in bloated sales and promotion expenses in issue in the marketing strategy.
most U.S. companies by the mid 1980s.
Continued improvements in technology and cost will
be forthcoming. Such improvements will be necessary SERVICE DEFINED
for market leaders to maintain their leadership positions.
But, in general, these improvements may not allow them There is much discussion about service among today’s
to gain significant advantages over each other. marketers in the industrial sector. Just about all of them
Where, then, can marketers turn to find other ingre- claim to be excellent providers of service. They are usu-
dients for their strategy? The element of service has ally thinking of providing repairs and parts for their prod-
become strategically important for marketers, and es- uct when they refer to service. Service, in a true sense,
pecially for those in the industrial sector. It is a natu- is anything that increases the value of the product to its
ral outcome of the evolution of markets through users, In this sense service is not limited to an interaction
various stages in which different factors assume domi- with the product itself. Company personnel can add value
nant importance in customer-purchase decisions. In to the company’s product by treating a customer with
the first stage, technology is most crucial. The com- courtesy and respect.
pany with access to the right technology may be the Service, as defined here, can be affected by everyone
only company to offer a product. The Xerox Corpora- in the organization. The product designers can affect the
tion during the 1960s and 1970s is a classic example service levels. The I975 S-cylinder Monza from GM had
of a company in this stage. In the second stage many such inaccessible spark plug locations that the engine
companies have access to the same technology, and literally had to be pulled off for a tune-up. Sloppiness
the factor of cost becomes important. The company and compromising management on the shop-floor, which
with a cost advantage will have a strategic advantage. ignores or circumvents quality standards, can cause head-
In the third stage, quality emerges as the dominant aches for the user of a defective product. The American
automobile with numerous defects was usually referred
to as a car made on a Monday morning. Imprecise or
insufficient documentation in a manual for servicing a
M. P. Singh IS a business manager for Reliance Electric In- product can cause much frustration for a user. Poorly
dustrial Co. located in Seattle, Washington. trained or poorly informed salespeople can waste much
of the customer’s time. Less than courteous handling of

194
an inquiry from a customer by a contact person can reduce study by the White House Office of Consumer Affairs
the value of the product to that customer. Clerical mis- found that 91% of dissatisfied customers will never again
takes in invoicing can aggravate the customer. Delayed buy from the offending company. Another finding from
shipments can cause production bottlenecks and business the same study: the typical dissatisfied customer reveals
loss for a customer. his or her experience to nine other people.
The marketers in the goods producing sector can bor- Finally, a strategy to improve service can easily stay
row proven concepts and ideas to provide better service focused. The tenets of customer consciousness and serv-
from marketers in the service sector. As an example, in ing the customer are easy to understand and emphasize.
service companies, the quality of service is translated Focusing on “serving the customer better” can give an
into operational terms through the “moments of truth” organization a defined direction of movement.
or periods of service contacts. In a similar way, service
quality in manufacturing or other goods producing com-
panies can be measured through similar “moments of IMPLEMENTATION OF
truth.” But the “moments of truth” in this new context THE. SERVICE STRATEGY
are not limited to contacts with service personnel. These
moments can be moments of direct contact with company Let’s examine the requirements for the sound imple-
personnel, as well as indirect contacts through the product mentation of the service strategy. Most of the strategic
or some other routine transactions. marketing literature of today considers correct execution
of the strategy to be even more important than the strategy
itself.
TEST OF SERVICE AS A STRATEGY For the execution of the service strategy, the marketer
must be able to both define service, and define a way to
The value of any strategy is determined by both the control it. Defining service may not be easy, but with
strategy and its execution. Both the strategy and its ex- some effort any organization can define it in terms of the
ecution must be sound for the strategy to have the desired peculiarities of its own market, customers, and compe-
and expected impact. Let’s first examine the validity of tition. It requires good input from the customer as well
improved service as a marketing strategy. as from various disciplines within the organization. The
A good strategy must meet three requirements: (1) it ultimate definition of service may consist of a set of well-
must count at the bottom line, (2) it must count with the defined objectives whose attainment will lead the mar-
customer, and (3) it must stay focused. keter to his goal of gaining a significant edge in service
Although the author is not aware of any rigorous em- over the competition. To the extent possible, the objec-
pirical study to correlate service quality with profits, it tives must be quantified. Some examples of such objec-
is widely agreed that better service will lead to higher tives may be:
sales, and, in the long run, to lower costs. Watson of
IBM highlighted service as the most important value for All phones must be picked up by the fourth ring.
the business, thus laying the foundation for a very suc- l No more than 1 out of 500 invoices will be in error.
cessful and a very profitable industrial giant. l Any special tools for servicing the product will be
Service obviously counts with the customer. A recent shipped with the product.

Controlling service quality requires

top management commitment and
internal marketing

195
 Once service is defined, an effective method to control inally developed for the company’s external marketing,
it will be needed to reach the goal. As noted earlier, to the “internal market” (employees) as well. Berry,
almost anyone in the organization can affect the delivery George, Gronroos, Gummesson, Kahn, Martensson,
of service to the customer. Here lies the challenge and Murray and others [ 1, 4-101 have contributed signifi-
the reward. The challenge is obvious: every person in cantly to the development of the internal marketing con-
the organization and each possible “moment of truth” cept. Although most of the work has been geared toward
must be guided and managed. The reward: as each or- the service industry, all the concepts are equally appli-
ganization is unique, a successful strategy to improve the cable to any company.
service levels in one organization cannot be easily copied Compton and colleagues list four objectives of internal
by a competitor. marketing [3]:
The challenge of controlling service quality in an in-
1. To help employees understand and accept the im-
dustrial organization is very similar to the challenge of
controlling service quality in a service organization. Con- portance of interactions with customers and their
responsibility for the total quality and for the in-
trolling service quality requires both a commitment from
teractive marketing performance of the firm.
top management and an internal integration, or an internal
2. To help employees understand and accept the mis-
marketing program.
sion, strategies, goods, services, systems, and ex-
The commitment from top management must be based
ternal campaigns of the firm.
on a sense of conviction and shared expectations about
3. To continuously motivate employees and inform
the outcome. Top management must be willing to lay the
them about new concepts, goods, services, and ex-
foundation for a corporate culture of customer conscious-
ternal campaigns as well as economic results.
ness and service. “In Search of Excellence” and many
4. To attract and keep good employees.
of the books that followed in the wake of its unprece-
dented success are basically about creating and main- The internal marketing program should consist of the
taining the right corporate culture. But creating a culture following elements:
is neither easy nor spontaneous. It may take years to
create the desired culture in an organization. Gummesson 1. Training-this is the most important element. Its
notes, “Changing a culture is more than “shooting off” objectives should be: (1) the communication of
a communication program. . . My experience of change overall goals and required actions; (2) to gain the
programs in organizations, if the programs are limited to support of department managers; (3) the develop-
communication activities, is that even if the communi- ment of action programs with dates for each de-
cation is professional, it does not lead to any substantial partment; (4) motivation; and (5) to build
change in behaviour, “[6]. Obviously, top management cooperation between departments.
must look beyond some communication programs to 2. Monitoring of results (against the action plans).
show its convictions about the service strategy. Employ- 3. Feedback of the results to various departments for
ees must be convinced about the sincerity and seriousness rewards or corrective actions.
of management’s commitment. 4. An internal communication program to support the
Once the stage is set by the commitment from top three preceeding elements.
management, an internal marketing program must be Finally, the following requirements must be met if the
put in place to implement the service strategy. The
internal marketing program is to succeed.
objective of the internal marketing program is to en-
sure that all employees strive toward the same goal. 1. Person(s) with unquestionable authority should be
The need for all employees working in the same di- responsible for its implementation. The responsible
rection is emphasized by most of the current thinkers person(s) should be able to cross departmental
in the field of strategic marketing. O’Block has ob- boundaries as needed for program implementation.
served, “Choosing a corporate direction is less impor- 2. The program should be sufficiently funded. Funds
tant than getting all organizational elements working will be required for the communication program,
toward the same goal,“[ 111. as well as for any incentives that may be integrated
The concept of internal marketing emerged in the in the program to encourage employee partici-
1970s. The idea is to apply the marketing concept, orig- pation.

196
 3. Sufficient time must be allowed for the implemen- A CASE STUDY
tation of the program, and for the attainment of
objectives. It may take months, even years, for an Many companies in the industrial sector have recog-
internal marketing program to succeed and produce nized the value of service in getting an edge over the
the desired results. competition. The manuals for GE appliances now contain
a toll-free number for reaching a GE technician with
questions for installing or repairing that appliance. Some
STRUCTUREANDTECHNOLOGY Japanese automobile companies expect their dealers in
the United States to introduce the customers to all their
The service strategy has to be implemented through personnel and give them a tour of the facility (especially
the structure of the organization. It is then expected the service area) before selling them a car. The issue of
that the structure will affect the implementation, and product availability and immediate delivery has emerged
the implementation will affect the structure. Success- as the single most important factor affecting purchases
ful service companies have long recognized the im- in some industrial components markets.
portance of good employees. Federal Express believes Let us now examine a case study of a company where
that good employees lead to better service, which the marketing strategy of offering the best customer ser-
leads to higher profits. Compton et al. [3], in present- vice in the industry contributed to significant improve-
ing and analyzing the internal marketing program at a ments in both market share and profits. The case study
freight forwarding company, note that “marketing and is about the Mechanical Group (MG) of Reliance Electric
personnel administration cannot be separated in a ser- Company. Reliance Electric Company is a leading world-
vice company. ’ ’ All these observations about service wide supplier of power transmission equipment. Total
companies also apply to the implementation of a ser- sales are in excess of $1.5 billion. The MG manufacturers
vice strategy in an industrial company. Good employ- and markets mechanical power transmission products.
ees, especially good managers, with supportive MG has operations in Canada, Mexico, and Brazil, but
attitudes toward the overall marketing strategy are the U.S. sales account for most of the overall sales. Sales
needed for the success of the strategy. It may be nec- are made directly to large original equipment manufac-
essary to make some needed organizational and struc- turers (OEMs) and select users, and through distributors
tural changes to succeed with the service strategy. to other OEMs and users. The distributors account for
Technology can help or hinder the implementation an overwhelmingly large portion of the total sales. All
of a service strategy. State-of-the-art information and of the major distributors are connected with the MG by
communication technology can often make a transac- computers for the processing of transactions (sales, cred-
tion impersonal by replacing people. This may not be its, etc.) and for accessing all relevant information (quo-
desirable at times. But this negative must be weighed tations, prices, etc .).
against the benefits of improved accuracy, immediate The severe recession of 1982 in the U.S. industrial
response, and cost reduction. Also, the chosen service economy threw the MG sales into a tailspin, and the
strategy and its implementation must be feasible bottom line showed big losses. It also became clear that
within the available technology in the organization. the shrunken industrial market may not go back to its
The influence of the factors of structure and technol- pre-recession size for many years. The intensity of usage
ogy must be fully considered in selecting and imple- of power transmission equipment in machines had gone
menting the marketing strategy to get an edge in down because of many technological changes. Many of
service over the competition. the major served industries (steel, rubber, textile) were

Customers will be more inclined to buy from

a supplier that serves them better

197
not expected to recover fully for many years. A significant given matter, that employee should be accessible, and
portion of the OEM base either went out of business or that employee should be able to assist the customer
became much smaller because of the overseas competi- quickly (see No. 1 above).
tion. Finally, direct competition from overseas manufac- With customer feedback, the problems that were hin-
turers of power transmission equipment became very dering satisfying each condition were determined. Pos-
intense. sible solutions for these problems were investigated and
Many quick and decisive actions were taken to down- the most acceptable solution was implemented. As an
size the company (for reducing its break-even point) and example, the following problems had to be overcome to
to reduce direct costs through selective investments in satisfy condition no. 1:
manufacturing. All this was augmented by efforts to in-
1. The customers did not have a list of personnel in
crease sales through market share increases. The effec-
various departments (engineering, production
tiveness and efficiency of the sales channels were
scheduling, credit, etc.) who could be called im-
increased by making some structural changes. Promo-
mediately with a question pertaining to their
tional efforts were streamlined and focused on the defined
disciplines.
opportunities. Plans for new products and product im-
2. All of the contact personnel in the company (cus-
provements were accelerated. All these attempts to in-
tomer service, field sales, etc.) did not have the
crease the market share were useful, but top management
aforementioned list either.
looked for a way to.ensure that the desired market share
3. In the past, the customer was expected to go through
increases would be attained. Finally, management de-
held sales or customer service departments for most
cided that gaining a significant edge in “serving the cus-
of their questions. Direct contact of customers with
tomer” may be necessary for gaining the needed market
other departments was frowned upon.
share. It was logical to assume that everything else being
4. The personnel in customer service and field sales
equal, customers will be more inclined to buy from a
were not considered well informed and well edu-
supplier that serves them better.
cated on all the products and policies.
With the help of feedback from customers and various
5. The level of customer consciousness and service
departments within the company, a definition of “serving
orientation among employees was not known.
the customers” gradually emerged. “Service” could be
measured by the ease, speed, and accuracy with which The solutions implemented were:
the customers can:
1. A list of the appropriate personnel (with their tele-
1. Get assistance from any employee. phone numbers and addresses) in various depart-
2. Understand all policies and sales programs. ments, who could be contacted for any information
_3 . Get all the needed technical information about prod- pertaining to their department, was compiled. This
ucts and their applications. list was circulated among customers, and among
4. Get all the needed commercial information. the personnel in field sales and customer service,
5. Make the purchase. at regular intervals.
6. Update themselves about the status of any order if 2. Customers were encouraged to contact the appro-
there are any delays or problems expected with the priate personnel directly. All departments were told
shipment. (Ideally there should not be any delays to expect and entertain such direct calls.
or problems.) 3. Training programs for field sales and customer ser-
7. Stock and identify the products. vice were upgraded. In addition, training was of-
8. Get post-purchase service like credits and return of fered more frequently. The training programs for
merchandise, etc. new employees in these departments were com-
pletely re-done.
So, service was defined as a set of conditions, all
4. A communication and training program for im-
of which should be satisfied for the service to meet
proving customer orientation throughout the com-
the targeted levels which would yield a significant
pany was started.
edge for MG service over the competition. As an ex-
ample, the customer should be able to quickly iden- These solutions were implemented during the 1983-
tify the employee who can assist him (or her) in a 87 period. It must be noted here that all the implemen-

198
tation was not planned in advance. As each problem and 7. Training, especially the training of personnel in
its solutions became clear, the implementation of the most customer service and field sales, received a very
acceptable solution was initiated. Informal and formal high priority and sufficient budgets.
feedback from customers was sought during and after the 8. The whole process of implementation evolved, al-
implementation of any solution to ensure that the out- lowing sufficient time at each stage. Deadlines were
comes were as expected. All the departments affected by always assigned, but only after consultation with
any problem participated in recommending and imple- all the departments concerned.
menting its solution. 9. The level of technology needed for implementing
The proprietary data on the MG’s market share and parts of the program was available and in use within
profitability cannot be revealed. But the market share the organization. The direct on-line communication
edged up each year during 1983-87 period. The profits link with the distributors on computers immensely
and returns on investment were the best in the industry facilitated the implementation of some of the
by 1987. That was in sharp contrast to the big losses solutions.
incurred in 1982 and 1983. Informal surveys indicate that
it can be easily observed that although neither the im-
the MG now delivers the best service to its customers in
plementation of the service strategy nor an internal mar-
the market, and that most of the service objectives of the
keting program was formalized, all the necessary
marketing strategy were attained. It would not be valid
elements needed for a successful implementation of the
to claim that gaining a significant edge in service by itself
service strategy were present.
caused the dramatic improvements in profitability and the
increased market share. But the service strategy played
a very crucial and significant role in bringing about the
CONCLUSIONS
business improvements. Without the service strategy, sig-
nificant business improvements would not have been
Gaining an edge in service can be a very potent mar-
possible.
keting strategy for an industrial organization, especially
No formal internal marketing program was put in place
when significant advantages in technology, cost, pro-
to control service levels. However, all of the following
motion, and channels may not be feasible. Service is
elements were present:
anything that increases the value of product to its users.
Service must be defined in a precise and, preferably,
1. The Chief Executive Officer of the MG was totally
quantifiable way. Controlling service or implementating
committed to establishing customer service as the
the service strategy requires commitment from top man-
top priority of the organization.
agement and an internal marketing program to focus all
2. The implementation of the overall program was
of the organization on the same goal. The concept of
supported by complete commitment from the top
internal marketing is as valid for an industrial company
management.
as for a service company. To be successful, the internal
3. The marketing manager with the responsibility
marketing program must focus on defined action plans,
for most of the implementation of the program
and not be limited to a communication program. Many
was a highly respected person with full authority
industrial companies are beginning to realize the impor-
to cross departmental boundaries to implement
tance of service in their strategic marketing, but more
the program.
interaction between service marketers and industrial mar-
4. The communication programs emphasizing cus-
keters is required for industrial companies to fully benefit
tomer service were widely used throughout the
from a service strategy.
organization.
5. All personnel in general management, marketing,
and accounting, as well as most of the personnel
REFERENCES
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same location. This made communication and the
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justified the expense/investment. 1985.

199
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