However, this only succeeds if customers are not forced to use digital channels but can choose for themselves, says Aalto University Professor Tomas Falk.
The digitalization of services is at risk of being sidelined as everyone talks about the fashionable Internet of things. Meanwhile, digitalization is revolutionizing the service sector at least as dramatically as the industrial sector.
Tomas Falk, Associate Professor of Marketing at Aalto University, refers to the three basic dimensions of the service sector, which were identified by research long ago. The first dimension involves basic resources, namely infrastructure, financing and workforce. The second dimension is the type of customer encounter that we might refer to as prosumption – simultaneous production and consumption. The third dimension is the end result, in other words the benefits or added value gained from the service.
Digitalization affects all of these three dimensions, Falk says.
”Infrastructure is becoming increasingly technical: we have websites, check-in kiosks, mobile apps… This has a direct impact on the customer encounter. Personal service is being replaced by the encounter between human and machine. In a sense, customers are becoming part-time employees of the company, by performing customer service themselves,” Falk comments.
Digitalization has also given rise to co-creation which forms the basis of the popular Netflix TV service, for example.
”While Netflix provides the infrastructure and content, the viewer can personalize his or her evening by the television by deciding what to watch, when to watch it and on which device. This is content co-creation.
The opportunity to reduce costs is the main motivating force behind digitalization. Studies show that, at best, digitalization enables service providers to raise customer satisfaction, but this is often far from the reality. Below, Falk outlines the requirements for successful digitalization.
Don't force customers – let them choose
Falk does not recommend replacing traditional service channels with a digital one, but adding it as an option.
”In the case of a multi-channel solution, it is up to the customer to decide. In a way, this leads to automatic segmentation: although more traditional customers are less technology-oriented, innovators will appreciate the opportunity to try something new."
Studies show that a customer is most likely to stick by a company through the digital revolution if allowed to choose his or her preferred service channel.
”This is how Finnair operates: they have traditional check-in desks, self-service check-in kiosks and a mobile app.”
Go slowly and train the customer
It pays to introduce new channels step by step, while training customers to use them.
”When Lufthansa introduced its self-service check-in kiosks at airport terminals, plenty of staff were there to guide customers on how to use them. Then the number of assistants was gradually reduced, so that today there is just one assistant for each 10–15 devices.”
Although companies often find cost savings attractive, it pays to be patient and give customers time to adapt to change. Pricing can be used as a ”soft persuasion” tool. For example, banks apply a service pricing policy that encourages customers to use online banking services.
Make sure the new channel is easy to use and functions well
The worst thing a company can do is to refer the customer to an unfinished or poorly operating digital service channel.
”Tools must be properly tested before use. When communicating with customers, the company should stress the convenience and ease-of-use of the service. This includes intuitive navigation, clear contents and design, and fast functions.”
As a technology-oriented nation, Finns often lapse into the 'more is better' way of thinking: including as much content or features as possible and forgetting the end user's perspective.
Co-creation can also involve risks.
”If customers have put time and effort into the service, they will have high expectations of it. If the end result falls short of these, they will be highly dissatisfied. For this reason, customer input should be increased gradually."
What about an entirely new digital service?
Many new, fully digital services have successfully challenged old operators. What are the prerequisites for such success stories?
”A service innovation does not need to be based on an entirely new and revolutionary business idea. It only needs to be well implemented and represent something new in its sector. In my native country, Germany, we have a large number of businesses that have simply copied something that works well in the USA. For example, the online shop Zalando was created like this.”
Germany also offers plenty of examples of co-creation. For example, MyMüsli, which was originally a website between students, offers customers the opportunity to mix their own muesli from a wide selection of ingredients (at a high per-kilo price).
”MyMüsli collected a lot of market and customer information online before placing its most popular muesli mixes on the shelves of high-street retailers. The start-up costs were very low – something like this would be perfectly possible in Finland, too.”
Tomas Falk is a Professor at Aalto University and also teaches at Aalto EE. Read more about Aalto Service Leader program.