In an article entitled “Why small details matter for small firms,” BBC reporter Katie Hope analyzes the value of standardization in the service sector. For International Hotel Group, the value of a standardized service is twofold. Firstly, in an enterprise of 678,000 rooms, minute differences in service can have huge costs. A difference of 3 minutes in the Hotel business can cost untold sums. Furthermore, this difference can cost customer loyalty. In the business of international travel accommodations, wealthy patrons pay considerable attention to the quality of service provided. If a service firm does not provide a standardized quality of service, it may see customers lost to superior quality elsewhere.
This emphasis on a uniform quality of service is pervasive throughout the service sector, and especially among large corporations. Consultants for Oliver Wyman found that between ¼ and 1/3 of variation in shop sales resulted from a difference in the quality of experience. Consistency in the firm helped increase profits and drastically reduce employee turnover; both of these are useful in maintaining a profitable and stable business.
Another major firm to follow this strategy is Starbucks. Despite operating in over sixty countries worldwide, Starbucks sets a standard of values and a unique company culture across the board. Management places such strong emphasis on these values that Starbucks employees must be taught them before entering the workplace. For a company that aspires to be a “third place” other than home or work, a consistent quality of experience is important.
4 Comments
I agree that consistency has costly implications. However, I was wondering if the article talks about vertical product differentiation. For example, when you were describing the hotel scenario, does the article talk about whether services for wealthier patrons take a priority over the normal patron?
This idea of “uniform quality of service” also extends to uniform quality of product. In the beer industry, firms were not able to operate as mutli-plant entities until they figured out a way to standardize the water being used between the different plants so that all the beer produced tasted the same. The beer companies knew that if their beer tasted differently every time the customer drank it, then the customer would be less likely to buy their brand of beer.
Could a hotel make even more money by providing differentiated qualities of rooms to its customers. If the hotel has a suite, it would not offer this to a trucker who simply needs a bed for the night…(if he doesn’t sleep in his truck). If the hotel has market power it could even differentiate between its customers and provide a 300 dollar a night room to one “businessman type” and a 50 dollar a room night to a “trucker type”. Thus reducing consumer surplus to the margin of the demand curve and increasing producer surplus.
Emphasis on consistency is important throughout most industries, but this article’s focus on the service industry seems to emphasize higher importance on consistency in services geared toward the upper-class. For most consumers, price would be the main determinate of hotel selection. If someone waited for a few minutes to get a room, s/he may be displeased, but wouldn’t necessarily go to another hotel.
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