Don't Manage Waits, Manage Experiences

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WAITS AND MEASURES

Documento de consulta gratuito para el uso exclusivo del/a Prof. Carlos Chavarria Hidalgo, 2014-08-13

Don’t Manage Waits, Manage Experiences By GABRIEL BITRAN, JUAN CARLOS FERRER and PAULO ROCHA e OLIVEIRA

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Before devising a plan of action, however, managers first need to understand their business and their audience. These are the main ideas behind “The Waiting Profit Chain” illustrated in Figure 1. In order to properly manage their customers’ time, managers need to understand how the wait fits in the context of the entire experience, which is, after all, what will determine how customers will behave in the future. Time is not money, but delightful experiences that occur over time are money.

Determine the Business Context Let’s start with what is perhaps one of the bestknown examples: Disney. For Disney to be successful, managers there know that the waiting has to be fun, because visitors spend more time in line than on the actual rides themselves. So how come visitors are usually all smiles exiting the park at the end of the day? Because employees cleverly orchestrate their time while in the park. Keeping children entertained in line is a huge challenge, but Disney is chock-full of entertaining diversions. Mickey, Minnie and the rest of the gang pose for pictures with the kids. While children line up for the next show at Tomorrow-

Illustration by MIRANDA JELICIÉ

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ime is money, they say. To prove it, Barclaycard once calculated the cost of the time it takes an average Briton to brush his or her teeth: roughly 30 pence (43 cents). But when it comes to understanding how customers make decisions, time and money have some critical differences. For example: How relevant to you is the previous figure for brushing your teeth? Understandably, managers fret that customers will perceive waiting as an annoyance - and anyone who has spent a half-hour waiting in line to pay for a carton of milk in a noisy, overcrowded supermarket would be inclined to agree. So managers scramble to reduce the wait or at least to lessen its effect: thus, more lanes, broader bandwidth, better hold music - based on the fair assumption that taking up too much of the customers’ time will ultimately hurt profits. Yet waiting doesn’t have to be a negative. It can be a neutral or, at places like Walt Disney World, a positive. Sometimes slowing things down can be the best way to ensure cost-effective service and can even make customers feel better. The key to the management of waiting is to understand how the wait affects profits.

EXECUTIVE SUMMARY

Managers worry that their customers will perceive waiting as an annoyance. But simply reducing the wait time may not be the answer. Indeed, as the authors argue, that’s an outdated solution less relevant for today’s new breed of customer. Using research that blends behavioral psychology and traditional marketing principles with operations, the authors IESEinsight

propose a new framework to help businesses make better decisions about wait management. They offer six implementable ideas to improve the service encounter, which will greatly impact customer satisfaction and ultimately profitability. Stop watching the clock, they say, and start asking, “How can I best manage my customers’ time with me?”

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DON’T MANAGE WAITS, MANAGE EXPERIENCES

land’s Monsters, Inc. Laugh Floor comedy club, they can text jokes to be incorporated into the show. During the wait for Disney’s Soarin’ Over California, guests can play various interactive video games or they can take a peek at the Wings of Fame, a tribute to historical aircraft. Another thing Disney employees do is apprise visitors of the wait time, with frequent updates so guests feel more in control of their day. Once they know what to expect, families can decide for themselves if they want to wait. The estimated wait times are usually longer than the reality, so customers end up pleasantly surprised. Disney also offers limited Fastpass, which enables visitors to bypass wait lines and ride by appointment, which reduces uncertainty. One of the reasons Disney works so well is that most visitors don’t realize their time is being managed so carefully. For much the same reason, airports install TV screens with a continuous news stream, hotels place mirrors in front of elevators, phone queues offer music or promotional offers – all to provide customers with a more pleasant experience and keep their minds off the fact they’re waiting for something else. Managers need to realize that time, in itself, needn’t be the enemy. In fact, in some cases, spending too little time will engender annoyance

ABOUT THE AUTHORS

Gabriel Bitran is the Sloan Fellows Professor of Operations Management/System Dynamics at MIT Sloan School of Management. He is a source for information on the design of service delivery and manufacturing systems. His work addresses topics that include matching the supply and demand in service systems, capacity planning, and understanding consumer behavior in highly interactive services like the Internet. He is the former president of the Production and Operations Management Society. Juan Carlos Ferrer has a Ph.D. in Management from the Massachusetts Institute of Technology and an M.Sc. in industrial engineering from Pontificia Universidad Católica in Santiago, Chile,

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where he is a professor in the School of Engineering. He has received numerous academic awards. His areas of interest include service and operations management, and information technologies. Paulo Rocha e Oliveira is assistant professor of marketing at IESE Business School in Barcelona. He holds an A.B. in Mathematics from Princeton University and a Ph.D. in Management from the Massachusetts Institute of Technology. His main area of expertise is the management and marketing of services. His research focuses on issues at the interface of marketing and operations, including service quality, customization strategies and dynamic pricing policies.

or even anger. For instance, if you’re going for a tennis lesson, a massage or a doctor’s appointment, and the tennis pro, masseuse or doctor hurries you, you’ll probably feel slighted, as if you’re not getting your money’s worth. Minimizing time is a manufacturing principle that doesn’t always hold when people are involved, just as feelings don’t factor into manufacturing: a car door, for instance, isn’t going to feel slighted because it was assembled in 10 minutes as opposed to five.

Know Your Audience Before installing time-saving devices, managers must first make sure their customers want them. Automated check-ins at hotels, for example, certainly speed up service, but the technology is a double-edged sword. After a long flight, even guests toting laptops and BlackBerries may prefer the comforting “Welcome to the Hotel Majestic” delivered by a friendly human face rather than yet another impersonal computer to contend with. Shopping is another instance where taking more time can be a good thing – at least for those who enjoy the process as much as or even more than the actual buying. For others, however, shopping is about minimizing time: it’s the result that counts, and the faster the better. Clearly, what one culture, age group or gender might embrace, another will discard. When it comes to waiting, determine whether your audience is interested in the prize or the process and make the decision that most positively enhances the entire experience.

The Old Way: Reduce the Wait The study of wait time in engineering contexts, known as queueing theory, is well documented. Most of the research to date has tackled the matter as an operations problem: Reduce the wait and hope profits grow as a result. That’s been the guiding light since the Industrial Revolution. Concentrating on efficiencies in production works so long as you’re talking about “stuff” – tangible products or goods, as marketing scholars Stephen L. Vargo and Robert F. Lusch noted in their 2004 paper, “Evolving to a New Dominant Logic for Marketing.” But as we move toward a service-dominant logic, where the primary focus of economic activity is the process of doing something for someone else, the limitations of the old-fashioned manufacturing approaches begin to come to light. Out goes the idea that firms produce and customers consume; in comes the idea that firms and customers create value together. Services are no longer complements to products, nor are they special types of “intangible” IESEinsight

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DON’T MANAGE WAITS, MANAGE EXPERIENCES

The Waiting Profit Chain

Operational Policies

FIGURE 1

Set of established decisions to manage a service delivery process

OPERATIONAL POLICIES AFFECT PROFITABILITY IN DIRECT AND INDIRECT WAYS

Profitability

POSITIVE EXPERIENCE Repeat purchase, word of mouth

>A f

NEGATIVE EXPERIENCE Switch provider, bad reputation

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e wait

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Behaviors > D

ri

POSITIVE EXPERIENCE Greater patience, propensity to purchase

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t h e w ait

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Evaluation OF THE SERVICE BY THE CUSTOMER

NEGATIVE EXPERIENCE Balking and reneging, no purchase

products. Instead, tangible goods are but one of the many accessories firms can use to apply their knowledge and expertise in a collaborative effort with the customer. In this context, a win-win skill set of specialized knowledge and abilities becomes crucial in interactions with customers, as Christopher Lovelock and Evert Gummesson argue in their 2004 paper “Whither Services Marketing: In Search of a New Paradigm and Fresh Perspectives.” As the economic paradigm shifts from the production and consumption of goods (and the implied transfer of ownership from seller to buyer) to the co-creation of value, consumer exchanges are increasingly becoming focused on offering benefits IESEinsight

PERSONAL SON NAL State Personality Culture Education Experience Knowledge Gender

AMBIENCE Lighting Temperature Sound/Color Functionality/ Layout of Space Signs/Symbols Queuing Instructions Time-Keeping Devices

T H E WA I T T I M E

OF THE CUSTOMER

u

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Moderators Affect a customer’s mood and sense of time

through rentals or access fees. Consumers are used to considering the tradeoff – renting the car rather than buying it – and are more likely to take a utilitarian approach, preferring a slice of freedom to a physical piece of the action. Viewed from this new perspective, time begins to play a crucial role in economic exchanges. Yet, despite near-universal acknowledgement that time has become a precious commodity, few companies bother to examine exactly how customers perceive time and how it shapes their decisions. This is partly due to the existence of silos in both academia and practice. Operations managers have been focusing on the production and delivery of goods and services. Most marketers,

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meanwhile, have been focusing on selling the products and maximizing customer satisfaction. Both operations and marketing are working toward the same goal, but in working independently they have created a collective myopia where neither sees the full picture. It’s time to shake off assembly-line solutions to service-centered problems, say Vargo and Lusch. In a business context, that means that managers must bridge the gap between operations and marketing by understanding the psychology in waiting. And with such a revised understanding, businesses will enhance the design and delivery of the services they offer and boost profitability as a result.

The New Way: Apply Behavioral Principles to Manage Time Managers have much to learn from a stream of research in the field of psychology that began in the 1990s, which has helped spearhead those changes to current thinking when it comes to experiences that take place over time. It was then that the Princeton University psychologist and Nobel Prize laureate in economics, Daniel Kahneman, and his collaborators began studying how people summarize those experiences. In one representative experiment, subjects immersed their hands in two different buckets of water for one minute. The water in the first bucket remained the same frigid temperature throughout. The water in the second bucket was equally cold, but became slightly less so at the end for 30 seconds. Kahneman found that participants preferred the second bucket, even though it was objectively more uncomfortable. This led him to formulate the end effect: When people evaluate an experience, the end is not only more important than the beginning, but it can also lead people to ignore its duration. Another group of researchers, led by Duke University behavioral economist Dan Ariely and others, conducted additional experiments where they identified the gestalt features, or the memorable aspects of an experience that determine how customers will remember them in the future. We have applied Kahneman’s and Ariely’s ideas to services management to show how a customer’s emotions – both positive and negative – fluctuate over time. Figure 2 illustrates the gestalt features (peaks, troughs, rate, end and trend) of a service encounter as customer satisfaction fluctuates over time. In applying these principles to real-life situations – from airlines and hotels to financial services and retail outlets – we discovered that customers don’t remem-

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ber the details of their experiences. They recall only its salient features. And what they recollect is what determines whether they’ll return and what they’ll say about you. What’s important in a service encounter is not just the amount of time, it’s what happens over time, how it happens and when it happens. Keeping customers happy during the service encounter – and happier still at the end – will yield a competitive edge. Here are six ideas to help managers along these lines. These ideas are based on the results of our own research, consulting and teaching experience, as well as on the published results obtained by other researchers, all of which are cited in our paper published in Manufacturing & Service Operations Management. MAKE THE WAIT LESS PROMINENT . As we’ve just said, customers remember the prominent features of the experience and are likely to forget about the wait as long as it’s not prominent. Customers kept busy watching a flat-screen TV or listening to music that they like while on hold may very well forget about the wait time, which ends up being neutral or even a positive. Consider the story of the customer listening to a piped-in broadcast of the last few nail-biting minutes of a football game while on hold at a call center. When the customer was finally routed to a live technician, he exclaimed, “No, please, put me back on hold, they’re about to score!” Drawing attention away from the passage of time tends to be most effective in situations where customers focus on the outcome of the service encounter and perceive time to be an obstacle separating them from their objectives. However, when the focus is on the experience, we want customers to savor every moment. MANAGE THE CUSTOMER, NOT THE DELAY. Time is mutable. The way the customer perceives wait time can be larger or smaller than it actually is. An explained delay can seem shorter than an unexplained one. Waits that generate feelings of impatience or anxiety are the ones that generate the most negative feelings. In these cases, managers need to go beyond managing the duration of the wait and directly influence their customers’ anxiety and stress. Case in point: A medical-supply firm sold and maintained a vital blood-testing machine. With the help of a technician over the phone, users could troubleshoot most technical issues. The client’s service contract stipulated that once the user called, a technician would call back within 30 minutes. The medical-equipment company always met the 30-minute contract agreement and remedied most of the problems. IESEinsight

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End

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FIGURE 2

Peak

The memorable aspects of a service encounter fluctuate over time. Customers only remember the salient points. Ending on an upbeat determines whether they’ll return.


Trough

Rate

Access

Check-In t1

END

S AT I S FA C T I O N

Service Encounter Satisfaction Profile

>

Trough Diagnosis Service Delivery Check-Out t2

t3

t4

TIME (T) t0=0

Yet customers continually griped about poor service. Flummoxed, the company hired a marketing research firm to figure out why and discovered that the customers’ key complaint was wait time. But the problem couldn’t be with the actual wait time, since the company always called back within the allotted 30 minutes. Instead, the problem lay squarely with customer psychology. So important was the machine to operations that the employees perceived that the callback took longer than it actually did. That’s because the customer wasn’t flipping absentmindedly through dog-eared magazines as if he were in a doctor’s waiting room, checking his watch every so often to see whether 30 minutes had elapsed. No, he was anxiously pacing by the machine as work accumulated and his antsy coworkers complained about not having the test results. There’s waiting, and then there’s waiting. Punchline: The company was “perfect” from the operations perspective, being within the allotted 30 minutes. But it failed miserably from a marketing perspective because customers weren’t satisfied. Their perceptions of time skewed the reality of time. The solution to this problem isn’t to improve operations: it wouldn’t matter if the wait time were reduced from 30 minutes to 20. The point is that the company’s uneasy customers wanted things fixed, and their concern would continue regardless of the promise. Not knowing heightens the customer’s stress. Reducing the client’s worry is paramount, and that’s accomplished through the management of their perceptions. A company’s ability to convey its own sense of urgency to the customer is critical. A courtesy update informing the client how IESEinsight

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much longer the wait would be and placating the client’s fears that he’ll be forgotten would have done wonders to defuse the situation. In being proactive, providers demonstrate that they care, which relieves the customer’s apprehension and strengthens the relationship between provider and customer. MINIMIZE UNCERTAINTY , INCREASE PREDICTABILITY . Minimizing uncertainty and increasing predictability boosts the customer’s sense of control and satisfaction. Providing customers with honest information about wait time – especially in telephone and Internet encounters – makes them more comfortable with the delay and allows them to manage their time better. In a public setting, a clock, a teleprompter depicting estimated wait time, take-a-number systems or beepers for restaurant waiting all help the customer feel in control and lead to a more positive outlook on the overall experience. The supplier that keeps its customers informed about delivery times can greatly reduce repeated calls from worried clients inquiring, “Is everything OK?” or “Has the product been shipped yet?” In keeping the customer apprised with their excellent automated tracking systems, UPS and FedEx are superb in this regard, both assuaging apprehension and eliminating consumer calls. The result is a relaxed, trusting customer who won’t need to make back-up plans and or tax the company’s resources. Managing waiting and other glitches in the system are such big concerns that whole new industries have sprung up purely to appease customers’ anxiety about them. One company, Envoy WorldWide (part of the Varolii

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Customers who are happy with the outcome tend to minimize or overlook problems. The retrospective evaluation of the waiting experience tends to be more positive. Documento de consulta gratuito para el uso exclusivo del/a Prof. Carlos Chavarria Hidalgo, 2014-08-13

Corporation), offered its services to airlines to notify their VIP lists that a given flight would be late – before passengers left for the airport. That way, patrons could wait comfortably at home or the office. Likewise, Envoy could advise bank customers that the statement they’d be receiving shortly was sent in error, stemming a flood of calls from nervous customers. Notification services like this are good for the bank and good for the customer. No one likes unpleasant surprises, and there are enormous business opportunities to be had by preventing them. MANIPULATE THE ENVIRONMENT. Managers can often improve customer satisfaction in wait times by manipulating the environment. Usually referred to as a form of “perceptions management,” it’s the control of ambient conditions, including lighting, temperature, sound and color; signs, symbols and artifacts, from signage to queueing instructions and time-keeping devices; and spatial layout and functionality, such as equipment and furnishings. This moderator can translate into plush seating while you wait, or not-so-comfy seating while you’re being waited on. That’s the reason those molded plastic chairs at fast-food restaurants aren’t particularly comfortable. McDonald’s and Burger King want people in and out, not lingering over coffee – that’s why they call it fast food. There’s a famous case from Harvard Business School about the Japanese restaurant chain Benihana. Back in the 1960s and ’70s, the restaurant’s sole dessert was ice cream; you’d have to eat it quickly or it would melt. The beauty of the dessert design is that the customers never realized they were being rushed. INSTILL A POSITIVE END EFFECT. If customers aren’t happy at the end of the transaction – the end effect – they understandably amplify the wait time and other obstacles along the way. But customers who are happy with the outcome tend to minimize or overlook wait time or problems; a certain amount of revisionist history is at work. The retrospective evaluation of a waiting experience that ends happily tends to be more positive. In a good-news/bad-news scenario, managers should carefully spill the bad news first to avoid leaving the customer unhappy at the end

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of the encounter. The end effect applies to situations that are goal-oriented (where customers are interested in the final outcome of the service encounter) as well as to those that are process oriented (where customers are interested in the encounter itself ). The difference is that in goaloriented situations, the end effect will be largely, if not completely, determined by the outcome, that is, whether the goal was achieved. BE FAIR. When it comes to space control, managers should enforce a first-in/first-out rule, avoid crowding, and keep idle employees and special lines out of sight. For example, while coach customers realize first-class flyers pay more for their tickets, they nevertheless feel neglected, resentful and lessthan when the well-heeled cut ahead and board first. LAN Airlines designed a brilliant fix for this: by checking in first-class patrons on the other side of the airport, coach passengers didn’t see them and, therefore, didn’t feel slighted. It’s the perceived fairness of the thing: that’s what coach customers care about, as opposed to the actual time waiting to board. When we ask students to describe their worst waiting experience, they rarely cite the length of time. Instead they’ll say, “People cut in front of me,” or “I felt I wasn’t being heard,” or “Employees kept talking to each other instead of helping me,” or “The salesperson was rude.” They grumble about the lying and lame excuses, the eye-rolling and incompetence, and, of course, the disconnected calls after being on hold for a millennium. How could that possibly feel good? Except in a true emergency, as we’ll explain shortly, the wait is usually secondary to the customer’s notions of fairness and decency.

Waiting and Profitability Consumer behavior that takes place during and after the service encounter is one of the key determinants of profitability. When a transaction is not completed – for example, when a customer chooses not to join a queue or leaves before being served – and the customer passes on making a purchase, profitability is, of course, impacted. And it’s not just the profits of that one sale. Behavior that takes place afterward – from reIESEinsight

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peated purchases, word of mouth, length of the relationship and share of wallet – can affect profits in a big way. That’s why it’s so important that the customer’s experience be positive. Take, for instance, an American Airlines flight from Barcelona to New York. The outcome – landing at JFK Airport – is, hopefully, a given. The process is what counts. To ensure repeat business, the crew should strive to keep passengers happy during those eight hours in the air, in much the same way as Disney manages its visitors’ stay. At the end of trip, customers selectively recall their feelings – was the trip pleasant, was the food decent, did the flight attendants treat me well – and decide whether they’ll fly American Airlines again. In today’s hyper-competitive economy, it’s not just about whether or not you deliver the core benefit. What will differentiate you from your competitor is how that benefit is delivered over time.

When Waiting Is Always Negative In an emergency room, installing a television or cushy chairs isn’t likely to make the wait more bearable. It’s a desperate, disquieting place. If you’ve gone to ER with a nasty cut, and a woman with a mangled arm is admitted, of course she’s going to go first. And if an asthmatic boy, gasping for air, is carried in by his frantic parents, he’s going before her. That’s triage. Are you going to object when the physician attends to the young boy and the woman before you? No, the circumstances are vastly different from the coach customer’s notions of fairness. That said, everyone in the emergency room of a hospital wants fast service. No one feels good during the wait there. The same caveat applies when you phone the police, fire department or rescue squad. You just want help now.

plier then employs to smooth things over is more likely to succeed. An apology, for example, is much more likely to be perceived as being sincere.

A New Way of Thinking Managers need to stop using the negatively charged term waiting and instead start asking, “How can I best manage my customers’ time with me?” Or, “What can I do to create more value to both of us?” The problem is, once you introduce the term waiting, the only action that makes sense is to minimize it. And in an emergency, that’s certainly the right course of action. But in most other instances, managers need to think in terms of fashioning more satisfying encounters and become open to more creative and potentially more profitable alternatives than mere time crunching. As our research shows, creative techniques abound to turn the wait from a negative to a neutral or even a positive. Companies that apprise clients of delays, find creative ways to deflect them and treat people fairly will have happier customers. And as we all know, happier customers spend more money. Mindy Kitei served as editor for this article.

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B2B Interactions We tend to associate anxiety with B2C interactions, but it plays a big part in B2B dealings as well. In fact, it’s one of the main factors a firm uses to evaluate whether a supplier is easy to do business with. Managing the customer’s time perceptions and emotions are critical. If the supplier can demonstrate that the buyer’s problem is also the supplier’s problem, then the supplier can capitalize on a great opportunity to build the relationship. Suppliers can even bank goodwill “capital” to cash in later on, if they occasionally fail to meet standards. After all, they’ve demonstrated that they’ve done well in the past and have a sincere interest in helping the firm. Whatever mea culpa strategy the supIESEinsight

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Ariely, D., and Z. Carmon. “Gestalt Characteristics of Experiences: The Defining Features of Summarized Events.” Journal of Behavioral Decision Making 13, no. 2 (2000): 191-201. Bitran, G., J.C. Ferrer and P. Rocha e Oliveira. “Managing Customer Experiences: Perspectives on the Temporal Aspects of Service Encounters.” Manufacturing & Service Operations Management 10, no. 1 (Winter 2008): 61-83. Kahneman, D., D.L. Fredrickson, C.A. Schreiber and D.A. Redelmeier. “When More Pain Is Preferred to Less: Adding a Better End.” Psychological Science 4, no. 6 (1993): 401–405. Lovelock, C., and E. Gummesson. “Whither Services Marketing: In Search of a New Paradigm and Fresh Perspectives.” Journal of Service Research 7, no. 1 (August 2004): 20-41. Vargo, S.L., and R.F. Lusch. “Evolving to a New Dominant Logic for Marketing.” Journal of Marketing 68 (January 2004): 1-17.

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