How to Deal With Customer Variability

There is a famous scene in the 1970 movie Five Easy Pieces in which a young and surly Jack Nicholson is stymied in his effort to get a side order of plain wheat toast at a roadside diner. Told by the waitress that the diner doesn't serve plain toast (it's not on the menu), he asks her whether he can get a chicken sandwich on wheat toast. When she says yes, Jack says OK then, bring him “a chicken sandwich on wheat toast – no mayonnaise, no butter, no lettuce,” and then adds “now hold the chicken.”

Fast forward to the present. A woman goes into a Starbucks and asks for a simple glass of milk. Real milk, 2% please, just milk. According to her account (very funny BTW), this not-so-routine request of a Starbucks barista almost caused his head to explode. “Mocha,” he called out, but she had to correct him. Twice. And even though she asked for just a glass of milk, the first time it arrived it had been steamed, so it had to be re-ordered. (Cold, please. Ready to drink. M-I-L-K.)

Starbucks, like the roadside diner and any other business, tries to maintain quality and control costs by standardizing processes and operations. Routine tasks, if they can’t be automated, are at least handled in the same way by every employee.

But customers are all different. They want different things – different sizes of products, different delivery dates, different specifications for services, and so forth.

On one hand, customer variability like this creates an opportunity to generate loyalty, because by remembering individual customers and their preferences, we can create relationships that are durable and long-lasting. This can generate better profits for you provided you minimize costs by using a mass-customization routine of some type (that is, a computer). For the customer to obtain an equivalent level of service from your competitor, he would first have to re-teach the competitor what he’s already spent time and effort teaching you. So the more the customer tells you about how to serve him, provided that you remember his preferences and continue tailoring his treatment, the more loyal he will be. In effect, with every new specification, the customer is adding more context to his relationship with you.

But on the other hand, not all customer variability is so easy to deal with, and if you don’t have a routine process for handling it then your production and service delivery operations can suffer. According to Frances Frei and Anne Morriss, in their very useful book Uncommon Service: How to Win by Putting Customers at the Core of Your Business (2012), a few of the different forms that customer variability can take, in addition to specific requests and preferences, include:

• Arrival times: Grocery stores, for instance, are often crowded during the evening rush hour, while the lines at Starbucks can be interminable just before the workday begins.
• Capabilities: Some customers need more hand-holding than others, which means the cost of serving different customers can be quite different. Whether a patient can accurately describe her own symptoms or not has a big impact on how costly it is to provide adequate medical care, for instance.
• Effort: Some corporate controllers are well organized, while others are not, which changes the economics for an auditing firm handling the account. Some shoppers return their shopping carts to the store, others don’t.

Variability like this is something Frei and Morriss call “customer chaos,” and they suggest it can be managed in two basic ways: either by eliminating it, or by accommodating it. If you choose to eliminate variability, you will generate more efficiency. If you choose to accommodate it, you will generate better service.

And whenever you launch a new product or begin selling to a new market you have to be prepared for an increase in customer variability. This is one of the things that makes it so difficult to accommodate multiple business models under the same corporate umbrella.

According to Frei and Morriss, when Dell Computer began selling enterprise-level servers, “the company knew the corporate market for these machines would create significant new service demands, which it would have to accommodate with around-the-clock assistance. Dell faced a choice between destroying its margins by creating an underutilized and expensive service infrastructure or falling behind competitors that had more-efficient operations. Dell landed on a creative solution—outsourcing service to a third-party provider optimized for these kinds of twenty-four-hour, on-site service calls. By doing so, Dell reduced its exposure to customer variability by essentially handing off the challenge to a company better prepared to manage the challenge.”

Handling customer variability is never going to be a walk in the park. Under some circumstances you might be able to turn it into a competitive advantage, but you also have to be prepared either to minimize it, or to lay the risk off to a third party, as Dell did.

And maybe next time our Starbucks customer who was just looking for a glass of milk could get a better result if she asks for “a tall skinny latte, no steam. Now hold the coffee.”