The Survival of Services and the Importance of Trust
As I was listening to my Reuters news channel, I could not help but think about a topic that I have taught in my Service marketing courses — the 4 I´s of Services. As you may remember from your college years, services differ from products in that they are defined by 7 Ps (Promotion, Placement, Price and Product + Process, People and Physical Evidence) instead of the 4 Ps of products (Product, Promotion, Price and Placement) But also, services are defined by the 4 I’s (Intangibility, Inconsistency, Inseparability and Inventory). The current Covid19 crisis is reinforcing some of those differentiating factors.
Think about your grocery store. You may go one day and find the shelves empty but within hours, most groceries stores have replenished most of their products and their shelves are filling with new products. Why? Because, so far, the logistical channels and supports to those organizations are still fully functional and products are moved from different sources where they are needed. You also have central warehouses and product manufacturing optimizing and adjusting to the rate of consumption (for the most part). If for example, you are not able to get the 120 rolls of toilet paper that you desire, eventually, you should be able to get those since there is not an actual shortage of toilet paper. Most Western countries have a 3–4-month supply of TP in different warehouses and sites as well as a 3-month supply of the primary material to manufacturer those rolls (i.e. giant rolls that make about 100k rolls of paper each). We do not have to wait for the pine trees to grow, to cut and pulverize to make those giants rolls and then the smaller consumer roles of TP.
Services are different — think about all the concerts, gatherings and other events that have been cancelled. Some of them may be postponed but others may just not happen. And those cancellations will reverberate throughout certain local economies, for example, the cancellation of South by Southwest will affect the economy in Austin, the cancellation of Mobile Congress will affect Barcelona. Just this week, the airlines that have been using their recent tax breaks into purchasing their own stock, are finding themselves in trouble as they announce the reduction of flights and, in some cases, stopping all activities — Remember, Ryanair? They are thinking about ceasing all flights for the next 2–3 weeks. In an unprecedented appeal, OneWorld Alliance, Sky Alliance and Star Alliance are all now asking the governments to provide them with economic support if this drags for many more months… some airlines are already preparing to potentially file for bankruptcy protection in June if things do not get better.
But, let’s focus on the 4 I’s that I previously mentioned. Those 4 I’s refer to Inventory, Intangibility, Inconsistencies and Inseparability. The most important factor affecting the service industries is that services cannot inventory those unused services. For instances, many people such as myself, have been forced to cancel trips. The airlines will not be able to affect significantly their capacity by the time people start flying again. In matter of fact, most airlines have tried to give their customers vouchers for future use, meaning that they are tying up their future potential inflows of fresh cash for revenues already received and most likely accounted for. These vouchers will limit their inflow of future revenues, compounding their ability to rebound in the future.
And, most airlines will experience a definite loss of demand in the future. Potential business travelers, for example, may modify the way they operate, and realized that those trips are not really needed any longer. Several years ago, the London public transportation had a major strike that forced people to find alternative routes to get to work. Once everything went back to normal, 5–15% of the commuters found other more efficient routes and ways of commuting and stuck to those. What percentage of travelers will discover that working remotely, using online conference tools such as Webex, Zoom, Skype Business and/or Microsoft teams is more cost effective and as productive (or more) as traveling in person? My guess is that a percentage of regular travelers will replace most of their physical meetings to online meetings.
In the case of many services, because we are dealing with People and the Inseparability of the People from the Service delivered, service companies will have to rebuild trust in those consumers. Trust related to the safe access to those services. And also, trust on many service organizations that did not react, and they were expected. how many customers are going to be writing off certain organizations that did not adjust their policies to the turbulent times? For example, a non-refundable prepaid reservation that I had with a hotel in Madrid remained non-refundable despite the fact that (1) I could not fly into the country since they were on quarantined and (2) the hotel was even planning to close for part of those two weeks due to the low occupation rate and the quarantined requirements. Would I ever, as a consumer, use such a hotel? Short-term decisions with long-term implications.
Trust is difficult to earn and easy to lose. I recently facilitated a workshop in Monterrey, México, and during one of the debriefings of an activity on influence styles, one of the participants said something that stuck to me. Trust is like the level of water in a water tank. You do certain things that add water to that tank. And you may do other things that may drain the water from that water tank. The level of water, the level of trust, will depend on your actions being always contributing more water than draining it from water. And most trust tanks are like your sink… if your sink works correctly, it should always able to drain water faster than you can add to it.
The way organizations are reacting to this crisis will either add or drain trust from the trust tank. Some organizations, for example, the airline that gave you a voucher or refund to the non-refundable ticket you had, will find more trust being added to that trust tank. Other organizations that are more focused on the short-term results than the long-term results, and refuse to provide you with a suitable solution, will find themselves drained of trust and will face long-term consequences.
