Mercury gets the service message

MERCURY One 2 One's latest marketing offensive, launched with a pounds 10m advertising campaign from Bartle Bogle Hegarty last month, was the result not of increased competition in the mobile phones market but a review of the company's approach to customer service. It is an indication that the days when businesses could simply aspire to "better service" are numbered.

Customer service has become an integral part of marketing. Yet all too often those who claim that the customer is king do not manage their customer transactions effectively. This is partly because of a traditional approach that applies best-practice principles to company-customer relationships - at best an imprecise and misleading tool, reckons Chris Green, the manager at Coba Group, which advised Mercury on its recent changes.

"Nineties businesses are caught in a dilemma," he explains. "They must reduce operating costs but at the same time improve customer service, which invariably requires extra investment." All too often the two are seen as in conflict. "Traditionally, companies look to cut costs and minimise subsequent damage to the customer." However, this need not be so. Closer assessment of customer transactions enables the benefits of each one to be clearly assessed - and priced.

This is just what Coba, a management consultant, did on behalf of Mercury One 2 One, identifying more than 80 separate transactions between customer and consumer. Each was categorised into different types: those that benefited both company and consumer; those that benefited only the company or only the consumer; those that perceived "a negative" by either.

For Mercury One 2 One this has meant re-evaluating the benefits of its previous free-calls offers against the use and value placed on them by various types of customer. It has led to the abandonment of One 2 One's PersonalCall, StandardCall and BusinessCall tariff system, replaced by Bronze, Silver and Gold Service, which allow customers degrees of choice on a range of options. The company has subsequently cut the cost to customers of voice-mail retrieval - valuable to both parties as it reduces "churn", the practice of not renewing a subscription.

The strategy is also shaping a new approach to selling. Registration was previously a "back office function", explains David Harding, the customer services director of Mercury One 2 One. Customers' details were processed behind the scenes. "We now want to move all of this closer to point of sale, with a credit discussion and clear explanation of respective expectations and methods of payment, while still allowing them to walk out of the shop with their mobile phone that same day."

Mr Green explains: "Differentiating types of service is critical if a company is to manage them effectively and build customer loyalty over the longer term." Those that are negative for the company yet positive for the customer can be picked out and charged for accordingly. In contrast, transactions that benefit neither can be axed.

Customer expectations are a critical factor for Mercury One 2 One which, Mr Harding concedes, misjudged the market when it launched two years ago. The mobile phones business then was based on business users.

Mercury set out to target the mass market but underestimated mass-market ignorance about the product and how best to use it, he says.

The company now recognises the need to increase its level of service but cannot raise prices, as it positions itself as offering the lowest running costs of any mobile phone service currently available. "Statements like 'the customer is king' help no one - it's intangible and aspirational," Mr Harding says.

Historically, relationships with customers were more to do with sales than service. Increasingly, in all businesses, especially those which are commodity-based, such as telephony, service is the key distinguishing factor. That is why Mr Harding is now undertaking an employee communications campaign to persuade all Mercury One 2 One staff to view each customer transaction, and its cost and value implications, in this way.

It may sound like common sense, but often companies fail to recognise the distinctions between different types of customer service, says Rick Peel, the managing director of Coba. Coba developed its blueprint, the "Coba Matrix", for Mercury One 2 One, but the same type of strategy could be applied to many other businesses, from airlines to retail multiples, he says. It is now applying the matrix to a financial services group and an electricity company.

"It's beyond cost reduction," Mr Peel says. "It's about maximising the value of customer relationships - understanding what every element of a relationship with a customer does to that relationship by asking, 'What is their value?' and 'Are we adding to or subtracting from these?' "

Mr Green says: "Customers' expectations today are that prices will continue to come down while service gets better. Add to this the pressure of new technology and growing competition, and no one in any sector of business can afford to be complacent: these issues must be addressed."