Opportunities for service-friendly businesses

I’m back. Due to longer vacation and other obligations I wasn’t able to post for a while. I’m hoping now for more frequent contribution. As mentioned before, let’s focus on how companies can profit from good customer service in Germany. 

Service-friendly businesses in every industry have the opportunity to capture market share from German companies with typically low service levels. In particular US companies with their higher service levels can take advantage of the poor service offered by their German competitors. 

But even local companies can take advantage of the current poor service levels. These smart businesses, realizing how customer satisfaction drives profit, provide service at higher levels and even some that is currently not heard of.  Let’s look at an example of dress shirt cleaning from two laundry cleaning services in Munich. Which one would you choose?

 

So, even in Germany it’s possible to get dress shirts cleaned within hours with more human touch, better opening hours, and at even half the price. By the way, the laundry cleaner in A is Nevenka Reinigung, Felicitas-Füss-Str. 1, 81827 Munich. The laundry cleaner in B that I prefer is

Die Reinigung
Riem Arcaden
Willy-Brandt-Platz 5
81829 Munich

If you have any examples of good customer service in Germany, please share them by using the comments link on top. Maybe this can grow to a list of companies with good service in every industry sector to help customers to select the good ones and bring companies to offer better service.

Change of focus

This blog is changing its focus from describing the problems with poor customer service in Germany to identifying business opportunities from good customer service. To emphasize this change, I have also changed the blog design. I hope you will find it more reader friendly. The new design provides also a better position of the comments link, so I hope that you will find it more enticing to comment on my posts.

Germany is losing its global competitiveness

So far this blog has focused on describing the problems with poor customer service in Germany. Soon I will switch the focus on identifying business opportunities from good customer service. Before I do that though, let me point to some statistics as evidence that the German economy has been negatively impacted by the poor customer service offered in Germany. 

Over the past century, Germany has been able to benefit in the global economy from its strong engineering and product development heritage. This strength has been its competitive advantage in the industrial age. However, we don’t live in the industrial age anymore. 

As described in this post, the majority of developed countries’ gross national product is already derived from services and the majority of employees work in service businesses. Hence, the global competitive advantage depends more on services driven by human-to-human interactions than on engineering or product development. And here Germany lacks competitive advantage. 

That Germany’s economic wealth is declining relative to other countries becomes obvious when comparing its gross domestic product (GDP) per capita with that of other developed countries (see chart below). Germany’s GDP per capita, indexed against the OECD average, declined about ten points over the past decade whereas many developed countries increased their GDP per capita above that average or at least kept it stable.

Although this decline is driven by several factors, one factor to consider is Germany’s weak competitive position in the global service economy. That weak position is in turn driven by the poor service mindset in Germany. Although this blog doesn’t attempt to fully analyze Germany’s service economy, here are few data points as indicators for that weak position.

Impact of services on GDP
In Germany only 69% of the GDP was derived from services in 2005, in the US it was 81%. Over the past ten years, Germany’s total GDP has been growing 1.9% and its GDP from services has been growing 2.4% annually (compounded annual growth rate). Over the same ten years, US GDP has been growing 5.4% and its GDP from services 5.7% annually. 

Exports of goods AND services
Germany prides itself in being the world’s biggest exporter of goods, even ahead of the US for several years now. However, this statistic reflects only export of goods, it doesn’t include services. And the majority of these goods exports come from auto & heavy industry and chemicals, all areas with strong German industrial heritage. Taking services into account, the picture is not as rosy. In 2005, only 13% of Germany’s total exports were coming from services, in the US that number was 28%. 

Germany’s representation among best global brands
According to the recent ranking of the best global brands 2006 by Interbrand, Germany is represented with nine brands among the top 100 and US with 51. This number difference is less important, but what is more telling is the percentage of brands from service industries. Out of the nine German brands represented, only one, SAP, is from the service industry and that only if you take the broader definition of services, which includes software. On the other hand, over 40% of US companies represented is from the service industries.

As mentioned before, these are only few indicators for the poor German service economy in a global comparison. And, the poor service economy isn’t the only reason for the weak performance of the overall German economy. Probably a more significant driver of the German economy is the relatively low consumer spending, driven partly by low birth rates in Germany since the mid-1970s. As documented in this German research paper, there are 300’000 less children born every year than needed for a sustainable economic progression. This gap leads to declining domestic consumer spending with for example 250’000 less new households being established every year than just ten years ago. Well, this is though a topic for its own blog. 

There is mounting evidence for how the poor service in Germany has been negatively impacting its economy. German politicians and businesses believe, however, that more focus on innovation is the solution to the poor economic performance relative to other developed countries. How about looking at the lack of customer focus and poor service levels as other drivers – and maybe even more significant ones – for the current state? Can you imagine where German economy could be if it would be more competitive in the service area?

Wal-Mart fails in Germany due to poor service mindset of its German employees

I admit, the headline is a little bold, but let me explain my hypothesis, which starts with poor service mindset in Germany, leads to poor service levels typically offered by German employees, and ends with foreign companies losing their service advantage in Germany. 

As discussed in this post, the poor service mindset among the German population impacts not only German companies, but also foreign companies operating in Germany and relying on German employees. Wal-Mart was mentioned there as an example of an US company that initially paid attention to good customer service, when it established presence in Germany. Over time, though, it lost that focus and let its German employees provide the poor customer service typical for Germany. 

Now that Wal-Mart is leaving Germany without making any profit after eight years, one may wonder how much of that failure is driven by the poor customer service provided by its German employees. When Wal-Mart entered Germany and took over stores from its German competitors in 1997 and 1998, it proclaimed that it will steal market share from established players through good service, friendly employees, and low prices.  

Initially this strategy was apparently well executed since customers were pleased with attractive prices and exceptional customer service. That service was even better than service offered by Wal-Mart in the US where Wal-Mart is notorious for the poorest customer service in comparison with other US retailers. Later though, Wal-Mart must have lost attention to execution of its strategy, since the service levels declined and customers were treated with the typical German inattentive customer service. 

Another potential explanation for Wal-Mart’s failure would be if German customers didn’t care about good customer service when it comes to grocery and department stores. If German customers wouldn’t pay much value to good service, then Wal-Mart’s strategy would have been simply the wrong one for the German market. This sounds doubtful though since there are more pricy grocery and department stores, which are successful, so it’s not only price that matters to German customers. 

Whether it was poor strategy execution or simply the wrong strategy, Wal-Mart ended up competing only on price. Here though it run into other discounters like Aldi, Lidl, or Plus, which have already a very strong position in the German market. And, competing only on price is difficult and usually not sustainable in almost every industry. Wal-Mart couldn’t benefit here especially from its usually efficient supply chain, since it didn’t have the buyer power in Germany as it has in the US.  

Finally, German shopping habits are different than what Wal-Mart is used to from the US. German customers are accustomed to shop in their neighborhood and without any additional benefits are not inclined to drive shopping at city outskirts where Wal-Mart stores were located. The German discounters, on the other hand, usually operate smaller stores located throughout many neighborhoods.

Wal-Mart’s failure in Germany should be a lesson for foreign companies operating in Germany and depending on customer service as their competitive advantage. That service is offered in Germany typically through German employees. Hence, companies need to understand the service mindset prevalent in Germany and proactively train and manage their employees if they want to deliver satisfactory customer service.

Is it German companies or companies in Germany?

In general, service levels offered by companies depend on the service mindset of their employees. As discussed in this post, German mentality leads to poor service mindset in the average German population. This would imply that companies with German employees offer poor service wherever they operate. However, there isn’t always such a clear cut. Service level depends also on the value that company’s management puts on customer satisfaction by providing for example appropriate training to employees or tying compensation to customer satisfaction. 

Let’s take Lufthansa as an example. The German airline employs mostly German employees and operates world wide. Since it competes with other airlines world wide, it cannot afford poor service levels. Hence, it offers now good service, even exceeding that of some US airlines. This wasn’t always the case but Lufthansa’s management must have realized that customer satisfaction is a profit driver and has significantly improved its customer service over the past ten or so years. 

Siemens Business Services (SBS), the former IT service unit of the German industry conglomerate Siemens, could be an example for German management not realizing the importance of customer satisfaction. According to Siemens, SBS has been struggling for years due to competitive and cost pressures. Could these competitive pressures come from SBS’ lower service levels in comparison with its global competitors? And are lower service levels also the reason for poor performance of other European IT service companies like T-Systems, Atos Origin, or Cap Gemini? Although the IT service market is growing, it is also becoming more global, exposing European companies to another service playing field. 

The poor service mindset among the German population impacts not only German companies, but also foreign companies operating in Germany and relying on German employees. Foreign companies establishing operations in Germany may initially pay attention to the service levels offered through their German employees. If not carefully managed, however, these service levels may morph to the typically poor service levels offered in Germany.  

Wal-Mart, the US retailer, is a good example. When the company opened its first stores in Germany, the sales clerks were providing service levels common in the US. For example, when asked where to find a product, they actually walked with the customer to the corresponding aisle, which is very typical for US retail stores. Now, years later, it’s the typical silent hand gesture “that way”.

As these examples show, the poor service mindset among the German population may lead to poor service levels offered by companies in Germany and may also impact service levels provided by German companies abroad. However, these situations can be avoided if management is serious about satisfying its customers, which naturally leads to satisfying company’s owners or shareholders.