Sometimes, good customers do bad things. I mean, they do things that are good for the business, but which may have negative consequences for the wider public. In those cases, the government may intervene and demand that the firm acts in a way that meet the government’s goals (regarding the public good) but which runs contrary to the commercial goals of those firms. For instance, financial institutions need to monitor their customers’ banking activities to detect (and report) money laundering; schools need to monitor their students’ behaviour to detect (and, again, report) young people at risk of being radicalised; and, soon, coffee shops may need to charge a ‘latte levy’ of 25p on disposable cups, to reduce the volume of coffee cups that end up in the landfill (2.5bn per year, according to data from the British Coffee Association, cited by the BBC).
These legal requirements change how the firms relate to their customers. For instance, the bank tasked with preventing money laundering goes from being focused on where the money will be invested, to where it came from.
Some time ago, I participated in a research project that looked in-depth at how one such legal requirement impact on an industry’s relationships with their customers. The project was funded by the Leverhulme Trust, and was led by Professor Kirstie Ball. The other researchers on this project were Professor Sally Dibb, Professor Maureen Meadows, Professor Elizabeth Daniel and Dr Keith Spiller. The team conducted a three-year study, looking at how airlines adapted to the UK government’s decision that they should collect their passengers’ passport details before travel, and pass that information on to the UK Border Agency. The initiative was called eBorders, and aimed to monitor the movements of terrorism suspects and other criminals. The initiative has since been abandoned.
Through a mix of interviews, case studies and surveys with professionals in the travel industry, we studied how the airlines – and, to some extent other travel business, such as travel agencies – managed the negative consequences arising from this legal requirement (e.g., IT costs), tried to return their commercial interests and those of their customers to the fore (e.g., reduce delays in customer check-ins), and tried to restore equilibrium to the disrupted system (e.g., redesign the booking process). We found that, roughly, this process of adaptation could be roughly divided in three stages, as summarised in Figure 1 and described below.
Figure 1. Process of adaptation of customer service practices in light of legal requirements that impact negatively on the customer experience
Stage 1. Recognising
The firms learn about the government’s requirements, and consider the possible implications of these requirements for the industry in general, and their businesses in particular.
Formal and informal discussions are held across the industry concerning how the initiative might be managed, and the likely implications for processes and ways of working. The airlines identify a number of negative implications for customer interactions, such as additional transaction time, increased process complexity, customer confusion and the possibility of mistakes. The negative impact on the customer interaction is a considerable concern for this sector, which places so much importance on service quality and the customer experience.
Stage 2. Rationalising
The firms seek ways of aligning the legal requirements with operational factors, by changing existing processes, adopting new technology and adpating ways of working. These changes are difficult and costly. Moreover, these changes and associated uncertainty, impact negatively on the interaction with customers. The changes also impact negatively on the firm’s commercial interests (e.g., need to share information with competitors).
The power relationships between stakeholders are destabilised, and there are a series of tensions (e.g., with the IT suppliers chosen by the government).
The relationship between the airlines and their agents and partners becomes critical, as the co-operation of organisations in direct contact with customers can significantly smooth the customer experience. Moreover, these partners also face technology, personnel and recruitment costs from this legal requirement and, so, share some of the airlines problems. Developing a strong relationship with these intermediaries is likely to benefit both the airlines and their customers. Even so, imbalances in power may remain, with some smaller operators benefiting less than their larger counterparts.
Stage 3. Refashioning
Ultimately, the airlines and other travel organisations respond to the challenges of the legal requirement by refashioning their ways of working. Firms seek solutions to the serious, costly, destabilising outcomes of the legal requirements; exploring how high levels of customer service can be delivered within the regulatory constraints, and pursuing new avenues to develop commercial opportunity (e.g., via data held in their customer relationship management systems).
Two principle motivators drive this refashioning phase. The first is that customers must be nurtured, that their interaction with the organisation should be carefully managed and should not be jeopardised by the legal requirements. For instance, although the airlines initially tried to pass the costs on to travellers, the mood quickly changed amidst angsts about customer retention, to easing the burden of compliance for customers.
The second motivator is the desire to explore whether the legal requirements can actually generate commercial opportunity for airlines and travel organisations. For instance, some firms started using the customer contact created by the need to collect the passport data as required by the rules as an opportunity to cross sell, while others started considering new offerings such as ‘pay for fast track’ services so that customers are not inconvenienced by security requirements.
In summary, initially, the regulatory changes create problems for the firms, and for their interactions with their customers. However, with time, many firm manage to turn these challenges into opportunities. Nonetheless, the costs of adjusting to the legal requirements and adaptation to the new business reality are not equally distributed – often, big firms are better able than small ones to pass on the costs to third parties, or to influence how the industry responds. And while many firms adapt to the new conditions, many perish on the way there, with negative consequences for customers and employees.
What kind of regulatory challenges are affecting the customer experience in your industry?