Recognising the customer: The complex world of customer recognition in service provision

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By J. N. Halm

Every time you walk into a place you frequent often, such as a supermarket, fuel station or an eatery, and are greeted by name, something magical happens.

That simple act of recognition creates a connection that makes you feel special. I get to experience this quite often because, in my line of work, it is not very easy for one to hide one’s identity. Try as you may, there is always that possibility of someone knowing you from a lecture or a talk you gave somewhere, from this page or my YouTube channel.

In our part of the world, this is not always a bad thing. Being instantly recognisable often comes with some perks and privileges. You might be given some undue advantage like getting served before others.

It is human nature to want to be recognized and remembered. But in the complex world of business, customer recognition is not as straightforward as it might seem at first glance. What if I were to tell you that sometimes, being recognised by the business is not necessarily a good thing? Shocking, right?

This is exactly what researchers discovered in a ground-breaking study published in the March 2021 edition of the International Journal of Research in Marketing. The findings of the study, which was titled “How Does Customer Recognition Affect Service Provision?,” challenge our basic assumptions about the benefits of customer recognition and its effects on service provision.

The researchers examined how the ability to recognise repeat customers versus new ones affects various aspects of business operations. What makes their study particularly interesting is how they looked at this phenomenon through different lenses—both in centralised channels (think of a company-owned store) and decentralised channels (think of a franchised outlet).

The results paint a picture that is as fascinating as it is complex. In decentralised channels, when only retailers have the power to recognise customers, service levels actually go up. This makes intuitive sense. It is like a local franchise owner who knows their regular customers and goes the extra mile to keep them happy. The owner has skin in the game and understands that recognised customers are valuable assets worth investing in.

This is no different from the grocery shop in my neighbourhood. The husband and wife owners know a lot about my family and our purchasing habits. They must do so since we happen to be one of their most important customers. Quite recently, I had a first-hand experience of what it felt like when a business takes the time to know about you and your purchasing behaviours.

My kids had asked me to buy some items on my way back from work but the truth is that I forgot. At the time I remembered, it was quite late and not wanting to go home without the items, I decided to visit this store owned by this husband and wife. The man was about to take my money when the wife emerged and told me that my wife had already passed by earlier to buy those same items.

I was pleasantly surprised. This woman guessed that the errand I was on had to be the same errand my wife had carried out earlier. She was right. Anywhere else, and I would have bought items that I really did not need to buy and spent money I should not have to spend. That is why the business needs to recognise you.

However, the plot thickens when we look at centralised channels or situations where both manufacturers and retailers can recognise customers. Here, something rather counterintuitive happens. The effect of customer recognition on service levels depends on what the researchers call “service investment persistence.” This is essentially how long the effects of good service last in the customer’s mind.

When service investment persistence is high – meaning the effects of good service stay with customers for a long time – customer recognition actually leads to reduced service levels. This might sound counterintuitive at first, but think about it this way: If you know that a customer will remember and appreciate your excellent service for a long time, you might not feel the need to maintain the same high level of service consistently. It is similar to a restaurant that becomes complacent with its regular customers, assuming they will keep coming back regardless.

On the flip side, when service investment persistence is low – meaning the effects of good service fade quickly – customer recognition leads to increased service levels. This is like a business that knows it needs to consistently impress its customers because today’s excellent service will be forgotten by tomorrow.

The implications for profits and consumer welfare are equally intriguing. In centralised channels, customer recognition turns out to be something of a curse. Both firm profits and consumer surplus take a hit. It is as if the very act of recognition creates a burden that weighs down the entire system. This finding challenges the common wisdom that knowing your customer is always good for business.

The story is different in decentralised channels where both manufacturers and retailers can recognize customers. Here, channel members’ profits increase, but—and this is a big but—consumer surplus decreases. It is like a game where businesses win but customers lose. This raises important questions about the ethics and long-term sustainability of certain customer recognition practices.

What does all this mean for businesses operating in today’s market? First and foremost, it suggests that customer recognition should not be pursued blindly as a universal good. The structure of your business—whether centralized or decentralized—should influence how you approach customer recognition.

For businesses operating in decentralised channels where only retailers can recognise customers, the message is clear: Invest in recognition systems and empower your front-line staff to build those personal connections. The research suggests this will lead to better service levels and, ultimately, better outcomes for everyone involved.

However, if you are operating in a centralised channel or in a situation where both manufacturers and retailers can recognise customers, you need to be more strategic. The key is to understand your service investment persistence. How long do the effects of your good service last in your customers’ minds? This should guide your approach to customer recognition and service provision.

The findings also have implications for consumers. In a world where being recognized as a repeat customer might actually lead to decreased service levels or increased costs, consumers might want to rethink their loyalty strategies. Perhaps the old advice about shopping around is not just about finding better prices—it might also be about maintaining better service levels.

For managers, these findings present both challenges and opportunities. The challenge lies in crafting recognition strategies that do not fall into the traps identified by the research. The opportunity lies in using these insights to create more nuanced and effective approaches to customer service and recognition.

Looking ahead, businesses might need to develop more sophisticated approaches to customer recognition. Perhaps the solution lies in creating systems that maintain high service levels regardless of recognition status, or in finding ways to ensure that recognition always leads to better service rather than complacency.

The takeaway from all of this is that customer recognition, like many aspects of business, is not a simple matter of “more is better.” It requires careful thought about business structure, service persistence, and the long-term implications for both businesses and consumers. In the end, the goal should be to create recognition systems that truly serve both the business and its customers, rather than benefiting one at the expense of the other.

After all, in the complex chess game of business, the winner is not always the one who can see the most moves ahead, but rather the one who understands how each move affects all the pieces on the board. Customer recognition, it turns out, is one of those moves whose effects ripple across the entire game in ways we are only beginning to understand.