3.4 We know what's best for you: high-credence services
The professional's knowledge and experience adds value to the services provided by lawyers and accountants. These types of service are classed as high-credence services. Credence means trust. A lawyer has ‘credentials’ to handle your case – their qualifications are written evidence of trustworthiness and authority.
High-credence services are found in both the commercial and the non-profit sectors. Services are mainly, by their very nature, intangible, so customers have difficulty evaluating them. In general, products too are a mixture of tangible elements and intangible elements.
Figure 3 illustrates the fact that a commodity such as salt contains no intangible elements. Customers evaluate its quality by its intrinsic (inherent) characteristics such as taste and appearance.
Services such as teaching contain very few tangible elements. There are very few intrinsic clues to quality, so customers and consumers have to rely on extrinsic (non-essential) clues, such as the cleanliness of the classrooms, the general environment and the standard of the teaching materials.
A fast food service lies in the middle – half-tangible and half-intangible. Customers evaluate this service using a mixture of intrinsic and extrinsic clues, such as the taste and look of the food (intrinsic) and the environment in which it is served (extrinsic). Customers also take clues from the general appearance of the staff, the cleanliness of surroundings and the packaging, for example.
A dictionary definition of intrinsic would include: inward, inherent, essential. A dictionary definition of extrinsic could be: not contained in or belonging to a body, to operate without, not essential.
Extrinsic clues become important in high-credence services because customers have to devolve the decision making regarding what's best for them to the service provider. From the above definitions of intrinsic and extrinsic, you will see that not only are high-credence services intangible, but also customers may lack the knowledge needed to make an informed judgement of the quality. So they have to rely on extrinsic clues to tell them about the quality of service to expect.
Example 5 A fast-food service
McDonald's menu, decor, staff uniforms, order processing, equipment and cooking procedures are all standardised (with some minor exceptions for local conditions). Taken as a whole, the restaurant creates a consistent and familiar experience, which in turn provides customers with a strong tangible impression of the character of McDonalds, what to expect and what it delivers.
You would probably not be surprised to find a McDonald's wherever you travel. The branch shown in the photograph is in Cairo and is a popular lunch venue for tourists. Can you spot the other well-known UK brand in the photo? Yes, that's right, the UK food retailer Sainsbury's also has a branch there.
Service providers such as banks, lawyers and doctors have an ethical and sometimes legal responsibility to guard the interests of their customers.
If a lawyer advises you to plead guilty to a parking offence because, if you go to court and are found guilty, the fine will be doubled, you have to believe the advice to be based on correct information. You can get a second opinion – but, in the end, you have to put your trust in the lawyer's ability to look after your best interests. In financial service literature this is described as a ‘fiduciary’ responsibility. The dictionary definition of a fiduciary is ‘one who holds anything in trust’. Banks hold our money ‘in trust’ for us and have to act in our best interests.
You can use the concept of fiduciary to explain most high-credence services. We trust our health to doctors, our legal matters to lawyers and our money to banks.
In the financial and legal professions, these fiduciary responsibilities are written in law. For the medical profession, the General Medical Council looks after this responsibility.
Consider an accounts department in an organisation manufacturing computers.
Identify the department's internal customers.
Identify the department's service.
Estimate the percentage of the service that is tangible and describe this tangible part.
Calculate the intangible percentage and describe the intangible part of the service.
Does the service have a high or low level of credence? Give a reason for your answer.
I wrote the following.
Internal customers: the managers of other departments who make decisions based on the financial information provided by the accounts department
Service – provide financial statements for the rest of the organisation
Tangible: 60% – the financial statements
Intangible: 40% – the financial statements reflect the financial health of the organisation
High level of credence – the managers of the various departments have to trust the accuracy of the information.
In this financial service example, the accounts department provides the financial statements that enable managers to make forecasts and allocate budgets for marketing, human resource management, production and investment. The organisation has to trust that those figures are correct – it hires accountants with the right credentials and has to assume that the reports are accurate. Incorrect financial forecasts have implications for every part of the organisation. For instance, overly-high forecasts may result in excess production and purchasing. The accounts department builds up trust by long-term relationships. The more often the forecasts turn out to be correct, the more the managers will rely on them.
Now can you do the same exercise for your own organisation?
Identify your customers – they may be internal or external.
Identify your product(s) / service(s).
Estimate how much of what you offer is intangible – and how much is tangible.
Estimate how many of your product(s) / service(s) are high credence.