1. Keep it simple, transparent and fair.
2. Respect our humanity. We know one company that refers internally to customers as RPUs (Revenue-Producing Units). This is unlikely to help them deliver on #1.
3. Involve customers in developing your pricing model.  They have preferences, and they’re often eager to share them.
4. Your competitors’ shady fees are an opportunity. One reason Macy’s thrived during the Great Depression is because it chose to defy some of the appalling industry norms on pricing (e.g., advertising one price, charging another).
5. If you must change the contract, give us lots of advance warning and a thoughtful explanation. For an example of how to get this right, see the transition of the New York Times to a paid, web content strategy (thanks, Jim Watson from ME). Nobody liked the change, but we understood it, and we adapted.
6. Make sure your pricing is aligned with your brand.   When the Four Seasons charges some people thousands of dollars to stay in its flagship Manhattan hotel, and then asks them to dig out their credit cards to pay a $19.99 wireless access fee, that’s, um, a disconnect.
7. Avoid piling extra charges on to the payment process.  We don’t like being punished for holding up our end of the deal. And certainly don’t insult us by calling it a “convenience fee.”
8. Create more value than you capture.  That’s the fundamental pricing strategy of every great business.
9. The other guy’s model may not help you.  The answer for your business depends on the very specific contract (spoken and unspoken) you have with your own customers.
10. In general, treat us like adults.  Don’t try to trick us or hide the truth. In the words of one of our readers (Wize Adz, who are you, friend?), when you take our money from us, “don’t be a d*ck.”

Silicon Valley’s been cracking with activity in the last few years — along with Melbourne, Australia and Santiago, Chile. According to the Global Entrepreneurship Monitor, there’s been a sharp uptick in entrepreneurship around the planet, with the number of hungry entrepreneurs now topping 400 million across more than 50 countries.

This is good news for the global economy, potentially bad news for you. Or at least the kind of news that should give you strategic pause.

One or more of those 400 million may be targeting your less satisfied customers, with a plan to build a business around their specific needs. This is the “focused entry” strategy, a well-worn path in the history of successful startups (see Southwest Airlines). A focused entrant sees an opening in companies that are trying to serve everyone, but making no one truly happy.

Consider Dartitup’s response to Pinterest’s high-profile success in the social marketing space. Pinterest built a great model for the ladies, who largely drive its activity and content. Men are being dragged along, but they’ve revealed a comparative lack of engagement. Enter Dartitup with plans for a decidedly manly offering: think dartboards instead of pinboards.

If you’re the Pinterest in this story, how do you respond? In our experience, the story typically plays out in stages that mirror the famous Five Stages of Grief:

Stage 1: Denial. It starts with dismissive chatter. Focused entrants tend to be small and shamelessly inadequate on certain dimensions — they have nothing to lose by underperforming in smart ways but this makes it easy to not take them seriously at first. Southwest Airlines? They don’t even feed you! Boarding their planes is like a riot at a bus station! Dartitup doesn’t even have employees yet!

Stage 2: Anger. Denial is replaced by anger that good customers have abandoned you. For example, there was a clear pattern in the customers who left leading retail banks for Commerce Bank — they were willing to tolerate lower interest rates in return for more convenient hours and friendlier service. In other words, they were not price-sensitive, and customers who are not price-sensitive tend to be the profitable ones. This is a classic challenge for market leaders: your best customers are often the first to jump.

Stage 3: Rationalization. This is where the competitive brain can get delusional. You’ll often do anything to diminish the threat, in your own mind and the minds of your stakeholders. “Fine,” you’ll say, “We’ve lost some customers, but we’ve still got everyone else.” Here companies often bring in outside consultants to validate their worldview. So what if you’re being beaten in one small market, right? Right?

Stage 4: Despair. Here you give into the dread, which is often not pleasant to confront. It’s not just Commerce Bank that’s popped up on the radar to compete on convenience, but also ING Direct, offering industry-leading rates on savings accounts. If you’re both successful and vulnerable — if you’re making money, but underserving valuable segments of customers — then you may be facing a pile-up of new competitors.

Stage 5: Acceptance. At this stage, managers make peace with the threat and begin to deal with it strategically. They revisit the blueprints of the business, and redesign a model that can win in a brave, new competitive world. They unleash the creativity of their employees and learn from their best customers. Getting here is not pain-free, but it can happen in an instant. It’s simply a decision to begin dealing productively with reality.

Have you ever found yourself or your company at any of these stages? What are some tactics you’ve used to help people confront the truth and move the organization to Stage Five?

We’re thrilled to be restarting a less formal, more direct conversation with you about the challenges of service and leadership.  This is an extension of our previous blog, which we suspended for too many months to finish the Uncommon Service manuscript.  To those of you with the patience to wait for us, we’re grateful.  We’re excited to pick up the discussion where we left off.

And to our new readers, here’s what we like talking about:  leading others, leading ourselves, serving customers and employees and shareholders, finding ways to do these things better and with more integrity.   That includes creating more profitable and more competitive organizations.  It you can’t get paid for delivering excellence, the business goes away.  No happy customers.  No thriving employees.

So please join us as we try to figure this stuff out.  We’re very interested in your comments and ideas – in fact, that’s the central reason to do this, to learn from readers like you on the front lines of creating and consuming service experiences. We want to know what you think.  Together we might be able to make great service a little more, well, common.

Case Study: Bugs Burger Bug Killers (BBBK)

In an industry where competitors only promised to do their best, BBBK became a sensation by guaranteeing complete customer satisfaction. But it meant that everyone, particularly clients, had to work a lot harder.

To say that customer-operators were central to the value proposition at Bugs Burger Bug Killers is almost a laughable understatement. That radical guarantee of complete pest elimination? It would have been empty without customers who were willing to toil alongside the company to ensure that their own restaurants, hotels, and apartment buildings were highly inhospitable to critters.

In order to deliver uncommon service, BBBK needed its customers to not just work hard, but also to perform difficult steps in the company’s rigorous antibug protocol. And so the company pulled out all the stops to keep its customers on point. Before the very first service visit, customers had to agree in writing to a strict cleanup regimen. No agreement, no deal—it was a powerful customer-selection tool. Next, the company developed a specific action plan for each client.

This plan often involved more frequent cleanups, radical changes in trash management, and not-so-cheap repairs to the building and surrounding site. If customers did not cooperate, they were fined. If they still didn’t cooperate, they were unceremoniously dropped. As Bugs himself declared over and over again, “We don’t want to do business with them.”

Customer training was a central part of the service specialist’s role. BBBK employees spent as much time as needed with the client to make sure the protocol and action plan were clear. Early site visits were as much about coaching customers as treating the facility. A typical learning moment for a client went something like this: a BBBK team would throw any piles of junk it found onto the middle of a client’s floor, then place a sign on the pile: “Sorry for the Mess.” And then the real learning occurred. When a customer approached the sign, he or she would find the following message: “Please accept my apology for the mess I made. I had to make the choice of doing one of two things. (1) Leave things as they were, cluttered and dirty, allowing roaches or rodents to infest your establishment again; or (2) Break up the breeding area. I chose number two because I know you don’t want to lose our guarantees and have an infestation of roaches or rodents again.”

The demands that BBBK placed on its customer-operators were unprecedented in the bug business—or in any other business we’ve studied, at least for sheer degree of difficulty. The Washington Post documented a BBBK intervention for one D.C. customer: “Preparing for Burger’s bug men was almost like getting ready for a visit from a mother-in-law who would be sure to find any speck of dust. The aftermath was also exhausting: three people spend five hours mopping up filmy pesticide residue and putting the place back together.”  For many clients, BBBK’s process also meant lost operating hours during the initial cleanup phase, which could sometimes be measured in days. But there was no other route to excellence. It turns out that customers who wanted the best were more than willing to do their part.

Case: Spence Diamonds

We tend to associate scripts with lower-wage employees, but Canadian retailer Spence Diamonds has revealed the power of writing dialogue for even $100,000-plus employees.

Spence has built a high-growth retail jewelry business with margins that are double the industry average. Counterintuitively, Spence gets there by delivering outstanding service through the highest-paid salespeople in the business. Even less intuitively, its success is driven by a highly scripted sales process that tells veteran salespeople exactly what to say, when to say it, where to stand—even where to put their pens throughout a conversation.

Spence pays its experienced “diamond consultants” more than twice the industry standard. CEO Sean Jones describes managing these salespeople as being “like managing an NBA team,” with all the sensitivity toward egos, team chemistry, and playing time. Everyone is an individual performer, and everyone is at the top of his or her game. And Jones’s job is to get his squad members to do something truly bizarre: don’t trust their instincts, even when those instincts allowed them to dominate every other sales environment. Learn the script. All seventy pages of it. And stick to it, even when they feel confident enough to start tweaking the process.

Why the rigid process? Jones discovered that his salespeople were six times more likely to be effective if they followed “the Spence way,” step by tiny step, from the moment a customer walked into the store to the moment he or she signed on the dotted line. The entire process is designed, with scientific precision, to find out exactly what customers want and to help them feel confident acting on it. Founder Doug Spence’s core insight, which Jones ran with, was that the typical engagement-ring buyer (young, male) is terrified when he walks in the door. Not just a little bit anxious or intimidated. Terrified. And not just of the product, but of the institution it represents. Marriage is heady stuff. Piled onto that base level of fear is often the sickening awareness that he will be judged by friends and family on whatever ring he selects. This is quickly followed by another unsettling thought, often the moment the customer crosses the threshold of a jewelry store: he knows nothing about diamonds. Cut, color, clarity, carats. It’s an obscure new language, and he doesn’t speak a word of it.

Many jewelers do little to reduce the engagement ring buyer’s anxiety. The client steps into a hushed, feminine domain. A small selection of merchandise is typically locked up under thick glass cabinets. A conspicuously armed guard is on patrol, reinforcing the buyer’s sneaking suspicion that he’s in the wrong place at the wrong time. With consequences. Contrast that experience with “the Spence way”: a friendly and accessible atmosphere, open cabinets filled with thousands of prototypes made of cubic zirconia that the client can touch and feel, a personalized education on the basics of diamond grading. And the Spence customer gets to interact with a friendly consultant, who knows exactly the right words to say, at exactly the right time, to help the buyer make the decision of a lifetime.

The scripts aren’t the only reason the model works. Like other successful service businesses, Spence Diamonds has decided where to excel (selection, service, price) and where to underperform (location, brand). It only invests in one location per market and finds retail space that is near a premium location, but outside the real estate sweet spots, where prices are significantly higher. The company has also figured out how to deliver excellence with fewer, better people, a model that’s underutilized in many service industries. Spence pays its people significantly more, but it doesn’t need as many of them.

And yet Jones maintains that the company’s real competitive advantage is its sales script. Spence is now the most profitable jeweler in Canada and is looking toward global expansion. Its biggest barrier to growth? Finding great players to move diamonds with empathy on the retail floor—and finding great coaches who can keep them on script.

Case: FedEx

By empowering customers with smart technology, FedEx figured out how to reduce costs and improve service at the same time.

FedEx had a cost driver that was screaming for attention—the “where’s my order?” call. The industry economics are such that if a company has to handle one of these calls with a live agent, it loses money on that package. Each time a customer phones in to track a package, the company experiences a loss. FedEx knew it had to find a way to cut back on the number of calls, but it approached cost reduction as a search for improved service. Would it be possible to reduce these costs while simultaneously improving the service experience?

First, FedEx allowed customers to track their packages online. One immediate advantage in providing online access is that it enables both company and client to cut and paste the sixteen-digit code used to track the 650,000 FedEx packages that go flying around the world each day. Having someone at a call center read that number out to the customer, or vice versa, is problematic enough, even before you factor in the multiple ways that spoken English can be accented. But the real revolution was the company’s next move—automating and proactively sending tracking information by e-mail or text (whichever the customer prefers) so that no one ever needs to wonder and certainly never needs to call. FedEx set out to reduce costs and ended up making customers much better off. With the old system, customers had to proactively call to check on the status of a shipment. Now everyone can rest easy knowing that FedEx is on top of it.

Even when things inevitably go wrong. FedEx innovated again with exception reporting, alerts that let customers know about the infrequent cases in which a FedEx package is going to be late. Again, these alerts eliminate the need for anyone to pick up the phone, reducing both customer anxiety and company costs. Again, FedEx is on it. Sorry for screw-up, but we’re on it—we’re giving you better information, at a faster rate and much lower cost than staffing a high-service call center.

Case: Southwest Airlines

Southwest remains an exception to the rule that airlines must lose money and make their customers miserable.  And it’s done so by proving that uncommon service isn’t the exclusive domain of high-priced, high-end offerings.

How does Southwest pull off low-cost excellence? Service design is a big part of the story, particularly the decision to be great on some parts of the flying experience and bad on others.  The tradeoffs come to life on the strategy graph below, a great visualization tool developed by a Harvard Business School colleague, Jan Rivkin.  For clarity, we call these graphs attribute maps.  [On Southwest’s attribute map below], you can see the attributes ranging from most important to least important for Southwest’s target customers listed on the vertical axis:

Low prices top the list, with friendly service in the number two spot. At the bottom, the items of least importance are an extensive network and on-board amenities. But also note Southwest’s performance. It’s best in class on the attributes that matter most to its customers and worst in class on those that matter least.

And these decisions are linked:  inconvenient airports mean cheaper gate real estate.  No meals mean that gate turnaround time is faster (no waiting for all those silver trays), which means more high-priced assets in the sky on any given day, compared to other airlines. Both decisions make it easier to deliver on its target market’s biggest priority:  low prices.  We call this approach bad in the service of great.

But the details in this article, including a cover-up of faulty motherboards and evasive maneuvering with customers, is completely at odds with that genesis.  If true — and the article makes a pretty compelling case — then Dell would be following in a long tradition of organizations that stumble when they start to view customers as obstacles to their own corporate performance.

Dell became Dell for its operational excellence in the service of customers.  The company ushered in a whole new way of serving by delivering variety, speed, and prices that had never before been seen in its industry.  It was truly revolutionary.  And truly focused on end users.  But something different, and not that uncommon, seems to have happened in recent years:  Dell began to find itself more interesting than its customers.

It’s as if companies like Dell wake up one day, excited and surprised by what they’ve become, and start suffering from the self-distraction of a teenager.  They’ve gone from boy to man, and it’s heady stuff.  And the media fawning and magazine covers make it that much more difficult to resist themselves.  Along the way they seem to forget that what made them great was their customers.  In Dell’s case, it was the relentless and creative focus on finding better ways to serve them.

But like a nagging parent, Dell’s customers were eventually treated like a drag on the company’s bright, shiny future.  My advice to Dell management — and to any other company on a similar ride — is to have some respect, remember where you came from and make customers the center of your universe again.  The correction shouldn’t be that hard for Dell.  Looking up to customers is in its corporate genes.

HBS Publishing is now hosting a blog called Imagining the Future of Leadership, which includes a six-week series on how leadership might look in the future.  This week’s focus:  leaders for the future, where I posted on Suze Orman: Defying the Standards/Empathy Tradeoff.