Services Marketing Christopher Lovelock1

Chapter 1
Introduction to
Services Marketing
Slide 2004 by Christopher Lovelock and Jochen Wirtz
Services Marketing 5/E
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How Important is the Service Sector in Our Economy?
In most countries, services add more economic value than

agriculture, raw materials and manufacturing combined
In developed economies, employment is dominated by

service jobs and most new job growth comes from services to minimum-wage positions
Jobs range from high-paid professionals and technicians
Service organizations can be any sizefrom huge global

corporations to local small businesses organizations involve services
Most activities by government agencies and nonprofit

Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E
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Services dominate the United States Economy: GDP by Industry, 2001 (Fig. 1.1)
Agriculture, Forestry, Mining, Construction 8% Manufacturing 14%
Finance, Insurance, Real Estate 20%
Government (mostly services) 13% Other Services 11%

SERVICES
Wholesale and Retail Trade 16% Transport, Utilities, Communications 8%
Business Health Services 6% 5%

Source: Bureau of Economic Analysis, November 2002
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Changing Structure of Employment as Economic Development Evolves (Fig. 1.2)
Agriculture Services
Industry
Time, per Capita Income

Source: IMF, 1997
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Some Service Industries Profiled by NAICS but Not Identified by SIC Codes
Casino Hotels Continuing Care Retirement Communities Diagnostic Imaging Centers Diet and Weight Reducing Centers Environmental Consulting HMO Medical Centers Industrial Design Services Investment Banking and Securities Dealing Management Consulting Services Satellite Telecommunications
Gold Courses and Country Clubs

Hazardous Waste Collection
Telemarketing Bureaus
Temporary Help Services
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Internal Services
Service elements within an organization that facilitate

creation of--or add value to--its final output
Includes:
accounting and payroll administration recruitment and training legal services transportation catering and food services cleaning and landscaping
Increasingly, these services are being outsourced

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Major Trends in Service Sector (Fig. 1.3)
Government Policies (e.g., regulations, trade agreements) Social Changes (e.g., affluence, lack of time, desire for experiences) Business Trends
Manufacturers offer service Growth of chains and franchising Pressures to improve productivity and quality More strategic alliances Marketing emphasis by nonprofits Innovative hiring practices
Advances in IT (e.g., speed, digitization, wireless, Internet) Internationalization (travel, transnational companies)
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Some Impacts of Technological Change
Radically alter ways in which service firms do business:

with customers (new services, more convenience) behind the scenes (reengineering, new value chains)
Create relational databases about customer needs and

behavior, mine databanks for insights
Leverage employee capabilities and enhance mobility Centralize customer servicefaster and more responsive Develop national/global delivery systems Create new, Internet-based business models
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Marketing Relevant Differences Between Goods and Services
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Defining the Essence of a Service
An act or performance offered by one party to another An economic activity that does not result in ownership A process that creates benefits by facilitating a desired
change in:
customers themselves physical possessions intangible assets
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Distinguishing Characteristics of Services

(Table 1.1)
Customers do not obtain ownership of services Service products are ephemeral and cannot be inventoried Intangible elements dominate value creation Greater involvement of customers in production process Other people may form part of product experience Greater variability in operational inputs and outputs Many services are difficult for customers to evaluate Time factor is more important--speed may be key Delivery systems include electronic and physical channels
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Marketing Implications - 1
No ownership
Customers obtain temporary rentals, hiring of personnel, or access
to facilities and systems Pricing often based on time Customer choice criteria may differ for renting vs. purchase--may include convenience, quality of personnel Cant own people (no slavery!) but can hire expertise and labor
Services cannot be inventoried after production

Service performances are ephemeraltransitory, perishable
Exception: some information-based output can be recorded in electronic/printed form and re-used many times Balancing demand and supply may be vital marketing strategy Key to profits: target right segments at right times at right price Need to determine whether benefits are perishable or durable
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Customers may be involved in production process

Customer involvement includes self-service and cooperation with
service personnel Think of customers in these settings as partial employees Customer behavior and competence can help or hinder productivity, so marketers need to educate/train customers Changing the delivery process may affect role played by customers Design service facilities, equipment, and systems with customers in mind: user-friendly, convenient locations/schedules
Intangible elements dominate value creation

Understand value added by labor and expertise of personnel
Effective HR management is critical to achieve service quality Make highly intangible services more concrete by creating and
communicating physical images or metaphors and tangible clues

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Value Added by Tangible vs Intangible Elements in Goods and Services (Fig. 1.4)
Hi
Salt Soft drinks CD Player Golf clubs New car Tailored clothing Furniture rental Fast food restaurant Plumbing repair Office cleaning Health club Airline flight Retail banking Insurance Weather forecast Intangible Elements
Lo
Hi
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Other people are often part of the service product

Achieve competitive edge through perceived quality of employees Ensure job specs and standards for frontline service personnel reflect
both marketing and operational criteria Recognize that appearance and behavior of other customers can influence service experience positively or negatively Avoid inappropriate mix of customer segments at same time Manage customer behavior (the customer is not always right!)
Greater variability in operational inputs and outputs

Must work hard to control quality and achieve consistency Seek to improve productivity through standardization, and by training
both employees and customers Need to have effective service recovery policies in place because it is more difficult to shield customers from service failures
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Often difficult for customers to evaluate services

Educate customers to help them make good choices, avoid risk Tell customers what to expect, what to look for Create trusted brand with reputation for considerate, ethical behavior Encourage positive word-of-mouth from satisfied customers
Time factor assumes great importance

Offer convenience of extended service hours up to 24/7 Understand customers time constraints and priorities Minimize waiting time Look for ways to compete on speed
Distribution channels take different forms

Tangible activities must be delivered through physical channels Use electronic channels to deliver intangible, information-based
elements instantly and expand geographic reach

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Important Differences Exist among Services
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Four Categories of Services Employing Different Underlying Processes (Fig. 1.5)
What is the Nature of the Service Act?

TANGIBLE ACTS
Who or What is the Direct Recipient of the Service?

DIRECTED AT PEOPLE DIRECTED AT POSSESSIONS
People Processing
e.g., airlines, hospitals, haircutting, restaurants hotels, fitness centers
Possession Processing
e.g., freight, repair, cleaning, landscaping, retailing, recycling
INTANGIBLE ACTS
Mental Stimulus Processing

e.g., broadcasting, consulting, education, psychotherapy
Information Processing
(directed at intangible assets)
e.g., accounting, banking, insurance, legal, research
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Implications of Service Processes (1) Seeking Efficiency May Lower Satisfaction

Processes determine how services are created/delivered process change may affect customer satisfaction
Imposing new processes on customers, especially

replacing people by machines, may cause dissatisfaction
New processes that improve efficiency by cutting costs

may hurt service quality
Best new processes deliver benefits desired by customers

Faster
Simpler
More conveniently
Customers may need to be educated about new

procedures and how to use them
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Implications of Service Processes: (2) Designing the Service Factory

People-processing services require customers to visit the service factory, so:
Think of facility as a stage for service

performance
Design process around customer Choose convenient location Create pleasing appearance, avoid
unwanted noises, smells
Consider customer needs--info,

parking, food, toilets, etc.
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Implications of Service Processes: (3) Evaluating Alternative Delivery Channels

For possession-processing, mental-stimulus processing, or information processing services, alternatives include: 1. Customers come to the service factory 2. Customers come to a retail office
3. Service employees visit customers home or workplace

4. Business is conducted at arms length through - physical channels (e.g., mail, courier service) - electronic channels (e.g., phone, fax, email, Web site)
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Implications of Service Processes: (4) Balancing Demand and Capacity

When capacity to serve is limited and demand varies widely, problems arise because service output cant be stored: 1. If demand is high and exceeds supply, business may be lost 2. If demand is low, productive capacity is wasted Potential solutions: - Manage demand - Manage capacity
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Implications of Service Processes: (5) Applying Information Technology

All services can benefit from IT, but mental-stimulus processing and information-processing services have the most to gain: Remote delivery of informationbased services anywhere, anytime New service features through websites, email, and internet (e.g., information, reservations) More opportunities for self-service New types of services
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Implications of Service Processes: (6) Including People as Part of the Product

Involvement in service delivery often entails contact with other people
Managers should be
concerned about employees appearance, social skills, technical skills or detract from service experience--need to manage customer behavior
Other customers may enhance
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The Services Marketing Mix
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Elements of The Services Marketing Mix: 7Ps vs. the Traditional 4Ps
Rethinking the original 4Ps Product elements Place and time Promotion and education Price and other user outlays
Adding Three New Elements Physical environment Process People
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The 7Ps: (1) Product Elements

All Aspects of Service Performance that Create Value
Core product featuresboth tangible and intangible

elements
Bundle of supplementary service elements Performance levels relative to competition Benefits delivered to customers (customers dont buy a
hotel room, they buy a good nights sleep)
Guarantees
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The 7Ps: (2) Place and Time

Delivery Decisions: Where, When, and How
Geographic locations served Service schedules Physical channels Electronic channels Customer control and convenience Channel partners/intermediaries
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The 7Ps: (3) Promotion and Education

Informing, Educating, Persuading, and Reminding Customers Marketing communication tools
media elements (print, broadcast, outdoor, retail, Internet, etc.) personal selling, customer service sales promotion publicity/PR
Imagery and recognition

branding corporate design
Content
information, advice persuasive messages customer education/training
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The 7Ps: (4) Price and Other User Outlays

Marketers Must Recognize that Customer Outlays Involve More than the Price Paid to Seller
Traditional Pricing Tasks
Selling price, discounts, premiums Margins for intermediaries (if any) Credit terms
Identify and Minimize Other Costs Incurred by Users
Additional monetary costs associated with service usage (e.g., travel to

service location, parking, phone, babysitting,etc.) Time expenditures, especially waiting Unwanted mental and physical effort Negative sensory experiences
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The 7Ps: (5) Physical Environment

Designing the Servicescape and providing tangible evidence of service performances
Create and maintaining physical appearances

buildings/landscaping interior design/furnishings vehicles/equipment staff grooming/clothing sounds and smells other tangibles
Select tangible metaphors for use in marketing

communications
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7Ps: (6) Process

Method and Sequence in Service Creation and Delivery
Design of activity flows Number and sequence of actions for customers Providers of value chain components Nature of customer involvement Role of contact personnel Role of technology, degree of automation
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The 7Ps: (7) People

Managing the Human Side of the Enterprise
The right customer-contact employees performing tasks well

job design recruiting/selection training motivation evaluation/rewards empowerment/teamwork
The right
customers for the firms mission
fit well with product/processes/corporate goals appreciate benefits and value offered possess (or can be educated to have) needed skills (co-production) firm is able to manage customer behavior
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Managing the 7Ps Requires Collaboration between Marketing, Operations, and HR Functions (Fig. 1.7)
Operations Management
Marketing Management
Customers
Human Resources Management

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Chapter 2
Consumer Behavior in Service Encounters
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Where Does the Customer Fit in a Service Organization? (Fig. 2.1)
Consumers rarely involved in manufacture of goods but

often participate in service creation and delivery Challenge for service marketers is to understand how customers interact with service operations Flowcharting clarifies how customer involvement in service encounters varies with type of process - see Fig. 2-1:
People processing (e.g., motel stay): customer is physically involved
throughout entire process Possession processing (e.g., DVD repair): involvement may be limited to drop off of physical item/description of problem and subsequent pick up Mental stimulus processing (e.g., weather forecast): involvement is mental, not physical; here customer simply receives output and acts on it Information processing (e.g., health insurance): involvement is mental specify information upfront and later receive documentation of coverage
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High-Contact and Low-Contact Services

High Contact Services
Customers visit service facility and remain throughout

service delivery
Active contact between customers and service personnel Includes most people-processing services
Low Contact Services
Little or no physical contact with service personnel Contact usually at arms length through electronic or
physical distribution channels
New technologies (e.g. Web) help reduce contact levels

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Levels of Customer Contact with Service Organizations (Fig. 2.2)

Emphasizes encounters with service personnel
M a na ge me n t Consulti ng
G ood Re sta ur a nt Ai rl ine Tr a ve l (Econ.)
High
N ur sing H om e
H a ir Cut
4 - Sta r H ote l
Tel ephone Ba nk ing
Re ta il Ba nk i ng M ote l
Ca r Repa i r I nsur a nce
Dr y Cl ea ning
Fa st Food Movie Theater
Ca bl e TV
Subway Internet Banking Mail Based Repairs
Emphasizes encounters with equipment

Internet-based Services
Low
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Managing Service Encounters--1
Service encounter: A period of time during which customers

interact directly with a service
Moments of truth: Defining points in service delivery where

customers interact with employees or equipment
Critical incidents: specific encounters that result in

especially satisfying/dissatisfying outcomes for either customers or service employees
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Managing Service Encounters--2
Service success often rests on performance of junior

contact personnel
Must train, coach, role model desired behavior Thoughtless or badly behaved customers can cause
problems for service personnel (and other customers)
Must educate customers, clarify what is expected, manage

behavior
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The Purchase Process for Services

(Adapted from Fig. 2-3)
Prepurchase Stage Awareness of need Information search Evaluation of alternative service suppliers Service Encounter Stage Request service from chosen supplier Service delivery Postpurchase Stage Evaluation of service performance Future intentions
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Perceived Risks in Purchasing and Using Services (Table 2.1)

Functional unsatisfactory performance outcomes Financial monetary loss, unexpected extra costs Temporal wasted time, delays lead to problems Physical personal injury, damage to possessions Psychological fears and negative emotions Social how others may think and react
Sensory unwanted impacts to any of five senses
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Factors that Influence Customer Expectations of Services (Fig. 2.4)

Explicit & Implicit Service Promises Word-of-Mouth Past Experience
Personal Needs Desired Service Beliefs about What Is Possible
ZONE OF TOLERANCE
Perceived Service Alterations Adequate Service Situational Factors Predicted Service
Source: Adapted from Zeithaml, Parasuraman & Berry Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E
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Components of Customer Expectations
Desired Service Level: wished-for level of service quality

that customer believes can and should be delivered
Adequate Service Level: minimum acceptable level of

service
Predicted Service Level: service level that customer

believes firm will actually deliver
Zone of Tolerance: range within which customers are

willing to accept variations in service delivery
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Intangible Attributes, Variability, and Quality Control Problems Make Services Hard to Evaluate
Search attributes Tangible characteristics that allow

customers to evaluate a product before purchase
experienced when actually using the service evaluate confidently even after consumption
Experience attributes Characteristics that can be
Credence attributes Characteristics that are difficult to

Goods tend to be higher in search attributes, services tend
to be higher in experience and credence attributes benefits have been delivered
Credence attributes force customers to trust that desired
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How Product Attributes Affect Ease of Evaluation) (Fig. 2.5)

Most Goods Most Services
Clothing
Restaurant meals
Computer repair
Haircut
Legal services
High in search attributes
High in experience High in credence attributes attributes

Source: Adapted from Zeithaml
Complex surgery
Motor vehicle
Foods
Chair
Entertainment
Lawn fertilizer
Easy to evaluate
Difficult to evaluate
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Customer Satisfaction is Central to the Marketing Concept
Satisfaction defined as attitude-like judgment following a

service purchase or series of service interactions
Customers have expectations prior to consumption, observe

service performance, compare it to expectations
Satisfaction judgments are based on this comparison

Positive disconfirmation if better than expected Confirmation if same as expected Negative disconfirmation if worse than expected
Satisfaction reflects perceived service quality, price/quality

tradeoffs, personal and situational factors
Research shows links between customer satisfaction and a

firms financial performance
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Customer Delight: Going Beyond Satisfaction
Research shows that delight is a function of 3 components

Unexpectedly high levels of performance Arousal (e.g., surprise, excitement) Positive affect (e.g., pleasure, joy, or happiness)
Is it possible for customers to be delighted by very

mundane services?
Progressive Insurance has found ways to positively surprise

customers with customer-friendly innovations and extraordinary customer service
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A Service Business is a System Comprising Three Overlapping Subsystems

Service Operations (front stage and backstage)
Where inputs are processed and service elements created. Includes facilities, equipment, and personnel
Service Delivery (front stage) Where final assembly of service elements takes place and service is delivered to customers Includes customer interactions with operations and other customers
Service Marketing (front stage)
Includes service delivery (as above) and all other contacts

between service firm and customers
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Service Marketing System: (1) High Contact Service--e.g., Hotel (Fig. 2.7)
Service Marketing System
Service Delivery System Service Operations System
Interior & Exterior Facilities Other Customers
Other Contact Points

Advertising Sales Calls Market Research Surveys Billing / Statements Miscellaneous Mail, Phone Calls, Faxes, etc. Random Exposure to Facilities / Vehicles
Technical Core
Equipment
The Customer
Service People
Backstage (invisible)
Front Stage (visible)
Other Customers
Chance Encounters with Service Personnel Word of Mouth
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Service Marketing System: (2) Low Contact Service--e.g., Credit Card (Fig. 2.8) Service Marketing System
Service Delivery System Service Operations System Other Contact Points
Advertising Mail Technical Core Self Service Equipment Phone, Fax, Web site etc.
Backstage (invisible) Front Stage (visible)
The Customer
Market Research Surveys

Random Exposures Facilities, Personnel
Word of Mouth
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Service as Theater
All the worlds a stage and all the men and women merely players. They have their exits and their entrances and each man in his time plays many parts
William Shakespeare
As You Like It
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The Dramaturgy of Service Delivery
Service dramas unfold on a stage--settings may change as

performance unfolds
Many service dramas are tightly scripted, others improvised Front-stage personnel are like members of a cast Like actors, employees have roles, may wear special
costumes, speak required lines, behave in specific ways
Support comes from a backstage production team Customers are the audiencedepending on type of
performance, may be passive or active
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Role and Script Theories
Role:
A set of behavior patterns learned through experience and communication customers must act out defined roles for good outcomes
Role congruence: In service encounters, employees and
Script: A sequence of behavior to be followed by employees

and customers during service delivery
Some scripts (e.g. teeth cleaning) are routinized, others flexible Technology change may require a revised script Managers should reexamine existing scripts to find ways to improve
delivery, increase productivity, enhance experiences
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Chapter 3
Positioning Services in Competitive Markets
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Search for Competitive Advantage in Services Requires Differentiation and Focus
Intensifying competition in service sector threatens firms

with no distinctive competence and undifferentiated offerings
Slowing market growth in mature service industries means

that only way for a firm to grow is to take share from competitors
Rather than attempting to compete in an entire market, firm

must focus efforts on those customers it can serve best Must decide how many service offerings with what distinctive (and desired) characteristics
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Standing Apart from the Competition
A business must set itself apart from its competition. To be successful it must identify and promote itself as the best provider of attributes that are important to target customers
GEORGE S. DAY
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Basic Focus Strategies for Services (Fig. 3.1)
BREADTH OF SERVICE OFFERINGS
Narrow
Service Focused
Wide
Unfocused (Everything for everyone)
Many
NUMBER OF MARKETS SERVED
Few
Fully Focused (Service and market focused)
Market Focused
Source: Robert Johnston

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Four Principles of Positioning Strategy
1. Must establish position for firm or product in minds of customers

2. Position should be distinctive, providing one simple, consistent message 3. Position must set firm/product apart from competitors 4. Firm cannot be all things to all people--must focus Jack Trout
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Uses of Positioning in Marketing Management (Table 3.1)
Understand relationships between products and markets

compare to competition on specific attributes evaluate products ability to meet consumer needs/expectations predict demand at specific prices/performance levels
Identify market opportunities

introduce new products redesign existing products eliminate non-performing products
Make marketing mix decisions, respond to competition

distribution/service delivery pricing communication
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Possible Dimensions for Developing Positioning Strategies
Product attributes Price/quality relationships Reference to competitors (usually shortcomings) Usage occasions User characteristics Product class
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Developing a Market Positioning Strategy (Fig. 3.3)

MARKET ANALYSIS
- Size - Composition - Location - Trends Define, Analyze Market Segments
Select Target Segments To Serve
INTERNAL ANALYSIS
- Resources - Reputation - Constraints - Values
Articulate Desired Position in Market Select Benefits to Emphasize to Customers
Marketing Action Plan
COMPETITIVE ANALYSIS
- Strengths - Weaknesses - Current Positioning
Analyze Possibilities for Differentiation

Source: Adapted from Michael R. Pearce
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Positioning of Hotels in Belleville: Price vs. Service Level (Fig. 3.4)

Expensive
Grand
Regency
PALACE
Shangri-La
High Service Sheraton Atlantic Moderate Service
Italia Castle Alexander IV Airport Plaza Less Expensive

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Positioning of Hotels in Belleville: Location vs. Physical Luxury (Fig. 3.5)

High Luxury
Grand Sheraton PALACE

Financial District Shopping District and Convention Centre
Regency
Shangri-La
Inner Suburbs
Castle Atlantic
Italia
Alexander IV
Airport Plaza Moderate Luxury
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Positioning after New Hotel Construction: Price vs. Service Level (Fig. 3.6)
Expensive
Mandarin New Grand Heritage Marriott Continental
Action? Regency High Service
PALACE
Shangri-La No action? Atlantic Sheraton Italia Castle Alexander IV Airport Plaza Moderate Service
Less Expensive
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Positioning after New Hotel Construction: Location vs. Physical Luxury (Fig. 3.7)
High Luxury Mandarin
New Grand
Continental Action? PALACE Financial District No action? Shopping District and Convention Centre Italia Alexander IV Atlantic Airport Plaza Inner Suburbs Heritage Marriott Sheraton Shangri-La Regency
Castle
Moderate Luxury
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Positioning Maps Help Managers to Visualize Strategy
Positioning maps display relative performance of competing

firms on key attributes
Research provides inputs to development of positioning maps Challenge is to ensure that

attributes employed in maps are important to target segments performance of individual firms on each attribute accurately
reflects perceptions of customers in target segments
Predictions can be made of how positions may change in the

light of new developments in the future
Simple graphic representations are often easier for managers to

grasp than tables of data or paragraphs of prose
Charts and maps can facilitate a visual awakening to threats

and opportunities and suggest alternative strategic directions
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Chapter 4
Creating the Service Product
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Key Steps in Service Planning: Matching Opportunities to Resources
Must relate marketing opportunities to firms resources

(physical, financial, technological, human) Identify, evaluate firms marketing assets
Customer portfolio/lifetime value (customer equity) Market knowledge Marketing implementation skill Product line Competitive positioning strategies Brand reputation (brand equity) Physical facilities, equipment Technology and systems (especially IT) Human resources (numbers, skills, productivity) Leverage through alliances and partnerships Potential for customer self service Cost structure
Identify, evaluate firms operating assets
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Service Design Involves Matching Marketing Concept with Operations Concept (Fig. 4.1)
Corporate Objectives and Resources
Marketing Assets
(Customer Base, Mkt. Knowledge, Implementation Skills, Brand Reput.)
Operating Assets
(Facilities/Equipment, IT Systems, People, Op. Skills, Cost Structure)
Service Marketing Concept

Benefits to customer from core/ supplementary elements, style, service level, accessibility User costs/outlays incurred Price/other monetary costs Time Mental and physical effort Neg. sensory experiences
Service Operations Concept

Nature of processes Geographic scope of ops Scheduling Facilities design/layout HR (numbers, skills) Leverage (partners, self-service) Task allocation: front/backstage staff; customers as co-producers
Service Delivery Process
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Understanding the Components of the Augmented Service Product
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Shostacks Molecular Model of a Total Market Entity - Passenger Airline Service (Fig. 4-2)
Distribution Price
Service
frequency
Vehicle
Transport
In-flight service
Pre- and post-flight service

KEY
Food and drink
Tangible elements Intangible elements

Marketing Positioning (Weighted toward evidence)
Source: Shostack
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Core Products and Supplementary Services
Most firms offer customers a package of benefits:

core product (a good or a service) supplementary services that add value to the core
In mature industries, core products often become

commodities
Supplementary services help to differentiate core products

and create competitive advantage by:
facilitating use of the core service enhancing the value and appeal of the core
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Core and Supplementary Product Design: What Do We Offer and How Do We Create and Deliver It?
Supplementary services offered and how created and delivered
Delivery Concept For Core Product

Scheduling
Process
Core Service Level Customer Role
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What Should Be the Core and Supplementary Elements of Our Service Product?
How is our core product defined and what supplementary

elements currently augment this core?
What product benefits create the most value for customers? Is our service package differentiated from the competition in
ways that are meaningful to target customers?
What are current levels of service on the core product and

each of the supplementary elements?
Can we charge more for higher service levels on key

attributes (e.g., faster response, better physical amenities, easier access, more staff, superior caliber personnel)?
Alternatively, should we cut service levels and charge less?

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Core and Supplementary Services in a Luxury Hotel (Offering Guests Much More than a Cheap Motel!)
Reservation Cashier Business Center A Bed for the Night in an Elegant Private Room with a Bathroom Valet Parking Reception Baggage Service
Room Service Wake-up Call T elephone
Cocktail Bar
Entertainment/ Sports / Exercise
Restaurant
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What Happens, When, and in What Sequence? The Time Dimension in the Augmented Service Product
Reservation Parking Check in USE ROOM Get car Check out Phone USE GUESTROOM OVERNIGHT Porter Meal Pay TV Room service
Pre Visit
Time Frame of an Overnight Hotel Stay (real-time service use)
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The Flower of Service: Categorizing Supplementary Services (Fig. 4-5)
Information Payment Billing

Core
Consultation Order-Taking
Exceptions
KEY:
Hospitality Safekeeping
Facilitating elements Enhancing elements

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Facilitating Services - Information

(Table 4.1)
Core
Customers often require information about how to obtain and use a product or service. They may also need reminders and documentation
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Facilitating Services - Order-Taking

(Table 4.2)
Core
Many goods and services must be ordered or reserved in advance. Customers need to know what is available and may want to secure commitment to delivery
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Facilitating Services - Billing

(Table 4.3)
Core
How much do I owe you? Customers deserve clear, accurate and intelligible bills and statements
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Facilitating Services - Payment

(Table 4.4)
Core
Customers may pay faster and more cheerfully if you make transactions simple and convenient for them
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Enhancing Services - Consultation

(Table 4.5)
Core
Value can be added to goods and services by offering advice and consultation tailored to each customers needs and situation
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Enhancing Services - Hospitality

(Table 4.6)
Core
Customers who invest time and effort in visiting a business and using its services deserve to be treated as welcome guests (after all, marketing invited them there!)
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Enhancing Services - Safekeeping

(Table 4.7)
Core
Customers prefer not to worry about looking after the personal possessions that they bring with them to a service site. They may also want delivery and after-sales services for goods that they purchase or rent
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Enhancing Services - Exceptions

(Table 4.8)
Core
Customers appreciate some flexibility in a business when they make special requests. They expect it when not everything goes according to plan
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Branding Service Products
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Service Branding: Clarifying Distinctive Service Offerings
Marriott Hotel Brands

Marriott Hotels Marriott Resorts
British Airways Brands

Intercontinental First Club World World Traveller Plus World Traveller European Club Europe Euro-Traveller UK Domestic Shuttle
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Courtyard by Marriott
Fairfield Inns Residence Inns SpringHill Suites
TownePlace Suites
Marriott Vacation Clubs
International
Branding a High-Tech, B2B Product Line: A Family of Brands at Sun Microsystems
Corporate umbrella brand

Sun Microsystems
Product line brand (system support services)

Sun Spectrum Support
Sub-brands (4 levels of support service programs)

Platinum Gold Silver Bronze
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Sun Spectrum Support: Sub-branding Highlights Four Service Levels

Sub-branding clarifies service levels offered at different fees
Platinum: Mission Critical
On-site service 24/7, two-hour response; telephone support 24/7, onsite parts replacement; additional services available
Gold: Business Critical
Onsite service Mon-Fri 8am-8pm, four-hour response; telephone support 24/7; onsite parts replacement
Silver: Basic Support
Onsite service Mon-Fri 8am-5pm, four-hour response; telephone support Mon-Fri 8am-8pm; onsite parts replacement
Bronze: Self Support
Phone support Mon-Fri 8am-5pm; parts replacement by courier

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New Service Development
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New Service Development: A Hierarchy of New Service Categories
Major service innovations--new core products for previously

undefined markets
Major process innovations--using new processes to

deliver existing products and offer extra benefits
Product line extensions--additions to current product lines Process line extensions--alternative delivery procedures Supplementary service innovations--adding new or
improved facilitating or enhancing elements
Style changes--visible changes in service design or scripts

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New Service Development: Physical Goods as Source of Service Ideas
Customers can rent goodsuse and return for a fee

instead of purchasing them
Customers can hire personnel to operate their own or

rented equipment
Any new durable product may create need for after-sales

services (possession processing)
Shipping Installation Problem-solving and consulting advice Cleaning Maintenance Repair Upgrading Disposal
1 - 93
Creating Services as Substitutes for Owning and/or Using Goods (Fig. 4-7)
Own a Physical Good
Rent the Use of a Physical Good

Rent car and drive it
Rent word processor and type
Perform the Work Oneself

Hire Someone to Do the Work
Drive own car Type on own word processor
Hire chauffeur to drive car Hire typist to use word processor
Hire a taxi or limousine Send work to secretarial service
1 - 94
Service Development through Delivery Options: Alternative Meal Service Formats (Fig. 4-8)
Fast-Food Restaurant (Eat In) Drive-In Restaurant (Take Out) Home Delivery
See sign
Park and enter
Order meal, and pay
Pick up meal
Find table and eat
Clear table and leave
See sign
Stop car at order point
Order via microphone
Get meal at pickup, pay
Drive away, eat later
Telephone Restaurant
Order food, give address
Driver rings doorbell
Pay driver, take food
Eat
Home Catering
Arrange to meet caterer
Plan meal, pay deposit
Food and staff arrive
Meal is prepared and served
Eat
Staff cleans up; pay
1 - 95
Elements of a Hotel Offering: Trading off Room Price vs. Features/Services
External building design

and features
Room features Food-related services Lounge facilities Services (e.g., reception) Leisure facilities Securitypeople/systems
1 - 96
Success Factors in New Service Development
Market synergy
Good fit between new product and firms image/resources Advantage vs. competition in meeting customers needs Strong support from firm during/after launch Firm understands customer purchase decision behavior
Organizational factors
Strong interfunctional cooperation and coordination Internal marketing to educate staff on new product and its
competition Employees understand importance of new services to firm
Market research factors

Scientific studies conducted early in development process Product concept well defined before undertaking field studies
1 - 97
Chapter 5
Designing the Communications Mix for Services
1 - 98
Advertising Implications for Overcoming Intangibility (Fig. 5-1)

Problem Advertising Strategy
Document physical system capacity Cite past performance statistics Present actual service delivery incident Present customer testimonials Cite independently audited performance Display typical customers benefiting
Generality - objective claims - subjective claims
Nonsearchability
Abstractness
Impalpability
Documentary of step-by-step process, Case history of what firm did for customer Narration of customers subjective experience
Source: Mittal and Baker
1 - 99
Other Communications Challenges in Services Marketing
Facilitate customer involvement in production

prepare customers for service experience and demonstrate roles
Help customers to evaluate service offerings

highlight quality of equipment and facilities
teach customers about new technologies, new features provide tangible or statistical clues to service performance emphasize employee qualifications, experience, professionalism
Simulate or dampen demand to match capacity Promote contribution of service personnel

help customers understand service encounter offer promotions to stimulate off-peak demand
provide information about timing of peak, off-peak periods
highlight expertise and commitment of backstage personnel

1 - 100
Setting Clear Objectives: Checklist for Marketing Communications Planning (5 Ws)
Who is our target audience? What do we need to communicate and achieve? How should we communicate this? Where should we communicate this? When do communications need to take place?
1 - 101
Common Educational and Promotional Objectives in Service Settings (Table 5-2)
Create memorable images of specific companies and

their brands
Build awareness/interest for unfamiliar service/brand Build preference by communicating brand strengths and
benefits
Compare service with competitors offerings and counter

their claims
Reposition service relative to competition Stimulate demand in off-peak and discourage during peak
1 - 102
Educational and Promotional Objectives (cont.)
Encourage trial by offering promotional incentives Reduce uncertainty/perceived risk by providing useful info
and advice
Provide reassurance (e.g., promote service guarantees)

Familiarize customers with service processes before use
Teach customers how to use a service to best advantage

Recognize and reward valued customers and employees
1 - 103
Marketing Communications Mix for Services

(Fig. 10.4)
Personal Communications
Selling
Advertising
Broadcast
Sales Promotion
Sampling
Publicity & Public Relations

Press releases/kits Press conferences Special events Sponsorship
Instructional Materials
Web sites
Corporate Design
Signage
Customer service
Print
Coupons Sign-up rebates Gifts
Manuals
Interior decor
Training
Internet
Brochures Videoaudiocassettes Software CD-ROM
Vehicles
Telemarketing Word-of-mouth Word mouth (other of customers)
Outdoor
Equipment
Direct mail
Prize promotions
Trade Shows, Exhibitions
Stationery
Media-initiated coverage
Voice mail
Uniforms
Key: * Denotes communications originating from outside the organization
1 - 104
Originating Sources of Messages Received by a Target Audience (Fig. 5-5)

Messages originating within the organization
Front-line staff Service outlets
Advertising Sales promotions Direct marketing Personal selling Public relations
A U D I E N C E
Word of mouth
Messages originating outside the organization
Media editorial
1 - 105
What is Brand Equity and Why Does It Matter? (From Berry, Cultivating Brand Equity)
Definition: A set of assets and liabilities linked to a brands name and symbol that adds to (or subtracts from) the perceived value of the product Insights
Brand equity can be positive or negative Positive brand equity creates marketing advantage for
firm plus value for customer
Perceived value generates preference and loyalty Management of brand equity involves investment to
create and enhance assets, remove liabilities
1 - 106
A Service Branding Model: How Communications + Experience Create Brand Equity
Marketer-controlled communications
Firms Presented Brand (Sales, Advertising, PR)

Uncontrolled brand communications
Awareness of Firms Brand
What Media, Intermediaries, Word-of-Mouth Say re: Firm
Firms Brand Equity
Customers Experience with Firm
Meaning Attached To Firms Brand

Source: Adapted from L. L. Berry ( Fig. 1)
1 - 107
Marketing Communication and the Internet (1)
International in Scope
Accessible from almost anywhere in the world Simplest form of international market entry
Internet Applications
Promote consumer awareness and interest Provide information and consultation Facilitate 2-way communications through e-mail and chat rooms Stimulate product trial Enable customers to place orders Measure effectiveness of specific advertising/promotional
campaigns
1 - 108
Marketing Communications and the Internet (2)
Web Site design considerations

Memorable address that is actively promoted
Relevant, up-to-date content (text, graphics, photos) Contain information that target users will perceive as
useful/interesting Easy navigation Fast download
Internet advertising
Banners and buttons on portals and other websites seek to draw
online traffic to own site Limits to effectivenessexposure (eyeballs) may not lead to increases in awareness/preference/sales Hence, advertising contracts may tie fees to marketing relevant behavior (e.g., giving personal info or making purchase)
1 - 109
Chapter 6
Pricing and Revenue Management
1 - 110
What Makes Service Pricing Strategy Different (and Difficult)?
No ownership of services--hard for firms to calculate

financial costs of creating an intangible performance
unit of service and establish basis for pricing? are they getting in return for their money? value to customers when delivered faster create differences in perceived value
Variability of inputs and outputs--how can firms define a
Many services hard for customers to evaluate--what

Importance of time factor--same service may have more
Delivery through physical or electronic channels--may
1 - 111
Objectives of Pricing Strategies
Revenue and profit objectives

Seek profit Cover costs
Patronage and user base-related objectives

Build demand Build a user base
1 - 112
The Pricing Tripod (Fig. 6.1)
Pricing Strategy
Competition
Costs
Value to customer
1 - 113
Three Main Approaches to Pricing
Cost-Based Pricing
Set prices relative to financial costs
(problem: defining costs)
Competition-Based Pricing
Monitor competitors pricing strategy
(especially if service lacks differentiation) Who is the price leader? (one firm sets the pace)
Value-Based
Relate price to value perceived by customer
1 - 114
Activity-Based Costing: Relating Activities to the Resources They Consume
Managers need to see costs as an integral part of a firms

effort to create value for customers
When looking at prices, customers care about value to

themselves, not what production costs the firm
Traditional cost accounting emphasizes expense

categories, with arbitrary allocation of overheads
ABC management systems examine activities needed to

create and deliver service (do they add value?)
Must link resource expenses to:

variety of products produced complexity of products demands made by individual customers
1 - 115
Net Value = (Benefits Outlays)

(Fig. 6.3)
Effort Time
Perceived Benefits
Perceived Outlays
1 - 116
Enhancing Gross Value
Pricing Strategies to Reduce Uncertainty

service guarantees benefit-driven (pricing that aspect of service that creates value) flat rate (quoting a fixed price in advance)
Relationship Pricing
non-price incentives discounts for volume purchases discounts for purchasing multiple services
Low-cost Leadership
Convince customers not to equate price with quality Must keep economic costs low to ensure profitability at low price
1 - 117
Paying for Service: The Customers Perspective

Customer expenditures on service comprise both financial and non-financial outlays
Financial costs:
price of purchasing service expenses associated with search, purchase activity, usage
Time expenditures Physical effort (e.g., fatigue, discomfort) Psychological burdens (mental effort, negative feelings) Negative sensory burdens (unpleasant sensations affecting any
of the five senses)
1 - 118
Determining the Total Costs of a Service to the Consumer (Fig. 6.4)

Search Costs Price Related Monetary Costs Time Costs Purchase and Use Costs Operating Costs
Incidental Expenses
Physical Costs
Psychological Costs Sensory Costs Necessary follow-up Problem solving
After Costs
1 - 119
Trading off Monetary and Non- Monetary Costs

(Fig. 6.5)
Which clinic would you patronize if you needed a chest x-ray (assuming all three clinics offer good quality) ? Clinic A
Price $45 Located 1 hour away by car or transit Next available appointment is in 3 weeks Hours: Monday Friday, 9am 5pm Estimated wait at clinic is about 2 hours
Clinic B
Price $85 Located 15 min away by car or transit Next available appointment is in 1 week Hours: Monday Friday, 8am 10pm Estimated wait at clinic is about 30 45 minutes
Clinic C
Price $125 Located next to your office or college Next appointment is in 1 day Hours: Mo Sat, 8am 10pm By appointment estimated wait at clinic is about 0 to 15 minutes
1 - 120
Increasing Net Value by Reducing Non-financial Costs of Service
Reduce time costs of service at each stage

Minimize unwanted psychological costs of service Eliminate unwanted physical costs of service Decrease unpleasant sensory costs of service
1 - 121
Revenue Management: Maximizing Revenue from Available Capacity at a Given Time
Based on price customization - charging different customers

(value segments) different prices for same product
Useful in dynamic markets where demand can be divided

into different price buckets according to price sensitivity
Requires rate fences to prevent customers in one value

segment from purchasing more cheaply than willing to pay
RM uses mathematical models to examine historical data

and real time information to determine
what prices to charge within each price bucket how many service units) to allocate to each bucket
1 - 122
The Strategic Levers of Revenue (Yield) Management

Price Fixed Duration
Quadrant 1: Predictable
Movies Stadiums/Arenas Function Space
Variable
Quadrant 2:
Hotel Rooms Airline Seats Rental Cars Cruise Lines
Quadrant 3: Unpredictable
Restaurants Golf Courses
Quadrant 4:
Continuing Care Hospitals
1 - 123
Dealing with Common Customer Conflicts Arising from Revenue Management

Customer conflict can arise from:
Perceived Unfairness & Perceived
Marketing tools to reduce customer conflicts: Fenced Pricing Bundling Categorising High Published Price
Financial Risk Associated with Multi-Tier Pricing and Selective Inventory Availability
Unfulfilled Inventory Commitment Unfulfilled Demand of Regular
Well designed Customer Recovery
Programme for Oversale

Preferred Availability Policies Offer Lower Displacement Cost
Customers Unfulfilled Price Expectation of Group Customers Change in the Nature of the Service
Alternatives Physical Segregation & Perceptible Extra Service Set Optimal Capacity Utilisation Level
1 - 124
Price Elasticity (Fig. 6.6)
Price per unit of service
Di De
De Di
Quantity of Units Demanded

De : Demand is price elastic. Small changes in price lead to big changes in demand. Di : Demand for service is price inelastic. Big changes have little impact on demand.
1 - 125
Key Categories of Rate Fences (Table 6.2)
Rate Fences
Examples
Physical (Product-related) Fences Basic Product
Amenities Service Level
Class of travel (Business/Economy class) Size and furnishing of a hotel room Seat location in a theatre Free breakfast at a hotel, airport pick up etc. Free golf cart at a golf course Priority wait listing Increase in baggage allowances Dedicated service hotlines Dedicated account management team
1 - 126
Key Categories of Rate Fences (Table 6.2 contd)
Non Physical Fences
Transaction Characteristics
Time of booking or reservation Location of booking or reservation Flexibility of ticket usage
Requirements for advance purchase Must pay full fare two weeks before departure Passengers booking air tickets for an
identical route in different countries are charged different prices
Fees/penalties for canceling or changing a reservation (up to loss of entire ticket price) Non refundable reservation fees
1 - 127
Non Physical Fences (contd) Consumption Characteristics Time or duration of use
Early bird special in restaurant before 6pm Must stay over on Sat for airline, hotel Must stay at least five days
Location of consumption
Price depends on departure location, esp in international travel Prices vary by location (between cities, city
centre versus edges of city)
1 - 128
Non Physical Fences (contd) Buyer Characteristics Frequency or volume of consumption Group membership
Member of certain loyalty-tier with the firm get

priority pricing, discounts or loyalty benefits
Child, student, senior citizen discounts Affiliation with certain groups (e.g. Alumni)
Size of customer group
Group discounts based on size of group
1 - 129
Relating Price Buckets and Fences to the Demand Curve (Fig. 6.7)
Price per Seat
First Class Full Fare Economy (No Restrictions) One-Week Advance Purchase One-Week Advance Purchase, Saturday Night Stayover 3-Week Advance Purchase, Saturday Night Stayover 3-Week Adv. Prchs, Sat. Night Stay., $100 for Changes 3-Wk Adv. Prchs, Sat. Night Stay, No changes/refunds Late Sales through Consolidators/ Internet, no refunds
Capacity of 1st-class Cabin
Capacity of Aircraft
No. of Seats Demanded

1 - 130
Ethical Concerns in Pricing
Customers are vulnerable when service is hard to evaluate

or they dont observe work
Many services have complex pricing schedules
Unfairness and misrepresentation in price promotions

Too many rules and regulations
customers feel constrained, exploited customers unfairly penalized when plans change misleading advertising hidden charges
hard to understand difficult to calculate full costs in advance of service
1 - 131
Pricing Issues: Putting Strategy into Practice (Table 6.3)

How much to charge?
What basis for pricing?

Who should collect payment? Where should payment be made? When should payment be made?
How should payment be made?

How to communicate prices?
1 - 132
Consumption follows the Timing of Payments

(Research Insight 6.1)
Frequency of Health Club Visits
Annual Payment Plan
Quarterly Payment Plan
Frequency of Health Club Visits
Semiannual Payment Plan
Monthly Payment Plan
Time Line
Source: John Gourville and Dilip Soman, Pricing and the Psychology of Consumption, Harvard Business Review, September 2002, 90-96.
Time Line
1 - 133
Chapter 7
Distributing Services
1 - 134
Applying the Flow Model of Distribution to Services

Distribution embraced three interrelated elements
Information and promotion flow Negotiation flow Product flow
1 - 135
Information and Physical Processes of the Augmented Service Product (Fig. 7.1)
Information Processes
Payment
Information Consultation
OrderTaking
Billing Exceptions
Core
Hospitality Safekeeping
Physical Processes
1 - 136
Using Websites for Service Delivery

Information
Read brochure/FAQ; get schedules/ directions; check prices
Payment
Pay by bank card Direct debit
Consultation
Conduct e-mail dialog Use expert systems
Billing
Receive bill Make auction bid Check account status Core
Order-Taking
Make/confirm reservations Submit applications Order goods, check status
Exceptions
Make special requests Resolve problems
Hospitality
Record preferences
Safekeeping
Track package movements Check repair status
CORE: Use Web to deliver information-based core services

1 - 137
Options for Service Delivery

There are 3 types of interactions between customers and service firms
Customer goes to the service provider (or intermediary) Service provider goes to the customer Interaction at arms length (via the Internet, telephone, fax,
mail, etc.)
1 - 138
Method of Service Delivery (Table 7.1)

Availability of Service Outlets Nature of Interaction Single Site Multiple Sites between Customer and Service Organization
Customer goes to service organization
Service organization goes to customer

Customer and service organization transact at arms length
Theater Barbershop House painting Mobile car wash Credit card company Local TV station
Bus service Fast-food chain Mail delivery Auto club road service Broadcast network Telephone company
1 - 139
Place vs. Cyberspace

Place - customers and
Required for people processing services suppliers meet in a physical Offers live experiences, social environment interaction, e.g., food services More emphasis on eye-catching servicescape, entertainment
Cyberspace - customers
and suppliers do business electronically in virtual environment created by phone/internet linkages
Ideal for info-based services Saves time Facilitates information gathering May use express logistics service to deliver physical core products
1 - 140
24/7 - Factors Encouraging Extended Operating Hours (Mgt Memo 7.1)
Economic pressure from consumers Changes in legislation
Economic incentives to improve asset utilization

Availability of employees to work nights, weekends Automated self-service
1 - 141
Technology Revolutionizes Service Delivery: Some Examples
Smart mobile telephones to link users to Internet Voice recognition software Automated kiosks for self-service (e.g. bank ATMs) Web sites
provide information take orders and accept payment deliver information-based services
Smart cards that can act as electronic wallets
1 - 142
E-Commerce: Factors that Attract Customers to Virtual Stores
Convenience (24-hour availability, save time, effort)

Ease of obtaining information on-line and searching for
desired items
Better prices than in bricks-and-mortar stores

Broad selection
1 - 143
Splitting Responsibilities for Delivering Supplementary Services (Fig. 7.2)
As created by originating firm
As enhanced by distributor
As experienced by customer
Core
Core
1 - 144
Franchising
Franchising is a fast growth strategy, when
Resources are limited Long-term commitment of store managers is crucial Local knowledge is important Fast growth is necessary to pre-empt competition
1 - 145
Service Process and Market Entry
People Processing Services

Export the service concept Import customers Transport customers to new locations
Possession Processing Services

Most require an ongoing local presence, whether it is the
customers dropping off items or personnel visiting customer sites
Information Based Services

Export the service to a local service factory Import customers Export the information via telecommunications and transform it
locally
1 - 146
Barriers to International Trade in Services
Operating successfully in international markets remains

difficult for certain services despite efforts of the WTO and control relaxations
Barriers include
Refusal by immigration offices to issue work permits Heavy taxes on foreign firms Domestic preference policies Legal restrictions Lack of broadly-agreed accounting standards Cultural differences (esp. for entertainment industry)
1 - 147
Forces for Internationalization
Market drivers Competition drivers Technology drivers Cost drivers Government drivers Impact will vary by service type (people, possessions, information)
1 - 148
Modes of Internationalization
Export information-based services

transmit via electronic channels store in physical media, ship as merchandise
Use third parties to market/deliver service concept

licensing agents brokers franchising alliance partners minority joint ventures
Control service enterprise abroad

direct investment in new business buyout of existing business
1 - 149
Impact of Globalization Drivers on Different Service Categories (Table 7.2)
Globalization Drivers Competition
People Processing
Simultaneity of production and consumption limits leverage of foreign competitive advantage, but management systems can be globalized People differ economically and culturally, so needs for service and ability to pay may vary.
Possession Processing
Technology drives globalization of competitors with technical edge.
Information Based
Highly vulnerable to global dominance by competitors with monopoly or competitive advantage in information. Demand for many services is derived to a significant degree from economic and educational levels.
Market
Level of economic developments impacts demand for services to individually owned goods
1 - 150
Impact of Globalization Drivers on Different Service Categories (Table 7.2, contd)

Globalization People Drivers Processing Use of IT for delivery of Technology Possession Processing
Need for technologybased service delivery systems depends on possessions requiring service and the cost trade-offs in labor substitution
Information Based
Ability to deliver core services through remote terminals may be a function of investment in computerization etc.
supplementary services may be a function of ownership and familiarity with technology.
Cost
Variable labor rates may impact on pricing in labor-sensitive services.

Social policies (e.g., health) vary widely and may affect labor cost etc.
Variable labor rates may favor low-cost locations.

Policies may decrease/increase cost & encourage/discourage certain activities
Major cost elements can be centralized & minor cost elements localized.
Policies may impact demand and supply and distort pricing
Government
1 - 151
Chapter 8
Designing and Managing Service Processes
1 - 152
Developing a Blueprint Some Basic Advice
Identify key activities in creating and

delivering the service
Distinguish between front stage (what

customers experience) and back stage
Chart activities in sequence Show how interactions between customers

and employees are supported by backstage activities and systems
Establish service standards for each step Identify potential fail points Focus initially on big picture (later, can drill
down for more detail in specific areas)
1 - 153
Service Blueprinting: Key Components

1. Define standards for frontstage activities 2. Specify physical evidence 3. Identify principal customer actions 4. ------------line of interaction (customers and front stage personnel)-------5. Front stage actions by customer-contact personnel 6. ------------line of visibility (between front stage and backstage)-------------7. Backstage actions by customer contact personnel 8. Support processes involving other service personnel 9. Support processes involving IT
Where appropriate, show fail points and risk of excessive waits
1 - 154
Simplified Example: Blueprinting a Hotel Visit

(extract only)
Physical Evidence Stage
Hotel exterior, lobby, employees, key Make Customer reservation Actions Employee Actions Face-to-face Phone Contact Rep. records, confirms Valet Parks Car Enter data Register guest data
Elevator, corridor, room, bellhop Go to room
Arrive, valet park

Doorman greets, valet takes car
Check-in at reception
Receptionist verifies, gives key to room
Line of Interaction Front Line of Visibility Backstage
Make up Room
1 - 155
Improving Reliability of Processes by Failure Proofing
Analysis of reasons for failure often reveals opportunities

for failure proofing to reduce/eliminate risk of errors
Errors include:
treatment errorshuman failures during contact with customers
Fail-safe procedures include measures to prevent omission

of tasks or performance of tasks
incorrectly in wrong order too slowly not needed or specified
tangible errorsfailures in physical elements of service
Need fail-safe methods for both employees and customers

1 - 156
Process Redesign: Principal Approaches

(Table 8-1)
Eliminating non-value-adding steps Shifting to self-service Delivering direct service Bundling services Redesigning physical aspects of service processes
1 - 157
Customers as Co-Producers: Levels of Participation in Service Production
Low Employees and systems do all the work Medium Customer inputs required to assist provider
Provide needed information, instructions Make personal effort May share physical possessions
High Customer works actively with provider to

co-produce the service
1 - 158
Self Service Technologies (SSTs)
Self-service is ultimate form of customer involvement in

service production
Customers undertake specific activities using facilities or systems
provided by service supplier

Customers time and effort replace those of employees
Concept is not newself-serve supermarkets date from

1930s, ATMs and self-serve gas pumps from 1970s
Today, customers face wide array of SSTs to deliver

information-based services, both core and supplementary
Many companies seek to divert customers from employee

contact to Internet-based self-service
1 - 159
Service Firms as Teachers: Well-trained Customers Perform Better
Firms must teach customers roles

as co-producers of service
Customers need to know how to

achieve best results
Education can be provided through:

Brochures Advertising Posted instructions Machine-based instructions Websites, including FAQs Service providers Fellow customers
Employees must be well-trained to

help advise, assist customers
1 - 160
Managing Customers as Partial Employees to Increase Productivity and Quality

1. Analyze customers present roles in the business and compare to managements ideal 2. Determine if customers know how to perform and have necessary skills 3. Motivate customers by ensuring that will be rewarded for performing well 4. Regularly appraise customers performance; if unsatisfactory, consider changing roles or termination
1 - 161
The Problem of Customer Misbehavior Identifying and Managing Jaycustomers

What is a jaycustomer?
A customer who behaves in a thoughtless or abusive fashion, causing problems for the firm itself, employees, other customers
Why do jaycustomers matter?
Can disrupt processes Affect service quality May spoil experience of other customers Try to avoid attracting potential jaycustomers Institute preventive measures Control abusive behavior quickly Take legal action against abusers BUT firm must act in ways that dont alienate other customers
What should a firm do about them?
1 - 162
Six Types of Jaycustomer
Thief seeks to avoid paying for service Rule breaker ignores rules of social behavior and/or procedures for
safe, efficient use of service
Belligerent angrily abuses service personnel (and sometimes other

customers) physically and/or emotionally
Family Feuders fight with other customers in their party Vandal deliberately damages physical facilities, furnishings, and
equipment
Deadbeat fails to pay bills on time

Can you think of others? How should firms deal with each of these problems?
1 - 163
Chapter 9
Balancing Demand
and Capacity
1 - 164
Relating Demand to Capacity: Four Key Concepts
Excess demand: too much demand relative to capacity at a

given time
Excess capacity: too much capacity relative to demand at a

given time
Maximum capacity: upper limit to a firms ability to meet

demand at a given time
Optimum capacity: point beyond which service quality

declines as more customers are serviced
1 - 165
Variations in Demand Relative to Capacity

(Fig. 9-1)
VOLUME DEMANDED Demand exceeds capacity (business is lost)
CAPACITY UTILIZED Maximum Available Capacity Optimum Capacity (Demand and Supply Well Balanced Demand exceeds optimum capacity (quality declines)
Low Utilization (May Send Bad Signals)
Excess capacity (wasted resources)

TIME CYCLE 1
TIME CYCLE 2
1 - 166
Defining Productive Capacity in Services
Physical facilities to contain customers Physical facilities to store or process goods Physical equipment to process people, possessions, or
information
Labor used for physical or mental work Public/private infrastructuree.g., highways, airports,
electricity
1 - 167
Alternative Capacity Management Strategies
Level capacity (fixed level at all times) Stretch and shrink

offer inferior extra capacity at peaks (e.g. bus/metro standees) vary seated space per customer (e.g. elbow room, leg room) extend/cut hours of service
Chase demand (adjust capacity to match demand)

schedule downtime in low demand periods use part-time employees rent or share extra facilities and equipment cross-train employees
Flexible Capacity (vary mix by segment)

1 - 168
Predictable Demand Patterns and Their Underlying Causes (Table 9-1)
Predictable Cycles of Demand Levels

day week month year other
Underlying Causes of Cyclical Variations

employment billing or tax
payments/refunds pay days school hours/holidays seasonal climate changes public/religious holidays natural cycles (e.g. coastal tides)
1 - 169
Causes of Seemingly Random Changes in Demand Levels
Weather Health problems Accidents, Fires, Crime Natural disasters

Question: which of these events can be predicted?
1 - 170
Alternative Demand Management Strategies

(Table 9-2)
Take no action
let customers sort it out

higher prices communication promoting alternative times lower prices communication, including promotional incentives vary product features to increase desirability more convenient delivery times and places
Reduce demand
Increase demand
Inventory demand by reservation system Inventory demand by formalized queueing

1 - 171
Hotel Room Demand Curves by Segment and by Season (Fig. 9-2)
Price per Room Night Th

Tl
Bl
Bh
Bh = business travelers in high season Bl = business travelers in low season
Th = tourist in high season

Tl = tourist in low season
Bl
Bh
Th Tl
Note: hypothetical example 1 - 172
Quantity of Rooms Demanded at Each Price by Travelers in Each Segment in Each Season
Avoiding Burdensome Waits for Customers
Add extra capacity so that demand can be met at most

times (problem: may add too many costs)
Rethink design of queuing system to give priority to certain

customers or transactions
Redesign processes to shorten transaction time Manage customer behavior and perceptions of wait Install a reservations system
1 - 173
Alternative Queuing Configurations (Fig. 9-4)

Single line, single server, single stage Single line, single servers at sequential stages Parallel lines to multiple servers
Designated lines to designated servers
Single line to multiple servers (snake)

Take a number (single or multiple servers)
28 30 31 26 32
29
25
21 20 24
27
23
1 - 174
Tailoring Queuing Systems to Market Segments: Criteria for Allocation to Designated Lines
Urgency of job
emergencies vs. non-emergencies
Duration of service transaction

number of items to transact complexity of task
Payment of premium price

First class vs. economy
Importance of customer
frequent users/loyal customers vs. others
1 - 175
Ten Propositions on the Psychology of Waiting Lines (Table 9-3)

1. Unoccupied time feels longer 2. Preprocess/postprocess waiting feel longer than inprocess 3. Anxiety makes waiting seem longer 4. Uncertain waiting is longer than known, finite waiting 5. Unexplained waiting seems longer 6. Unfair waiting is longer than equitable waiting 7. People will wait longer for more valuable services 8. Waiting alone feels longer than in groups 9. Physically uncomfortable waiting feels longer 10. Waiting seems longer to new or occasional users
Sources: Maister; Davis & Heineke; Jones & Peppiatt
1 - 176
Benefits of Effective Reservations Systems
Controls and smoothes demand Pre-sells service Informs and educates customers in advance of arrival Customers avoid waiting in line for service (if service times
are honored)
Data capture helps organizations prepare financial

projections
1 - 177
Characteristics of Well-designed Reservations Systems
Fast and user friendly for customers and staff Can answer customer questions Offers options for self service (e.g. Web) Accommodates preferences (e.g., room with view) Deflects demand from unavailable first choices to
alternative times and locations
Includes strategies for no-shows and overbooking

requiring deposits to discourage no-shows canceling unpaid bookings after designated time compensating victims of over-booking
1 - 178
Setting Capacity Allocation Sales Targets for a Hotel by Segment and Time Period (Fig. 9-5)
Capacity (% rooms)
100%
Week 7
(Low Season)
Week 36
(High Season) Executive service guests
Out of commission for renovation Executive service guests Transient guests
50%
Weekend package
Transient guests
W/E package
Groups and conventions
Groups (no conventions)

Airline contracts Nights: M Tu W Th F S Sn Airline contracts
Time
Tu
Th
Sn
1 - 179
Information Needed for Demand and Capacity Management Strategies
Historical data on demand level and composition, noting

responses to marketing variables
Demand forecasts by segment under specified conditions Fixed and variable cost data, profitability of incremental
sales
Site-by-site demand variations Customer attitudes towards queuing Customer evaluations of quality at different levels of
capacity utilization
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Chapter 10
Planning the Service Environment
1 - 181
The Purpose of Service Environments

The service environment influences buyer behaviour in 3 ways
Message-creating Medium: symbolic cues to communicate the distinctive nature and quality of the service experience.
Attention-creating Medium: to make the servicescape stand out from other competing establishments, and to attract customers from target segments. Effect-creating Medium: colors, textures, sounds, scents and spatial design to enhance the desired service experience, and/or to heighten an appetite for certain goods, services or experiences
Helps the firm to create a distinctive image & positioning that is unique.
1 - 182
Comparison of Hotel Lobbies

(Figure 10.1)
The servicescape is part of the value proposition!
Orbit Hotel and Hostel, Los Angeles Four Seasons Hotel, New York
1 - 183
The Mehrabian-Russell Stimulus-Response Model (Figure 10.2)
Environmental Stimuli & Cognitive Processes
Dimensions of Affect:
Pleasure and Arousal
Response Behaviors: Approach/ Avoidance & Cognitive Processes
1 - 184
The Mehrabian-Russell Stimulus-Response Model
Simple and fundamental model of how people respond to

environments
Peoples conscious and unconscious perceptions and

interpretation of the environment influence how they feel in that environment
Feelings, rather than perceptions or thoughts drive

behavior
Typical outcome variable is approach or avoidance of an

environment, but other possible outcomes can be added to the model as well
1 - 185
The Russell Model of Affect
Arousing Distressing Exciting
Unpleasant
Pleasant
Boring
Relaxing
Sleepy
1 - 186
The Russell Model of Affect
Emotional responses to environments can be described

along two main dimensions, pleasure and arousal.
Pleasure is subjective depending on how much the

individual likes or dislikes the environment
Arousal quality of an environment is dependent on its

information load, i.e., its degree of

Novelty (unexpected, surprising, new, familiar) and Complexity (number of elements, extent of motion or change)
1 - 187
Drivers of Affect
Affect can be caused by perceptions and cognitive

processes of any degree of complexity.
Simple Cognitive Processes, Perception of Stimuli

tangible cues (of service quality) consumer satisfaction
Complex Cognitive Processes

affective charged schemata processing attribution processes
The more complex a cognitive process becomes, the more powerful its potential impact on affect.However, most service encounters are routine. Simple processes can determine affect.
1 - 188
Behavioral Consequence of Affect
Basically, pleasant environments result in approach,

unpleasant environments result in avoidance
and
Arousal acts as an amplifier of the basic effect of pleasure

on behavior
If the environment is pleasant, increasing arousal can lead

to excitement and stronger positive consumer response. If the environment is unpleasant, increasing arousal level will move consumers into the Distressing region
Feelings during the service encounter is also an important

driver of customer loyalty
1 - 189
An Integrated Framework Bitners ServiceScape Model (Figure 10.4)

Environmental Dimensions Moderators Holistic Environment
Employee Response Moderator Perceived ServiceScape
Internal Responses Cognitive Emotional Psychological Employee Responses
Behaviour
Ambient Conditions
Approach or Avoid
Social Interaction Between Customers & Employees
Space/ Function
Signs, Symbols & Artefacts
Customer Response Moderator
Customer Responses Cognitive Emotional Psychological
Approach or Avoid
1 - 190
An Integrated Framework Bitners ServiceScape Model(cont)
Identifies the main dimensions in a service environment

and views them holistically
Customer and employee responses classified under,

cognitive, emotional and psychological which would in turn lead to overt behavior towards the environment
Key to effective design is how well each individual

dimension fits together with everything else
1 - 191
Dimensions of the Service Environment

Service environments are complex and have many design elements. The main dimensions in the servicescape model includes:
Ambient Conditions
Music (e.g, fast tempo and high volume increase arousal
levels)
Scent (strong impact on mood, affect and evaluative
responses, purchase intention and in-store behavior)

Color (e.g, warm colors associated with elated mood states
and arousal but also increase anxiety, cool colors reduce arousal but can elicit peacefulness and calm)
1 - 192
Dimensions of the Service Environment (cont)
Spatial Layout and Functionality

Layout refers to size and shape of furnishings and the ways it
is arranged Functionality is the ability of those items to facilitate performance
Signs, Symbols and Artifact

Explicit or implicit signals to communicate the firms image,
help consumers find their way and to convey the rules of behavior
1 - 193
Impact of Music on Restaurant Diners

(Table 10-2) Restaurant Patron Behavior Fast-beat Slow-beat Difference between Music Music Slow and Fast-beat Environment Environment Environments
Absolute Difference Consumer time spent at table Spending on food Spending on beverages Total spending Estimated gross margin 45min $55.12 $21.62 $76.74 $48.62 56min $55.81 $30.47 $86.28 $55.82 +11min +$0.69 +$8.85 +$9.54 +$7.20 % Difference +24% +1% +41% +12% +15%
1 - 194
The Effects of Scents on the Perceptions of Store Environments (Table 10-3)

Evaluation Unscented Scented Environment Environment Mean Ratings Mean Ratings Difference
Store Evaluation Negative/positive Outdated/modern Store Environment Unattractive/attracti ve Drab/colorful Boring/Stimulating 4.12 3.63 3.75 4.98 4.72 4.40 +0.86 +1.09 +0.65 4.65 3.76 5.24 4.72 +0.59 +0.96
1 - 195
The Effects of Scents on the Perceptions of Store Environments (Table 10-3)

Evaluation Unscented Environment Mean Ratings Scented Environment Mean Ratings Difference
Merchandise Outdated/up- to-date style Inadequate/adequate 4.71 3.80 5.43 4.65 +0.72 +0.85
Low/high quality
Low/high price
4.81
5.20
5.48
4.93
+0.67
-0.27
1 - 196
Aromatherapy: The Effects of Fragrance on People (Table 10-4)

Fragrance Aromath Aromather erapy apy Class Citrus Calming Tradition Potential Psychological al Use Impact on People Soothing agent, astringen t Muscle relaxant, soothing agent Emollient soothing agent Skin cleanser Calming and relaxing effect esp. for nervous people Relaxing and calming, helps create a homey and comfortable feel Helps makes people feel refreshed, joyful, comfortable Increase attention level and boosts energy
1 - 197
Orange
Lavender
Herbaceo Calming, us balancing, soothing Floral Uplifting, balancing Energizing, stimulating
Jasmine
Peppermint Minty
Common Associations and Human Responses to Colors (Table 10-5)

Color Degree of Nature Common Association and Warmth Symbol Human Responses to Color Warm Earth High energy and passion; can excite, stimulate, and increase arousal and blood pressures Emotions, expressions, and warmth Nurturing, healing and unconditional love
Red
Orange
Warmest
Sunset
Green
Cool
Grass and Trees
Blue
Coolest
Sky and Relaxation, serenity and loyalty Ocean
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Selection of Environmental Design Elements
There is a multitude of research on the perception and

impact of environmental stimuli on behaviour, including:
People density, crowding Lighting Sound/noise Scents and odours Queues
No standard formula to designing the perfect combination of

these elements.
Design from the customers perspective Design with a holistic view!
1 - 199
Tools to Guide in Servicescape Design
Keen Observation of Customers Behavior and Responses

to the service environment by management, supervisors, branch managers, and frontline staff
Feedback and Ideas from Frontline Staff and Customers

using a broad array of research tools ranging from suggestion boxes to focus groups and surveys.
Field Experiments can be used to manipulate specific

dimensions in an environment and the effects observed.
Blueprinting or Service Mapping - extended to include the

physical evidence in the environment.
1 - 200
Chapter 11
Managing People for Service Advantage
1 - 201
Frontline Service Personnel: Source of Customer Loyalty and Competitive Advantage
Frontline is an important source of differentiation and

competitive advantage. It is:
a core part of the product the service firm the brand
Frontline also drives customer loyalty, with employees

playing key role in anticipating customer needs, customizing service delivery and building personalized relationships
1 - 202
Boundary Spanning Roles
Boundary spanners link the inside of the organization to the

outside world
Multiplicity of roles often results in service staff having to

pursue both operational and marketing goals
Consider management expectations of restaurant servers:

deliver a highly satisfying dining experience to their customers be fast and efficient at executing operational task of serving
customers do selling and cross selling, e.g. We have some nice desserts to follow your main course
1 - 203
Role Stress in the Frontline

3 main causes of role stress:
Person vs. Role: Conflicts between what jobs require and
employees own personality and beliefs

Organization vs. Customer: Dilemma whether to follow
company rules or to satisfy customer demands

Customer vs. Customer: Conflicts between customers that
demand service staff intervention
1 - 204
Emotional Labor
The act of expressing socially desired emotions during
service transactions (Hochschild, The Managed Heart)
Three approaches used by employees

surface acting deep acting spontaneous response
Performing emotional labor in response to societys or

managements display rules can be stressful
Good HR practice emphasizes selective recruitment,

training, counseling, strategies to alleviate stress
1 - 205
The Cycles of Failure, Mediocrity and Success

Too many managers make short-sighted assumptions about financial implications of:
Low pay Low investment (recruitment, training) High turnover human resource strategies
Often costs of short-sighted policies are ignored:

Costs of constant recruiting, hiring & training Lower productivity & lower sales of new workers Costs of disruptions to a service while a job remains unfilled Loss of departing persons knowledge of business and customers Cost of dissatisfied customers
1 - 206
Cycle of Failure (Fig. 11.1)

Customer turnover
Repeat emphasis on attracting new customers
Failure to develop customer loyalty
Low profit margins
High employee turnover; poor service quality No continuity in relationship for Employee dissatisfaction; customer poor service attitude
Narrow design of jobs to accommodate low skill level
Use of technology Emphasis on to control quality rules rather than service Payment of low wages Minimization of selection effort Minimization of training
Customer dissatisfaction
Employees become bored
Employees cant respond to customer problems
Source: Schlesinger and Heskett
1 - 207
Service Sabotage (Fig. 11-A)

Routinized
Normality of Service Sabotage Behaviors
Openness of Service Sabotage Behaviors

Covert Overt
Customary-Private Service Sabotage e.g. Waiters serving smaller servings, bad beer or sour wine
Customer-Public Service Sabotage

e.g. Talking to guests like young kids and putting them down
Sporadic-Private Service Sabotage e.g. Chef occasionally purposefully slowing down orders
Sporadic-Public Service Sabotage e.g. Waiters spilling soup onto laps, gravy onto sleeves, or hot plates into someones hands
Intermittent
1 - 208
Cycle of Mediocrity (Fig. 11.2)

Customers trade horror stories Other suppliers (if any) seen as equally poor Employees spend working life in environment of mediocrity Narrow design of jobs No incentive for cooperative relationship to obtain better service Complaints met by indifference or hostility
Employee dissatisfaction (but cant easily quit)
Emphasis on rules vs. pleasing customers
Jobs are boring and repetitive; employees unresponsive Resentment at inflexibility and lack of employee initiative; complaints to employees
Training emphasizes Success = learning rules not making mistakes Service not focused on customers needs Good wages/benefits high job security
E Promotion and pay increases based Initiative is on longevity, discouraged lack of mistakes
Customer dissatisfaction
1 - 209
Cycle of Success (Fig. 11.3)

Low customer turnover
Repeat emphasis on customer loyalty and retention
Customer loyalty
Higher profit margins Broadened job designs
Lowered turnover, high service quality Continuity in relationship with customer Employee satisfaction, positive service attitude
Train, empower frontline personnel to control quality
High customer satisfaction
Extensive training
Above average wages Intensified selection effort
Source: Heskett and Schlesinger
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How to Manage People for Service Advantage?

Staff performance is a function of both ability and motivation. How can we get able service employees who are motivated to productively deliver service excellence?
1. Hire the right people
2. Enable your people

3. Motivate and energize your people
1 - 211
Hire the Right People
The old saying People are your most important asset is wrong. The RIGHT people are your most most important asset.
Jim Collins
1 - 212
Recruitment
The right people are a firms most important asset: take a

focused, marketing-like approach to recruitment
Clarify what must be hired versus what can be taught Clarify nature of the working environment, corporate values
and style, in addition to job specs
Ensure candidates have/can obtain needed qualifications Evaluate candidates fit with firms culture and values Fit personalities, styles, energies to the appropriate jobs
1 - 213
Select And Hire the Right People: (1) Be the Preferred Employer
Create a large pool: Compete for Talent Market Share
What determines a firms applicant pool?

Positive Quality
image in the community as place to work
of its services
The
firms perceived status
There is no perfect employee

Different Hire
jobs are best filled by people with different skills, styles or personalities candidates that fit firms core values and culture on recruiting naturally warm personalities
Focus
1 - 214
Select and Hire the Right People: (2) How to Identify the Best Candidates
Observe Behavior
Hire
Best
based on observed behavior, not words you hear

predictor of future behavior is past behavior group hiring sessions where candidates given group tasks
Consider
Personality Testing
Willingness
to treat co-workers and customers with courtesy, consideration and tact regarding customer needs
Perceptiveness
Ability
to communicate accurately and pleasantly
1 - 215
Select and Hire the Right People: (3) How to Identify the Best Candidates
Employ Multiple, Structured Interviews

Use structured interviews built around job requirements Use more than one interviewer to reduce similar to me effects
Give Applicants a Realistic Preview of the Job

Chance to have hands-on with the job Assess how the candidates respond to job realities
Allow candidates to self select themselves out of the job
1 - 216
Train Service Employees
The Organizational Culture, Purpose and Strategy

Promote core values, get emotional commitment to strategy Get managers to teach why, what and how of job.
Interpersonal and Technical Skills

Both are necessary but neither is sufficient for optimal job
performance
Product/Service Knowledge
Staffs product knowledge is a key aspect of service quality Staff need to be able to explain product features and to position
products correctly
1 - 217
Factors Favoring Employee Empowerment
Firms strategy is based on competitive differentiation and on

personalized, customized service
Emphasis on long-term relationships vs. one-time transactions Use of complex and non-routine technologies Environment is unpredictable, contains surprises Managers are comfortable letting employees work independently
for benefit of firm and customers
Employees seek to deepen skills, like working with others, and

are good at group processes
1 - 218
Control vs. Involvement Model of Management

Control concentrates 4 key features at top of organization; Involvement pushes them down:
Information about operating results and measures of competitive performance Rewards based on organizational performance (e.g. profit sharing, stock ownership) Knowledge/skills enabling employees to understand and contribute to organizational performance Power to influence work procedures and organizational direction (e.g. quality circles, self-managing teams)
Source: Bowen and Lawler Services Marketing 5/E
1 - 219
Levels of Employee Involvement
Suggestion involvement
Employee recommendation
Job involvement
Jobs redesigned Employees retrained Supervisors facilitate
High involvement
Information is shared Employees skilled in teamwork, problem solving etc. Participate in decisions Profit sharing and stock ownership
1 - 220
Motivate and Energize the Frontline

Use the full range of available rewards effectively, including:
Job content Feedback and recognition Goal accomplishment
1 - 221
The Inverted Organizational Pyramid (Fig. 11.5)

Customer Base Top Mgmt Middle Mgmt Frontline Staff Frontline Staff
Middle Mgmt & Top Mgmt Support Frontline Inverted Pyramid with a Customer & Frontline Focus
Traditional Organizational Pyramid

Legend:
= Service encounters, or Moments of Truth.

1 - 222
The Wheel of Successful HR in Service Firms

(Fig. 11.6) Leadership that:
Focuses the entire organization on supporting the frontline Fosters a strong service culture with passion for service and productivity Drives values that inspire, energize and guide service providers
1. Hire the Right People

Be the preferred employer & compete for talent market share Intensify the selection process
3. Motivate & Energize Your People

Utilize the full range of rewards
Service Excellence & Productivity 2. Enable Your People
Empower Frontline Build high performance service delivery teams Extensive Training
1 - 223
Chapter 12
Managing Relationships and Building Loyalty
1 - 224
Four Stages of Brand Loyalty in a Consumer
Cognitive loyalty perception from brand attribute

information that one brand is preferable to its alternatives
Affective loyalty developing a liking for the brand based

on cumulatively satisfying usage occasions
Conative loyalty commitment to rebuying the same brand Action loyalty exhibiting consistent repurchase behavior
1 - 225
Loyalty is Important to Profitability : Index of Customer Profits over Time (Fig. 12.1)
(Year 1=100)
350 300 250 200 150 100 50 0
Year 1
Credit card
Year 2
Industrial laundry
Year 3
Year 4
Year 5
Auto servicing
Industrial distribution
Based on data from Reichheld and Sasser
1 - 226
What Makes Loyal Customers More Profitable?
Tend to spend more as relationship develops

customers balances may grow may consolidate purchases to one supplier
Cost less to serve

less need for information and assistance make fewer mistakes
Recommend new customers to firm (act as unpaid sales

people)
Trust leads to willingness to pay regular prices vs. shopping

for discounts
1 - 227
Analyzing Why Customers Are More Profitable over Time (Fig. 12.2)
Profit from price premium
Profit from references

Profit from reduced op. costs Profit from increased usage Base Profit
7
Source: Reichheld and Sasser
Year
1 - 228
Measuring Customer Equity: Calculating Life Time Value of Each Customer
Value at Acquisition
revenues (application fee + initial purchase) Less costs (marketing +credit check + account set up)
Annual Value (project for each year of relationship)

revenues (annual fee + sales + service fees + value of referrals) Less costs (account management + cost of sales + write-offs)
Net Present Value

Determine anticipated customer relationship lifetime Select appropriate discount figure Sum anticipated annual values (future profits) at chosen discount
rate
Customer Equity is total sum of NPVs of all current customers

1 - 229
Customer-Firm Relationship
Todays marketers seek to develop long-term relationships with customers. Relationship marketing includes:
Database Marketing: Involves the use of technology by

delivering differentiated service levels to consumers and subsequently tracking the relationship.
Interaction Marketing: Usually in B2B context where people and

the social process also add mutually beneficial value.
Network Marketing: Common in B2B context where companies

commit resources to develop positions in a network of relationships with the stakeholders and relevant agencies.
1 - 230
Types of Relationships with Customers (Table 12.1)
Type of Relationship--Firm and Customer Nature of Service Delivery

Continuous Membership Cable TV Insurance College enrollment Subscriber phone Theater subscription Warranty repair No formal relationship Radio station Police Lighthouse Pay phone Movie theater Public transport
Discrete transactions
1 - 231
Basic Segmentation Issues: Building an Appropriate Customer Portfolio
Target customers whose needs match firms capabilities Focus on value of prospective customers within each
segment, not just numbers
Avoid targeting customers who might abuse:

our employees, facilities other customers
Create a mix of segments to reduce risks of volatility during

swings of economic cycles
1 - 232
Service-Relevant Segmentation Variables
Timing of service use (e.g., by hour, day, season) Level of skill and experience as co-producer/selfserver
Preferred language in face-to-face contact Access to electronic delivery systems (e.g., Internet) Attitudes toward use of new service technologies
1 - 233
Identifying and Selecting Target Segments

(Mgt Memo 12.2)
User characteristics

demographics psychographics geographic location benefits sought

when, where, how services used quantity/value of purchases frequency of use profitability of relationship sensitivity to marketing variables
User behavior

1 - 234
Portfolio of Professional Assignments (Fig. 12.4)

Major, State-of-the-art challenges for the firms principals that give the firm high visibility Demanding client assignments offering a learning experience for the firms most experienced associates Routine client projects shared among principals and associates
Pacesetters
Significant Projects
Bread and Butter Projects
Analytical Work on Project Data
Entry-level tasks for new associates or for research assistants & paraprofessionals
1 - 235
The Customer Pyramid (Fig. 12.5)

Good Relationship Customers
Platinum Gold Iron Lead

Poor Relationship Customers
Which segment sees high value in our offer, spends more with us over time, costs less to maintain, and spreads positive word-of-mouth?
Which segment costs us in time, effort and money, yet does not provide the return we want? Which segment is difficult to do business with?
1 - 236
How Customers See Relational Benefits in Service Industries (Research Insights 12.1)
Confidence benefits
less risk of something going wrong, less anxiety ability to trust provider know what to expect get firms best service level
Social benefits
mutual recognition, known by name friendship, enjoyment of social aspects
Special treatment benefits

better prices, discounts, special deals unavailable to others extra services higher priority with waits, faster service
1 - 237
The Customer Satisfaction-Loyalty Relationship

(Fig. 12.6)
Apostle
100
Loyalty (Retention)
Zone of Affection
80
Near Apostle
60
Zone of Indifference Zone of Defection
40
20
Terrorist 0
1
Very dissatisfied
5
Very Satisfied
Neither satisfied Dissatisfied Satisfied nor dissatisfied
Satisfaction
1 - 238
The Wheel of Loyalty (Fig. 12.7)

3. Reduce Churn Drivers
Conduct churn diagnostic
1. Build a Foundation for Loyalty

Segment the market Be selective in acquisition Use effective tiering of service.
Address key churn drivers

Enabled through: Frontline staff Account managers Membership programs CRM Systems
Implement complaint handling & service recovery Increase switching costs
Customer Loyalty
Deliver quality service.
Build higher level bonds
2. Create Loyalty Bonds

Give loyalty rewards
Deepen the relationship
1 - 239
Rewarding Value of Use, Not Just Frequency at British Airways (Best Practice in Action 12.2)
Dedicated reservations Reservations assurance Priority waitlist and standby Advance notification of delays
exceeding 4 hours
Upgraded check-in
Preferred boarding Special services assistance
Bonus air miles

Upgrade for two
1 - 240
Drivers of Service Switching (Fig. 12.9)

Service Failure / Recovery
Core Service Failure
Service Mistakes Billing Errors Service Catastrophe
Value Proposition
Pricing
High Price Price Increases Unfair Pricing Deceptive Pricing
Service Encounter Failures

Uncaring Impolite Unresponsive Unknowledgeable
Service Switching
Inconvenience
Location/Hours Wait for Appointment Wait for Service
Response to Service Failure

Negative Response No Response Reluctant Response
Competition
Found Better Service
Others
Involuntary Switching
Customer Moved Provider Closed
Ethical Problems
Unsafe Cheat Hard Sell Conflict of Interest
1 - 241
Common CRM Applications (Mgt Memo 12.2)
Signifies the whole process by which relationships with

customers are built and maintained.
CRM as an enabler, offering a unified customer interface

and allow firms to better understand and segment the customers etc. Applications include:
Data collection Data analysis Sales force automation Marketing automation Call center automation
1 - 242
Customer Relationship Strategies with CRM Systems: Key Questions
How should our value proposition change to increase customer

loyalty?
How much customization or one-to-one marketing and service

delivery is appropriate and profitable?
What is the incremental profit potential of increasing share of

wallet with current customers? How much does this vary by customer tier and/or segment?
How much time and resource can we allocate to CRM right now? If we believe in CRM, why have we not taken steps in that
direction before? What can we do today to develop customer relationship without spending on technology?
1 - 243
Chapter 13
Customer Feedback and Service Recovery
1 - 244
American Customer Satisfaction Index: Selected Industry Scores, 2002

Score
(Max = 100)
100 90 80 70 60 50 40 30 20 10 85 79 80 79 76 66 70 65 62
74
71
71
% Change 0 3.7% 2002 vs 2001
1.3% 0.0% 1.3% 2.8% 0.0% 0.0% 8.2% 2.9% -2.6%
4.8% 3.3%
Industry:
1 - 245
Key Questions for Managers to Ask about Customer Complaining Behavior
Why do customers complain? What proportion of unhappy customers complain? Why dont unhappy customers complain? Who is most likely to complain? Where do customers complain?
1 - 246
Courses of Action Open to a Dissatisfied Customer (Figure 13.1)

Complain to the service firm Take some form of public action Take some form of private action Complain to a third party Take legal action to seek redress Defect (switch provider) Negative word-ofmouth
Service Encounter is Dissatisfactory
Take no action
Any one or a combination of these responses is possible

1 - 247
Dimensions of Perceived Fairness in Service Recovery Process (Figure 13.2)

Complaint Handling & Service Recovery Process
Justice Dimensions of the Service Recovery Process Procedural Justice Interactive Justice Outcome Justice
Customer Satisfaction with the
Service Recovery
Source: Tax and Brown Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E
1 - 248
Proportion of Unhappy Customers Who Buy Again Depending on the Complaint Process
100 90 80 70 60 50 40 30 20 10 0 95% 82% 70% 54% 46% 37% 19% 9%
Customer did not complain Complaint was not resolved Complaint was resolved
Problem cost $1 - 5
Source: TARP study Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E
Complaint was resolved quickly
Problem cost > $100
1 - 249
Impact of Effective Service Recovery on Retention
No Problem
Problem, but effectively resolved
84%
92%
Problem Unresolved
0%
46%
60%
10%
20%
30%
40%
50%
70%
80%
90% 100%
Customer Retention
Source: IBM-Rochester study Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E
1 - 250
Components of an Effective Service Recovery System (Figure 13.3)
Do Dothe theJob JobRight Rightthe the First Time First Time
Effective EffectiveComplaint Complaint Handling Handling
Increased IncreasedSatisfaction Satisfaction and Loyalty and Loyalty Conduct ConductResearch Research Monitor MonitorComplaints Complaints Develop DevelopComplaints Complaints as Opportunity as Opportunity Culture Culture Develop DevelopEffective Effective System and System andTraining Trainingin in Complaints Handling Complaints Handling Conduct ConductRoot RootCause Cause Analysis Analysis
Identify IdentifyService Service Complaints Complaints
Resolve ResolveComplaints Complaints Effectively Effectively
Learn Learnfrom fromthe the Recovery Experience Recovery Experience
Close the Loop via Feedback
1 - 251
Strategies to Reduce Customer Complaint Barriers (Table 13.1)

Complaint Barriers for Dissatisfied Customers
Inconvenience Difficult to find the right complaint procedure. Effort, e.g., writing a letter.
Doubtful Pay Off Uncertain whether any action, and what action will be taken by the firm to address the issue the customer is unhappy with.
Strategies to Reduce These Barriers

Make feedback easy and convenient by: Printing Customer Service Hotline numbers, e-mail and postal addresses on all customer communications materials.
Reassure customers that their feedback will be taken seriously and will pay off by: Having service recovery procedures in place, and communicating this to customers. Featuring service improvements that resulted from customer feedback. Make providing feedback a positive experience: Thank customers for their feedback. Train the frontline not to hassle and make customers feel comfortable. Allow for anonymous feedback.
1 - 252
Unpleasantness Complaining customers fear that they may be treated rudely, may have to hassle, or may feel embarrassed to complain.
How to Enable Effective Service Recovery
Be proactiveon the spot, before customers

complain
Plan recovery procedures Teach recovery skills to relevant personnel Empower personnel to use judgment and skills to
develop recovery solutions
1 - 253
Guidelines for Effective Problem Resolution (Management Memo 13.1)

Act fast Admit mistakes but dont be defensive Understand problem from customers viewpoint Dont argue Acknowledge customers feelings Give benefit of doubt
Clarify steps to solve problem

Keep customers informed of progress Consider compensation Persevere to regain goodwill
1 - 254
Service Guarantees Help Promote and Achieve Service Loyalty

Force firms to focus on what customers want
Set clear standards Highlights cost of service failures Require systems to get & act on, customer feedback
Reduce risks of purchase and build loyalty
1 - 255
Types of Service Guarantees
Single attribute-specific guarantee one key service

attribute is covered
Multiattribute-specific guarantee a few important service

attributes are covered
Full-satisfaction guarantee all service aspects covered

with no exceptions
Combined guarantee like the full-satisfaction, adding

explicit minimum performance standards on important attributes
1 - 256
The Hampton Inn 100% Satisfaction Guarantee

(Figure 13.4)
What are the benefits of

such a guarantee?
Are there any downsides?
1 - 257
Key Objectives of Effective Customer Feedback Systems
Assessment and benchmarking of service quality

and performance
Customer-driven learning and improvements

Creating a customer-oriented service culture
1 - 258
Building a Customer Feedback System
Total market surveys Post-transaction surveys Ongoing customer surveys Customer advisory panels Employee surveys/panels Focus groups Mystery shopping Complaint analysis Capture of service
operating data
1 - 259
Strengths and Weakness of Key Customer Feedback Collection Tools (Table 13.3) Selection of a cocktail of effective customer feedback collection tools.
Multi-level Measurement
Collection Tools
Total Market Survey (inclu. competitors) Annual Survey on overall satisfaction Transactional Survey (process specific)
Service Process Satisfaction Satisfaction
Specific Feedback
Actionable
Represen Potential -tative, for Service Reliable Recovery
First Hand Learning
Cost Effective
Service Feedback Cards (process specific)

Mystery Shopping (service testers) Unsolicited Feedback Recd (Online feedback system) Focus Group Discussions Service Reviews
Meets Requirements:
Fully
Moderate
Little/Not at all
1 - 260
Entry Points for Unsolicited Feedback
Employees serving customers face-to-face or by phone Intermediaries acting for original supplier Managers contacted by customers at head/regional office Complaint cards mailed or placed in special box Complaints passed to company by third-party recipients
consumer advocates trade organizations legislative agencies other customers
1 - 261
Chapter 14
Improving Service Quality and Productivity
1 - 262
Importance of Productivity and Quality for Service Marketers Productivity
Helps to keep costs down May impact service experience (must avoid negatives) May require customer involvement, cooperation
Quality
lower prices to develop market, compete better increase margins to permit larger marketing budgets raise profits to invest in service innovation
Gain competitive advantage, maintain loyalty Increase value (may permit higher margins) Improve profits
1 - 263
Perspectives on Service Quality

Transcendental: Quality = excellence. Recognized only through
experience
Product-Based: Quality is precise and measurable User-Based: ManufacturingBased:

Quality lies in the eyes of the beholder Quality is conformance to the firms developed specifications Quality is a trade-off between price and value
Value-Based:
1 - 264
Dimensions of Service Quality
Tangibles Reliability Responsiveness Assurance Empathy

competence, courtesy credibility security
access communication understanding of customer
1 - 265
Seven Service Quality Gaps (Fig. 14.1)

Customer needs and expectations
CUSTOMER
1. Knowledge Gap
Management definition of these needs
MANAGEMENT
2. Standards Gap
Translation into design/delivery specs
3. Delivery Gap
Execution of design/delivery specs
4. I.C.Gap
Advertising and sales promises
5. Perceptions Gap
Customer perceptions of product execution
6. Interpretation Gap
Customer interpretation of communications
7.
Service Gap
Customer experience relative to expectations
1 - 266
Prescriptions for Closing Service Quality Gaps

(Table 14.3)
Knowledge: Learn what customers expect--conduct

research, dialogue, feedback
Standards: Specify SQ standards that reflect expectations Delivery: Ensure service performance matches specs-consider roles of employees, equipment, customers
Internal communications: Ensure performance levels match

marketing promises
Perceptions:
delivery
Educate customers to see reality of service
Interpretation: Pretest communications to make sure

message is clear and unambiguous.
1 - 267
Hard and Soft Measures of Service Quality
Hard measures refer to standards and measures that can

be counted, timed or measured through audits
typically operational processes or outcomes e.g. how many trains arrived late?
Soft measures refer to standards and measures that cannot

easily be observed and must be collected by talking to customers, employees or others
e.g. SERVQUAL, surveys, and customer advisory panels.
Control charts are useful for displaying performance over

time against specific quality standards.
1 - 268
Hard Measures of Service Quality
Control charts to monitor

a single variable
Service quality indexes Root cause analysis

(fishbone charts)
Pareto analysis
1 - 269
Composition e of FedExs Service Quality Index (SQI) (Table 14.4)

Failure Type
Weighting X Factor
1 5 1 5 1 1 10 10 10 5 5 1
No of Daily = Incidents Points
Late Delivery Right Day Late Delivery Wrong Day Tracing request unanswered Complaints reopened Missing proofs of delivery Invoice adjustments Missed pickups Lost packages Damaged packages Aircraft Delays (minutes) Overcharged (packages missing label) Abandoned calls
Total Failure Points (SQI) =

XXX,XXX
1 - 270
Control Chart: Percent of Flights Leaving within 15 Minutes of Schedule (Fig. 14.2)
100% 90% 80% 70% 60%

J F M A M J J A S O N D
Month
1 - 271
Tools to Address Service Quality Problems
Fishbone diagrams: A cause-and-effect diagram to identify

potential causes of problems.
Pareto charts: Separating the trivial from the important.

Often, a majority of problems is caused by a minority of causes i.e. the 80/20 rule.
Blueprinting: A visualization of service delivery. It allows

one to identify fail points in both the frontstage and backstage.
1 - 272
Cause and Effect Chart for Airline Departure Delays (Fig. 14.3)
Facilities, Equipment Frontstage Front-Stage Personnel Personnel Procedure
Procedures
Arrive late Oversized bags
Customers
Customers
Delayed check-in Gate agents Aircraft late to procedure gate cannot process Mechanical fast enough Acceptance of late Failures passengers Late/unavailable Late pushback airline crew
Delayed Departures Other Causes

Weather Air traffic Late food service Late baggage Late fuel
Materials, Materials, Supplies Supplies
Late cabin cleaners
Poor announcement of departures Weight and balance sheet late
Backstage Personnel
Information
1 - 273
Analysis of Causes of Flight Departure Delays (Fig. 14.4)
15.3% 15.4% 23.1%
23.1%
All stations, excluding Chicago-Midway Hub

11.7%
4.9 % 19% 9.5% 33.3% 33.3%
23.1%
8.7%
11.3%
15%
53.3%
Washington Natl.
Newark
Late passengers Waiting for pushback Waiting for fueling
Late weight and balance sheet Late cabin cleaning / supplies Other
1 - 274
Return on Quality (ROQ)
ROQ approach is based on four assumptions:

Quality is an investment
Quality efforts must be financially accountable

Its possible to spend too much on quality Not all quality expenditures are equally valid
Implication: Quality improvement efforts may benefit

being related to productivity improvement programs
from
1 - 275
When Does Improving Service Reliability Become Uneconomical? (Fig. 14.5)

Satisfy Target Customers Through Service Recovery Optimal Point of Reliability: Cost of Failure = Service Recovery Satisfy Target Customers Through Service Delivery as Planned
100%
Service Reliability
D Investment
Small Cost, Large Improvement
Large Cost, Small Improvement

Assumption: Customers are equally (or even more) satisfied with the service recovery provided than with a service that is delivered as planned.
1 - 276
Productivity in a Service Context
Productivity measures amount of output produced relative

to the amount of inputs.
Improvement in productivity means an improvement in the

ratio of outputs to inputs.
Intangible nature of many service elements makes it hard

to measure the productivity of service firms, especially for information based services.
1 - 277
Efficiency, Effectiveness, and Productivity
Efficiency: comparison to a standard--usually time-based

(e.g., how long employee takes to perform specific task)
Problem: focus on inputs rather than outcomes May ignore variations in quality or value of service
Effectiveness: degree to which firm is meeting its goals

Cannot divorce productivity from quality/customer satisfaction
Productivity: financial valuation of outputs to inputs

Consistent delivery of outcomes desired by customers should
command higher prices
1 - 278
Measuring Service Productivity
Traditional measures of service output tend to ignore

variations in quality or value of service
That is, they focus on outputs rather than outcomes, and stress
efficiency but not effectiveness.
Firms that are more effective in consistently delivering

outcomes desired by customers can command higher prices. Furthermore, loyal customers are more profitable.
Measures with customers as denominator include:

profitability by customer capital employed per customer shareholder equity per customer
1 - 279
Questions to Ask When Developing Strategies to Improve Service Productivity
How to transform inputs into outputs efficiently? Will improving productivity hurt quality? Will improving quality hurt productivity? Are employees or technology the key to productivity? Can customers contribute to higher productivity?
1 - 280
Operations-driven vs. Customer-driven Actions to Improve Service Productivity

Operations-driven strategies Customer-driven strategies
Control costs, reduce waste Change timing of customer demand Set productive capacity to match average demand Involve customers more in Automate labor tasks production Upgrade equipment and systems Ask customers to use third parties Train employees
Leverage less-skilled employees through expert systems
1 - 281
Backstage and Frontstage Productivity Changes: Implications for Customers
Backstage improvements can ripple to the front stage and

affect customers
e.g., new printing peripherals may affect appearance of bank
statements.
Front-stage productivity enhancements are especially

visible in high contact services.
Some may just require passive acceptance by customers Others require customers to change their scripts and behavior.
1 - 282
Overcoming Customers Reluctance to Accept Changes in Environment and Behavior
Develop customer trust Understand customers habits and expectations Pretest new procedures and equipment Publicize the benefits Teach customers to use innovations and promote trial Monitor performance, continue to seek improvements
1 - 283
Six Sigma Methodology to Improve and Redesign Customer Service Processes

Process Improvement Process Design/Redesign
Define Measure Analyze
Improve
Control
Identify the problem Define requirements Set goals Validate problem/process Refine problem/goal Measure key steps/inputs Develop causal hypothesis Identify root causes Validate hypothesis Develop ideas to measure root causes Test solutions Measure results Establish measures to maintain performance Correct problems if needed
Identify specific or broad problems Define goal/change vision Clarify scope & customer requirements Measure performance to requirements Gather process efficiency data Identify best practices Assess process design Refine requirements Design new process Implement new process, structures and
systems
Establish measures & reviews to maintain performance Correct problems if needed

1 - 284
Chapter 15
Organizing for Service Leadership
1 - 285
Customer-Led versus Market-Oriented Philosophies of Management
Firms may lose market leader position if listen too closely to

current customers
Service leadership requires curiosity, risk taking Customer-led businesses focus on understanding expressed
desires of customers in currently served markets
Market-oriented businesses commit to understand current/
latent customer desires plus competitors plans, capabilities

Scan market more broadly, have longer-term focus Work closely with lead users (windows to future vs. anchors to
past) Combine traditional research with experimentation, observation
Conclusion: Pursue customer satisfaction, but set limits on

being led by customers, especially during rapid change
1 - 286
The Service Profit Chain (Fig. 15.1)

Internal
Operating strategy and service delivery system
Loyalty EMPLOYEES
External
Service concept Target Market
CUSTOMERS
Productivity & Output Quality
Satisfaction
Service Value
Revenue Growth
Satisfaction Loyalty
Capability Service Quality
Profitability
Workplace design Job design Selection and development Rewards and recognition Information and communication Tools for serving customers
Quality and productivity improvements yield higher service quality and lower costs
Lifetime value Retention Repeat business Referral
1 - 287
Causal Links in the Service Profit Chain (Table 15.1)
Customer loyalty drives profitability and growth Customer satisfaction drives customer loyalty Value drives customer satisfaction Employee productivity and retention drive value Employee loyalty drives productivity Employee satisfaction drives loyalty and productivity Internal quality drives employee satisfaction Top management leadership underlies chains success
1 - 288
Integrating Three Functional Imperatives

(recap from Chapter 1)
Marketing Imperative
Human Resources Imperative
Customers
Operations Imperative
1 - 289
Defining Three Functional Imperatives
Marketing Imperative
Target right customers and build relationships Offer solutions that meet their needs Define quality package with competitive advantage
Operations Imperative
Create, deliver specified service to target customers Adhere to consistent quality standards Achieve high productivity to ensure acceptable costs
Human Resource Imperative

Recruit and retain the best employees for each job Train and motivate them to work well together Achieve both productivity and customer satisfaction
1 - 290
Reducing Intra-Organizational Tension
Transfers and cross training

Cross functional taskforces
New tasks and new people

Process management teams Gain-sharing programs
1 - 291
The Search for Synergy: A Top Management Perspective

What do we want?
What do our employees, intermediaries, and other partners want?
What do our customers want?
What can we do?

1 - 292
From Losers to Leaders: Moving Up the Service Performance Ladder
Service Leaders
Crme de la crme of their respective industries
Service Professionals
Clear positioning strategy
Names synonymous with outstanding service, customer delight
Sustained reputation for meeting customer expectations
Service Non-entities
Traditional operations mindset Rudimentary marketing, often emphasizing price discounts
Service Losers
Only survive because of lack of viable alternatives in marketplace
1 - 293
Achieving Service Leadership by Focusing on Role of Each Functional Area
Marketing: move from tactical to innovative and

strategic
Operations: move from reactive/cost oriented to

focused, innovative, well coordinated with marketing and HR
Human Resources: move from tight control of lowcost workers to quality of employees as strategic advantage
1 - 294
Leadership for Change Management Involves Eight Stages
Create sense of urgency to develop impetus for change Put together strong team to direct process Create appropriate vision of where organization must go Communicate new vision broadly Empower employees to act on vision Produce sufficient short term results to create credibility Build momentum to tackle tougher problems Anchor new behaviors in the organizational culture
Source: John Kotter
1 - 295
Leadership Qualities Needed in Service Organizations
Vision, charisma, persistence, high expectations,

expertise, empathy, persuasiveness, integrity
Ability to visualize quality of service as foundation for

competing
Believe in people who work for the firm, make good

communications a priority
Possess a natural enthusiasm for the business, teach it to

others, pass on nuances, secrets, crafts of operating
Cultivate leadership qualities of others in organization Use values to navigate firms through difficult times
1 - 296
Transformational Leadership May Require Changing Corporate Culture
Corporate Culture:
Shared Shared Shared Shared Shared
perceptions regarding what is important values about what is right and wrong understanding about what works and what doesnt beliefs about why these things are important styles of working and relating to others
Climate for Service--Tangible working environment atop

underlying culture. Influential factors include:
Shared perceptions concerning practices, procedures and types of
behaviors that get rewarded Clarity about mission and values, level of commitment to common purpose Flexibility: freedom to innovate, sense of responsibility, standards
1 - 297

Services Marketing Christopher Lovelock1

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Services Marketing Christopher Lovelock1

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Chapter 1

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

How Important is the Service Sector in Our Economy?

In most countries, services add more economic value than

In developed economies, employment is dominated by

Jobs range from high-paid professionals and technicians

Service organizations can be any sizefrom huge global

Most activities by government agencies and nonprofit

Agriculture, Forestry, Mining, Construction 8% Manufacturing 14%

Finance, Insurance, Real Estate 20%

Government (mostly services) 13% Other Services 11%

Wholesale and Retail Trade 16% Transport, Utilities, Communications 8%

Business Health Services 6% 5%

Source: Bureau of Economic Analysis, November 2002

Changing Structure of Employment as Economic Development Evolves (Fig. 1.2)

Time, per Capita Income

Source: IMF, 1997

Gold Courses and Country Clubs

Services Marketing 5/E

Service elements within an organization that facilitate

Increasingly, these services are being outsourced

Major Trends in Service Sector (Fig. 1.3)

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Some Impacts of Technological Change

Radically alter ways in which service firms do business:

Create relational databases about customer needs and

Marketing Relevant Differences Between Goods and Services

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

Defining the Essence of a Service

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

Distinguishing Characteristics of Services

Services cannot be inventoried after production

Customers may be involved in production process

Intangible elements dominate value creation

communicating physical images or metaphors and tangible clues

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Other people are often part of the service product

Greater variability in operational inputs and outputs

Often difficult for customers to evaluate services

Time factor assumes great importance

Distribution channels take different forms

elements instantly and expand geographic reach

Important Differences Exist among Services

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

Four Categories of Services Employing Different Underlying Processes (Fig. 1.5)

What is the Nature of the Service Act?

Who or What is the Direct Recipient of the Service?

Mental Stimulus Processing

e.g., accounting, banking, insurance, legal, research

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

Implications of Service Processes (1) Seeking Efficiency May Lower Satisfaction

Imposing new processes on customers, especially

New processes that improve efficiency by cutting costs

Best new processes deliver benefits desired by customers

Customers may need to be educated about new

Implications of Service Processes: (2) Designing the Service Factory

Think of facility as a stage for service

Consider customer needs--info,

Slide 2004 by Christopher Lovelock and Jochen Wirtz