SERVICES MARKETING

PROF.R.MATHUR
 TEXT BOOKS
SERVICES MARKETING BY: Christopher
Lovelock
 INTRODUCTION
• Services Are Deeds (perishable), Processes And
Performances that creates value and benefits for the
customer. Facilities, equipment, labour can be held in
readiness to create the Services, the elements
represent the Productive Capacity.
• Services are all Economic Activities:
- Intangible output,
- Generally consumed at the time it is produced
- Adds value to, say, Convenience, Timeliness,
Comfort, Health
• Intangibles: Repair & Maintenance Services,
Consulting services, Training, Software Programs –
Problem Analysis and Solution.
 SERVICES’ DEFINITION
• Services Provided by Hospitals, Hotels, Banks,
Insurance, to result in Customer satisfaction.
• Services by companies and also manufacturers and
Technology companies e.g. IBM – IT services
• Services Sector:
Transportation, Communication, Electricity, Gas,
Trade, Finance, Insurance, Hospitality, Health,
Amusement, Recreation, Educational, Legal,
Management, Household, Private, Government
• Customer Services:
Services provided to support Company’s Core
Products.
 Services Dominates Most of the
Economies

Agriculture, Forestry,
Mining, Construction 8%
Finance,
Insurance, Real
Manufacturing 14% Estate 20%

Government Wholesale and

(mostly Retail Trade
services) 16%
13%
Other Transport, Utilities,
Services 11% Communications
SERVICES
8%
Busines Health
s 6%

Service
Source: Bureau of Economic Analysis, November
5 20
s
Changing Structure of Employment
as Economic Development Evolves

Share of
Employment
Agriculture

Services

Industry

Time, per Capita Income Source: IMF, 1997

6
 % of GDP in INDIA

2005 61 20 19

2001 48 26 26

1995 40 28 32

1980 36 26 38

1970 31 24 45

0 20 40 60 80 100 120

Services Industry Agriculture

7
 TANGIBILITY
• Services more Intangible than Manufactured
Products and Manufactured Products more
Tangible than Services. Fast-food Industry is
“Services” but has tangible components as
food and Packaging.
• Intangibles are produced by Service sector as
well as by Manufacturing sector – Boeing
provides Consulting and Forecasting services
Manufacturers often have “associates” which
provide allied Services – HUL + Lintas
 VALUE ADDED BY TANGIBLE VS.INTANGIBLE
ELEMENTS IN GOODS AND SERVICES

Tangible Elements
Coffee powder
Soft Drinks
CD player
New car
Tailored Clothing
Furniture Rental
Fast-Food Restaurant
Plumbing Repair
Health Club
Airline Flight
Retail Banking
Weather forecast

Intangible
Elements
 GOODS vs. SERVICES MARKETING
• The most basic difference is Intangibility –
Related Marketing Implications – Services
cannot be Inventoried – Fluctuation in
Demand. Services cannot be: - Easily
Patented
- Readily displayed or be easily
Communicated to customers – Quality?
- Assessed in Quality of Services
• New Services concepts can be easily copied
by Competitors’
• Decisions about Advertising content are
challenging, as is Pricing
• Price Quality relationship complex
• Cost of unit of service difficult to determine
 SERVICES MARKETING
IMPORTANCE
• Services sector is 80% of Employment and
78% of GDP. Absolute and Fastest rate of
growth is in Services sector.
• Export of Information, Knowledge, Creativity,
Technology are growing in economies
worldwide.
• Lead in development of Service Industry was
taken by Banking & Health Care services.
These Service Industries continue to evolve
and become more competitive.
• The need for effective Services Management
and Marketing Strategies as manufacturing
and technology industries also need to provide
quality Services to compete worldwide.
Differences Between Goods & Services

Intangible Heterogeneo
us

Simultaneous
Production Perishable
and
Consumption
12
Differences between Goods and Services

GOODS SERVICES RESULTING IMPLICATION

Tangible Intangible Services cannot be

inventoried
Cannot readily be
displayed or communicated
Pricing is difficult

13
Differences between Goods and Services
GOODS SERVICES RESULTING IMPLICATION
Production Simultaneous Customers participate in
separate and affect the transaction
from Customers affect each
consumption other
Employees affect service
outcome
Decentralization may be
essential
Mass production is
difficult

14
 Differences between Goods and Services
GOODS SERVICES RESULTING
IMPLICATION
Standardization Variability/ Service delivery &
Heterogeneous customer satisfaction
depend on employees action
Service quality depends
upon many uncontrollable
factors
There is no sure
knowledge that the service
delivered matches what was
planned and promoted
15
 Differences between Goods and Services

GOODS SERVICES RESULTING IMPLICATION

Non Perishable Perishable It is difficult to synchronize

supply and demand with
services
Services cannot be returned
or resold

16
 HETEROGENEITY IN SERVICES
• No two human Services Performances are
alike
• Services delivery at different times and
by different employees differ
• Different Customers’ demands of Services
in Content and quality differ
• Services are heterogeneous across time,
organizations and people ensuring
consistent service quality is challenging
• Quality depends upon factors that cannot
be fully controlled by Service suppliers –
consumer’s articulation of needs, level of
demand for the service
• Organization may Sub-contract certain
service elements of its total offering
 SERVICES PRODUCED & CONSUMED
• Products – Produced Sold Consumed
• Services – Sold Produced & Consumed
Restaurant Services Sold first, dining
experience Produced and Consumed.
Customer present while Service Produced,
can participate in the production process
• Mass production of services difficult.
Customer satisfaction dependent upon
happenings in “Real Time”
• Centralization does not Produce economies
of Scale – operations need to be relatively
decentralized.
• Customers may affect the outcome of
Services Production due simultaneous
production and Consumption
 SERVICES PERISHABLE
• Services Are Perishable: Cannot be Saved,
Stored, Resold or returned.
• Services cannot be inventoried
• Demand forecasting, Planning and Capacity
utilization are challenging decision areas
• Strong recovery Strategies when things go
wrong to regain customer goodwill.
SERVICES OPERATIONS
• Variability: Services can be evaluated for
quality before reaching the customers, e.g.
car repairs. Services consumed as produced,
final services must be performed in real-time
conditions.
 SERVICES OPERATIONS
• Difficult Evaluation: Goods can be evaluated for
Physical properties. Services may emphasize
Experience properties, e.g. Taste, wear ability.
Credence properties – characteristics difficult
to evaluate even after consumption, customers
not knowledgeable, e.g. Surgery, Technical
repairs, Professional Services.
• Time factor: Services delivered in Real Time.
Customers may be willing to pay faster service.
Service Marketers should appreciate customers
time constraints and priorities.
• Distribution Channels: Advances in technology,
electronic delivery of services is expanding
fast. Banks offer customers choice of
Distribution channels – visit the Bank or Home
Banking
 CATEGORISING SERVICE
PROCESSES
Marketing-relevant differences among Services:
Traditional way of Grouping Services by Industry
–Transportation, Hospitality, Banking. Groupings
define Core products, customer needs and
satisfaction. However innovative managers must
look outside their own industries for effective
Strategies to adapt for their own organization.
• One categorization on nature of Processes by which
services are created and delivered. Unlike goods,
Services Marketing may involve customers in service
production. A Process is a method or series of action
involving multiple steps in a defined sequence – taking
an input and transforming them into Output. .......
 CATEGORIZING ….
…. Two categories get processedPeople
Customers are the Principal Inputs: Objects
e.g., Passenger Transportation, Education.
In case of Objects as Inputs: automobile repair,
processing of financial data. In some services,
processes are tangible. In others it could be
Intangible, e.g., Education, Information.
Service Processes on Operational perspective,
can be categorized into four broad Groups.
These are based on:
- tangible action to people’s physical bodies or
customers’ physical possessions (Products)
- Intangible actions to people’s minds or their
intangible assets ……
 CATEGORIZING ….
…..These four categories are referred to as:
• People Processing
• Product Processing
• Mental Stimulus processing
• Information processing
Industries within each category share
important Process related characteristics.
Managers can create valued innovations
by studying other industries of the same
category.
PEOPLE PROCESSING
Services directed at themselves –
Transportation, Health, Lodging, Feeding.
Customers must physically enter the
service system by spending time and
actively interact with Service Providers
 POSSESSION PROCESSING
• Customers want Services for treatment of
Physical possession, e.g., House, Pets,
Computer: Customers not personally involved.
Customers drop the possession at the Service
Provider’s centre, explain the problem,
instruct for services and pick up the serviced
product. If the possession cannot be moved,
the service is provided at the site.
MENTAL STIMULUS PROCESSING.
• Services that interact with people’s minds –
News, education, Information, Consultancy,
Entertainment, Discourses. Services aimed at
Changing people’s attitude and influence
behaviour. Strong ethical standards and
careful monitoring, else manipulation possible
….
 MENTAL STIMULUS….
Customers have to be mentally in
communication with information being
processed. Services like education and
entertainment are often created in one
place and transmitted to distant
customers. (Live concert directly to group
of customers?). Core content of all services
in this category is Information based. Such
Services can be recorded and made
available subsequently or converted into a
disc like a manufactured product.
In People Processing, a customer can sleep
through a journey and still arrive at the
destination in time. In contrast a student
sleeping through a lecture will not be any
wiser at the end of the lecture.
 INFORMATION PROCESSING
• Information is the most Intangible form of
Service output. Information transformed
into Reports, Books, Letters, Discs are
tangible.
• Financial and professional services as
Accounting, Law, Market Research,
Management Services, Medical diagnosis
are highly dependent on effective
collection and processing of Information.
• Extent of customer involvement in Mental
Stimulus processing and information
Services are to learn about each other’s
Needs, Capabilities and Personalities.
Habits and tradition define the existing
service delivery system and service use
patterns. Increasing use of telephones, e-
mails and internet will shift these Services
to arm’s-length.
 CLASSIFICATION OF SERVICES
PEOPLE PROCESSING PRODUCT PROCESSING

• TANGIBLE PASSENGER TRANSPORTATION FREIGHT TRANSPORTATION

• ACTIONS HEALTH CARE REPAIR & MAINTENANCE
• LODGING RETAIL TRADE
• SALONS WAREHOUSING/STORAGE
• PHYSIO THRAPY LAUNDRY/DRY CLEANING
• FITNESS CENTRES REFUELING
• RESTAURANTS OFFICE CLEANING

• INTANGIBLE MENTAL STIMULUS INFORMATION

ACTIONS PROCESSING PROCESSING
• ADVERTISING/PR BANKING
• ENTERTAINMENT DATA PROCESSING
• MANAGEMENT CONSULTING DATA
TRANSMISSION
• EDUCATION INSURANCE
• INFORMATION SERVICES LEGAL SERVICES
• MUSIC CONCERTS RESEARCH
• RELIGIOUS SERVICES SOFTWARE CONSULTING
The Services Marketing Triangle

Company
(Management)

Internal External
Marketing Marketing
“enabling the “setting the
promise” promise”

Employees Interactive Marketing Customers

“delivering the promise”
Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler
28
 The Services Triangle &Technology

Company

Technology

Providers Customers

Source: Adapted from A. Parasuraman 29

 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

30
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,
31
food, toilets, etc.
 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 customer’s home or
workplace
4. Business is conducted at arm’s length through
- physical channels (e.g., mail, courier service)
- electronic channels (e.g., phone, fax, email,
Web site)

32
Capacity Implications of Service Processes:
(4) Balancing Demand and Capacity
When capacity to serve is limited and
demand varies widely, problems arise
Because service output can’t 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

33
 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 information-
based services “anywhere,
anytime”
• New service features through
websites, email, and internet
(e.g., information, reservations)
• More opportunities for self-service
• New types of services

34
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
• Other customers may
enhance or detract from
service experience--need to
manage customer behavior 35
 SERVICES MARKETING MIX
Strategic elements of marketing manufactured
goods are: Product, Price, Place & Promotion. For
Services Performance, 3 elements added:
Physical Environment, Process & People. 7 P’s are
interrelated decision variables.
• PRODUCT: Select features of Core Product – a
Product or Service plus other Service elements in
reference to customer requirements and other
competing products. Service performance with
potential to create value for customers.
• PLACE: Place, Time of Delivery and Methods,
Channels (Physical, Electronic) used. Messaging,
Internet Services delivers Information in cyberspace.
Physical delivery directly to customers. Speed and
convenience determine Strategy. …..
 7 Ps ….
• PROMOTION: Effective Communication
Strategy: Provide Information, Features and
Advantages, Persuading for action. Services
promotion more in nature of Education –
Benefits of service, Where and When to
obtain it, How to avail the Services.
Communication delivered through Direct
Sales or through Media. Promotions influence
Brand choice. Incentives attract customers to
buy.
• PRICE: Price to pay for benefits of Services.
Service marketers must Minimize other Expenses
a customer might incur in Purchasing and Using
Services, e.g., travel to service location, time,
physical and mental efforts, exposure to
negative sensory experiences. ……
 7 Ps ….
• PHYSICAL ENVIRONMENT: Provide Tangible evidence of
a firm’s Service quality. Customers impressions get
impacted by Building appearance, landscaping, Interior
furnishing, Equipment, Printed material, Signs and
other Visuals.
• PROCESS: Delivery of Product Elements require Design
and Implementation of Effective Processes- A method
and sequence of actions in Service performance. Bad
processes lead to Slow, Bureaucratic, Ineffective
Service delivery, dissatisfied customers. Poor
Processes make front-line staff jobs difficult, results in
low Productivity and more chances of service failures.
 7 Ps ….
• PEOPLE: Services Quality is often assessed based
on customer’s interactions with front -line staff.
Successful Service firms devote a lot of effort to
Recruit, Train and Motivate these employees.
• In the 7 Ps of Services Strategy, Marketing must
operate with other functions in Services business.
Three management functions have Central and
Interrelated Roles: Marketing, Operations and
Human Resources.
• Marketing expert T.Levitt has remarked, “There
are Industries whose Service Components are
greater or lesser than other Industries. Every
Industry is in Service”. R.Rust suggests “Most
goods businesses now view themselves primarily
as Services”.
 CONSUMER BEHAVIOR IN SERVICES
PURCHASE PROCESS FOR SERVICES
PREPURCHASE STAGE
NEED INFORMATION SEARCH EVALUATION OF
SERVICE SUPPLIERS
SERVICE ENCOUNTER STAGE
INITIATE SERVICE FROM SUPPLIER SERVICE DELIVERY
POSTPURCHASE STAGE
EVALUATION OF SERVICE PERFORMANCE FUTURE REFERENCE
PRE-PURCHASE STAGE
Decision to buy and use a service. Needs and
expectations of customer will influence alternatives
considered. Purchase routine and low risk,
customers select Service provider quickly. First time
Service requirement, of a high risk, customers
spend more time to select service provider.
 CONSUMER BEHAVIOR IN SERVICES
PERCEIVED RISKS
1. Functional – Will this service deliver desired result.
2. Financial – Will I lose money
3. Temporal – Time Loss, Delays
4. Physical –Injury or Damage to Possession
5. Psychological – Fears ( flying), Emotions (feel upset)
6. Social – Others’ thinking, Reaction
7. Sensory – Unwanted sensory feelings. (comfort, smell)
SERVICE ENCOUNTER STAGE
Begins with starting the service process: placing
an order, submitting an application. In high
contact services, customers involved in
service process. In low contact, impersonal
interactions with instruments, computers.
Customers experience a variety of elements
during service delivery providing clues to
service quality.
 POST PURCHASE SERVICES EVALUATION
• Search Attributes: Physical goods can be
evaluated before purchase. Style, colour,
texture, taste, machine output are tangibles
that can be tested before purchase. Apparel,
automobiles, electronics, food are goods
high in search attributes.
• Experience Attributes: To evaluate some
services, customers must experience them:
Can be evaluated only after purchase
-entertainment, restaurants fall in the
Experience Category. Information on
Websites, reviews, by friends etc. may not
help in evaluation.
• Credence Attributes: Product characteristics
extremely difficult for customers to evaluate
even after purchase and consumption.
Customer forced to trust that benefits have
been delivered.
 SERVICE POSITIONING STRATEGY
• How do businesses compete?
“On Service” …. “Value for money”, “Service
quality”, “People”, “Convenience”
Speed, Quality, Extras to core service
Convenient Location, Time or Ease of use
• Which product feature interests a
customer? Will help develop Competitive
Strategy. Else customers will not perceive
any real difference between competitive
alternatives and choose basis price.
• Positioning Strategy is to create and
maintain distinctive differences that will be
noticed and valued by Potential Target
Customers for a long
term relationship.
 SERVICE POSITIONING ….
• Service firms to provide a narrow product mix for
a particular market segment – a group of buyers
with common characteristics, needs, purchasing
behavior or consumption pattern.
• Concentrate resources on strategically important
elements of service operations. A firm’s focus
can be described in two dimensions - Market
focus and Service focus. Market focus is extent to
which a firm serves few or many markets.
Service focus is extent to which a firm offers few
or many services.
• These two dimensions describe four Basic focus
Strategies. A fully focused firm provides limited
range of services (maybe one core product) to a
narrow and specific market segment. A Market
focused firm concentrates on narrow market
segment but wide range of Services.
 SERVICE POSITIONING …..
  BREADTH OF SERVICE
OFFERING
    NARROW WIDE
NUMBER OF MANY SERVICE UNFOCUSED
MARKETS FOCUSED (EVERYTHING
SERVED FOR EVERYONE)

FEW FULLY MARKET

FOCUSED(S FOCUSED
ERVICE &
MARKET
FOCUSED)
Service focused firms offer narrow range of
services to a fairly broad market. Many
Service providers fall into unfocused
category because they try to serve broad
markets and provide a wide range of
 SERVICE POSITIONING ….
SELECTION OF FOCUS
Fully focused strategy has Risks and Opportunities.
Developing recognized expertise in a well defined
niche may protect against potential competition and
charge premium price.
Risk-Market small for volume business and financial
viability is ? The demand may be displaced by generic
competition or customers may be affected by
economic downturn.
Firms with narrow product line may serve multiple
segments (service focused) to create portfolio of
customers.
For new customers firm should develop expertise.
Developing expertise to serve each segment will
require greater investment in marketing
communication – in btob Services.
…….
 SELECTION OF FOCUS ……
Offering broad product lines to narrow target segment
has potential of selling multiple services to customers.
Firms must have operational capability. To cross-sell
additional services to btob, client companies may have
different purchase groups.
MARKET SEGMENTATION
Firms offer services to segmented markets to identify
segments it can serve best. Need-based segments have
customers valuing specific attributes.
Mass customization to serve specific market segment by
offering Standardized Core product with tailor-made
supplementary service elements.
Creation of customer Database and Analytical software
enables firms Micro segment Strategies target micro-
groups with similar characteristics.
 CUSTOMER EXPECTATONS OF
SERVICES
HOW CUSTOMERS EXPECTATIONS FORMED
 Good service expectations varies from business:
expectations from a vet to treat a pet or accountant for tax
returns. Vary in differentiated positioned service providers –
low cost airlines vs. full service. Purchase dept. evaluate
against internal standards. Expectations change over time –
Customers seek participative role in health care decisions.
CUSTOMER EXPECTATIONS COMPONENT
 Desired Service: Can and Should receive
 Zone of tolerance: Constant delivery difficult. Extent of
variation customers willing to accept.
 Adequate Service: Minimum Service levels
 Predicted Service: Anticipate Levels of Service between
Desired and Adequate Customers anticipate receiving
……
 CUSTOMER EXPECTATONS ……
Situational factors: Service Expectations affected
By temporary reasons for purchase – Consumer’s
mood, the Weather, Time Constraints and Urgency
Reasons for purchase: Use of a Hotel Services –
Breaking journey, Spending week-end, Using for
Corporate Training, Shift of residence, Holding
Social programmes.
Consumer’s mood: Good mood means higher
ZOT and level of adequate service lower. Reverse
is also true. Improve mood with music, décor,
aromatics, friendly service personnel.
The Weather: Bad weather for airlines, desired
Level remains but predicted level reduce as also ZOT.
 MEASURING SERVICE QUALITY
• Consumers evaluate 5 dimensions of service quality:
• Tangibles – physical facilities, (Soap, Heating, Room
safe malfunctioned and light flashed and beeped at
3 AM)
• Reliability – perform service promised dependably
and accurately (Service not in line with Broch.),
• Responsiveness – firm’s staff help customers with
prompt service (Hotel staff ignored the presence,
Room service reminded to remove tray)
• Assurance – Inspire trust and confidence through
knowledge competence and courtesy and
• Empathy – Caring, Individualized attention (canned
apology letter in response to complaint)
 THE GAP MODEL
A MODEL OF SERVICE QUALIY
Service Quality means consistently meeting or
exceeding Customer Expectations. The
Manager’s task is to balance Customer
Expectations with Perceptions of service
delivery and to close any gaps between the
two. P- E will give Service Quality.
A Model Of Service Quality is given by Gap
Model. The figure Identifies 5 Potential Gaps.
The Horizontal dash line divides Service
Quality
Gaps that are SP related and Consumer
Oriented.
THE GAP MODEL
 THE GAP MODEL
The Knowledge Gap 1 :Difference between
Customers’ Needs & Expectation and SP’s
Perceived Customer Expectation. A contractor
wants to use the best grade electrical wire.
Sub-contractor perceives contractor wants to
keep costs down and uses low grade wire. The
converse happening is also true. Extra services
provided raise Expectations and also add to the
cost.
Cause Of Gap Strategies to Reduce
Failure of Service Customer Communication,
Provider to identify Market Research,
Consumer Expectation Encourage Upward Communication,
Reduce Hierarchy
 THE GAP MODEL
The Standards Gap 2: Difference between firm’s
perceived Customer Expectation and its
translation to Service Quality Specifications.
Reasons: 1.Resource Constraint ( Seasonal
Service demand), 2. Market Conditions, 3.
Indifference to Customers’ Needs
Cause Of Gap Strategies to Reduce Gap
Resource Constraint Firm’s Commitment
Market Conditions Develop Service Quality Goals
Indifference Standardize tasks & Address feasibility of
Customer Expectation
Emphasis on high commitment to level of Service
Quality. Competitive parity is to provide Service
Quality at least as good as competition – “Competitive Parity”
 THE GAP MODEL
The Delivery Gap 3: Difference between firm’s
Service Quality Specifications and Delivery of
Specifications. This could be due: Service
Provider’s employees’ Performance

Cause Of Gap Strategies to Reduce Gap

Employee unaware Enhance Teamwork
of Specifications.
Skills to Perform Employee, technology
Specifications job-fit
Unwilling to Perform Supervisory Control,
Specifications Reduce Role Conflict/ Ambiguity Conflict
 THE GAP MODEL
Communication Gap 4 :The difference between
the External communication about service
(Advertising, Sales Promise) and Service
delivered.
To increase patronage, firms are tempted to
make promises which may be difficult or
impossible to deliver.
Cause Of Gap Strategies to Reduce Gap
Poor Communication Improve lateral
Communication
Over Promising Avoid propensity to over promise
Emphasis on High Transparency on Service
Quality and Reduce or Prevent Surprises for
Customers
 THE GAP MODEL
The Perception Gap 5:
The difference between what Consumers
Receive and what they Expected. This is the
sum of Gaps 1 to 4, both in direction and
magnitude.
Suppose a Consumer Survey gives scores to
Gaps 1 to 4 on a scale of -3 to +3 as:
+1, -3, +1 and 0,
The score for Gap 5 would be +1 +(-3)+1+0 =-1
This indicates the Service Performance fell
Short of Customer Expectations. The SP should
analyze Gap 2 Closely to Rectify the Difference
in their Standards of Quality Specifications.
 BUILDING CUSTOMER
RELATIONSHIP
Relationship Marketing represents a Paradigm
shift in Marketing – away from Acquisitions
toward a retention/ relationship focus.
A Strategic orientation – focus on keeping and
improving current customers rather than
acquiring new customers.
The customers prefer an ongoing relationship,
not switch continually in search for value.
Targeting, acquiring and retaining the right
customers is at the CORE of successful firms. The
fact is it is usually much cheaper to keep a
current customer than to attract new one. Firms
frequently focus on attracting customers but do
not pay attention to keeping them. Sales,
Advertising, Promotions attracts business. Bucket
Theory ….
 BUILDING CUSTOMER ….
• Customer Loyalty is described as: Willingness
to using Products/ Services on a long term,
Repeated purchase preferably on exclusive
basis, Recommend firm’s Products/ Services
to friends and associates.
• Customers changing Brands give adequate
signals by reducing purchase and shifting to
another Service provider.
• Researches have found that the longer
customers stayed with a firm, the more
profitable they became. Four factors which
create incremental profits are: 1. Profit
derived from increased purchases. 2. Profits
from Reduced Operating Costs. 3. Profits from
referrals to other customers. 4. Profits from
Price Premium.
 BUILDING CUSTOMER ….
Impact on profits also depend upon Product Life
cycle of Services – more impact of referrals in
early stages of PLC.
Customer Lifetime Value – Customers potential to
generate ongoing Stream of profits and are firm’s
important financial asset. Marketing Services
programs should be seen as investments rather
than just operating expenses.
The discounted value of each customer over
expected lifetime with the firm gives CLV.
Customer Equity is the sum of discounted Lifetime
Values of firm’s current customers. Enhancing
Customer Equity should be the key driver of
Marketing Strategy.
 BUILDING CUSTOMER ….
Analyzing & Managing Customer Base: Firms
should adopt a Strategic approach to retaining,
upgrading and even terminating service to
unprofitable customers. Firms need not make
efforts to treat all customers with the same level
of intensity. Most firms have several layers of
customers basis profitability and these layers
have different needs and service expectations.
Customer layers form 4 layers of a pyramid based
on profit contribution and personal profiles.
Platinum Gold
Iron
Lead
 BUILDING CUSTOMER ….
Platinum: A small %age, Heavy user,
Contribute large profit, Less Price sensitive and
expect large level of service
Gold: Larger customer base heavy users with
individuals contribute less to profits. Slightly
sensitive to price, less committed to firm.
Iron: Provide bulk of customer base. Firm builds
and maintains certain capacity level of
Infrastructure needed for servicing Gold and
Platinum customers. Gives the firm the economies
of scale. Iron customers are marginally profitable.
Lead: Customers generate low revenue, require
the same level of service as with iron customers.
 SERVICE RECOVERY
Service Recovery refers to the action taken by an
organization response to a service failure.
Failure occurs for many reasons:
• The service may be unavailable when promised
• Delivered late slow
• The outcome may be incorrect or poorly executed
• Employees may be rude or uncaring
These failures bring about negative feelings and
responses for the customers. Result in customers
Leaving and sharing negative experiences. May
even challenge the organization through customers
rights organizations or legal channels
Research has shown resolving customer problems
effectively has a strong impact on Customer
Satisfaction, Loyalty and Bottom line performance.
 SERVICE RECOVERY
Repeated Service Failures without an effective
Recovery Strategy in place can aggravate even the
best employees.
The costs in Employee Morale and even lost employee
can be huge
THE RECOVERY PARADOX
It is suggested that dissatisfied customers who
experience a high level of excellent service recovery,
may ultimately be even more satisfied and more likely
to repurchase than are those who were satisfied I the
first place.
The logical but not very rational conclusion is that
companies should plan to disappoint customers so
that they can recover and gain even greater loyalty
from them as a result. This idea is known as the
RECOVERY PARADOX.
 SERVICE RECOVERY
Recovery Paradox is more complex than it may seem
on the surface. It is expensive to fix mistakes.
Empirical Research suggests that only under the very
highest levels of customers’ Service Recovery ratings
will we observe increased satisfaction and loyalty.
It is safe to say that “ Doing it right the first time “ is
still the best and safest strategy.
However, when a failure does occur, then every effort
at a superior Recovery should be made to mitigate its
negative effects. In cases where the failure can be
fully overcome, the failure is less critical, or the
Recovery Effort is clearly superlative, it may be
possible to observe evidence of the Recovery
Paradox.
 CUSTOMER COMPLAINTS & ACTIONS
If customers initiate actions following service failure,
the action can be of various types as shown in the
Fig. From company’s point of view any customer who
complains on the spot is the best case scenario.
Company has the chance to respond immediately.
If they don’t complain immediately, customers may
choose to complain later to the provider by phone or
in writing, or even write or call the corporate offices
of the company. In all the above cases, the company
has a chance to recover. These Proactive types of
complaining behavior is preferred as voice responses
or Seeking Redress.
TYPES OF COMPLAINANTS
Four Types of customers response to failures have
been identified:
(1) Passive (2) Vocal (3) Irate (4)Activist
 CUSTOMER COMPLAINTS & ACTIONS
(1) Passive:
This group of customers is least likely to take any
Action. Less likely to spread negative Word of
Mouth. They often doubt the effectiveness of
complaining, thinking the consequences will not
merit the time and effort spent.
(2) Vocal:
These customers actively complain to the service
Provider, Less likely to spread negative word of
mouth, switch patronage, or go to a third party with
their complaints. These customers viewed as the
Service providers friend. Actively complain and give
company a second chance. They believe complaining
has social benefits and therefore don’t hesitate to
voice their opinion.
 CUSTOMER COMPLAINTS & ACTIONS
Irate:
These customers more likely to engage in negative
word of mouth to friends and relatives and switch
providers. They are angry with the service provider
although they do believe that complaining to the
service provider can have social benefits. They are
less likely to give the service provider a second
chance.
Activists:
These consumers have high propensity to complain.
They will complain to the provider, they will tell
others, and they are more likely to complain to third
parties. They feel that all types of complaining will
have positive consequences.
 CUSTOMER COMPLAINTS & ACTIONS
WHEN CUSTOMERS COMPLAIN, WHAT DO THEY
EXPECT?
Customers want justice and fairness in the handling
of their complaints.
Customers are looking for: OUTCAME FAIRNESS
PROCEDURAL FAIRNESS
INTERACTIONAL FAIRNESS
Outcome Fairness: They expect equity in the
exchange- i.e. they want to feel that the company
has “Paid” for its mistakes in a manner at least equal
to what the customer has suffered. The company’s
“ punishment should fit the crime”. They also
appreciate it when a company gives them choices in
terms of compensation. E.g. A hotel guest should be
offered the choice of a refund or free upgrade to a
better room in compensation for a room not being
available on arrival.
 CUSTOMER COMPLAINTS & ACTIONS
On the other hand, customers can be comfortable if
they are overly compensated. E.g. Domino’s Pizza
offered not to charge if the delivery was after 30
minutes of ordering. Many customers were not
comfortable asking for this level of compensation,
especially if the driver was only few minutes late.
Procedural Fairness: In addition to fair compensation,
customers expect fairness in policies, rule and
timeliness of complaint redress. They want easy
access to the complaint process. Fair procedures are
characterized by clarity, speed and absence of
complexities. Unfair procedures are those that
customers perceive as slow, prolonged and
inconvenient. Customers also feel it is unfair if they
have to prove their case- when the assumption
seems to be they are wrong or lying until they can
prove otherwise.
 CUSTOMER COMPLAINTS & ACTIONS
Interactive Fairness: Customers expect to be
treated politely, with care and honesty. This form
of fairness can dominate the others if customers
feel the company and its employees have
uncaring attitude and have done little to try to
resolve the problem. Often rude and uncaring
behavior of employees is due to lack of training
and empowerment- a frustrated, frontline
employee who has no authority to compensate
the customer may easily respond in an aloof and
uncaring manner, especially if the customer is
angry and/or rude.
SWITCHING VERSUS STAYING - SERVICE RECOVERY
Ultimately, customer’s reaction to a Service
Recovery failure handling will influence future
decisions to remain loyal to the service provider or
to switch to another provider.
 Service Marketing System:
(1) High Contact Service-e.g., Hotel
Service Marketing System
Service Delivery SystemOther Contact Points
Advertising
Service Operations SystemOther
Customers Sales Calls
Interior & Exterior Market Research
Facilities Surveys
Billing / Statements
Technical Equipment The
Core Customer Miscellaneous Mail,
Phone Calls, Faxes, etc.
Service People Random Exposure to
Facilities / Vehicles
Chance Encounters
Backstage Front Stage Other with Service Personnel
(invisible) (visible) Customers
Word of Mouth
 Service Marketing System:
(2) Low Contact Service-e.g., Credit Card
Service Marketing System
Service Delivery System Other Contact Points
Service Operations
System
Advertising
Mail
Market Research
The Surveys
Technical Self Service
Core Equipment Customer Random Exposures
Facilities, Personnel
Phone,
WebFax,
site Word of Mouth
etc. Front Stage
Backstage (visible)
(invisible)
 SERVICE BLUEPRINTING
A service blueprint is a picture or map that
accurately portrays the service system so
that the different people involved in
providing it can understand and deal with it
objectively regardless of their roles or their
individual point of view.
SERVICE MAPPING/BLUEPRINTING
• A tool for simultaneously depicting
the service process, the points of
customer contact, and the
evidence of service from the
customer’s point of view.
Proces
s
Service Points of
Mappin Contact

g Evidenc
e
SERVICE BLUEPRINT COMPONENTS
CUSTOMER ACTIONS
line of interaction

“ONSTAGE” CONTACT EMPLOYEE ACTIONS

line of visibility

“BACKSTAGE” CONTACT EMPLOYEE ACTIONS

line of internal interaction

SUPPORT PROCESSES
SERVICE BLUEPRINT COMPONENTS
 SERVICE BLUEPRINTING: KEY
COMPONENTS
1. Define standards for front stage 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
Simplified Example: Blueprinting a Hotel
Visit
(extract only)
Physical Hotel exterior, lobby, Elevator, corridor,
Evidence employees, key room, bellhop
Stage

Make Arrive, Check-in Go to

Customer reservation valet park at reception room
Line of
Actions
Interaction
Employee Doorman Receptionist
Front

Actions greets, valet verifies, gives

Face-to-face takes car key to room

Phone
Contact Rep.
records,
confirms
Line of
Visibility
Valet Make up
Backstage

Parks Car Room

Enter Register
data guest data
 EXPRESS MAIL DELIVERY SERVICE
Truck Truck
Packaging Packaging
Forms Forms
EVIDENCE
CUSTOMER PHYSICAL

Hand-held Computer Hand-held Computer

Uniform Uniform
Customer
Custo Receive
Gives
mer Package
Package
Calls
Driver
(On Stage)

DELIV
CONTACT PERSON

Picks
ER
Up Pkg.
PACK
AGE
(Back Stage)

Customer
Service
Order
SUPPORT PROCESS

Airport Fly to Load

Dispatch Unload
Receives Sort Fly to On
Driver &
& Loads Center Destination Truck
Load on Sort
Airplane

Sort
Packages
 OVERNIGHT HOTEL STAY
Bill
EVIDENCE
PHYSICAL

Desk
Hotel Cart for Desk Elevators Cart for Room Menu Delivery Food Lobby
Exterior Bags Registration Hallways Bags Amenities Tray Hotel
Parking Papers Room Bath Food Exterior
Lobby Appearance Parking
Key
SUPPORT PROCESS(Back Stage) (On Stage) CUSTOMER

Arrive Give Bags Call Check out

Go to Receive Sleep Receive
at to Check in Room Eat and
Room Bags Shower Food
Hotel Bellperson Service Leave
CONTACT PERSON

Greet and
Process Deliver Deliver Process
Take
Registration Bags Food Check Out
Bags

Take
Take Bags Food
to Room Order

Registration Prepare Registration

System Food System
 BUILDING A SERVICE BLUEPRINT

Step
Step11 Step
Step22 Step
Step33 Step
Step44 Step
Step55 Step
Step66
Map Map
Mapcontact Add
Identify
Identifythe
the Identify
Identifythe
the Mapthe
the contact Link
Linkcustomer
customer Add
process employee evidence
evidenceofof
process to
process to customer
customeroror processfrom
from employee and contact
and contact
be the actions, service
serviceatat
beblue-
blue- customer
customer the actions, person
person
printed. segment. customer’s onstage
onstageand activities each
printed. segment. customer’s and activitiestoto each
point back-stage. customer
pointofof back-stage. needed
needed customer
view. support action
actionstep.
step.
view. support
functions.
functions.
 SERVICE BLUEPRINTING STEPS

1.Identify Process
2.Isolate fail points
3. Establish a time frame
4. Analyze profitability 
APPLICATION OF SERVICE BLUEPRINTS
• New Service Development
• concept development
• market testing
• Supporting a “Zero Defects” Culture
• managing reliability
• identifying empowerment issues
• Service Recovery Strategies
• identifying service problems
• conducting root cause analysis
• modifying processes
 BLUEPRINTS CAN BE USED BY:
• Service Marketers • Human Resources
– creating realistic – empowering the
customer human element
expectations
• job descriptions
• service system
• selection criteria
design
• promotion • appraisal systems

• Operations • System Technology

Management – providing necessary
tools:
– rendering the
• system specifications
service as
• personal preference
promised databases
• managing fail
points
• training systems
• quality control
Degree of Interaction & Customization
of Services

CUSTOMIZATION

Standardized Customized
Service Factory Service Shops
Airlines Hospitals
Capital Intensive Trucking Auto repair
Hotels Other repair
DEGREE Resorts & Recreations services
OF LABOR
INTENSITY Mass service Professional
Retailing/Warehousing Services
Schools Doctors
Labor Intensive Lawyers
Retail aspects of
Accountants
Commercial Banking
Architects

Source: Robert Johnston

Factors Necessary for Appropriate
Service Standards
Standardization can take 3 forms:
1. Substitution of technology for personal
contact & human effort
2 Improvement in work methods
3 Combination of these two methods
Standardizing whether accomplished by
technology or by improvements in work
processes, Reduces GAP 2
Both technology & improved work
processes structure important elements of
service provision and also facilitate goal
setting
 CUSTOMER – DEFINED SERVICE
STANDARDS
• Once marketers understand what
customers expect
Critical Challenge is using this knowledge to set
service quality standards and goals for the
Organization.
Difficulty in Setting Standards to match or
exceed
customer Expectations is because it requires
that
the Marketing & Operations within a company
work together.
( Also known as Functional Integration)
 Factors Necessary for Appropriate Service
Standards
The Translation of Customer Expectations-
Service Quality Standards:
– Degree to which tasks and behaviors performed
can be Standardized or made Routine
Some managers feel that services cannot be
standardized
• As standardizing the tasks is perceived as being
impersonal, inadequate and not in customers
best interest.
• It is also inconsistent with employee
empowerment- they feel controlled
• Services are too intangible to be standardized
(This leads to vague & loose standard setting
with little or no measurement or feedback.)
• In reality many service tasks are routine –
specific rules and standards can be fairly
established and effectively executed.
 Factors Necessary for Appropriate
Service Standards
Employees welcome knowledge to perform
actions most efficiently :
It frees them to use their ingenuity in the
more personal & individual aspects of their
jobs.
Even in Highly Customized Services – Many
aspects of Service can be made Routine
Dentist & Physician–Examining Patients
weighing, taking routine measurements,
billing.
More time of the Dentist & Physician can be
spent on the expert services of diagnosis or
patient care
Customer – Not Company – Defined
Standards
Company Defined – Established to reach
internal company goals for productivity,
efficiency, cost, or technical quality.
To close GAP 2 standards must be based on
Customer Requirements and Expectations
rather than just on internal company goals
Instead company should set Customer-
Defined Standards- Operational standards
based on pivotal customer requirements
that are visible to & measured by
customers
 Customer-Defined Service Standards

1. Hard Customer-Defined Standards

2. Soft Customer-Defined Standards
3. One-Time Fixes
4. Building Blocks: The Service Encounter
Sequence
5. Expressing Customer Requirements as
Specific Behaviors and Action
6. Measurements of Behavior and Actions
 Process For Developing Customer-Defined
Standards
1. Identify Existing or Desired Service Encounter

2. Translate Customer expectations into Behaviors / Actions

3. Select Behaviors/Actions for Standards

Measured 4. Set Hard or Soft Standards

by audits Measured
by
or Hard 5. Develop Feedback Mechanisms Soft transaction
operating based
surveys
data 6. Establish measures against standards

7. Track Measures Against Standards

8. Provide Feedback about Performance to Employees

9. Periodically Update Target Levels and Measures

 APPROACHES TO SERVICE RESEARCH

Service-Quality Information System:

Too much Research information obscures most
meaningful insights, may intimidate intended
users.
Also, incomplete information injects needless
guessing into decision making.
Nature of Services, firm’s Service Strategy and
needs of information users determine Service-
Quality research approaches to use.
 Market Research
Type of Primary Research Qualitative/Q Monetary Time
uantitative
Frequency

Research Objectives
Complaint To identify/attend to Qualita Low Low Continu
solicitation dissatisfied customers tive ous
To identify common
service failure points

Critical To identify “best Qualita Low ModerPeriodic

incident practices” at tive ate
transaction level
studies
To identify customers
requirements as input
for qualitative studies
To identify common
service failure points
To identify systemic
strengths and
weaknesses in
customer-contact
services
 Market Research contd …..
Type of Primary Research Qualitative/ Monetar Time Frequency
Quantitativ y
Research Objectives e
Requirements To identify customer Qualitat ModerModerAnnual
research requirements as input ive ate ate
for qualitative
research
Relationship To monitor and track Quantit Low Low Continu
surveys and service performance ative ous
SERVQUAL
surveys
To assess overall
company performance
compared with that of
competition
To determine the links
between satisfaction
and behavioral
intentions
To assess gaps
between customer
expectations and
perceptions
 Market Research contd …..
Type of Primary Research Qualitative Monetary Time
/Quantitati
Frequency

Research Objectives ve

Trailer calls To obtain immediate Quantit Low Low Continuous

feedback on performance of ative
service transactions
To measure effectiveness of
changes in service delivery
To assess service
performance of individuals
and teams
To use as input for process
improvements
To identify common service
failure points

Service To create dialogue with Qualitati Modera Moder Annual

expectationimportant customers ve te ate
meetings To identify what individual
and large customers expect and
reviews then to assure that it is
delivered
 Market Research contd …..
Type of Primary Research Qualitat Moneta Time Frequenc
Research Objectives ive/Qua ry y
ntitative

Process To determine customer Qualita ModeraModer Periodic

checkpoint perceptions of long tive te ate
evaluations term professional
services during service
provision
To identify service
problems and solve
them early in the
service relationship

Market – To research customers Qualita ModeraHigh Periodic

oriented in natural settings tive te
ethnograph
y
To study customers
from cultures other
than your home country
 Market Research contd …..
Type of Primary Research Qualitative Monetary Time
/Quantitati
Frequency

Research Objectives ve

Mystery To measure individual Quantit Low Low Quarterly

shopping employee performance ative
for evaluation ,
recognition and rewards
To identify systemic
strengths and
weaknesses in customer-
contact services

Customer To monitor changing Qualita Moder Moder Continuou

panels customer expectations tive ate ate s
To provide a forum for
customers to suggest
and evaluate new service
ideas
Lost To identify reasons for Qualita Low Low Continuou
 Market Research contd …..
Type of Primary Research Qualitati Monet Time Frequency
Research Objectives ve/Quan ary
titative

Future To forecast future Qualitati High High Periodic

expectatioexpectations of ve
ns
customers
research
To develop and test
new service ideas
Database To identify the Quantita High High Continuous
marketing individual tive
research
requirements of
customers using
information
technology and
database information
 Provider Gap 3

CUSTOMER

Service Delivery
COMPANY
Service
Performance
Gap
Customer-Driven
Service Designs and
Standards
Understanding the Components of
the Augmented Service Product
 Shostack’s Molecular Model of a Total
Market Entity - Passenger Airline Service

Distribution
Price

Vehicle
Service
frequency

Transport In-flight
service
Pre- and
post-flight Food
service and
drink
KEY
Tangible elements
Intangible elements
Marketing Positioning
(Weighted toward evidence) Source: Shostack
 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
 Core &Supplementary Elements
• Define core product and determine
supplementary elements to augment this
core Product.
Core+Supplementary=Augmented Product
• Determine the benefits which create the most
value for customers.
• Differentiated the Service Package from the
competition in ways that are meaningful to
target customers.
• Determine current levels of service on the
core product and of the supplementary
elements?
• Determine the charges for higher service
levels on key attributes (e.g., faster
response, better physical amenities, easier
access, more staff, superior caliber,
personnel)? Or if the service levels can be cut
and charge less?
 Core and Supplementary Services in a Luxury
Hotel (Offering Guests Much More than a Cheap
Motel!)

R e s e r v a t i o n
C a s h i e r V a l e t
P a r k i n g
B u s i n e s s
C e n t e r R e c e p t i o n

A B e d f o r t h e
R o o m N i g h t i n Ba an g g a g e
S e r v i c eE l e g a n t P r S i ve ar vt ei c e
R o o m w i t h a
B a t h r o o m
W a k e - u p C o c k t a i l
C a l l B a r

T e l e p h o n e R e s t a u r a n t
E n t e r t a i n m e n t /
S p o r t s / E x e r c i s e
 Documenting Delivery Sequence over Time
The Time Dimension in the Augmented Service
Product
Reservation
Parking Get car

Check in Check out

USE ROOM Phone

USE GUESTROOM OVERNIGHT

Porter

Pay TV Room service

Meal

Pre Time Frame of an Overnight Hotel Stay

Visit (real-time service use)
 Employees’ Role in Service Delivery

• Service Culture
• The Critical Importance of Service
Employees
• Boundary-Spanning Roles
• Strategies for Delivering Service
Quality Through People
• Customer-Oriented Service Delivery
 Service Leadership & Culture
• Strong Service Culture developed and
continuously Reinforced by Management
• Management Leadership required to
change Values, Goals and Aspirations of
Front Line staff to be in line with Service
Organisation
• Organisation culture have core values as
Excellence, Innovation, Team work,
Respect, Integrity and Social Profit
1. Shared Perception of What is important
in an organization
2. Shared Values and Beliefs about Why
these things are important
 Service Leadership & Culture
• Strong Service Culture focus on Front Line
• Being Lifeline of Services business. Revenues
driven by what happens at Service Encounter.
The Service Triangle Customer
Service Encounter

Front Line

Top Management, Employees

Support Front Line

Highlights importance of front line showing

the role of Top Management and employees
is to support Front Line to deliver excellence
 Service Culture

Corporate culture is defined as

The pattern of shared values and beliefs
that
give the members of an organization
meaning, and provide them with the
rules for
behavior in the organization.
111
 Empowerment
• Benefits: • Drawbacks:
– quicker responses to – potentially greater
customer needs dollar investment
– quicker responses to in selection and
dissatisfied customers training
– employees feel better – higher labor costs
about their jobs and – potentially slower
themselves or inconsistent
– employees tend to service delivery
interact with – may violate
warmth/enthusiasm customers’
– empowered employees perceptions of fair
are a great source of play
ideas
– employees may
– great word-of-mouth “give away the
advertising from store” or make bad
customers decisions
 Traditional Organizational
Chart

Manager

Superviso Superviso
r r

Front- Front- Front- Front- Front- Front- Front- Front-

line line line line line line line line
Employ Employ Employ Employ Employ Employ Employ Employ
ee ee ee ee ee ee ee ee

Customers

113
Customer-Focused Organizational
Chart

Customers

Front- Front- Front- Front- Front- Front- Front- •Front-

line line line line line line line line
Employ Employ Employ Employ Employ Employ Employ Employee
ee ee ee ee ee ee ee

Superviso Superviso
r r

Manager
114
 EMPLOYEES’ ROLE IN SERVICE
DELIVERY
The Critical Importance of Service Employees
• It is very important to focus on employees because :
• They are the service
• They are the organization in the customer’s eyes
• They are the brands
• They are the marketers
In many cases , the contact employee is the service –
there is nothing else. E.g. in most personal and
professional services (like haircutting, physical
trainers, child care , cleaning /maintenance etc.) the
contact employees provide s the entire service single
handedly. The offering is the employee. Thus
investing in the employee to improve the service
parallels making a direct investment in the
improvement of a manufactured product.
 EMPLOYEES’ ROLE IN SERVICE
DELIVERY
Because contact employees represent the
organization and can directly influence customer
satisfaction, they perform the role of marketers. They
physically embody the product and are the walking
billboards from the promotional point of view.
Whether acknowledged or not, actively selling or not,
service employees perform marketing functions. They
can perform these functions well, to the
organization’s advantage, or poorly to the
organization’s detriment.
EMPLOYEE SATISFACTION, CUSTOMER SATISFACTION AND PROFITS
Concrete evidence - satisfied employees make for
satisfied customers (satisfied customers can, in turn,
reinforce employees’ sense of satisfaction in their
jobs). Suggest - unless service employees happy in
their jobs, customer satisfaction difficult to achieve.
 The Services Marketing Triangle

Company
(Management)

Internal Marketing External Marketing

“Enabling the “Making the
promise” promise”

Employees Customers
Interactive Marketing
“Delivering the promise” 117
Source: Adapted from Mary Jo Bitner, Christian Gronroos, and
 Services Marketing Triangle Applications
Exercise
• Focus on a service organization. In the
context you are focusing on, who occupies
each of the three points of the triangle?

• How is each type of marketing being carried

out currently?

• Are the three sides of the triangle well

aligned?

• Are there specific challenges or barriers in

any of the three areas?
118
 Ways to Use the Services Marketing
Triangle
• Overall Strategic • Specific Service
Assessment Implementation
– What is being promoted
– How is the service and by whom?
organization doing
on all three sides of
– How will it be delivered
the triangle? and by whom?

– Where are the – Are the supporting

weaknesses? systems in place to deliver
the promised service?
– What are the
strengths?

119
 EMPLOYEE SATISFACTION, CUSTOMER
SATISFACTION AND PROFITS
Research has shown that both a climate for
service and a climate for employee well-
being are
highly correlated with overall customer
perceptions of service quality.
 Service Quality Dimensions

• Reliability
• Responsiveness
• Assurance
• Empathy
• Tangibles

121
 Service Employees

• Who are they?

–“boundary spanners”
• What are these jobs like?
–emotional labor
–many sources of potential conflict
• person/role
• organization/client
• interclient
–quality/productivity tradeoffs
Boundary Spanners Interact with
Both Internal and External
Constituents
External Environment

Internal Environment 123

 Boundary-Spanning Workers Juggle
Many Issues

• Person versus role

• Organization versus client

• Client versus client

124
 Person/Role Conflict

This conflict arises when what they

are
asked to do things that are quite
different
from their personalities.

125
 Organization/Client Conflict
Front line executives have two bosses:
The organization & the individual
customer
The conflict may arise when the
employee has
To make a difficult choice between the
customer, the rules & satisfaction for the
customer

126
 Interclient Conflict

Employee

Serving customers Serving many customers

in turn simultaneously

127
 Quality/Productivity Trade-Offs
Front-line service employees have to both :

Effective & Efficient

They are expected to deliver satisfying

service
to customers and at the same time have to
be
cost effective & productive .

128
Pricing Of Services
 Three Key Ways Service Prices
Are Different For Consumers

• Customer knowledge of Service Prices

• The Role of Non-monetary Costs
• Price as an Indicator of Service Quality
 Customer Knowledge of Service
Prices
• Service heterogeneity limits knowledge
• Providers are unwilling to estimate prices
• Individual customer needs vary
• Price information is overwhelming in services
• Prices are not visible
 The Role of Nonmonetary Costs

• Time Costs
• Search Costs
• Convenience Costs
• Psychological Costs
 Price as an Indicator of Service
Quality
Customers depend on price as a cue to
quality
and because price sets expectations of
quality,
service prices must be determined
carefully.
Approaches to Pricing Services

Cost-based
Co

e d
m

a s
pe

- b
t

nd
it
io

a
em
n-

D
ba
se
d
 Cost-Based Pricing

Costs are difficult to trace.

Labor is more difficult to price

than materials.

Cost may not equal value.

 Competition-Based Pricing
Small firms may charge too
little to be viable.

Heterogeneity of services
limits comparability.

Prices may not reflect

customer value.
 Demand-Based Pricing

Monetary price must be adjusted

to reflect the value of nonmonetary
costs.

Information on service costs is less

available to customers, hence price
may not be a central factor.
Four Customer Definitions of
Value

Value is everything
Value is low price.
I want in a service.

Value is the Value is all that

quality I get for I get for all
the price I pay. that I give.
 What Makes Service Pricing Strategy
Different (and Difficult)?
• No ownership of services --hard for firms to
calculate financial costs of creating an
intangible performance
• Variability of inputs and outputs --how can firms
define a “unit of service” and establish basis for
pricing?
• Many services hard for customers to evaluate
--what are they getting in return for their
money?
• Importance of time factor --same service may
have more value to customers when delivered
faster
• Delivery through physical or electronic channels
--may create differences in perceived value
Objectives of Pricing Strategies

• Revenue and profit objectives

–Seek profit
–Cover costs
• Patronage and user base-
related objectives
–Build demand
–Build a user base
The Pricing Tripod

Pricing
Strategy

Competition
Costs Value to
customer
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
 Activity-Based Costing: Relating Activities
to the Resources They Consume
• Managers need to see costs as an integral part of a
firm’s 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
Net Value = (Benefits – Outlays)

EffortTime
e
Perceive Perceived
d Outlays
Benefits
 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
 Paying for Service:
The Customer’s 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)
Determining the Total Costs of a Service
to the Consumer

Search Costs Price Operating Costs

Related Monetary
Costs Incidental
Expenses
Time Costs
Purchase and
Physical Costs
Use Costs
Psychological
Costs

Sensory Costs

Necessary
After Costs follow-up
Problem
solving
Trading off Monetary and Non- Monetary
Costs
Which clinic would you patronize if you
needed a chest x-ray (assuming all three
clinics offer good quality) ?
Clinic
ClinicAA Clinic
ClinicBB Clinic
Clinic CC
 Price $45  Price $85  Price $125
 Located 1 hour  Located 15 min  Located next to
away by car or away by car or your office or
transit transit college
 Next available  Next available  Next
appointment is in appointment is in appointment is
3 weeks 1 week in 1 day
 Hours: Monday –  Hours: Monday –  Hours: Mo –Sat,
Friday, 8am –
Friday, 9am – 8am – 10pm
10pm
5pm  Estimated wait at
 By appointment
 Estimated wait at - estimated wait
clinic is about 30
clinic is about 2 - 45 minutes at clinic is about
hours 0 to 15 minutes
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

 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
 The Strategic Levers of
Revenue (Yield) Management

Price
Fixed Variable
Quadrant 1: Quadrant 2:
Predictabl Movies Hotel Rooms
e Stadiums/Arenas Airline Seats
Function Space Rental Cars
noi t ar u D

Cruise Lines
Quadrant 3: Quadrant 4:
Unpredictab Restaurants Continuing Care
le Golf Courses Hospitals