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service marketing

service marketing

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Published by Suvigya Lal
theories with defination nd examples
theories with defination nd examples

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Published by: Suvigya Lal on Jan 04, 2013
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Sections

  • SERVICES MARKETING
  • CUSTOMER EXPECTATIONS OF SERVICE
  • BUILDING CUSTOMER RELATIONSHIP
  • SERVICE BLUEPRINTING
  • Service Blueprinting
  • MARKETING INFORMATION SYSTEM
  • EMPLOYEES’ ROLE IN SERVICE DELIVERY
  • CUSTOMER’S ROLES IN SERVICE DELIVERY
  • PRICING OF SERVICES

TOPICS IN SERVICES MARKETING

S. No. 1 2 3 4 5 6 7 8 9 10 11 12

Section Service Marketing GAPS Model Decision making & Evaluation of Services Customers Expectation of Service Building Customer Relationship Service Blue Printing Marketing Information System Employees Role in Service Delivery Customers Role in Service Delivery Managing Demand and Supply Yield Management Pricing of Services

Pages 2-8 9-10 11-18 19-32 33-44 45-47 48-49 50-55 55-60 60-68 68-69 69-73

1
Services Marketing

SERVICES MARKETING Services are deeds, processes and performances. Services include all economic activities whose output is not a physical product or construction, is generally consumed at the time it is produced, and provides added value in forms (such as convenience, amusement, timeliness, comfort or health) that are essentially intangible concerns of its first purchaser. Ex.: Transportation, Communication, Educational services etc. Services Vs Customer Service Customer service is the service provided in support of a company’s core products. This core product could also be a service. Services tend to be more intangible than manufactured products and manufactured products tend to be more tangible than services.

1970

31%

24%

46%

1980

36%

26%

38%

1995

41%

31%

31%

2005

57%

22%

21%

SERVICES

NDUSTRY % AGE OF GDP IN INDIA

AGRICULTURE

Thus we see in India over the years the services are contributing more towards the GDP as compared to what it was couple of decades ago.

2
Services Marketing

Tangibility Spectrum

Salt Soft drinks Detergents Automobiles Cosmetics Fast food outlets Intangible Dominant Tangible Dominant Fast food outlets Advertising Agencies

Airlines Investment Management Consulting Teaching The above diagram shows us that there are no pure products or pure services. Instead services tend to be more intangible than manufactured products, and manufactured products tend to be more tangible than services.
3
Services Marketing

There is no sure knowledge that the planned and promoted. Customers affect each other.Differences between Goods and Services ________________________________________________________________________________ Goods Services Resulting Implication ________________________________________________________________________________ Tangible Intangible Services cannot be inventoried Cannot be readily displayed or communicated Pricing is difficult Customers participate in and affect the transaction. Service delivery and customer satisfaction depend on employees actions. Production separate from consumption Simultaneous Standardized Variability/ Heterogeneous Non-perishable Perishable 4 Services Marketing . Service quality depends on many uncontrollable factors. Decentralization may be essential. Employees affect service outcome. Mass production is difficult. It is difficult to synchronize supply and demand with services. Services cannot be returned or resold.

” COMPANY Internal Marketing (Enabling promises) External Marketing (Making promises) PROVIDERS Interactive marketing (Keeping promises) CUSTOMERS The Services Triangle and Technology Company Technology Providers Customers 5 Services Marketing .The Service Marketing Triangle “Building service relationships: It’s all about promises.

” Expanded Marketing Mix for Services Product Physical Good Features Quality Level Accessories Packaging Warranties Product Lines Branding Promotion Promotion Blend Sales People: Number Selection Training Incentives Advertising Targets Media Types Types of Ads Copy thrust Sales Promotion Publicity People Employees Recruitment Training Motivation Rewards Teamwork Customers Education Training Physical Evidence Facility Design Equipment Signage Employee Dress Other tangibles Reports Business cards Statements Guarantees Flexibility Price Level Terms Differentiation Discounts Allowances Place Channel Type Exposure Intermediaries Outlet Locations Transportation Storage Managing Channels Price Process Flow of activities Standardized Customized No.“Understanding and leveraging the role of customer service in external. interactive and internal marketing. of steps Simple Complex Customer Involvement 6 Services Marketing .

5. 8. Service quality has many dimensions. and any tangible component that facilitate performance or communication of the service. 7. 3) Process: The actual procedures mechanisms. the firms personnel. Physical Evidence and Process 1) People: All human actors who play part in service delivery and thus influence the buyers perceptions namely. Performance itself is the product. the flow of activities by which the service is delivered. promotion and price. Customer’s behavioral response affects service quality. the customer and other customers in the service environment. 4. Marketing of Services: Issues and Challenges 1. place. Producers of service play the dual role of marketers. 3. 7 Services Marketing .Expanded Mix for Services Apart from Product. 2. 2) Physical evidence: The environment in which the service is delivered and where the firm and the customer interact. Services are produced after they are sold. for Services we have People. People factor is important.the service delivery and operating system. 6. Differentiating is difficult in services. Core benefit in services is intangible.

CONTINUUM OF EVALUATION FOR DIFFER TYPES OF PRODUCTS HIGH IN SEARCH QUALITIES HIGH IN EXPERIENCE QUALITIES HIGH IN CREDENCE QUALITIES 8 Services Marketing .

GAPS MODEL OF SERVICE QUALITY EXPECTED SERVICE Customer Gap 5 PERCEIVED SERVICE GAP 1 SERVICE DELIVERY GAP 3 CUSTOMER.DRIVEN SERVICE DESIGNS AND STANDARDS GAP 4 EXTERNAL COMMUNICATIONS TO CUSTOMERS GAP 2 COMPANY PERCEPTIONS OF CONSUMER EXPECTATIONS 9 Services Marketing .

Not knowing what customers expects.Not selecting the right service designs & standards Gap 3 .Not delivering to service standards Gap 4 – not matches performance to promises 10 Services Marketing . Gap 2 .THE CUSTOMER GAP EXPECTED SERVICE CUSTOMER GAP PERCEIVED SERVICE The Provider Gaps Gap 1.

INFORMATION SEARCH USE OF PERSONAL SOURCES PERCEIVED RISK CULTURE EVALUATION OF ALTERNATIVES EVOKED SET EMOTION AND MOOD Values & Attitudes Manners & Customs Material culture Aesthetics Educational & social institution Language PURCHASE & CONSUMPTION SERVICE PROVISIO AS DRAMA SERVICE ROLES AND SCRIPTS. COMPATABILITY OF CUSTOMERS POST PURCHASE EVALUATION ATTRIBUTION OF DISSATISFACTION INNOVATION DIFFUSION BRAND LOYALTY 11 Services Marketing .CATEGORIES IN CONSUMER DECISION MAKING AND EVALUATION OF SERVICES.

Difference in retailing between goods and services • • Retail outlet would display competing brands in close proximity To purchase services on other hand.g.SERVICES: CATEGORIES IN THE DECISION-MAKING PROCESS For Services the sequence of information search. For services. • Perceived risk Compare to good more risk would be involved in purchase of services. Services not accompanied by any warranties. As mass media can convey about search qualities but can communicate little about experience qualities. Evaluation of alternatives. a drycleaner or a hair salon) that almost always offer only a single “brand” for sale 12 Services Marketing . INFORMATION SEARCH: • Use of personal source For purchasing goods use of both personal and non-personal sources is done as both effectively convey information about search qualities. Reasons 1. Purchase and consumption & Post purchase evaluation do not occur in a linear sequence the way they most often do in purchase of goods. a bank. the consumer visits an establishment (e. Intangible nature Since services are non-standardized always more uncertainty would accompany about the outcome each time it is purchased. consumers rely to a great extent on personal sources for several reasons. EVALUATION OF SERVICE ALTERNATIVES EVOKED SET The evoked set of alternatives –that group of products a consumer considers acceptable options in a given product category -is likely to be smaller with services than goods.

Ways in which mood can affect the behavior of service customer • • • Positive moods can make customers more obliging and willing to participate in behaviors that help service encounters succeed. Or non professional services sometimes the consumer may perform the services for himself e.2. Difficulty to obtain adequate prepurchase information about services. Moods and emotions influence service encounters is to bias the way they judge service encounters and providers. 4. The drama metaphor offers a useful way to conceive of service performances. the service customers and the other customers. SERVICE PURCHASE AND CONSUMPTION Emotion and mood are feeling states that influence people’s (and therefore customers) perceptions and evaluations of their experiences. Service marketers need to be aware of the moods and emotions of customers and service employees and should attempt to influence those moods and emotions in positive ways. and other customers receiving services at the same time. Any service characterized by human interaction is strongly dependent on the moods and emotions of the service providers. 3.g. Consumers are unlikely to find more than one or two businesses providing the same services in a given geographic area. Among the aspects of a service that can be considered in this way are: • Selection of personnel (auditioning the actors) • Training of the personnel (rehearsing) • Clearly defining the role (scripting the performance) 13 Services Marketing . Moods are transient feeling states that occur at specific time and in specific situations. whereas they may find numerous retail outlets carrying the identical manufacture’s product. tax preparation etc. cleaning homes themselves against hiring housekeepers. Hence customers’ evoked set frequently includes self provision of the service. Moods and emotion affect the way information about service is absorbed and retrieved. Emotions are more intense stable and pervasive. Evaluation of service is consistent with the polarity (positive or negative) mood or emotion. SERVICE PROVISION AS DRAMA Both service provision and drama aim to create and maintain a desirable impression before an audience.

• • • Creating the service environment (setting the stage) Deciding which aspect of the service should be performed in the presence of customer (on stage) Which should be performed in the backroom (back stage) Importance Of Service Actors Increases When: • • Degree of personal contact increases (as in hospital. If customer cooperates with the service provider to deliver the best possible service. A script is a coherent sequence of events expected by the individual. involving her either as a participants or as an observer. bars and spectacular sports is important. If customers are informed and educated about the expectations and requirements of the service. legal services) SERVICES ROLES AND SCRIPTS Roles are defined as combinations of social clues that guide and direct behaviors in a given setting. customers may also be dissatisfied. restaurants. THE COMPATIBILITY OF SERVICE CUSTOMERS The mere presence of customers in churches. Customers can be incompatible for many reasons – • Difference in beliefs • Values • Experience • Abilities to pay • Appearance • Age.both service employees and customers. the service performance is likely to be successful. medical services. The success of any service performance depends in part on how well the “role set” or players. However if number of customers becomes so dense that crowding occurs. one of the primary expectations in these types of services. If no one else shows up. The customer’s role must also be performed well.act out their roles. 14 Services Marketing . Conformance to scripts is satisfying to the customer while deviations leads to confusion and dissatisfaction. health etc. Service employees need to perform their roles according to expectations of the customers. customers will not get to socialize with others. One of the factors that most influences the effectiveness of role performance is a script. restaurant or resort) Services involve repeat contact and service actors have the discretion in determining the nature of the service and how it is delivered ( as in education.

Consumer may attribute failure to receive satisfaction to her own decision-making error. acknowledge and deal with heterogeneous customers who have the potential to be incompatible.Doctor’s diagnosis depends greatly on this .Or herself (choosing the wrong style or not communicating her own needs) The quality of many services depends on the information the customer brings to the service encounter.) Hence consumers may complain less frequently about services than about goods. • Innovation Diffusion The rate of diffusion of an Innovation depends on the Consumer’s Perceptions of the innovation with regard to Five Characteristics: • • • • • Relative Advantage Compatibility Communicability Divisibility Complexity 15 Services Marketing . The service marketer can also bring homogeneous customers together and solidify relationships between them. particularly in high contact service.The service marketer must anticipate. disappointed from a haircut . .Dry cleaner’s success in removing a spot depends on the customer’s knowledge of its cause (Incase of products consumer’s main form of participation is the act of purchase. Customer compatibility is a factor that influences customer satisfaction. but hold the producer responsible for product performance. e.the customer may blame -The stylist (for lack of skill) . POST PURCHASE EVALUATION Attribution Of Dissatisfaction When a customer is dissatisfied with the services they purchased they may attribute their dissatisfaction to provider and also to themselves (as they participate in the service process) e.g.g.

4. however creates special challenges. Brand Loyalty The degree to which consumers are committed to particular brands of goods or services depends on a number of factors: • Cost of changing brands (switching cost) • Availability of substitutes • Perceived risk associated with the purchase • Degree to which they obtained satisfaction in past Consumers are more brand loyal with services than products. 6. deliberate decision. 16 Services Marketing .Services as a group are less communicable. Marketers may need to concentrate on incentives to trial when introducing a new service. and is multidimensional. Brand loyalty has two sides. 3. and transmitted from one generation to the next. 2. The fact that a service provider’s own customers are brand loyal is not a problem. Service marketers must be particularly sensitive to culture because of customer contact and interaction with employees. more complex and probably less compatible than goods. The Role Of Culture In Services Culture is learned.” This functions as a device for reducing the risk of consumer decision. shared. less divisible. The fact that customers of the provider’s competition are difficult to capture . Culture would include: 1. Consumers adopt innovations in services more slowly than they adopt innovations of products. 5. Brand loyalty is described as a “ Means of economizing decision effort by substituting habit for repeated. Language (both verbal and non verbal) Values and attitudes Manners and customs Material culture Aesthetics Education and social institutions These cultural universals are manifestations of the “way of life” of any group of people.

and / or desirable. but it is also critical within countries.g. MANNERS AND CUSTOMS Manners and customs represent a culture’s views of appropriate ways of behaving.Culture is important when we consider international services marketing – taking the service from one country and offering them in others. • MATERIAL CULTURE Material culture consists of tangible products of culture. drama. art. E. Earthy tones of Japanese restaurants as against glossy red evident in their Chinese competitor’s establishments. service marketers who want their services adopted across cultures must understand these differences.g. VALUES AND ATTITUDES DIFFER ACROSS CULTURES Values and attitudes help to determine what member of a culture think is right. E. and dance as well as appreciation of color and form. but USA cannot take it as a long-term strategy. Central and western European employees are perplexed by western expectations that unhappy workers put on a “happy face” when dealing with customers. because they can have direct affect on the service customer. These are reflected in music. As nationalism in some cultures could work against this.g. E. It is “the stuff we own” Why people own and how they use and display material possessions varies around the world. Zoos in Japan very cramped compared to USA Mortgages in Japan for houses 100yrs USA 30yrs India 20yrs AESTHETICS Aesthetics refers to cultural idea about beauty and good taste. US brands have ‘exotic’ appeal to other cultures.g. It is important to monitor differences in manners and customs. 17 Services Marketing . E. important. Consumer behaviors flow from values and attitudes.

Western way of imparting education in a session whenever you have a doubt you would ask from the instructor.g. Culture manifests itself most dramatically in the people contact or our social institutions E. The structure and functioning of each are heavily influenced by culture. and thus may take place in school and in less formal ‘training’ circumstances. But in traditional eastern set up the students would learn by being with the instructor and asking questions was not encouraged. Education includes the process of transmitting skills and knowledge.EDUCATIONAL AND SOCIAL INSTITUTIONS Both kinds of institutions are affected by and are transmission agents of culture. 18 Services Marketing .

Convenient c. Adequate service: . Desired expectation of 1. Quick b.the “wished for” level of performance. Candle light d. EXPECTED SERVICE: .the service customer hopes to receive . Gracious employees c.the level of service the customer will accept.CUSTOMER EXPECTATIONS OF SERVICE Customer expectations are beliefs about service delivery that function as standards or reference point against which performance is judged. a customer may hold higher expectations for Mac Donald’s than for Wimpy’s. Fast food restaurant a. Elegant surroundings b. 19 Services Marketing . Tasty food in clean setting The adequate service expectation level however is likely to vary for different firms within a category.g.two levels of expectations a. E. And fine food 2. Within fast food restaurant. b. Desired Service Zone of Tolerance Adequate Service Dual customer expectation levels & the zone of tolerance DESIRED SERVICE expectations seem to be the same for that defined by the customer E. Expensive restaurant a. Knowing what customer expects is the first and possibly most critical step in delivering quality service.g. Desired service: .

The zone of tolerance can be considered as the range or window in which customers do not particularly notice service performance. service errors) than other service deficiencies. DIFFERENT CUSTOMERS POSSESS DIFFERENT ZONES OF TOLEREANCE E. and even within the same service employee.” ZONES OF TOLERANCE VARY FOR SERVICE DIMENSION Customer’s tolerance zones also vary for different service attributes or dimensions. When it falls outside the range (either very low or very high). An individual customer’s zone of tolerance increases or decreases depending on a number of factors including company-controlled factors such as price. The more important the factor. But tolerance level will become more stringent / less flexible with the increase. In general customers are likely to be less tolerant about unreliable service (broken promises.g. 20 Services Marketing . Busy customers who are pressed for the time and therefore desire short wait times in general would also hold a constrained range for the length of acceptable wait times.ZONE OF TOLERANCE As service are heterogeneous in that performance may vary across providers. the services get customer’s attention in either a positive or negative way. “Price increases don’t really drive up expectations. The extent to which customer recognizes and are willing to accept this variation is called the zone of tolerance. across employees from the same provider. Note: Marketer must understand not just the size and boundary levels for the zone of tolerance but also when and how the tolerance zone fluctuates within a give customer. the narrower the zone of tolerance is likely to be.

Desired Service Level of expectatio Desired Service Zone of Tolerance Adequate Service Zone of Tolerance Adequate Service Most important factors Least important factors Zone of tolerance for different services ZONE OF TOLERANCE VARY FOR FIRST-TIMEAND RECOVERY SERVICE FIRST-TIME SERVICE Outcome Process RECOVERY SERVICE Outcome Process Low Expectations High 21 Services Marketing .

The fluctuation in the individual customer’s zone of tolerance is more a function of changes in adequate service level which moves readily up and down due to situational circumstances than in desired service level. 22 Services Marketing . which tends to move upward incrementally due to accumulated experiences.

Enduring Service Intensifiers Derived Expectations Personal Service Philosophies Explicit Service Promises Advertising Personal Selling Contacts Other Communications Personal needs Implicit Service Promises Tangibles Price Transitory Service Intensifiers Emergencies Service Problems Perceived Service Alternatives Desired Service Word Of Mouth Personal “Expert” (Consumer Report Publicity Consultants) Past Experience Self Perceives Service Role Expected Service Zone of Tolerance Adequate Service Situational Factors Bad Weather Catastrophe Random Over Demand Predicted Service Gap 5 (Customer Gap) Perceived Service 23 Services Marketing .Nature & Determinants Of Customer Expectations Of Service sensitivity to service.

The customer’s underlying generic attitude about the meaning of services and the proper conduct of service providers 24 Services Marketing .Are individual stable factors that lead the customer to a heightened sensitivity to service Two factors under this are Derived Service Expectations Personal Service Philosophy Derived Service Expectations:. social and psychological functional categories. are pivotal factors that share the level of desired service Personal needs fall into Physical. Enduring Service Intensifiers:.Those states or conditions essential to the physical or psychological well being of the customer.FACTORS INFLUENCING DESIRED SERVICES ENDURING SERVICE INTENSIFIERS EXPECTED SERVICE DESIRED SERVICE PERSONAL NEEDS ZONE OF TOLERANCE ADEQUATE SERVICE Personal Needs:.When customer expectations are driven by another person or group of people Personal Service Philosophy:.

Internal and External Customer Perceptions e.g. CUSTOMER PERCEPTIONS OF SERVICE Perceptions are always considered relative to expectations. the repair person is the Internal Customer for the dispatchers and the vehicle maintenance crew. Customers perceive services in terms of the quality of the service and how satisfied they are overall with their experiences. Satisfaction is generally viewed as a broader concept while Service quality assessment focuses on dimensions of service. Customers who have themselves been in service business would in general have strong service philosophies. RELIABILITY SITUATIONAL FACTORS SERVICE QUALITY RESPONSIVENESS ASSURANCE PRODUCT QUALITY CUSTOMER SATISFACTION EMPATHY TANGIBLES PRICE PERSONAL FACTORS 25 Services Marketing . Any customer who calls up for the repair of his equipment is the External Customer for the service repair person.g.e. A telephone repair person depends on services provided by the dispatchers vehicle maintenance crew.

CUSTOMER PERCEPTIONS OF QUALITY AND CUSTOMER SATISFACTION CUSTOMER SATISFACTION Satisfaction of the customer’s evaluation of a product or service in terms of wherher that product or services has met their needs and expectations. Failure to meet needs and expectations is assumed to result in dissatisfaction with the product or service. CUSTOMER SATISFACTION IS INFLUENCED BY:1 e.g. PRODUCT AND SERVICE FEATURES:- Influence significantly customers satisfaction. 1. For service such as resort hotel, important features might include the pool area, restaurants, room comfort and privacy, helpfulness and courtesy of staff, room price and so forth Through focus, companies would determine what the feature and attributes are for their service and the measure perceptions of those features as well as overall satisfaction level. Customer would make trade offs among different service features (e.g. price level V/s. quality V/s. friendliness of personnel) depending on the type of service being evaluated and the criticality of the service.

2

CONSUMER EMOTIONS:- Consumer’s emotions can also affect their perceptions of satisfaction with products and services. These emotions can be stable, pre-existing emotions mood state.

e.g.

When you are at a very happy stage in your life (such as when you are on vacation), and your good happy mood and positive frame of mind has influenced how you feel about the services you experience. ATTRIBUTIONS FOR SERVICE SUCCESS OR FAILURE:Attributions – the perceived causes of events- influence perception of satisfaction as well.

3.

e.g.

In a weight loss organization if a customer fails to lose weight as hoped for, she will likely search for the causes – was it something that she did, was the diet plan ineffective, or did circumstances simply not allow her to follow the diet regimen.
26

Services Marketing

For many services, customer’s atleast take partial responsibilities for how things turn out. 4 e.g. PERCEPTIONS OF EQUITY OR FAIRNESS:- customer satisfaction is influenced by perception of equity and fairness. Have I been treated fairly compared with other customers?

OUTCOMES OF CUSTOMER SATISFACTION RELATION SHIP BETWEEN CUSTOMER SATISFACTION AND LOYALTY IN COMPETITIVE INDUSTRY

100

80

60

40

20

1 Very Dissatisfied

2 Dissatisfied

3 Neither satisfied nor dissatisfied

4

5 Satisfied Very Satisfied

RELATIONSHIP BETWEEN CUSTOMER SATISFACTION AND LOYALTY IN COMPETITIVE INDUSTRY
27
Services Marketing

SERVICE QUALITY Service quality is a focused evaluation that reflects the customer’s perception of specific dimensions of services:- Reliability, Responsiveness, Assurance, Empathy, Tangibles. PROCESS VERSUS TECHNICAL OUTCOME QUALITY Ultimately the consumers judge the quality of services on their perceptions of the technical outcome provided and on how that outcome was delivered. e.g. Restaurant customer will judge the service on her perceptions of the meal (technical outcome quality) and on how the meal was served and how the employees interacted wit her (process quality)

When outcome is difficult to evaluate the customer will base their judgment of quality on process dimensions In most of the legal service or service where face to face interaction was their, courtesy was an extremely powerful signal and the level of courtesy accounted for at least 60% of the variation in how happy or angry a respondent was with the attorney. SERVICE QUALITY DIMENSION Research suggests that customers do not perceive quality as a unidimensional concept. That is, customer’s assessment of quality include perception of multiple factors. Researchers have found that consumers consider five dimensions in their assessment of service quality;
• • •

RELIABILITY:- Ability to perform the promised service dependably and accurately. RESPONSIVENESS:- Willingness to help customers and provide prompt service. ASSURANCE:- Employee’s knowledge and courtesy and their ability to inspire trust and confidence EMPATHY:- Caring, individualized attention given to customers TANGIBLES:- Appearance of physical facilities, equipment, personnel, and written material

• •

28
Services Marketing

EXAMPLES OF HOW CUSTOMERS JUDGE THE FIVE DIMENSIONS OF SERVICE QUALITY CAR REPAIR (COMSUMER) Reliability Problem fixed the first time and ready when promised Accessible. 29 Services Marketing . Real time marketing It is from these service encounters that customers build their perceptions. no waiting. or the “moment of truth”. waiting area. dress of employees Responsiveness Assurance Knowledge mechanics Empathy Acknowledges customers by name. office area. responds to requests INFORMATION PROCESSING(INTERNAL) Provides needed information when requested Prompt response to requests. remembers previous problems and preferences Tangibles Repair facility. deals with problems promptly Knowledge staff: well trained. SERVICE ENCOUNTER OR “MOMENTS OF TRUTH” From a customer’s point of view. Interactive marketing This is where the promises are kept or broken. the most vivid impression of service occurs in the service encounter. credentials Knows internal customers as individuals. uniforms. understands individual and departmental needs Internal reports. not “Bureaucratic”. equipment BUILDING BLOCKS OF SATISFACTION AND SERVICE QUALITY The service encounter or the moment of truth.

g. THE IMPORTANCE OF ENCOUNTERS CHECK IN BELL PERSON TAKES TO ROOM RESTAURANT MEAL WAKE UP CALL CHECK OUT A SERVICE ENCOUNTER CASCADE FOR A HOTEL VISIT TYPES OF SERVICE ENCOUNTERS A service encounter occurs every time a customer interact with the service organization: There are three types of service encounters:1) REMOTE ENCOUNTER 2) PHONE 3) FACE-TO-FACE 1) REMOTE ENCOUNTER:. Co having sent a bill). checking out.e. each encounter thus presents an opportunity to prove its potential as a quality service provider and to increase customer loyalty.g. eating a restaurant meal. requesting a wake up call. In this encounters the tangible evidence of the service and the technical process and systems become primary basis for judging. For Disney Amusement park – 74 customer encounters For Mariott Hotel . For a hotel customer service encounters are checking into the hotel. 30 Services Marketing . ATM. From the organizations point of view. being taken into the room by a bell boy.Encounters which occur without any direct human contacts (e.4 of the top 5 factors come into play in the first 10 minutes of the guest stay.

3) FACE-TO-FACE ENCOUNTERS:. and effectiveness / efficiency in handling customer issues become important criteria for judging quality in these encounters.2) PHONE ENCOUNTERS:. Both verbal and non verbal behaviors are important determinants of quality. With this technique.this is direct contact between an employee and a customer. employee knowledge. four common themesRECOVERY (after failure) 2) ADAPTABILITY 3) SPONTANIETY 4) COPING 1) Have been identified as the sources of customer satisfaction / dissatisfaction in memorable service encounter. as are tangible cues such as employees dress etc. customers (either internal or external) are asked the following questions:  Think of a time when. Determining and understanding service quality issues in face-to-face counters is the most complex of all. SOURCE OF PLEASURE AND DISPLEASURE IN SERVICE ENCOUNTERS Critical incidence technique is used to get customers and employees to provide verbatim stories about satisfying and dissatisfying service encounters they have experienced.There is a greater potential variability in the interaction compared to remote encounter Tone of voice. 1) 2) RECOVERY : Employee response to service delivery system pailures ADAPTABILITY: Employee response to customer needs and requests 31 Services Marketing . as a customer you had a particularly satisfying (or dissatisfying) interaction with –  When did the incidence happen?  What specific circumstances led up this situation?  Exactly what did the employee (firm) say or do?  What resulted that made you feel the interaction was satisfying (or dissatisfying)?  What could or should have been done differently? On this basis of thousands on service encounter stories.

3) 4) SPONTANEITY: Unprompted and unsolicited employee action COPING: Employee response to problem customers GENERAL SERVICE BEHAVIORS – DO’S AND DON’T THEME Recovery DO Acknowledge problem explain causes apologize Compensate / upgrade layout options Take responsibility Adaptability Recognize the seriousness of the need acknowledge Anticipate Attempt to accommodate Adjust the system Explain rules / policies take responsibility Spontaneity Take time be attentive anticipate needs listen provide information show empathy Listen Try to accommodate Explain let go of the customer Embarrass the customer laugh at the customer avoid responsibility “pass the buck” DON’T Ignore customer blame customer leave customer to “fend for him/herself” Downgrade Act as if nothing “Pass the buck” Ignore Promise. but fail to follow through show unwillingness to try Exhibit impatience ignore yell / laugh / swear steal from customer discriminate Take customer’s dissatisfaction personally Let customer’s dissatisfaction affect others Coping 32 Services Marketing .

that focuses on keeping and improving current customers. rather than acquiring new customers. marketers have been more concerned with acquisition of customers. service and innovation. a strategic orientation. To achieve this goal. so a shift to a relationship strategy often represents : • • • Change in mind set Organizational culture And employee reward systems. retention and enhancement of customer relationships. Customers become partners and the firm must make long-term commitments to maintaining those relationships with quality. Historically. the firm will focus on the attraction. GOALS OF RELATIONSHIP MARKETING The primary goal of relationship marketing is to build and maintain a base of committed customers who are profitable for the organization. Relationship marketing (or relationship management) is a philosophy of doing business. Relationship marketing essentially represents a paradigm shift within marketingAway from an acquisitions / transactions focus toward a retention / relationship focus. ENHANSING RETAINING SATISFYING ACQUIRING 33 Services Marketing .BUILDING CUSTOMER RELATIONSHIP RELATIONSHIP MARKETING There has been a shift from a transactions to a relationship focus in marketing.

e. BENEFITS FOR CUSTOMERS Customers will remain loyal to a firm when they receive greater value relative to what they expect from competing firms Value represents a trade-off for the consumer between the “given” and the “get” components. specific benefits) exceed the gives (monetary and non monetary costs) Beyond the specific inherent benefits of receiving service value. but customers themselves also benefit from long-term associations. Across all of the services studied in the research just cited. Child Care Provider Once the child care has been identified and established a satisfying relationship with a good caregiver family stress is reduced and the quality of life improved. SOCIAL BENEFITS Overtime. these are:• • • CONFIDENCE BENEFITS SOCIAL BENEFITS SPECIAL TREATMENT BENEFITS CONFIDENCE BENEFITS These benefits comprise feelings of trust or confidence in the providers. BENEFITS OF CUSTOMER / FIRM RELATIONSHIPS Both parties benefit i. they may represent growth potentials. alongwith a sense of a reduced anxiety and comfort in knowing what to expect.CUSTOMER GOALS OF RELATIONSHIP MARKETING Loyal customers not only provide a solid base for the organization. 34 Services Marketing . customers also benefit in other ways from long term associations with firm. customer / firm from customer retention. confidence benefits were the most important to customers. Consumers are more likely to stay in a relationship when the gets (quality. customers develop a sense of familiarity and even a social relationship with their service providers.g..e. Research has uncovered specific types of relational benefits. It is not only in the best interest of the organization to build and maintain a loyal customer base. satisfaction.

BENEFITS FOR THE ORGANISATIONS The benefits to an organization of maintaining and developing a loyal customer base are numerous. SPECIAL TREAMTEMT BENEFITS Special treatment includes such things as getting the benefit of doubt. He’s kind of like a friends now…. they would be able to make accurate evaluations of investments designed to retain customers. a happy customer will create at least one new customer via word of mouth $ 180.g.. e. You enjoy doing business with them”. being given a special deal or price. Doctor asking you to come is minutes before starting his consultation with the customers.000 35 Services Marketing . • • • • INCREASING PURCHASES LOWER COSTS FREE ADVERTISING THROUGH WORD OF MOUTH EMPLOYEE RETENTION LIFE TIME VALUE OF A CUSTOMER Life time value of a customer is a concept or calculation that looks at customer from the point of view of their lifetime revenue and profitability contributions to a company. They can be linked directly to the firm’s bottom line. A quote from the research where a customer describes her hair stylist: “I like him…. ESTIMATING LIFETIME VALUE If companies knew how much it really costs to lose a customer.g. he’s really funny and always has lots of good jokes.In some long-term customer / firm relationship a service provider may actually become part of the customer’s social support system.it’s you’re used to. e. the value $ 1500 / month x 12 month / year x 10 years = $180000 Going further. Tom Peters calculated lifetime value of his small firm (20 person office) as a customer of Federal Express as follows Business from Tom Peters office per month $ 1500 Assuming a 10-year average lifetime for a customer in the express mail industry. getting preferential treatment..000 x 2 (New customers) = $ 360.

000 Thus the average employee of Federal Express is managing a $ 14.000.000. a credit card company will not like deal with the customer who doesn’t pay the bills on time or someone who doesn’t uses it to an extent the company expect.000 portfolio of lifetime business for the company. 36 Services Marketing .Thus the value of his company’s business for Federal Express was about $ 360. THE CUSTOMER ISN’T ALWAYS RIGHT THE WRONG SEGMENT: A company cannot target its services to all customers. a resort company which gets the old people and young crowd together at the same time at the resort.000 It is estimated that the average fed ex delivery person stops at 40 business the size of Peter’s business each day $ 360.g. e. some segments will be more appropriate than the others. DIFFICULT CUSTOMER: some customers put huge demands on the company and as such company would not be Interested in such customer. It would not be beneficial to either the company or the customer to establish a relationship with the customer whose needs the company can’t meet. e.000 / company x 40 companies $ 14. Some ad agencies say that some clients would make them do lot many presentations and finally at times award the contracts to someoneelse who is known to them. NOT PROFITABLE IN THE LONG TERM : some segments of the customers will not be profitable for the company even if their needs can be met by the services offered.g. Eg.

Those who complain and their problems resolved quickly are much more likely to repurchase than are those whose complaints were not resolved. Those who never complain are likely least likely to repurchase 37 Services Marketing . will be more loyal than those whose problems are not resolved. but are ultimately satisfied based on recovery efforts by the firm. Left Unfixed They can result in customers leaving Telling other customers about their negative experiences Even challenging the organization through customers rights organizations or legal channels Research has shown that resolving customer problems effectively has a strong impact on Customer satisfaction Loyalty Bottom line performance It has been observed that customers who experience service failures.SERVICE RECOVERY Service Recovery refers to the action taken by an organization response to a service failure. Failure occurs for all kinds of reasons The service may be unavailable when promised It may be delivered late or too slowly The outcome may be incorrect or poorly executed Employees may be rude or uncaring All of these types of failures bring about negative feelings and responses for the customers.

Unhappy Customers who donot complain 9% 37% Unhappy customers who do complain Complaints not resolved 19% 46% 54% Complaints resolved 70% Complaints resolved quickly 82% 95% Percentage of Customers who will buy again 38 Services Marketing .

Repeated Service Failures without an effective Recovery Strategy in place can aggravate even the best employees. actively pursuing opportunities to openly criticize the company. but experience a high level of excellent service recovery. Recovery Paradox is more complex than it may seem on the surface. it may be possible to observe evidence of the Recovery Paradox. It is safe to say that “ Doing it right the first time “ is still the best and safest strategy. 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. However. the failure is less critical. 1 2 It is expensive to fix mistakes. well documented services strategy also provides information that can be used to improve service as part of a continuous improvement effort Ineffective Service Recovery Strategies can lead to customers who are so dissatisfied they become “Terrorist”. THE RECOVERY PARADOX It is suggested that customers who are dissatisfied. 39 Services Marketing . 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. or the Recovery Effort is clearly superlative. Empirical Research suggests that only under the very highest levels of customers’ Service Recovery ratings will we observe increased satisfaction and loyalty. may ultimately be even more satisfied and more likely to repurchase than are those who were satisfied I the first place. This idea has become known as the RECOVERY PAPADOX.An effective Service Recovery strategy can Increase customer Satisfaction and Loyalty Generate positive Word of Mouth A well designed. The costs in Employee Morale and even lost employee can be huge.

How Customers Respond To Service Failures Service Failure Dissatisfaction/ Negative Emotions Complaint Action No Complaint Action Complain to Provider Negative word of mouth Third Party Action Exit/Switch Stay Exit/Switch Stay 40 Services Marketing .

These categories are: (1) Passives (2) Voicers (3) Irate (4)Activist (1) Passives: This group of customers is least likely to take any action . In all the above cases. the company has a chance to recover. They are unlikely to say anything to the provider Less likely than others to spread negative Word of Mouth. They often doubt the effectiveness of complaining.Customer Complaint Action Following Service Failure Variety of negative emotions can occur following a service failure. For companies. These Proactive types of complaining behavior is preferred as voice responses or Seeking Redress. TYPES OF COMPLAINERS Four categories on how the customers respond to failures have been identifies. Company has the chance to respond immediately. or even write or call the corporate offices of the company. customers may choose to complain later to the provider by phone or in writing. simply saying or doing nothing. If they don’t complain immediately. These initial negative responses will affect how customers evaluate the Service Recovery effort and presumably their ultimate decision to return to the service provider or not. TYPES OF CUSTOMER COMPLAINT ACTIONS If customers initiate actions following service failure . discontent. the action can be of various types as shown in the Fig. unlikely to complain to third party. Many customers are very passive about their dissatisfaction. customer passivity in the face of dissatisfaction is threat to future success. It is known that those who donot complain are least likely to return. 41 Services Marketing . From company’s point of view any customer who complains on the spot is the best case scenario. including such feelings as anger. disappointment. thinking the consequences will not merit the time and the effort they will expend. self pity and anxiety.

(3) (4) - WHY DO ( AND DON’T) PEOPLE COMPLAIN? The categories just described suggest that some customers are more likely to complain than others. They will complain to the provider. 42 Services Marketing . and their personal norms support their complaining behavior. These customers to be viewed as the service providers friend. and they are more likely than any other group to complain to third parties. to switch patronage. Those who are unlikely to take any action hold the opposite beliefs.(2) Voicers: These customers actively complain to the service provider Less likely to spread the negative word of mouth. They feel alienated from the market place. they will tell others. or to go to third parties with their complaints. As individuals. Irates: These customers are more likely to engage in negative word of mouth to friends and relatives and to switch providers than are others. Activists: These consumers are characterized by above average propensity to complain on all dimensions. and that in case of service failure. They are angry with the service provider although they do believe that complaining to the service provider can have a social benefits. In some cases they feel a social obligation to complain – to help others avoid similar situations or to punish the service provider. these customers believe that positive consequences may occur and that there are social benefits of complaining. They believe they will and should be provided compensation for the service failure in some form. A very small number of consumers have “ complaining” personalities – they just like to complain or cause trouble. They have a very optimistic sense of the potential positive consequences of all types of complaining. someone should make good. They believe complaining has social benefits and therefore don’t hesitate to voice their opinion. Actively complain and give company a second chance. They believe that fair treatment and an good service are their due. They are less likely to give the service provide a second chance.

g. E. They also appreciate it when a company gives them choices in terms of compensation. prolonged and inconvenient. frontline employee who has no authority to compensate the customer may 43 Services Marketing . They want easy access to the complaint process and they want things handled quickly. On the other hand. This form of fairness can dominate the others if customers feel the company and its employees have uncaring attitudes and have done little to try to resolve the problem. customers can be comfortable if they are overly compensated. Procedural Fairness: In addition to fair compensation. speed and absence of hassles. Outcome Fairness: They expect equity in the exchange. 3. Interactive Fairness: Customers expect to be treated politely.They often see complaining as a waste of their effort . The company’s “ punishment should fit the crime”.g. E. preferably by the first person they contact. customers expect fairness in terms of policies. Fair procedures are characterized by clarity. 2.i.when the assumption seems to be they are wrong or lying until they can prove otherwise. Unfair procedures are those that customers perceive as slow. 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. Customers also feel it is unfair if they have to prove their case. Many customers were not comfortable asking for this level of compensation. they want to feel that the company has “Paid” for its mistakes in a manner at least equal to what the customer has suffered. WHAT DO CUSTOMERS EXPECT Customers want justice and fairness in handling their complaints Customers are looking for: OUTCAME FAIRNESS PROCEDURAL FAIRNESS INTERACTIONAL FAIRNESS 1. Domino’s Pizza offered not to charge if the driver arrived after 30 minutes guarantee delivery time. rule and timeliness of the complaint process. Often rude and uncaring behavior of employees is due to lack of training and empowermenta frustrated.e. WHEN THEY COMPLAIN. especially if the driver was only few minutes late. with care and honesty.

-“True Relationships” where the customer has had repeated contact overtime with the same service provider. the decision to switch to a different service provider may not occur immediately following service failure or poor service recovery. but may follow an accumulation of events. 44 Services Marketing . The nature of the Customer’s Relationship with the firm may also influence whether the customer stays or switches providers. The service switching can be viewed as a process resulting from a series of decisions and critical service encounters overtime.“Pseudo Relationship” is one where the customer has interacted many times with the same company. .easily respond in an aloof and uncaring manner. There are three types of relationships viz. the more likely the customer to switch no matter what the recovery effort. These customers are more forgiving of poorly handled service failures and are less likely to switch than others. rather than one specific moment in time when a decision is made. Individual customer’s attitude towards switching will strongly influence whether he or she ultimately stays with the provider. with the provider. how a Service Recovery failure is handled and the customer’s reaction to recovery effort can influence future decisions to remain loyal to the service provider or to switch to another provider. The more serious the failure. especially if the customer is angry and/or rude. These customers are more likely to change. Finally. on a transaction basis.“First Time Encounter” Relationship is where the customer has had only one contact. but with different service provider (people) each time. . Thus certain customers will have greater propensity to switch service providers no matter how their Service Failure situations are handled. SWITCHING VERSUS STAYING FOLLOWING SERVICE RECOVERY Ultimately.

SERVICE BLUEPRINTING Services commonly lack concrete specifications. This is to assume that the different people involved in providing it can understand and deal with it objectively regardless of their individual points of view. Blueprints are particularly useful at the design and redesign stage of development. A Service . They are Customers actions. 45 Services Marketing . objective depiction of process.This process orientation suggests that companies could potentially track customer interactions and predict the likelihood of defection based on a series of events. A Service Blueprint visually displays the service by simultaneously depicting the process of service delivery. the roles of customers and employees. and the visible elements of the service. written specifications and engineering drawings. might be introduced without any formal. “BackStage” Contact Employee Action and Support processes. Process Service Blueprint Points of Contacts Evidence Service Blueprinting Blueprint Components The key components of Service Blueprints are shown in the fig. the points of customer contact. A Service Blueprint is a picture or map that accurately portrays the service system.even a complex one. “ On Stage” Contact Employee Actions. By intervening earlier in the process companies can prevent at time customer’s decision to switch. Products on the other hand are produced with concrete and detailed plans.

consuming and evaluating the service. face to face meetings. Ina legal services the customer actions might include a decision to contact an attorney. activities and interactions that the customer performs in the process of purchasing. 46 Services Marketing . phone calls to the attorney.Physical Evidence Customer Actions Line of Interaction On Stage Contact Employees Actions Line Of Visibility Back Stage Contact Employee Actions Line of Internal Interaction Support Processes SERVICE BLUEPRINT COMPONENTS The customer actions area encompasses the steps. Backstage employee actions are the steps and actions that occur behind the scenes to support the on stage activities. E. choices.g. Onstage Employee actions are the steps and activities that the contact employee performs that are visible to the customer. receipt of documents and receipt of bill.

steps and interactions that take place to support the contact employees in delivering the service. Line of Interaction represents the direct interactions between the customer and the organization.The support processes cover the internal services. a direct contact between the customer and the organization or a service encounter has occurred. 47 Services Marketing . Vertical Lines cutting across the line of Internal Interaction represent internal service encounters. Anytime a vertical line crosses the horizontal line of interaction. Line of Visibility separates all service activities that are visible to the customer from those that are not visible. Line of Internal Interaction separates contact employee activities from those of other service support activities and people.

Type of Research Complaint solicitation Primary Research Objectives To identify/attend to dissatisfied customers To identify common service failure points Critical incident studies To identify “best practices” at transaction level 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 To identify customer requirements as input for qualitative research To obtain immediate feedback on performance of 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 To create dialogue with important customers To identify what individual large customers expect and then to assure that it is delivered To close the loop with important customers To determine customer perceptions of long term professional services during service provision To identify service problems and solve them early in the service relationship To research customers in natural settings To study customers from cultures other than your home country 48 Services Marketing Requirements research Trailer calls Service expectation meetings and reviews Process checkpoint evaluations Market –oriented ethnography . processing and disseminating information on a continued basis to help make marketing decision.MARKETING INFORMATION SYSTEM Marketing Information System is defined as an assembly of inter-related information subsystems: receiving.

Type of Research Mystery shopping Primary Research Objectives To measure individual employee performance for evaluation . recognition and rewards To identify systemic strengths and weaknesses in customer-contact services To monitor changing customer expectations To provide a forum for customers to suggest and evaluate new service ideas To identify reasons for customer defection To identify the individual requirements of customers using information technology and database information To forecast future expectations of customers To develop and test new service ideas Customer panels Lost customer research Database marketing research Future expectations research 49 Services Marketing .

EMPLOYEES’ ROLE IN SERVICE DELIVERY CUSTOMER COMPANY Service Delivery Service Performance Gap Customer-Driven Service Designs and Standards 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 50 Services Marketing .

They physically embody the product and are the walking billboards from the promotional point of view. Thus investing in the employee to improve the service parallels making a direct investment in the improvement of a manufactured product. reinforce employees’ sense of satisfaction in their jobs). Employee Satisfaction. in most personal and professional services (like haircutting.g. actively selling or not. They provide link between the external customer and environment and 51 Services Marketing . The Service Profit Chain BOUNDARY-SPANNING ROLES The front-line service employees are referred to as boundary spanners because they operate at the organization’s boundary. service employees perform marketing functions. physical trainers. cleaning /maintenance etc. the contact employee is the service – there is nothing else. they perform the role of marketers. or poorly to the organization’s detriment. Some have gone so far as to suggest that unless service employees are happy in their jobs.In many cases . E. The offering is the employee. They can perform these functions well. customer satisfaction will be difficult to achieve.) the contact employees provide s the entire service single handedly. in turn. Customer Satisfaction and Profits There is a concrete evidence that satisfied employees make for satisfied customers (satisfied customers can. to the organization’s advantage. 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. Whether acknowledged or not . Because contact employees represent the organization and can directly influence customer satisfaction. child care .

teamwork or other techniques). architects. lead to stress. and teachers. store clerks. and responsiveness directed towards customers all require huge amount of emotional labor from the front-line employees who shoulder the responsibility for the organization. and burnout. In industries such as fast food. Their frustration and confusion can. if left unattended. lawyers. highly educated professionals – for example. and teaching or giving them coping abilities and strategies (via job rotation. A front-line service employee who is having a bad day or isn’t feeling just right is still expected to put on the face of the organization when dealing with customers. job dissatisfaction. filtering and interpreting information and resources to and from the organization and external constituencies. showing sincere interest. They are order takers. They serve the critical function in understanding . accountants. hotels. truck drivers. Emotional Labor draws on people’s feeling (often requiring them to suppress their true feelings) to be effective in their jobs. a diminished ability to serve customers. SOURCES OF CONFLICT Front-line employees often face interpersonal and interorganizational conflicts on the job. In other Industries. front desk employees. No matter what the level of skill or pay.internal operations of the organization. and delivery people. telephone operators. Who are these boundary spanners? What type of people and positions comprise critical boundaryspanning roles? Their skills and experience cover the full spectrum of jobs and careers. courtesy. and engaging in friendly conversation with people who are essentially strangers and who may or may not ever see again. 52 Services Marketing . scheduled breaks. lowest paid employees in the organization. training them in needed skills (like listening and problem solving). telecommunication. doctors. It means delivering smiles. making eye contact. The organizations need to carefully selecting the people who can handle emotional stress. empathy. boundary spanners are well paid. Friendliness. consultants. and retail. boundary-spanning positions are often high-stress jobs. the boundary spanners are the least skilled. These positions require: • • • Mental Labor Physical Labor Emotional Labor Emotional Labor This refers to the labor that goes beyond the physical or mental skills needed to deliver quality service.

the employee has to choose whether to follow the rules or satisfy the demands.g A young lawyer. a doctor) or is serving many customers simultaneously (teachers. or values. 53 Services Marketing . E. This occurs most often when the service provider is serving the customers in turn (a bank teller. These conflicts are especially severe when service employees depend directly on the customer for income. the service provider may satisfy one customer by spending additional time. 3. or when a customers makes excessive demand.As these employees represent the customer to the organization and often need to manage a number of customers simultaneously. So an employee has two bosses one customer and one in the organization to whom he is reporting. rules. In case of serving customers in turn . Having to serve one client who prefers personal recognition and a degree of familiarity in the presence of another client who is all business and would prefer little interpersonal interaction can also create conflict for the employee. a ticketing agent. When they are not. Beyond the timing issue. employees who depend on tips or commissions are likely to face greater levels of organization/client conflict because they have even greater incentives to identify with the customer. waiting customers are becoming dissatisfied because their needs are not being met in a timely manner. This type of conflict is readily apparent in any college classroom where the instructor must meet a multitude of expectations and different preferences for formats and style. Service employees are typically rewarded for following certain standards . and procedures. 1. and being very flexible in meeting the customer’s needs> Meanwhile. orientations. Ideally these rules and standards are customer based. and inter-client conflicts. entertainers). front liners inevitably have to deal with conflicts. Person/Role Conflicts : In some situations the front-line employees feel conflict between what they are asked to do and their own personalities. organization/client conflict. E. 2. In the case of serving many customers at the same time. customizing the service . just out of college may feel an internal conflict with his new role when his employer requires him to cut his long hair and trade his casual clothes for three piece suit. Interclient Conflict : Sometimes conflict occurs for boundary spanners when there are incompatible expectations and requirements from two or more customers. it is often difficult or impossible to serve the full range of needs of a group of heterogeneous customers simultaneously.g. including person/role conflicts. Person/role conflict also arises when employees are required to wear specific clothing or change some aspect of their appearance to confirm to the job requirements. the organization and the individual customer. different clients may prefer different modes of service delivery. Organization/Client Conflict : A more common type of conflict for front-line service employees is the conflict between their two bosses.

These strategies for enabling service promises are often referred to as internal marketing .service-minded workforce. an organization will move towards closing gap3.Strategies for Closing GAP 3 A complex combination of strategies is needed to ensure that service employees are willing and able to deliver quality services and that they stay motivated to perform in customer-oriented. Even during slow economic times. an organization must : • • • • Hire the right people Develop people to deliver service quality Provide the needed support systems Retain the best people 54 Services Marketing . To build a customer-oriented . and retaining good people in knowledge and service based industries cannot be overemphasized. the importance of attracting. By approaching human resource decisions and strategies from the point of view that the primary goal is to motivate and enable employees to deliver customer-oriented promises successfully. developing. service minded ways.

E. typically produced and consumed simultaneously.g In a classroom or training situation. customers can contribute to or detract from the successful delivery of the service and to their own satisfaction. 55 Services Marketing . Services are actions or performances. students (customers) are sitting in the factory interacting with the instructor and other students as they consume the educational services. In many situations employees. interacting with employees and with other customers. Since these customers are present during service production. The Importance of Customers in Service Delivery Customer participation at some level is inevitable in service delivery. customers and even others in the service environment interact to produce the ultimate service outcome.HUMAN RESOURCE STRATEGIES FOR CLOSING GAP3 Compete for the best Measure and people reward strong service performers Hire for service competencies and Be the service preferred inclination employer Hire the right people Develop people to deliver service quality Train for technical and interactive skills Treat employees as customers Retain the best people CustomerOriented Service Delivery Empower employees Include Provide Promote needed support employees teamwork systems in the company’s Develop Measure vision serviceProvide internal service oriented supportive quality internal technology processes and equipment CUSTOMER’S ROLES IN SERVICE DELIVERY Service customers are often present in the “factory” (the place the service is produced and/or consumed).

Information in the form of tax history. Inputs can include information. Physical Possessions such as receipts and past tax returns. effective or ineffective . with the employees of the firm doing all of the service production work. consumer inputs are required to aid the service organization in creating the service (moderate level of participation). Incase of long term consulting engagements involvement of the customers high as they co create the service. high – varies across services. Meanwhile. 56 Services Marketing . In other cases. marital status. medium. effort or physical possessions. causing longer wait times and potential dissatisfaction. shoppers who are not prepared with their credit cards can “put the representative on hold” while they search for their credit cards or go to another room or even out of their cars to get them. In some cases. all that is required is the customers physical presence (low level of participation). The level of participation – low. other customers and calls are left unattended. All three of these are required in case for a CA to prepare a client’s income tax return effectively. Similarly.Because the customers receiving the service participates in the delivery process. The listeners must be present to receive the entertainment service. productive or unproductive behaviors. Effort in putting the information together in a useful fashion. as in case of a ghazal concert. he or she can contribute to gap 3 through appropriate or inappropriate. Customers who are unprepared in terms of what they want to order can soak up the customer service representative’s time as they seek advice. and number of dependents.

Customer inputs (information. 57 Services Marketing . Payment may be the only required customer input. In both cases. “other customers” are present in the service environment and can effect the nature of the service outcome or process. but the service firm provides the service High : Customer Concretes the Service Product Active client participation guides the customized service. Provision for service requires customer purchase. End Consumer Examples Airline travel Motel stay Fast-food restaurant Business-to-Business Customers examples Uniform cleaning service Pest Control Interior greenery maintenance service Agency-created advertising campaign Payroll service Freight transportation Management consulting Executive management seminar Installation of computer network Haircut Annual physical test Full-service restaurant Marriage counseling Personal training Weight reduction program Major illness or surgery OTHER CUSTOMERS In many service contexts customers receive the service simultaneously with other customers or must wait their turn while other customers are being served. Moderate : Consumer Inputs Required during Service Creation Client inputs customize a standard service. Service is provided regardless of any individual purchase.LEVELS OF CUSTOMER PARTICIPATION ACROSS DIFFERENT SERVICES Low: Consumer Presence Required during Service delivery Products are standardized . Other customers can either enhance or detract from customer satisfaction and the perception of quality. Service cannot be created apart from the customer’s purchase and active participation Customer inputs are mandatory and concrete the outcome. materials) are necessary for an adequate outcome.

excessively crowding. and in other entertainment venues. causing delays. research suggest that in an IT consulting context. 2. and weight loss. and raise the issues during the process before it is too late will get better service. In these cases. Customers inputs can affect the organization’s productivity through both quality of what they contribute and the resulting quality and quantity of output generated. but they likely care a great deal about whether their needs are fulfilled. unless the customers perform their roles effectively. time or other resources to the service production process. Sometimes mere presence of other customers enhances the experience. the desired service outcomes are not possible. active participation by students – as opposed to passive listening – increases learning a9the desired service output) significantly. if customers contribute effort. they should be considered as part of the organization. where the service outcome is highly dependent on the customers participation. The presence of other patrons is essential for true enjoyment of the experience.g. Think about service s such as health care. education. Customers may care little that they have increased the productivity of the organization through their participation. CUSTOMERS’ ROLES 1.Some of the ways other customers can negatively affect the service experience are by exhibiting disruptive behaviors. Customers as Contributors to Service Quality and Satisfaction Another role customers can play in services delivery is that of contributor to their own satisfaction and the ultimate quality of the services they receive. communicate openly. and manifesting incompatible needs. E. This is true in sporting events. In other cases the customers provide a positive social dimension to the service experience. in movie theatres. 58 Services Marketing . Research has shown that in education . In other words. Customers as Productive Process Service customers are referred to as “partial employees” of the organization – human resources who contribute to the organization’s productive capacity. gain the commitment of key internal stakeholders. Effective customer participation can increase the likelihood that needs are met and that the benefits the customer seeks are actually attained. personal fitness. overusing. clients who clearly articulate the solution they desire . provide needed information in a timely manner .

both problems were fixed immediately. The hotel staff exchanged his TV for one that worked and fixed the light bulb. If self-service customers can be viewed as resources of the firm.WHICH CUSTOMER (A OR B) WILL BE MOST SATISFIED? For each scenario. Client B has invited architects in following a decision the week previously to remodel the building. Client B has a box full of papers and receipts. Customers as Competitors A final role played by service customers is that of potential competitor. many of which are not relevant to her taxes but which she brought along “just in case.” self-service customers could in some cases partially perform the service or perform the entire service for themselves and not need the provider at all. Guest B did not communicate to management until checkout time that his TV did not work he could not read in his bed. and starts fidgeting after the movie. ask “Which customer (A or B) will be most satisfied and receive the greatest quality and value. Scenario 2: Office of a Professional Tax Preparer : Client A has organized into categories the information necessary to do her taxes and has provided all documents requested by the accountant. Later they brought him a fruit plate to make up for the inconvenience. or as “partial employees. Passenger B who arrives empty-handed. passenger A also called ahead to order a special meal.heard by guests checking in.” Scenario 3: An Airline Right from London to New York : Passenger A arrives for the flight with a portable tape player and reading material and wearing warm clothes.for example. who wondered whether they had chosen the right place to stay. home maintenance – 59 Services Marketing . 3. The committee has already formulated initial ideas and surveyed staff and customers for input. His complaints were over. becomes annoyed when the crew runs out of blankets. complains about the magazine selection and the meal. and why?” Scenario 1: A Major International Hotel : Guest A called the desk right after check-in to report that his TV was not working and that the light over the bed was burned out. Customers thus in that sense are competitors of the companies that supply the service. and customers in order to lay the ground. staff. child care. the design committee is two managers who are preoccupied with other more immediate tasks and have little idea what they need or what customers and staff would prefer in terms of a redesign of the office space. Scenario 4: Architectural Consultation for Remodeling an Office Building : Client A has invited the architects to meet with its remodeling and design committee made up of managers. Whether to produce a service for themselves (internal exchange) .work for a major remodeling job that will affect everyone who works in the building as well as customers.

and facilities management. This lack of inventory capability is due to the perishability of services and their simultaneous production and consumption. They find that it is advantageous to focus on their core businesses and leave these essential support services to others with greater expertise. service firms cannot build up inventories during peak periods of slow demand to use later when demand increases. maintenance.or have someone else provide the service for them (external exchange) is a common dilemma for consumers. An airline seat that is not sold on a given flight cannot be resold the following day : the productive capacity of the seat has perished. The lack of inventory capability combined with the fluctuating demand leads to variety of potential outcomes. Alternatively. Firms frequently choose to outsource service activities such as payroll. MANAGING DEMAND AND CAPACITY The fundamental issue underlying supply and demand management in services is the lack of inventory capability. 60 Services Marketing . Unlike manufacturing firms. Similar internal versus external exchange decisions are made by organizations. data processing. a firm may decide to stop purchasing services externally and bring the service production process in-house. research. accounting.

but the quality of service may still suffer because of overuse. and customers are receiving quality service without undesirable delays. Excess Demand : The level of demand exceeds maximum capacity. or staff being pushed beyond their abilities to deliver consistent quality. resulting in lost business opportunities. Demand exceeds optimum capacity : No one is being turned away. Productive resources in the form of labor. facilities can be maintained . 4. Demand and supply are balanced at the level of optimum capacity : Staff and facilities are occupied at an ideal level . 3. crowding. and facilities are underutilized. equipment. In this situation some customers will be turned away. Excess Capacity : Demand is below optimum capacity. resulting in lost productivity and lower profits. 2. its quality may not match what was promised because of crowding or overtaxing of staff and facilities. For the customers who do not receive the service. 61 Services Marketing .Variations in Demand Relative to Capacity Demand exceeds capacity VOLUME DEMANDED CAPACITY UTILIZED Maximum Available Capacity Optimum Capacity (business is lost) Demand exceeds optimum capacity (quality declines) (Demand and Supply Well Balanced (May Send Bad Signals) Low Utilization (wasted resources) Excess capacity TIME CYCLE 1 TIME CYCLE 2 As shown above in the diagram there are four basic scenarios that can result from different combinations of capacity and demand : 1. No one is overworked.

Predictable Cycles : In looking at the graphic representation of demand levels.2 million free to family and friends of service men and women. Before their deployment these men and women had little time to attend to personal business. day to-day changes in the weather may affect use of recreational. 2001. customers may be disappointed or may worry that they have chosen an inferior service provider. Organizations that have good computerized customer information systems can do this very accurately. Accidents. however service quality depends on the presence of other customers. Although the weather cannot be predicted far in advance. Random Demand Fluctuations : Sometimes the patterns of demand appear to be random— there is no apparent predictable cycle. and hurricanes can dramatically increase the need for such services as insurance. and the market segments that comprise demand at different points in time. monthly (variations occur by the month). it may be possible to anticipate demand a day or two ahead. 2. general instantaneous need for services that can’t be predicted.S. 500. causes can often be identified.Customers may receive excellent service on an individual level because they have the full use of the facilities. Yet even in this case. fires. or entertainment facilities. why they wary. With mail delivery between the United States and the Middle East taking more than six weeks. During and after the Gulf War crisis more than 2. 3. AT&T’s ingenuity. the organization needs to chart the level of demand over relevant time periods. If. and complete attention from the staff. it is likely to have a clear understanding of demand patterns. but the level of demand cannot generally be determined in advance.5 million calls were placed over temporary public phone installations. is there a predictable cycle daily (variations occur by hours). shopping. and/or yearly (variations occur according to months or seasons)? If there is a predictable cycle . and all of them left behind concerned family and friends. Acts of war and terrorism such as that experienced in the United States on September 11. Charting Demand Patterns : First. During this period. Communications with home were determined by the military to be essential to troop morale. troops needed a quick way to communicate with their families and to handle personal business. telecommunications. For example.000 U. and health care. 62 Services Marketing . and capacities were challenged to meet this unanticipated communication need. weekly (variations occur by day). 1. UNDERSTANDING DEMAND PATTERNS To manage fluctuating demand in a service business. AT&T was faced with a sudden increase in demand for services to the mi1i during the Gulf War. Health-related events also cannot be predicted. heart attacks. troops were deployed to the Middle East. and AT&T sent more than 1. many without advance warning. and births all increase demand for hospital services. responsiveness. Natural disasters such as floods. no waiting . what are the underlying causes? This can help a service provider in dealing with the customers in a much better way. The others may need to chart demand patterns more informally.

Those who can’t shift and can’t be accommodated will represent lost business for the firm. For example. or time of day. For example. can often shift the timing of their trips. offers its facilities for executive development and training programs during the summer when snow skiing is not possible. Each of these two basic strategies is described next with specific examples. • • The first is to smooth the demand fluctuations themselves by shifting demand to match existing supply. A. 1. For example. There are two general approaches for accomplishing this match. The second general strategy is to adjust capacity to match fluctuations in demand. day of the week. depending on the season of the year. STRATEGIES FOR MATCHING CAPACITY AND DEMAND When an organization has a clear grasp of its capacity constraints and an understanding of demand patterns. with fewer numbers needing immediate attention on other days of the week. Or the analysis may reveal that demand from one segment is predictable while demand from another segment is relatively random. Canada. Health clinics often notice that walk-in or “care needed today” patients tend to concentrate their arrivals on Mon day. and hotel services. a ski re sort in Vancouver. perhaps by convincing them to use the service during periods of slow demand. 63 Services Marketing . whereas personal account holders may visit the bank at seemingly random intervals. many business travelers are not able to shift their needs for airline. Demand Patterns by Market Segment :If an organization has detailed records on customer transactions. on the other hand. it may be able to disaggregate demand by market segment. car rental. Knowing that this pattern exists. leaving more of Monday available for same-day appointments and walk-ins.4. Vary the Service Offering : One approach is to change the nature of the service offering. the visits from its commercial accounts may occur daily at a predictable time. it is in a good position to develop strategies for matching supply and demand. some clinics schedule more future appointments (which they can control) for later days of the week. A hospital in the Los Angeles area rents use of its facilities to film production crews who need realistic hospital settings for movies or TV shows. for a bank. revealing patterns within patterns. pleasure travelers. Whistler Mountain. Shifting Demand to Match Capacity : With this strategy an organization seeks to shift customers away from periods in which demand exceeds capacity. This may be possible for some customers but not for others.

S. Obviously these hours did not match the times when most people preferred to do their personal banking. better reflecting customer demand patterns. U. On routes with a large demand for first-class seating. Unless these additional mix variables are altered effectively to support the offering. Historically. and are open on Saturdays.Accounting firms focus on tax preparation late in the year and until April 15. advertising and other forms of promotion can emphasize different service benefits during peak and slow periods. banks open early. a significant proportion of seats may be placed in first class. the downside of such changes can be a confusion in the organization’s image from the customers’ perspective.M. E. In some planes there may be no first-class section at all. when federal taxes are due in the United States.. every weekday.M. 3 Modify Timing and Location of Service Delivery : Some firms adjust their hours and days of service delivery to more directly reflect customer demand. stay open until 6 P. pricing. Even when done well. During other times of the year they can focus on audits and general consulting activities. In addition to signage communicating peak demand times to customers. Air lines even change the configuration of their plane seating to match the demand from different market segments. Advertising and sales messages can also remind customers about peak demand times. Many customer service phone lines provide a similar warning by informing waiting customers of approximately how long it will be until they are served. the strategy may not work. 64 Services Marketing . Forewarning customers about busy times and possible waits can have added benefits.g Signs in banks and post offices that let customers know their busiest hours and busiest days of the week can serve as a warning. and staffing—to match the new offering. Research in a bank context found that customers who were forewarned about the bank’s busiest hours were more satisfied even when they had to wait than were customers who were not forewarned.S. banks were open only during “bankers’ hours” from 10 A. because such changes may easily imply and require alterations in other marketing mix variables—such as promotion. Now U. many days.M. letting them know the times of peak demand so they can choose to use the service at alternative times and avoid crowding or delays. Those who don’t want to wait may choose to call back later when the lines are less busy. or a loss of strategic focus for the organization and its employees. Care should be exercised in implementing strategies to change the service offering. to 3 P. 2 Communicate with Customers: Another approach for shifting demand is to communicate with customers. al lowing customers to shift their demand to another time if possible.

business travelers are far less price sensitive than are families traveling for pleasure. Overuse or exclusive use of price as a strategy for smoothing demand is also risky due to the potential impact on the organization’s image and the possibility of attracting un desired market segments. if communications with customers are unclear. But the goal is always to ensure the highest level of capacity utilization without sacrificing profits. and equipment are asked to work harder and longer to meet demand. a price differentiation strategy depends on solid understanding of customer price sensitivity and demand curves. During periods of slow demand it tries to shrink capacity so as not to waste resources. Over reliance on price can result in price wars in an industry where eventually all competitors suffer. This strategy relies on basic economics of supply and demand. To be effective. and align capacity to match customer demand (rather than working on shifting demand to match capacity as just described). however. Flexing Capacity to Meet Demand : A second strategic approach to matching supply and demand focuses on adjusting or flexing capacity. The fundamental idea here is to adjust. 4. B. Heavy use of price differentiation to smooth demand can be a risky strategy. a. During periods of peak demand the organization seeks to stretch or expand its capacity as much as possible. all of the capacity could be filled with customers if the price were low enough. 1 Stretch Existing Capacity : The existing capacity of service resources can often be expanded temporarily to match demand. rather people. Movie theaters are sometimes rented during weekdays by business groups—an example of varying the service offering during a period of low demand. Differentiate on Price : A common response during slow demand is to discount the price of the service. Stretch Time: 65 Services Marketing .Theaters also accommodate customer schedules by offering matinees on weekends and holidays when people are free during the day for entertainment. where total industry profits suffered as a result of airlines simultaneously trying to attract customers through price discounting. F For any hotel. restaurant. or other service establishment. Price wars are well known in the airline industry. For example. stretch. customers may not understand the reasons for the discounts and will expect to pay the same during peak demand periods. Another risk of relying oh price is that customers grow accustomed to the lower price and expect to get the same deal the next time they use the service. airline. facilities. In such cases no new resources are added.

And front-line service personnel in banks. Specific actions might include the following. tourist resorts bring in extra workers during peak season. the organization needs to recognize the wear and tear on resources and the potential for inferior quality of service that may go with the use. and telecommunications companies are asked to serve more customers per hour during busy times than during hours or days when demand is low. Restaurants often ask employees to work split shifts (work the lunch shift. a car can hold a number of people seated comfortably or can “expand” by accommodating standing passengers. During peak demand. and equipment are again the focus. or other equipment needed by customers. organizations can in effect chase the demand curves to match capacity with customer demand patterns. tax accountants engage temporary help during tax season. retailers are open longer hours during the Christmas shopping season. d. employees are asked to work longer and harder during periods of peak demand. associates are asked to take on additional projects and work longer hours. sometimes it is difficult to know in advance. consulting organizations face extensive peaks and valleys with respect to demand for their services. chairs. telephone lines. leave for a few hours. Retailers hire part-time employees during the holiday rush. b. a. A health clinic might stay open longer during flu season. As noted earlier. labor. Stretch Facilities : Theaters. restaurants. Or. and classrooms can sometimes be expanded temporarily by the addition of tables. 66 Services Marketing . In using these types of “stretch” strategies. and come back for the dinner rush) during peak mealtime hours. this time with an eye toward adjusting the basic mix and use of these resources. and maintenance equipment can often be stretched beyond what would be considered the maximum capacity for short periods to accommodate peak demand. Time. as in the case of a commuter train. facilities. Align Capacity with Demand Fluctuations : This basic strategy is sometimes known as a “chase demand” strategy. For example. particularly in the case of human resources. when capacity has been stretched too far. Stretch Labor : In many service organizations. c. Use Part-Time Employees : In this case the organization’s labor resource is being aligned with demand. and accountants have extended appointment hours (evenings and Saturdays) before tax deadlines. tourist attractions. meeting facilities. These strategies should thus be used for relatively short periods in order to allow for later maintenance of the facilities and equipment and refreshment of the people who are asked to exceed their usual capacity. By adjusting service resources creatively.It may be possible to extend the hours of service temporarily to accommodate demand. 2. restaurants. Stretch Equipment : Computers.

c. these companies look to firms that specialize in outsourcing these types of functions as a temporary (or sometimes long-term) solution. Rather than try to hire and train additional employees. This ensures that the resources are in top condition when they are most needed. they can shift among tasks. in recent years. During slow hours the team may shrink to three. For example. This increases the efficiency of the whole system and avoids underutilizing employees in some areas while others are being over taxed. f. If people. with most employees able to move as needed from cashiering to stocking shelves to bagging groceries. Sometimes organizations with complementary demand patterns can share facilities. Cross-Train Employees : If employees are cross-trained. equipment.’ The method depends 67 Services Marketing . then it is imperative to schedule repair. Outsourcing : Firms that find they have a temporary peak in demand for a service that they cannot perform themselves may choose to outsource the entire service. With regard to employees. Grocery stores also use this strategy. Hotels accomplish this by reconfiguring rooms—two rooms with a locked door between can be rented to two different parties in high demand times or turned into a suite during slow demand. d. An example is a church that shares its facilities during the week with a Montes son preschool. move. ex press mail delivery services rent or lease trucks during the peak holiday delivery sea son. The school needs the facilities Monday through Friday during the day.b. Using an approach known as “demand-driven dispatch. filling in where they are most needed. Schedule Downtime during Periods of Low Demand . and renovations during off-peak periods. maintenance. and facilities are being used at maximum capacity during peak periods. Web design. In some fast-food restaurants. Rent or Share Facilities or Equipment : For some organizations it is best to rent additional equipment or facilities during periods of peak demand. e. It would not make sense to buy trucks that would sit idle during the rest of the year. For example.” airlines have begun to experiment with methods that assign airplanes to flight schedules on the basis of fluctuating market needs. and the team of specialists may number 10 people. the church needs the facilities evenings and on the weekend. Modify or Move Facilities and Equipment : Sometimes it is possible to adjust. Many airlines cross-train their employees to move from ticketing to working the gate counters to assisting with baggage if needed. The airline industry offers dramatic examples of this type of strategy. many firms have found they don’t have the capacity to fulfill their own needs for technology support. with each person performing a variety of functions. this means that vacations and training are also scheduled during slow demand periods. employees specialize in one task (like making french fries) during busy hours. and software-related services. or creatively modify existing capacity to meet demand fluctuations.

or facilities. expert yield managers will work on capacity and pricing issues simultaneously to maximize revenue across different customer segments. For example. two. Specifically. MARKET SEGMENTATION. yield management has been defined as “the process of allocating the right type of capacity to the right kind of customer at the right price so as to maximize revenue or yield. Yield is essentially a measure of the extent to which an organization’s resources (or capacities) are achieving their full revenuegenerating potential. in an airline context. In reality. libraries. labor. Another strategy may involve moving the service to a new location to meet customer demand or even bringing the service to customers. a manager could focus on increasing yield by finding ways to bring in more passengers to fill the capacity. Using yield management models. and blood donation facilities are examples of services that physically follow customers. PRICING. yield approaches 1 as actual capacity utilization increases or when a higher actual price can be charged for a given capacity used. organizations find the best balance at a particular point in time among the prices charged. The goal of yield management is to produce the best possible financial return from a limited available capacity. matching demand and supply in capacity-constrained services. the underlying effectiveness measure is the ratio of actual revenue to potential revenue for a particular measurement period: Yield = Actual revenue Potential revenue where Actual revenue Potential revenue = = actual capacity used X average actual price total capacity X maximum price The equations indicate that yield is a function of price and capacity used.” Although the implementation of yield management can involve complex mathematical models and computer programs.on accurate knowledge of demand and the ability to quickly move airplanes with different seating capacities to flight assignments that match their capacity The Boeing 777 aircraft is so flexible that it can be reconfigured within hours to vary the number of seats allocated to one. some very sophisticated. Recall that capacity constraints can be in the form of time. YIELD MANAGEMENT: BALANCING CAPACITY UTILIZATION. the segments sold to. Assuming that total capacity and maximum price cannot be changed. or by finding higher-paying passengers to fill a more limited capacity. equipment.’ The plane can thus be quickly modified to match demand from different market segments. or three classes. Mobile training facilities. 68 Services Marketing . essentially molding capacity to fit demand. AND FINANCIAL RETURN Yield management is a term that has become attached to a variety of methods. and the capacity used.

for example. The three sections that follow describe what we know about the ways customers perceive services.000). and each is central to effective pricing.000). you feel quite uncertain about your knowledge of the prices of services. PRICING OF SERVICES Three Key Ways Service Prices Are Different For Consumers What role does price play in consumer decisions about services? How important is price to potential buyers compared with other factors and service features? Service companies must understand how pricing works. yielding a revenue of $10. Although capacity was used to the maximum level that night. smoking or nonsmoking). The yield under these circumstances would have been 40 percent ($8. on the other hand.000. a hotel that has 200 rooms that it can rent at a rate of $100 per night (potential revenue of $20. A. One night it rents all of the rooms at a reduced rate of $50 per night. At the $100 rate the hotel may thus be maximizing the per-room price but not the potential yield—or revenue generation—for the entire hotel. Firms can conceivably offer an infinite variety of combinations and permutations. resulting in a yield of 70 percent ($14.000). variations associated with customers (age. and the reference prices you hold in memory for services are not as accurate as those you hold for goods. As an example. but first they must understand how customers perceive prices and price changes.000/$20.000/$20. service firms have great flexibility in the con figurations of services they offer.Yield Management Example Take. yield was only 50 percent ($l0. the revenue would be $14. consider how difficult it is to get comparable price quotes when buying life insurance. health risk. the hotel had charged its full rate it might have sold only 40 percent of its rooms because of customer price sensitivity. 1. If the hotel could fill 40 percent of the rooms at $100 per night and the other 60 percent at $50. If.000). clearly better than the other two alternatives.000/$20. CUSTOMER KNOWLEDGE OF SERVICE PRICES To what extent do customers use price as a criterion in selecting services? How much do consumers know about the costs of services? If you are like many consumers. features (different deductibles). leading to complex and complicated pricing structures. few insurance companies offer exactly the same features and the same prices. Perhaps a combination of the two room rates would be the best solution. With the multitude of types (such as whole life versus term). 69 Services Marketing . There are many reasons for this difference.000. Service heterogeneity limits knowledge: As services are intangible and are not created on a factory assembly line. Only an expert customer.

if you were to ask a friend what a cut costs from a particular stylist. they must drive to or call individual outlets. Some hairstylists’ service prices vary across customers on the basis of length of hair. IDS Financial Services recently discovered how little customers know about prices of the company’s services. a service as simple as a hote1 room have prices that vary greatly: by size of room. the company did research to find out how much customers know 70 Services Marketing . Providers are unwilling to estimate prices : Another reason customers lack accurate reference prices for services is that many providers are unable or unwilling to estimate price in advance. Consider most medical or legal services. These two examples are for very simple services. Price information is overwhelming in services : Still another reason customers lack accurate reference prices for services is that customers feel overwhelmed with the information they need to gather. 5.the price cannot be hidden or implicit. Individual customer needs vary : Another factor that results in the inaccuracy of reference prices is that individual customer needs vary. chances are that your cut from the same stylist may be a different price. After being told by the independent agents who sell their services to customers that IDS was priced too high. retail stores display the products by category to allow customers to compare and contrast the prices of different brands and sizes. particularly financial services. Rarely is there a similar display of services in a single outlet. With most goods. therefore. they often buy without advance knowledge about the final price of the service. In a business-to-business context. most customers know about only the rate of return and not the costs they pay in the form of fund and insurance fees. type of room availability. time of year. In these and many other services. is likely to find prices that are directly comparable.one who knows enough about insurance to completely specify the options across providers. 4. The fundamental reason in many cases is that they do not know themselves what the ser vices will involve until they have fully examined the patient or the client’s situation or until the process of service delivery (such as an operation in a hospital or a trial) un folds. companies will obtain bids or estimates for complex services such as consulting or construction. Rarely are legal or medical service providers willing—or even able—to estimate a price in advance. 3. type of haircut. and whether a conditioning treatment and style are included. customer differences in need will play a strong role in the price of the service. In a similar vein. Prices are not visible: One requirement for the existence of customer reference prices is price visibility . and individual versus group rate. In many services. 2. If customers want to compare prices (such as for dry cleaning). but this type of price estimation is typically not undertaken with end consumers. Therefore. Now consider a service purchase as idiosyncratic as braces from a dentist or help from a lawyer.

Not only are you paying money to receive these services. and psychological costs often enter into the evaluation of whether to buy or rebuy a service. search costs. Furthermore. Finally. and may at times be more important concerns than monetary price. Nonmonetary costs represent other sources of sacrifice perceived by consumers when buying and using a service. when customers were asked to indicate how important 10 factors (including price) were. see a physician. Time costs: Most services require direct participation of the consumer and thus consume real time: time waiting as well as time when the customer interacts with the service provider. customers didn’t know how they were charged and what they paid. such as in certificates. in repurchase monetary price may be an even more important criterion than in initial purchase B. because service providers cannot completely control the number of customers or the length of time it will take for each customer to be served. the company found that shopping behavior in the category of financial services was extremely limited. And if cost is not known to the customer before purchase. is not just a function of monetary price but is influenced by other costs as well. Further. or get through the crowds to watch a concert or baseball game. First. it cannot be used as a key criterion for purchase as it often is for goods. you’re also expending time. The study surprised the company by revealing that customers knew even less than expected: not only did they not understand what they were paying for many of their services. Price is likely to be an important criterion in repurchase. Demand. price ranked seventh. such as in accident or illness. THE ROLE OF NONMONETARY COSTS In recent years economists have recognized that monetary price is not the only sacrifice consumers make to obtain products and services.: 71 Services Marketing . Search costs. customers must make the decision to purchase without respect to cost at all. customers are likely to expend time waiting to receive the service. Time costs. however. Time becomes a sacrifice made to receive service in multiple ways. 2.such as with securities and term life insurance —were customers aware of fees. Customers will trade money for these other costs as mentioned below: 1. very few consumers understood how they pay for financial services in general. and annuities (which have rear-load charges). Only for financial products where price was visible . Waiting time for a service is virtually always longer and less predictable than waiting time to buy goods. Of course in situations of urgency.about what they pay for financial services and how much price factors into customer value assessments. Consider the investment you make to exercise. therefore. When price was invisible. whole-life insurance.

as it is for elderly persons. Another factor that increases search costs is that each ser vice establishment typically offers only one “brand” of a service (with the exception of brokers in insurance or financial services). Prices for services are rarely displayed on shelves of service establishments for customers to examine as they shop. If customers have to travel to a service. they incur a cost. even positive change. Convenience costs : There are also convenience (or perhaps more accurately inconvenience) costs of services. fear of rejection (bank loans). so these prices are often known only when a customer has decided to experience the service. Further. they must arrange their schedules to correspond to the company’s schedule. And if consumers have to expend effort and time to prepare to receive a service (such as removing all food from kitchen cabinets in preparation for an exterminator’s spraying). a service firm may be able to increase monetary price by reducing time and other costs.Search costs—the effort invested to identify and select among ser vices you desire—are also higher for services than for physical goods. 4. Fear of not understanding (insurance).g. customer resistance was significant. was looked on with suspicion until the level of comfort improved. fear of uncertainty (including fear of high cost)— all of these. customers may be willing to pay to avoid the other costs. brings about psychological costs that consumers factor into the purchase of services. 3. constitute psychological costs that customers experience as sacrifices when purchasing and using services. When banks first introduced ATMs. Second. 72 Services Marketing . Many customers willingly pay extra to have items delivered to their home—including restaurant meals—rather than transporting the services and products themselves. E. so a customer must initiate contact with several different companies to get information across sellers. particularly to the idea of put ting money into a machine: customers felt uncomfortable with the idea of letting go of their checks and bank cards. if service hours do not coincide with the customers’ available time. they make additional sacrifices. a clear improvement in banking service for the elderly with limited mobility. All change. Direct deposit. a services marketer can reduce the perceptions of time and convenience costs when use of the service is embedded in other activities (such as when a convenience store cashes checks. REDUCING NONMONETARY COSTS The managerial implications of these other sources of sacrifice are compelling. Psychological costs: Often the most painful nonmonetary costs are the psychological costs incurred in receiving some services. and serves coffee along with selling products). First. and the cost becomes greater when travel is difficult. sells stamps.

Because customers depend on price as a cue to quality and because price sets expectations of quality. home banking. painting. customers may prefer to use those cues instead of price. Pricing too low can lead to inaccurate inferences about the quality of the service. When service cues to quality are readily accessible. PRICE AS AN INDICATOR OF SERVICE QUALITY One of the intriguing aspects of pricing is that buyers are likely to use price as an indicator of both service costs and service quality—price is at once an attraction variable and a repellent. Another factor that increases the dependence on price as a quality indicator is the risk associated with the service purchase. price is not used to judge quality as often as it is in services. many of which involve credence services such as medical treatment or management consulting. for a premium price. Household cleaning services. where experience and credence properties dominate. interactive cable shopping. Because goods are dominated by search properties. prices must be chosen to convey appropriate quality signal. when brand names provide evidence of a company’s reputation. Pricing too high can set expectations that may be difficult to match in service delivery. however. consumers may believe that price is the best indicator of quality. one of which is the other information available to them. thus actually allowing the customer to “buy” time. service prices must be determined carefully. In addition to chosen to cover costs or match competitors. lawn care. personal shopper service. Many of these conditions typify situations that face consumers when purchasing services. C. babysitting. In high-risk situations. such as when quality is hard to detect or when quality or price varies a great deal within a class of services. In other situations. ******************* 73 Services Marketing .For reduced waiting time in a professional’s office (as in so-called executive appointments where. Customers’ use of price as an indicator of quality depends on several factors. the customer will look to price as a surrogate for quality. Any services marketer must be aware of the signals that price conveys about its offerings. and car pet c1eaning— of these represent net gains in the discretionary time of consumers and could effectively be marketed that a that allow the customer to buy time are likely to have monetary value for busy consumers. Many other services save time. home delivery of groceries. or when level of advertising communicates the company’s belief in the brand. a busy executive comes early in the morning and does not have to wait).

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