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Objectives Introduction to Services

Explain what services are and identify service trends Explain the need for special services marketing concepts and practices Outline the basic differences between goods and services and the resulting challenges for service businesses Introduce the service marketing triangle Introduce the expanded services marketing mix Introduce the gaps model of service quality

Services Marketing

Introduction
Services are deeds,processes and performance Intangible, but may have a tangible component Generally produced and consumed at the same time Need to distinguish between SERVICE and CUSTOMER SERVICE
3

Challenges for Services

Defining and improving quality Communicating and testing new services Communicating and maintaining a consistent image Motivating and sustaining employee commitment Coordinating marketing, operations and human resource efforts Setting prices Standardization versus personalization
4

Examples of Service Industries

Health Care
hospital, medical practice, dentistry, eye care
Salt

Figure 1-1

Tangibility Spectrum
z Soft Drinks z Detergents z Automobiles z Cosmetics Fast-food z Outlets z z
Fast-food Outlets

Professional Services
accounting, legal, architectural

Financial Services
banking, investment advising, insurance

Hospitality
restaurant, hotel/motel, bed & breakfast, ski resort, rafting

Intangible Dominant

Travel
airlines, travel agencies, theme park

Tangible Dominant

Others:
hair styling, pest control, plumbing, lawn maintenance, counseling services, health club
5

Advertising Agencies Airlines Investment Management Consulting

Teaching

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Figure 1-2

Figure 1-3

Percent of U.S. Labor Force by Industry

80

Percent of U.S. Gross Domestic Product by Industry

80

Percent of GDP

Percent of GDP

70 60 50 40 30 20 10 0 1929 1948 1969 1977 1984 1996

Year
Source: Survey of Current Business, April 1998, Table B.8, July 1988, Table 6.6B, and July 1992, Table 6.4C; Eli Ginzberg and George J. Vojta, The Service Sector of the U.S. Economy, Scientific American, 244,3 (1981): 31-39.

70 60 50 40 30 20

Services Manufacturing Mining & Agriculture

10 0 1948 1959 1967 1977 1987 1996 Year

Source: Survey of Current Business, August 1996, Table 11, April 1998, Table B.3; Eli Ginzberg and George J. Vojta, The Service Sector of the U.S. Economy, Scientific American, 244,3 (1981): 31-39.

Services Manufacturing Mining & Agriculture

8

Differences Between Goods and Services

Implications of Intangibility 9 Services cannot be inventoried 9 Services cannot be patented 9 Services cannot be readily displayed or communicated 9 Pricing is difficult

Intangibility

Heterogeneity

Simultaneous Production and Consumption

Perishability

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Implications of Heterogeneity
9 Service delivery and customer satisfaction depend on employee actions 9 Service quality depends on many uncontrollable factors 9 There is no sure knowledge that the service delivered matches what was planned and promoted
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Implications of Simultaneous Production and Consumption

9 Customers participate in and affect the transaction 9 Customers affect each other 9 Employees affect the service outcome 9 Decentralization may be essential 9 Mass production is difficult
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Implications of Perishability
9 It is difficult to synchronize supply and demand with services 9 Services cannot be returned or resold

Table 1-2

Services are Different

13

Source: Adapted from Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, Problems and Strategies in Services Marketing, Journal of Marketing 49 (Spring 1985): 33-46.

14

Figure 1-5

The Services Marketing Triangle

Company (Management)
Internal Marketing
enabling the promise

Ways to Use the Services Marketing Triangle

Overall Strategic Assessment Specific Service Implementation
What is being promoted and by whom? How will it be delivered and by whom? Are the supporting systems in place to deliver the promised service?
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External Marketing
setting the promise

How is the service organization doing on all three sides of the triangle? Where are the weaknesses?
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Employees

Interactive Marketing
delivering the promise

Customers

Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler

What are the strengths?

Figure 1-6

The Services Triangle and Technology

Company

Services Marketing Mix: 7 Ps for Services

Traditional Marketing Mix Expanded Mix for Services: 7 Ps

Technology

Building Customer Relationships Through People, Processes, and Physical Evidence

Customers

Providers
Source: Adapted from A. Parasuraman

Ways to Use the 7 Ps

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Traditional Marketing Mix

All elements within the control of the firm that communicate the firms capabilities and image to customers or that influence customer satisfaction with the firms product and services: 9 Product 9 Price 9 Place 9 Promotion
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Expanded Mix for Services -the 7 Ps

Product Price Place Promotion

People Process Physical Evidence

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Table 1-3

Table 1-3 (Continued)

Expanded Marketing Mix for Services

Expanded Marketing Mix for Services

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Ways to Use the 7 Ps

Overall Strategic Assessment
How effective is a firms services marketing mix? Is the mix well-aligned with overall vision and strategy? What are the strengths and weaknesses in terms of the 7 Ps?

Services Marketing Triangle Applications Exercise

Focus on a service organization. In the context you are focusing on, who occupies each of the three points of the triangle? How is each type of marketing being carried out currently? Are the three sides of the triangle well aligned? Are there specific challenges or barriers in any of the three areas?
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Specific Service Implementation

Who is the customer? What is the service? How effectively does the services marketing mix for a service communicate its benefits and quality? What changes/improvements are needed?
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Gaps Model of Service Quality

Part 1
CUSTOMER

Expected

Service

FOCUS ON THE CUSTOMER

COMPANY

Customer Gap

Perceived Service
External Communications to Customers

Service Delivery
GAP 3
Customer-Driven Service Designs and Standards

GAP 4

GAP 1

GAP 2
Part 1 Opener

Company Perceptions of Consumer Expectations

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Gaps Model of Service Quality

Customer Gap: difference between expectations and perceptions Provider Gap 1: not knowing what customers expect Provider Gap 2: not having the right service designs and standards Provider Gap 3: not delivering to service standards Provider Gap 4: not matching performance to promises

The Customer Gap

Expected Service
GAP

Perceived Service

Part 1 Opener

Part 1 Opener

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Objectives Consumer Behavior in Services

Overview the generic differences in consumer behavior between services and goods Introduce the aspects of consumer behavior that a marketer must understand in five categories of consumer behavior: Information search Evaluation of service alternatives Service purchase and consumption Postpurchase evaluation Role of culture

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CONSUMER BEHAVIOR IN SERVICES

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Consumer Evaluation Processes for Services

Search Qualities attributes a consumer can determine prior to purchase of a product Experience Qualities attributes a consumer can determine after purchase (or during consumption) of a product Credence Qualities characteristics that may be impossible to evaluate even after purchase and consumption

Figure 2-1

Continuum of Evaluation for Different Types of Products

Most Goods
Easy to evaluate

Most Services
Difficult to evaluate

High in search qualities

High in experience High in credence qualities qualities

Figure 2-2

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Categories in Consumer Decision-Making and Evaluation of Services

z Use of personal sources z Perceived risk

Figure 2-3

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Categories in Consumer DecisionMaking and Evaluation of Services

Information Search
z Use of personal sources z Perceived risk

Information Search

Evaluation of Alternatives
z Evoked set z Emotion and mood

Evaluation of Alternatives
z Evoked set z Emotion and mood

z Values and attitudes

Culture

z Manners and customs z Material culture z Aesthetics z Educational and social

institutions

Purchase and Consumption

z Service provision as drama z Service roles and scripts z Compatibility of customers

Post-Purchase Evaluation
z Attribution of dissatisfaction z Innovation diffusion z Brand loyalty

z Service provision as drama z Service roles and scripts z Compatibility of customers

Purchase and Consumption

z Attribution of dissatisfaction z Innovation diffusion z Brand loyalty

Post-Purchase Evaluation

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Information search
In buying services consumers rely more on personal sources. WHY? Refer p32 Personal influence becomes pivotal as product complexity increases Word of mouth important in delivery of services With service most evaluation follows purchase

Perceived Risk
More risk would appear to be involved with purchase of services (no guarantees) Many services so specialised and difficult to evaluate (How do you know whether the plumber has done a good job?) Therefore a firm needs to develop strategies to reduce this risk, e.g, training of employees, standardisation of offerings

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Evoked Set
The evoked set of alternatives likely to be smaller with services than goods If you would go to a shopping centre you may only find one dry cleaner or single brand It is also difficult to obtain adequate prepurchase information about service The Internet may widen this potential Consumer may choose to do it themselves, e.g. garden services

Emotion and Mood

Emotion and mood are feeling states that influence peoples perception and evaluation of their experiences Moods are transient Emotions more intense, stable and pervasive May have a negative or positive influence

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Service Provision as Drama

Need to maintain a desirable impression Service actors need to perform certain routines Physical setting important, smell, music, use of space, temperature, cleanliness, etc.

Global Feature: Differences in the Service Experience in the U.S. and Japan Authenticity Caring Control Courtesy Formality Friendliness Personalization Promptness

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Objectives Customer Expectations of Service

Recognize that customers hold different types of expectations for service performance Discuss controllable and uncontrollable sources of customer expectations Distinguish between customers global expectations of their relationships and their expectations of the service encounter Acknowledge that expectations are similar for many different types of customers Delineate the most important current issues surrounding customer expectations

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CUSTOMER EXPECTATIONS OF SERVICES

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43 Figure 3-1

44

DEFINITIONS
Customers have different expectations re services or expected service Desired service customer hopes to receive Adequate service the level of service the customer may accept DO YOUR EXPECTATIONS DIFFER RE SPUR and CAPTAIN DOREGO?

Dual Customer Expectation Levels

(Two levels of expectations)
Desired Service Zone of Tolerance

Adequate Service

45 Figure 3-2

Figure 3-3

46

The Zone of Tolerance

Zones of Tolerance VARY for Different Service Dimensions

Desired Service

Desired Service

Zone of Tolerance
Adequate Service

Level of Expectation

Zone of Tolerance
Adequate Service

Desired Desired Service Service Zone of Tolerance Adequate

Adequate Service Service

Most Important Factors Least Important Factors Source: Berry, Parasuraman, and Zeithaml (1993)

Figure 3-4

47

Figure 3-5

48

Zones of Tolerance VARY for First-Time and Recovery Service

First-Time Service Outcome Process

Factors that Influence Desired Service

Enduring Service Intensifiers

Desired Service Personal Needs Zone of Tolerance Adequate Service LOW Expectations HIGH

Recovery Service Outcome Process

Source: Parasuraman, Berry and Zeithaml (1991)

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49

Figure 3-6

50

Factors that Influence Adequate Service

Personal needs include physical, social, psychological categories Enduring service intensifiers are individual, stable factors that lead to heightened sensitivity to service This can further divided into Derived Service Expectations and Personal service Philosophies
Transitory Service Intensifiers Desired Service Zone of Tolerance Adequate Service

Perceived Service Alternatives

Self-Perceived Service Role

Situational Factors

51

Figure 3-7

52

Factors that Influence Desired and Predicted Service

Transitory service intensifiers temporary a computer breakdown will be less tolerated at financial year-ends Perceived service alternatives Perceived service role of customer Situational factors
Explicit Service Promises Implicit Service Promises

Desired Service Zone of Tolerance Adequate Service

Word-of-Mouth

Past Experience

Predicted Service

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Objectives Customer Perceptions of Service

Provide you with definitions and understanding of customer satisfaction and service quality Show that service encounters or the moments of truth are the building blocks of customer perceptions Highlight strategies for managing customer perceptions of service

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CUSTOMER PERCEPTIONS OF SERVICE

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Figure 4-1

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Customer Perceptions of Service Quality and Customer Satisfaction

Reliability Responsiveness Assurance Empathy Tangibles
Customer Satisfaction

Factors Influencing Customer Satisfaction

Product/service quality Product/service attributes or features Consumer Emotions Attributions for product/service success or failure Equity or fairness evaluations

Service Quality

Situational Factors

Product Quality

Price

Personal Factors

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Figure 4-3

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Outcomes of Customer Satisfaction

Increased customer retention Positive word-of-mouth communications Increased revenues

Relationship between Customer Satisfaction and Loyalty in Competitive Industries

Source: James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, The Service Profit Chain, (New York, NY: The Free Press, 1997), p. 83.

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Service Quality
Reliability

The Five Dimensions of Service Quality

Ability to perform the promised service dependably and accurately. Knowledge and courtesy of Assurance employees and their ability to convey trust and confidence. Physical facilities, equipment, and Tangibles appearance of personnel. Caring, individualized attention the Empathy firm provides its customers. Responsiveness Willingness to help customers and provide prompt service.

The customers judgment of overall excellence of the service provided in relation to the quality that was expected. Process and outcome quality are both important.

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61

SERVQUAL Attributes
ASSURANCE

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Exercise to Identify Service Attributes

In groups of five, choose a services industry and spend 10 minutes brainstorming specific requirements of customers in each of the five service quality dimensions. Be certain the requirements reflect the customers point of view. Reliability:

RELIABILITY

Assurance: Tangibles: Empathy: Responsiveness:

Providing service as promised Dependability in handling customers service problems Performing services right the first time Providing services at the promised time Maintaining error-free records

Employees who instill confidence in customers Making customers feel safe in their transactions Employees who are consistently courteous Employees who have the knowledge to answer customer questions

EMPATHY

RESPONSIVENESS

Keeping customers informed as to when services will be performed Prompt service to customers Willingness to help customers Readiness to respond to customers requests

Giving customers individual attention Employees who deal with customers in a caring fashion Having the customers best interest at heart Employees who understand the needs of their customers Convenient business hours Modern equipment Visually appealing facilities Employees who have a neat, professional appearance Visually appealing materials associated with the service

TANGIBLES

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Figure 4-4

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The Service Encounter

is the moment of truth occurs any time the customer interacts with the firm can potentially be critical in determining customer satisfaction and loyalty types of encounters: remote encounters phone encounters face-to-face encounters is an opportunity to: build trust reinforce quality build brand identity increase loyalty

A Service Encounter Cascade for a Hotel Visit

Check-In Bellboy Takes to Room Restaurant Meal Request Wake-Up Call Checkout

Figure 4-5

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A Service Encounter Cascade for an Industrial Purchase

Sales Call Delivery and Installation n Servicing Ordering Supplies Billing

Critical Service Encounters Research

GOAL - understanding actual events and behaviors that cause customer dis/satisfaction in service encounters METHOD - Critical Incident Technique DATA - stories from customers and employees OUTPUT - identification of themes underlying satisfaction and dissatisfaction with service encounters

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Sample Questions for Critical Incidents Technique Study

Think of a time when, as a customer, you had a particularly satisfying (dissatisfying) interaction with an employee of . When did the incident happen? What specific circumstances led up to this situation? Exactly what was said and done? What resulted that made you feel the interaction was satisfying (dissatisfying)?

Common Themes in Critical Service Encounters Research

Recovery:
Employee Response to Service Delivery System Failure

Adaptability:
Employee Response to Customer Needs and Requests

Coping:
Employee Response to Problem Customers

Spontaneity:
Unprompted and Unsolicited Employee Actions and Attitudes

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Recovery
DO Acknowledge problem Explain causes Apologize Compensate/upgrade Lay out options Take responsibility DONT Ignore customer Blame customer Leave customer to fend for him/herself Downgrade Act as if nothing is wrong DO

Adaptability
DONT
Promise, then fail to follow through Ignore Show unwillingness to try Embarrass the customer Laugh at the customer Avoid responsibility

Recognize the seriousness of the need Acknowledge Anticipate Attempt to accommodate Explain rules/policies Take responsibility Exert effort to accommodate

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Spontaneity
DO
Take time Be attentive Anticipate needs Listen Provide information (even if not asked) Treat customers fairly Show empathy Acknowledge by name

Coping
DO Listen Try to accommodate Explain Let go of the customer DONT Take customers dissatisfaction personally Let customers dissatisfaction affect others

DONT Exhibit impatience Ignore Yell/laugh/swear Steal from or cheat a customer Discriminate Treat impersonally

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Figure 4-6

Evidence of Service from the Customers Point of View

z Operational flow of activities z Steps in process z Flexibility vs. standard z Technology vs. human

z Contact employees z Customer him/herself z Other customers

People

Process

Physical Evidence

z Tangible communication z Servicescape z Guarantees z Technology

LISTENING TO CUSTOMER REQUIREMENTS

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Provider GAP 1
CUSTOMER

Expected Service

GAP 1 Company Perceptions of Consumer Expectations

COMPANY

UNDERSTANDING CUSTOMER EXPECTATIONS AND PERCEPTIONS THROUGH MARKETING RESEARCH

Part 2 Opener

77 Objectives for Chapter 5: Understanding Customer Expectations and Perceptions through Marketing Research

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Common Research Objectives for Services

To identify dissatisfied customers To discover customer requirements or expectations To monitor and track service performance To assess overall company performance compared to competition To assess gaps between customer expectations and perceptions To gauge effectiveness of changes in service To appraise service performance of individuals and teams for rewards To determine expectations for a new service To monitor changing expectations in an industry To forecast future expectations

Present the types of and guidelines for marketing research in services Show the ways that marketing research information can and should be used for services Describe the strategies by which companies can facilitate interaction and communication between management and customers Present ways that companies can and do facilitate interaction between contact people and management

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Figure 5-1

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Criteria for An Effective Services Research Program

Includes Perceptions and Expectations of Customers

Portfolio of Services Research

Research Objective
Identify dissatisfied customers to attempt recovery; identify most common categories of service failure for remedial action Assess companys service performance compared to competitors; identify service-improvement priorities; track service improvement over time Obtain customer feedback while service experience is still fresh; act on feedback quickly if negative patterns develop Use as input for quantitative surveys; provide a forum for customers to suggest service-improvement ideas Measure individual employee service behaviors for use in coaching, training, performance evaluation, recognition and rewards; identify systemic strengths and weaknesses in service Measure internal service quality; identify employeeperceived obstacles to improve service; track employee morale and attitudes Determine the reasons why customers defect To forecast future expectations of customers To develop and test new service ideas

Type of Research
Customer Complaint Solicitation Relationship Surveys Post-Transaction Surveys Customer Focus Groups Mystery Shopping of Service Providers Employee Surveys Lost Customer Research Future Expectations Research

Occurs with Appropriate Frequency

Research Objectives

Measures Priorities or Importance Includes Statistical Validity When Necessary

Includes Measures of Loyalty or Behavioral Intentions

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Stages in the Research Process

Stage 1 : Stage 2 : Stage 3 : Stage 4 : Stage 5 : Stage 6 : Define Problem Develop Measurement Strategy Implement Research Program Collect and Tabulate Data Interpret and Analyze Findings Report Findings
9 8 7 6 5 4 3 2 1 0 O

Figure 5-5

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Service Quality Perceptions Relative to Zones of Tolerance by Dimensions

O O

Reliability

Responsiveness

Assurance

Empathy

Tangibles

Retail Chain

Zone of Tolerance O S.Q. Perception

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84 Figure 5-6

Service Quality Perceptions Relative to Zones of Tolerance by Dimensions

10 8 6 4 2 0
Reliability Responsiveness Assurance
Zone of Tolerance

Importance/Performance Matrix
HIGH

High Leverage
O O O O O

Attributes to Improve

Attributes to Maintain
z z

Importance

z z

Low z Leverage
Attributes to De-emphasize

Empathy

Tangibles

Attributes to Maintain

Computer Manufacturer

S.Q. Perception

LOW

Performance

HIGH

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Objectives for Chapter 6: Building Customer Relationships

Explain relationship marketing, its goals, and the benefits of long-term relationships for firms and customers Explain why and how to estimate customer lifetime value Specify the foundations for successful relationship marketing--quality core services and careful market segmentation Provide you with examples of successful customer retention strategies Introduce the idea that the customer isnt always right

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BUILDING CUSTOMER RELATIONSHIPS

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Relationship Marketing
is a philosophy of doing business that focuses on keeping and improving current customers does not necessarily emphasize acquiring new customers is usually cheaper (for the firm)--to keep a current customer costs less than to attract a new one goal = to build and maintain a base of committed customers who are profitable for the organization thus, the focus is on the attraction, retention, and enhancement of customer relationships

Lifetime Value of a Customer

Assumptions Income Expected Customer Lifetime Average Revenue (month/year) Other Customers convinced via WOM Employee Loyalty?? Expenses Costs of Serving Customer Increase??

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A Loyal Customer is One Who...

Shows Behavioral Commitment
buys from only one supplier, even though other options exist increasingly buys more and more from a particular supplier provides constructive feedback/suggestions

Customer Loyalty Exercise

Exhibits Psychological Commitment

wouldnt consider terminating the relationship-psychological commitment has a positive attitude about the supplier says good things about the supplier

Think of a service provider you are loyal to. What do you do (your behaviors, actions, feelings) that indicates you are loyal? Why are you loyal to this provider?

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Benefits to the Organization of Customer Loyalty

loyal customers tend to spend more with the organization over time on average costs of relationship maintenance are lower than new customer costs employee retention is more likely with a stable customer base lifetime value of a customer can be very high

Benefits to the Customer

inherent benefits in getting good value economic, social, and continuity benefits contribution to sense of well-being and quality of life and other psychological benefits avoidance of change simplified decision making social support and friendships special deals

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The Customer Isnt Always Right

Not all customers are good relationship customers:
wrong segment not profitable in the long term difficult customers

Strategies for Building Relationships

Foundations: Excellent Quality/Value Careful Segmentation Bonding Strategies: Financial Bonds Social & Psychological Bonds Structural Bonds Customization Bonds Relationship Strategies Wheel

Figure 6-1

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Figure 6-3

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Customer Goals of Relationship Marketing

Underlying Logic of Customer Retention Benefits to the Organization

Customer Satisfaction

Enhancing Retaining Satisfying Getting

Customer Retention & Increased Profits

Quality Service

Employee Loyalty

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97 Figure 6-5

Figure 6-6

98

Steps in Market Segmentation and Targeting for Services

Levels of Retention Strategies

Volume and Frequency Rewards Integrated Information Systems Stable Pricing Bundling and Cross Selling

I. Financial Bonds
IV. Structural Bonds

Continuous Relationships

STEP 1:
Identify Bases for Segmenting the Market

STEP 2:
Develop Profiles of Resulting Segments

STEP 3:
Develop Measures of Segment Attractiveness

STEP4:
Select the Target Segments

STEP 5:
Ensure that Segments Are Compatible
Joint Investments

Excellent Quality and Value

II. Social Bonds

Personal Relationships

Shared Processes and Equipment

III. Customization Bonds

Social Bonds Among Customers

Anticipation / Innovation Mass Customization

Customer Intimacy

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Objectives Service Recovery

Illustrate the importance of recovery from service failures in building loyalty Discuss the nature of consumer complaints and why people do and do not complain Provide evidence of what customers expect and the kind of responses they want when they complain Provide strategies for effective service recovery Discuss service guarantees

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SERVICE RECOVERY

Figure 7-1

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Figure 7-3

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Unhappy Customers Repurchase Intentions

Unhappy Customers Who Dont Complain Unhappy Customers Who Do Complain

Customer Response Following Service Failure

Service Failure

9% 37% 19% 46% 54% 70% 82% 95% Percent of Customers Who Will Buy Again
Switch Providers Complain to Provider
Complain to Family & Friends

Complaints Not Resolved

Take Action

Do Nothing

Complaints Resolved

Switch Providers Complain to Third Party

Stay with Provider

Complaints Resolved Quickly

Stay with Provider

Minor complaints ($1-$5 losses)

Major complaints (over $100 losses)

Source: Adapted from data reported by the Technical Assistance Research Program.

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Figure 7-5

103

Pricing
High Price Price Increases Unfair Pricing Deceptive Pricing

Figure 7-6

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Service Recovery Strategies

Inconvenience
Location/Hours Wait for Appointment Wait for Service

Causes Behind Service Switching

Core Service Failure

Service Mistakes Billing Errors Service Catastrophe

Service Encounter Failures

Uncaring Impolite Unresponsive Unknowledgeable

Service Recovery Strategies

Response to Service Failure

Negative Response No Response Reluctant Response

Service Switching Behavior

Competition
Found Better Service

Ethical Problems
Cheat Hard Sell Unsafe Conflict of Interest

Involuntary Switching
Customer Moved Provider Closed

Source: Sue Keaveney

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Table 7-7

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Service Guarantees
guarantee = an assurance of the fulfillment of a condition (Websters Dictionary) for products, guarantee often done in the form of a warranty services are often not guaranteed cannot return the service service experience is intangible (so what do you guarantee?)

Characteristics of an Effective Service Guarantee

Source: Christopher W.L. Hart, The Power of Unconditional Guarantees, Harvard Business Review, July-August, 1988, pp. 54-62.

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Why a Good Guarantee Works

forces company to focus on customers sets clear standards generates feedback forces company to understand why it failed builds marketing muscle

Service Guarantees
Does everyone need a guarantee? Reasons companies do NOT offer guarantees:
guarantee would be at odds with companys image too many uncontrollable external variables fears of cheating by customers costs of the guarantee are too high

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Service Guarantees
service guarantees work for companies who are already customer-focused effective guarantees can be BIG deals - they put the company at risk in the eyes of the customer customers should be involved in the design of service guarantees the guarantee should be so stunning that it comes as a surprise -- a WOW!! factor its the icing on the cake, not the cake

ALIGNING STRATEGY, SERVICE DESIGN AND STANDARDS

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Provider GAP 2
CUSTOMER

COMPANY

Customer-Driven Service Designs and Standards

GAP 2

SERVICE DEVELOPMENT AND DESIGN

Company Perceptions of Consumer Expectations

Part 3 Opener

Objectives Service Development and Design

Describe the challenges inherent in service design Present steps in the new service development process Show the value of service blueprinting and quality function deployment (QFD) in new service design and service improvement Present lessons learned in choosing and implementing high-performance service innovations

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Figure 8-1

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Risks of Relying on Words Alone to Describe Services

Oversimplification Incompleteness Subjectivity Biased Interpretation

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Figure 8-2

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Figure 8-3

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New Service Development Process

h Business Strategy Development or Review h New Service Strategy Development

Front End Planning

New Service Strategy Matrix for Identifying Growth Opportunities

Markets Offerings
Existing Services Current Customers New Customers

h Idea Generation Screen ideas against new service strategy h Concept Development and Evaluation Test concept with customers and employees h Business Analysis Test for profitability and feasibility h Service Development and Testing Conduct service prototype test

SHARE BUILDING

MARKET DEVELOPMENT

Implementation

h Market Testing Test service and other marketing-mix elements h Commercialization h Postintroduction Evaluation

New Services

SERVICE DEVELOPMENT

DIVERSIFICATION

Source: Booz-Allen & Hamilton, 1982; Bowers, 1985; Cooper, 1993; Khurana & Rosenthal 1997.

118 Figure 8-4

Service Mapping/Blueprinting
A tool for simultaneously depicting the service process, the points of customer contact, and the evidence of service from the customers point of view.
Process

Service Blueprint Components

CUSTOMER ACTIONS line of interaction ONSTAGE CONTACT EMPLOYEE ACTIONS line of visibility BACKSTAGE CONTACT EMPLOYEE ACTIONS line of internal interaction SUPPORT PROCESSES

Service Mapping

Points of Contact Evidence

Express Mail Delivery Service

CONTACT PERSON CUSTOME PHYSICAL EVIDENCE (Back Stage) (On Stage) R

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CUSTOMER PHYSICAL EVIDENCE

Truck Packaging Forms Hand-held Computer Uniform

Customer Calls Customer Gives Package

Truck Packaging Forms Hand-held Computer Uniform

Receive Package

Overnight Hotel Stay

Hotel Exterior Parking Cart for Bags Elevators Cart for Desk Registration Hallways Bags Room Papers Lobby Key
Go to Room Receive Bags

Room Menu Amenities Bath

Delivery Food Tray Food Appearance

Bill Desk Lobby Hotel Exterior Parking

Check out and Leave

CONTACT PERSON SUPPORT PROCESS (Back Stage) (On Stage)

Driver Picks Up Pkg.

Deliver Package

Arrive at Hotel

Give Bags Check in to Bellperson

Sleep Shower

Call Room Service

Receive Food

Eat

Greet and Process Take Registration Bags

Deliver Bags

Deliver Food

Process Check Out

Customer Service Order

Take Bags to Room

Dispatch Driver

SUPPORT PROCESS

Airport Receives & Loads

Fly to Sort Center Load on Airplane Sort Packages

Take Food Order

Fly to Destinatio n

Unload & Sort

Load On
Truck

Registration System

Prepare Food

Registration System

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121 Figure 8-8

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Building a Service Blueprint

Step 1
Identify the process to be blueprinted.

Application of Service Blueprints

New Service Development
concept development market testing

Step 2
Identify the customer or customer segment.

Step 3
Map the process from the customers point of view.

Step 4
Map contact employee actions, onstage and backstage.

Step 5
Link customer and contact person activities to needed support functions.

Step 6
Add evidence of service at each customer action step.

Supporting a Zero Defects Culture

managing reliability identifying empowerment issues

Service Recovery Strategies

identifying service problems conducting root cause analysis modifying processes

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Blueprints Can Be Used By:

Service Marketers
creating realistic customer expectations
service system design promotion

Human Resources
empowering the human element
job descriptions selection criteria appraisal systems

CUSTOMER-DEFINED SERVICE STANDARDS

Operations Management
rendering the service as promised
managing fail points training systems quality control

System Technology
providing necessary tools:
system specifications personal preference databases

Objectives Customer-defined Service Standards

Differentiate between company-defined and customer-defined service standards Distinguish among one-time service fixes and hard and soft customer-defined standards Explain the critical role of the service encounter sequence in developing customer-defined standards Illustrate how to translate customer expectations into behaviors and actions that are definable, repeatable, and actionable

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Figure 9-1

126

AT&Ts Process Map for Measurements

Business Process 30% Product Customer Need
Reliability Easy To Use Features / Functions Knowledge Responsive Follow-Up (40%) (20%) (40%) (30%) (25%) (10%)

Internal Metric
% Repair Call % Calls for Help Functional Performance Test Supervisor Observations % Proposal Made on Time % Follow Up Made Average Order Interval % Repair Reports % Installed On Due Date % Repeat Reports Average Speed Of Repair % Customers Informed % Billing Inquiries % Resolved First Call % Billing Inquiries

30% Sales Total Quality 10% Installation

Delivery Interval Meets Needs (30%) Does Not Break (25%) Installed When Promised (10%) No Repeat Trouble Fixed Fast Kept Informed (30%) (25%) (10%) (45%) (35%) (10%)

15% Repair

15% Billing

Accuracy, No Surprise Resolve On First Call Easy To Understand

Source: AT&T General Business Systems

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Exercise for Creating Customer-Defined Service Standards

Form a group of four people Use your schools undergraduate or graduate program, or an approved alternative Complete the customer-driven service standards importance chart Establish standards for the most important and lowest-performed behaviors and actions Be prepared to present your findings to the class

127

Customer-Driven Standards and Measurements Exercise

Service Encounter Customer Requirements Measurements

128

Service Quality

Figure 9-2

129

Figure 9-3

130

Getting to Actionable Steps

Requirements: Diagnosticity:
Satisfaction Value Relationship Solution Provider
Dig Deeper

Process for Setting Customer-Defined Standards

1. Identify Existing or Desired Service Encounter Sequence 2. Translate Customer Expectations Into Behaviors/Actions 3. Select Behaviors/Actions for Standards

Abstract General Concepts

Low

Reliability Empathy Assurance Tangibles Responsiveness Price

Dimensions
4. Set Hard or Soft Standards Measure by TransactionBased Surveys

Dig Deeper

Delivers on Time Returns Calls Quickly Knows My Industry Delivers by Weds 11/4 Returns Calls in 2 Hrs Knows Strengths of My Competitors

Attributes

Measure by Audits or Operating Data

Hard

5. Develop Feedback Mechanisms

Soft

Dig Deeper

Behaviors and Actions Concrete High

6. Establish Measures and Target Levels 7. Track Measures Against Standards 8. Update Target Levels and Measures

131

Figure 9-5

132

Importance/Performance Matrix
HIGH 10.0

Linkage between Soft Measures and Hard Measures for Speed of Complaint Handling
S A 10 T 9 I S F A C T I 8 7 6 5 4 3 2 1 0 2 4 6 8 12 16 20 24 Small Customers Large Customers

Improve
Does whatever it takes to correct problems (9.26, 7.96) Completes projects correctly, on time (9.29, 7.68)

Maintain
z Delivers on promises specified in proposal/contract (9.49, 8.51)

9.0

z Gets project within budget, on time (9.31, 7.84) zz z z z Gets price we originally agreed upon (9.21, 8.64) z z Tells me cost ahead of time (9.06, 8.46)

Gets back to me when promised (9.04, 7.63)

Importance
8.0

Provides equipment that operates as vendor said it would (9.24, 8.14) Takes responsibility for their mistakes (9.18, 8.01) Delivers or installs on promised date (9.02, 7.84)

LOW

7.0 8.0 9.0 10.0

HIGH

O N

WORKING

HOURS

Performance

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Figure 9-6

133

134

Aligning Company Processes with Customer Expectations

Customer Expectations

Customer Process Blueprint Company Process Blueprint

48 Hours
Report Lost Card Receive New Card

PHYSICAL EVIDENCE AND THE SERVICESCAPE

G H

Company Sequential Processes

Lost Card Reported

40 Days

New Card Mailed

Objectives Physical Evidence and the Servicescape

Explain the impact on customer perceptions of physical evidence, particularly the servicescape Illustrate differences in types and roles of servicescapes and their implications for strategy Explain why the servicescape affects employee and customer behavior Analyze four different approaches for understanding the effects of physical environment Present elements of an effective physical evidence strategy

135

Table 10-1

136

Elements of Physical Evidence

Table 10-2

Examples of Physical Evidence from the Customers Point of View

137

Table 10-3

138

Typology of Service Organizations Based on Variations in Form and Use of the Servicescape

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Figure 10-3

139

140

A Framework for Understanding Environment-user Relationships in Service Organizations

PHYSICAL ENVIRONMENTAL DIMENSIONS HOLISTIC ENVIRONMENT INTERNAL RESPONSES
Cognitive Emotional Physiological Employee Responses Perceived Servicescape Customer Responses Individual Behaviors Cognitive Emotional Source: Adapted from Mary Jo Bitner, Servicescapes. Physiological
Social Interactions between and among customer and employees

BEHAVIOR

Individual Behaviors

Ambient Conditions Space/Function Signs, Symbols, and Artifacts

DELIVERING AND PERFORMING SERVICE

141

142

Provider GAP 3
CUSTOMER

Service Delivery
COMPANY

EMPLOYEES ROLES IN SERVICE DELIVERY

GAP 3 Customer-Driven Service Designs and Standards

Part 4 Opener

Objectives Employees Roles in Service Delivery

Illustrate the critical importance of service employees in creating customer satisfaction and service quality Demonstrate the challenges inherent in boundaryspanning roles Provide examples of strategies for creating customer-oriented service delivery Show how the strategies can support a service culture where providing excellent service is a way of life

143

144

Service Employees
They are the service They are the firm in the customers eyes They are marketers Importance is evident in
The Services Marketing Mix (People) The Service-Profit Chain The Services Triangle

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145

Figure 11-3

146

Service Employees
This image cannot currently be display ed.

Boundary Spanners Interact with Both Internal and External Constituents

External Environment

Who are they?

boundary spanners

What are these jobs like?

emotional labor many sources of potential conflict
person/role organization/client interclient quality/productivity

Internal Environment

147 Figure 11-4

Figure 11-5

148

This image cannot currently be display ed.

Sources of Conflict for Boundary-Spanning Workers

Human Resource Strategies for Closing GAP 3

Hire for Service Competencies and Service Inclination

Person vs. Role

Treat Employees as Customers

Hire the Right People

Customeroriented Service Delivery
Develop People to Deliver Service Quality
Empower Employees

Organization vs. Client Client vs. Client Quality vs. Productivity

Retain the Best People

Provide Needed Support Systems

Provide Supportive Technology and Equipment

149

150

Empowerment
Benefits: Drawbacks:
greater investments in selection and training higher labor costs slower and/or inconsistent delivery may violate customer perceptions of fair play giving away the store (making bad decisions)

Service Culture

quicker responses employees feel more responsible employees tend to interact with warmth/enthusiasm empowered employees are a great source of ideas positive word-of-mouth from customers

A culture where an appreciation for good service exists, and where giving good service to internal as well as ultimate, external customers, is considered a natural way of life and one of the most important norms by everyone in the organization.

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151

Objectives Customers Roles in Service Delivery

Illustrate the importance of customers in successful service delivery Enumerate the variety of roles that service customers play Productive resources Contributors to quality and satisfaction Competitors Explain strategies for involving service customers effectively to increase both quality and productivity

152

CUSTOMERS ROLES IN SERVICE DELIVERY

Importance of Other Customers in Service Delivery

Other customers can detract from satisfaction
disruptive behaviors excessive crowding incompatible needs

153

154

How Customers Widen Gap 3

Lack of understanding of their roles Not being willing or able to perform their roles No rewards for good performance Interfering with other customers Incompatible market segments

Other customers can enhance satisfaction

mere presence socialization/friendships roles: assistants, teachers, supporters

Figure 12-2

155

156

This image cannot currently be display ed.

Customer Roles in Service Delivery

Productive Resources

Customers as Productive Resources

partial employees
contributing effort, time, or other resources to the production process

Contributors to Quality and Satisfaction

customer inputs can affect organizations productivity key issue:

should customers roles be expanded? reduced?

Competitors

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Customers as Contributors to Service Quality and Satisfaction

Customers can contribute to
their own satisfaction with the service
by performing their role effectively by working with the service provider

157

158

Customers as Competitors

the quality of the service they receive

by asking questions by taking responsibility for their own satisfaction by complaining when there is a service failure

customers may compete with the service provider internal exchange vs. external exchange internal/external decision often based on: expertise resources time economic rewards psychic rewards trust control

159

Figure 12-3

160

Technology Spotlight: Services Production Continuum

Strategies for Enhancing Customer Participation

Effective Customer Participation

Customer Production

Joint Production

Firm Production

Define Customer Jobs

Recruit, Educate, and Reward Customers

Gas Station Illustration 1. Customer pumps gas and pays at the pump with automation 2. Customer pumps gas and goes inside to pay attendant 3. Customer pumps gas and attendant takes payment at the pump 4. Attendant pumps gas and customer pays at the pump with automation 5. Attendant pumps gas and customer goes inside to pay attendant 6. Attendant pumps gas and attendant takes payment at the pump

Manage the Customer Mix

161

Strategies for Enhancing Customer Participation

1. Define customers jobs - helping himself - helping others - promoting the company 2. Individual differences: not everyone wants to participate

Strategies for Recruiting, Educating and Rewarding Customers

1. Recruit the right customers 2. Educate and train customers to perform effectively 3. Reward customers for their contribution 4. Avoid negative outcomes of inappropriate customer participation

162

Manage the Customer Mix

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163

164

Objectives Managing Demand and Capacity

Explain: the underlying issue for capacity-constrained services the implications of capacity constraints the implications of different types of demand patterns on matching supply and demand Lay out strategies for matching supply and demand through: shifting demand to match capacity or flexing capacity to meet demand Demonstrate the benefits and risks of yield management strategies Provide strategies for managing waiting lines

MANAGING DEMAND AND CAPACITY

Understanding Capacity Constraints and Demand Patterns

Capacity Constraints Demand Patterns

165

Figure 14-3

166

Strategies for Shifting Demand to Match Capacity

Demand Too High
Shift Demand

Demand Too Low

Time, labor, equipment and facilities Optimal versus maximal use of capacity

Charting demand patterns Predictable cycles Random demand fluctuations Demand patterns by market segment

Use signage to communicate busy days and times Offer incentives to customers for usage during non-peak times Take care of loyal or regular customers first Advertise peak usage times and benefits of non-peak use Charge full price for the service--no discounts

Use sales and advertising to increase business from current market segments Modify the service offering to appeal to new market segments Offer discounts or price reductions Modify hours of operation Bring the service to the customer

Figure 14-4

167

Table 14-1

168

Strategies for Flexing Capacity to Match Demand

Demand Too High
Flex Capacity

What is the Nature of Demand Relative to Supply?

Demand Too Low

Stretch time, labor, facilities and equipment Cross-train employees Hire part-time employees Request overtime work from employees Rent or share facilities Rent or share equipment Subcontract or outsource activities

Perform maintenance renovations Schedule vacations Schedule employee training Lay off employees

Source: Christopher H. Lovelock, Classifying Services to Gain Strategic Marketing Insights, Journal of Marketing, 47, 3 (Summer 1983): 17.

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Table 14-2

169

170

What is the Constraint on Capacity?

Waiting Line Issues and Strategies

unoccupied time feels longer preprocess waits feel longer anxiety makes waits seem longer uncertain waits seem longer than finite waits unexplained waits seem longer unfair waits feel longer longer waits are more acceptable for valuable services solo waits feel longer

171

172

Provider GAP 4
CUSTOMER

MANAGING SERVICE PROMISES

COMPANY

Service Delivery
GAP 4

External Communications to Customers

Part 5 Opener

173

174

Objectives for Chapter 15: Integrated Services Marketing Communications

Introduce the concept of Integrated Services Marketing Communication Discuss the key reasons for service communication problems Present four key ways to integrate marketing communication in service organizations Present specific strategies for managing promises, managing customer expectations, educating customers, and managing internal communications Provide perspective on the popular service objective of exceeding customer expectations

INTEGRATED MARKETING COMMUNICATION

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175 Figure 15-1

Figure 15-3

176

Communications and the Services Marketing Triangle

Company
Internal Marketing
Vertical Communications Horizontal Communications

Approaches for Integrating Services Marketing Communication

Manage Customer Expectations

External Marketing Communication

Advertising Sales Promotion Public Relations Direct Marketing

Manage Service Promises

Goal: Delivery greater than or equal to promises

Improve Customer Education

Employees

Interactive Marketing
Personal Selling Customer Service Center Service Encounters Servicescapes

Customers
Manage Internal Marketing Communication

Source: Parts of model adapted from work by Christian Gronroos and Phillip Kotler

Figure 15-4

177

Figure 15-8

178

Approaches for Managing Service Promises

Approaches for Managing Customer Expectations

Offer Choices

MANAGING SERVICE PROMISES

Create Effective Services Communications Coordinate External Communicatio n Offer Service Guarantees Goal: Delivery greater than or equal to promises

Create Tiered-Value Offerings Communicate Criteria for Service Effectiveness

Negotiate Unrealistic Expectations
Goal: Delivery greater than or equal to promises

Make Realistic Promises

Figure 15-9

179 Figure 15-10

180

Approaches for Improving Customer Education

Approaches for Managing Internal Marketing Communications

Goal: Delivery greater than or equal to promises

Goal: Delivery greater than or equal to promises

Prepare Customers for the Service Process

Confirm Performance to Standards

Clarify Expectations after the Sale

Teach Customers to Avoid Peak Demand Periods and Seek Slow Periods

Create Effective Vertical Communications

Create Effective Horizontal Communications Align Back Office Personnel w/ External Customers Create Cross-Functional Teams

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181

Objectives The Financial and Economic Impact of Service

Examine the direct effects of service on profits Consider the impact of service on getting new customers Evaluate the role of service in keeping customers Examine the link between perceptions of service and purchase intentions Emphasize the importance of selecting profitable customers Discuss what is know about the key service drivers of overall service quality, customer retention and profitability Discuss the balanced performance scorecard to focus on strategic measurement other than financials

182

THE FINANCIAL AND ECONOMIC IMPACT OF SERVICE QUALITY

183 Figure 17-1 Figure 17-2

184

The Direct Relationship between Service and Profits

Offensive Marketing Effects of Service on Profits

Service Quality

Profits

Service Quality
Market Share
Reputation

Profits
Sales

Price Premium

Figure 17-3

185

Figure 17-5

186

Defensive Marketing Effects of Service on Profit

Perceptions of Service, Behavioral Intentions and Profits

Costs

Costs

Service Quality

Customer Retention

Volume of Purchases Price Premium

Margins

Customer Retention

Volume of Purchases Price Premium

Margins

Service

Behavioral Intentions

Word of Mouth

Profits

Word of Mouth

Profits
Sales

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Figure 17-6

187 Figure 17-7

188

The 80/20 Customer Pyramid

Most Profitable Customers
What segment spends more with us over time, costs less to maintain, spreads positive word of mouth?

The Expanded Customer Pyramid

Most Profitable Customers

Best Customers

Platinum Gold

What segment spends more with us over time, costs less to maintain, spreads positive word of mouth?

Other Customers
Least Profitable Customers

Iron
What segment costs us in time, effort and money yet does not provide the return we want? What segment is difficult to do business with?
What segment costs us in time, effort and money yet does not provide the return we want? What segment is difficult to do business with?

Lead
Least Profitable Customers

Figure 17-8

189

Figure 17-9

190

The Key Drivers of Service Quality, Customer Retention, and Profits

Key Drivers Service Encounters
Service Encounter

Sample Measurements for the Balanced Scorecard

Financial Measures
Price Premium Volume Increases Value of Customer Referrals Value of Cross Sales Long-term Value of Customer

Customer Perspective
Service Perceptions Service Expectations Perceived Value Behavioral Intentions:

Operational Perspective:
Right first time (% hits) Right on time (% hits) Responsiveness (% on time) Transaction time (hours, days) Throughput time Reduction in waste Process quality

Service Encounter

Service Quality
Service Encounter

Behavioral Intentions

Customer Retention

Profits

Service Encounter

% Loyalty % Intent to Switch # Customer Referrals # Cross Sales # of Defections

Innovation and Learning Perspective Number of new products Return on innovation Employee skills Time to market Time spent talking to customers

Adapted from Kaplan and Norton

Figure 17-10

191

Service Quality Spells Profits

Costs

Defensive Marketing

Volume of Purchases Price Premium

Margins

Service Quality

Customer Retention

Word of Mouth

Profits
Sales

Market Share

Offensive Marketing

Reputation Price Premium

32