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SM

Chapter 17

THE FINANCIAL AND ECONOMIC IMPACT OF SERVICE QUALITY

McGraw-Hill McGraw-Hill

© 2000 The McGraw-Hill Companies
© 2000 The McGraw-Hill Companies

SM Objectives for Chapter 17: The Financial and Economic Impact of Service 2 • 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 McGraw-Hill © 2000 The McGraw-Hill Companies .

3 SM Figure 17-1 The Direct Relationship between Service and Profits Service Quality ? Profits McGraw-Hill © 2000 The McGraw-Hill Companies .

4 SM Figure 17-2 Offensive Marketing Effects of Service on Profits Service Quality Market Share Reputation Profits Sales Price Premium McGraw-Hill © 2000 The McGraw-Hill Companies .

Figure 17-3 5 SM Defensive Marketing Effects of Service on Profit Costs Service Quality Customer Retention Volume of Purchases Price Premium Margins Word of Mouth Profits McGraw-Hill © 2000 The McGraw-Hill Companies .

SM Figure 17-5 6 Perceptions of Service. Behavioral Intentions and Profits Costs Volume of Purchases Price Premium Margins Customer Retention Service Behavioral Intentions Word of Mouth Profits Sales McGraw-Hill © 2000 The McGraw-Hill Companies .

effort and money yet does not provide the return we want? What segment is difficult to do business with? McGraw-Hill © 2000 The McGraw-Hill Companies .Figure 17-6 7 SM The “80/20” Customer Pyramid What segment spends more with us over time. spreads positive word of mouth? Most Profitable Customers Best Customers Other Customers Least Profitable Customers What segment costs us in time. costs less to maintain.

8 SM Figure 17-7 The Expanded Customer Pyramid Most Profitable Customers Platinum Gold What segment spends more with us over time. costs less to maintain. spreads positive word of mouth? 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? Lead Least Profitable Customers McGraw-Hill © 2000 The McGraw-Hill Companies .

Customer Retention. and Profits Service Encounters Service Encounter Service Encounter Service Quality Service Encounter Behavioral Intentions Customer Retention Profits Service Encounter McGraw-Hill © 2000 The McGraw-Hill Companies .SM Key Drivers Figure 17-8 9 The Key Drivers of Service Quality.

Figure 17-9 10 SM 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 % 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 McGraw-Hill Adapted from Kaplan and Norton © 2000 The McGraw-Hill Companies .

Figure 17-10 11 SM 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 McGraw-Hill © 2000 The McGraw-Hill Companies .

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