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
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.
NDUSTRY % AGE OF GDP IN INDIA
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.
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.
Service delivery and customer satisfaction depend on employees actions. Mass production is difficult. Service quality depends on many uncontrollable factors.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. There is no sure knowledge that the planned and promoted. Services cannot be returned or resold.
Production separate from consumption
. Decentralization may be essential. Customers affect each other. It is difficult to synchronize supply and demand with services. Employees affect service outcome.
Internal Marketing (Enabling promises)
External Marketing (Making promises)
Interactive marketing (Keeping promises)
The Services Triangle and Technology
.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. of steps Simple Complex Customer Involvement
. interactive and internal marketing.
Customer’s behavioral response affects service quality.Expanded Mix for Services Apart from Product. Service quality has many dimensions. the flow of activities by which the service is delivered. place. 7. promotion and price. Marketing of Services: Issues and Challenges 1. for Services we have People.
. Performance itself is the product. the firms personnel. the customer and other customers in the service environment. 3) Process: The actual procedures mechanisms. Services are produced after they are sold. Differentiating is difficult in services. 5. 3. 6. 8. People factor is important.the service delivery and operating system. Physical Evidence and Process 1) People: All human actors who play part in service delivery and thus influence the buyers perceptions namely. 4. 2. 2) Physical evidence: The environment in which the service is delivered and where the firm and the customer interact. Producers of service play the dual role of marketers. Core benefit in services is intangible. and any tangible component that facilitate performance or communication of the service.
CONTINUUM OF EVALUATION FOR DIFFER TYPES OF PRODUCTS
HIGH IN SEARCH QUALITIES
HIGH IN EXPERIENCE QUALITIES
HIGH IN CREDENCE QUALITIES
DRIVEN SERVICE DESIGNS AND STANDARDS GAP 4
EXTERNAL COMMUNICATIONS TO CUSTOMERS
GAP 2 COMPANY PERCEPTIONS OF CONSUMER EXPECTATIONS
.GAPS MODEL OF SERVICE QUALITY
Customer Gap 5 PERCEIVED SERVICE
SERVICE DELIVERY GAP 3 CUSTOMER.
Not knowing what customers expects.Not delivering to service standards Gap 4 – not matches performance to promises
. Gap 2 .THE CUSTOMER GAP
CUSTOMER GAP PERCEIVED SERVICE
The Provider Gaps Gap 1.Not selecting the right service designs & standards Gap 3 .
CATEGORIES IN CONSUMER DECISION MAKING AND EVALUATION OF SERVICES. COMPATABILITY OF CUSTOMERS
POST PURCHASE EVALUATION ATTRIBUTION OF DISSATISFACTION INNOVATION DIFFUSION BRAND LOYALTY
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.
SERVICES: CATEGORIES IN THE DECISION-MAKING PROCESS For Services the sequence of information search. Reasons 1. consumers rely to a great extent on personal sources for several reasons. Difference in retailing between goods and services • • Retail outlet would display competing brands in close proximity To purchase services on other hand. As mass media can convey about search qualities but can communicate little about experience qualities.
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.
Perceived risk Compare to good more risk would be involved in purchase of services. Services not accompanied by any warranties. Purchase and consumption & Post purchase evaluation do not occur in a linear sequence the way they most often do in purchase of goods. a drycleaner or a hair salon) that almost always offer only a single “brand” for sale
. Intangible nature Since services are non-standardized always more uncertainty would accompany about the outcome each time it is purchased.g. For services. 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. a bank. Evaluation of alternatives. the consumer visits an establishment (e.
Hence customers’ evoked set frequently includes self provision of the service. Any service characterized by human interaction is strongly dependent on the moods and emotions of the service providers. tax preparation etc. whereas they may find numerous retail outlets carrying the identical manufacture’s product. SERVICE PURCHASE AND CONSUMPTION Emotion and mood are feeling states that influence people’s (and therefore customers) perceptions and evaluations of their experiences. the service customers and the other customers. Moods and emotion affect the way information about service is absorbed and retrieved.g. Consumers are unlikely to find more than one or two businesses providing the same services in a given geographic area.
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. SERVICE PROVISION AS DRAMA Both service provision and drama aim to create and maintain a desirable impression before an audience. 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. Emotions are more intense stable and pervasive. 3.2. and other customers receiving services at the same time. 4. Evaluation of service is consistent with the polarity (positive or negative) mood or emotion. Or non professional services sometimes the consumer may perform the services for himself e. cleaning homes themselves against hiring housekeepers. Moods and emotions influence service encounters is to bias the way they judge service encounters and providers. The drama metaphor offers a useful way to conceive of service performances. 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)
. Moods are transient feeling states that occur at specific time and in specific situations. Difficulty to obtain adequate prepurchase information about services.
Service employees need to perform their roles according to expectations of the customers. If customer cooperates with the service provider to deliver the best possible service. However if number of customers becomes so dense that crowding occurs.both service employees and customers. One of the factors that most influences the effectiveness of role performance is a script. involving her either as a participants or as an observer. The success of any service performance depends in part on how well the “role set” or players. Customers can be incompatible for many reasons – • Difference in beliefs • Values • Experience • Abilities to pay • Appearance • Age. the service performance is likely to be successful. If customers are informed and educated about the expectations and requirements of the service. A script is a coherent sequence of events expected by the individual. THE COMPATIBILITY OF SERVICE CUSTOMERS The mere presence of customers in churches. restaurants. The customer’s role must also be performed well.act out their roles. If no one else shows up. customers will not get to socialize with others. legal services)
SERVICES ROLES AND SCRIPTS Roles are defined as combinations of social clues that guide and direct behaviors in a given setting. medical services. bars and spectacular sports is important.
. Conformance to scripts is satisfying to the customer while deviations leads to confusion and dissatisfaction. 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. one of the primary expectations in these types of services. customers may also be dissatisfied. health etc.• • •
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.
Customer compatibility is a factor that influences customer satisfaction.g.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. 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.The service marketer must anticipate.g. but hold the producer responsible for product performance. e. • 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
. 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.the customer may blame -The stylist (for lack of skill) .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. .) Hence consumers may complain less frequently about services than about goods. The service marketer can also bring homogeneous customers together and solidify relationships between them.Doctor’s diagnosis depends greatly on this . disappointed from a haircut . particularly in high contact service.
Consumers adopt innovations in services more slowly than they adopt innovations of products. 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. Marketers may need to concentrate on incentives to trial when introducing a new service. The fact that a service provider’s own customers are brand loyal is not a problem. 2. Brand loyalty is described as a “ Means of economizing decision effort by substituting habit for repeated. 6. deliberate decision. 4. The Role Of Culture In Services Culture is learned.
. 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. The fact that customers of the provider’s competition are difficult to capture .Services as a group are less communicable. Culture would include: 1. 3. and is multidimensional. and transmitted from one generation to the next. 5.” This functions as a device for reducing the risk of consumer decision. Service marketers must be particularly sensitive to culture because of customer contact and interaction with employees. shared. less divisible. Brand loyalty has two sides. however creates special challenges. more complex and probably less compatible than goods.
art.Culture is important when we consider international services marketing – taking the service from one country and offering them in others. and / or desirable. These are reflected in music. Consumer behaviors flow from values and attitudes. and dance as well as appreciation of color and form. because they can have direct affect on the service customer. It is “the stuff we own” Why people own and how they use and display material possessions varies around the world. MANNERS AND CUSTOMS Manners and customs represent a culture’s views of appropriate ways of behaving. VALUES AND ATTITUDES DIFFER ACROSS CULTURES Values and attitudes help to determine what member of a culture think is right. but USA cannot take it as a long-term strategy. service marketers who want their services adopted across cultures must understand these differences. drama. E. As nationalism in some cultures could work against this. It is important to monitor differences in manners and customs.
. E. Central and western European employees are perplexed by western expectations that unhappy workers put on a “happy face” when dealing with customers.g. E. US brands have ‘exotic’ appeal to other cultures.g. but it is also critical within countries. Earthy tones of Japanese restaurants as against glossy red evident in their Chinese competitor’s establishments.g. important. E. 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.
MATERIAL CULTURE Material culture consists of tangible products of culture.g.
Culture manifests itself most dramatically in the people contact or our social institutions E. and thus may take place in school and in less formal ‘training’ circumstances. 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.
. Western way of imparting education in a session whenever you have a doubt you would ask from the instructor. But in traditional eastern set up the students would learn by being with the instructor and asking questions was not encouraged. The structure and functioning of each are heavily influenced by culture.g.
two levels of expectations
a. Convenient c. Elegant surroundings b.g. Candle light d. Gracious employees c.
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. Quick b. Tasty food in clean setting The adequate service expectation level however is likely to vary for different firms within a category. a customer may hold higher expectations for Mac Donald’s than for Wimpy’s. b. Desired expectation of 1. Expensive restaurant a. Fast food restaurant a.
Desired service: . Knowing what customer expects is the first and possibly most critical step in delivering quality service. And fine food 2.CUSTOMER EXPECTATIONS OF SERVICE Customer expectations are beliefs about service delivery that function as standards or reference point against which performance is judged. Adequate service: . Within fast food restaurant.
.the service customer hopes to receive . EXPECTED SERVICE: .the “wished for” level of performance.the level of service the customer will accept. E.g.
DIFFERENT CUSTOMERS POSSESS DIFFERENT ZONES OF TOLEREANCE E. An individual customer’s zone of tolerance increases or decreases depending on a number of factors including company-controlled factors such as price. “Price increases don’t really drive up expectations.
. 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.ZONE OF TOLERANCE As service are heterogeneous in that performance may vary across providers. 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. and even within the same service employee. The extent to which customer recognizes and are willing to accept this variation is called the zone of tolerance. When it falls outside the range (either very low or very high). In general customers are likely to be less tolerant about unreliable service (broken promises. the narrower the zone of tolerance is likely to be.” ZONES OF TOLERANCE VARY FOR SERVICE DIMENSION Customer’s tolerance zones also vary for different service attributes or dimensions. the services get customer’s attention in either a positive or negative way. But tolerance level will become more stringent / less flexible with the increase.g. 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. across employees from the same provider. The more important the factor.
Level of expectatio
Zone of Tolerance Adequate Service Zone of Tolerance
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
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.
. 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
Word Of Mouth Personal “Expert” (Consumer Report Publicity Consultants) Past Experience
Self Perceives Service Role
Expected Service Zone of Tolerance
Situational Factors Bad Weather Catastrophe Random Over Demand
Gap 5 (Customer Gap) Perceived Service
.Nature & Determinants Of Customer Expectations Of Service
sensitivity to service.
Those states or conditions essential to the physical or psychological well being of the customer.FACTORS INFLUENCING DESIRED SERVICES
ENDURING SERVICE INTENSIFIERS
ZONE OF TOLERANCE
Personal Needs:. Enduring Service Intensifiers:. are pivotal factors that share the level of desired service Personal needs fall into Physical.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:.When customer expectations are driven by another person or group of people Personal Service Philosophy:.The customer’s underlying generic attitude about the meaning of services and the proper conduct of service providers
. social and psychological functional categories.
Customers who have themselves been in service business would in general have strong service philosophies. Customers perceive services in terms of the quality of the service and how satisfied they are overall with their experiences.g. the repair person is the Internal Customer for the dispatchers and the vehicle maintenance crew.e. Any customer who calls up for the repair of his equipment is the External Customer for the service repair person. Internal and External Customer Perceptions e.
SITUATIONAL FACTORS SERVICE QUALITY
PRODUCT QUALITY CUSTOMER SATISFACTION
. CUSTOMER PERCEPTIONS OF SERVICE Perceptions are always considered relative to expectations. A telephone repair person depends on services provided by the dispatchers vehicle maintenance crew. Satisfaction is generally viewed as a broader concept while Service quality assessment focuses on dimensions of service.g.
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.
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.
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.
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.
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
1 Very Dissatisfied
3 Neither satisfied nor dissatisfied
5 Satisfied Very Satisfied
RELATIONSHIP BETWEEN CUSTOMER SATISFACTION AND LOYALTY IN COMPETITIVE INDUSTRY
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
BUILDING BLOCKS OF SATISFACTION AND SERVICE QUALITY The service encounter or the moment of truth. credentials Knows internal customers as individuals. dress of employees
Acknowledges customers by name. deals with problems promptly Knowledge staff: well trained. remembers previous problems and preferences
Repair facility. uniforms. SERVICE ENCOUNTER OR “MOMENTS OF TRUTH” From a customer’s point of view. waiting area. not “Bureaucratic”. responds to requests INFORMATION PROCESSING(INTERNAL) Provides needed information when requested Prompt response to requests.
. no waiting. or the “moment of truth”. Real time marketing It is from these service encounters that customers build their perceptions. understands individual and departmental needs Internal reports. Interactive marketing This is where the promises are kept or broken. office area. the most vivid impression of service occurs in the service encounter.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.
From the organizations point of view. THE IMPORTANCE OF ENCOUNTERS
BELL PERSON TAKES TO ROOM
WAKE UP CALL
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:. being taken into the room by a bell boy.Encounters which occur without any direct human contacts (e. Co having sent a bill).4 of the top 5 factors come into play in the first 10 minutes of the guest stay.g.
.e. For Disney Amusement park – 74 customer encounters For Mariott Hotel .g. requesting a wake up call. ATM. checking out. In this encounters the tangible evidence of the service and the technical process and systems become primary basis for judging. each encounter thus presents an opportunity to prove its potential as a quality service provider and to increase customer loyalty. eating a restaurant meal. For a hotel customer service encounters are checking into the hotel.
With this technique. and effectiveness / efficiency in handling customer issues become important criteria for judging quality in these encounters. Determining and understanding service quality issues in face-to-face counters is the most complex of all.2) PHONE ENCOUNTERS:. 3) FACE-TO-FACE ENCOUNTERS:. Both verbal and non verbal behaviors are important determinants of quality.
RECOVERY : Employee response to service delivery system pailures ADAPTABILITY: Employee response to customer needs and requests
. four common themesRECOVERY (after failure) 2) ADAPTABILITY 3) SPONTANIETY 4) COPING
Have been identified as the sources of customer satisfaction / dissatisfaction in memorable service encounter. as are tangible cues such as employees dress etc.this is direct contact between an employee and a customer. customers (either internal or external) are asked the following questions: Think of a time when. 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.There is a greater potential variability in the interaction compared to remote encounter Tone of voice. employee knowledge. 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.
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
To achieve this goal. so a shift to a relationship strategy often represents : • • • Change in mind set Organizational culture And employee reward systems. Customers become partners and the firm must make long-term commitments to maintaining those relationships with quality. Relationship marketing essentially represents a paradigm shift within marketingAway from an acquisitions / transactions focus toward a retention / relationship focus. Historically. service and innovation. Relationship marketing (or relationship management) is a philosophy of doing business. retention and enhancement of customer relationships.
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. a strategic orientation. rather than acquiring new customers. that focuses on keeping and improving current customers. marketers have been more concerned with acquisition of customers. the firm will focus on the attraction.
ENHANSING RETAINING SATISFYING
.BUILDING CUSTOMER RELATIONSHIP RELATIONSHIP MARKETING There has been a shift from a transactions to a relationship focus in marketing.
. BENEFITS OF CUSTOMER / FIRM RELATIONSHIPS Both parties benefit i.
. customers develop a sense of familiarity and even a social relationship with their service providers. but customers themselves also benefit from long-term associations. specific benefits) exceed the gives (monetary and non monetary costs) Beyond the specific inherent benefits of receiving service value.g. Across all of the services studied in the research just cited. satisfaction. these are:• • • CONFIDENCE BENEFITS SOCIAL BENEFITS SPECIAL TREATMENT BENEFITS
CONFIDENCE BENEFITS These benefits comprise feelings of trust or confidence in the providers. alongwith a sense of a reduced anxiety and comfort in knowing what to expect. 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. they may represent growth potentials. e.CUSTOMER GOALS OF RELATIONSHIP MARKETING Loyal customers not only provide a solid base for the organization. customer / firm from customer retention. Research has uncovered specific types of relational benefits. 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.e. customers also benefit in other ways from long term associations with firm. Consumers are more likely to stay in a relationship when the gets (quality. SOCIAL BENEFITS Overtime. It is not only in the best interest of the organization to build and maintain a loyal customer base. confidence benefits were the most important to customers.
Doctor asking you to come is minutes before starting his consultation with the customers.g. • • • • 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. ESTIMATING LIFETIME VALUE If companies knew how much it really costs to lose a customer. You enjoy doing business with them”.In some long-term customer / firm relationship a service provider may actually become part of the customer’s social support system.000 x 2 (New customers) = $ 360. he’s really funny and always has lots of good jokes. BENEFITS FOR THE ORGANISATIONS The benefits to an organization of maintaining and developing a loyal customer base are numerous..000
. 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. a happy customer will create at least one new customer via word of mouth $ 180. e. He’s kind of like a friends now….it’s you’re used to. They can be linked directly to the firm’s bottom line. the value $ 1500 / month x 12 month / year x 10 years = $180000 Going further. SPECIAL TREAMTEMT BENEFITS Special treatment includes such things as getting the benefit of doubt. A quote from the research where a customer describes her hair stylist: “I like him….g. e. they would be able to make accurate evaluations of investments designed to retain customers. being given a special deal or price.. getting preferential treatment.
Thus the value of his company’s business for Federal Express was about $ 360.000. a resort company which gets the old people and young crowd together at the same time at the resort.000 / company x 40 companies $ 14. 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. 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. Eg. DIFFICULT CUSTOMER: some customers put huge demands on the company and as such company would not be Interested in such customer.
.000 portfolio of lifetime business for the company.
THE CUSTOMER ISN’T ALWAYS RIGHT THE WRONG SEGMENT: A company cannot target its services to all customers.000 It is estimated that the average fed ex delivery person stops at 40 business the size of Peter’s business each day $ 360.000 Thus the average employee of Federal Express is managing a $ 14.g. e.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. some segments will be more appropriate than the others. e.g. 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.
but are ultimately satisfied based on recovery efforts by the firm. will be more loyal than those whose problems are not resolved. Those who complain and their problems resolved quickly are much more likely to repurchase than are those whose complaints were not resolved.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. 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. Those who never complain are likely least likely to repurchase
Unhappy Customers who donot complain
Unhappy customers who do complain Complaints not resolved
Complaints resolved quickly
Percentage of Customers who will buy again
1 2 It is expensive to fix mistakes. the failure is less critical. but experience a high level of excellent service recovery. The logical but not very rational conclusion is that companies should plan to disappoint customers so that they can recover and gain even greater loyalty from them as a result. This idea has become known as the RECOVERY PAPADOX. it may be possible to observe evidence of the Recovery Paradox. 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”.An effective Service Recovery strategy can Increase customer Satisfaction and Loyalty Generate positive Word of Mouth
A well designed. Empirical Research suggests that only under the very highest levels of customers’ Service Recovery ratings will we observe increased satisfaction and loyalty. However. may ultimately be even more satisfied and more likely to repurchase than are those who were satisfied I the first place. In cases where the failure can be fully overcome. Recovery Paradox is more complex than it may seem on the surface.
It is safe to say that “ Doing it right the first time “ is still the best and safest strategy. then every effort at a superior Recovery should be made to mitigate its negative effects.
. Repeated Service Failures without an effective Recovery Strategy in place can aggravate even the best employees. THE RECOVERY PARADOX It is suggested that customers who are dissatisfied. The costs in Employee Morale and even lost employee can be huge. when a failure does occur. actively pursuing opportunities to openly criticize the company. or the Recovery Effort is clearly superlative.
How Customers Respond To Service Failures
Dissatisfaction/ Negative Emotions
No Complaint Action
Complain to Provider
Negative word of mouth
Third Party Action
They often doubt the effectiveness of complaining. customers may choose to complain later to the provider by phone or in writing. TYPES OF CUSTOMER COMPLAINT ACTIONS If customers initiate actions following service failure . 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. These Proactive types of complaining behavior is preferred as voice responses or Seeking Redress. simply saying or doing nothing. From company’s point of view any customer who complains on the spot is the best case scenario.
They are unlikely to say anything to the provider Less likely than others to spread negative Word of Mouth. or even write or call the corporate offices of the company.
. It is known that those who donot complain are least likely to return. self pity and anxiety. the action can be of various types as shown in the Fig. the company has a chance to recover. Many customers are very passive about their dissatisfaction. TYPES OF COMPLAINERS Four categories on how the customers respond to failures have been identifies. discontent. thinking the consequences will not merit the time and the effort they will expend. For companies. disappointment. Company has the chance to respond immediately. customer passivity in the face of dissatisfaction is threat to future success. unlikely to complain to third party. If they don’t complain immediately. 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.Customer Complaint Action Following Service Failure Variety of negative emotions can occur following a service failure. including such feelings as anger.
They have a very optimistic sense of the potential positive consequences of all types of complaining. Those who are unlikely to take any action hold the opposite beliefs. Activists: These consumers are characterized by above average propensity to complain on all dimensions. or to go to third parties with their complaints. and that in case of service failure. to switch patronage. They believe complaining has social benefits and therefore don’t hesitate to voice their opinion. Irates: These customers are more likely to engage in negative word of mouth to friends and relatives and to switch providers than are others.
WHY DO ( AND DON’T) PEOPLE COMPLAIN? The categories just described suggest that some customers are more likely to complain than others. they will tell others. and they are more likely than any other group to complain to third parties. They believe that fair treatment and an good service are their due. 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. Actively complain and give company a second chance. someone should make good. These customers to be viewed as the service providers friend. and their personal norms support their complaining behavior.(2)
Voicers: These customers actively complain to the service provider Less likely to spread the negative word of mouth. As individuals. They will complain to the provider. In some cases they feel a social obligation to complain – to help others avoid similar situations or to punish the service provider.
. They are less likely to give the service provide a second chance. They are angry with the service provider although they do believe that complaining to the service provider can have a social benefits. They feel alienated from the market place. A very small number of consumers have “ complaining” personalities – they just like to complain or cause trouble.
Many customers were not comfortable asking for this level of compensation.They often see complaining as a waste of their effort . Often rude and uncaring behavior of employees is due to lack of training and empowermenta frustrated. They also appreciate it when a company gives them choices in terms of compensation.i. frontline employee who has no authority to compensate the customer may
. Unfair procedures are those that customers perceive as slow. prolonged and inconvenient. especially if the driver was only few minutes late.g. customers expect fairness in terms of policies. They want easy access to the complaint process and they want things handled quickly. E. rule and timeliness of the complaint process. Customers also feel it is unfair if they have to prove their case. preferably by the first person they contact.
Outcome Fairness: They expect equity in the exchange. The company’s “ punishment should fit the crime”.
Procedural Fairness: In addition to fair compensation. 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. WHAT DO CUSTOMERS EXPECT Customers want justice and fairness in handling their complaints Customers are looking for: OUTCAME FAIRNESS PROCEDURAL FAIRNESS INTERACTIONAL FAIRNESS
1. customers can be comfortable if they are overly compensated. they want to feel that the company has “Paid” for its mistakes in a manner at least equal to what the customer has suffered.when the assumption seems to be they are wrong or lying until they can prove otherwise.
2. On the other hand. Fair procedures are characterized by clarity. with care and honesty. speed and absence of hassles. E.e. 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.
Interactive Fairness: Customers expect to be treated politely. WHEN THEY COMPLAIN. Domino’s Pizza offered not to charge if the driver arrived after 30 minutes guarantee delivery time.
There are three types of relationships viz. .“Pseudo Relationship” is one where the customer has interacted many times with the same company. These customers are more likely to change.easily respond in an aloof and uncaring manner. the decision to switch to a different service provider may not occur immediately following service failure or poor service recovery. on a transaction basis.
. The more serious the failure. Thus certain customers will have greater propensity to switch service providers no matter how their Service Failure situations are handled. but with different service provider (people) each time. especially if the customer is angry and/or rude. the more likely the customer to switch no matter what the recovery effort. but may follow an accumulation of events. with the provider. . rather than one specific moment in time when a decision is made.“First Time Encounter” Relationship is where the customer has had only one contact. -“True Relationships” where the customer has had repeated contact overtime with the same service provider. The service switching can be viewed as a process resulting from a series of decisions and critical service encounters overtime. 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. Finally. SWITCHING VERSUS STAYING FOLLOWING SERVICE RECOVERY Ultimately. These customers are more forgiving of poorly handled service failures and are less likely to switch than others. Individual customer’s attitude towards switching will strongly influence whether he or she ultimately stays with the provider. The nature of the Customer’s Relationship with the firm may also influence whether the customer stays or switches providers.
SERVICE BLUEPRINTING Services commonly lack concrete specifications. objective depiction of process. A Service Blueprint visually displays the service by simultaneously depicting the process of service delivery. 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. They are Customers actions. “ On Stage” Contact Employee Actions. Blueprints are particularly useful at the design and redesign stage of development. “BackStage” Contact Employee Action and Support processes. Products on the other hand are produced with concrete and detailed plans. written specifications and engineering drawings.even a complex one. A Service .This process orientation suggests that companies could potentially track customer interactions and predict the likelihood of defection based on a series of events. might be introduced without any formal. the points of customer contact.
Process Service Blueprint Points of Contacts Evidence
Service Blueprinting Blueprint Components The key components of Service Blueprints are shown in the fig. By intervening earlier in the process companies can prevent at time customer’s decision to switch. and the visible elements of the service. the roles of customers and employees. A Service Blueprint is a picture or map that accurately portrays the service system.
Physical Evidence Customer Actions Line of Interaction On Stage Contact Employees Actions Line Of Visibility Back Stage Contact Employee Actions Line of Internal Interaction
SERVICE BLUEPRINT COMPONENTS The customer actions area encompasses the steps. consuming and evaluating the service. face to face meetings. Ina legal services the customer actions might include a decision to contact an attorney. receipt of documents and receipt of bill. Onstage Employee actions are the steps and activities that the contact employee performs that are visible to the customer. E. phone calls to the attorney. choices.g.
. Backstage employee actions are the steps and actions that occur behind the scenes to support the on stage activities. activities and interactions that the customer performs in the process of purchasing.
Line of Interaction represents the direct interactions between the customer and the organization.
. Line of Internal Interaction separates contact employee activities from those of other service support activities and people. Anytime a vertical line crosses the horizontal line of interaction.The support processes cover the internal services. steps and interactions that take place to support the contact employees in delivering the service. Line of Visibility separates all service activities that are visible to the customer from those that are not visible. a direct contact between the customer and the organization or a service encounter has occurred. Vertical Lines cutting across the line of Internal Interaction represent internal service encounters.
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
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.
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
.Type of Research Mystery shopping
Primary Research Objectives To measure individual employee performance for evaluation .
EMPLOYEES’ ROLE IN SERVICE DELIVERY
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
customer satisfaction will be difficult to achieve. Thus investing in the employee to improve the service parallels making a direct investment in the improvement of a manufactured product. to the organization’s advantage.In many cases . They physically embody the product and are the walking billboards from the promotional point of view. 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. Whether acknowledged or not . in turn.g. or poorly to the organization’s detriment. They provide link between the external customer and environment and
. Because contact employees represent the organization and can directly influence customer satisfaction. Some have gone so far as to suggest that unless service employees are happy in their jobs. service employees perform marketing functions. They can perform these functions well. cleaning /maintenance etc. Customer Satisfaction and Profits There is a concrete evidence that satisfied employees make for satisfied customers (satisfied customers can. physical trainers. they perform the role of marketers. The offering is the employee. 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. the contact employee is the service – there is nothing else.) the contact employees provide s the entire service single handedly. child care . E. reinforce employees’ sense of satisfaction in their jobs). in most personal and professional services (like haircutting. Employee Satisfaction. actively selling or not.
boundary spanners are well paid. front desk employees. consultants. telephone operators. and responsiveness directed towards customers all require huge amount of emotional labor from the front-line employees who shoulder the responsibility for the organization. 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. In other Industries. 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. scheduled breaks. a diminished ability to serve customers. filtering and interpreting information and resources to and from the organization and external constituencies.
. lawyers. Their frustration and confusion can. architects. highly educated professionals – for example.internal operations of the organization. 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. and delivery people. lowest paid employees in the organization. courtesy. lead to stress. boundary-spanning positions are often high-stress jobs. It means delivering smiles. doctors. and retail. hotels. No matter what the level of skill or pay. In industries such as fast food. teamwork or other techniques). making eye contact. job dissatisfaction. and teaching or giving them coping abilities and strategies (via job rotation. Friendliness. They are order takers. empathy. store clerks. if left unattended. The organizations need to carefully selecting the people who can handle emotional stress. training them in needed skills (like listening and problem solving). accountants. They serve the critical function in understanding . SOURCES OF CONFLICT Front-line employees often face interpersonal and interorganizational conflicts on the job. Emotional Labor draws on people’s feeling (often requiring them to suppress their true feelings) to be effective in their jobs. and burnout. and engaging in friendly conversation with people who are essentially strangers and who may or may not ever see again. telecommunication. and teachers. showing sincere interest. truck drivers. the boundary spanners are the least skilled.
front liners inevitably have to deal with conflicts. When they are not. a ticketing agent. the service provider may satisfy one customer by spending additional time. and procedures. Organization/Client Conflict : A more common type of conflict for front-line service employees is the conflict between their two bosses. 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.As these employees represent the customer to the organization and often need to manage a number of customers simultaneously. 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. 2. and being very flexible in meeting the customer’s needs> Meanwhile. different clients may prefer different modes of service delivery.g A young lawyer. 3. In the case of serving many customers at the same time. 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. and inter-client conflicts.g. the employee has to choose whether to follow the rules or satisfy the demands. including person/role conflicts. it is often difficult or impossible to serve the full range of needs of a group of heterogeneous customers simultaneously. So an employee has two bosses one customer and one in the organization to whom he is reporting. waiting customers are becoming dissatisfied because their needs are not being met in a timely manner. Person/Role Conflicts : In some situations the front-line employees feel conflict between what they are asked to do and their own personalities. entertainers). or values. Interclient Conflict : Sometimes conflict occurs for boundary spanners when there are incompatible expectations and requirements from two or more customers. the organization and the individual customer. This occurs most often when the service provider is serving the customers in turn (a bank teller. customizing the service . Service employees are typically rewarded for following certain standards . 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. E. Beyond the timing issue. These conflicts are especially severe when service employees depend directly on the customer for income. a doctor) or is serving many customers simultaneously (teachers. or when a customers makes excessive demand. orientations. E. 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. rules. 1. In case of serving customers in turn . Ideally these rules and standards are customer based. organization/client conflict.
developing. the importance of attracting.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. 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. an organization will move towards closing gap3. These strategies for enabling service promises are often referred to as internal marketing . an organization must : • • • • Hire the right people Develop people to deliver service quality Provide the needed support systems Retain the best people
. service minded ways.service-minded workforce. and retaining good people in knowledge and service based industries cannot be overemphasized. To build a customer-oriented . Even during slow economic times.
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. Services are actions or performances. interacting with employees and with other customers.
. In many situations employees. 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
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). typically produced and consumed simultaneously.g In a classroom or training situation. students (customers) are sitting in the factory interacting with the instructor and other students as they consume the educational services. customers can contribute to or detract from the successful delivery of the service and to their own satisfaction. E.
Similarly. Meanwhile. causing longer wait times and potential dissatisfaction. 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. Physical Possessions such as receipts and past tax returns. In other cases. consumer inputs are required to aid the service organization in creating the service (moderate level of participation). and number of dependents. All three of these are required in case for a CA to prepare a client’s income tax return effectively. as in case of a ghazal concert. effort or physical possessions. The listeners must be present to receive the entertainment service. productive or unproductive behaviors. other customers and calls are left unattended. 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. medium. effective or ineffective . he or she can contribute to gap 3 through appropriate or inappropriate. Effort in putting the information together in a useful fashion.
. Information in the form of tax history. Incase of long term consulting engagements involvement of the customers high as they co create the service. with the employees of the firm doing all of the service production work. Inputs can include information. high – varies across services. The level of participation – low.Because the customers receiving the service participates in the delivery process. marital status. all that is required is the customers physical presence (low level of participation).
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.LEVELS OF CUSTOMER PARTICIPATION ACROSS DIFFERENT SERVICES
Low: Consumer Presence Required during Service delivery Products are standardized . Provision for service requires customer purchase. “other customers” are present in the service environment and can effect the nature of the service outcome or process. Payment may be the only required customer input. materials) are necessary for an adequate outcome. Customer inputs (information. In both cases. Other customers can either enhance or detract from customer satisfaction and the perception of quality. but the service firm provides the service
High : Customer Concretes the Service Product Active client participation guides the customized service.
Moderate : Consumer Inputs Required during Service Creation Client inputs customize a standard service. Service cannot be created apart from the customer’s purchase and active participation Customer inputs are mandatory and concrete the outcome. Service is provided regardless of any individual purchase.
personal fitness. Customers may care little that they have increased the productivity of the organization through their participation. if customers contribute effort. they should be considered as part of the organization. and weight loss. gain the commitment of key internal stakeholders. 2. the desired service outcomes are not possible. communicate openly.
. active participation by students – as opposed to passive listening – increases learning a9the desired service output) significantly. Effective customer participation can increase the likelihood that needs are met and that the benefits the customer seeks are actually attained. clients who clearly articulate the solution they desire . where the service outcome is highly dependent on the customers participation. provide needed information in a timely manner . The presence of other patrons is essential for true enjoyment of the experience.Some of the ways other customers can negatively affect the service experience are by exhibiting disruptive behaviors. Research has shown that in education . overusing. and in other entertainment venues. research suggest that in an IT consulting context. Think about service s such as health care. and raise the issues during the process before it is too late will get better service. In other cases the customers provide a positive social dimension to the service experience. but they likely care a great deal about whether their needs are fulfilled. in movie theatres. excessively crowding. 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. education. In other words. In these cases. CUSTOMERS’ ROLES 1. and manifesting incompatible needs. time or other resources to the service production process. Customers inputs can affect the organization’s productivity through both quality of what they contribute and the resulting quality and quantity of output generated. unless the customers perform their roles effectively.g. 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. causing delays. This is true in sporting events. Sometimes mere presence of other customers enhances the experience. E.
If self-service customers can be viewed as resources of the firm. and customers in order to lay the ground. home maintenance –
. becomes annoyed when the crew runs out of blankets. staff. Customers thus in that sense are competitors of the companies that supply the service. Client B has a box full of papers and receipts. 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.for example.” 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. passenger A also called ahead to order a special meal. The hotel staff exchanged his TV for one that worked and fixed the light bulb. Client B has invited architects in following a decision the week previously to remodel the building. complains about the magazine selection and the meal. or as “partial employees. 3. 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. many of which are not relevant to her taxes but which she brought along “just in case. The committee has already formulated initial ideas and surveyed staff and customers for input.work for a major remodeling job that will affect everyone who works in the building as well as customers. child care. 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. both problems were fixed immediately.WHICH CUSTOMER (A OR B) WILL BE MOST SATISFIED? For each scenario. Customers as Competitors A final role played by service customers is that of potential competitor. ask “Which customer (A or B) will be most satisfied and receive the greatest quality and value. 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. Later they brought him a fruit plate to make up for the inconvenience.” 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. His complaints were over. Whether to produce a service for themselves (internal exchange) . Passenger B who arrives empty-handed. Guest B did not communicate to management until checkout time that his TV did not work he could not read in his bed. who wondered whether they had chosen the right place to stay. and starts fidgeting after the movie.heard by guests checking in.
service firms cannot build up inventories during peak periods of slow demand to use later when demand increases.or have someone else provide the service for them (external exchange) is a common dilemma for consumers. accounting.
. MANAGING DEMAND AND CAPACITY The fundamental issue underlying supply and demand management in services is the lack of inventory capability. Unlike manufacturing firms. Alternatively. They find that it is advantageous to focus on their core businesses and leave these essential support services to others with greater expertise. Firms frequently choose to outsource service activities such as payroll. Similar internal versus external exchange decisions are made by organizations. data processing. maintenance. a firm may decide to stop purchasing services externally and bring the service production process in-house. 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. research. The lack of inventory capability combined with the fluctuating demand leads to variety of potential outcomes. This lack of inventory capability is due to the perishability of services and their simultaneous production and consumption. and facilities management.
Demand exceeds optimum capacity : No one is being turned away. 3. equipment. crowding. or staff being pushed beyond their abilities to deliver consistent quality. but the quality of service may still suffer because of overuse. Demand and supply are balanced at the level of optimum capacity : Staff and facilities are occupied at an ideal level . resulting in lost business opportunities.Variations in Demand Relative to Capacity
Demand exceeds capacity
(business is lost)
CAPACITY UTILIZED Maximum Available Capacity Optimum Capacity Demand exceeds optimum capacity (quality declines)
(Demand and Supply Well Balanced
(May Send Bad Signals)
(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. Excess Demand : The level of demand exceeds maximum capacity. and facilities are underutilized. 4. Excess Capacity : Demand is below optimum capacity. facilities can be maintained . its quality may not match what was promised because of crowding or overtaxing of staff and facilities.
. resulting in lost productivity and lower profits. 2. For the customers who do not receive the service. No one is overworked. Productive resources in the form of labor. In this situation some customers will be turned away. and customers are receiving quality service without undesirable delays.
2001. AT&T’s ingenuity. is there a predictable cycle daily (variations occur by hours). fires. Communications with home were determined by the military to be essential to troop morale. many without advance warning. Natural disasters such as floods. monthly (variations occur by the month).
. Health-related events also cannot be predicted. why they wary. Random Demand Fluctuations : Sometimes the patterns of demand appear to be random— there is no apparent predictable cycle. With mail delivery between the United States and the Middle East taking more than six weeks. however service quality depends on the presence of other customers. 1. it is likely to have a clear understanding of demand patterns. what are the underlying causes? This can help a service provider in dealing with the customers in a much better way. 500. weekly (variations occur by day).2 million free to family and friends of service men and women. and the market segments that comprise demand at different points in time. Predictable Cycles : In looking at the graphic representation of demand levels. but the level of demand cannot generally be determined in advance. and/or yearly (variations occur according to months or seasons)? If there is a predictable cycle . For example. and hurricanes can dramatically increase the need for such services as insurance. and complete attention from the staff. Accidents. it may be possible to anticipate demand a day or two ahead. 2. Before their deployment these men and women had little time to attend to personal business. If. shopping. and capacities were challenged to meet this unanticipated communication need. general instantaneous need for services that can’t be predicted. The others may need to chart demand patterns more informally. During this period. Yet even in this case. day to-day changes in the weather may affect use of recreational. causes can often be identified. responsiveness. telecommunications. no waiting .000 U. Organizations that have good computerized customer information systems can do this very accurately. Charting Demand Patterns : First. troops needed a quick way to communicate with their families and to handle personal business. troops were deployed to the Middle East. and births all increase demand for hospital services. During and after the Gulf War crisis more than 2. and health care. heart attacks. and AT&T sent more than 1. or entertainment facilities.5 million calls were placed over temporary public phone installations. AT&T was faced with a sudden increase in demand for services to the mi1i during the Gulf War. 3. Although the weather cannot be predicted far in advance.S. and all of them left behind concerned family and friends.Customers may receive excellent service on an individual level because they have the full use of the facilities. Acts of war and terrorism such as that experienced in the United States on September 11. UNDERSTANDING DEMAND PATTERNS To manage fluctuating demand in a service business. the organization needs to chart the level of demand over relevant time periods. customers may be disappointed or may worry that they have chosen an inferior service provider.
Those who can’t shift and can’t be accommodated will represent lost business for the firm. Whistler Mountain. For example. Canada. some clinics schedule more future appointments (which they can control) for later days of the week. STRATEGIES FOR MATCHING CAPACITY AND DEMAND When an organization has a clear grasp of its capacity constraints and an understanding of demand patterns. 1. Knowing that this pattern exists.4. Or the analysis may reveal that demand from one segment is predictable while demand from another segment is relatively random. it is in a good position to develop strategies for matching supply and demand. with fewer numbers needing immediate attention on other days of the week. Shifting Demand to Match Capacity : With this strategy an organization seeks to shift customers away from periods in which demand exceeds capacity. There are two general approaches for accomplishing this match. whereas personal account holders may visit the bank at seemingly random intervals. it may be able to disaggregate demand by market segment. can often shift the timing of their trips. perhaps by convincing them to use the service during periods of slow demand. Vary the Service Offering : One approach is to change the nature of the service offering. Health clinics often notice that walk-in or “care needed today” patients tend to concentrate their arrivals on Mon day.
Each of these two basic strategies is described next with specific examples. pleasure travelers.
. • • The first is to smooth the demand fluctuations themselves by shifting demand to match existing supply. and hotel services. For example. offers its facilities for executive development and training programs during the summer when snow skiing is not possible. For example. depending on the season of the year. This may be possible for some customers but not for others. revealing patterns within patterns. for a bank. many business travelers are not able to shift their needs for airline. leaving more of Monday available for same-day appointments and walk-ins. car rental. a ski re sort in Vancouver. A. or time of day. the visits from its commercial accounts may occur daily at a predictable time. day 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. Demand Patterns by Market Segment :If an organization has detailed records on customer transactions. The second general strategy is to adjust capacity to match fluctuations in demand. on the other hand.
stay open until 6 P. Historically. On routes with a large demand for first-class seating. banks open early. a significant proportion of seats may be placed in first class.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. the downside of such changes can be a confusion in the organization’s image from the customers’ perspective.S.M.. Air lines even change the configuration of their plane seating to match the demand from different market segments. 2 Communicate with Customers:
Another approach for shifting demand is to communicate with customers. Those who don’t want to wait may choose to call back later when the lines are less busy. Many customer service phone lines provide a similar warning by informing waiting customers of approximately how long it will be until they are served. Advertising and sales messages can also remind customers about peak demand times. In some planes there may be no first-class section at all. al lowing customers to shift their demand to another time if possible. Forewarning customers about busy times and possible waits can have added benefits. U. and staffing—to match the new offering. or a loss of strategic focus for the organization and its employees. In addition to signage communicating peak demand times to customers.
. During other times of the year they can focus on audits and general consulting activities.M. to 3 P. 3 Modify Timing and Location of Service Delivery :
Some firms adjust their hours and days of service delivery to more directly reflect customer demand. E. banks were open only during “bankers’ hours” from 10 A.S. every weekday. Unless these additional mix variables are altered effectively to support the offering. when federal taxes are due in the United States. better reflecting customer demand patterns. advertising and other forms of promotion can emphasize different service benefits during peak and slow periods. the strategy may not work. Care should be exercised in implementing strategies to change the service offering. and are open on Saturdays. Even when done well.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.Accounting firms focus on tax preparation late in the year and until April 15. 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. many days. because such changes may easily imply and require alterations in other marketing mix variables—such as promotion. Now U. Obviously these hours did not match the times when most people preferred to do their personal banking. pricing.
Theaters also accommodate customer schedules by offering matinees on weekends and holidays when people are free during the day for entertainment. Heavy use of price differentiation to smooth demand can be a risky strategy. Movie theaters are sometimes rented during weekdays by business groups—an example of varying the service offering during a period of low demand. a price differentiation strategy depends on solid understanding of customer price sensitivity and demand curves. restaurant. where total industry profits suffered as a result of airlines simultaneously trying to attract customers through price discounting. rather people. stretch. Flexing Capacity to Meet Demand : A second strategic approach to matching supply and demand focuses on adjusting or flexing capacity.
a. 1 Stretch Existing Capacity : The existing capacity of service resources can often be expanded temporarily to match demand. facilities. however. Over reliance on price can result in price wars in an industry where eventually all competitors suffer. and equipment are asked to work harder and longer to meet demand. business travelers are far less price sensitive than are families traveling for pleasure. In such cases no new resources are added. Price wars are well known in the airline industry. 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. Differentiate on Price : A common response during slow demand is to discount the price of the service. To be effective. customers may not understand the reasons for the discounts and will expect to pay the same during peak demand periods. 4. all of the capacity could be filled with customers if the price were low enough. Stretch Time:
. and align capacity to match customer demand (rather than working on shifting demand to match capacity as just described). 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. For example. if communications with customers are unclear. The fundamental idea here is to adjust. But the goal is always to ensure the highest level of capacity utilization without sacrificing profits. During periods of slow demand it tries to shrink capacity so as not to waste resources. This strategy relies on basic economics of supply and demand. F For any hotel. or other service establishment. airline. B. During periods of peak demand the organization seeks to stretch or expand its capacity as much as possible.
telephone lines. Use Part-Time Employees : In this case the organization’s labor resource is being aligned with demand. Restaurants often ask employees to work split shifts (work the lunch shift. when capacity has been stretched too far. c.It may be possible to extend the hours of service temporarily to accommodate demand.
. facilities. and equipment are again the focus. restaurants. tax accountants engage temporary help during tax season. During peak demand. restaurants. 2. leave for a few hours. and come back for the dinner rush) during peak mealtime hours. and classrooms can sometimes be expanded temporarily by the addition of tables. 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. b. a car can hold a number of people seated comfortably or can “expand” by accommodating standing passengers. Retailers hire part-time employees during the holiday rush. Align Capacity with Demand Fluctuations : This basic strategy is sometimes known as a “chase demand” strategy. and accountants have extended appointment hours (evenings and Saturdays) before tax deadlines. associates are asked to take on additional projects and work longer hours. 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. For example. sometimes it is difficult to know in advance. tourist resorts bring in extra workers during peak season. Stretch Equipment : Computers. labor. In using these types of “stretch” strategies. retailers are open longer hours during the Christmas shopping season. employees are asked to work longer and harder during periods of peak demand. As noted earlier. or other equipment needed by customers. chairs. and telecommunications companies are asked to serve more customers per hour during busy times than during hours or days when demand is low. And front-line service personnel in banks. as in the case of a commuter train. Specific actions might include the following. A health clinic might stay open longer during flu season. this time with an eye toward adjusting the basic mix and use of these resources. tourist attractions. d. particularly in the case of human resources. meeting facilities. and maintenance equipment can often be stretched beyond what would be considered the maximum capacity for short periods to accommodate peak demand. Stretch Labor : In many service organizations. Stretch Facilities : Theaters. By adjusting service resources creatively. organizations can in effect chase the demand curves to match capacity with customer demand patterns. Time. Or. consulting organizations face extensive peaks and valleys with respect to demand for their services. a.
Cross-Train Employees : If employees are cross-trained. employees specialize in one task (like making french fries) during busy hours. and the team of specialists may number 10 people. then it is imperative to schedule repair. they can shift among tasks. Rather than try to hire and train additional employees. Using an approach known as “demand-driven dispatch. and facilities are being used at maximum capacity during peak periods. maintenance. and renovations during off-peak periods. Rent or Share Facilities or Equipment : For some organizations it is best to rent additional equipment or facilities during periods of peak demand. Modify or Move Facilities and Equipment : Sometimes it is possible to adjust. 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. During slow hours the team may shrink to three. e. many firms have found they don’t have the capacity to fulfill their own needs for technology support. It would not make sense to buy trucks that would sit idle during the rest of the year. c. with each person performing a variety of functions. Sometimes organizations with complementary demand patterns can share facilities. or creatively modify existing capacity to meet demand fluctuations. In some fast-food restaurants. For example.’ The method depends
. equipment. filling in where they are most needed. Grocery stores also use this strategy. Web design. ex press mail delivery services rent or lease trucks during the peak holiday delivery sea son. these companies look to firms that specialize in outsourcing these types of functions as a temporary (or sometimes long-term) solution.” airlines have begun to experiment with methods that assign airplanes to flight schedules on the basis of fluctuating market needs. move. The airline industry offers dramatic examples of this type of strategy. d.b. With regard to employees. and software-related services. with most employees able to move as needed from cashiering to stocking shelves to bagging groceries. Many airlines cross-train their employees to move from ticketing to working the gate counters to assisting with baggage if needed. Schedule Downtime during Periods of Low Demand . the church needs the facilities evenings and on the weekend. For example. this means that vacations and training are also scheduled during slow demand periods. f. This increases the efficiency of the whole system and avoids underutilizing employees in some areas while others are being over taxed. The school needs the facilities Monday through Friday during the day. 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. If people. This ensures that the resources are in top condition when they are most needed. An example is a church that shares its facilities during the week with a Montes son preschool. in recent years.
labor. yield approaches 1 as actual capacity utilization increases or when a higher actual price can be charged for a given capacity used. or three classes. matching demand and supply in capacity-constrained services. AND FINANCIAL RETURN Yield management is a term that has become attached to a variety of methods. a manager could focus on increasing yield by finding ways to bring in more passengers to fill the capacity. the segments sold to. equipment. Yield is essentially a measure of the extent to which an organization’s resources (or capacities) are achieving their full revenuegenerating potential. some very sophisticated. MARKET SEGMENTATION. PRICING.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.’ The plane can thus be quickly modified to match demand from different market segments. Another strategy may involve moving the service to a new location to meet customer demand or even bringing the service to customers.
. two. or facilities. In reality. Using yield management models. and the capacity used. YIELD MANAGEMENT: BALANCING CAPACITY UTILIZATION. For example. The goal of yield management is to produce the best possible financial return from a limited available capacity.” Although the implementation of yield management can involve complex mathematical models and computer programs. or by finding higher-paying passengers to fill a more limited capacity. in an airline context. Specifically. Mobile training facilities. expert yield managers will work on capacity and pricing issues simultaneously to maximize revenue across different customer segments. 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. essentially molding capacity to fit demand. Assuming that total capacity and maximum price cannot be changed. libraries. Recall that capacity constraints can be in the form of time. and blood donation facilities are examples of services that physically follow customers. organizations find the best balance at a particular point in time among the prices charged. 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.
consider how difficult it is to get comparable price quotes when buying life insurance. Perhaps a combination of the two room rates would be the best solution. If the hotel could fill 40 percent of the rooms at $100 per night and the other 60 percent at $50. and each is central to effective pricing. and the reference prices you hold in memory for services are not as accurate as those you hold for goods. few insurance companies offer exactly the same features and the same prices. resulting in a yield of 70 percent ($14.000/$20. As an example. but first they must understand how customers perceive prices and price changes. smoking or nonsmoking).000. Only an expert customer. clearly better than the other two alternatives. features (different deductibles). A. the hotel had charged its full rate it might have sold only 40 percent of its rooms because of customer price sensitivity. health risk.000).000). leading to complex and complicated pricing structures. The yield under these circumstances would have been 40 percent ($8.000/$20.000. you feel quite uncertain about your knowledge of the prices of services. 1. for example.
. One night it rents all of the rooms at a reduced rate of $50 per night. yielding a revenue of $10.
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. variations associated with customers (age. 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. 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. Although capacity was used to the maximum level that night.000/$20. Firms can conceivably offer an infinite variety of combinations and permutations. yield was only 50 percent ($l0. There are many reasons for this difference. Service heterogeneity limits knowledge: As services are intangible and are not created on a factory assembly line. The three sections that follow describe what we know about the ways customers perceive services. a hotel that has 200 rooms that it can rent at a rate of $100 per night (potential revenue of $20. on the other hand. With the multitude of types (such as whole life versus term). If. service firms have great flexibility in the con figurations of services they offer.000).Yield Management Example Take. the revenue would be $14.000).
they often buy without advance knowledge about the final price of the service. Some hairstylists’ service prices vary across customers on the basis of length of hair. These two examples are for very simple services. 2. Now consider a service purchase as idiosyncratic as braces from a dentist or help from a lawyer. After being told by the independent agents who sell their services to customers that IDS was priced too high. if you were to ask a friend what a cut costs from a particular stylist. 4. In these and many other services. In many services. type of room availability. If customers want to compare prices (such as for dry cleaning). time of year. In a business-to-business context. 5. is likely to find prices that are directly comparable. customer differences in need will play a strong role in the price of the service. therefore. IDS Financial Services recently discovered how little customers know about prices of the company’s services. type of haircut. Rarely are legal or medical service providers willing—or even able—to estimate a price in advance. 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. chances are that your cut from the same stylist may be a different price. and whether a conditioning treatment and style are included. 3. Individual customer needs vary : Another factor that results in the inaccuracy of reference prices is that individual customer needs vary.the price cannot be hidden or implicit. Consider most medical or legal 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. a service as simple as a hote1 room have prices that vary greatly: by size of room.one who knows enough about insurance to completely specify the options across providers. Therefore. Prices are not visible: One requirement for the existence of customer reference prices is price visibility . With most goods. In a similar vein. most customers know about only the rate of return and not the costs they pay in the form of fund and insurance fees. companies will obtain bids or estimates for complex services such as consulting or construction. the company did research to find out how much customers know
. they must drive to or call individual outlets. particularly financial services. retail stores display the products by category to allow customers to compare and contrast the prices of different brands and sizes. 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. Rarely is there a similar display of services in a single outlet. and individual versus group rate. but this type of price estimation is typically not undertaken with end consumers.
And if cost is not known to the customer before purchase. and annuities (which have rear-load charges). it cannot be used as a key criterion for purchase as it often is for goods. When price was invisible. and psychological costs often enter into the evaluation of whether to buy or rebuy a service. 2. see a physician. whole-life insurance. Furthermore. customers are likely to expend time waiting to receive the service. Search costs. and may at times be more important concerns than monetary price. Time becomes a sacrifice made to receive service in multiple ways. Only for financial products where price was visible .:
. very few consumers understood how they pay for financial services in general. you’re also expending time. Demand. because service providers cannot completely control the number of customers or the length of time it will take for each customer to be served. such as in accident or illness. the company found that shopping behavior in the category of financial services was extremely limited. Waiting time for a service is virtually always longer and less predictable than waiting time to buy goods. customers didn’t know how they were charged and what they paid. Price is likely to be an important criterion in repurchase. such as in certificates. or get through the crowds to watch a concert or baseball game.such as with securities and term life insurance —were customers aware of fees. Time costs. is not just a function of monetary price but is influenced by other costs as well. customers must make the decision to purchase without respect to cost at all. Consider the investment you make to exercise. 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. therefore. price ranked seventh. however.about what they pay for financial services and how much price factors into customer value assessments. 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. Of course in situations of urgency. Customers will trade money for these other costs as mentioned below: 1. 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. Nonmonetary costs represent other sources of sacrifice perceived by consumers when buying and using a service. Not only are you paying money to receive these services. in repurchase monetary price may be an even more important criterion than in initial purchase B. when customers were asked to indicate how important 10 factors (including price) were. Finally. search costs. Further. First.
Search costs—the effort invested to identify and select among ser vices you desire—are also higher for services than for physical goods. First. 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. 4. Fear of not understanding (insurance). a service firm may be able to increase monetary price by reducing time and other costs.
. fear of uncertainty (including fear of high cost)— all of these. they must arrange their schedules to correspond to the company’s schedule. All change. 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. Second. E. 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). Psychological costs: Often the most painful nonmonetary costs are the psychological costs incurred in receiving some services. they incur a cost. so these prices are often known only when a customer has decided to experience the service. When banks first introduced ATMs. Direct deposit. brings about psychological costs that consumers factor into the purchase of services. a clear improvement in banking service for the elderly with limited mobility. customers may be willing to pay to avoid the other costs. If customers have to travel to a service. 3. Convenience costs : There are also convenience (or perhaps more accurately inconvenience) costs of services. was looked on with suspicion until the level of comfort improved. as it is for elderly persons. so a customer must initiate contact with several different companies to get information across sellers. they make additional sacrifices. if service hours do not coincide with the customers’ available time. constitute psychological costs that customers experience as sacrifices when purchasing and using services. Many customers willingly pay extra to have items delivered to their home—including restaurant meals—rather than transporting the services and products themselves. REDUCING NONMONETARY COSTS The managerial implications of these other sources of sacrifice are compelling. customer resistance was significant.g. even positive change. fear of rejection (bank loans). 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). and the cost becomes greater when travel is difficult. Further. and serves coffee along with selling products). Prices for services are rarely displayed on shelves of service establishments for customers to examine as they shop. sells stamps.
thus actually allowing the customer to “buy” time. C. the customer will look to price as a surrogate for quality. or when level of advertising communicates the company’s belief in the brand. where experience and credence properties dominate. for a premium price. when brand names provide evidence of a company’s reputation. Another factor that increases the dependence on price as a quality indicator is the risk associated with the service purchase. Pricing too low can lead to inaccurate inferences about the quality of the service. a busy executive comes early in the morning and does not have to wait). price is not used to judge quality as often as it is in services. Many other services save time. consumers may believe that price is the best indicator of quality. babysitting.For reduced waiting time in a professional’s office (as in so-called executive appointments where. lawn care. service prices must be determined carefully. Household cleaning services. such as when quality is hard to detect or when quality or price varies a great deal within a class of services. home banking. In other situations. painting. Because goods are dominated by search properties. Many of these conditions typify situations that face consumers when purchasing services. home delivery of groceries. Because customers depend on price as a cue to quality and because price sets expectations of quality. customers may prefer to use those cues instead of price. prices must be chosen to convey appropriate quality signal. *******************
. Pricing too high can set expectations that may be difficult to match in service delivery. When service cues to quality are readily accessible. many of which involve credence services such as medical treatment or management consulting. however. interactive cable shopping. Customers’ use of price as an indicator of quality depends on several factors. 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. 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. In high-risk situations. Any services marketer must be aware of the signals that price conveys about its offerings. one of which is the other information available to them. personal shopper service. In addition to chosen to cover costs or match competitors.