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Chapter 1

Introduction to
Services Marketing

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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How Important is the Service Sector in Our Economy?

In most countries, services add more economic value than


agriculture, raw materials and manufacturing combined

In developed economies, employment is dominated by


service jobs and most new job growth comes from services to minimum-wage positions

Jobs range from high-paid professionals and technicians

Service organizations can be any sizefrom huge global


corporations to local small businesses organizations involve services

Most activities by government agencies and nonprofit


Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Services dominate the United States Economy: GDP by Industry, 2001 (Fig. 1.1)

Agriculture, Forestry, Mining, Construction 8% Manufacturing 14%

Finance, Insurance, Real Estate 20%

Government (mostly services) 13% Other Services 11%


SERVICES

Wholesale and Retail Trade 16% Transport, Utilities, Communications 8%

Business Health Services 6% 5%


Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

Source: Bureau of Economic Analysis, November 2002

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Changing Structure of Employment as Economic Development Evolves (Fig. 1.2)

Agriculture Services

Industry

Time, per Capita Income


Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

Source: IMF, 1997

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Some Service Industries Profiled by NAICS but Not Identified by SIC Codes
Casino Hotels Continuing Care Retirement Communities Diagnostic Imaging Centers Diet and Weight Reducing Centers Environmental Consulting HMO Medical Centers Industrial Design Services Investment Banking and Securities Dealing Management Consulting Services Satellite Telecommunications

Gold Courses and Country Clubs


Hazardous Waste Collection
Slide 2004 by Christopher Lovelock and Jochen Wirtz

Telemarketing Bureaus
Temporary Help Services

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Internal Services

Service elements within an organization that facilitate


creation of--or add value to--its final output

Includes:
accounting and payroll administration recruitment and training legal services transportation catering and food services cleaning and landscaping

Increasingly, these services are being outsourced


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Major Trends in Service Sector (Fig. 1.3)

Government Policies (e.g., regulations, trade agreements) Social Changes (e.g., affluence, lack of time, desire for experiences) Business Trends

Manufacturers offer service Growth of chains and franchising Pressures to improve productivity and quality More strategic alliances Marketing emphasis by nonprofits Innovative hiring practices

Advances in IT (e.g., speed, digitization, wireless, Internet) Internationalization (travel, transnational companies)
Services Marketing 5/E

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Some Impacts of Technological Change

Radically alter ways in which service firms do business:


with customers (new services, more convenience) behind the scenes (reengineering, new value chains)

Create relational databases about customer needs and


behavior, mine databanks for insights

Leverage employee capabilities and enhance mobility Centralize customer servicefaster and more responsive Develop national/global delivery systems Create new, Internet-based business models
Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Marketing Relevant Differences Between Goods and Services

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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Defining the Essence of a Service

An act or performance offered by one party to another An economic activity that does not result in ownership A process that creates benefits by facilitating a desired
change in:
customers themselves physical possessions intangible assets

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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Distinguishing Characteristics of Services


(Table 1.1)

Customers do not obtain ownership of services Service products are ephemeral and cannot be inventoried Intangible elements dominate value creation Greater involvement of customers in production process Other people may form part of product experience Greater variability in operational inputs and outputs Many services are difficult for customers to evaluate Time factor is more important--speed may be key Delivery systems include electronic and physical channels
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Marketing Implications - 1

No ownership
Customers obtain temporary rentals, hiring of personnel, or access

to facilities and systems Pricing often based on time Customer choice criteria may differ for renting vs. purchase--may include convenience, quality of personnel Cant own people (no slavery!) but can hire expertise and labor

Services cannot be inventoried after production


Service performances are ephemeraltransitory, perishable

Exception: some information-based output can be recorded in electronic/printed form and re-used many times Balancing demand and supply may be vital marketing strategy Key to profits: target right segments at right times at right price Need to determine whether benefits are perishable or durable
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Marketing Implications - 2

Customers may be involved in production process


Customer involvement includes self-service and cooperation with

service personnel Think of customers in these settings as partial employees Customer behavior and competence can help or hinder productivity, so marketers need to educate/train customers Changing the delivery process may affect role played by customers Design service facilities, equipment, and systems with customers in mind: user-friendly, convenient locations/schedules

Intangible elements dominate value creation


Understand value added by labor and expertise of personnel
Effective HR management is critical to achieve service quality Make highly intangible services more concrete by creating and

communicating physical images or metaphors and tangible clues


Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Value Added by Tangible vs Intangible Elements in Goods and Services (Fig. 1.4)
Hi
Salt Soft drinks CD Player Golf clubs New car Tailored clothing Furniture rental Fast food restaurant Plumbing repair Office cleaning Health club Airline flight Retail banking Insurance Weather forecast Intangible Elements
Services Marketing 5/E

Lo

Hi
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Slide 2004 by Christopher Lovelock and Jochen Wirtz

Marketing Implications - 3

Other people are often part of the service product


Achieve competitive edge through perceived quality of employees Ensure job specs and standards for frontline service personnel reflect

both marketing and operational criteria Recognize that appearance and behavior of other customers can influence service experience positively or negatively Avoid inappropriate mix of customer segments at same time Manage customer behavior (the customer is not always right!)

Greater variability in operational inputs and outputs


Must work hard to control quality and achieve consistency Seek to improve productivity through standardization, and by training

both employees and customers Need to have effective service recovery policies in place because it is more difficult to shield customers from service failures
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Marketing Implications - 4

Often difficult for customers to evaluate services


Educate customers to help them make good choices, avoid risk Tell customers what to expect, what to look for Create trusted brand with reputation for considerate, ethical behavior Encourage positive word-of-mouth from satisfied customers

Time factor assumes great importance


Offer convenience of extended service hours up to 24/7 Understand customers time constraints and priorities Minimize waiting time Look for ways to compete on speed

Distribution channels take different forms


Tangible activities must be delivered through physical channels Use electronic channels to deliver intangible, information-based

elements instantly and expand geographic reach


Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Important Differences Exist among Services

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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Four Categories of Services Employing Different Underlying Processes (Fig. 1.5)

What is the Nature of the Service Act?


TANGIBLE ACTS

Who or What is the Direct Recipient of the Service?


DIRECTED AT PEOPLE DIRECTED AT POSSESSIONS

People Processing
e.g., airlines, hospitals, haircutting, restaurants hotels, fitness centers

Possession Processing
e.g., freight, repair, cleaning, landscaping, retailing, recycling

INTANGIBLE ACTS

Mental Stimulus Processing


e.g., broadcasting, consulting, education, psychotherapy

Information Processing
(directed at intangible assets)

e.g., accounting, banking, insurance, legal, research

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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Implications of Service Processes (1) Seeking Efficiency May Lower Satisfaction


Processes determine how services are created/delivered process change may affect customer satisfaction

Imposing new processes on customers, especially


replacing people by machines, may cause dissatisfaction

New processes that improve efficiency by cutting costs


may hurt service quality

Best new processes deliver benefits desired by customers


Faster

Simpler
More conveniently

Customers may need to be educated about new


procedures and how to use them
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Implications of Service Processes: (2) Designing the Service Factory


People-processing services require customers to visit the service factory, so:

Think of facility as a stage for service


performance

Design process around customer Choose convenient location Create pleasing appearance, avoid
unwanted noises, smells

Consider customer needs--info,


parking, food, toilets, etc.

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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Implications of Service Processes: (3) Evaluating Alternative Delivery Channels


For possession-processing, mental-stimulus processing, or information processing services, alternatives include: 1. Customers come to the service factory 2. Customers come to a retail office

3. Service employees visit customers home or workplace


4. Business is conducted at arms length through - physical channels (e.g., mail, courier service) - electronic channels (e.g., phone, fax, email, Web site)

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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Implications of Service Processes: (4) Balancing Demand and Capacity


When capacity to serve is limited and demand varies widely, problems arise because service output cant be stored: 1. If demand is high and exceeds supply, business may be lost 2. If demand is low, productive capacity is wasted Potential solutions: - Manage demand - Manage capacity
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Implications of Service Processes: (5) Applying Information Technology


All services can benefit from IT, but mental-stimulus processing and information-processing services have the most to gain: Remote delivery of informationbased services anywhere, anytime New service features through websites, email, and internet (e.g., information, reservations) More opportunities for self-service New types of services

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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Implications of Service Processes: (6) Including People as Part of the Product


Involvement in service delivery often entails contact with other people

Managers should be

concerned about employees appearance, social skills, technical skills or detract from service experience--need to manage customer behavior

Other customers may enhance

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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The Services Marketing Mix

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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Elements of The Services Marketing Mix: 7Ps vs. the Traditional 4Ps

Rethinking the original 4Ps Product elements Place and time Promotion and education Price and other user outlays
Adding Three New Elements Physical environment Process People
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The 7Ps: (1) Product Elements


All Aspects of Service Performance that Create Value

Core product featuresboth tangible and intangible


elements

Bundle of supplementary service elements Performance levels relative to competition Benefits delivered to customers (customers dont buy a
hotel room, they buy a good nights sleep)

Guarantees
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The 7Ps: (2) Place and Time


Delivery Decisions: Where, When, and How

Geographic locations served Service schedules Physical channels Electronic channels Customer control and convenience Channel partners/intermediaries
Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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The 7Ps: (3) Promotion and Education


Informing, Educating, Persuading, and Reminding Customers Marketing communication tools
media elements (print, broadcast, outdoor, retail, Internet, etc.) personal selling, customer service sales promotion publicity/PR

Imagery and recognition


branding corporate design

Content
information, advice persuasive messages customer education/training
Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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The 7Ps: (4) Price and Other User Outlays


Marketers Must Recognize that Customer Outlays Involve More than the Price Paid to Seller
Traditional Pricing Tasks

Selling price, discounts, premiums Margins for intermediaries (if any) Credit terms
Identify and Minimize Other Costs Incurred by Users

Additional monetary costs associated with service usage (e.g., travel to


service location, parking, phone, babysitting,etc.) Time expenditures, especially waiting Unwanted mental and physical effort Negative sensory experiences
Services Marketing 5/E

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The 7Ps: (5) Physical Environment


Designing the Servicescape and providing tangible evidence of service performances

Create and maintaining physical appearances


buildings/landscaping interior design/furnishings vehicles/equipment staff grooming/clothing sounds and smells other tangibles

Select tangible metaphors for use in marketing


communications

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7Ps: (6) Process


Method and Sequence in Service Creation and Delivery

Design of activity flows Number and sequence of actions for customers Providers of value chain components Nature of customer involvement Role of contact personnel Role of technology, degree of automation
Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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The 7Ps: (7) People


Managing the Human Side of the Enterprise

The right customer-contact employees performing tasks well


job design recruiting/selection training motivation evaluation/rewards empowerment/teamwork

The right

customers for the firms mission

fit well with product/processes/corporate goals appreciate benefits and value offered possess (or can be educated to have) needed skills (co-production) firm is able to manage customer behavior
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Managing the 7Ps Requires Collaboration between Marketing, Operations, and HR Functions (Fig. 1.7)

Operations Management

Marketing Management

Customers

Human Resources Management


Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Chapter 2

Consumer Behavior in Service Encounters

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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Where Does the Customer Fit in a Service Organization? (Fig. 2.1)

Consumers rarely involved in manufacture of goods but


often participate in service creation and delivery Challenge for service marketers is to understand how customers interact with service operations Flowcharting clarifies how customer involvement in service encounters varies with type of process - see Fig. 2-1:
People processing (e.g., motel stay): customer is physically involved

throughout entire process Possession processing (e.g., DVD repair): involvement may be limited to drop off of physical item/description of problem and subsequent pick up Mental stimulus processing (e.g., weather forecast): involvement is mental, not physical; here customer simply receives output and acts on it Information processing (e.g., health insurance): involvement is mental specify information upfront and later receive documentation of coverage

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High-Contact and Low-Contact Services


High Contact Services

Customers visit service facility and remain throughout


service delivery

Active contact between customers and service personnel Includes most people-processing services
Low Contact Services

Little or no physical contact with service personnel Contact usually at arms length through electronic or
physical distribution channels

New technologies (e.g. Web) help reduce contact levels


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Levels of Customer Contact with Service Organizations (Fig. 2.2)


Emphasizes encounters with service personnel
M a na ge me n t Consulti ng
G ood Re sta ur a nt Ai rl ine Tr a ve l (Econ.)

High
N ur sing H om e

H a ir Cut
4 - Sta r H ote l

Tel ephone Ba nk ing

Re ta il Ba nk i ng M ote l

Ca r Repa i r I nsur a nce

Dr y Cl ea ning
Fa st Food Movie Theater
Ca bl e TV

Subway Internet Banking Mail Based Repairs

Emphasizes encounters with equipment


Slide 2004 by Christopher Lovelock and Jochen Wirtz

Internet-based Services

Low
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Services Marketing 5/E

Managing Service Encounters--1

Service encounter: A period of time during which customers


interact directly with a service

Moments of truth: Defining points in service delivery where


customers interact with employees or equipment

Critical incidents: specific encounters that result in


especially satisfying/dissatisfying outcomes for either customers or service employees

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Managing Service Encounters--2

Service success often rests on performance of junior


contact personnel

Must train, coach, role model desired behavior Thoughtless or badly behaved customers can cause
problems for service personnel (and other customers)

Must educate customers, clarify what is expected, manage


behavior

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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The Purchase Process for Services


(Adapted from Fig. 2-3)

Prepurchase Stage Awareness of need Information search Evaluation of alternative service suppliers Service Encounter Stage Request service from chosen supplier Service delivery Postpurchase Stage Evaluation of service performance Future intentions

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Perceived Risks in Purchasing and Using Services (Table 2.1)



Functional unsatisfactory performance outcomes Financial monetary loss, unexpected extra costs Temporal wasted time, delays lead to problems Physical personal injury, damage to possessions Psychological fears and negative emotions Social how others may think and react

Sensory unwanted impacts to any of five senses

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Factors that Influence Customer Expectations of Services (Fig. 2.4)


Explicit & Implicit Service Promises Word-of-Mouth Past Experience

Personal Needs Desired Service Beliefs about What Is Possible

ZONE OF TOLERANCE

Perceived Service Alterations Adequate Service Situational Factors Predicted Service

Source: Adapted from Zeithaml, Parasuraman & Berry Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Components of Customer Expectations

Desired Service Level: wished-for level of service quality


that customer believes can and should be delivered

Adequate Service Level: minimum acceptable level of


service

Predicted Service Level: service level that customer


believes firm will actually deliver

Zone of Tolerance: range within which customers are


willing to accept variations in service delivery

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Intangible Attributes, Variability, and Quality Control Problems Make Services Hard to Evaluate

Search attributes Tangible characteristics that allow


customers to evaluate a product before purchase
experienced when actually using the service evaluate confidently even after consumption

Experience attributes Characteristics that can be

Credence attributes Characteristics that are difficult to


Goods tend to be higher in search attributes, services tend
to be higher in experience and credence attributes benefits have been delivered

Credence attributes force customers to trust that desired

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How Product Attributes Affect Ease of Evaluation) (Fig. 2.5)


Most Goods Most Services

Clothing

Restaurant meals

Computer repair

Haircut

Legal services

High in search attributes

High in experience High in credence attributes attributes


Source: Adapted from Zeithaml

Complex surgery

Motor vehicle

Foods

Chair

Entertainment

Lawn fertilizer

Easy to evaluate

Difficult to evaluate

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Customer Satisfaction is Central to the Marketing Concept

Satisfaction defined as attitude-like judgment following a


service purchase or series of service interactions

Customers have expectations prior to consumption, observe


service performance, compare it to expectations

Satisfaction judgments are based on this comparison


Positive disconfirmation if better than expected Confirmation if same as expected Negative disconfirmation if worse than expected

Satisfaction reflects perceived service quality, price/quality


tradeoffs, personal and situational factors

Research shows links between customer satisfaction and a


firms financial performance
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Customer Delight: Going Beyond Satisfaction

Research shows that delight is a function of 3 components


Unexpectedly high levels of performance Arousal (e.g., surprise, excitement) Positive affect (e.g., pleasure, joy, or happiness)

Is it possible for customers to be delighted by very


mundane services?

Progressive Insurance has found ways to positively surprise


customers with customer-friendly innovations and extraordinary customer service

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A Service Business is a System Comprising Three Overlapping Subsystems


Service Operations (front stage and backstage)

Where inputs are processed and service elements created. Includes facilities, equipment, and personnel
Service Delivery (front stage) Where final assembly of service elements takes place and service is delivered to customers Includes customer interactions with operations and other customers

Service Marketing (front stage)

Includes service delivery (as above) and all other contacts


between service firm and customers
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Service Marketing System: (1) High Contact Service--e.g., Hotel (Fig. 2.7)
Service Marketing System
Service Delivery System Service Operations System
Interior & Exterior Facilities Other Customers

Other Contact Points


Advertising Sales Calls Market Research Surveys Billing / Statements Miscellaneous Mail, Phone Calls, Faxes, etc. Random Exposure to Facilities / Vehicles

Technical Core

Equipment

The Customer

Service People

Backstage (invisible)

Front Stage (visible)

Other Customers

Chance Encounters with Service Personnel Word of Mouth

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Service Marketing System: (2) Low Contact Service--e.g., Credit Card (Fig. 2.8) Service Marketing System
Service Delivery System Service Operations System Other Contact Points

Advertising Mail Technical Core Self Service Equipment Phone, Fax, Web site etc.
Backstage (invisible) Front Stage (visible)

The Customer

Market Research Surveys


Random Exposures Facilities, Personnel

Word of Mouth

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Service as Theater

All the worlds a stage and all the men and women merely players. They have their exits and their entrances and each man in his time plays many parts
William Shakespeare

As You Like It

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The Dramaturgy of Service Delivery

Service dramas unfold on a stage--settings may change as


performance unfolds

Many service dramas are tightly scripted, others improvised Front-stage personnel are like members of a cast Like actors, employees have roles, may wear special
costumes, speak required lines, behave in specific ways

Support comes from a backstage production team Customers are the audiencedepending on type of
performance, may be passive or active
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Role and Script Theories

Role:

A set of behavior patterns learned through experience and communication customers must act out defined roles for good outcomes

Role congruence: In service encounters, employees and

Script: A sequence of behavior to be followed by employees


and customers during service delivery
Some scripts (e.g. teeth cleaning) are routinized, others flexible Technology change may require a revised script Managers should reexamine existing scripts to find ways to improve

delivery, increase productivity, enhance experiences

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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Chapter 3

Positioning Services in Competitive Markets

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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Search for Competitive Advantage in Services Requires Differentiation and Focus

Intensifying competition in service sector threatens firms


with no distinctive competence and undifferentiated offerings

Slowing market growth in mature service industries means


that only way for a firm to grow is to take share from competitors

Rather than attempting to compete in an entire market, firm


must focus efforts on those customers it can serve best Must decide how many service offerings with what distinctive (and desired) characteristics

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Standing Apart from the Competition

A business must set itself apart from its competition. To be successful it must identify and promote itself as the best provider of attributes that are important to target customers

GEORGE S. DAY

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Basic Focus Strategies for Services (Fig. 3.1)

BREADTH OF SERVICE OFFERINGS

Narrow
Service Focused

Wide
Unfocused (Everything for everyone)

Many
NUMBER OF MARKETS SERVED

Few

Fully Focused (Service and market focused)

Market Focused

Source: Robert Johnston


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Four Principles of Positioning Strategy

1. Must establish position for firm or product in minds of customers


2. Position should be distinctive, providing one simple, consistent message 3. Position must set firm/product apart from competitors 4. Firm cannot be all things to all people--must focus Jack Trout

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Uses of Positioning in Marketing Management (Table 3.1)

Understand relationships between products and markets


compare to competition on specific attributes evaluate products ability to meet consumer needs/expectations predict demand at specific prices/performance levels

Identify market opportunities


introduce new products redesign existing products eliminate non-performing products

Make marketing mix decisions, respond to competition


distribution/service delivery pricing communication

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Possible Dimensions for Developing Positioning Strategies

Product attributes Price/quality relationships Reference to competitors (usually shortcomings) Usage occasions User characteristics Product class
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Developing a Market Positioning Strategy (Fig. 3.3)


MARKET ANALYSIS
- Size - Composition - Location - Trends Define, Analyze Market Segments

Select Target Segments To Serve

INTERNAL ANALYSIS

- Resources - Reputation - Constraints - Values

Articulate Desired Position in Market Select Benefits to Emphasize to Customers

Marketing Action Plan

COMPETITIVE ANALYSIS

- Strengths - Weaknesses - Current Positioning

Analyze Possibilities for Differentiation


Source: Adapted from Michael R. Pearce

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Positioning of Hotels in Belleville: Price vs. Service Level (Fig. 3.4)


Expensive

Grand

Regency

PALACE

Shangri-La
High Service Sheraton Atlantic Moderate Service

Italia Castle Alexander IV Airport Plaza Less Expensive


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Positioning of Hotels in Belleville: Location vs. Physical Luxury (Fig. 3.5)


High Luxury

Grand Sheraton PALACE


Financial District Shopping District and Convention Centre

Regency

Shangri-La

Inner Suburbs

Castle Atlantic

Italia

Alexander IV

Airport Plaza Moderate Luxury

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Positioning after New Hotel Construction: Price vs. Service Level (Fig. 3.6)
Expensive

Mandarin New Grand Heritage Marriott Continental

Action? Regency High Service

PALACE
Shangri-La No action? Atlantic Sheraton Italia Castle Alexander IV Airport Plaza Moderate Service

Less Expensive

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Positioning after New Hotel Construction: Location vs. Physical Luxury (Fig. 3.7)
High Luxury Mandarin

New Grand
Continental Action? PALACE Financial District No action? Shopping District and Convention Centre Italia Alexander IV Atlantic Airport Plaza Inner Suburbs Heritage Marriott Sheraton Shangri-La Regency

Castle

Moderate Luxury

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Positioning Maps Help Managers to Visualize Strategy

Positioning maps display relative performance of competing


firms on key attributes

Research provides inputs to development of positioning maps Challenge is to ensure that


attributes employed in maps are important to target segments performance of individual firms on each attribute accurately

reflects perceptions of customers in target segments

Predictions can be made of how positions may change in the


light of new developments in the future

Simple graphic representations are often easier for managers to


grasp than tables of data or paragraphs of prose

Charts and maps can facilitate a visual awakening to threats


and opportunities and suggest alternative strategic directions
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Chapter 4

Creating the Service Product

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Key Steps in Service Planning: Matching Opportunities to Resources

Must relate marketing opportunities to firms resources


(physical, financial, technological, human) Identify, evaluate firms marketing assets
Customer portfolio/lifetime value (customer equity) Market knowledge Marketing implementation skill Product line Competitive positioning strategies Brand reputation (brand equity) Physical facilities, equipment Technology and systems (especially IT) Human resources (numbers, skills, productivity) Leverage through alliances and partnerships Potential for customer self service Cost structure

Identify, evaluate firms operating assets

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Service Design Involves Matching Marketing Concept with Operations Concept (Fig. 4.1)
Corporate Objectives and Resources
Marketing Assets
(Customer Base, Mkt. Knowledge, Implementation Skills, Brand Reput.)

Operating Assets
(Facilities/Equipment, IT Systems, People, Op. Skills, Cost Structure)

Service Marketing Concept


Benefits to customer from core/ supplementary elements, style, service level, accessibility User costs/outlays incurred Price/other monetary costs Time Mental and physical effort Neg. sensory experiences

Service Operations Concept


Nature of processes Geographic scope of ops Scheduling Facilities design/layout HR (numbers, skills) Leverage (partners, self-service) Task allocation: front/backstage staff; customers as co-producers

Service Delivery Process

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Understanding the Components of the Augmented Service Product

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Shostacks Molecular Model of a Total Market Entity - Passenger Airline Service (Fig. 4-2)
Distribution Price

Service
frequency

Vehicle

Transport

In-flight service

Pre- and post-flight service


KEY

Food and drink

Tangible elements Intangible elements


Marketing Positioning (Weighted toward evidence)
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Source: Shostack
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Core Products and Supplementary Services

Most firms offer customers a package of benefits:


core product (a good or a service) supplementary services that add value to the core

In mature industries, core products often become


commodities

Supplementary services help to differentiate core products


and create competitive advantage by:
facilitating use of the core service enhancing the value and appeal of the core

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Core and Supplementary Product Design: What Do We Offer and How Do We Create and Deliver It?

Supplementary services offered and how created and delivered

Delivery Concept For Core Product


Scheduling

Process

Core Service Level Customer Role

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What Should Be the Core and Supplementary Elements of Our Service Product?

How is our core product defined and what supplementary


elements currently augment this core?

What product benefits create the most value for customers? Is our service package differentiated from the competition in
ways that are meaningful to target customers?

What are current levels of service on the core product and


each of the supplementary elements?

Can we charge more for higher service levels on key


attributes (e.g., faster response, better physical amenities, easier access, more staff, superior caliber personnel)?

Alternatively, should we cut service levels and charge less?


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Core and Supplementary Services in a Luxury Hotel (Offering Guests Much More than a Cheap Motel!)

Reservation Cashier Business Center A Bed for the Night in an Elegant Private Room with a Bathroom Valet Parking Reception Baggage Service

Room Service Wake-up Call T elephone

Cocktail Bar
Entertainment/ Sports / Exercise

Restaurant

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What Happens, When, and in What Sequence? The Time Dimension in the Augmented Service Product

Reservation Parking Check in USE ROOM Get car Check out Phone USE GUESTROOM OVERNIGHT Porter Meal Pay TV Room service

Pre Visit

Time Frame of an Overnight Hotel Stay (real-time service use)

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The Flower of Service: Categorizing Supplementary Services (Fig. 4-5)

Information Payment Billing


Core

Consultation Order-Taking

Exceptions
KEY:

Hospitality Safekeeping

Facilitating elements Enhancing elements


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Facilitating Services - Information


(Table 4.1)

Core

Customers often require information about how to obtain and use a product or service. They may also need reminders and documentation

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Facilitating Services - Order-Taking


(Table 4.2)

Core

Many goods and services must be ordered or reserved in advance. Customers need to know what is available and may want to secure commitment to delivery

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Facilitating Services - Billing


(Table 4.3)

Core

How much do I owe you? Customers deserve clear, accurate and intelligible bills and statements

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Facilitating Services - Payment


(Table 4.4)

Core

Customers may pay faster and more cheerfully if you make transactions simple and convenient for them

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Enhancing Services - Consultation


(Table 4.5)

Core

Value can be added to goods and services by offering advice and consultation tailored to each customers needs and situation

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Enhancing Services - Hospitality


(Table 4.6)

Core

Customers who invest time and effort in visiting a business and using its services deserve to be treated as welcome guests (after all, marketing invited them there!)

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Enhancing Services - Safekeeping


(Table 4.7)

Core

Customers prefer not to worry about looking after the personal possessions that they bring with them to a service site. They may also want delivery and after-sales services for goods that they purchase or rent

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Enhancing Services - Exceptions


(Table 4.8)

Core

Customers appreciate some flexibility in a business when they make special requests. They expect it when not everything goes according to plan

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Branding Service Products

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Service Branding: Clarifying Distinctive Service Offerings

Marriott Hotel Brands


Marriott Hotels Marriott Resorts

British Airways Brands


Intercontinental First Club World World Traveller Plus World Traveller European Club Europe Euro-Traveller UK Domestic Shuttle
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Courtyard by Marriott
Fairfield Inns Residence Inns SpringHill Suites

TownePlace Suites
Marriott Vacation Clubs

International
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Branding a High-Tech, B2B Product Line: A Family of Brands at Sun Microsystems

Corporate umbrella brand


Sun Microsystems

Product line brand (system support services)


Sun Spectrum Support

Sub-brands (4 levels of support service programs)


Platinum Gold Silver Bronze

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Sun Spectrum Support: Sub-branding Highlights Four Service Levels


Sub-branding clarifies service levels offered at different fees
Platinum: Mission Critical

On-site service 24/7, two-hour response; telephone support 24/7, onsite parts replacement; additional services available
Gold: Business Critical

Onsite service Mon-Fri 8am-8pm, four-hour response; telephone support 24/7; onsite parts replacement
Silver: Basic Support

Onsite service Mon-Fri 8am-5pm, four-hour response; telephone support Mon-Fri 8am-8pm; onsite parts replacement
Bronze: Self Support

Phone support Mon-Fri 8am-5pm; parts replacement by courier


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New Service Development

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New Service Development: A Hierarchy of New Service Categories

Major service innovations--new core products for previously


undefined markets

Major process innovations--using new processes to


deliver existing products and offer extra benefits

Product line extensions--additions to current product lines Process line extensions--alternative delivery procedures Supplementary service innovations--adding new or
improved facilitating or enhancing elements

Style changes--visible changes in service design or scripts


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New Service Development: Physical Goods as Source of Service Ideas

Customers can rent goodsuse and return for a fee


instead of purchasing them

Customers can hire personnel to operate their own or


rented equipment

Any new durable product may create need for after-sales


services (possession processing)
Shipping Installation Problem-solving and consulting advice Cleaning Maintenance Repair Upgrading Disposal
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Creating Services as Substitutes for Owning and/or Using Goods (Fig. 4-7)

Own a Physical Good

Rent the Use of a Physical Good


Rent car and drive it
Rent word processor and type

Perform the Work Oneself


Hire Someone to Do the Work

Drive own car Type on own word processor

Hire chauffeur to drive car Hire typist to use word processor

Hire a taxi or limousine Send work to secretarial service

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Service Development through Delivery Options: Alternative Meal Service Formats (Fig. 4-8)

Fast-Food Restaurant (Eat In) Drive-In Restaurant (Take Out) Home Delivery

See sign

Park and enter

Order meal, and pay

Pick up meal

Find table and eat

Clear table and leave

See sign

Stop car at order point

Order via microphone

Get meal at pickup, pay

Drive away, eat later

Telephone Restaurant

Order food, give address

Driver rings doorbell

Pay driver, take food

Eat

Home Catering

Arrange to meet caterer

Plan meal, pay deposit

Food and staff arrive

Meal is prepared and served

Eat

Staff cleans up; pay

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Elements of a Hotel Offering: Trading off Room Price vs. Features/Services

External building design


and features

Room features Food-related services Lounge facilities Services (e.g., reception) Leisure facilities Securitypeople/systems
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Success Factors in New Service Development

Market synergy
Good fit between new product and firms image/resources Advantage vs. competition in meeting customers needs Strong support from firm during/after launch Firm understands customer purchase decision behavior

Organizational factors
Strong interfunctional cooperation and coordination Internal marketing to educate staff on new product and its

competition Employees understand importance of new services to firm

Market research factors


Scientific studies conducted early in development process Product concept well defined before undertaking field studies

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Chapter 5

Designing the Communications Mix for Services

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Advertising Implications for Overcoming Intangibility (Fig. 5-1)


Problem Advertising Strategy
Document physical system capacity Cite past performance statistics Present actual service delivery incident Present customer testimonials Cite independently audited performance Display typical customers benefiting

Generality - objective claims - subjective claims

Nonsearchability

Abstractness

Impalpability

Documentary of step-by-step process, Case history of what firm did for customer Narration of customers subjective experience
Source: Mittal and Baker

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Other Communications Challenges in Services Marketing

Facilitate customer involvement in production


prepare customers for service experience and demonstrate roles

Help customers to evaluate service offerings


highlight quality of equipment and facilities

teach customers about new technologies, new features provide tangible or statistical clues to service performance emphasize employee qualifications, experience, professionalism

Simulate or dampen demand to match capacity Promote contribution of service personnel


help customers understand service encounter offer promotions to stimulate off-peak demand

provide information about timing of peak, off-peak periods

highlight expertise and commitment of backstage personnel


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Setting Clear Objectives: Checklist for Marketing Communications Planning (5 Ws)

Who is our target audience? What do we need to communicate and achieve? How should we communicate this? Where should we communicate this? When do communications need to take place?

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Common Educational and Promotional Objectives in Service Settings (Table 5-2)

Create memorable images of specific companies and


their brands

Build awareness/interest for unfamiliar service/brand Build preference by communicating brand strengths and
benefits

Compare service with competitors offerings and counter


their claims

Reposition service relative to competition Stimulate demand in off-peak and discourage during peak
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Educational and Promotional Objectives (cont.)

Encourage trial by offering promotional incentives Reduce uncertainty/perceived risk by providing useful info
and advice

Provide reassurance (e.g., promote service guarantees)


Familiarize customers with service processes before use

Teach customers how to use a service to best advantage


Recognize and reward valued customers and employees
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Marketing Communications Mix for Services


(Fig. 10.4)

Personal Communications
Selling

Advertising
Broadcast

Sales Promotion
Sampling

Publicity & Public Relations


Press releases/kits Press conferences Special events Sponsorship

Instructional Materials
Web sites

Corporate Design
Signage

Customer service

Print

Coupons Sign-up rebates Gifts

Manuals

Interior decor

Training

Internet

Brochures Videoaudiocassettes Software CD-ROM

Vehicles

Telemarketing Word-of-mouth Word of mouth (other customers)

Outdoor

Equipment

Direct mail

Prize promotions

Trade Shows, Exhibitions

Stationery

Media-initiated coverage

Voice mail

Uniforms

Key: * Denotes communications originating from outside the organization

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Originating Sources of Messages Received by a Target Audience (Fig. 5-5)


Messages originating within the organization
Front-line staff Service outlets

Advertising Sales promotions Direct marketing Personal selling Public relations

A U D I E N C E

Word of mouth

Messages originating outside the organization

Media editorial

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What is Brand Equity and Why Does It Matter? (From Berry, Cultivating Brand Equity)
Definition: A set of assets and liabilities linked to a brands name and symbol that adds to (or subtracts from) the perceived value of the product Insights

Brand equity can be positive or negative Positive brand equity creates marketing advantage for
firm plus value for customer

Perceived value generates preference and loyalty Management of brand equity involves investment to
create and enhance assets, remove liabilities
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A Service Branding Model: How Communications + Experience Create Brand Equity

Marketer-controlled communications

Firms Presented Brand (Sales, Advertising, PR)


Uncontrolled brand communications

Awareness of Firms Brand

What Media, Intermediaries, Word-of-Mouth Say re: Firm

Firms Brand Equity

Customers Experience with Firm

Meaning Attached To Firms Brand


Source: Adapted from L. L. Berry ( Fig. 1)

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Marketing Communication and the Internet (1)

International in Scope
Accessible from almost anywhere in the world Simplest form of international market entry

Internet Applications
Promote consumer awareness and interest Provide information and consultation Facilitate 2-way communications through e-mail and chat rooms Stimulate product trial Enable customers to place orders Measure effectiveness of specific advertising/promotional

campaigns

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Marketing Communications and the Internet (2)

Web Site design considerations


Memorable address that is actively promoted
Relevant, up-to-date content (text, graphics, photos) Contain information that target users will perceive as

useful/interesting Easy navigation Fast download

Internet advertising
Banners and buttons on portals and other websites seek to draw

online traffic to own site Limits to effectivenessexposure (eyeballs) may not lead to increases in awareness/preference/sales Hence, advertising contracts may tie fees to marketing relevant behavior (e.g., giving personal info or making purchase)
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Chapter 6

Pricing and Revenue Management

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What Makes Service Pricing Strategy Different (and Difficult)?

No ownership of services--hard for firms to calculate


financial costs of creating an intangible performance
unit of service and establish basis for pricing? are they getting in return for their money? value to customers when delivered faster create differences in perceived value

Variability of inputs and outputs--how can firms define a

Many services hard for customers to evaluate--what


Importance of time factor--same service may have more

Delivery through physical or electronic channels--may

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Objectives of Pricing Strategies

Revenue and profit objectives


Seek profit Cover costs

Patronage and user base-related objectives


Build demand Build a user base

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The Pricing Tripod (Fig. 6.1)

Pricing Strategy

Competition

Costs
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Value to customer
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Three Main Approaches to Pricing

Cost-Based Pricing
Set prices relative to financial costs

(problem: defining costs)

Competition-Based Pricing
Monitor competitors pricing strategy

(especially if service lacks differentiation) Who is the price leader? (one firm sets the pace)

Value-Based
Relate price to value perceived by customer

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Activity-Based Costing: Relating Activities to the Resources They Consume

Managers need to see costs as an integral part of a firms


effort to create value for customers

When looking at prices, customers care about value to


themselves, not what production costs the firm

Traditional cost accounting emphasizes expense


categories, with arbitrary allocation of overheads

ABC management systems examine activities needed to


create and deliver service (do they add value?)

Must link resource expenses to:


variety of products produced complexity of products demands made by individual customers
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Net Value = (Benefits Outlays)


(Fig. 6.3)

Effort Time

Perceived Benefits

Perceived Outlays

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Enhancing Gross Value

Pricing Strategies to Reduce Uncertainty


service guarantees benefit-driven (pricing that aspect of service that creates value) flat rate (quoting a fixed price in advance)

Relationship Pricing
non-price incentives discounts for volume purchases discounts for purchasing multiple services

Low-cost Leadership
Convince customers not to equate price with quality Must keep economic costs low to ensure profitability at low price

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Paying for Service: The Customers Perspective


Customer expenditures on service comprise both financial and non-financial outlays

Financial costs:
price of purchasing service expenses associated with search, purchase activity, usage

Time expenditures Physical effort (e.g., fatigue, discomfort) Psychological burdens (mental effort, negative feelings) Negative sensory burdens (unpleasant sensations affecting any
of the five senses)

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Determining the Total Costs of a Service to the Consumer (Fig. 6.4)


Search Costs Price Related Monetary Costs Time Costs Purchase and Use Costs Operating Costs

Incidental Expenses

Physical Costs
Psychological Costs Sensory Costs Necessary follow-up Problem solving

After Costs

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Trading off Monetary and Non- Monetary Costs


(Fig. 6.5)

Which clinic would you patronize if you needed a chest x-ray (assuming all three clinics offer good quality) ? Clinic A
Price $45 Located 1 hour away by car or transit Next available appointment is in 3 weeks Hours: Monday Friday, 9am 5pm Estimated wait at clinic is about 2 hours

Clinic B
Price $85 Located 15 min away by car or transit Next available appointment is in 1 week Hours: Monday Friday, 8am 10pm Estimated wait at clinic is about 30 45 minutes

Clinic C
Price $125 Located next to your office or college Next appointment is in 1 day Hours: Mo Sat, 8am 10pm By appointment estimated wait at clinic is about 0 to 15 minutes

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Increasing Net Value by Reducing Non-financial Costs of Service

Reduce time costs of service at each stage


Minimize unwanted psychological costs of service Eliminate unwanted physical costs of service Decrease unpleasant sensory costs of service

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Revenue Management: Maximizing Revenue from Available Capacity at a Given Time

Based on price customization - charging different customers


(value segments) different prices for same product

Useful in dynamic markets where demand can be divided


into different price buckets according to price sensitivity

Requires rate fences to prevent customers in one value


segment from purchasing more cheaply than willing to pay

RM uses mathematical models to examine historical data


and real time information to determine
what prices to charge within each price bucket how many service units) to allocate to each bucket

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The Strategic Levers of Revenue (Yield) Management


Price Fixed Duration
Quadrant 1: Predictable
Movies Stadiums/Arenas Function Space

Variable
Quadrant 2:
Hotel Rooms Airline Seats Rental Cars Cruise Lines

Quadrant 3: Unpredictable
Restaurants Golf Courses

Quadrant 4:
Continuing Care Hospitals

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Dealing with Common Customer Conflicts Arising from Revenue Management


Customer conflict can arise from:
Perceived Unfairness & Perceived

Marketing tools to reduce customer conflicts: Fenced Pricing Bundling Categorising High Published Price

Financial Risk Associated with Multi-Tier Pricing and Selective Inventory Availability
Unfulfilled Inventory Commitment Unfulfilled Demand of Regular

Well designed Customer Recovery

Programme for Oversale


Preferred Availability Policies Offer Lower Displacement Cost

Customers Unfulfilled Price Expectation of Group Customers Change in the Nature of the Service

Alternatives Physical Segregation & Perceptible Extra Service Set Optimal Capacity Utilisation Level

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Price Elasticity (Fig. 6.6)

Price per unit of service

Di De

De Di

Quantity of Units Demanded


De : Demand is price elastic. Small changes in price lead to big changes in demand. Di : Demand for service is price inelastic. Big changes have little impact on demand.

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Key Categories of Rate Fences (Table 6.2)

Rate Fences

Examples

Physical (Product-related) Fences Basic Product

Amenities Service Level

Class of travel (Business/Economy class) Size and furnishing of a hotel room Seat location in a theatre Free breakfast at a hotel, airport pick up etc. Free golf cart at a golf course Priority wait listing Increase in baggage allowances Dedicated service hotlines Dedicated account management team

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Key Categories of Rate Fences (Table 6.2 contd)

Non Physical Fences

Transaction Characteristics
Time of booking or reservation Location of booking or reservation Flexibility of ticket usage

Requirements for advance purchase Must pay full fare two weeks before departure Passengers booking air tickets for an
identical route in different countries are charged different prices

Fees/penalties for canceling or changing a reservation (up to loss of entire ticket price) Non refundable reservation fees

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Key Categories of Rate Fences (Table 6.2 contd)

Non Physical Fences (contd) Consumption Characteristics Time or duration of use

Early bird special in restaurant before 6pm Must stay over on Sat for airline, hotel Must stay at least five days

Location of consumption

Price depends on departure location, esp in international travel Prices vary by location (between cities, city
centre versus edges of city)

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Key Categories of Rate Fences (Table 6.2 contd)

Non Physical Fences (contd) Buyer Characteristics Frequency or volume of consumption Group membership

Member of certain loyalty-tier with the firm get


priority pricing, discounts or loyalty benefits

Child, student, senior citizen discounts Affiliation with certain groups (e.g. Alumni) Group discounts based on size of group

Size of customer group

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Relating Price Buckets and Fences to the Demand Curve (Fig. 6.7)
Price per Seat
First Class Full Fare Economy (No Restrictions) One-Week Advance Purchase One-Week Advance Purchase, Saturday Night Stayover 3-Week Advance Purchase, Saturday Night Stayover 3-Week Adv. Prchs, Sat. Night Stay., $100 for Changes 3-Wk Adv. Prchs, Sat. Night Stay, No changes/refunds Late Sales through Consolidators/ Internet, no refunds

Capacity of 1st-class Cabin

Capacity of Aircraft

No. of Seats Demanded


Services Marketing 5/E

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Ethical Concerns in Pricing

Customers are vulnerable when service is hard to evaluate


or they dont observe work

Many services have complex pricing schedules

Unfairness and misrepresentation in price promotions


Too many rules and regulations
customers feel constrained, exploited customers unfairly penalized when plans change misleading advertising hidden charges

hard to understand difficult to calculate full costs in advance of service

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Pricing Issues: Putting Strategy into Practice (Table 6.3)


How much to charge?

What basis for pricing?


Who should collect payment? Where should payment be made? When should payment be made?

How should payment be made?


How to communicate prices?
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Consumption follows the Timing of Payments


(Research Insight 6.1)

Frequency of Health Club Visits

Annual Payment Plan

Quarterly Payment Plan

Frequency of Health Club Visits

Semiannual Payment Plan

Monthly Payment Plan

Time Line
Source: John Gourville and Dilip Soman, Pricing and the Psychology of Consumption, Harvard Business Review, September 2002, 90-96.

Time Line

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Chapter 7

Distributing Services

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Applying the Flow Model of Distribution to Services


Distribution embraced three interrelated elements

Information and promotion flow Negotiation flow Product flow

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Information and Physical Processes of the Augmented Service Product (Fig. 7.1)
Information Processes
Payment

Information Consultation
OrderTaking

Billing Exceptions

Core

Hospitality Safekeeping

Physical Processes
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Using Websites for Service Delivery


Information
Read brochure/FAQ; get schedules/ directions; check prices

Payment
Pay by bank card Direct debit

Consultation
Conduct e-mail dialog Use expert systems

Billing
Receive bill Make auction bid Check account status Core

Order-Taking
Make/confirm reservations Submit applications Order goods, check status

Exceptions
Make special requests Resolve problems

Hospitality
Record preferences

Safekeeping
Track package movements Check repair status

CORE: Use Web to deliver information-based core services


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Options for Service Delivery


There are 3 types of interactions between customers and service firms

Customer goes to the service provider (or intermediary) Service provider goes to the customer Interaction at arms length (via the Internet, telephone, fax,
mail, etc.)

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Method of Service Delivery (Table 7.1)


Availability of Service Outlets Nature of Interaction Single Site Multiple Sites between Customer and Service Organization
Customer goes to service organization

Service organization goes to customer


Customer and service organization transact at arms length

Theater Barbershop House painting Mobile car wash Credit card company Local TV station

Bus service Fast-food chain Mail delivery Auto club road service Broadcast network Telephone company

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Place vs. Cyberspace


Place - customers and
Required for people processing services suppliers meet in a physical Offers live experiences, social environment interaction, e.g., food services More emphasis on eye-catching servicescape, entertainment

Cyberspace - customers

and suppliers do business electronically in virtual environment created by phone/internet linkages

Ideal for info-based services Saves time Facilitates information gathering May use express logistics service to deliver physical core products

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24/7 - Factors Encouraging Extended Operating Hours (Mgt Memo 7.1)

Economic pressure from consumers Changes in legislation

Economic incentives to improve asset utilization


Availability of employees to work nights, weekends Automated self-service

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Technology Revolutionizes Service Delivery: Some Examples

Smart mobile telephones to link users to Internet Voice recognition software Automated kiosks for self-service (e.g. bank ATMs) Web sites
provide information take orders and accept payment deliver information-based services

Smart cards that can act as electronic wallets

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E-Commerce: Factors that Attract Customers to Virtual Stores

Convenience (24-hour availability, save time, effort)


Ease of obtaining information on-line and searching for
desired items

Better prices than in bricks-and-mortar stores


Broad selection

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Splitting Responsibilities for Delivering Supplementary Services (Fig. 7.2)

As created by originating firm

As enhanced by distributor

As experienced by customer

Core

Core

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Franchising
Franchising is a fast growth strategy, when

Resources are limited Long-term commitment of store managers is crucial Local knowledge is important Fast growth is necessary to pre-empt competition

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Service Process and Market Entry

People Processing Services


Export the service concept Import customers Transport customers to new locations

Possession Processing Services


Most require an ongoing local presence, whether it is the

customers dropping off items or personnel visiting customer sites

Information Based Services


Export the service to a local service factory Import customers Export the information via telecommunications and transform it

locally
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Barriers to International Trade in Services

Operating successfully in international markets remains


difficult for certain services despite efforts of the WTO and control relaxations

Barriers include
Refusal by immigration offices to issue work permits Heavy taxes on foreign firms Domestic preference policies Legal restrictions Lack of broadly-agreed accounting standards Cultural differences (esp. for entertainment industry)

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Forces for Internationalization

Market drivers Competition drivers Technology drivers Cost drivers Government drivers Impact will vary by service type (people, possessions, information)

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Modes of Internationalization

Export information-based services


transmit via electronic channels store in physical media, ship as merchandise

Use third parties to market/deliver service concept


licensing agents brokers franchising alliance partners minority joint ventures

Control service enterprise abroad


direct investment in new business buyout of existing business

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Impact of Globalization Drivers on Different Service Categories (Table 7.2)

Globalization Drivers Competition

People Processing
Simultaneity of production and consumption limits leverage of foreign competitive advantage, but management systems can be globalized People differ economically and culturally, so needs for service and ability to pay may vary.

Possession Processing
Technology drives globalization of competitors with technical edge.

Information Based
Highly vulnerable to global dominance by competitors with monopoly or competitive advantage in information. Demand for many services is derived to a significant degree from economic and educational levels.

Market

Level of economic developments impacts demand for services to individually owned goods

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Impact of Globalization Drivers on Different Service Categories (Table 7.2, contd)


Globalization People Drivers Processing Use of IT for delivery of Technology Possession Processing
Need for technologybased service delivery systems depends on possessions requiring service and the cost trade-offs in labor substitution Variable labor rates may favor low-cost locations. Policies may decrease/increase cost & encourage/discourage certain activities

Information Based
Ability to deliver core services through remote terminals may be a function of investment in computerization etc. Major cost elements can be centralized & minor cost elements localized. Policies may impact demand and supply and distort pricing

supplementary services may be a function of ownership and familiarity with technology.

Cost

Variable labor rates may impact on pricing in labor-sensitive services. Social policies (e.g., health) vary widely and may affect labor cost etc.

Government

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Chapter 8

Designing and Managing Service Processes

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Developing a Blueprint Some Basic Advice

Identify key activities in creating and


delivering the service

Distinguish between front stage (what


customers experience) and back stage

Chart activities in sequence Show how interactions between customers


and employees are supported by backstage activities and systems

Establish service standards for each step Identify potential fail points Focus initially on big picture (later, can drill
down for more detail in specific areas)

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Service Blueprinting: Key Components


1. Define standards for frontstage activities 2. Specify physical evidence 3. Identify principal customer actions 4. ------------line of interaction (customers and front stage personnel)-------5. Front stage actions by customer-contact personnel 6. ------------line of visibility (between front stage and backstage)-------------7. Backstage actions by customer contact personnel 8. Support processes involving other service personnel 9. Support processes involving IT
Where appropriate, show fail points and risk of excessive waits

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Simplified Example: Blueprinting a Hotel Visit


(extract only)

Physical Evidence Stage

Hotel exterior, lobby, employees, key Make Customer reservation Actions Employee Actions Face-to-face Phone Contact Rep. records, confirms Valet Parks Car Enter data Register guest data
Services Marketing 5/E

Elevator, corridor, room, bellhop Go to room

Arrive, valet park


Doorman greets, valet takes car

Check-in at reception
Receptionist verifies, gives key to room

Line of Interaction Front Line of Visibility Backstage

Make up Room

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Improving Reliability of Processes by Failure Proofing

Analysis of reasons for failure often reveals opportunities


for failure proofing to reduce/eliminate risk of errors

Errors include:
treatment errorshuman failures during contact with customers

Fail-safe procedures include measures to prevent omission


of tasks or performance of tasks
incorrectly in wrong order too slowly not needed or specified

tangible errorsfailures in physical elements of service

Need fail-safe methods for both employees and customers


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Process Redesign: Principal Approaches


(Table 8-1)

Eliminating non-value-adding steps Shifting to self-service Delivering direct service Bundling services Redesigning physical aspects of service processes

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Customers as Co-Producers: Levels of Participation in Service Production

Low Employees and systems do all the work Medium Customer inputs required to assist provider
Provide needed information, instructions Make personal effort May share physical possessions

High Customer works actively with provider to


co-produce the service

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Self Service Technologies (SSTs)

Self-service is ultimate form of customer involvement in


service production
Customers undertake specific activities using facilities or systems

provided by service supplier


Customers time and effort replace those of employees

Concept is not newself-serve supermarkets date from


1930s, ATMs and self-serve gas pumps from 1970s

Today, customers face wide array of SSTs to deliver


information-based services, both core and supplementary

Many companies seek to divert customers from employee


contact to Internet-based self-service
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Service Firms as Teachers: Well-trained Customers Perform Better

Firms must teach customers roles


as co-producers of service

Customers need to know how to


achieve best results

Education can be provided through:


Brochures Advertising Posted instructions Machine-based instructions Websites, including FAQs Service providers Fellow customers

Employees must be well-trained to


help advise, assist customers
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Managing Customers as Partial Employees to Increase Productivity and Quality


1. Analyze customers present roles in the business and compare to managements ideal 2. Determine if customers know how to perform and have necessary skills 3. Motivate customers by ensuring that will be rewarded for performing well 4. Regularly appraise customers performance; if unsatisfactory, consider changing roles or termination

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The Problem of Customer Misbehavior Identifying and Managing Jaycustomers


What is a jaycustomer?
A customer who behaves in a thoughtless or abusive fashion, causing problems for the firm itself, employees, other customers

Why do jaycustomers matter?

Can disrupt processes Affect service quality May spoil experience of other customers Try to avoid attracting potential jaycustomers Institute preventive measures Control abusive behavior quickly Take legal action against abusers BUT firm must act in ways that dont alienate other customers
Services Marketing 5/E

What should a firm do about them?

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Six Types of Jaycustomer

Thief seeks to avoid paying for service Rule breaker ignores rules of social behavior and/or procedures for
safe, efficient use of service

Belligerent angrily abuses service personnel (and sometimes other


customers) physically and/or emotionally

Family Feuders fight with other customers in their party Vandal deliberately damages physical facilities, furnishings, and
equipment

Deadbeat fails to pay bills on time


Can you think of others? How should firms deal with each of these problems?

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Chapter 9

Balancing Demand
and Capacity

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Relating Demand to Capacity: Four Key Concepts

Excess demand: too much demand relative to capacity at a


given time

Excess capacity: too much capacity relative to demand at a


given time

Maximum capacity: upper limit to a firms ability to meet


demand at a given time

Optimum capacity: point beyond which service quality


declines as more customers are serviced

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Variations in Demand Relative to Capacity


(Fig. 9-1)
VOLUME DEMANDED Demand exceeds capacity (business is lost)
CAPACITY UTILIZED Maximum Available Capacity Optimum Capacity (Demand and Supply Well Balanced Demand exceeds optimum capacity (quality declines)

Low Utilization (May Send Bad Signals)

Excess capacity (wasted resources)


TIME CYCLE 1

TIME CYCLE 2
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Slide 2004 by Christopher Lovelock and Jochen Wirtz

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Defining Productive Capacity in Services

Physical facilities to contain customers Physical facilities to store or process goods Physical equipment to process people, possessions, or
information

Labor used for physical or mental work Public/private infrastructuree.g., highways, airports,
electricity

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Alternative Capacity Management Strategies

Level capacity (fixed level at all times) Stretch and shrink


offer inferior extra capacity at peaks (e.g. bus/metro standees) vary seated space per customer (e.g. elbow room, leg room) extend/cut hours of service

Chase demand (adjust capacity to match demand)


schedule downtime in low demand periods use part-time employees rent or share extra facilities and equipment cross-train employees

Flexible Capacity (vary mix by segment)


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Predictable Demand Patterns and Their Underlying Causes (Table 9-1)

Predictable Cycles of Demand Levels


day week month year other

Underlying Causes of Cyclical Variations


employment billing or tax

payments/refunds pay days school hours/holidays seasonal climate changes public/religious holidays natural cycles (e.g. coastal tides)
Services Marketing 5/E

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Causes of Seemingly Random Changes in Demand Levels

Weather Health problems Accidents, Fires, Crime Natural disasters


Question: which of these events can be predicted?

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Alternative Demand Management Strategies


(Table 9-2)

Take no action

let customers sort it out


higher prices communication promoting alternative times lower prices communication, including promotional incentives vary product features to increase desirability more convenient delivery times and places

Reduce demand

Increase demand

Inventory demand by reservation system Inventory demand by formalized queueing


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Hotel Room Demand Curves by Segment and by Season (Fig. 9-2)

Price per Room Night Th


Tl

Bl

Bh

Bh = business travelers in high season Bl = business travelers in low season

Th = tourist in high season


Tl = tourist in low season

Bl

Bh

Th Tl
Note: hypothetical example 1 - 172

Quantity of Rooms Demanded at Each Price by Travelers in Each Segment in Each Season
Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

Avoiding Burdensome Waits for Customers

Add extra capacity so that demand can be met at most


times (problem: may add too many costs)

Rethink design of queuing system to give priority to certain


customers or transactions

Redesign processes to shorten transaction time Manage customer behavior and perceptions of wait Install a reservations system
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Alternative Queuing Configurations (Fig. 9-4)


Single line, single server, single stage Single line, single servers at sequential stages Parallel lines to multiple servers

Designated lines to designated servers

Single line to multiple servers (snake)


Take a number (single or multiple servers)
28 30 31 26 32

29
25

21 20 24

27
23

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Tailoring Queuing Systems to Market Segments: Criteria for Allocation to Designated Lines

Urgency of job
emergencies vs. non-emergencies

Duration of service transaction


number of items to transact complexity of task

Payment of premium price


First class vs. economy

Importance of customer
frequent users/loyal customers vs. others

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Ten Propositions on the Psychology of Waiting Lines (Table 9-3)


1. Unoccupied time feels longer 2. Preprocess/postprocess waiting feel longer than inprocess 3. Anxiety makes waiting seem longer 4. Uncertain waiting is longer than known, finite waiting 5. Unexplained waiting seems longer 6. Unfair waiting is longer than equitable waiting 7. People will wait longer for more valuable services 8. Waiting alone feels longer than in groups 9. Physically uncomfortable waiting feels longer 10. Waiting seems longer to new or occasional users
Sources: Maister; Davis & Heineke; Jones & Peppiatt
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Benefits of Effective Reservations Systems

Controls and smoothes demand Pre-sells service Informs and educates customers in advance of arrival Customers avoid waiting in line for service (if service times
are honored)

Data capture helps organizations prepare financial


projections

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Characteristics of Well-designed Reservations Systems

Fast and user friendly for customers and staff Can answer customer questions Offers options for self service (e.g. Web) Accommodates preferences (e.g., room with view) Deflects demand from unavailable first choices to
alternative times and locations

Includes strategies for no-shows and overbooking


requiring deposits to discourage no-shows canceling unpaid bookings after designated time compensating victims of over-booking

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Setting Capacity Allocation Sales Targets for a Hotel by Segment and Time Period (Fig. 9-5)
Capacity (% rooms)
100%

Week 7
(Low Season)

Week 36
(High Season) Executive service guests

Out of commission for renovation Executive service guests Transient guests

50%

Weekend package
Transient guests

W/E package

Groups and conventions

Groups (no conventions)


Airline contracts Nights: M Tu W Th F S Sn Airline contracts

Time

Tu

Th

Sn
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Information Needed for Demand and Capacity Management Strategies

Historical data on demand level and composition, noting


responses to marketing variables

Demand forecasts by segment under specified conditions Fixed and variable cost data, profitability of incremental
sales

Site-by-site demand variations Customer attitudes towards queuing Customer evaluations of quality at different levels of
capacity utilization

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Chapter 10

Planning the Service Environment

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The Purpose of Service Environments


The service environment influences buyer behaviour in 3 ways

Message-creating Medium: symbolic cues to communicate the distinctive nature and quality of the service experience.
Attention-creating Medium: to make the servicescape stand out from other competing establishments, and to attract customers from target segments. Effect-creating Medium: colors, textures, sounds, scents and spatial design to enhance the desired service experience, and/or to heighten an appetite for certain goods, services or experiences

Helps the firm to create a distinctive image & positioning that is unique.
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Comparison of Hotel Lobbies


(Figure 10.1)

The servicescape is part of the value proposition!

Orbit Hotel and Hostel, Los Angeles Four Seasons Hotel, New York
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The Mehrabian-Russell Stimulus-Response Model (Figure 10.2)

Environmental Stimuli & Cognitive Processes

Dimensions of Affect:
Pleasure and Arousal

Response Behaviors: Approach/ Avoidance & Cognitive Processes

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The Mehrabian-Russell Stimulus-Response Model

Simple and fundamental model of how people respond to


environments

Peoples conscious and unconscious perceptions and


interpretation of the environment influence how they feel in that environment

Feelings, rather than perceptions or thoughts drive


behavior

Typical outcome variable is approach or avoidance of an


environment, but other possible outcomes can be added to the model as well
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The Russell Model of Affect

Arousing Distressing Exciting

Unpleasant

Pleasant

Boring

Relaxing

Sleepy

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The Russell Model of Affect

Emotional responses to environments can be described


along two main dimensions, pleasure and arousal.

Pleasure is subjective depending on how much the


individual likes or dislikes the environment

Arousal quality of an environment is dependent on its


information load, i.e., its degree of

Novelty (unexpected, surprising, new, familiar) and Complexity (number of elements, extent of motion or change)

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Drivers of Affect

Affect can be caused by perceptions and cognitive


processes of any degree of complexity.

Simple Cognitive Processes, Perception of Stimuli


tangible cues (of service quality) consumer satisfaction

Complex Cognitive Processes


affective charged schemata processing attribution processes

The more complex a cognitive process becomes, the more powerful its potential impact on affect.However, most service encounters are routine. Simple processes can determine affect.
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Behavioral Consequence of Affect

Basically, pleasant environments result in approach,


unpleasant environments result in avoidance

and

Arousal acts as an amplifier of the basic effect of pleasure


on behavior

If the environment is pleasant, increasing arousal can lead


to excitement and stronger positive consumer response. If the environment is unpleasant, increasing arousal level will move consumers into the Distressing region

Feelings during the service encounter is also an important


driver of customer loyalty
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An Integrated Framework Bitners ServiceScape Model (Figure 10.4)


Environmental Dimensions Moderators Holistic Environment
Employee Response Moderator Perceived ServiceScape

Internal Responses Cognitive Emotional Psychological Employee Responses

Behaviour

Ambient Conditions

Approach or Avoid
Social Interaction Between Customers & Employees

Space/ Function

Signs, Symbols & Artefacts

Customer Response Moderator

Customer Responses Cognitive Emotional Psychological

Approach or Avoid

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An Integrated Framework Bitners ServiceScape Model(cont)

Identifies the main dimensions in a service environment


and views them holistically

Customer and employee responses classified under,


cognitive, emotional and psychological which would in turn lead to overt behavior towards the environment

Key to effective design is how well each individual


dimension fits together with everything else

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Dimensions of the Service Environment


Service environments are complex and have many design elements. The main dimensions in the servicescape model includes:

Ambient Conditions
Music (e.g, fast tempo and high volume increase arousal

levels)
Scent (strong impact on mood, affect and evaluative

responses, purchase intention and in-store behavior)


Color (e.g, warm colors associated with elated mood states

and arousal but also increase anxiety, cool colors reduce arousal but can elicit peacefulness and calm)
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Dimensions of the Service Environment (cont)

Spatial Layout and Functionality


Layout refers to size and shape of furnishings and the ways it

is arranged Functionality is the ability of those items to facilitate performance

Signs, Symbols and Artifact


Explicit or implicit signals to communicate the firms image,

help consumers find their way and to convey the rules of behavior

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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Impact of Music on Restaurant Diners


(Table 10-2) Restaurant Patron Behavior Fast-beat Slow-beat Difference between Music Music Slow and Fast-beat Environment Environment Environments
Absolute Difference Consumer time spent at table Spending on food Spending on beverages Total spending Estimated gross margin 45min $55.12 $21.62 $76.74 $48.62 56min $55.81 $30.47 $86.28 $55.82 +11min +$0.69 +$8.85 +$9.54 +$7.20 % Difference +24% +1% +41% +12% +15%

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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The Effects of Scents on the Perceptions of Store Environments (Table 10-3)


Evaluation Unscented Scented Environment Environment Mean Ratings Mean Ratings Difference

Store Evaluation Negative/positive Outdated/modern Store Environment Unattractive/attracti ve Drab/colorful 4.12 3.63 4.98 4.72 +0.86 +1.09 4.65 3.76 5.24 4.72 +0.59 +0.96

Boring/Stimulating

3.75

4.40

+0.65

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The Effects of Scents on the Perceptions of Store Environments (Table 10-3)


Evaluation Unscented Environment Mean Ratings Scented Environment Mean Ratings Difference

Merchandise Outdated/up- to-date style Inadequate/adequate 4.71 3.80 5.43 4.65 +0.72 +0.85

Low/high quality
Low/high price

4.81
5.20

5.48
4.93

+0.67
-0.27

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Aromatherapy: The Effects of Fragrance on People (Table 10-4)


Fragrance Aromath Aromather erapy apy Class Citrus Calming Tradition Potential Psychological al Use Impact on People Soothing agent, astringen t Muscle relaxant, soothing agent Emollient soothing agent Skin cleanser Calming and relaxing effect esp. for nervous people Relaxing and calming, helps create a homey and comfortable feel Helps makes people feel refreshed, joyful, comfortable Increase attention level and boosts energy
1 - 197

Orange

Lavender

Herbaceo Calming, us balancing, soothing Floral Uplifting, balancing Energizing, stimulating

Jasmine

Peppermint Minty

Slide 2004 by Christopher Lovelock and Jochen Wirtz

Services Marketing 5/E

Common Associations and Human Responses to Colors (Table 10-5)


Color Degree of Nature Common Association and Warmth Symbol Human Responses to Color Warm Earth High energy and passion; can excite, stimulate, and increase arousal and blood pressures Emotions, expressions, and warmth Nurturing, healing and unconditional love

Red

Orange

Warmest

Sunset

Green

Cool

Grass and Trees

Blue

Coolest

Sky and Relaxation, serenity and loyalty Ocean

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Selection of Environmental Design Elements

There is a multitude of research on the perception and


impact of environmental stimuli on behaviour, including:
People density, crowding Lighting Sound/noise Scents and odours Queues

No standard formula to designing the perfect combination of


these elements.
Design from the customers perspective Design with a holistic view!
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Tools to Guide in Servicescape Design

Keen Observation of Customers Behavior and Responses


to the service environment by management, supervisors, branch managers, and frontline staff

Feedback and Ideas from Frontline Staff and Customers


using a broad array of research tools ranging from suggestion boxes to focus groups and surveys.

Field Experiments can be used to manipulate specific


dimensions in an environment and the effects observed.

Blueprinting or Service Mapping - extended to include the


physical evidence in the environment.
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Chapter 11

Managing People for Service Advantage

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Frontline Service Personnel: Source of Customer Loyalty and Competitive Advantage

Frontline is an important source of differentiation and


competitive advantage. It is:
a core part of the product the service firm the brand

Frontline also drives customer loyalty, with employees


playing key role in anticipating customer needs, customizing service delivery and building personalized relationships

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Boundary Spanning Roles

Boundary spanners link the inside of the organization to the


outside world

Multiplicity of roles often results in service staff having to


pursue both operational and marketing goals

Consider management expectations of restaurant servers:


deliver a highly satisfying dining experience to their customers be fast and efficient at executing operational task of serving

customers do selling and cross selling, e.g. We have some nice desserts to follow your main course

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Role Stress in the Frontline


3 main causes of role stress:
Person vs. Role: Conflicts between what jobs require and

employees own personality and beliefs


Organization vs. Customer: Dilemma whether to follow

company rules or to satisfy customer demands


Customer vs. Customer: Conflicts between customers that

demand service staff intervention

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Emotional Labor

The act of expressing socially desired emotions during

service transactions (Hochschild, The Managed Heart)

Three approaches used by employees


surface acting deep acting spontaneous response

Performing emotional labor in response to societys or


managements display rules can be stressful

Good HR practice emphasizes selective recruitment,


training, counseling, strategies to alleviate stress
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The Cycles of Failure, Mediocrity and Success


Too many managers make short-sighted assumptions about financial implications of:
Low pay Low investment (recruitment, training) High turnover human resource strategies

Often costs of short-sighted policies are ignored:


Costs of constant recruiting, hiring & training Lower productivity & lower sales of new workers Costs of disruptions to a service while a job remains unfilled Loss of departing persons knowledge of business and customers Cost of dissatisfied customers

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Cycle of Failure (Fig. 11.1)


Customer turnover

Repeat emphasis on attracting new customers

Failure to develop customer loyalty

Low profit margins

High employee turnover; poor service quality No continuity in relationship for Employee dissatisfaction; customer poor service attitude

Narrow design of jobs to accommodate low skill level

Use of technology Emphasis on to control quality rules rather than service Payment of low wages Minimization of selection effort Minimization of training

Customer dissatisfaction

Employees become bored

Employees cant respond to customer problems

Source: Schlesinger and Heskett

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Service Sabotage (Fig. 11-A)


Routinized

Normality of Service Sabotage Behaviors

Openness of Service Sabotage Behaviors


Covert Overt

Customary-Private Service Sabotage e.g. Waiters serving smaller servings, bad beer or sour wine

Customer-Public Service Sabotage


e.g. Talking to guests like young kids and putting them down

Sporadic-Private Service Sabotage e.g. Chef occasionally purposefully slowing down orders

Sporadic-Public Service Sabotage e.g. Waiters spilling soup onto laps, gravy onto sleeves, or hot plates into someones hands

Intermittent

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Cycle of Mediocrity (Fig. 11.2)


Customers trade horror stories Other suppliers (if any) seen as equally poor Employees spend working life in environment of mediocrity Narrow design of jobs No incentive for cooperative relationship to obtain better service Complaints met by indifference or hostility

Employee dissatisfaction (but cant easily quit)

Emphasis on rules vs. pleasing customers

Jobs are boring and repetitive; employees unresponsive Resentment at inflexibility and lack of employee initiative; complaints to employees

Training emphasizes Success = learning rules not making mistakes Service not focused on customers needs Good wages/benefits high job security

E Promotion and pay increases based Initiative is on longevity, discouraged lack of mistakes

Customer dissatisfaction

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Cycle of Success (Fig. 11.3)


Low customer turnover

Repeat emphasis on customer loyalty and retention

Customer loyalty

Higher profit margins Broadened job designs

Lowered turnover, high service quality Continuity in relationship with customer Employee satisfaction, positive service attitude

Train, empower frontline personnel to control quality

High customer satisfaction

Extensive training

Above average wages Intensified selection effort

Source: Heskett and Schlesinger

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How to Manage People for Service Advantage?


Staff performance is a function of both ability and motivation. How can we get able service employees who are motivated to productively deliver service excellence?

1. Hire the right people

2. Enable your people


3. Motivate and energize your people

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Hire the Right People

The old saying People are your most important asset is wrong. The RIGHT people are your most most important asset.

Jim Collins
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Recruitment

The right people are a firms most important asset: take a


focused, marketing-like approach to recruitment

Clarify what must be hired versus what can be taught Clarify nature of the working environment, corporate values
and style, in addition to job specs

Ensure candidates have/can obtain needed qualifications Evaluate candidates fit with firms culture and values Fit personalities, styles, energies to the appropriate jobs
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Select And Hire the Right People: (1) Be the Preferred Employer
Create a large pool: Compete for Talent Market Share

What determines a firms applicant pool?


Positive Quality

image in the community as place to work

of its services

The

firms perceived status

There is no perfect employee


Different Hire

jobs are best filled by people with different skills, styles or personalities candidates that fit firms core values and culture on recruiting naturally warm personalities
Services Marketing 5/E

Focus

Slide 2004 by Christopher Lovelock and Jochen Wirtz

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Select and Hire the Right People: (2) How to Identify the Best Candidates

Observe Behavior
Hire
Best

based on observed behavior, not words you hear


predictor of future behavior is past behavior group hiring sessions where candidates given group tasks

Consider

Personality Testing
Willingness

to treat co-workers and customers with courtesy, consideration and tact regarding customer needs

Perceptiveness

Ability

to communicate accurately and pleasantly

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Select and Hire the Right People: (3) How to Identify the Best Candidates

Employ Multiple, Structured Interviews


Use structured interviews built around job requirements Use more than one interviewer to reduce similar to me effects

Give Applicants a Realistic Preview of the Job


Chance to have hands-on with the job Assess how the candidates respond to job realities

Allow candidates to self select themselves out of the job

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Train Service Employees

The Organizational Culture, Purpose and Strategy


Promote core values, get emotional commitment to strategy Get managers to teach why, what and how of job.

Interpersonal and Technical Skills


Both are necessary but neither is sufficient for optimal job

performance

Product/Service Knowledge
Staffs product knowledge is a key aspect of service quality Staff need to be able to explain product features and to position

products correctly

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Factors Favoring Employee Empowerment

Firms strategy is based on competitive differentiation and on


personalized, customized service

Emphasis on long-term relationships vs. one-time transactions Use of complex and non-routine technologies Environment is unpredictable, contains surprises Managers are comfortable letting employees work independently
for benefit of firm and customers

Employees seek to deepen skills, like working with others, and


are good at group processes
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Control vs. Involvement Model of Management


Control concentrates 4 key features at top of organization; Involvement pushes them down:

Information about operating results and measures of competitive performance Rewards based on organizational performance (e.g. profit sharing, stock ownership) Knowledge/skills enabling employees to understand and contribute to organizational performance Power to influence work procedures and organizational direction (e.g. quality circles, self-managing teams)
Source: Bowen and Lawler Services Marketing 5/E

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Levels of Employee Involvement

Suggestion involvement

Employee recommendation

Job involvement
Jobs redesigned Employees retrained Supervisors facilitate

High involvement
Information is shared Employees skilled in teamwork, problem solving etc. Participate in decisions Profit sharing and stock ownership

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Motivate and Energize the Frontline


Use the full range of available rewards effectively, including:

Job content Feedback and recognition Goal accomplishment

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The Inverted Organizational Pyramid (Fig. 11.5)


Customer Base Top Mgmt Middle Mgmt Frontline Staff Frontline Staff

Middle Mgmt & Top Mgmt Support Frontline Inverted Pyramid with a Customer & Frontline Focus

Traditional Organizational Pyramid


Legend:

= Service encounters, or Moments of Truth.


Services Marketing 5/E

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The Wheel of Successful HR in Service Firms


(Fig. 11.6) Leadership that:
Focuses the entire organization on supporting the frontline Fosters a strong service culture with passion for service and productivity Drives values that inspire, energize and guide service providers

1. Hire the Right People


Be the preferred employer & compete for talent market share Intensify the selection process

3. Motivate & Energize Your People


Utilize the full range of rewards

Service Excellence & Productivity 2. Enable Your People

Empower Frontline Build high performance service delivery teams Extensive Training

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Chapter 12

Managing Relationships and Building Loyalty

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Four Stages of Brand Loyalty in a Consumer

Cognitive loyalty perception from brand attribute


information that one brand is preferable to its alternatives

Affective loyalty developing a liking for the brand based


on cumulatively satisfying usage occasions

Conative loyalty commitment to rebuying the same brand Action loyalty exhibiting consistent repurchase behavior

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Loyalty is Important to Profitability : Index of Customer Profits over Time (Fig. 12.1)
(Year 1=100)
350 300 250 200 150 100 50 0

Year 1
Credit card

Year 2
Industrial laundry

Year 3

Year 4

Year 5
Auto servicing

Industrial distribution

Based on data from Reichheld and Sasser

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What Makes Loyal Customers More Profitable?

Tend to spend more as relationship develops


customers balances may grow may consolidate purchases to one supplier

Cost less to serve


less need for information and assistance make fewer mistakes

Recommend new customers to firm (act as unpaid sales


people)

Trust leads to willingness to pay regular prices vs. shopping


for discounts
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Analyzing Why Customers Are More Profitable over Time (Fig. 12.2)
Profit from price premium

Profit from references


Profit from reduced op. costs Profit from increased usage Base Profit

7
Source: Reichheld and Sasser

Year
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Measuring Customer Equity: Calculating Life Time Value of Each Customer

Value at Acquisition
revenues (application fee + initial purchase) Less costs (marketing +credit check + account set up)

Annual Value (project for each year of relationship)


revenues (annual fee + sales + service fees + value of referrals) Less costs (account management + cost of sales + write-offs)

Net Present Value


Determine anticipated customer relationship lifetime Select appropriate discount figure Sum anticipated annual values (future profits) at chosen discount

rate

Customer Equity is total sum of NPVs of all current customers


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Customer-Firm Relationship
Todays marketers seek to develop long-term relationships with customers. Relationship marketing includes:

Database Marketing: Involves the use of technology by


delivering differentiated service levels to consumers and subsequently tracking the relationship.

Interaction Marketing: Usually in B2B context where people and


the social process also add mutually beneficial value.

Network Marketing: Common in B2B context where companies


commit resources to develop positions in a network of relationships with the stakeholders and relevant agencies.

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Types of Relationships with Customers (Table 12.1)

Type of Relationship--Firm and Customer Nature of Service Delivery


Continuous Membership Cable TV Insurance College enrollment Subscriber phone Theater subscription Warranty repair No formal relationship Radio station Police Lighthouse Pay phone Movie theater Public transport

Discrete transactions

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Basic Segmentation Issues: Building an Appropriate Customer Portfolio

Target customers whose needs match firms capabilities Focus on value of prospective customers within each
segment, not just numbers

Avoid targeting customers who might abuse:


our employees, facilities other customers

Create a mix of segments to reduce risks of volatility during


swings of economic cycles

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Service-Relevant Segmentation Variables

Timing of service use (e.g., by hour, day, season) Level of skill and experience as co-producer/selfserver

Preferred language in face-to-face contact Access to electronic delivery systems (e.g., Internet) Attitudes toward use of new service technologies

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Identifying and Selecting Target Segments


(Mgt Memo 12.2)

User characteristics

demographics psychographics geographic location benefits sought


when, where, how services used quantity/value of purchases frequency of use profitability of relationship sensitivity to marketing variables

User behavior

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Portfolio of Professional Assignments (Fig. 12.4)


Major, State-of-the-art challenges for the firms principals that give the firm high visibility Demanding client assignments offering a learning experience for the firms most experienced associates Routine client projects shared among principals and associates

Pacesetters

Significant Projects

Bread and Butter Projects

Analytical Work on Project Data

Entry-level tasks for new associates or for research assistants & paraprofessionals

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The Customer Pyramid (Fig. 12.5)


Good Relationship Customers

Platinum Gold Iron Lead


Poor Relationship Customers
Slide 2004 by Christopher Lovelock and Jochen Wirtz

Which segment sees high value in our offer, spends more with us over time, costs less to maintain, and spreads positive word-of-mouth?

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

Services Marketing 5/E

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How Customers See Relational Benefits in Service Industries (Research Insights 12.1)

Confidence benefits
less risk of something going wrong, less anxiety ability to trust provider know what to expect get firms best service level

Social benefits
mutual recognition, known by name friendship, enjoyment of social aspects

Special treatment benefits


better prices, discounts, special deals unavailable to others extra services higher priority with waits, faster service

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The Customer Satisfaction-Loyalty Relationship


(Fig. 12.6)

Apostle
100

Loyalty (Retention)

Zone of Affection
80

Near Apostle
60

Zone of Indifference Zone of Defection

40

20

Terrorist 0

1
Very dissatisfied

5
Very Satisfied

Neither satisfied Dissatisfied Satisfied nor dissatisfied

Satisfaction
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The Wheel of Loyalty (Fig. 12.7)


3. Reduce Churn Drivers
Conduct churn diagnostic

1. Build a Foundation for Loyalty


Segment the market Be selective in acquisition Use effective tiering of service.

Address key churn drivers


Enabled through: Frontline staff Account managers Membership programs CRM Systems

Implement complaint handling & service recovery Increase switching costs

Customer Loyalty

Deliver quality service.

Build higher level bonds

2. Create Loyalty Bonds


Give loyalty rewards

Deepen the relationship

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Rewarding Value of Use, Not Just Frequency at British Airways (Best Practice in Action 12.2)
Dedicated reservations Reservations assurance Priority waitlist and standby Advance notification of delays

exceeding 4 hours
Upgraded check-in
Preferred boarding Special services assistance

Bonus air miles


Upgrade for two

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Drivers of Service Switching (Fig. 12.9)


Service Failure / Recovery
Core Service Failure
Service Mistakes Billing Errors Service Catastrophe

Value Proposition
Pricing
High Price Price Increases Unfair Pricing Deceptive Pricing

Service Encounter Failures


Uncaring Impolite Unresponsive Unknowledgeable

Service Switching

Inconvenience
Location/Hours Wait for Appointment Wait for Service

Response to Service Failure


Negative Response No Response Reluctant Response

Competition
Found Better Service

Others
Involuntary Switching
Customer Moved Provider Closed
Slide 2004 by Christopher Lovelock and Jochen Wirtz

Ethical Problems
Unsafe Cheat Hard Sell Conflict of Interest

Services Marketing 5/E

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Common CRM Applications (Mgt Memo 12.2)

Signifies the whole process by which relationships with


customers are built and maintained.

CRM as an enabler, offering a unified customer interface


and allow firms to better understand and segment the customers etc. Applications include:
Data collection Data analysis Sales force automation Marketing automation Call center automation

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Customer Relationship Strategies with CRM Systems: Key Questions

How should our value proposition change to increase customer


loyalty?

How much customization or one-to-one marketing and service


delivery is appropriate and profitable?

What is the incremental profit potential of increasing share of


wallet with current customers? How much does this vary by customer tier and/or segment?

How much time and resource can we allocate to CRM right now? If we believe in CRM, why have we not taken steps in that
direction before? What can we do today to develop customer relationship without spending on technology?

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Chapter 13

Customer Feedback and Service Recovery

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American Customer Satisfaction Index: Selected Industry Scores, 2002


Score
(Max = 100)

100 90 80 70 60 50 40 30 20 10 85 79 80 79 76 66 70 65 62

74

71

71

% Change 0 3.7% 2002 vs 2001

1.3% 0.0% 1.3% 2.8% 0.0% 0.0% 8.2% 2.9% -2.6%

4.8% 3.3%

Industry:
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Key Questions for Managers to Ask about Customer Complaining Behavior

Why do customers complain? What proportion of unhappy customers complain? Why dont unhappy customers complain? Who is most likely to complain? Where do customers complain?

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Courses of Action Open to a Dissatisfied Customer (Figure 13.1)


Complain to the service firm Take some form of public action Take some form of private action Complain to a third party Take legal action to seek redress Defect (switch provider) Negative word-ofmouth

Service Encounter is Dissatisfactory

Take no action

Any one or a combination of these responses is possible


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Dimensions of Perceived Fairness in Service Recovery Process (Figure 13.2)


Complaint Handling & Service Recovery Process
Justice Dimensions of the Service Recovery Process Procedural Justice Interactive Justice Outcome Justice

Customer Satisfaction with the

Service Recovery
Source: Tax and Brown Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Proportion of Unhappy Customers Who Buy Again Depending on the Complaint Process
100 90 80 70 60 50 40 30 20 10 0 95% 82% 70% 54% 46% 37% 19% 9%
Customer did not complain Complaint was not resolved Complaint was resolved
Problem cost $1 - 5
Source: TARP study Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

Complaint was resolved quickly

Problem cost > $100

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Impact of Effective Service Recovery on Retention

No Problem
Problem, but effectively resolved

84%

92%

Problem Unresolved
0%

46%
60%

10%

20%

30%

40%

50%

70%

80%

90% 100%

Customer Retention
Source: IBM-Rochester study Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

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Components of an Effective Service Recovery System (Figure 13.3)

Do the Job Right the Do the Job Right the First Time First Time

Effective Complaint Effective Complaint Handling Handling

Increased Satisfaction Increased Satisfaction and Loyalty and Loyalty Conduct Research Conduct Research Monitor Complaints Monitor Complaints Develop Complaints Develop Complaints as Opportunity as Opportunity Culture Culture Develop Effective Develop Effective System and Training in System and Training in Complaints Handling Complaints Handling Conduct Root Cause Conduct Root Cause Analysis Analysis

Identify Service Identify Service Complaints Complaints

Resolve Complaints Resolve Complaints Effectively Effectively

Learn from the Learn from the Recovery Experience Recovery Experience

Close the Loop via Feedback

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Strategies to Reduce Customer Complaint Barriers (Table 13.1)


Complaint Barriers for Dissatisfied Customers
Inconvenience Difficult to find the right complaint procedure. Effort, e.g., writing a letter.
Doubtful Pay Off Uncertain whether any action, and what action will be taken by the firm to address the issue the customer is unhappy with.

Strategies to Reduce These Barriers


Make feedback easy and convenient by: Printing Customer Service Hotline numbers, e-mail and postal addresses on all customer communications materials.
Reassure customers that their feedback will be taken seriously and will pay off by: Having service recovery procedures in place, and communicating this to customers. Featuring service improvements that resulted from customer feedback.

Unpleasantness Complaining customers fear that they may be treated rudely, may have to hassle, or may feel embarrassed to complain.

Make providing feedback a positive experience: Thank customers for their feedback. Train the frontline not to hassle and make customers feel comfortable. Allow for anonymous feedback.
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How to Enable Effective Service Recovery

Be proactiveon the spot, before customers


complain

Plan recovery procedures Teach recovery skills to relevant personnel Empower personnel to use judgment and skills to
develop recovery solutions

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Guidelines for Effective Problem Resolution (Management Memo 13.1)


Act fast Admit mistakes but dont be defensive Understand problem from customers viewpoint Dont argue Acknowledge customers feelings Give benefit of doubt

Clarify steps to solve problem


Keep customers informed of progress Consider compensation Persevere to regain goodwill

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Service Guarantees Help Promote and Achieve Service Loyalty


Force firms to focus on what customers want
Set clear standards Highlights cost of service failures Require systems to get & act on, customer feedback

Reduce risks of purchase and build loyalty

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Types of Service Guarantees

Single attribute-specific guarantee one key service


attribute is covered

Multiattribute-specific guarantee a few important service


attributes are covered

Full-satisfaction guarantee all service aspects covered


with no exceptions

Combined guarantee like the full-satisfaction, adding


explicit minimum performance standards on important attributes

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The Hampton Inn 100% Satisfaction Guarantee


(Figure 13.4)

What are the benefits of


such a guarantee?

Are there any downsides?

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Key Objectives of Effective Customer Feedback Systems

Assessment and benchmarking of service quality


and performance

Customer-driven learning and improvements


Creating a customer-oriented service culture

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Building a Customer Feedback System

Total market surveys Post-transaction surveys Ongoing customer surveys Customer advisory panels Employee surveys/panels Focus groups Mystery shopping Complaint analysis Capture of service
operating data
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Strengths and Weakness of Key Customer Feedback Collection Tools (Table 13.3) Selection of a cocktail of effective customer feedback collection tools.
Multi-level Measurement

Collection Tools
Total Market Survey (inclu. competitors) Annual Survey on overall satisfaction Transactional Survey (process specific)

Service Process Satisfaction Satisfaction

Specific Feedback

Actionable

Represen Potential -tative, for Service Reliable Recovery

First Hand Learning

Cost Effective

Service Feedback Cards (process specific)


Mystery Shopping (service testers) Unsolicited Feedback Recd (Online feedback system) Focus Group Discussions Service Reviews

Meets Requirements:

Fully

Moderate

Little/Not at all

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Entry Points for Unsolicited Feedback

Employees serving customers face-to-face or by phone Intermediaries acting for original supplier Managers contacted by customers at head/regional office Complaint cards mailed or placed in special box Complaints passed to company by third-party recipients
consumer advocates trade organizations legislative agencies other customers

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Chapter 14

Improving Service Quality and Productivity

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Importance of Productivity and Quality for Service Marketers Productivity

Helps to keep costs down May impact service experience (must avoid negatives) May require customer involvement, cooperation
Quality
lower prices to develop market, compete better increase margins to permit larger marketing budgets raise profits to invest in service innovation

Gain competitive advantage, maintain loyalty Increase value (may permit higher margins) Improve profits
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Perspectives on Service Quality


Transcendental: Quality = excellence. Recognized only through
experience

Product-Based: Quality is precise and measurable User-Based: ManufacturingBased:


Quality lies in the eyes of the beholder Quality is conformance to the firms developed specifications Quality is a trade-off between price and value

Value-Based:

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Dimensions of Service Quality

Tangibles Reliability Responsiveness Assurance Empathy


competence, courtesy credibility security

access communication understanding of customer

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Seven Service Quality Gaps (Fig. 14.1)


Customer needs and expectations

CUSTOMER

1. Knowledge Gap
Management definition of these needs

MANAGEMENT

2. Standards Gap
Translation into design/delivery specs

3. Delivery Gap
Execution of design/delivery specs

4. I.C.Gap

Advertising and sales promises

5. Perceptions Gap
Customer perceptions of product execution

6. Interpretation Gap
Customer interpretation of communications

7.

Service Gap
Customer experience relative to expectations

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Prescriptions for Closing Service Quality Gaps


(Table 14.3)

Knowledge: Learn what customers expect--conduct


research, dialogue, feedback

Standards: Specify SQ standards that reflect expectations Delivery: Ensure service performance matches specs-consider roles of employees, equipment, customers

Internal communications: Ensure performance levels match


marketing promises

Perceptions:
delivery

Educate customers to see reality of service

Interpretation: Pretest communications to make sure


message is clear and unambiguous.
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Hard and Soft Measures of Service Quality

Hard measures refer to standards and measures that can


be counted, timed or measured through audits
typically operational processes or outcomes e.g. how many trains arrived late?

Soft measures refer to standards and measures that cannot


easily be observed and must be collected by talking to customers, employees or others
e.g. SERVQUAL, surveys, and customer advisory panels.

Control charts are useful for displaying performance over


time against specific quality standards.

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Hard Measures of Service Quality

Control charts to monitor


a single variable

Service quality indexes Root cause analysis


(fishbone charts)

Pareto analysis

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Composition e of FedExs Service Quality Index (SQI) (Table 14.4)


Failure Type
Weighting X Factor
1 5 1 5 1 1 10 10 10 5 5 1

No of Daily = Incidents Points

Late Delivery Right Day Late Delivery Wrong Day Tracing request unanswered Complaints reopened Missing proofs of delivery Invoice adjustments Missed pickups Lost packages Damaged packages Aircraft Delays (minutes) Overcharged (packages missing label) Abandoned calls

Total Failure Points (SQI) =


Slide 2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E

XXX,XXX
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Control Chart: Percent of Flights Leaving within 15 Minutes of Schedule (Fig. 14.2)

100% 90% 80% 70% 60%


J F M A M J J A S O N D

Month
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Tools to Address Service Quality Problems

Fishbone diagrams: A cause-and-effect diagram to identify


potential causes of problems.

Pareto charts: Separating the trivial from the important.


Often, a majority of problems is caused by a minority of causes i.e. the 80/20 rule.

Blueprinting: A visualization of service delivery. It allows


one to identify fail points in both the frontstage and backstage.

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Cause and Effect Chart for Airline Departure Delays (Fig. 14.3)
Facilities, Equipment Frontstage Front-Stage Personnel Personnel Procedure
Procedures

Arrive late Oversized bags

Customers
Customers

Delayed check-in Gate agents Aircraft late to procedure gate cannot process Mechanical fast enough Acceptance of late Failures passengers Late/unavailable Late pushback airline crew

Delayed Departures Other Causes


Weather Air traffic Late food service Late baggage Late fuel
Materials, Materials, Supplies Supplies

Late cabin cleaners

Poor announcement of departures Weight and balance sheet late

Backstage Personnel

Information

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Analysis of Causes of Flight Departure Delays (Fig. 14.4)

15.3% 15.4% 23.1%

23.1%

All stations, excluding Chicago-Midway Hub


11.7%

4.9 % 19% 9.5% 33.3% 33.3%

23.1%

8.7%

11.3%
15%

53.3%
Washington Natl.

Newark

Late passengers Waiting for pushback Waiting for fueling

Late weight and balance sheet Late cabin cleaning / supplies Other
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Return on Quality (ROQ)

ROQ approach is based on four assumptions:


Quality is an investment

Quality efforts must be financially accountable


Its possible to spend too much on quality Not all quality expenditures are equally valid

Implication: Quality improvement efforts may benefit


being related to productivity improvement programs

from

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When Does Improving Service Reliability Become Uneconomical? (Fig. 14.5)


Satisfy Target Customers Through Service Recovery Optimal Point of Reliability: Cost of Failure = Service Recovery Satisfy Target Customers Through Service Delivery as Planned

100%

Service Reliability

D Investment

Small Cost, Large Improvement

Large Cost, Small Improvement


Services Marketing 5/E

Assumption: Customers are equally (or even more) satisfied with the service recovery provided than with a service that is delivered as planned.

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Productivity in a Service Context

Productivity measures amount of output produced relative


to the amount of inputs.

Improvement in productivity means an improvement in the


ratio of outputs to inputs.

Intangible nature of many service elements makes it hard


to measure the productivity of service firms, especially for information based services.

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Efficiency, Effectiveness, and Productivity

Efficiency: comparison to a standard--usually time-based


(e.g., how long employee takes to perform specific task)
Problem: focus on inputs rather than outcomes May ignore variations in quality or value of service

Effectiveness: degree to which firm is meeting its goals


Cannot divorce productivity from quality/customer satisfaction

Productivity: financial valuation of outputs to inputs


Consistent delivery of outcomes desired by customers should

command higher prices

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Measuring Service Productivity

Traditional measures of service output tend to ignore


variations in quality or value of service
That is, they focus on outputs rather than outcomes, and stress

efficiency but not effectiveness.

Firms that are more effective in consistently delivering


outcomes desired by customers can command higher prices. Furthermore, loyal customers are more profitable.

Measures with customers as denominator include:


profitability by customer capital employed per customer shareholder equity per customer

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Questions to Ask When Developing Strategies to Improve Service Productivity

How to transform inputs into outputs efficiently? Will improving productivity hurt quality? Will improving quality hurt productivity? Are employees or technology the key to productivity? Can customers contribute to higher productivity?

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Operations-driven vs. Customer-driven Actions to Improve Service Productivity


Operations-driven strategies Customer-driven strategies

Control costs, reduce waste Change timing of customer demand Set productive capacity to match average demand Involve customers more in Automate labor tasks production Upgrade equipment and systems Ask customers to use third parties Train employees
Leverage less-skilled employees through expert systems
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Backstage and Frontstage Productivity Changes: Implications for Customers

Backstage improvements can ripple to the front stage and


affect customers
e.g., new printing peripherals may affect appearance of bank

statements.

Front-stage productivity enhancements are especially


visible in high contact services.
Some may just require passive acceptance by customers Others require customers to change their scripts and behavior.

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Overcoming Customers Reluctance to Accept Changes in Environment and Behavior

Develop customer trust Understand customers habits and expectations Pretest new procedures and equipment Publicize the benefits Teach customers to use innovations and promote trial Monitor performance, continue to seek improvements

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Six Sigma Methodology to Improve and Redesign Customer Service Processes


Process Improvement Process Design/Redesign
Define Measure Analyze

Improve

Control

Identify the problem Define requirements Set goals Validate problem/process Refine problem/goal Measure key steps/inputs Develop causal hypothesis Identify root causes Validate hypothesis Develop ideas to measure root causes Test solutions Measure results Establish measures to maintain performance Correct problems if needed

Identify specific or broad problems Define goal/change vision Clarify scope & customer requirements Measure performance to requirements Gather process efficiency data Identify best practices Assess process design Refine requirements Design new process Implement new process, structures and
systems

Establish measures & reviews to maintain performance Correct problems if needed


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Chapter 15

Organizing for Service Leadership

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Customer-Led versus Market-Oriented Philosophies of Management

Firms may lose market leader position if listen too closely to


current customers

Service leadership requires curiosity, risk taking Customer-led businesses focus on understanding expressed
desires of customers in currently served markets

Market-oriented businesses commit to understand current/

latent customer desires plus competitors plans, capabilities


Scan market more broadly, have longer-term focus Work closely with lead users (windows to future vs. anchors to

past) Combine traditional research with experimentation, observation

Conclusion: Pursue customer satisfaction, but set limits on


being led by customers, especially during rapid change
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The Service Profit Chain (Fig. 15.1)


Internal
Operating strategy and service delivery system
Loyalty EMPLOYEES

External
Service concept Target Market

CUSTOMERS
Productivity & Output Quality

Satisfaction

Service Value

Revenue Growth
Satisfaction Loyalty

Capability Service Quality

Profitability

Workplace design Job design Selection and development Rewards and recognition Information and communication Tools for serving customers

Quality and productivity improvements yield higher service quality and lower costs

Lifetime value Retention Repeat business Referral

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Causal Links in the Service Profit Chain (Table 15.1)

Customer loyalty drives profitability and growth Customer satisfaction drives customer loyalty Value drives customer satisfaction Employee productivity and retention drive value Employee loyalty drives productivity Employee satisfaction drives loyalty and productivity Internal quality drives employee satisfaction Top management leadership underlies chains success
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Integrating Three Functional Imperatives


(recap from Chapter 1)

Marketing Imperative

Human Resources Imperative

Customers

Operations Imperative

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Defining Three Functional Imperatives

Marketing Imperative
Target right customers and build relationships Offer solutions that meet their needs Define quality package with competitive advantage

Operations Imperative
Create, deliver specified service to target customers Adhere to consistent quality standards Achieve high productivity to ensure acceptable costs

Human Resource Imperative


Recruit and retain the best employees for each job Train and motivate them to work well together Achieve both productivity and customer satisfaction

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Reducing Intra-Organizational Tension

Transfers and cross training


Cross functional taskforces

New tasks and new people


Process management teams Gain-sharing programs

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The Search for Synergy: A Top Management Perspective


What do we want?

What do our employees, intermediaries, and other partners want?

What do our customers want?

What can we do?


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From Losers to Leaders: Moving Up the Service Performance Ladder

Service Leaders
Crme de la crme of their respective industries

Service Professionals
Clear positioning strategy

Names synonymous with outstanding service, customer delight

Sustained reputation for meeting customer expectations

Service Non-entities
Traditional operations mindset Rudimentary marketing, often emphasizing price discounts

Service Losers
Only survive because of lack of viable alternatives in marketplace
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Achieving Service Leadership by Focusing on Role of Each Functional Area

Marketing: move from tactical to innovative and


strategic

Operations: move from reactive/cost oriented to


focused, innovative, well coordinated with marketing and HR

Human Resources: move from tight control of lowcost workers to quality of employees as strategic advantage

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Leadership for Change Management Involves Eight Stages

Create sense of urgency to develop impetus for change Put together strong team to direct process Create appropriate vision of where organization must go Communicate new vision broadly Empower employees to act on vision Produce sufficient short term results to create credibility Build momentum to tackle tougher problems Anchor new behaviors in the organizational culture
Source: John Kotter
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Leadership Qualities Needed in Service Organizations

Vision, charisma, persistence, high expectations,


expertise, empathy, persuasiveness, integrity

Ability to visualize quality of service as foundation for


competing

Believe in people who work for the firm, make good


communications a priority

Possess a natural enthusiasm for the business, teach it to


others, pass on nuances, secrets, crafts of operating

Cultivate leadership qualities of others in organization Use values to navigate firms through difficult times
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Transformational Leadership May Require Changing Corporate Culture

Corporate Culture:
Shared Shared Shared Shared Shared

perceptions regarding what is important values about what is right and wrong understanding about what works and what doesnt beliefs about why these things are important styles of working and relating to others

Climate for Service--Tangible working environment atop


underlying culture. Influential factors include:
Shared perceptions concerning practices, procedures and types of

behaviors that get rewarded Clarity about mission and values, level of commitment to common purpose Flexibility: freedom to innovate, sense of responsibility, standards

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