SECTION 3 INSTRUCTION AIDS

SECTION 3INSTRUCTION AIDS

Learning is the best of all wealth;it is easy to carry, thieves cannot steal it, and tyrants cannot seize it;

neither fire nor water can destroy it;and far from decreasing, it increases by giving.

--Naladiyar

The primary purpose of this section is to provide, for each chapter,the list of learning objectives, assorted lecture tips and aids,suggested active learning activities, answers to the discussionquestions at the end of each chapter, web sites that might be used tosupplement class discussion, and a list of appropriate cases for thatchapter. How these suggestions are used will depend on yourindividual teaching style. As you will see from the active learningactivities presented later in this section, we are strong advocatesfor developing a learner-centered course. Thus, we introduce thisidea before presenting instructional aids for each chapter.

DEVELOPING A LEARNER-CENTERED COURSE

As the business sector places greater emphasis on such skills as oraland written communication, critical thinking/problem solving skills,and teamwork, university classes will need to become increasingly“learner centered” and collaborative in order to prepare students tofunction effectively in the contemporary business environment.

This will require additional emphasis on both delivery (i.e.,pedagogy) and on the role of the teacher as an active partner in thestudents’ learning experiences. As Boehm (1992) states, “We arebeginning to understand that how we teach is central; it is, in fact,the second content of every course” (p. 37). Learning is afundamentally social process that occurs when individuals worktogether to create shared understanding and knowledge. According toJohnson, Johnson, and Smith (1991, p. 1-11), “Learning proceeds morefruitfully when relationships are personal as well as professional.Long-term, persistent efforts to achieve come from the heart, not thehead, and the heart is reached through relationships with peers and

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faculty.” Thus we as faculty must be able to create an environmentwhere positive relationships can be formed and the classroom canbecome a learning community. This charge may sound overwhelming tothose who haven’t yet tried a more collaborative approach toeducation. But it can result in some wonderful classroom experiencesas teachers and students experience the excitement of acting aspartners in the learning process. A widely publicized study offersseven principles for good practice in higher education (Chickering andGamson 1987). The following guidelines can help you create a trulylearner-centered experience for your students:

1. Encourage student-faculty contact.2. Encourage cooperation among students.3. Encourage active learning.4. Give prompt feedback.5. Emphasize active learning.6. Communicate high expectations.7. Respect diverse talents and ways of learning.

Using Active Learning in Your Class

There are many excellent ideas for active learning activities in thediscussion questions and exercises at the end of each chapter in thetext. This resource manual also provides additional activities thatcan serve as a foundation for your active learning experiences. Asyou design and deliver your course, be both creative and courageous inincluding active learning exercises. You’ll be pleasantly surprisedat how fun and effective they are!

Basic Active Learning Structures

The following collaborative activities are designed for use with smallgroups (2-5 students). Most can be adapted easily to meet yourspecific classroom needs. The descriptions were taken from The Handbookfor the Fourth R 111: Relationship Activities for Cooperative and Collegial Learning byRichard and Elaine Solomon. More detailed descriptions of theseexercises can be found in the materials listed later in this sectionunder “Additional Instructional Resources—Teaching and Learning.” Twoespecially helpful resources are Active Learning: Cooperation in the CollegeClassroom by Johnson, Johnson, and Smith (1991) and Cooperative Learning bySpencer Kagan (1992).

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Three Step Interview: Each member of the group chooses or is assignedanother group member to be a learning partner. For example, students1 and 2 are a pair and students 3 and 4 are a pair. During the firststep, 1 interviews 2 while 3 interviews 4. (Interviewing involvesasking clarifying questions, not sharing one’s own information oropinions.) During step two, the members reverse roles so that 2interviews 1 while 4 interviews 3. In the third step, each membershares his/her learning partner’s responses with the group.

Think-Share-Pair: This is a three-step activity. During step one,each person individually and privately thinks about a question posedby the instructor. In step two, two people are paired to exchange anddiscuss their responses. Step three involves having each person sharehis/her response, his/her partner’s response, a synthesis or somethingnew with another pair or the entire class.

Numbered Heads Together: Students in each group choose or are given anumber (e.g., 1, 2, 3 or 4). After the instructor poses severalquestions and says “Numbered Heads Together,” the group members gettogether and make sure that each member can answer all of thequestions. Each group then divides the answers among its membersaccording to numbers. After a predetermined time period, theinstructor restates the first question and announces a number (1, 2, 3or 4). Students with the designated number in each of the groups givetheir answers to the question. A second number is then called, andthe procedure continues until all of the questions are answered.

Roundtable Brainstorming: Each group is given one sheet of paper onwhich members write different responses to a question posed by theteacher. Each member is asked to record one response to the teacher’squestion on the sheet of paper and then pass it on to another member.The paper is passed around the group several times so that groupmembers can read others’ responses and add new comments. A variationon the brainstorming exercise is to pass around several differentsheets of paper simultaneously with different questions for groupmembers to respond to.

Simple Jigsaw: The instructor divides an assignment into as manyparts as there are group members. Each member is responsible forlearning and teaching his/her part of the assignment to his/herteammates. Pre- and post-exercise quizzes can be given to teststudents’ mastery of the material.

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Expert Jigsaw: This is a more complex exercise that includes thefollowing steps. First, a task or a set of materials is divided intoseveral parts or topics. Next each group member is assigned one ofthe topics to become an “expert” on. Members then meet with thecorresponding “experts” from other groups to discuss their topics,analyze and synthesize available data, and plan a strategy forpresenting their information to their teammates. Finally, membersreturn to their original groups to teach the other members what theyhave learned.

Group Consensus: Each group member shares information and listenscarefully to what other members share. After all members talk, thegroup has a discussion to determine what members believe in common andwhere there are areas of disagreement.

Group Discussion with Talking Chips: Each group member is given a“talking chip” (e.g., a pen or pencil, a square of colored paper, acrayon, etc.). The rule for sharing information in the groupdiscussion is that a member may speak only after placing his/hertalking chip in the center of a designated table or desk. Members maynot share additional information until the chips of all other membershave been turned in. Then all members retrieve their chips. Anymember may then speak again after relinquishing his/her chip.

Three Minute Review: At any point during a lecture, the instructorgives each group three minutes to review what has been shared, askeach other clarifying questions, and share answers. At the end of thethree minutes, members may ask the class and/or instructor for answersto question that have not been sufficiently answered in the group.

Group Question and Answer: This activity is useful for reviewingclass material. A student can pose a question to the class or theinstructor only when the members of his/her group don’t know theanswer or can’t agree on an answer. A variation on this activity isto require students to ask another group for an answer (if their groupdoes not have one) before asking the class or the teacher.

Send a Problem: The instructor, a student, or a group asks questions,creates case studies/scenarios or poses problems which are sent tovarious groups for discussion. Each group reads, analyzes anddiscusses what it has been sent and then writes a response which iseither submitted to the teacher or shared with the class.

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Word-Webbing: Each group is given a set of related concepts. Thegroup must then create a visual “picture” which depicts and describesthe relationships between its assigned concepts.

Team-Webbing: Each group is assigned one fact or concept which iswritten on a large sheet of paper. Using a pen, pencil or magicmarker, each group member simultaneously records a related fact orconcept or writes a question on the paper. Each group thus develops ateam web of questions and answers that can serve as a foundation for awhole class discussion.

Suggestions for Getting Started

Here are a few basic suggestions to help you integrate collaborativelearning into your course successfully and unstressfully:

Start with one of the simpler collaborative learning structures.Repeat this same format using different course material severaltimes so that both you and your students can get comfortable withit. (Remember that you’re asking students to switch from theirmore traditional, passive “listening” roles to active involvementin the learning process. It may take them some time to adapt tothis change too). Make sure you provide very clear, step-by-stepdirections and check to see that students understand both thestructure and the purpose of the activity.

You can then choose a second type of activity to introduce toyour class. Continue adding active learning exercises graduallythroughout the duration of the course. You will probably becomequite comfortable with the process by the end of one semester,and you may find yourself spontaneously “mixing and matching”active learning activities to fit your materials or learningobjectives.

Look for opportunities within your regular course structure touse in-class groups. Often, time that you would have spententirely on lecturing can be used for a combination mini-lectureand group activity or active learning exercise.

Don’t feel that you need to establish tight control in your classfor weeks before starting active learning activities. It willprobably work better to start these exercises early in the courseso that a class culture of collaboration and active involvementcan be established right from the start.

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Remember that active learning is a “messier” process thanlecturing. You will have inherently less “control” over theprocess because you are asking students to get involved in thecreation of knowledge rather than just delivering a prepackagedlecture. Try to relax, be flexible and have fun. You’ll beexcited by the enthusiasm and learning outcomes as your studentsget more actively involved in creating their own educationalexperiences.

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ADDITIONAL INSTRUCTIONAL RESOURCES Teaching and Learning

Alverno College Faculty (1994). Student Assessment-As-Learning at Alverno College. Milwaukee, WI: Alverno College Institute.

Argyris, C. (1980). “Some Limitations of the Case Method: Experiences in a Management Development Program.” Academy of Management Review. 5, (2): 291-298.

Astin, A. W. (1993). What Matters In College: Four Critical Years Revisited. San Francisco: Jossey-Bass.

Barr, Robert B. and John Tagg (1995). “From Teaching to Learning: A New Paradigm for Undergraduate Education.” Change. November-December: 13-25.

Boehm, L. (1992). “In Wake of Crisis: Reclaiming the Heart of Teaching of Teaching and Learning.” In Critical Thinking, Interactive Learning and Technology: Reaching for Excellence in Business Education, edited byT.J. Frecka. Arthur Andersen Foundation, 24-40.

Cross, K. Patricia (1991). “Effective College Teaching.” ASEE PRISM. October: 27-28.

DeZure, Deborah (1993). “Opening the Classroom Door.” Academe. September-October: 27-28.

Goodsell, Anne, Michelle Maher and Vincent Tito (1992). Collaborative Learning: A Sourcebook for Higher Education. University Park, PA: National Center on Post-Secondary Teaching, Learning and Assessment.

Johnson, David W., Johnson, Roger T. and Karl A. Smith (1991). Active Learning: Cooperation in the College Classroom. Edina, MN: Interaction Book Company.

Kadel, Stephanie and Julia A. Keehner (1994). Collaborative Learning: A Sourcebook for Higher Education, Volume II. University Park, PA: NationalCenter on Post-Secondary Teaching, Learning and Assessment.

Kagan, Spencer (1992.) Cooperative Learning. San Juan Capistrano, CA: Cooperative Learning.

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Kohn, Alfie (1993). “Choices for Children.” PHI DELTA KAPPAN. 75, (1):8-20.

Nicastro, Mary L. and David C. Jones (1994). Cooperative Learning Guide for Marketing Teaching Tips for Marketing Instructors. Englewood Cliffs, NJ: Prentice-Hall.

Palmer, Parker J. (1995). “Good Talk About Good Teaching.” The Institute for Teaching and Learning. 1, (1): 5-11.

Services Course Collection (1993). Edited by Teresa A. Swartz. Chicago, IL: American Marketing Association, Services Marketing Division.

Shapiro, B. P. (1984). Hints for Case Teaching. Boston, MA: Harvard Business School Publications, 585-012.

Shulman, Lee S. (1993). “Teaching as Community Property.” Change. November-December: 6-7.

Solomon, Richard and Elaine (1992). The Handbook for the Fourth R III: Relationship Activities for Cooperative and Collegial Learning. Columbia, MD: National Institute for Relationship Training.

Teams and Teamwork

Byrne, John A. (1993), “The Horizontal Corporation,” Business Week, December 20: 76-81.

Huey, John (1994). “The New Post-Heroic Leadership.” Fortune, February21: 42-50.

Johnson, David W., Johnson, Roger T. and Karl A. Smith (1991). Active Learning: Cooperation in the College Classroom. Edina, MN: Interaction Book Company.

Katzenbach, Jon R. and Douglas K. Smith (1993). The Wisdom of Teams. Boston, MA: Harvard Business School Press.

Magnet, Myron (1994). “The New Golden Rule of Business.” Fortune, February 21: 60-64.

Parker, Glenn M. (1990). Team Players and Teamwork. San Francisco, CA: Jossey-Bass.

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Shrage, Michael (1990). Shared Minds: The New Technologies of Collaboration. NewYork, NY: Random House.

Technology and the World Wide Web

The following is a listing of a few of the resources related toteaching, learning and technology that are available on the World WideWeb. Use any of the popular Search Engines (e.g., Yahoo or AltaVista) to search for these Web sites.

Canadian Business Schools on the World Wide Web

UK University Web Sites

Technology Review Home Page

T.H.E. JOURNAL

Journal on Excellence in College Teaching

Alverno College

The World Lecture Hall

The Global Campus

Institute for Academic Technology Home Page

Peterson’s Education Center

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RECOMMENDED SERVICES BOOKS

Services Marketing and Management Books

Berry, Leonard L. (1999), Discovering the Soul of Service, New York: The Free Press.

Berry, Leonard L. (1995), On Great Service: A Framework for Action. New York: The Free Press.

Freiberg, Kevin and Jackie Freiberg (1996), Nuts: Southwest Sirlines' Crazy Recipe for Business and Personal Success, Austin, TX: Bard Press, Inc.

Fromm, Bill and Len Schlesinger (1993), The Real Heroes of Business. New York: Bantam Doubleday Dell Publishing Group, Inc.

Hart, Christopher W.L. (1993), Extraordinary Guarantees. New York: American Management Association.

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

Kaplan, Robert S. and David P. Norton (1996), The Balanced Scorecard. Boston, MA: Harvard Business School Press.

Parasuraman, A. and Charles L. Colby (2001), Techno-Ready Marketing: How and Why Your Customers Adopt Technology, New York: The Free Press.

Peppers, Don and Martha Rogers (1997), Enterprise One to One: Tools for Competing in the Interactive Age. New York: Bantam Doubleday Dell PublishingGroup, Inc.

Pine, B. Joseph II and James H. Gilmore (1999), "The Experience Economy, Boston, MA: Harvard Business School Press.

Pfeffer, Jeffrey (1998), The Human Equation, Boston: The Harvard Business School Press.

Pottruck, David S. and Terry Pearce (2000), Clicks and Mortar, San Francisco: Jossey-Bass, Inc. (story of Charles Schwab, the company)

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Reichheld, Frederick F. (1996), The Loyalty Effect. Boston, MA: Harvard Business School Press.

Reichheld, Frederick F. (2001), Loyalty Rules, Boston, MA: Harvard Business School Press.

Rust, Roland T., Valarie A. Zeithaml, and Katherine N. Lemon (2000), Driving Customer Equity, How Customer Lifetime Value is Reshaping Corporate Strategy, New York: Free Press.

Schneider, Benjamin and David E. Bowen (1995), Winning the Service Game. Boston, MA: Harvard Business School Press.

Schultz, Howard and Dori Jones Yang (1997), Pour Your Heart Into It, New York: Hyperion. (story of Starbucks)

Seybold, Patricia B. (1998), Customers.com: How to Create a Profitable Business Strategy for the Internet and Beyond, New York: Random House.

Zeithaml, Valarie A., A. Parasuraman, and Leonard L. Berry (1990), Delivering Quality Service: Balancing Customer Perceptions and Expectations. New York: The Free Press.

Books on Specific Companies

Freiberg, Kevin and Jackie Freiberg, (1996) Nuts! Southwest Airlines’ Crazy Recipe for Business andPersonal Success, Austin, TX: Bard Press, Inc.

Schultz, Howard and Dori Jones Yang (1997), Pour Your Heart Into It. NewYork: Hyperion.

Spector, Robert and Patrick D. McCarthy (1995), The Nordstrom Way. NewYork: John Wiley & Sons, Inc.

Wetherbe, James C. (1996), The World on Time. Santa Monica, CA:Knowledge Exchange.

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CHAPTER 1: INTRODUCTION TO SERVICES

CHAPTER TOPICS

What are services? Why Services Marketing? Service and Technology Differences in Goods versus Services Marketing Services Marketing Mix Staying Focused on the Customer The Gaps Model of Service Quality Technology Spotlight: The Changing Face of Customer Service Global Feature: Services Marketing—A Global Field, Ahead of Its Time

CHAPTER OBJECTIVES

1. Explain what services are and identify trends in the service sector.

2. Explain the need for special services marketing concepts and practices and why the need has developed and accelerated over the last several decades.

3. Explore the profound impact of technology on service.

4. Outline the basic differences between goods and services (intangibility, heterogeneity, simultaneous production and consumption, perishability), and the resulting challenges for service businesses.

5. Introduce the expanded marketing mix for services, the philosophy ofcustomer focus, and the gaps model of service quality, as powerful frameworks and themes that form the foundation for the rest of the text.

LECTURE TIPS & AIDS

1. The activity suggested here must be made at least one class periodprior to the related in-class discussion (it works best if it isdone at the end of the first class meeting or very early in the

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course). Ask the students to be “detectives” in their courses forthe first few class meetings. They should attempt to identify someof the “clues” they are using to assess the quality of each classthey have signed up for and be ready to discuss these in class. Onthe day of the in-class discussion, students can break into smallgroups to discuss their observations for about 10-15 minutes. Theyshould attempt to separate their “clues” into “tangible” and“intangible” categories. (These may need to be defined briefly ifthis assignment is made on the first day of class.)

After the groups meet, the instructor can start a discussion withthe whole class by putting “Intangible” and “Tangible” headings onthe board and asking people to share what their groups put in eachlist. Students will come up with lots of items for both lists.Their suggestions should lead to an interesting discussion of howthe intangible/tangible dimensions interact (e.g., while aninstructor’s voice may be tangible because it can be heard, what isinferred from the voice—enthusiasm, sternness, etc.—is moreintangible). A fun twist on this exercise is for the instructor topurposely wear very different clothing for the class periods leadingup to this discussion (e.g., professional dress vs. casual attire).Students can then be asked what impressions they have of theinstructor and what impact the clothing had on their reactions.

2. To introduce the topic of “goods vs. services,” the instructordivides the class into small groups (3-5 people) and gives eachgroup a list of products, including those that are “mostly” goods,“mostly” services, and “a combination of both.” The sample listsbelow are from Dawn Iacobucci (1992). “An Empirical Examination ofSome Basic Tenets in Services: Goods-Services Continua” In Advances inServices Marketing and Management. JAI Press. 1: 23-52.

List 1 List 2 List 3Blue Jeans Business Suit Appendix OperationCar Casual Clothing Car Brake ReliningDental Examination Condo Dress ShoesMeal at Nice Restaurant Couch EyeglassesGolf Lessons Day Care FurnitureHaircut Dishwasher Greeting CardHotel Room Dry Cleaning Health Club MembershipHouseplant Fast Food Legal RepresentationIce Cream Cone Flu Shot NovelJewelry House Cleaner PsychotherapyLaundry Detergent Life Insurance Rental Car

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“Lean Cuisine” DinnerPlumbing Repairs Soft DrinkRunning Shoes Poster Framing Tailored ClothingTV Repair Socks Typing ServiceVacation Package Tax Consultant Xeroxing/Copying

Each group is to rank its list in terms of goods/services, startingwith the product that is the best example of a “good” at the top andending with the product that is the best example of a “service” atthe bottom. Alternatively (or additionally) groups can rank theirlist in terms of the tangible/intangible continuum (starting with“most tangible” at the far left of the continuum and ending with“most intangible” at the far right of the continuum). This taskshould take approximately 15 minutes.

A member of each group then writes its rankings on the board or onan overhead. If more than one group has the same list, these groupsshould record their rankings side-by-side. The following questionscan be asked during a whole class discussion to bring closure to theexercise:

What do the products at the top of the list (or the left ofthe continuum) have in common?

What do the products at the bottom (or the right of thecontinuum) have in common?

What do the products in the middle have in common?

Students can also be asked about any difficulties that arose inranking the products. It is likely they will point out that manyproducts have elements of both goods and services (or tangibilityand intangibility). This discussion would be a good lead-in to theconcept of core and supplementary benefits.

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ACTIVE LEARNING ACTIVITIES

1. After students have received the syllabus for your class (butbefore it has been discussed), you can have them analyze it fortangible/intangible clues about the service delivery. By working inpairs for about 10 minutes, students should come up with a good listof clues. Then the instructor can initiate a whole class discussionby asking the following questions:

What things did you notice about the syllabus? How does it differ from syllabi you have received in other

classes? How is it similar? What do you think it tells you about this course or the

instructor? What interests you in the syllabus? What worries you?

This exercise is an excellent way to do two tasks at once. It allowsthe instructor to reinforce the important information in thesyllabus in a way that gets students actively involved, and thediscussion can be a nice introduction to some of the basic servicesmarketing concepts in Chapter 1. (Eight different syllabi areprovided as examples in Section 2 of this instructor’s manual.)

Student comments about the syllabus might include: “easy to followlayout;” “lots of ways to reach the instructor–even email!;” “manydifferent ways to show that you understand the material;” “only twoexams!;” “attendance is important” (this can lead to a discussion ofcreating a “class culture” over the semester which will only happenif people are in class most of the time); or “good performance isrewarded.”

If you are so inclined, you might have students identify the “HouseRules” for the course which can then be added to the syllabus.Examples might include:

Please treat others like you would like to be treated! Don’t talk while people are presenting or asking questions. Respect everyone’s opinion. Come to class prepared and participate in class discussions. No note passing or chair rambling. If you come late to class and a presentation has already

begun, please wait outside. Don’t pack up your stuff until class is dismissed.

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Leave the classroom as clean (or preferably cleaner) than youfound it.

Allowing students to set the House Rules can help students take ownership of the class very early in the semester.

DISCUSSION QUESTIONS

1. What distinguishes service offerings from customer service? Provide specific examples.

Service offerings are intangible products offered for sale tocustomers. These can be services sold to business customers (e.g.,consulting services, shipping services, maintenance services) or toend consumers (e.g., restaurant services, transportation, healthcare). Service offerings can be sold by traditional servicecompanies (e.g., Bank of America) as well as manufacturers (e.g.,IBM). A company does not need to be a “service company” in thetraditional sense to sell services.

Customer service can also be offered by service, IT andmanufacturing businesses. It is service provided in support of acompany’s core products, whether these core products are services orgoods. Customer service includes things like answering questions,billing, handling complaints, taking orders, etc. There istypically no charge for customer service.

It is important to distinguish between these two types of servicefor several reasons. First, there is a tendency in servicesmarketing and management courses to become overly focused oncustomer service. Some people even believe that is the entire focusof the field. Needless to say, it is not. Second, it is importantfor students to realize early on that services marketing andmanagement issues and strategies are relevant for all types ofbusinesses—service, manufacturing, and IT. All businesses areservice businesses in some form.

2. How is technology changing the nature of service?

This question focuses on the major section of chapter 1 titled“Service and Technology” and its several sub-sections: Potentialfor New Service Offerings; New Ways to Deliver Services; EnablingBoth Customers and Employees; Extending the Global Reach ofServices; The Internet Is A Service; The Paradoxes and Dark Side of

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Technology and Service. The instructor could focus in depth on adiscussion of one or two of these sub-topics or choose to center thediscussion more broadly on the wide range of impacts that technologyis having on service. The Technology Spotlight on the “ChangingFace of Customer Service” can also incorporated into the discussion.Since this discussion will no doubt take place right at thebeginning of the course, this would be a good time to point out thateach chapter of the book has a relevant Technology Spotlight to showhow technology is having an impact on the particular focus of eachchapter. This important topic is a theme running throughout thetext.

3. What are the basic differences in marketing goods vs. services? What are the implications ofthese differences for IBM Global Service or for Southwest Airlines?

Discussion of the basic differences between goods and services canbe rather abstract without a specific context to focus in on. Theopening vignette regarding IBM can provide such a context,especially if students are relatively sophisticated and have anunderstanding of B2B services. For undergraduates, discussingSouthwest Airlines or a local consumer service that they arefamiliar with may provide a more manageable context. Alternatively,students can be broken into small groups to discuss the implicationsof the differences for a specific assigned service or they can beallowed to pick a service company that one of them has worked for asa context.

The types of questions to be addressed within the specific contextcould include: What are the challenges in marketing a service likethis? Why is it different from marketing a consumer product likebeer, shampoo, or a car? Discuss each of the basic differences(intangibility, heterogeneity, simultaneous production andconsumption, and perishability) in the context of this particularservice. What are the implications?

4. One of the underlying frameworks for the text is the services marketing mix. Discuss why

each of the three new mix elements (process, people, and physical evidence) is included.How might each of these communicate with or help to satisfy an organization’s customers?

The instructor should focus on making sure the students have a clearunderstanding of each of the three new P’s. This can be accomplishedthrough general discussion and by asking students for examples ofhow each of the elements has influenced them as consumers inspecific contexts. An example of how Southwest Airlines develops

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its positioning strategy around the three new P’s is shown inExhibit 1.2.

5. Think of a service job you have had or currently have. How effective, in your opinion,was or is the organization in managing the elements of the services marketing mix?

This discussion question can focus on making sure the students havea clear understanding of the three new P’s. Having them relate thematerial to a job they have had gives them a concrete context forunderstanding the new P’s.

To allow all students a chance to share their examples, theinstructor can begin with a general discussion of the 7 P’s. Thenthe class can break into small groups to discuss how the new P’sapply to their jobs. To keep the groups focused on the relevantdiscussion, two methods of “accountability” could be used. If theclass is small enough, each group could report one of their examplesto the larger group. Alternatively, each group could turn in asummary sheet describing their examples.

The Southwest Airlines discussion in Exhibit 1.2 can also be used inthis question as an example of an organization that appears to beeffectively managing the services marketing mix.

6. Again, think of a service job you have had or currently have. How did or does theorganization handle relevant problems listed in Table 1.3?

This question could be used instead of Question 3 to focus studentson the basic differences between goods and services. A generaloverview of the differences could be provided, with studentsbringing in their specific examples to make the abstract differencesmore concrete.

7. How can quality service be used in a manufacturing context for competitive advantage?Think of your answer to this question in the context of automobiles, computers or someother manufactured product you have actually purchased.

The purpose of this question to get students to focus on therelevance of service for competitive strategy in all types ofbusinesses. When they can see the importance of service in theirpersonal lives, they begin to see how and why manufacturing firmsneed to focus on the service components of their offerings. Whenthere are engineers or high-tech people in the class, this can be aparticularly good way to motivate them to see the value of service

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in their industries. The question can provide a nice lead-in to theGeneral Electric Medical Systems case.

Another way to use this question is as a lead-in to a lecture oncurrent service strategies of such companies as IBM, Xerox, and FordMotor Company, using current periodicals. A guest speaker from aservice-oriented manufacturer is also a good follow-up to thisquestion.

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POSSIBLE WEB SITES FOR CHAPTER 1

Company LocationAmazon.com www.amazon.com American Customer Satisfaction Index

www.bus.umich.edu/research/nqrc/

AT&T www.att.com Center for Service Leadership, ASU

www.cob.asu.edu/csl

Charles Schwab & Company www.schwab.com Cisco Systems www.cisco.com eBay www.eBay.com Federal Express Corporation www.fedex.com General Electric Company www.ge.com IBM Global Services www.ibm.com/services Marriott International Inc. www.marriotthotels.com Southwest Airlines www.southwest.com Williams Sonoma www.williams-sonoma.com

APPROPRIATE CASES FOR CHAPTER 1

From Zeithaml and Bitner (2003) Services Marketing text:

Virgin Atlantic Airways – Case 1

Northwest Airlines and the Detroit Snowstorm – Case 3

From other sources:

Alaska Airlines: For the Same Price, You Just Get More... [Harvard Business School Case, 9-800-004, 2000]

Chartered Bank of Canada [included in the first edition of this text: Zeithaml and Bitner (1996) Services Marketing, New York, NY: McGraw-Hill Companies]

Efteling: Growing a Miracle on Fairy Tales, by Rik Pieters and Paul Driessen, Tilburg University, Tilburg, The Netherlands, a CD

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http://www.williams-sonoma.com/

http://www.southwest.com/

http://www.marriotthotels.com/

http://www.ibm.com/services

http://www.ge.com/

http://www.fedex.com/

http://www.eBay.com/

http://www.cisco.com/

http://www.schwab.com/

http://www.cob.asu.edu/csl

http://www.att.com/

http://www.bus.umich.edu/research/nqrc/

http://www.amazon.com/

Rom Case, 2000. [Contact: [email protected]; [email protected]; http://marketing.kub.nl.]

Four Seasons Hotels and Resorts [Harvard Business School Case 9-800-385, 2000]

PeopleSoft (1996), available through ITSMA [Information Technology Services Marketing association, One Militia Drive, Suite 4, Lexington, MA; (781) 862-8500]

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http://marketing.kub.nl/

mailto:[email protected]

mailto:[email protected]

CHAPTER 2:CONSUMER BEHAVIOR IN SERVICES

CHAPTER TOPICS

Services: Search versus Experience versus Credence Properties? Services: Categories in the Decision-making Process and Framework of

the Chapter The Role of Culture in Services Technology Spotlight: Self-Service Technologies Global Feature: Differences in the Service Experience in the U.S. and Japan

CHAPTER OBJECTIVES

1. Overview the generic differences in consumer behavior between services and goods.

2. Introduce the aspects of consumer behavior that a marketer must understand in five categories of consumer behavior: Need recognition. Information search. Evaluation of service alternatives. Service purchase and consumption. Postpurchase evaluation.

LECTURE TIPS & AIDS

1. One way to illustrate some of the differences in the decision-makingprocess between goods and services is to have students actuallycompare past purchase decisions they have made. Students might beasked to reflect upon the decision-making process for a good theyhave recently purchased (e.g., shoes, stereo, or slacks) and comparethat with a recent service purchase (e.g., cable TV, plumber, or daycare). Students might be paired up with another student, and eachstudent could be assigned only one purchase decision. A discussionof how the decision-making process for services is similar anddifferent than for goods purchases can provide a good referencepoint for the subsequent chapter discussion.

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2. One aspect of the decision-making process that is often unique toservices is the idea of the consumer thinking of a “service script.”(Service scripts “consist of a set of ordered actions, actors, andobjects that, through repeated involvement, define what the customerexpects.”) To illustrate this idea, the instructor might ask astudent to provide a detailed script for a haircut. It willprobably include something like this:

Recognize need for hair cut Make appointment Arrive at salon Enter salon doors Greeting by receptionist Possible wait time (hair magazines available) Greeting by hair stylist Questions about desired hair cut (Optional) go to hair wash station Go to hair cutting chair Hair is cut/styled/permed Casual conversation occurs Neck is trimmed Hair is dried Mirror is provided to evaluate haircut (chair spin) Stylist escorts you to cashier Tip is given Pay for services Gather up coat, say good-bye to all Exit store Get (positive?) comments from relatives/friends

After the student has provided a detailed script, the instructormight put up this list (or one of his/her own) to illustrate howsimilar these scripts are. All students in the class might be thenasked to choose a service and list (and briefly describe) as manyparts of the “service script” as they can for the service they havechosen. Students might then be asked to address the followingquestions:

What three parts of this script are most likely to “gosmoothly” and conform to the expectations of the customer?Why? Explain your thinking.

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What three parts of this script are most likely to deviatefrom the expectations of the customer? Why? Explain yourthinking.

What actions could be taken by management to ensure that theservice “performance” does not deviate from service scriptenvisioned by the customer? Be specific.


1. The instructor should choose a service that can be delivered inseveral significantly different ways. One good example is basichealth care, since virtually all students have experience with thiskind of service. Although the description of this activity is basedon health care, many other services would work equally as well. Thesteps of the exercise are:

At the end of the class period prior to this activity, theinstructor hands out a copy of a one-page article describing a900 number that provides medical advice by phone [see AndrewPurvis (1991). “Reach Out and Cure Someone.” Time. July 2: 54]and asks everyone to read it before the next class.

At the beginning of the class period designated for thisactivity, the class is divided into 6 groups. Each of thesegroups takes one of the following roles: traditional doctors(with regular office practices) or traditional patients;immediate care doctors (affectionately known as “doc in theboxes”) or immediate care patients; and doctors by phone orpatients by phone.

For each of the 3 types of doctors, the basic task is thesame. Each “doctor” group must design a core benefit model[see Chapter 3 in Christopher Lovelock (1994). Product Plus.McGraw-Hill, or Lynn Shostack (1977). “Breaking Free fromProduct Marketing.” Journal of Marketing. April: 73-78] that showsboth the core and supplementary benefits for its service.Since these models will be shared with the class, they shouldbe created on overhead transparencies.

The 3 patient groups have a different task. Each of the groupswill place the kind of medical service it is “receiving”(i.e., traditional care, immediate care or phone care) on the

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Continuum of Evaluation (see Figure 2-1, Chapter 2). Eachgroup will then create lists of the tangible vs. intangibleattributes patients might use to evaluate the type of medicalservice they are receiving. These groups also need to createoverheads to share with the class.

When the groups are done, the whole class reconvenes. Theinstructor asks the three “doctor” groups to share their corebenefit models and invites the class to comment on thesimilarities/differences between the three types of servicedelivery. The “patient” groups then show where they placedtheir services on the Continuum of Evaluation and describe thetangibles/intangibles associated with each service. This canlead to a discussion of the differences between the threetypes of service delivery from the patient’s perspective sincethere should be very few tangibles for the doctors by phone(which implies that the credence attributes are dominant)compared to the traditional doctors and the immediate-caredoctors (who can rely more on search and experience attributesto offset the credence characteristics inherent in healthcare).

Other questions that can be directed to the whole class afterthe groups have presented include:

What do you think of the Doctors by Phone service?

Would you use this service? If so, under what circumstances?

What might the differences be in the training and skills necessary for the Doctors by Phone vs. traditional doctors?

2. Find a print ad for a product in one of the major categories on theContinuum of Evaluation (i.e., high in search qualities, high inexperience qualities, and high in credence qualities). Write ashort paper explaining where you think the product falls on theContinuum and why. You should also discuss the ways the ad eithercapitalizes on the predominant qualities of the product (e.g.,search characteristics) or attempts to overcome them in some way.You’ll need to include the ad (or a copy) with your paper.

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[Note: A good example comes from a recent print ad campaign formilk. Milk is a very tangible product that is high in searchattributes. Rather than stressing the tangible aspects, though, theadvertisers decided to try to build on intangibles like glamour, fame,and fitness with their ads that show famous sports heroes, models,TV celebrities, etc. with milk mustaches. By contrast, print ads forcredit card companies (whose products are much more in theexperience/credence realm) tend to show pictures of things customerscan buy or experience through the use of a credit card. Thesecompanies are interested in providing consumers with tangibles thatcan be associated with their products.]

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1. This chapter focused on aspects of consumer behavior that are different depending onwhether goods or services are being purchased. What aspects of consumer behavior in thepurchase of goods and services are similar?

As shown in Exhibit 2.1, the review of selected basic marketingprinciples of consumer behavior, there are many similarities inbehavior when customers are buying goods and services. The basicstages of decision making (from need recognition to informationsearch to evaluation of alternatives to purchase and purchaseoutcome) are essentially the same, although some authors have arguedthat there is greater post-purchase dissonance with services thanwith goods. Students should be able to come up with many ways theyare similar. Everything except what the chapter covers, in fact, issimilar.

2. Where does a college education fit on the continuum of evaluation for deferent types ofproducts? Where does computer software fit? Consulting? Retailing? Fast food?

A college education fits far to the right (close to the “difficultto evaluate” end of the continuum. Computer software fits in themiddle, since there are technically some physically tangible aspectsof software. Consulting fits far to the right, since it is almostentirely intangible. Retailing fits in the middle; in retailingthere are the physical products that customers buy from theretailer, who provides accompanying services such as assorting,credit, display and branding. Fast food is also in the middle, withthe food itself being tangible and such services as convenience,speed, and cleanliness being the intangible components.

3. What are examples (other than those given in the chapter) of services that are high incredence properties?

Services high in credence properties include all those that aretechnical and difficult for novices to evaluate. Automobile repair,higher education, consulting, medical services, legal services,engineering, architecture and scientific services all qualify. Agood way to decide whether a service is high in credence propertiesis to ask whether those who use it must be experts (e.g., a lawyerfor legal services) in order to evaluate it.

4. For what types of services might consumers depend on mass communication(nonpersonal sources of information) in the purchase decision?

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Consumers depend on mass communication when there is littleperceived risk in the purchase of the service and when virtually allthat needs to be known about the service can be ascertained throughadvertising. Such services as dry cleaning, public transportation,and retailing can be effectively described in mass communication.

5. Which of the descriptions of consumer behavior in this chapter describe your behavior whenit comes to purchasing services?

The purpose of this question is to get students to think criticallyabout the aspects of consumer behavior discussed in the chapter tosee whether they make sense in their own lives. There are no rightor wrong answers to this question and a lively discussion is usuallygenerated when students try to apply them to their own behavior. Analternative way to phrase the question is for the instructor tostate that all but three of the aspects are, in general, true andchallenge the students to decide which of the three are not true.There will be no lack of responses to this challenge.

6. For what types of services would consumers tend to engage in the most postpurchaseevaluation? The least?

Consumers would likely engage in the most postpurchase evaluation inhigh risk, high cost services where the outcome is important to thecustomer, e.g., medical care, legal services, higher education,realty services, etc.

7. Name three high-technology services (other than ATMs) that consumers resisted in theearly stages of introduction but then accepted and used.

Consumers resisted direct deposit checking, voice mail, and theInternet—among others—when they were first introduced, but then cameto appreciate the advantages that these services provided overexisting alternatives.

8. What is the impact of a service guarantee on the perceived risk customers experience inpurchasing services?

A service guarantee reduces the perceived risk the customerexperiences and is therefore an effective buying incentive for high-risk services.

9. List five services for which customer compatibility is essential.

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These would include any services where customers come into closecontact with other customers, such as bars and restaurants, socialclubs, recreational facilities, airlines, and health clubs.

10. What are examples of services where brand switching is difficult for consumers?

Because of the time and effort involved, brand switching istypically difficult for consumers with services like insurance,banking, medical services, brokerage services, and universityeducation.

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The Internet has the potential to change the way consumers searchfor information about services, evaluate them, and even choose them.The following Web sites provide excellent examples of how behaviormay differ when consumers buy online. You may want to assignstudents to look at these sites then discuss the potential changesin class. In-class examination of the sites also generatescompelling discussion.

Company LocationBarnes & Noble www.barnesandnoble.com Carpoint www.carpoint.com CompareNet www.compare.com eBay www.eBay.com Kraft Foods www.kraftfoods.com LandsEnd www.landsend.com Peapod www.peapod.com Priceline.com www.priceline.com Streamline www.streamline.com Travelocity www.travelocity.com




The Quality Improvement Customers Didn’t Want – Case 5

From other sources:


EuroDisney: The First 100 Days [included in the second edition ofthis text: Zeithaml and Bitner (2000) Services Marketing: Integrating Customer Focus Across the Firm, New York, NY: McGraw-Hill Companies]

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http://www.travelocity.com/

http://www.streamline.com/

http://www.priceline.com/

http://www.peapod.com/

http://www.landsend.com/

http://www.kraftfoods.com/


http://www.compare.com/

http://www.carpoint.com/

http://www.barnesandnoble.com/

Hurricane Island Outward Bound [Harvard Business School Case 9-588-019, 1986 Best Seller]

Virtual Vineyards: www.virtualvin.com [Harvard Business School Case 9-396-264, 1996]

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CHAPTER 3: CUSTOMER EXPECTATIONS OF SERVICE

CHAPTER TOPICS

Meaning and Types of Services Expectations Factors that Influence Customer Expectations of Service A Model of Customer Service Expectations Issues Involving Customer Service Expectations Technology Spotlight: Customer Expectations of Interactive TV Global Feature: Cultural Influences on Service Expectations

CHAPTER OBJECTIVES

1. Recognize that customers hold different types of expectations for service performance.

2. Discuss the sources of customer expectations of service including those that are controllable and uncontrollable by marketers.

3. Acknowledge that the types and sources of expectations are similar for end consumers and business customers, for pure service and product-related service, for experienced customers and inexperiencedcustomers.

4. Delineate the most important current issues surrounding customer expectations.

LECTURE TIPS & AIDS

1. To illustrate the notion of differing expectations, the instructormight want to provide an example other than those at the beginningof Chapter 3 (related to fast food restaurants). For example,university classes are something with which students in the classshould have extensive experience. One avenue of generating classdiscussion might be to have students talk about differingexpectations for various classes. For example, students mightcompare and contrast expectations for an introductory marketingclass versus a bowling class. Or, alternatively, students couldcompare their expectations for the introductory marketing class with

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an advanced marketing management class. Another route to go mightbe to talk about differing expectations students have of variousinstructors, or differing expectations across size of classes (e.g.,20 students versus 75 students).

Expectations could also be discussed in terms of specific componentsof a particular class. For example, expectations about turn-aroundtime on projects, papers, or exams could be discussed. Indeed thestudents could talk about what their desired level of expectationson turn-around time for getting feedback is, what is consideredadequate, and what influences their expectations for both desire andadequate levels.

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2. An alternative way to discuss the information in this chapter is tohave students divide into teams of two to four (depending on thesize of the class) and have each team discuss the influencingfactors on both desired service and adequate service expectations.There are twelve different topics that could be discussed,including:

enduring service intensifiers personal needs transitory service intensifiers perceived service alternatives self-perceived service role situational factors explicit service promises implicit service promises word-of-mouth communication past experience predicted service perceived service

A particular service could be chosen to illustrate various points.For example, a hair cut or a trip to Disney World could be selectedas a focus for illustrating how these factors might come into playas influencing customers’ expectations. By giving students theopportunity to become experts on one of these twelve topics, theycan take an active role in leading the class discussion withoutbeing burdened with being responsible for too much information.

3. An interesting question posed in Chapter 3 is should a service providersimply try to meet customer expectations or exceed them? Obviously there is noright answer to this question, so an interesting topic for debatewould be to have the students in the class discuss this. One easyway to do this would be to divide the class in half and assign eacha specific side on this issue. The class would then be given fiveto ten minutes to prepare an argument supporting their view and aspokesperson would then present the arguments for each side. Theirarguments might include examples to illustrate the points each sideis trying to make.


1. Think of a service encounter that you have had recently.

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What were your expectations going into the encounter? What were your desired expectations? What were your adequate expectations? What were your predicted expectations? Was your tolerance zone wide or narrow in this case? Why? Where did your expectations come from?

2. A recent article in Fortune [Ronald Henkoff (1994). “Service IsEverybody’s Business.” Fortune. June 27: 48-60] asserts that “service—bold, fast, imaginative and customized—is the ultimate strategicimperative” (p. 48). The article highlights companies that areextremely successful because they have redefined their corebusinesses in a way that allows them to consistently meet (orexceed) customer expectations. This exercise is based on the“Service Is Everybody’s Business” article, so you will need to readit carefully. After you are familiar with the article, write apaper discussing how the material in the article relates to theChapter 4 material on customer expectations of service. Usespecific examples from the Fortune article to illustrate your points.

3. This activity is based on the Tom Peters film “A Passion forCustomers” (a 1987 video available from PBS or Tom PetersEnterprises). Because the film is 66 minutes long, this activityusually takes 2 class periods. Just prior to showing the film inclass, the instructor should tell the students that they need to payspecial attention to the 5 companies Tom Peters discusses andwhether these businesses meet and/or exceed customer expectations.At the start of the next class period after the film is shown,students break into small groups to address the following questions:

How do customers perceive the quality of the service theyreceive from the 5 companies in the film? Do you think itjust meets their expectations—or exceeds them? Give specificexamples.

Do you see any problems associated with raising customerservice expectations—either for the companies that areproviding extraordinary service (like those in the film) orfor other competitors in the industry?

Is it necessary—or even wise—for every business to try toexceed customer expectations? Why or why not?

After the groups have discussed these questions for 20-25 minutes,the instructor can call the class back together. Students typically

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enjoy the Tom Peters film, and both the group and class discussionsshould be very lively. The film material relates to many aspects ofservices marketing, so other topics can be addressed in addition tothe questions above depending on the time available and theinstructor’s objectives.

4. If the class has read the Fortune article described in ActiveLearning Activity 2 (see above) and has viewed the Tom Peters filmfrom Active Learning Activity 3, there is another interestingassignment that can be done. Students can write a paper describingthe common themes between the article and the film as they relate tothe material in Chapter 4 on customer service/customer expectations.This is an excellent activity for developing critical thinkingskills, since it requires students to integrate and synthesizematerial from three different sources.


1. What is the difference between desired service and adequate service? Why would aservices marketer need to understand both types of service expectations?

Desired service expectations are the upper bound on customerexpectations—the level of service the customer hopes to receive, ablend of what the customer believes can be and should be. Adequateservice is the lower bound on customer expectations—the level ofservice the customer will accept. A services marketer needs tounderstand both levels. Adequate service must be understood so thatthe marketer makes certain that service levels never drop below thislevel because, by definition, the customer will be very disappointedand will likely defect. Desired service must be understood as thegoal the company strives to attain. Going beyond the desired levelis probably not a wise investment of company resources.

2. Consider a recent service purchase that you have made. Which of the factorsinfluencing expectations were the most important in your decision? Why?

This question is designed to get students to personalize and applyto their own experience with the various factors influencing

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expectations. The question should generate a lively discussion withstudents mentioning different influences for different types ofpurchases. It is likely that word of mouth will be included amongmost of the important factors, and the instructor may want to pointthis out.

3. Why are desired service expectations more stable than adequate service expectations?

Desired service expectations are ideal and do not change frequentlybecause what one hopes for does not change frequently. On the otherhand, adequate service expectations are constantly in flux, mostlikely rising incrementally as service is improved in a particularcompany or industry.

4. How do the technology changes discussed in the Technology Spotlight in this chapterinfluence customer expectations?

Customers have long been passive consumers of television, expectingto be entertained but also expecting to be bored by commercials andperhaps by the limited number of programs available to watch at anypoint in time. Interactive television raises the expectations ofcustomers for entertainment options: customers will expect that thewill find multiple things they want at any point in time. It alsoincreases their expectations of novelty, making television in somecases more like a video game than the passive one-way channel it hasbeen in the past. One interesting aspect of interactive television,however, is that it requires viewers to participate in creatingtheir own experiences. This means that their expectations will beshaped by what they do, not just what is presented to them.Customers who are unwilling to play their role in the new medium maybe disappointed, just as many customers were disappointed initiallyby the Internet.

5. Describe several instances where a service company’s explicit service promises wereinflated and led you to be disappointed with the service outcome.

Virtually all students can report on disappointments theyexperienced as a result of inflated promises. Inflated promisesabout vacations and college courses are two examples that oftenarise in response to this question. The instructor can ask thestudents why the company inflated the promises and what the impactwould have been of making realistic promises. This usually leads tothe answer that promises were inflated to make the sale and thatcompanies felt they needed to inflate promises because their

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competition did so. Two outcomes are possible without the inflatedpromises. First, the customer may have chosen not to buy theservice without the inflated promise (a negative outcome). On theother hand, the customer may have chosen to buy the service anywayand would likely have been a more satisfied customer upon receivingthe service.

6. Consider a small business preparing to buy a computer system. Which of the influenceson customer expectations do you believe will be pivotal? Which factors will have the mostinfluence? Which factors will have the least importance in this decision?

Because this is a business decision, the factors that may be mostimportant include perceived service alternatives, explicit servicepromises, and enduring service intensifiers. Business purchasedecisions as a category are generally more rational than personalchoices and it is likely that company promotional material will bereviewed and that competing brands will be considered. Enduringservice intensifiers will be relevant when considering theindividuals within the firm who will use the computer system. Wordof mouth is also likely to be influential because of the perceivedrisk inherent in purchasing a computer. The least importantinfluencers in a decision of this type would be transitory serviceintensifiers and personal needs, although one could argue thatpersonal needs are always an important component of businesspurchase decisions.

7. What strategies can you add to Exhibit 3.1 for influencing the factors?

The purpose of this question is to get students thinking about waysto influence the factors and to become familiar with the onespresented in Exhibit 3.1. Students should be able to come up withadditional strategies to address the factors.

8. Do you believe any of your service expectations are unrealistic? Which ones? Should aservice marketer try to address unrealistic customer expectations?

This question is designed to initiate a discussion about elevatedcustomer expectations. It is likely that students will be able toidentify services where their expectations are high because theirpersonal needs are strong. Whether or not service marketers shouldtry to address unrealistic expectations is a topic that will bedebated. Some students will argue that companies should aim high,thereby exceeding the performance of competition. But others willrecognize the diminishing returns of achieving ever-higher levels of

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performance. One way of viewing the debate may be to ask whetherthe costs of raising performance levels are equal or greater thanthe expected returns in terms of new sales and long-term customerloyalty.

9. In your opinion, what service companies have effectively built customer franchises(immutable customer loyalty)?

Examples include Walt Disney theme parks, Singapore Airlines,Federal Express, Marriott Hotels and Resort Properties, andNordstrom’s.

10. Intuitively, it would seem that managers would want their customers to have wide tolerancezones for service. But if customers do have these wide zones of tolerance for service, is itmore difficult for firms with superior service to earn customer loyalty? Would superiorservice firms be better off to attempt to narrow customers’ tolerance zones to reduce thecompetitive appeal of mediocre providers?

The wider customers’ zones of tolerance, the more willing they areto accept variations in service—both from the companies theycurrently patronize and competing companies. Therefore, superiorfirms might well be better off if they try to narrow customers’tolerance zones by managing customer expectations, educatingcustomers, or otherwise demonstrating to customers the reasons whythey should not tolerate lower levels of service.

11. Should service marketers delight their customers?

Companies should always try to exceed the adequate service level,but exceeding adequate service will not delight customers.Exceeding desired service will delight customers. But in our view,delighting customers has a definite down side: it results in theescalation of customer expectations the next time the customer seeksservice. There are ways that the company can exceed desired service—particularly in dimensions other than reliability—while at the sametime alerting customers that the elevated service performance cannotbe delivered on a routine basis.


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Listed below are Web sites for companies known to have outstandingservice. Students may be asked to evaluate these sites in terms ofwhether the sites themselves meet their expectations for service,and whether they signal that the companies creating the sites offerservices that meet their desired or adequate expectations.

Company LocationAmazon www.amazon.comAmerica Online www.aol.com American Marketing Association www.marketingpower.comFour Seasons Hotel www.fourseasons.comThe Ritz Carlton Company www.ritzcarlton.com USAA www.usaa.com Federal Express Corporation www.fedex.com The Walt Disney Company www.disney.com






From other sources:

A Measure of Delight: The Pursuit of Quality at AT&T Universal Card Services (A) and (B) [Harvard Business School Cases 9-694-047, 1997 (A) and 9-694-077, 1994 (B)]

Cederbrae Volkswagen—Quality of Service [included in the first edition of this text: Zeithaml and Bitner (1996) Services Marketing, New York, NY: McGraw-Hill Companies]


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http://www.disney.com/

http://www.fedex.com/

http://www.usaa.com/

http://www.ritzcarlton.com/

http://www.fourseasons.com/

http://www.marketingpower.com/

http://www.aol.com/



CHAPTER 4: CUSTOMER PERCEPTIONS OF SERVICE

CHAPTER TOPICS

Customer Perceptions Customer Satisfaction Service Quality Service Encounters: The Foundations for Satisfaction and Service

Quality Strategies for Influencing Customer Perceptions Technology Spotlight: Customers Love Amazon.com Global Feature: Cultural Differences in Service Quality Perceptions

CHAPTER OBJECTIVES

1. Provide definitions and understanding of customer satisfaction and service quality and of how these two types of customer perceptions are related.

2. Show that service encounters or the “moments of truth” are the essential foundation of customer perceptions.

3. Highlight strategies for managing customer perceptions of service.

LECTURE TIPS & AIDS

1. One of the suggested exercises in the back of the chapter is to havestudents keep a journal of various service encounters they have withdifferent organizations. If you indeed do have students do ajournal, these can be used as reference points in discussing thevarious concepts in this chapter. Through their service encounterexperiences students can relate to the various topics beingdiscussed and can easily share illustrations of the various pointsbeing made in the chapter when called upon.

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2. One approach to take in discussing the differences between remoteservice encounters and person-to-person encounters would be to havestudents compare experiences for the same type of service with thetwo types of encounters. For example, as suggested in Exercise 6 atthe end of the chapter, students might compare and contrast usingAmazon.com to purchase a book versus going to a traditionalbookstore to do the same thing. Other student purchases may also beused, such as buying a car, clothing, compact disks, etc. Thisdiscussion is probably better suited toward the end of the chapterafter service encounters have been discussed in detail to givestudents a point of reference for making comparisons.

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1. Choose an example of an ideal service encounter that you haveexperienced recently.

What was the source of satisfaction? Why was the encounter so special? What did the employee do? What were your expectations? What could the company do to ensure that this kind of

encounter is the “rule” rather than the “exception” (if youthink it should ensure this)?

2. Choose an example of a very bad service encounter that you have hadrecently.

What was the source of dissatisfaction? Can you categorizethe encounter according to the four common themes?

What did the employee do to make this such a bad encounter?What were your expectations?

What should the employee have done? Using the GAPS model of service quality, can you identify

likely gap(s) that may have caused this service failure?

3. Choose a local company to visit with the following questions inmind:

How do you think customers evaluate the services of thiscompany? (e.g., what is important to them in choosing thiskind of service, and how will they know if they have receivedquality service?)

Think about the 5 dimensions of service quality: reliability;tangibles; responsiveness; assurance; and empathy. How do theyapply to this company? Which dimensions might be themost/least important?

Assume you measured service quality (i.e., comparing customerperceptions of service against their expectations) for thiscompany and found it low compared to competitors. Why mightthis be occurring? (Use the GAPS model to help think aboutthis question.)


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1. What is customer satisfaction, and why is it so important? Discuss how customer satisfactioncan be influenced by each of the following: product attributes and features; customeremotions; attributions for success or failure; perceptions of fairness; and family members orother customers.

According to the chapter, satisfaction is “the customer’s evaluationof a product or service in terms of whether that product or servicehas met their needs and expectations.” Failure to meet needs andexpectations is assumed to result in dissatisfaction. Customersatisfaction is important because, in the long term, withoutsatisfied customers a firm will not survive. At the heart of themarketing concept is the notion that the most successful firms arethose that satisfy their customers better than their competitors do.Some public policy makers are convinced that customer satisfactionis an important indicator of national economic health, well being,and quality of life.

At the firm level, Figure 4.4 illustrates the critical linkagesbetween satisfaction and customer loyalty. While there is not aperfect correlation between satisfaction and loyalty (see chapters 6and 17 for more on this), the underlying relationship is critical.Businesses cannot be sustained or grow with only dissatisfiedcustomers!

Product and service features and attributes, customer emotions,attributions, and perceptions of fairness, and other consumers,family members, and co-workers can all influence customersatisfaction. Discussions of each of these categories of factorsare provided in the chapter. The important point to illustrate withthis question is that satisfaction is determined by factors beyondactual features and attributes of the product/service. The othersets of factors (emotions, attributions, fairness perceptions, otherpeople) can sometimes be equally, if not more, important indetermining satisfaction.

2. What is the ACSI? Do you believe that such national indicators of customer satisfactionshould be included as benchmarks of national economic well being similar to GDP, priceindicators, and productivity measures?

The ACSI is the American Customer Satisfaction Index, developed byresearchers at the National Quality Research Center at theUniversity of Michigan. The measure tracks customer perceptionsacross 200 firms representing all major economic sectors. For eachcompany, approximately 250 interviews are conducted with current

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customers to gauge customer satisfaction levels. The results of2000 and 2001 ACSI data by industry are shown in Table 4.1. It isalso interesting to note that the ACSI is gaining credibility and iscited often in the Wall Street Journal and other businesspublications as an indicator of firm or industry quality. The ACSIcan also be linked to other important economic indicators as shownin Figure 4.3. The relationship between ACSI and the percentagegrowth in S&P 500 earnings is striking. The overall ACSI ratingappears to be a leading indicator of the average S&P growth measureby one year, comparing Quarter 4 data from 1994 to 2000.

An interesting discussion can be lead regarding the pros and cons ofthe various measures listed as indicators of economic well being.The unique feature of the ACSI is that it is based on customerperceptions as opposed to the other indicators (GDP, priceindicators, productivity measures) that are based on hard,quantitative data. Some will argue that the ACSI is a bettermeasure, or at least an important complementary measure of wellbeing and quality of life. Others will argue that only “objective”quantitative measures should be used to benchmark the economy. Withadvanced graduate students, or PhD students, the validity of theACSI could also be discussed.

3. Why do you believe service companies generally receive lower satisfaction ratings in theACSI than nondurable and durable product companies?

Several possible reasons for the lower satisfaction ratings arecited in the text. Perhaps it is the trend in recent years towarddownsizing that has resulted in lower quality being provided on thefront lines. Perhaps it is the tight labor market that results inlower skilled, less well-trained employees delivering service.Perhaps it is rising customer expectations rather than decliningservice that cause the lower ratings. All of these possibilitiesare conjecture, worthy of discussion. Students and other professorsmay have additional thoughts. The results of annual ACSI data mayshow other trends that could be explored.

4. Discuss the differences between perceptions of service quality and customer satisfaction.

This question is rather esoteric for most student groups. However,if the instructor is comfortable with the debates in the literature(cited at the end of the chapter, note 2) the question can provide agood base for discussion. The basis of the discussion from thestudents’ perspective can be found on pages 85-86 of the text and in

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Figure 4.1. From a practical perspective the question is importantsince many organizations measure either or both of these constructsbut may not be clear about what they are measuring. Thus they maysometimes use the two labels interchangeably or incorrectly.

5. List and define the five dimensions of service quality. Describe the services provided by afirm you do business with (your bank, your doctor, your favorite restaurant) on each of thedimensions. In your mind, has this organization distinguished itself from its competitors onany particular service quality dimension?

The five dimensions and their brief definitions are found on pages93-98. By applying the dimensions to a service they are familiarwith, students begin to see their relevance in real situations.Table 4.2 provides examples that help students with this question.The last part of the question allows students to start to see howorganizations can distinguish or position themselves on thedimensions of service quality.

6. Describe a remote encounter, a phone encounter, and a face-to-face encounter that youhave had recently. How did you evaluate the encounter, and what were the most importantfactors determining your satisfaction/dissatisfaction in each case?

This question allows students to see the variety of ways serviceencounters occur and how different factors may be important acrossdifferent types of encounters. This question could be used incombination with a lecture/discussion on either: (1) the sources ofpleasure and displeasure in service encounters (recovery,adaptability, spontaneity, and coping, pp. 104-108); or (2) theevidence of service (people, process and physical evidence).

7. Describe an “encounter cascade” for an airplane flight. In your opinion, what are themost important encounters in this cascade for determining your overall impression of thequality of the airline?

Using the format in Figure 4.5, an airline encounter cascade couldbe described as:

order tickets via phone receive tickets in the mail park at the airport check-in/check bags at ticket counter board the plane receive food/drink in flight deplane

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receive bags from carousel leave airport area.

At any point in this encounter cascade, the passenger may interactwith airline personnel; thus, each encounter may potentially affectthe customer’s perceptions of the airline. Student opinions mayvary in terms of which encounters are most important. One way toapproach this part of the question is to ask:

If there were any failures at any point in this cascade, whichfailures would be most critical–resulting in extremedissatisfaction for you?

This can be followed with a more positive approach to the question:

Which encounters, if done extremely well (exceeding yourexpectations), could result in increased satisfaction for you?

8. Why did the gentleman described in Exhibit 4.2 leave his bank after thirty years? Whatwere the underlying causes of his dissatisfaction in that instance, and why do you think thatwould cause him to leave the bank?

The true story related in Exhibit 4.2 always engenders a good(short) discussion and makes a lasting impression on students. Thestory illustrates how sometimes just one service encounter can makea profound difference in a customer’s perceptions of a firm. Inthis case the impression was negative and resulted in the customerending a thirty-year relationship with his bank. While thespecifics of this example are somewhat unusual, most of us can thinkof cases where one encounter destroyed any chance of our returningto a particular organization. The point to be made from thisexample is that from the organization’s perspective we never knowwhen such a “critical encounter” may be occurring; thus, it isimportant to aim for customer satisfaction in every encounter. Thisis FedEx’s approach. They never know which package is the “goldenpackage”; therefore, they aspire to deliver 100% customersatisfaction in all service interactions. (However, this does notpreclude organizations from segmenting customers and treating someas “more equal” in terms of level of service provided.)

9. Assume you are a manager of a health club. Discuss general strategies you might use tomaximize customers’ positive perceptions of your club. How would you know if you weresuccessful?

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Most students are very familiar with health clubs so this context isa good one for getting them to think about customer satisfactionstrategies. Two sections of the chapter can be particularly usefulhere. First, the students could build a strategy around theconcepts shown in Figure 4.1 and the related discussion in the text.This would focus on dimensions of service quality and other factorsin the health club setting that could influence satisfaction—including customers’ emotions, attributions and perceptions offairness. A second approach to this question would use the materialin the last few pages of the chapter to develop a strategy. It isimportant to point out here that subsequent chapters in the bookwill provide specific ideas and strategies for helping managersmaximize customers’ positive perceptions. This chapter is just thevery beginning.

It is important to note here that monitoring customer perceptionswill be critical to knowing if the strategy is successful. Chapter5 will provide specifics on how and what to measure.

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Company LocationAmazon.com www.amazon.com American Customer Satisfaction Index

www.bus.umich.edu/research/nqrc

Colorado Rockies Baseball Club www.coloradorockies.com Doubletree Hotels www.doubletree.comGerman Customer Satisfaction Barometer

www.servicebarometer.de

Lands End www.landsend.com Nordstrom www.nordstrom.com Xerox Corporation www.xerox.com





From other sources:

AT&T (A): Focusing the Services Salesforce on Customers; AT&T (C): Employees as Customers [included in the second edition of this text: Zeithaml and Bitner (2000) Services Marketing: Integrating Customer Focus Across the Firm, New York, NY: McGraw-Hill Companies]




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http://www.xerox.com/

http://www.nordstrom.com/

http://www.landsend.com/

http://www.servicebarometer.de/

http://www.doubletree.com/

http://www.coloradorockies.com/

http://www.bus.umich.edu/research/nqrc


Shouldice Hospital Ltd. [Harvard Business School Case 9-683-068, 1983; also reprinted in the first edition of this text: Zeithaml and Bitner (1996) Services Marketing, New York, NY: McGraw-Hill Companies]

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CHAPTER 5: UNDERSTANDING CUSTOMER EXPECTATIONS

AND PERCEPTIONS THROUGH MARKETING RESEARCH

CHAPTER TOPICS

Using Marketing Research to Understand Customer Expectations Elements in an Effective Services Marketing Research Program Analyzing and Interpreting Marketing Research Findings Using Marketing Research Information Upward Communication Technology Spotlight: http://marketingresearch Global Feature: Customer Research in Europe

CHAPTER OBJECTIVES

1. Present the types of and guidelines for marketing research in services.

2. Show how marketing research information can and should be used for services.

3. Describe the strategies by which companies can facilitate interaction and communication between management and customers.

4. Present ways that companies can and do facilitate interaction between contact people and management.

LECTURE TIPS & AIDS

1. After talking about the various ways to conduct research on theservice quality dimensions, an instructor might considerillustrating these points by conducting research in the classroom.In particular, students might be “surveyed” as to the relativeimportance of various service quality dimensions of this class. Forexample, students might be asked to allocate 100 percentage pointsacross the five service quality dimensions. Results could becollected at the end of one class and then presented at thebeginning of another class period. In so doing, the instructorcould illustrate overall class perceptions and point out where

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service delivery could be altered to positively influence futureservice delivery.


1. Working in a small group, choose a service that your universityoffers for students that most people in the class will be familiarwith (e.g., food services, library services, computer labs,advising, career placement, etc.). Adapt the SERVQUAL scale to fityour service and then administer your survey to the class. Analyzethe data and provide the class with a summary of your results.(This can be done in either written or oral form.)

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2. Working in a small group, choose a service that your universityoffers for students that most people in the class will be familiarwith (e.g., food services, library services, computer labs,advising, career placement, etc.). Use the Critical IncidentTechnique described in Chapters 4 and 5 to gather data fromcustomers. You may use some of your classmates as participants, butyou should also interview people who are not business majors so thatyou’ll get a more representative sample. Provide the class with asummary of your results. (This can be done either in written ororal form.) What are the benefits of using this kind of researchtechnique? What are some of the disadvantages?

3. Find a service business that will allow you to administer a briefsurvey to its internal customers (employees). After observing thebusiness and/or interviewing management to get a basic understandingof the business, customize the SERVQUAL instrument and administer itto the internal customers. Analyze your data. Write a report to besubmitted to both the instructor and the business discussing youranalysis of the results.


1. Give five reasons research objectives must be established before marketing research isconducted.

Research objectives must be established in order to: avoid spending inefficiently make certain that the implicit questions that led to the

research are answered assure that the appropriate form of research is conducted

(because the appropriate type of research depends on theobjectives)

decide whether qualitative research is needed beforequantitative research is conducted

get all the parties involved to come to consensus about theresearch so that the output is useful to all of them.

2. Why are both qualitative and quantitative research methods needed in a servicesmarketing research program?

Qualitative research is needed to frame the questions to be asked inquantitative research. It allows the firm to hear the voice of thecustomer without bias. Qualitative research also fleshes out issues

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that have surfaced in quantitative research. However, qualitativeresearch alone is insufficient because it does not select a randomsample of respondents so that results can be generalized to a givenpopulation of customers. For this reason and others, quantitativeresearch is also necessary.

3. Why does the frequency of research differ across the research methods shown in Exhibit5.1?

Frequency of research depends on several things, among them howfrequently respondents are willing to participate in a given type ofresearch and how rapidly performance changes and therefore needs tobe monitored. When a given pool of respondents is repeatedlymonitored over the years, as is true with relationshipquestionnaires, they are rarely willing to complete questionnairesmore frequently than once a year. Therefore, the frequency of thisresearch is once per year. With transaction-based questionnaires,however, we sample from the pool of respondents that includes allthose who experience a particular transaction–a much larger poolthan for relationship questionnaires. For this reason, and alsobecause transaction-based questionnaires are typically very shortand very focused, they can be conducted on a continuous basis. Thechance of a given respondent being sampled frequently is low.Furthermore, because service research monitors service performance,something that has the potential to vary far more than theperformance of goods, the frequency of research must coincide withthe variability. The more a given service performance varies, themore frequently the research must be conducted to monitor it.

4. Compare and contrast the types of research that help a company identify commonfailure points (see column 2 in Exhibit 5.1). Which of the types do you think produces betterinformation? Why?

The three types of research used to help a company identify commonfailure points include complaint solicitation, critical incidentstudies, and trailer calls. Complaint solicitation is voluntary onthe part of customers and does not draw equally from the fullpopulation of customers. For that reason, it possesses some samplebias. If trailer calls are executed correctly, this form ofresearch will not have sample bias, making it more representative ofthe full population. Critical incident studies are the best of thethree for conducting qualitative research to understand what isexpected in service encounters with the customer. Becauseresearchers ask the questions in critical incident studies, they can

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be more comprehensive and inclusive than in complaint solicitationwhere customers report on the particular aspects about a servicethat they want to discuss.

5. In what situations does a service company need requirements research?

A service company needs requirements research when it is creating aquestionnaire, when it is developing new services, and at any othertime that it does not understand the needs and requirements ofcustomers.

6. What reasons can you give for companies’ lack of use of research information? Howmight you motivate managers to use the information to a greater extent? How might youmotivate front-line workers to use the information?

The three main reasons managers do not use market researchinformation are: (1) they do not understand it; (2) it fails tosupport their view of the situation or issue; and (3) they are toobusy. One of the best ways to motivate managers to use theinformation to a greater extent is to make sure that the translationhas been clearly made between research findings and practicalinsights stemming from those findings. Both types of employees(managers and front-line workers) need to have the informationpresented simply and clearly. The main reason front-line workers donot use research information is that they are not exposed to it.Companies do not frequently pass the information to the group ofpeople that it will help the most—the front-line workers. Thereasons that they do not are the same three reasons presented above:lack of understanding; lack of validation of previously heldbeliefs; and lack of time.

7. Given a specific marketing research budget, what would be your recommendations forthe percentage to be spent on customer research versus upward communication? Why?

The percentage spent on customer research should be considerablyhigher than that spent on upward communication because customerresearch provides an outside-in view whereas upward communicationoffers an inside-out view. Going straight to the customer is moreeffective than filtering the information though employees. Upwardcommunication has its place and is less costly than customerresearch, but its effectiveness is considerably lower than customerresearch.

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8. What kinds of information could be gleaned from research on intermediate customers?What would intermediate customers know that service providers might not?

When a company has intermediate customers, the intermediatecustomers are the ones who interact directly with end customers.Therefore, the intermediate customers observe end customers usingthe service and receive direct feedback about the service’sstrengths and weaknesses. Among the types of information that canbe gleaned are whether the service is easy to use, whether theservice meets the needs of customers, and what can be done tocorrect problems associated with the service.

9. For what types of products and services would research on the Internet be preferable totraditional research?

First, products and services sold primarily through the Internetwould be ideal candidates for research through that vehicle. Usersof electronic media would be very comfortable with the medium andwould view the research as a novelty rather than as a burden.Second, service companies that need quick turnaround on informationwould find that collecting information electronically has thebenefit of speed over traditional methods. Finally, products andservices whose target markets consist of young, affluent, educated,and computer-savvy customers would be ideal candidates. Obviously,this includes high-tech products and services, entertainmentservices, and educational services.


Company LocationAC Nielsen Corporation www.acnielsen.com American Marketing Association www.marketingpower.comThe Arbitron Company www.arbitron.com IMS Health www.imshealth.com Information Resources www.infores.com Maritz Marketing Research www.maritzresearch.com Marketing Science Institute www.msi.orgNielsen Media Research www.nielsenmedia.com


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http://www.nielsenmedia.com/

http://www.msi.org/

http://www.maritzresearch.com/

http://www.infores.com/

http://www.imshealth.com/

http://www.arbitron.com/

http://www.marketingpower.com/

http://www.acnielsen.com/


Custom Research Inc. (A) – Case 2

Ernst & Young LLP – Case 4 and The Quality Improvement Consumers Didn’t Want – Case 5

From other sources:

Baxter Healthcare Corporation: Shared Services [included in the first edition of this text: Zeithaml and Bitner (1996) Services Marketing, New York, NY: McGraw-Hill Companies]

Cederbrae Volkswagen [available through the University of WesternOntario; also included in the first edition of this text: Zeithaml and Bitner (1996) Services Marketing, New York, NY: McGraw-Hill Companies]


Scott Cook and Intuit [Harvard Business School Case 9-396-282, 1997]

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CHAPTER 6: BUILDING CUSTOMER RELATIONSHIPS

CHAPTER TOPICS

Relationship Marketing Relationship Value of Customers Foundations for Relationship Strategies The Customer Isn’t Always Right Customer Profitability Segments Levels of Relationship Strategies Technology Spotlight: Customer Information Systems Allow Customization of

Services Global Feature: Developing Loyal Customers at Boots the Chemists

CHAPTER OBJECTIVES

1. Explain relationship marketing, its goals, and the benefits of long-term relationships for firms and customers.

2. Explain why and how to estimate customer relationship value.

3. Specify the foundations for successful relationship marketing—namely, quality core services and careful market segmentation.

4. Introduce the somewhat controversial idea that “the customer isn’t always right,” and the related strategy of customer profitability segmentation.

5. Provide examples of successful customer retention strategies.

LECTURE TIPS & AIDS

1. Figure 6.7 summarizes various retention strategies discussed in thechapter. One way to cover this material in class would be to dividethe class into four groups and have each group be responsible forproviding examples (beyond those in the textbook) of firms that arecreating each of these types of bonds with their customers. Inaddition to discussing the advantages of each type of bond, studentsmight also be asked to discuss the drawbacks of each type of bondfrom both the customer’s and the service provider’s point of view.

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2. To drive home the importance of relationships with customers, havestudents calculate the lifetime value of a customer in variousservices industries. Student could be divided into teams of 2-4persons and asked to calculate the lifetime value of a customer to atypical firm in whatever industry they choose (or are assigned)using the questions listed below as a framework. Students may needto make assumptions in order to do this, but one of the questionsasks students to explicitly state those assumptions. Students couldwork through the following questions on a worksheet and, aftercompleting them, be asked to present and defend the calculations(and assumptions) to the class:

1. Who is the “customer” you are focusing on? Describe the average customer using relevant characteristics.

2. What is the average “lifetime” of a customer in this industry? Explain your response.

3. Do the customer’s spending patterns change over a lifetime? Why or why not?

4. What would be a relevant time period to use in calculating customer revenue? What is the typical revenue (per loyal customer) over this time period?

5. Are there costs involved in serving the loyal customers? If so, what are these? Should these costs be considered in the lifetime value calculations? Why or why not?

6. What is the likely number of referrals that come directly as a result of the lifetime customer’s recommendations? (Be realistic.) Explain your response.

7. What assumptions are you making in order to do your calculations? List all assumptions that are applicable. (It isvery likely you will be making multiple assumptions for each number you use in your calculations.)

8. Use all of the relevant numbers (based on your assumptions) together to calculate the Lifetime Value of a customer in this industry.

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9. Based on your calculations and assumptions, what is the lifetime value of a customer to an organization in this industry?

3. One topic that students may disagree with is “the customer isn’talways right.” Students who have taken several business(particularly marketing) classes may have been overwhelmed with thenotion THE CUSTOMER IS ALWAYS RIGHT. In order to generate livelyclass discussion, the instructor might get a sense of whether theclass agrees or disagrees with this statement and then take anadversarial point of view. One way to introduce the topic would beto bring in a video clip from a television show of a particularlypoorly executed service encounter or one where the customer may notbe right (sitcoms and movies are often good sources). After viewingthe clip, students could discuss who is right, the customer or theservice provider.


1. Think of a service organization to which you are loyal. What doesit mean to be a loyal customer in the context you are thinking of?That is, what are your thoughts, attitudes, and actions with respectto this business? Why are you loyal to this organization?

2. What impact have the Internet and the World Wide Web had on theability of companies to individualize both their communications andtheir product offerings? Give specific examples. Do you think thisleads to greater customer loyalty? Why or why not?

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3. In The One-to-One Future [Don Peppers and Martha Rogers (1993). The One-to-One Future. New York, NY: Doubleday], the authors describe ways to“turn even the simplest products and services into collaborativeventures with individual customers to create lasting, impregnablerelationships” (p. 8). Write a paper summarizing some of the ideaspresented in the book about “segments of one” and creating long-termcustomer loyalty.

[Note: An excellent video resource on the topic of building customerrelationships can be found in “Segment 2: Building Customer Loyalty”from the video series Achieving Breakthrough Service by James Heskett, W.Earl Sasser and Leonard Schlesinger. The series is availablethrough Harvard Business School Video Series, P.O. Box 1010, Boston,MA 02117, (800) 248-1878, FAX (617) 496-8866.]


1. Discuss how relationship marketing or retention marketing is different from thetraditional emphasis in marketing.

The traditional focus in marketing has been on getting new customersand building the customer base through adding more first-timecustomers. While it is still important to attract new customers,the costs of customer churn and the maturity of many industriessuggest that this can no longer be the primary or sole source ofgrowth for most organizations. Much of the research suggests thatit is more cost-effective to keep a current customer than to attracta new one. Relationship marketing thus focuses on attracting,satisfying, keeping, and even enhancing customers over their“lifetimes” with specific companies.

Strategies supporting a relationship focus will affect everythingfrom service design to segmentation, as well as all elements of theservices marketing mix. For example, one of the challenges indeveloping a true relationship strategy is to align employeeincentives and recruitment toward customer satisfaction rather thansimply making a sale. All of the strategies presented in the textare intended to reinforce a relationship philosophy as opposed to atraditional sales and new-customer oriented philosophy.

2. Think about a service organization that retains you as a loyal customer. Why are youloyal to this provider? What are the benefits to you of staying loyal and not switching toanother provider? What would it take for you to switch?

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This question makes a very nice in-class exercise. Students can beasked to answer the three questions posed above in writing. (Ittakes five minutes or so for people working individually to dothis.) Then a general discussion can be facilitated by theinstructor, followed by a more structured lecture/discussion aroundthe benefits of long-term relationships from the customer’sperspective (pp. 140-142). The point to be made is that there areoften benefits beyond satisfaction with the core service that keepcustomers loyal to the organization.

[Note: For a more in-depth discussion of such benefits, seeGwinner, Kevin, Dwayne D. Gremler, and Mary Jo Bitner (1998),“Relational Benefits in Services Industries: The Customer'sPerspective,” Journal of the Academy of Marketing Science, 26 (Spring), 101-114.]

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3. With regard to the same organization, what are the benefits to the organization of keepingyou as a customer? Calculate your “lifetime value” to the organization.

This question focuses students on the benefits to organizations ofretaining customers (pp. 160-162): increasing purchases over time;lower costs; free advertising through word-of-mouth; and employeeretention. Before asking students to calculate their own lifetimevalue to the organization, the instructor should review with themthe material on pp. 162-164. In calculating their lifetime value,students will need to make certain assumptions regarding theprobable length of their “lifetime” with the company, whether theywill spend more each year, and how many loyal customers they mayattract through word-of-mouth. Even with the assumptions, thesecalculations are rather simplistic. Students (especially MBA’s orolder students) will note this and want to take into account costsand other variables. This is fine, but the primary point to be madeis not the detailed accuracy of the calculations, but rather themagnitude of the value an individual customer can bring to anorganization over a typical customer life. Although manyorganizations are now starting to think in relationship terms, mosthave not actually calculated, even in a simple way, the lifetimevalue of their customers. When they do, they are convinced evenmore of the importance of adopting relationship strategies.Lifetime value of customers and the importance of keeping customersare excellent topics for a guest speaker since many organizationsare focusing efforts in these areas.

4. What are the basic steps in market segmentation? What specific challenges exist forservice organizations when it comes to segmentation?

Figure 6.4 provides an overview of the steps involved in segmentingfor services. The steps are very similar to the steps insegmentation for manufactured goods. Each step is discussed in somedetail in the text. One primary difference and challenge forservices relates to the need in many industries to attractcompatible segments since different segments may experience theservice simultaneously and thus can affect each other. This issueis discussed in more detail in Chapter 12, pp. 372-373, in thesection on “Manage the Customer Mix.” A second difference is thatservice providers generally have a far greater ability to customizethe service at the point of delivery and thus the notion of“segments of one” has tremendous potential for services.Consequently, services marketers can choose a broader set ofsegments or subsegments to serve than can many manufacturing firms,

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particularly if they can keep these segments separate from orcompatible with each other.

5. Explain the logic behind the “segments of one” idea. Why are services particularlyamenable to this form of segmentation?

The logic behind the “segments of one” idea is that carried to itsextreme, segmentation would suggest that marketers can developunique products and services to fit each individual customer’sneeds. The inherent characteristics of services lend themselves tocustomization and the possibility of segmentation at the individuallevel. Because services are produced and consumed simultaneously,they can often be adapted in real time to fit the customer’s needs.Further, because they are delivered by people to people, servicesare inherently heterogeneous, a fact that is both a curse and ablessing. The curse is that quality can be difficult to measure andcontrol; the blessing is that heterogeneity makes it possible toadjust the service to the individual’s needs. A number of creativeapproaches for working toward a “segments of one” goal are brieflydiscussed in the text on pp. 167-168 and covered in more detail inthe book Mass Customization by Joseph Pine.

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6. Describe the logic behind “customer profitability segmentation” from the company’s point ofview. Also discuss what customers think of this practice.

From the company's point of view “customer profitabilitysegmentation” is extremely logical. Essentially the idea is thatnot all customers are equally profitable, and determining theprofitability of different market segments can help the firm todecide where to invest its limited resources to build loyalty withhigh lifetime value customers. Similarly, this type of segmentationcan be used to determine levels of service provided—more profitablesegments are typically given more personal or customized service.The difficult part for firms is to be confident in the numbers(costs and potential revenues) used to determine segmentprofitability, and to decide whether to focus on short- or long-termprofitability. For example, a particular customer or customersegment may not be profitable today, but their long-term potentialmay warrant a short-term investment.

From the customer’s point of view, profitability segmentation, whilelogical, may not seem fair. Customers may resent receiving a lowerlevel of service (e.g., automated) than they had previouslyreceived, knowing that others are still getting customized andpersonal service. This is particularly true if they perceive thatthey are receiving less service than before, or if they are beingasked to pay for service they previously received for free.

A productive discussion can be focused around the logic ofsegmenting customers based on profitability, how to determine who isprofitable, and how to handle communication and “downgrading” ofservice to less profitable segments. Students will no doubt havetheir own personal examples of times when they have been downgraded,and can discuss their feelings, reactions, and behavior toward thefirm. The idea of potentially needing to “fire” some customers whowill never be profitable is also a good point for discussion.

7. Describe the four levels of retention strategies, and give examples of each type. Again, thinkof a service organization to which you are loyal. Can you describe the reason(s) you areloyal in terms of the three different levels? In other words, what ties you to the organization?

The four levels of retention strategies (see Figure 6.7) are: Level1—Financial Bonds; Level 2—Social Bonds; Level 3—CustomizationBonds; Level 4—Structural Bonds. Clearly the higher levels forgestronger bonds with customers and are more difficult for competitorsto imitate. Often students misunderstand the financial bonds (Level

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1) strategy and assume that it simply means that the organizationcharges lower prices. This is not the case. A retention strategybased on financial bonds is one that rewards more purchases orcustomer longevity financially—e.g. frequent buyer, frequent flyerprograms. A Level 2 strategy combines these financial incentiveswith social or interpersonal bonds between the customer and theorganization’s employees.

A Level 3 strategy focuses on building ties through servicecustomization. The assumption is that customers who receiveindividualized service, suited to their own particular needs andcircumstances, will be more satisfied and less vulnerable tocompetitors. The investment of time on their part to educate a newprovider regarding their needs also makes it more difficult toswitch.

A Level 4 strategy is the hardest to imitate, and the most difficultfrom which a customer can disengage, since it also includes astructural component often based on shared systems or technology.Concrete examples of all four types of retention strategies areprovided in the text.

It should be emphasized that firms often employ multiplerelationship strategies, possibly at all levels, simultaneously.

8. Have you ever worked as a front-line service employee? Can you remember having to dealwith difficult or “problem” customers? Discuss how you handled such situations. As amanager of front-line employees, how would you help your employees deal with difficultcustomers?

A discussion of this question can be injected into alecture/discussion of the idea that “The Customer Isn’t AlwaysRight” (pp. 169-172). This general topic is an important one tocover since many organizations still refuse to acknowledge thisfact. It is important that students understand that not allcustomers make good relationship customers and that every customeris not right all of the time. Most students have worked infront-line service jobs at one time in their lives, and many willhold such positions concurrent with going to school. The questionregarding difficult customers is thus very easy for them to answer.A discussion, facilitated by the instructor, can help students tosee the subtle differences between difficult customers who need tobe accommodated and appeased, and those who are truly not right forthe organization and who should be “fired.”

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A fun story to tell in this context relates to Nordstrom. IfNordstrom notes from its credit card records that a particularcustomer is buying and returning expensive clothing on a regularbasis (obviously wearing the outfit once for a special occasion andthen returning it), the company will “fire” the customer bycanceling their credit and not allowing them to purchase clothing inthe store. Most of us have never heard about someone being “fired”by Nordstrom since it is not something a customer would be proud of!


Company LocationBoots the Chemist www.boots-plc.com Caterpillar www.caterpillar.com Harley Davidson www.harley-davidson.com Intuit www.intuit.com NewsEdge www.newsedge.com Nypro www.nypro.comRitz Carlton www.ritzcarlton.com United Parcel Service www.ups.com USAA www.usaa.com Weight Watchers International www.weightwatchers.com

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http://www.weightwatchers.com/

http://www.usaa.com/

http://www.ups.com/


http://www.nypro.com/

http://www.newsedge.com/

http://www.intuit.com/

http://www.harley-davidson.com/

http://www.caterpillar.com/

http://www.boots-plc.com/




General Electric Medical Systems – Case 6

Giordano – Case 8

From other sources:

“Are Some Customers More Equal Than Others?” by Paul F. Nunes andBrian A. Johnson, HBR Case Study, in November 2001, Harvard Business Review, 37-50.

First Direct: Branchless Banking [INSEAD, 1997; available throughEuropean Case Clearing House, Babson College]

Grupo IUSACELL (A) [Harvard Business School Case 9-395-028, 1994]

Building Brand Community on the Harley-Davidson Posse Ride [Harvard Business School Case 9-501-015, 2000; Teaching Note 5-501-052; Video 9-501-801]


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200

CHAPTER 7:SERVICE RECOVERY

CHAPTER TOPICS

The Impact of Service Failure and Recovery How Customers Respond to Service Failures Why Do (and Don’t) People Complain? When They Complain, What Do Customers Expect? Switching versus Staying Following Service Recovery Service Recovery Strategies Service Guarantees Technology Spotlight: Cisco Systems, Inc.—Customers Recover for Themselves Global Feature: The “World’s Favorite Airline” Welcomes Complaints

CHAPTER OBJECTIVES

1. Illustrate the importance of recovery from service failures in keeping customers and building loyalty.

2. Discuss the nature of consumer complaints and why people do and do not complain.

3. Provide evidence of what customers expect and the kind of responses they want when they do complain.

4. Provide strategies for effective service recovery, together with examples of what does and does not work.

5. Discuss service guarantees—what they are, the benefits of guarantees, and when to use them—as a particular type of service recovery strategy.

LECTURE TIPS & AIDS

1. The instructor might ask students, “What do you do when you receivepoor service?” Figure 7.3 can then be used to have students in theclass do a self-profile of their own response to service failures.The instructor asks each student to profile his/her own behavior anddetermine which of the various actions suggested in the figure

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he/she typically takes. After students have had a chance to examineand share their own typical response to service failure, otherquestions could follow up that activity. For example, “Under whatconditions are students likely to respond differently than what theynormally do?” Also, “What are the consequences of responding theway you normally do to a complaint?”

Alternatively, the instructor might ask for examples from just twostudents about a service failure they have recently had. Afterhaving the two students briefly discuss their experiences, theinstructor could probe further (if necessary) to find out whataction each took, if any, and use that as a way to introduce Figure7.3. Generally speaking, students who have had service failureexperiences are more than willing to share what happened to them.The instructor might also ask about the consequences of eachexperience.

2. To facilitate discussion of the “recovery paradox” included in thechapter, the instructor might ask for a student to share anexperience where the service firm originally failed in their servicedelivery, and yet recovered very well. Ideally, the student willshare that his/her experience, in spite of the failure, actually hasmade him/her more loyal to the organization and more satisfied withthe services being provided. If such an example is shared, it canbe used to illustrate the recovery paradox. (As discussed in thechapter, the recovery paradox implies that firms should indeed failin service delivery in order to recover, and therefore makecustomers more satisfied.) After this discussion the question mightbe posed to the class as to whether creating a service failure andthen providing good recovery is an appropriate strategy for a firmto pursue, particularly given the experience of the student in classwho was more satisfied after the failure and subsequent recoverythan before.

3.In order to discuss service switching, and the reasons customerswitch service providers, students might be asked to think of anexperience they have had where they have switched providers. Then,using Figure 7.6, students may identify one or more causes behindwhy they switched providers. Asking students to share theirservice switching experiences and the causes behind that can helpto illustrate the points being made in that figure.

4. Service guarantees can be a critical part of firm’s service recoveryprocedures. As discussed in the chapter, however, guaranteeing

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service delivery is often difficult for service providers. Tostimulate discussion on the topic, the instructor might ask studentsabout the viability of an instructor offering a student satisfactionguarantee in the classroom (perhaps in a services marketing class).Given that students are indeed “experts” in educational services,this should generate some lively discussion. Some discussionquestions include:

What should be guaranteed? Is a service guarantee appropriate in an educational setting? How should such a guarantee be written? How should such a guarantee would be administered and paid

out? What is appropriate compensation? What are the advantages of providing a guarantee to students? What are the advantages of providing a guarantee to the

instructor? What are the advantages of providing a guarantee to the

university? What are the disadvantages of providing such a guarantee? Why is it that universities typically do not offer such

guarantees?

Note: Two instructors have actually guaranteed student satisfactionin two of their marketing classes. [This guarantee is discussed inMcCollough, Michael A. and Dwayne D. Gremler (1999), “GuaranteeingStudent Satisfaction: An Exercise in Treating Students asCustomers,” Journal of Marketing Education, 21 (August), 118-130.] Theguarantee provided on the next page provides an example of theguarantee they constructed for use in their classes. Copies of thisguarantee could be distributed to the class and then critiqued usingthe criteria provided in Chapter 7.

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Sample Student Satisfaction Guarantee:

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1. Write a letter of complaint to a service organization (or voice yourcomplaint in person) where you have experienced less-than-desirableservice. What do you expect the organization to do to recover?(Later, report to the class the results of your complaint, whetheryou were satisfied with the recovery, what could/should have beendone differently, and whether you will continue using the service.)

2. Choose a service you are familiar with. Explain the service offeredand develop a good service guarantee for it. Discuss why yourguarantee is a good one, and the benefits to the company ofimplementing it.

3. Re-read Technology Spotlight in this chapter, featuring CiscoSystems. Visit Cisco System’s web site (www.cisco.com). Reviewwhat they are currently doing to help their customers solve theirown problems. Compare what Cisco is doing with the self-serviceefforts of another service provider of your choice.

4. Interview five people about their service recovery experiences.What happened and what did they expect the firm to do? Were theytreated fairly based on the definition of recovery fairnesspresented in this chapter? Will they return to the company in thefuture?

5. Interview a manager about service recovery strategies used inhis/her firm. Use the strategies shown in Figure 7.5 to frame yourquestions.


1. Why is it important for a service firm to have a strong recovery strategy? Think of a timewhen you received less-than-desirable service from a particular service organization. Wasany effort made to recover? What should/could have been done differently? Do you still buyservices from the organization? Why or why not? Did you tell others about your experience?

In a services course, students need a strong understanding of theimportance of service recovery. Because service failures areinevitable in even the best of firms, recovery is essential forcustomer retention and for preventing harmful negativeword-of-mouth. As noted in Chapter 3, when a customer’sexpectations have been failed, they have even higher expectations

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and a narrower zone of tolerance for the recovery effort. Followinga short lecture on the importance of recovery, this question workswell in allowing students to share recovery stories. The storiesand the students’ ideas on what could/should have been donedifferently lead nicely into a more structured lecture/discussion ofthe essential ingredients for an effective recovery strategy aspresented on pp. 197-205. This discussion can be tied back to thediscussion of recovery incidents and related Do’s and Don’tspresented in Chapter 4, Table 4.3.

A strong recovery strategy can positively influence customersatisfaction and loyalty and also improve bottom-line performance.Research has shown that dissatisfied customers whose problems areresolved will be more loyal than those whose problems are notresolved. Careful analysis of the data provided in Figure 7.1supports this point. A strong recovery can also generate positiveword of mouth. Further, if service failures and recovery effortsare carefully tracked, they can provide solid information forcontinuous improvement.

The downsides of an ineffective recovery strategy further supportits importance. Failures, particularly repeated failures, can drivecustomers away and generate harmful word of mouth and even“terrorism.” Employees are also aggravated by not having ways todeal effectively with service failures, which can result in lowemployee morale.

A discussion of personal service recovery experiences can provide alively way to effectively learn and apply ideas regarding howfailures should be handled. (This discussion can be held later inthe term in cases where the professor has assigned the “complaintletter” as a class assignment.)

2. Discuss the benefits to a company of having an effective service recovery strategy. Describean instance where you experienced (or delivered as an employee) an effective servicerecovery. In what ways did the company benefit in this particular situation?

The benefits to the company of an effective service recoverystrategy are: (1) increased customer satisfaction and loyalty; (2)discovering valuable information that can be applied in continuousimprovement efforts, ultimately leading to fewer failures; and (3)better employee morale because employees don’t like to be faced withrepeated failures with no way to resolve them.

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As in Question 1, a lively discussion can be facilitated by havingstudents focus on their personal experiences with service recovery.In this case, the focus is on what the company gained by theeffective recovery.

3. Explain the “recovery paradox” and discuss the implications for a service firm manager.

Some have suggested that customers who are dissatisfied, butexperience a high level of excellent service recovery, mayultimately be even more satisfied and more likely to repurchase thanare those who were satisfied in the first place. This is known asthe “recovery paradox” because is implies those who are dissatisfiedcan be made more loyal than those who were satisfied in the firstplace. The problem with this “logic” is that it implies servicefirm managers might want to plan to fail so they can provide anexcellent service recovery and thereby increase satisfaction andloyalty. The complexities behind this simple logic are explained inthe text, concluding that “doing it right the first time” is stillthe best bet. Research suggests that unless the recovery effort isabsolutely superlative, it cannot overcome the initial negativeimpression enough to build loyalty beyond where it would be with noinitial failure.

4. Discuss the types of actions customers can take in response to a service failure. What typeof complainer are you? Why? As a manager, how could you encourage your customers tobe “voicers”? Would you want to do this?

The types of actions customers can take in response to a servicefailure are captured in Figure 7.3 and discussed in the text. Thoseexperiencing a failure can either take action or do nothing. Thosewho take action can do several different things includingcomplaining to the provider, complaining to family and friendsand/or complaining to a third party. Ultimately, either type ofcustomer will decide whether to switch providers or stay with theoffending provider. Students can be asked what they typically do inresponse to a service failure—what actions have they taken if any?

Four different types of complainers are described: passives,voicers, irates, and activists. The type of action a person is mostlikely to take in response to service/product failures determineshis “type” to some extent. A lively discussion of complaining typesand how students categorize themselves can provide a good learningvehicle.

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Customers can be encouraged to be “voicers” by letting them know thefirm welcomes their complaints and suggestions and by providingeasily accessible avenues for complaining. Customers should not bemade to feel guilty when they complain, nor should the process bedifficult.

5. Review Exhibit 7.1. What would you have done if you were Starbucks’ management team?

Students can be lead through a discussion of what happened in thisincident and whether they agree with how Starbucks handled it. Thepros and cons of the different expert opinions presented at the endof the exhibit can also be discussed. Students can then share theiropinions of what they would have done if they were Starbucks.

6. Explain the logic behind these two quotes: “A Complaint is a Gift” and “The Customer WhoComplains is Your Friend.”

This question gets students to focus on the positive outcomes ofencouraging complaints and the negative outcomes of doing theopposite. Traditionally firms have tried to avoid complaints andhave even prided themselves on how few complaints they received.The risks of this traditional approach can be discussed. Byconsidering a complaint “a gift” and a complaining customer a“friend” this traditional view is turned around 180 degrees.

7. Choose a firm you are familiar with. Describe how you would design an ideal servicerecovery strategy for that organization.

This question allows students to focus on recovery strategies in areal context. It forces them to understand the strategies and maketheir ideas concrete. Figure 7.5 can be used as a guide fordeveloping a comprehensive strategy. If students are organized intoteams to work on a company project, this question could be discussedin their teams focusing on those companies.

8. What are the benefits to the company of an effective service guarantee? Should everyservice organization have one?

This question allows students to fully understand, in their ownwords, the benefits of service guarantees as discussed in the textin the section “Benefits of Service Guarantees”. Benefits tocustomers could also be discussed. In discussing this question itmay be helpful to have several examples of actual service guaranteesto look at.

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A guarantee may not always be a good idea. Questions that should beanswered or considered prior to offering a guarantee are shown inFigure 7.8. The following conditions, discussed in the text,suggest situations when a guarantee may not be appropriate:

existing service quality in the company is poor a guarantee doesn’t fit the company’s image service quality is truly uncontrollable costs of the guarantee outweigh the benefits customers perceive little risk in the service there is little perceived variability in service quality among

competitors

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9. Describe three service guarantees that are currently offered by companies or organizationsin addition to the ones already described in the chapter. Are these good or poor guaranteesbased on the criteria presented in this chapter?

Students should be encouraged to bring to class examples of serviceguarantees. Alternatively, the professor can collect and bring incopies of service guarantees. Students can discuss the differentguarantees in small groups, analyzing them according to the criteriashown in Figure 7.7. A few can then be shared with the entiregroup. This discussion works well with question 8, either before orafter that discussion.

An interesting application of a service guarantee in an academiccontext was published in the Journal of Marketing Education (August 1999,Vol. 21, No. 2, 118-130) in an article by Mike McCollough and DwayneGremler. This article could be used as background for the professoror as one of the actual service guarantee examples to be evaluated.


Company LocationBritish Airways www.britishairways.com ClubMed www.clubmed.comCisco Systems www.cisco.comGartner Group www.gartnergroup.com Hampton Inn & Suites Hotel www.hamptoninn.comSidley Austin Brown and Wood www.sidley.com Starbucks www.starbucks.com





General Electric Medical Systems – Case 6 (for service guarantees)

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http://www.starbucks.com/

http://www.sidley.com/

http://www.hamptoninn.com/

http://www.gartnergroup.com/


http://www.clubmed.com/

http://www.britishairways.com/

From other sources:

British Airways: Using Information Systems to Better Serve the Customer [Harvard Business School Press Case 9-395-065, 1994]



Getting the Bugs Out [included in the first edition of this text:Zeithaml and Bitner (1996) Services Marketing, New York, NY: McGraw-Hill Companies]

The Ritz-Carlton: Using Information Systems to Better Serve the Customer [Harvard Business School Press Case 9-395-064, 1995]

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CHAPTER 8: SERVICE DEVELOPMENT AND DESIGN

CHAPTER TOPICS

Challenges of Service Design New Service Development Types of New Services Service Redesign Stages in New Service Development Service Blueprinting Quality Function Deployment High-Performance Service Innovations Technology Spotlight: Technology Drives New Service Offerings Possible Global Feature: Volvo Truck: Swedish Manufacturer Looks to Services for Revenue

CHAPTER OBJECTIVES

1. Describe the challenges inherent in service design.

2. Present steps in the new-service development process.

3. Show the value of service blueprinting and quality function deployment (QFD) in new service design and service improvement.

4. Present lessons learned in choosing and implementing high-performance service innovations.

LECTURE TIPS & AIDS

1. An interesting way to begin a discussion of this chapter is to askif anyone has considered starting their own business. Most studentshave at some point. A good discussion can revolve around how theywould go about this—what would they need to know, what steps wouldthey follow? This can lead nicely into a lecture/discussion of thenew service development steps and blueprinting.

Another good way to structure this discussion is around a majorassignment. This can be a team, individual, or pair assignment.The following directions (reproduced from Amy Ostrom’s syllabus in

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the second edition of this Instructor’s Manual) lay out this type ofan assignment for undergraduates.

This assignment gives you the opportunity to design a newservice or redesign an existing service based on your newlyacquired services marketing expertise. You may choose to dothis assignment on your own or with a partner.

There are many things to consider when designing a service.You should first decide which market segment(s) you want totarget and how you want to be positioned relative to thecompetition. Then you will need to describe the service.You should use appropriate services marketing concepts todescribe your service and your proposed marketing strategy.You should also illustrate the service you have created (orre-created) by developing a blueprint of it. If you areredesigning an existing service, you should also include ablueprint of the original service.

Your report should be typed, professionally presented, andbe between 8-10 pages. You will also have the opportunity topresent your new service to the class. Each person (orpartners) will give a short presentation (10 minutes)describing the key elements of his/her service and therelated service marketing concepts. Think of thepresentation as a brief pitch you are giving to get fundingfor your new service idea or to convince your boss of aneeded redesign in the company's service.

A more extensive assignment, appropriate for upper levelundergraduates or graduate students follows:

New Service Development Project: Using the new servicedevelopment process described in Chapter 8 as a guide,design and develop a new service offering. This could be anew service for a team member’s company, or anentrepreneurial service. Use tools and frameworks fromclass to assist your development efforts. It would normallynot be possible in the class time frame to conduct extensiveprimary research with customers to support the new service,however the need for such research should be acknowledgedand informal customer interviews may be part of thisproject. A service map/blueprint of the service must beincluded.

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3. Another excellent way to explore this topic is through guestspeakers, particularly managers who are responsible for new servicedevelopment in their companies. Or, an entrepreneur who hassuccessfully developed a new service could be invited to sharehis/her approach and experiences.


1. This exercise requires a field trip to observe a local servicebusiness. The instructor can allocate one class period to completethe field trip and another for presentations. Alternatively, thefield trip can be done outside of class so that only one classsession is used. The instructor and/or the class choose a type ofservice business with many local competitors so that differentservice delivery options are available (services like specialtycoffeehouses, automobile oil changing services, and hair salons areideal for this assignment). Small groups of students will thenvisit a service business of their choice within the designatedindustry (e.g., every group must visit a specialty coffeehouse).The exercise consists of the following activities:

With your group, visit the business you have chosen. You willneed to gather enough information to do a blueprint of theservice. Create a blueprint of the service that can bepresented to the class. Make sure all of the blueprintingelements are complete.

Each group then presents its blueprint to the class. Don’t beafraid to be creative in your presentation -- role playing,short videos or story telling can make your blueprint “come tolife!” The class votes on the best blueprint, and a prize isawarded to the winning team.

After the “contest,” the instructor and the class can analyzesimilarities and/or differences in the delivery of theservices the groups have blueprinted.

2. Interview customers and employees of a service of your choice.Construct a basic House of Service Quality. What would yourecommend to the manager of the service based on your analysis?

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3. Compare two services on the Internet. Discuss the design of each interms of whether it meets your expectations. How could the designor the service process be changed? Which one is most effective andwhy?

4. Class members will be working in small groups to complete thisservice blueprinting exercise. The activity involves the followingsteps:

Each group maps the “Diets to You” service described in thefictitious news article that is included on the next page.Groups should refer to textbook for the basic steps fordesigning a blueprint, the generic map, and the sampleblueprints.

Groups then share their blueprints with the class, and theclass discusses the content of the blueprints and the processof developing them. To conclude the exercise, the classbrainstorms potential uses of blueprinting.

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“DIETS TO YOU” DELIVERS TO HOMES*

The paperboy delivers the paper. The mailman delivers themail. And Diets to You delivers diet foods–about 900 calorieseach. So the day begins for 100 dieters who pay on average$75 a week for fresh, low-calorie, low-fat meals delivered totheir homes or offices five days a week.

Carolyn Adamson began this business in 1991. She and herpartner recently ironed out the bugs and began talking topotential franchisers. “I’m surprised I don’t have anycompetition,” says Ms. Adamson. The idea seemed so obvious toher, and customers agree.

Three years ago, Ms. Adamson and her partner were working astechnical writers in an engineering firm, and hating it. “Wewere both on diets but never had enough time to cook low-cal,low-fat meals at home,” she recalled. If only someonedelivered fresh food to the door!

Advertising such a service in the local newspaper, the twoattracted eight customers and quit their jobs to work on thebusiness full time out of a caterer’s kitchen they hadsubleased. Ms. Adamson has not advertised since; for fear ofattracting too many customers too soon, but finally she’sready. Ms. Adamson has hired a publicist and expects businessto double this year.

“I’m eating their breakfast right now,” says Charles Baldwin,a cheery-sounding customer of Diets to You. Putting down hisblueberry muffin, the referee explained that he signed on twoyears ago, lost twenty pounds, and never gained them back.

The menus only repeat every six weeks and include such fare aslasagna, quiche, soups, Mexican food and pizza. “It’sbasically not diet food,” Ms. Adamson said. “We just use dietingredients and cut the portions.” The meals come in 900,1200 and 1600 calorie servings, with no more than 20 percentof the calories coming from fat. The bigger the portion, themore you pay. At the Garcia household, Angela Garcia orders1200 calorie meals for herself and 1600 for her husband, threetimes a week. Since both spouses work, she said, “It reallyfits our lifestyle.”

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Today’s breakfast: muffins, vanilla yogurt and a pear. Lunch:home-style turkey soup, bagels and fruit. Dinner: baked Greekshrimp and noodles in tomato-garlic sauce, broccoli, salad,and for dessert, lemon cookies.

[*Note: The service described here is fictitious but is adaptedfrom: Lenore Skenazy (1988). “Dieting Service Delivers to Homes.”Advertising Age. March 14.]

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1. Why is it challenging to design and develop services?

A primary objective of this chapter is to have students understandthe complexities and challenges of designing and developingservices. The inherent challenges in so doing relate back toseveral of the basic characteristics of services (as discussed inChapter 1): intangibility, heterogeneity, simultaneous productionand consumption. This question and/or Question 2 provide goodlead-ins to the presentation of blueprinting as a tool that can helpaddress the challenges.

Because services are intangible, they are difficult to describe andcommunicate. This characteristic creates challenges at all stagesof service design but particularly for communicating and fleshingout the concept, and testing the concept with customers andemployees. With manufactured products, we can show customers apicture of the proposed product or even a model or mock-up. Withservices, due to their intangible, process-oriented nature, this ismuch more difficult.

Because services are typically delivered by employees to customers,they are inherently heterogeneous—rarely are two services identicalnor are they experienced in exactly the same way by every customer.This characteristic also makes the design of services challengingsince there are likely to be many subtle variations in the servicethat are difficult to capture in concept development and testing.

Another challenge relates to the simultaneous production andconsumption aspect of services. Because of this characteristic,quality cannot be controlled at the factory gate. Thus, it is evenmore critical to design quality and recovery mechanisms right intothe service itself.

2. What are the risks of attempting to describe services in words alone?

The risks of describing services in words alone are:oversimplification, incompleteness, subjectivity and biasedinterpretation (discussed in detail in Chapter 8). Despite theserisks, most organizations continue to develop services primarilyusing words alone to communicate concepts and operational details.Frequently this results in service designs that are not compatiblewith the visions of all concerned (managers, employees, customers)

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and that lack important operational support. While such flaws canbe corrected in “real time” or after-the-fact, there are ways tomake the design and development of services more precise andsuccessful from the outset. The chapter provides approaches andtools for dealing with service design.

3. Compare and contrast the blueprints included in the chapter in Figures 8.7 and 8.7.

A comparison of the two blueprints is presented in the text on pp.235-237. The point of this discussion question is to focus studentson what they can learn from a blueprint. Following a generaldiscussion, the instructor can turn to the benefits of serviceblueprinting (Exhibit 8.2) and illustrate how the example blueprintsmight be used to achieve these benefits.

Discussion of this question can then be followed by a brief lectureon the components of blueprints and how to build one. The bestthing to do next is have students actually draw a blueprint.

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4. How might a service blueprint be used for marketing, human resource, and operationsdecisions? Focus on one of the blueprint examples shown in the text to give yourself acontext for your answer.

The benefits and uses of blueprints are discussed in the text,including Exhibit 8.2, which enumerates the benefits. As pointedout in the text, one of the major benefits of blueprinting iseducational in that it requires everyone involved to agree at somelevel regarding the service and its component parts. Blueprints canbe used by people in different functional areas within theorganization.

From a marketing perspective, the blueprint can be used for:communicating with customers and getting their feedback at theconcept and service development stages of the process; making theservice more concrete for those who will promote or sell it;analyzing elements of the service for positioning purposes; seeingclearly all employees who interact with customers and thus serve as“marketers” from the customer’s perspective; understanding theprocess the customer must go through (which should facilitateappropriate customer education); identifying all service encounterpoints that might potentially be monitored for customer satisfactionand quality; and analyzing the appropriateness of physical evidenceprovided at each point of customer contact.

From a human resources perspective, the blueprint can be used for:understanding roles and responsibilities in the service deliveryprocess; showing individual employees how they fit in the totalscheme and how their roles are linked into the service delivered tothe customer; identifying critical customer-contact roles by notingall of the points of direct customer-firm interaction; providing abase for writing job descriptions; and highlighting staffing needs.

From an operations perspective, the blueprint can be used for:identifying potential operational fail points; noting theeffectiveness and efficiency of the process from both the employees’and customers’ perspectives; understanding the complexities of theprocess; identifying possible operational changes; and noting thephysical evidence of service provided at each point of contact.

5. Assume that you are a multiproduct service company that wants to grow throughadding new services. Describe a logical process you might use to introduce a new service tothe marketplace. What steps in the process might be most difficult and why? How mightyou incorporate service blueprinting into the process?

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The logical process referred to here is shown in Figure 8.9, andeach step is described in detail in the text. The steps that aremost challenging include: concept, development and evaluation;service development and testing; and market testing. Blueprintingcan be incorporated at any of these points. In the early stages ofdeveloping a new service, a basic concept blueprint can be used tocommunicate with both employees and customers. As the new servicebecomes more concrete, blueprints with greater complexity and moreoperational details can be included. Prior to market testing andcommercialization, detailed blueprints are essential.

6. Discuss Figure 8.3 in terms of the four types of opportunities for growth represented there.Choose a company or service, and explain how it could grow by developing new services ineach of the four cells (see Taco Bell example in Exhibit 8.1).

Figure 8.3 provides a nice vehicle for discussing generic growthstrategies. The Taco Bell example in the text provides examples forthose students who may need help identifying exactly what thegeneric strategies might mean in practice.

Students can then apply the four generic strategies to a companythey are familiar with. Or, the professor could provide backgroundon a company and ask students to discuss specific growth strategiesbased on Figure 8.3. A previously discussed case can sometimes beused for this as well. Using a specific company example forcesstudents to be more specific in defining current customers andthinking about potential new customers. It also forces them toclearly define existing services and to think about potential newservices. This discussion can lead naturally into a discussion ofthe challenges of diversification.

7. Explain the House of Service Quality as show in Figure 8.10. Based on the informationshown in that figure for Village Volvo, what might you do to improve service if you were themanager of that organization?

First, this discussion should review the basic purpose of QFD—tolink customer requirements and perceptions with company productionand delivery requirements. This discussion can be facilitated byexamining each structural element of the house and what itrepresents (e.g., the roof, the chimney, the interior columns, thefloor, the basement). Once students have shown a clearunderstanding of the elements of the House of Service Quality, they

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can turn to the meaning of the specific numbers shown in Figure8.10.

The implications in this particular case point to investments intraining as being particularly fruitful. Training has the highestweighted score, yet its difficulty rank is relatively low. Trainingis also strongly related to reliability, the most important customerexpectation. Improving training will also impact other customerexpectations namely responsiveness, assurance, and tangibles.

Relative to its competitor, the other Volvo Dealer, Village Volvo isweakest on the responsiveness dimension of service. Capacity is themost strongly related production factor so the logical conclusionwould be to improve responsiveness through increasing capacity.However, capacity’s weighted score is relatively low since it has noeffect on other service attributes. Also, increasing capacity has ahigh difficulty rating. Thus, investments in capacity may not bethe highest priority. Other means of addressing responsivenessissues may need to suffice—for example training and providing betterinformation.

Other implications can also be drawn from Figure 8.10 based on theweighted scores of the various production capabilities and VillageVolvo's competitive position.


Company LocationErnst & Young www.ey.com Expedia www.expedia.com Midway Express Airlines www.midwestexpress.com Office Depot www.officedepot.com Taco Bell Corporation www.tacobell.com Volvo www.volvo.com Wells Fargo & Company www.wellsfargo.com

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http://www.wellsfargo.com/

http://www.volvo.com/

http://www.tacobell.com/

http://www.officedepot.com/

http://www.midwestexpress.com/

http://www.expedia.com/

http://www.ey.com/




Ernst & Young LLP – Case 4


From other sources:

Everdream [Harvard Business School case, 5-800-251, 2000]


Sothebys.com [Harvard Business School case, 9-800-387, 2000]

Wells Fargo Online Financial Services (A) [Harvard Business School Case 9-198-146, 1999]

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CHAPTER 9: CUSTOMER-DEFINED SERVICE STANDARDS

CHAPTER TOPICS

Factors Necessary For Appropriate Service Standards Customer-Defined Service Standards Process for Developing Customer-defined Standards Service Performance Indexes Technology Spotlight: The Power of a Good Telephone Responsiveness Standard Global Feature: Should Service Standards be Universal?

CHAPTER OBJECTIVES

1. Differentiate between company-defined and customer-defined service standards.

2. Distinguish among one-time service fixes and “hard” and “soft” customer-defined standards.

3. Explain the critical role of the service encounter sequence (discussed in Chapter 4) in developing customer-defined standards.

4. Illustrate how to translate customer expectations into behaviors andactions that are definable, repeatable, and actionable.

5. Explain the process of developing customer-defined service standards.

6. Emphasize the importance of service performance indexes in implementing strategy for service delivery.

LECTURE TIPS & AIDS

1. This chapter is about taking customer information and turning itinto standards usually handled in other functional parts of theorganization such as operations or human resources. It is not atypical chapter for a marketing text, yet it is where the rubberhits the road in terms of making good service happen.

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2. Following the process for setting customer-defined service designsand standards is a good way to structure the lecture and discussion.The instructor can often effectively use guest speakers from thelocal community to talk about the way the process works in theirorganizations. Giving the guest speaker the process figure priorityto speaking to the class is an excellent way to reinforce theconcepts.

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1. Working in a small group (3-4 people), choose a service companythat group members are fairly familiar with. (Your group won’t knoweverything it would like to know to do this exercise. When you don’tknow the information, make some reasonable assumptions or use yourbest logic to develop the answer.) After you have chosen a company,complete the following activities:

Define the service encounter sequence for a typical customer. Describe expected behaviors/actions for each encounter. Choose three particularly important encounters and define hard

and soft measures that you could establish for theseencounters.

2. Interview both an employee and a customer of a local servicebusiness. Create a service encounter sequence for each person. Howare the two sequences similar? How do they differ? What are theimplications of any differences for the company? Would yourecommend any changes based on what you found out?

3. Relate the material in Exhibit 9.3 on the concepts relevant tocustomer-defined standards to either Progressive Corp. or Lexus asdescribed in the article “Service Is Everybody’s Business” [RonaldHenkoff (1994). “Service Is Everybody’s Business.” Fortune. June 27:48-60].


1. How does the service measurement that we describe in this chapter differ from theservice measurement in chapter 5? Which of the two types do you think is most important?Why?

The measurement in this chapter is largely operational whereas themeasurement in Chapter 5 was perceptual. Both types of measurementare important and students can argue either way on this question andcan probably support either answer.

2. In what types of service industries are standards most difficult to develop? Why?Recommend three standards that might be developed in one of the firms from the industriesyou specify. How would employees react to these standards? How could you gain buy-infrom them?

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Standards are most difficult to develop in professional services andexpert services. For these services, specific, concrete andstandardized behaviors can rarely be stated as standards because theservice is complex and depends on the expertise of providers.Nevertheless, some standards can be specified. For example, theMayo clinic could state as standards that every patient will beweighed and have blood pressure checked, that each patient mustcomplete a personal history form, and that each patient will pay forservices upon receipt of them. These particular standards would notbe hard to obtain compliance for because they deal with the staffrather than the experts. However, the professionals and expertswould resist standards for themselves, believing that their work cannot be reduced to repetitive actions and behaviors and instead stemsfrom their expertise. Any standards developed for experts must beshown to have value, perhaps in simplifying the work of the experts,in order to obtain buy-in.

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3. Given the need for customer-defined service standards, do firms need company-definedstandards at all? Could all standards in a company be customer-defined? Why or why not?What functional departments in a firm would object to having all standardscustomer-defined?

Customer-defined service standards are not sufficient to bringeffectiveness to an organization. There is a place in anorganization for company-defined standards because these standardspromote productivity and efficiency. The operations function in anorganization would object to having only customer-defined servicestandards.

4. What is the difference between hard and soft standards? Which do you think would bemore readily accepted by employees? By management? Why?

Hard standards are operational standards whereas soft standards areperceptual standards. Employees tend to accept operationalstandards more than perceptual standards because they trust themeasurement of operational standards to a greater degree. Often,perceptual standards are considered to be subjective and more biasedthan operational standards.

5. Consider the university or school you currently attend. What are examples of hardstandards, soft standards, and one-time fixes that would address student requirements?Does the school currently use these standards for delivery of service to students? Why orwhy not? Do you think your reasons would apply to private-sector companies as well? Topublic or non-profit companies?

A variety of hard and soft standards could be developed for auniversity or school. Hard measures could be devised for behaviorssuch as starting classes on time and the accuracy of information.For each support service (such as the library, computer supportservices, or registration), administrators could determine what corepromises are made to customers (which would include students,faculty and administration). They could develop operationalmeasures for reliability (such as right first time and right ontime) and responsiveness (speed with which important activities arecarried out). Next, perceptual measures could be developed forassurance and empathy and measured on surveys. One-time fixes woulddeal with important behaviors that must be executed for the serviceto be successful. For example, one-time fixes for instructors intheir classes might include such behaviors as having a syllabus onthe first day of class and specifying in the syllabus how gradeswill be determined. Most schools and universities will not have

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such standards in place, partly because they are unaware of howthese standards might help improve service delivery and partlybecause schools rarely approach education as a delivered service.Similarly, many other nonprofit and public services that couldbenefit from customer-defined service standards will not have them.

6. Think about a service that you currently use, then map out the service encounter sequencefor that service. What is your most important requirement in each interaction? Documentthese requirements, and make certain that they are expressed at the concrete level ofbehaviors and actions.

This question will result in many different sequences for a varietyof services. The main purpose of the question is to assure thatstudents can recognize requirements at the concrete level ofbehaviors and actions.

7. Which of the service performance indexes described at the end of this chapter is themost effective? Why? What distinguishes the one you selected from the others? How wouldyou improve each of the others?

Students will have different answers to this question, and thediscussion may point out various nuances in the service performanceindices described.

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Company LocationAmazon www.amazon.com Burger King Corporation www.burgerking.com Ford Motor Company www.ford.com Milliken & Company www.milliken.com Office Depot www.officedepot.com Travelocity www.travelocity.comThe Walt Disney Company www.disney.com Wendy’s International www.wendys.com






From other sources:

Baxter Healthcare Corporation: Shared Services [included in the first edition of this text: Zeithaml and Bitner (1996) Services Marketing, New York, NY: McGraw-Hill Companies]



A Measure of Delight: AT&T Universal Card (A), [Harvard Business School Case 9-694-047, 1994]

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http://www.wendys.com/



http://www.officedepot.com/

http://www.milliken.com/

http://www.ford.com/

http://www.burgerking.com/


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CHAPTER 10: PHYSICAL EVIDENCE AND THE SERVICESCAPE

CHAPTER TOPICS

Physical Evidence—What is it? Types of Servicescapes Roles of the Servicescape Framework for Understanding Servicescape Effects on Behavior Approaches for Understanding Servicescape Effects Guidelines for Physical Evidence Strategy Technology Spotlight: Virtual Servicescapes: Experiencing Services on the Internet Global Feature: McDonald’s Adapts Servicescapes to Fit the Culture

CHAPTER OBJECTIVES

1. Explain the impact on customer perceptions of physical evidence, particularly the servicescape.

2. Illustrate the differences in types of servicescapes, the roles played by the servicescape, and the implications for strategy.

3. Explain why the servicescape affects employee and customer behavior,using a framework based in marketing, organizational behavior, and environmental psychology.

4. Analyze four different approaches for understanding the effects of physical evidence and servicescapes, namely environmental surveys, direct observation, experiments, and photographic blueprints.

5. Present elements of an effective physical evidence strategy.

LECTURE TIPS & AIDS

1. To supplement the class lecture on the topic of physical evidence,student teams could be asked to “produce” a short (4 to 5 minutes)video segment related to a specific servicescape. (This is alsodiscussed in the Experiential Learning paper included in Section 1 ofthis manual.) Although the assignment could include a localbusiness, it probably could be done on most college campuses by

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looking at such servicescapes at a campus dining hall, a studentrecreational center, the library, the business building, etc. (Manyuniversities have facilities that will loan out video equipment atminimal or no charge for such purposes.) Each video segment mightaddress the following questions:

1. What is done well in this servicescape? Use the video topoint out specific examples.

2. What are the important issues in designing/maintaining thisservicescape so that it will be a positive influence oncustomer expectations?

3. What part(s) of the servicescape could be improved or alteredto positively influence the service experience? Use the videoto point out specific examples.

4. Do any of the following characteristics (color, lighting,shapes, sound, smell) influence the customer’s experience?Explain.

5. Which roles (package, facilitator, socializer, differentiator)does this servicescape play? Explain.

Student groups can be assigned completely different services, orseveral groups may be assigned different aspects of one provider’sservicescape. For example, several student teams could be assignedthe university golf course, but each might be responsible for adifferent aspect of the servicescape (e.g., parking lot, club house,driving range, or the course itself). Alternatively, a differentapproach might be to make comparisons between providers whoessentially provide the same service. In this case, students couldcompare and contrast the university golf course’s servicescape with(if available) the servicescape of a municipal golf course, a resortgolf course, and/or a private country club golf course. Each courseis likely to have a very different servicescape which, in turn, islikely to have a different effect on its customers. Once the videosegments have been “produced,” they can be shown to the entireclass. The instructor can stop the videos to elaborate on variouspoints and ask the video’s producers questions. A major objectiveof the assignment is to illustrate how the servicescape caninfluence the customer’s service experience.

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2. An alternative to creating a video segment would be for the entireclass to take a “field trip” to compare and contrast two localservice providers. This exercise can be used to demonstrate thedifferences in competitive formulas of two service firms who areproviding the same core benefit. Students could be asked to comparea fast food franchise (e.g., McDonald’s, Wendy’s, Hardees, etc.)with a full-service restaurant (e.g., TGI Fridays, Ruby Tuesdays,Bennigan’s, etc.). Ideally, two providers located next to eachother should be selected to allow students to go easily from one tothe other. As part of the learning experience students might beasked to answer the following questions:

1. For each provider, what is done well in this servicescape?Elaborate and point out specific examples.

2. For each provider, what aspects of this servicescape have apositive influence on customer perceptions of the overallservice experience? Similarly, what aspects of thisservicescape do not necessarily have a positive influence oncustomer perceptions of the overall service experience?Explain.

3. Which of the following characteristics (color, lighting,shapes, sound, smell) in each servicescape influences thecustomer’s experience? Explain.

4. What other aspects (besides the servicescape) of physicalevidence are present?

5. How does each provider (fast food and full-service) use theservicescape as a differentiator? In their positioning strategy?To appeal to their target segment(s)? To facilitate servicedelivery?

6. How does each provider (fast food and full-service) use physicalevidence (other than the servicescape) as a differentiator? Toenhance the customer’s experience? To facilitate servicedelivery?

7. What suggestions would you make to improve the servicescapeand other physical evidence for each provider (fast food andfull-service)?

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To conclude the instructor might have all of the students cometogether at the same time at each provider’s facility and relatetheir observations. A discussion about physical evidence is muchmore vivid when the students actually can observe it and instructorscan elaborate easily on observations made by the students. If thefield trip is carefully scheduled, the service providers’ managementmay serve as “guest speakers” on physical evidence issues.

3. Once again, to illustrate the influence of physical evidence,students could be turned to for their expertise in the educationalservice delivery. Once the instructor has covered the majorconcepts from the chapter, or even while the concepts are beingcovered, students might be asked about the servicescape of whereyour particular class is being delivered. Questions could focus on theadvantages or the positive aspects of a servicescape, as well aswhat might be done to improve the servicescape here in this setting.Additionally, students might also be asked about other aspects ofphysical evidence that they use in order to evaluate the servicebeing delivered by the instructor. (Care should be taken in bringingup the servicescape in the classroom, particularly in older rooms.In particular, an instructor should try to avoid creating anatmosphere that leads to a gripe session by the students.)


1. This exercise requires a field trip by each group to observe alocal service business. The instructor and/or the class willidentify a type of service business that has many local competitorsso that different types of service delivery options are available(specialty coffee houses, automobile oil changing services and hairsalons are ideal for this assignment). Small groups of studentswill then visit a service business of their choice within thedesignated industry (e.g., every group must visit a hair salon).The exercise consists of the following activities:

With your group, visit the service business you have chosen.Observe the business in enough detail so that you can describeboth the servicescape and the tangible commodities thatfacilitate performance or communication of the service.

Describe your observations in a short paper (3-5 pages), anddiscuss what (if anything) the business could do to improvethe physical evidence aspects of its service delivery.

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You may want to supplement your text with a photographicand/or traditional blueprint (as described in Chapter 8).

This paper will be submitted for a team grade (i.e., one paperper team).

[Note: This exercise may also be combined with Exercise 1 at the endof Chapter 10 for a more comprehensive team project.]

2. Select a retail store to visit. You will be observing the store tosee if you can identify its “personality.” (Just as people havepersonalities, so do stores. And just like your personalityprobably turns some people off and others on, a store’s personalityattracts some customers and repels others.) Components of a store’spersonality included: atmospherics (the ambiance of the store --created by what you hear, see, smell and intuitively sense inside astore); service personnel; and other customers. You will begathering the following information to use in a class discussion onthis topic:

Record the name and address of the store.

Describe the physical environment, the customers, and theemployees.

How do you feel in the environment?

What is the target market? How do you think people in thisgroup feel in the store?

Does the environment consistently convey the image desired bythe store? If yes, how? If no, why not and what should bechanged?

3. The instructor will divide the class into pairs and assign each paira set of service businesses to observe for this exercise. Studentpairs should be assigned two businesses with similar offerings(e.g., Pair 1 would visit two hair salons, Pair 2 would visit twofast food restaurants, Pair 3 would visit two doctor’s offices,etc.). Spend approximately 30 minutes in each business. Carefullybut unobtrusively observe the business while you are there and makebrief written notes outside each business following your fieldobservation. Answer the following questions for each businessseparately:

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Describe the “atmosphere” of the establishment (store layout,colors, sounds, smells, etc.). How crowded was the business?How did the atmosphere make you feel?

Describe the customers. How were they dressed, and how didthey act? Were they shopping alone or with others? Can youmake any inferences regarding customers’ lifestyles orincomes? Why or why not?

Describe the customer contact personnel. How were theydressed, and how did they behave?

Describe the general demographic characteristics of theemployees (gender, age range, ethnicity, etc.). Can you makeany inferences about whether the business is a “good” place towork based on the employees’ behaviors?

Sum up in a few words your impressions of the store’s“culture.”

4. Have students find a clip from a current film that visually depictselements of physical evidence in service businesses. Show the clipsto the class and provide a brief analysis of how the physicalevidence is used in the film setting to enhance the scene and itsimpact on the actors and the audience. (Examples of this includethe scene in Pretty Woman where Julia Roberts tries unsuccessfully tobuy clothes in a very posh establishment and the scene in Father of theBride where Steve Martin, his wife, and his bride-to-be daughter arein the caterer’s office ordering a wedding cake. Many of the clipsstudents bring to class are fun as well as an effective way todemonstrate the importance of physical evidence.)


1. What is physical evidence and why do we have a whole chapter devoted to it in amarketing text?

Physical evidence is the environment in which the service isdelivered and where the firm and the customer interact and anytangible commodities that facilitate performance or communication ofthe service. Physical evidence includes the servicescape, a term usedto describe the physical facility where the service is produced

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and/or delivered. Examples of physical evidence are shown in Tables10.1 and 10.2. The definition of physical evidence was firstpresented in Chapter 1 to introduce the term as one of the three newP’s in the services marketing mix. Because services are intangible,customers frequently rely on physical, tangible cues to learn aboutthe service and to form their initial expectations. Later, duringactual consumption of the service, physical evidence can affectcustomers’ satisfaction as well as facilitating or hindering theiruse of the service. Because physical evidence of service can affectany phase of the service evaluation process from setting of initialexpectations to the purchase decision and satisfaction duringconsumption, it is of critical importance to services marketers.

2. Describe and give an example of how servicescapes play each of the following roles:package, facilitator, socializer, and differentiator.

By discussing each of these roles, students will see even moreclearly the marketing impact of the servicescape. This questionworks well as a lead-in to a more structured lecture/discussion ofthe theoretical model shown in Figure 10.2. Descriptions for theroles and examples are as follows:

Package: As a “package” the servicescape helps to establish theimage of the service organization in ways similar (althoughmore complex) to a package for a tangible product. Studentscan be asked to provide examples of local serviceestablishments where the servicescape provideseffective/ineffective packaging for the service.

Facilitator. The servicescape also serves as a facilitator forthose who must perform actions in the servicescape. How thesetting is designed can enhance or inhibit the efficient flowof activities, making it easier or harder for customers andemployees to accomplish their goals. Again, students canprovide their own examples (from their perspectives ascustomers or employees) of ways the servicescape acts as afacilitator or inhibitor for their actions.

Socializer. The way the servicescape is designed can help bothcustomers and employees to understand their roles, where theycan/cannot be, and how they should act in the environment.

Differentiator. Elements of physical evidence can serve todistinguish the service organization from its competitors.

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3. Imagine that you are the owner of an independent copying and printing shop (similar toa Kinko’s). Where (in which cell) would you locate your business in the typology ofservicescapes shown in Table 10.3? What are the implications for designing your physicalfacility?

This question allows students to apply their knowledge of thetypology of service organizations to a specific context. Moststudents will be familiar with Kinko’s or similar copying andprinting services. A typical Kinko’s service would lie in theinterpersonal services row of the typology, toward the lean column.By placing the service in this area of the typology, students shouldnote that decisions regarding the design and layout of the facilitywill affect both customers and employees. Thus, the servicescapeshould be designed to facilitate employee productivity, comfort andother organizational goals. At the same time, the servicescapeshould communicate the image of the organization effectively tocustomers and facilitate their usage of the place as well (throughsignage, information, layout, access to self-service equipment,etc.). The Kinko’s servicescape should thus be designed for bothorganizational/employee goals as well as marketing/customer goals.Because a typical Kinko’s is located under one roof to accomplish alimited set of purposes (unlike a hospital, hotel, etc.), theservicescape is relatively lean and decisions for its design arerelatively simple. A useful extension of this question can beincorporated if students are working on projects for specificcompanies. They can then locate their project companies in theTypology (Table 10.3) and discuss the implications for thatparticular context.

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4. How can an effective physical evidence strategy help to close provider gap 2? Explain.

Because physical evidence is a form of communication that serves totangibilize the service in the customers’ eyes, it is one of thestrategies the organization can use to match service design tocustomer expectations (Gap 2). The appearance of the servicefacility and related tangibles will communicate things about thenature of the service and the level of quality customers mightexpect. By planning the physical evidence to match customerexpectation, gap 2 will be diminished.

The servicescape in particular has a large role to play in closinggap 2. As a “facilitator, the servicescape can aid or inhibitservice production and delivery. Effective design and specificationof the servicescape to match customer and employeeneeds/expectations is critical for quality service. For example, ifcustomers expect to wait no longer than 5-7 minutes in a grocerystore check out line, then the number of check-out counters and lineconfigurations need to be designed to facilitate this process.

5. Why are both customers and employees included in the framework for understandingservicescape effects on behavior (Figure 10.2)? What types of behaviors are influenced bythe servicescape according to the framework? Think of examples.

This question is intended to help students work further with Figure10.2 and to see its implications for marketing. Both customers andemployees are included in the framework since in many servicecontexts both groups are physically present in the service facilityand thus will be affected by its design, layout, décor, and ambientconditions. It is important to note in this context that customerand employee needs for servicescape design are not necessarilycompatible, presenting challenges for service organizations. Thegeneral types of behaviors influenced by the servicescape areillustrated in the far right column of Figure 10.2. These includeindividual behaviors (approach/avoidance) of both customers andemployees as well as social interactions between and among customersand employees. Many examples of these types of behaviors areincluded in the text.

6. Using your own experiences, give examples of times when you have been affected

cognitively, emotionally and physiologically by elements of the servicescape (in any servicecontext).

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By providing their own examples, students are encouraged tounderstand and apply the model shown in Figure 10.2 and the threetypes of responses as discussed in the text on pp. 292-296. Throughthe discussion of their own examples, students will see how theirexperiences differ or are similar to their classmates. Throughoutthe discussion, the instructor can clarify any misunderstandings ofthe three types of internal responses.

7. Why is everyone not affected in exactly the same way by the servicescape?

The text discussion indicates that not all individuals respond thesame way to the perceived servicescape. Personality differences aswell as temporary conditions like moods or the purpose for beingthere can cause variations in how people respond to the servicescape(see p. 296 of the text).

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8. Describe the physical environment of your favorite restaurant in terms of the threecategories of servicescape dimensions: ambient conditions; spatial layout and functionality;and signs, symbols and artifacts.

This question makes the abstract servicescape dimensions moreconcrete through application to a personal example. By interpretingthe dimensions in the context of their favorite restaurant, studentswill better understand the model and the instructor can clarify anyobvious misunderstandings. The question can be followed by ageneral discussion of the entire model and its implications formarketing strategy.

9. Imagine that you are serving as a consultant to a local health club. How would youadvise the health club to begin the process of developing an effective physical evidencestrategy?

This question provides an opportunity for students to apply almosteverything they have learned in this chapter. It can be given as ahomework assignment, where students are asked to write a memo to ahealth club manager explaining the marketing impact of the physicalenvironment on both employees and customers (using the roles of theservicescape and the theoretical model of servicescape effects asguides). The letter can also include recommendations for developingan effective physical evidence strategy (using the guidelines forphysical evidence strategy on pp. 304-306 as a guide). Adaptationsof this question have been used very effectively in exams.


Company LocationBritish Airways www.britishairways.com Gallery Furniture www.galleryfurniture.com Marriott International www.marriotthotels.com Mayo Clinic www.mayo.edu Nike Town www.nikebiz.com/retail Washington Mutual Bank www.wamu.com

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http://www.wamu.com/

http://www.nikebiz.com/retail

http://www.mayo.edu/


http://www.galleryfurniture.com/

http://www.britishairways.com/





Giordano – Case 8

From other sources:


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CHAPTER 11:EMPLOYEES’ ROLES IN SERVICE DELIVERY

CHAPTER TOPICS

The Critical Importance of Service Employees Boundary Spanning Roles Strategies for Closing Gap 3 Service Culture Technology Spotlight: Quality versus Productivity—How CRM Systems Help

Employees Global Feature: How Well Does a Company’s Service Culture Travel?

CHAPTER OBJECTIVES

1. Illustrate the critical importance of service employees in creating customer satisfaction and service quality.

2. Demonstrate the challenges inherent in boundary-spanning roles.

3. Provide examples of strategies for creating customer-oriented service delivery through hiring the right people, developing employees to deliver service quality, providing needed support systems, and retaining the best service employees.

4. Show how the strategies can support a service culture where providing excellent service to both internal and external customers is a way of life.

LECTURE TIPS & AIDS

1. An alternative to presenting this material in straight lectureformat would be to have students help in the delivery of theservice. Figure 11.6 provides an excellent framework for such anactivity. In particular, the class could be divided up into 12approximately equal size groups (2-4 students, depending on classsize). Each group might be then assigned one of the human resourcestrategies depicted in Figure 11.6. For example, one group might beassigned the “empower employees” strategy. As part of theirassignment, then, the students in that team would be asked to

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describe what we mean by empowering employees, to discuss how thisfits into one of the strategies (in this case “develop people todeliver service quality”), and to provide examples from industrythat they are aware of where these strategies have been employed.This will help to break up the routine of regular lectures, andallow students to become more involved in the classroom discussion.

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2. Guest speakers can often make a valuable contribution to what isbeing said in class. Figure 11.6 can also be used to structure alecture around the topics in this chapter for a guest speaker. Inparticular, an instructor might approach a guest speaker in advance.For example a vice president of marketing or possibly human resourcemanagement in an organization, and ask him or her to come in duringthe discussion of the material in this chapter. Without a lot ofpreparation, many guest speakers can talk intelligently from thisfigure. In particular, many knowledgeable managers will know whattheir company is planning and doing for many of the human resourcestrategies depicted in Figure 11.6. So for example, a guest speakercan easily talk about what’s being done to empower employees, totrain for interactive skills, or things they may be doing to becomea preferred employer.

Providing this figure as a framework provides benefits for both aninstructor and the guest speaker. For the instructor, it helps tokeep the conversation and the discussion on topics related to classmaterial. For the guest speaker, it gives him/her an organizedframework from which to talk. Most of the topics are areas thathe/she is probably very knowledgeable, and the figure provides aneasy method to present ideas and strategies used in their particularorganization (without having to spend a lot of time in developing aspecific framework for that particular class lecture).


1. In groups of 5 or 6, develop “role plays” of some of the humanresource strategies for closing gap 3 (see Figure 11.6). Each groupshould create two scenarios: one where these strategies are not usedand one where they are used effectively. Each group then presentsits scenarios in class. Groups should start with the “ineffective”scenario and then ask the class to critique what went wrong beforepresenting their “effective” version.

2. Have students find clips from popular movies that demonstrate eithervery effective or very ineffective internal service relationships.Show the clips to the class and provide a brief analysis of the filmmaterial as it relates to Chapter 11.

Students often come up with amazing ideas for this assignment. Oneexample of this is a student who showed a clip from a James Bondmovie where “Q” and the R & D personnel for Her Majesty’s Secret

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Service were showing Bond all the gadgets they had developed tosupport his hazardous occupational activities. The student thenshowed a scene from one of the Star Wars films that demonstrated thepoor internal service Darth Vadar received from his organization.The final part of this presentation was a mini-analysis of thequalitative and quantitative impact of the internal service on thefront-line employees and their organizations (all very negative forDarth Vadar and the Evil Empire and very positive for James Bond andHer Majesty’s Secret Service!).

3. The article “The Power of Internal Guarantees” [Christopher W. L.Hart (1995). “The Power of Internal Guarantees.” Harvard Business Review.January-February: 64-73] defines internal guarantees as “a promiseor commitment by one part of an organization to another to deliverits products or services in a specified way and to the completesatisfaction of the internal customer or incur a meaningful penalty,monetary or otherwise” (p. 64). Summarize the key points of thisarticle and relate it to the relevant material in Chapter 11.

[Note: An excellent and enjoyable resource for understanding theimpact and value of excellent front-line employees can be found inThe Real Heroes of Business and Not a CEO Among Them (by Bill Fromm and LenSchlesinger (1993). New York, NY: Doubleday). Each of the book’s 14chapters tells the story of a different front-line service workerwho provides extraordinary service. The workers’ lifetime value tothe company is also calculated—which ties in nicely with thematerial covered earlier in the text on the lifetime value of acustomer. An excellent video resource on the topic of buildingcustomer relationships can be found in “Segment 4: Managing forQuality and Productivity Improvements” from the video series AchievingBreakthrough Service by James Heskett, W. Earl Sasser and LeonardSchlesinger. The series is available through Harvard BusinessSchool Video Series, P.O. Box 1010, Boston, MA 02117, (800)248-1878, FAX (617) 496-8866.]

4. A good question for stimulating lively discussion is “Is empoweringemployees always a good thing?” To address this question, aninstructor might consider passing out a copy of the article“Employees Putting on the Ritz at KMC” included on the next page. Thisarticle discusses an employee empowerment program at KootenaiMedical Center in Coeur d’Alene, Idaho.

Students could be asked to discuss potential benefits of the programof empowerment at KMC, and/or discuss potential drawbacks. Perhaps

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the class might even be divided and forced to argue for the benefitsof such a program, or argue regarding the drawbacks of suchempowerment. Students might also, at the end of the discussion,think from a “services marketing” perspective whether or not KMC’sprogram is a good idea, and asked to defend their opinion.Adaptations of this question have been used very effectively inexams.

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Employees Putting on the Ritz at KMC:Hospital workers allowed to spend $1,000 a year to improvepatient staysBy Craig Welch

COEUR d’ALENE—Kootenai Medical Center plans to give all 1,000 ofits employees the spending power of a hotel housekeeper. But notjust any housekeeper—a Ritz-Carlton Hotel housekeeper. StartingNov. 1, KMC’s top brass will let every hospital worker spend upto $1,000 a year to improve patients’ or family members’ stays orto help resolve customer complaints. The million-dollar movemirrors a program at the luxury hotel, which empowers all itsemployees to spend money without a manager’s approval. The idea:Keep customers happy.

“We do everything we can to try to never lose a customer,” saidAmber Vierra, a spokeswoman for the Ritz in San Francisco. JoeMorris, the hospital’s chief executive officer, thinks that is aworthy goal for a hospital as well. Morris stole the idea fromauthor and business guru Tom Peters, who lectured last month atEastern Washington University.

“He told us about a housekeeper named Rosa in charge of thesecond floor at the Ritz-Carlton who had the authority to spend acouple of thousand dollars to please a guest,” Morris said.Morris ran with the brainstorm. Under his new program,radiologists could knock down a customer’s bill when it’s clearthe patient had been overcharged. A janitor could buy pizza forfamily members waiting for grandma to come out of surgery. Adietician could pay for a cab ride for an elderly woman who can’tfind a ride home.

“People want to have as much control of their work as possible,”Morris said. “Giving them authority to spend money is a symbolicone, and it takes care of needs of patients and family. Thatsends a good message to folks.”

Currently, he said, patients with billing complaints go through abilling department. It may be months before the complaint isresolved. Other examples abound. “Sometimes a person flies into visit a relative and the admitting desk clerk says they’re notin here and we later discover they are in the hospital,” Morrissaid. Under the program, Morris said, a receptionist couldapologize to Uncle Joe and perhaps pay for his hotel room.

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At the Ritz-Carlton in San Francisco, receptionists frequentlyeliminate phone charges if customers can’t remember placing thecall, said Vierra. “If another guest is making noise next door,we would relocated the guest,” she said. “If we didn’t have aroom, we’d offer them another night’s stay free.” The hotelprogram aptly is named “instant guest pacification,” Vierra said.Morris is still working out some of the finer points of thehospital’s program. He wants employees to fill out reportsexplaining the expenses so the hospital can better track—andrectify—complaints.

And while 1,000 employees spending $1,000 each could cost $1million a year, Morris says he isn’t concerned. “Everyone is notgoing to spend all the money,” he said. Besides, “if they’recorrecting a mistake or problem, it’s something we should doanyway.” His biggest concern: Employees might be reluctant tospend the money. “I might have to do it myself just to show themit’s OK,” he said, laughing.

[Note: This article originally appeared in The Idaho Spokesman-Review, October9, 1997, pp. A1 and A15.]

Copyright 1997. Reprinted with permission of The Spokesman-Review.

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1. Why are service employees critical to the success of any service organization? Why dowe include an entire chapter on service employees in a marketing course?

Because services are typically delivered by people to people, theemployees who communicate about and actually deliver the service arecritical to the organization’s success. As stated at the beginningof the chapter:

They are the service. They are the organization in the customer’s eyes. They are the brand. They are marketers.

Each of the above ideas is developed on p. 318 of the text.Further, there is considerable research that suggests that employeesatisfaction and customer satisfaction are correlated.Organizations that ignore or treat their employees badly will likelyhave customers who are less satisfied than will organizations whereemployees are treated well. Exhibit 11.1 illustrates the underlyinglinkages between employee satisfaction and customer satisfaction.Finally, the dimensions of service quality are frequently driven byemployee behaviors. Quality service is therefore highly dependenton recruiting, training, and retaining employees who can and willdeliver excellent service.

2. What is emotional labor? How can it be differentiated from physical or mental labor?

Emotional labor is a term coined by Arlie Hochschild in her book TheManaged Heart (note 19 in the chapter). It is the type of laborthat goes beyond physical or mental skills, drawing on employees’feelings and inner emotions. It means delivering smiles, making eyecontact, showing sincere interest, and engaging in friendlyconversation with people who are essentially strangers. Emotionallabor often requires employees to suppress their true feelings atthe moment. A good follow-up to this question is to ask students tothink about jobs they have had and whether emotional labor was amajor part of the job. The students’ own examples help to make theconcept even more concrete.

3. Reflect on your own role as a front-line service provider, whether in a current job or inany full- or part-time service job you’ve had in the past. Did you experience the kinds of

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conflicts described in the boundary-spanning roles section of the chapter? Be prepared withsome concrete examples for class discussion.

This question allows students to make more concrete, throughapplication, the types of conflicts discussed in the text on pp.323-324. Students will generally provide excellent and clearexamples. The four major sources of conflict are:

person/role conflicts: employees feel that they must suppress theirown personalities, orientations, or values to effectivelyperform their jobs.

organization/client conflicts: employees are faced with conflictingneeds of the organization versus the customer; this conflictis especially intense when the employee believes theorganization’s policies/rules are wrong and the customer isright, but yet he/she can’t do what the customer is askingfor.

interclient conflicts: these conflicts occur when the employee isserving multiple customers with conflicting needs—to satisfyone customer may mean causing another customer to bedisappointed.

quality/productivity trade-offs: in many instances, employees are askedto provide both high quality/customer satisfaction and to beefficient and productive; these goals are not alwayscompatible, particularly at the level of individualemployee/customer interactions.

4. Select a service provider (your dentist, doctor, lawyer, hair stylist) with whom you arefamiliar and discuss ways this person could positively influence the five dimensions ofservice quality in the context of delivering his or her services. Do the same for yourself (if youare currently a service provider).

This question allows students to see how the dimensions of servicequality (reliability, assurance, tangibles, empathy, andresponsiveness) are reinforced by individual employees at theservice encounter level. Many times discussions of the dimensionstend to stay at the abstract or organizational level. By focusing inon a specific person (or even themselves), students can start to seehow the behaviors of individual employees are what actuallydetermine perceptions of quality in many instances.

5. Describe the four basic human resource strategy themes and why each plays animportant role in building a customer-oriented organization.

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The four basic themes are shown in Figure 11.6, and each isdiscussed in some detail on pp. 325-341. It is important to pointout that at the center of Figure 11.6 is the purpose for developingthe four strategic themes: customer-oriented service delivery. Thefour strategy themes are: hire the right people; develop people todeliver service quality; provide needed support systems; and retainthe best people. The first paragraph at the beginning of each ofthe four strategy theme sections provides the rationale for thestrategy and how it is linked into the overall goal of deliveringcustomer-oriented service. This question can lead into a moredetailed discussion of any/all of the specific strategies listedwithin the four basic themes.

6. What is the difference between technical and interactive service skills? Provide examples

(preferably from your own work context, or from another context with which you arefamiliar). Why do service employees need training in both?

Technical skills are those basic knowledge, physical, and mental skillsand capabilities needed to perform a particular job. For example(other examples are provided in the text):

a bank teller must be able to operate the bank’s computerinformation system in dealing with customers and must havebasic math skills and knowledge of the bank’s policies andprocedures.

a medical doctor must have a degree from a certified medicalschool, have passed certain exams, and have knowledge ofpolicies and procedures related to hospitals, insurancecompanies, etc.

a sanitation engineer (garbage collector) must be able todrive a particular type of large collection vehicle andoperate the equipment, have the physical strength required todo the job, and have knowledge of the company’s policies andprocedures.

In addition to the technical skills required to do the job, serviceemployees also need interactive service skills that allow them to providecourteous, caring, responsive and empathetic service. They needtraining in listening, problem-solving, communication andinterpersonal skills. Many times, it is the ability to excel atinteractive skills that can provide a competitive advantage for anindividual provider or a company. Customers often assume that the

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technical skills are there and do not give a firm “extra credit” forbeing good at technical skills. However, excellence in interactiveskills frequently surprises customers and may even result in“exceeding their expectations.” Following a discussion of these twoskills sets, using students’ own examples, it is useful to ask howmany of them received training on their jobs in one or both types ofskills. In most cases, students will have had technical skillstraining, but interactive skills training is far less common.

7. Is empowerment always the best approach for effective service delivery? Why isemployee empowerment so controversial?

This question can provide quite a long and meaningful discussionsince empowerment is a well-used and often poorly understoodconcept. If the instructor plans to use this question for a lengthydiscussion, Bowen and Lawler’s article (note 44 at the end of thechapter) provides excellent back-up and additional material to addto the discussion. Empowerment may not always be the best approachfor effective service delivery, as pointed out in the text on page323. In a 1992 Sloan Management Review article, Bowen and Lawlerpresented a contingency framework for when empowerment is mosteffective vs. a production line approach to service (note 44). Theysuggest that an empowerment approach is best when:

the business strategy is one of differentiation andcustomization

customers are long-term relationship customers technology is nonroutine or complex the business environment is unpredictable managers and employees have high growth and social needs and

strong interpersonal skills.

A production line approach is most appropriate when the oppositeconditions hold.

Employee empowerment is controversial for a variety of reasons:

it is often poorly understood poorly designed empowerment strategies are tried and fail to

produce results it is threatening particularly to middle managers who may see

their authority and scope of control diminishing there are real benefits, costs, and tradeoffs (see Exhibit

11.3)

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it is not always the most appropriate strategy (as discussedabove).

8. Define service culture. Can a manufacturing firm have a service culture? Why or whynot?

As defined by Christian Gronroos and cited in the text, a serviceculture is “a culture where an appreciation for good service exists,and where giving good service to internal as well as ultimate,external customers is considered a natural way of life and one ofthe most important norms by everyone.” The richness of thisdefinition and the difficulty in achieving it are discussed on pp.341-344. Organizations that have very strong service cultures(e.g., FedEx, Nordstrom, Disney) usually have had this type ofculture for a long time, perhaps even from the time the organizationwas first established. Changing from a non-service culture to aservice culture, while it can be done is a long and challengingprocess. Given the definition of a service culture, a manufacturingcompany can certainly have a service culture. In fact, many arerecognizing that to be competitive, they must work toward achievinga service culture.

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Company LocationChik-fil-A www.Chick-fil-A.com McDonalds Hamburger University

www.mcdonalds.com/corporate/careers/hambuniv/index.html

PeopleSoft www.peoplesoft.com Rosenbluth International www.rosenbluth.com SAS Institute www.sas.com Siebel Systems www.siebel.com Southwest Airlines www.southwest.com Yellow Corporation www.yellowcorp.com







From other sources:

AT&T (A): Focusing the Services Salesforce on Customers; AT&T (C): Employees as Customers [included in the second edition of this text: Zeithaml and Bitner (2000) Services Marketing: Integrating Customer Focus Across the Firm, New York, NY: McGraw-Hill Companies]


Four Seasons Hotels and Resorts [Harvard Business School Case 9-800-385, 2000]

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http://www.yellowcorp.com/

http://www.southwest.com/

http://www.siebel.com/

http://www.sas.com/

http://www.rosenbluth.com/

http://www.peoplesoft.com/

http://www.mcdonalds.com/corporate/careers/hambuniv/index.html

http://www.mcdonalds.com/corporate/careers/hambuniv/index.html

http://www.Chick-fil-A.com/


The Ritz-Carlton: Using Information Systems to Better Serve the Customer [Harvard Business School Press Case 9-395-064, 1995]


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CHAPTER 12:CUSTOMERS’ ROLES IN SERVICE DELIVERY

CHAPTER TOPICS

The Importance of Customers in Service Delivery Customers’ Roles Self-Service Technologies—The Ultimate in Customer Participation Strategies for Enhancing Customer Participation Technology Spotlight: Technology Facilitates Customer Participation in Health Care Global Feature: At Sweden’s IKEA, Customers Create Value for Themselves

CHAPTER OBJECTIVES

1. Illustrate the importance of customers in successful service delivery.

2. Enumerate the variety of roles that service customers play: productive resources for the organization; contributors to quality and satisfaction; and competitors.

3. Explain strategies for involving service customers effectively to increase both quality and productivity.

LECTURE TIPS & AIDS

1. The topic of customers’ roles in service delivery is a veryinteresting one to discuss in a classroom setting. To preparestudents to take an active role in the lecture, students might beasked during the meeting prior to the discussion of this chapter todo the following:

Your assignment is to choose a service that requires a moderate orhigh level of your participation as a customer. Table 12.1 providesexamples of such services. You should pick a unique service, onethat few people in the class are likely to select. The followingquestions pertain to the service you have selected. In addition toanswering the questions on this sheet, you should be prepared todiscuss any (or all) of these questions in class. Students will be

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randomly selected to discuss their responses to these questions toillustrate various concepts included in the chapter.

1. What service have you selected? 2. Describe your role, as a customer, in the service delivery.3. How did you learn your “role”?4. How important is the customer to the service delivery process?5. How would you describe your level of participation

(low/medium/high)? Explain.6. What influence do other customers have on your service

experience?7. When might other customers enhance your experience?8. When might other customers diminish your experience?9. Could you be considered a “partial employee” of this

organization? Explain.10. When might you, as the customer, be able to enhance yourexperience?11. When might you, as the customer, be able to do somethingthat diminishes your experience?12. Is this a service that you might, at some point, be able to

provide yourself (without the service provider’s assistance)?Why or why not?

The combination of providing the actual discussion questions inadvance, allowing students to select a service they are familiarwith, and providing the opportunity for students to think throughquestions prior to class can significantly help in increasing classparticipation. This activity is particularly good in encouraging(or even “forcing”) participation from students who are normallyvery quiet in class. If students are expected to turn in writtenanswers to these questions, most of them will be fairly prepared tocontribute to class discussion. In a class of 20 or more, theinstructor can easily move from one question to another and from onestudent to another so that many students are involved in co-creatingthe classroom experience.

2. The following suggestion is for those instructors that want to trysomething very different in their class. This activity will, ineffect, “turn the tables” in the classroom by having the studentstake on the role of instructor and having the instructor become astudent. In particular, the last part of the chapter (on strategiesfor enhancing customer participation) will be “taught” by teams ofstudents. The class is divided into teams in the meeting prior tothis one. (The example below is for seven teams, but the outline

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could easily be altered for a different number of teams.) Team 1 isinstructed (privately) that the instructor will be a couple ofminutes late and that they should begin the discussion at the normalstarting time for the class. Each team will be expected to covertheir assigned material in 3-5 minutes.

In our next class, we will begin class by having each team“produce” a brief (3-5 minute) presentation related to aspecific issue for enhancing customer participation. Yourtask is to address the major elements of the section of theZeithaml and Bitner textbook that you have been assigned.Each segment should highlight the major points of the sectionand provide an example of each relevant issue (other than whatis in the textbook). (Although you will not have to discuss it, be sure toobserve your own roles in the service delivery of this class session, as you will be“co-creating” the service.)

Team 1 Overview/Introduction/Goals of a Customer Participation Strategy (p. 364)

Team 2 (1) Define Customers’ Roles (pp. 364-365)

Customer’s Job:Helping Oneself

Team 3 Customer’s Job: (pp. 365-368)

Helping OthersPromoting the CompanyIndividual Differences: Not Everyone Wants to

Participate

Team 4 (2) Recruit, Educate, and Reward Customers(pp. 368-370)

Recruit the Right CustomersEducate and Train Customers to Perform

Effectively

Team 5 Reward Customers for Their Contributions(p. 370-372)

Avoid Negative Outcomes of Inappropriate

Customer Participation

Team 6 (3) Manage the Customer Mix (pp. 372-373)

Team 7 Summary of Customer Participation Strategies (p. 364-373)

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The instructor’s role is to play a disruptive student. The following isa list of some “disruptive behaviors” that students exhibit fromtime to time:

Come to class late (and take a seat not so quietly) Dress in sweats, shorts, baseball cap (backwards, of course) Bring in backpack with noisy food (e.g., chips, apple, can of

pop) and a newspaper Forget to bring notebook paper, a pencil, or the textbook Ask fellow students about what the topic is (and why the

instructor is not up front) Pass notes, food, pencils, or whatever to students on the

other side of the classroom Take a little nap (with head down on the desk) Read a newspaper Work on an assignment for another class Continually talk and make negative comments about wanting to

be somewhere else (you probably have your own observations to add to the list…)

As the student teams attempt to deliver their 3-5 minutes worth ofmaterial they were assigned, others in the class will most likely bedistracted by the “new student” (the instructor) in the class. Itis unlikely that much of the material that is covered will beremembered by anyone other than the team that prepared it. However,this exercise can be an extremely insightful lesson about the rolethe service employee, customers themselves, and other customers canplay in the delivery of the service.

Once the student teams are finished (you may want to stop themearly) and you as the instructor are now “back in charge,” the classcan discuss what just occurred. Students can reflect on (1) thedifficulty (as the service provider) in delivering the service—evenwithout the “disruptive student” (instructor), (2) the difficulty ofdelivering the service when there is an uncooperative customer, and(3) the difficulty of learning/paying attention when a fellowcustomer (“student”) is not doing his/her part. The followingquestions can help to stimulate some interesting discussion:

What problems can occur when the customer is a “co-producer” or “co-creator” of the service?

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In what ways can a student take an “active” role in the delivery of a university class?

Why is it important for the student to take an “active” role in the delivery of a university class?

How can other students’ participation in the service delivery process enhance your experience with and satisfaction in a class such as this?

What did you learn from the “customer participation” experience?

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1. This activity requires the instructor to break the class intogroups of 3-4 people. Each group is then assigned a category of“levels of customer participation” from Table 12.1. Ideally, onethird of the groups will be assigned to each of the threecategories. Groups complete the following activities:

Decide on a service in your category that your group wouldlike to discuss.

Attempt to describe the “typical” customer behavior for yourservice.

Develop a plan for enhancing customer participation.

2. The instructor asks students to review the chapter material oncustomers’ roles before coming to class. At the beginning of class,students watch the film “What’s Your Gripe?” (a CBS 48 Hoursbroadcast from December 7, 1994, available through CBS Video). Forthe remainder of the class session, students do an in-class writingassignment that relates the chapter material on customers’ roles tothe customer behavior they saw in the film.

3. The instructor starts this activity by handing out the one pagearticle “Stop Ordering Me Around” [Stacey Wilkins (1993). “StopOrdering Me Around.” Newsweek. January 4: 10] and asking students toread it in class. Students then discuss the interaction between theservice provider (the waitress) and the customers using the dramametaphor described on p. 319. What roles were each of the partiesplaying? How could the waitress and/or the customers have been“coached” to avoid or improve the situation described in thearticle?


1. Discuss the general importance of customers in the successful delivery of service usingyour own personal examples.

This question focuses on understanding the importance of both thecustomer him/herself as well as other customers in the successfuldelivery of service. This topic is novel and can result in a livelyand interesting discussion. The discussion can focus first on the

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role and importance of the customer him/herself as presented in thetext. In almost all types of services, the customer has a role toplay. But the role is increasingly more important and critical asone proceeds from services where a low level of participation isrequired (e.g., concert, motel, fast-food) to a high level ofparticipation (e.g., personal training, weight-reduction,counseling). See Table 12.1 for additional examples and moredetail.

The discussion can then turn to the role of other customers in thesuccessful delivery of service. Classroom settings offer an obviousand relevant example here, and it should be apparent to students andthe instructor how significant the influence of other individualscan be in altering the service delivery process. All students andinstructors can recall specific classes and their “personalities”that come about as the result of the particular combination ofstudents in the class. Other settings (e.g., hotels, restaurants,health clubs and airlines) also share this characteristic.

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2. Why might customer actions and attitudes cause gap 3 to occur? Use your ownexamples to illustrate your understanding.

This question allows students to see the relevance of customeractions and attitudes within the context of the Service Quality Gapsmodel. Even when the service is designed to meet customer needs andexpectations, there may be a failure to deliver service quality whencustomers do not perform their roles effectively or when othercustomers interfere with the process. This can occur when:customers lack understanding of their roles; customers are unwillingor unable to perform their roles; customers are not rewarded forgood performance; other customers interfere; or market segments areincompatible. Each of these themes is further developed in thechapter.

3. Using Table 12.1, think of specific services you have experienced that fall within each of thethree levels of customer participation: low, medium and high. Describe specifically whatyou did as a customer in each case. How did your involvement vary across the three typesof situations?

This question focuses students on understanding the variety oflevels of involvement of customers in the service delivery process.By using their own examples, the levels of participation become moreconcrete. A useful extension of the discussion is to ask whatstrategies the organization used in each type of situation toprepare them for their participation role. What could theorganization have done differently or better? This can then leadinto a more structured lecture/discussion on “strategies forenhancing customer participation.”

4. Describe a time when your satisfaction in a particular situation was increased becauseof something another customer did. Could (or does) the organization do anything to ensurethat this happens routinely? What does it do? Should it try to make this a routineoccurrence?

Examples of types of situations where customers are most likely toinfluence each other positively are discussed in the chapter.Students will provide their own examples, and this discussion canlead logically into a discussion of strategies for educating andusing customers effectively to enhance the satisfaction of others.While not appropriate in all cases, such strategies can be quiteeffective in the right setting (e.g., schools and universities,health clubs, certain types of recreation and resort settings,nursing homes, and other residential settings).

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5. Describe a time when your satisfaction in a particular situation was decreased becauseof something another customer did. Could the organization have done anything to managethis situation more effectively? What?

The discussion of this question can be combined with Question 4.Strategies for effectively handling “problem customers” and managingthe customer mix so segments are compatible can be discussed in thiscontext.

[Note: Questions 6, 7, and 8 focus students on the three primaryroles of customers in service delivery. By using their own concreteexamples in each case, the abstract ideas take on more meaning. Theglobal feature in this chapter, describing IKEA of Sweden, can serveas an excellent focal point for discussing these questions. Any orall of the questions can lead effectively into a lecture/discussionon strategies for enhancing customer participation.]

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6. Discuss the customer’s role as a productive resource for the firm. Describe a time whenyou played this role. What did you do and how did you feel? Did the firm help you toperform your role effectively? How?

In serving as productive resources, customers can be viewed as“partial employees” of the organization (as discussed in the text).They contribute time, effort, information, and other resources tofacilitate delivery of the service. When customers performeffectively as productive resources, their labors can cut costs forthe organization which may be passed on in the form of lower pricesfor customers. Total self service is the extreme case of usingcustomers as productive resources.

7. Discuss the customer’s role as a contributor to service quality and satisfaction. Describea time when you played this role. What did you do and how did you feel? Did the firm helpyou to perform your role effectively? How?

Through their effective participation, customers can contribute toservice quality and to their own satisfaction. In many services,such participation is essential (e.g., education, health care,weight loss and counseling). Unless the customers perform theirroles in these settings, they cannot receive quality service. Inother less extreme cases, customers can still enhance service valueand their own satisfaction by asking questions, preparing for theservice in advance, and complaining when there is a service failure.Exhibit 12.2, as well as the IKEA of Sweden global feature, canprovide nice focal points for this discussion along with thestudents’ own examples.

8. Discuss the customer’s role as a potential competitor. Describe a time when you choseto provide a service for yourself rather than pay someone to provide the service for you.Why did you decide to perform the service yourself? What could have changed your mind,causing you to contract with someone else to provide the service?

The role of customers as potential competitors is discussed in thechapter. For many services customers can actually choose to providethe service themselves, thus essentially competing with the serviceprovider who must convince them it can provide the service better,more conveniently, or at lower total cost to the customer. Thecontingency framework included in the “customers as competitors”section for when a customer—whether an organizational customer or anindividual—will decide to produce a service for him/herself providesa nice focal point for this discussion. For more detail on thisframework, see Lusch, Brown, and Brunswik (note 23).

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Company LocationAmazon.com www.amazon.com Charles Schwab & Company www.schwab.comCisco Systems www.cisco.comIntegrated Information Systems www.iis.com IKEA Systems www.ikea.com iPrint.com www.iPrint.comRitz Carlton www.ritzcarlton.comWeight Watchers International www.weightwatchers.com Wells Fargo Bank www.wellsfargo.com







From other sources:

Alaska Airlines: For the Same Price, You Just Get More... [Harvard Business School Case, 9-800-004, 2000]


Building Brand Community on the Harley-Davidson Posse Ride [Harvard Business School Case 9-501-015, 2000; Teaching Note 5-501-052; Video 9-501-801]

270

http://www.wellsfargo.com/

http://www.weightwatchers.com/


http://www.iPrint.com/

http://www.ikea.com/

http://www.iis.com/





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272

CHAPTER 13: DELIVERING SERVICE THROUGH INTERMEDIARIES

AND ELECTRONIC CHANNELS

CHAPTER TOPICS

Service Intermediaries Direct or Company-owned Channels Common Issues Involving Intermediaries Key Intermediaries for Service Delivery Strategies for Effective Service Delivery Through Intermediaries Technology Spotlight: Nine Reasons to Worry about Privacy in Electronic Channels Global Feature: Starbucks Goes Global

CHAPTER OBJECTIVES

1. Identify the primary channels through which services are delivered to end customers.

2. Provide examples of each of the key service intermediaries.

3. View delivery of service from two perspectives—the service provider and the service deliverer.

4. Identify the benefits and challenges of each method of service delivery.

5. Outline the strategies that are used to manage service delivery through intermediaries.

LECTURE TIPS & AIDS

1. One idea for a guest speaker on this topic would be to contact theperson responsible for “continuing education” at your university.Many universities offer classes (e.g., personal financial planning,Chinese cooking, pottery) to those in the community that are not forcollege credit, but as a service to the community. In so doing,they often use instructors on a short-term basis. So, in effect,the continuing education department (or whatever it is called)

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delivers its services through intermediaries. The issues raised inthe chapter of “conflict over objectives and performance,”“conflict over costs and rewards,” “control of service quality,” and“empowerment vs. control,” are all issues that are of concern to thesponsoring organization. Assuming the representative from thecontinuing education department is a solid speaker, this outline canbe used to have him/her come in and discuss these topics in theclassroom setting, as they are indeed important and very real issuesfor such organizations.

2. Another idea for a guest speaker would be the local manager of afranchise that is part of a national chain (assuming one issufficiently close). For example, a fast food restaurant (e.g.,McDonald’s, Burger King, Wendy’s, Subway, or Blimpie) could come inand discuss many of the same issues that are brought up in the textregarding franchisers and franchisees. No doubt many of the sameissues discussed in the chapter will be of concern and of interestto the guest speaker, and they can be highlighted with thediscussion a guest speaker could bring to the class.

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3. A third idea for a guest speaker would be a direct service provider—a local restaurateur, the owner of a local coffee shop that competeswith the chains, or an independent hair stylist. Ask the speaker tocomment particularly on the difficulties he/she faces in competingwith the large franchise operations. Ask the speaker why thecompany chooses to remain independent in the face of thesechallenges. What issues do they have that the class can talk aboutand perhaps produce helpful ideas? This discussion should bring outclearly the benefits and disadvantages of direct service delivery.


1. Research an industry that you know uses intermediaries for servicedistribution (e.g., the airlines or financial services). Have therebeen any significant trends in the industry that have altered therelationship between the service company you chose and itsintermediaries? Describe the trend(s) and the impact on theintermediaries. Has technology affected the distribution for yourservice?

2. Identify several service businesses that would be very difficult tofranchise. Discuss the reasons you believe franchising would not bean effective form of service delivery.


1. In what specific ways does the distribution of services differ from the distribution of goods?

Intangibility of services makes their distribution different fromthe distribution of products. Because of intangibility, there areno titles or rights to services and inventories cannot exist. Manyof the primary functions of distributors—inventorying, securing, andtaking title to goods—do not exist in services. This limits thetype of distributors that are appropriate for services as well—franchises, agents, brokers, and electronic channels—are the onlydistribution channels that bring sellers and buyers of servicestogether.

2. Which of the reasons for channel conflict described at the beginning of this chapter is themost problematic? Why? Based on the chapter, and in particular the strategies discussedat the end of the chapter, what can be done to address the problem you selected? Rank thepossible strategies from most effective to least effective.

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Of all the problems listed at the beginning of the chapter,difficulty controlling quality and consistency across outletsprobably looms the largest. The strategies suggested at the end ofthe chapter that could address this problem are control strategies(particularly measurement), empowerment strategies (such asproviding needed support systems and developing intermediaries todeliver service quality) and partnering strategies (such asalignment of goals and consultation and cooperation). Partneringprobably works best, with empowerment strategies being next ineffectiveness and control strategies the least effective.

3. Identify other service firms that are company owned and see whether the services theyprovide are more consistent than ones provided by the franchises mentioned in this chapter.

In many cases, franchisers retain ownership of some number ofoutlets for text marketing and other reasons. For example, morethan half of McDonald’s outlets are company-owned. On the otherhand, some companies retain ownership of all of their outlets,largely because of the control provided by ownership. Taco Bellowns its own outlets. Saturn dealerships, usually because of theunique nature of the offering, are owned by the company. Joe’s CrabHouses, a popular “entertainment” restaurant that will be known tomany of the students, remain owned by the company.

4. List five services that could be distributed on the Internet that are not mentioned in thischapter. Why are these particular services appropriate for electronic distribution? Choosetwo that you particularly advocate. How would you address the challenges to electronicmedia discussed in this chapter?

Entertainment such as movies and concerts could be distributed viathe Internet. (For one such example, see http://www.netflix.com, acompany that rents DVDs.) Doing literature searches of virtuallyany data base could also be accomplished, as could previewingvacations, playing electronic games, and shopping for obscure orhard-to-find items such as antiques. All of these are appropriatefor electronic distribution because they are information orentertainment services that can be widely distributed, whose qualitycan be controlled, and that appeal to adequately large audiences.Literature searches do not suffer from many of the challenges ofelectronic distribution because they could be customized, andneither security nor customer (lack of) involvement are issues.Similarly, customers shopping for difficult-to-find items would be

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adequately motivated to ignore the cluttered electronic environmentand other challenges.

5. List services that are sold through selling agents. Why is the use of agents the chosenmethod of distribution for these services? Could any be distributed in the other waysdescribed in this chapter?

Selling agents are used in services such as insurance, travel, art,antiques, and financial services. Agents are chosen rather thanfranchises for these services because there is nothing to display ina retail environment and there are few tangibles associated withtheir sale. Agents are chosen over electronic media for theseservices because negotiation and education about the services musttake place and cannot be handled adequately through electronicchannels.

6. What are the main differences between agents and brokers?

Agents generally work for principals on a continuous basis whereasbrokers work for shorter periods of time. Agents also typicallyhave more discretionary authority than brokers over price, terms,and conditions.

7. What types of services are bought through purchasing agents? What qualifies a purchasingagent to represent a buyer in these transactions? Why does the buyer not engage in thepurchase herself, rather than hiring someone else to do it?

Services bought through purchasing agents are usually ones wherefinding objects (such as antiques, art, or rare jewelry) requiresskill and cannot be accomplished by the average person or by theprincipal, which is why he or she hires a purchasing agent.

8. Which of the three categories of strategies for effective service delivery throughintermediaries do you believe is most successful? Why? Why are the other two categoriesless successful?

Partnering is likely to be the most successful of the threestrategies because it represents a win-win situation and capitalizeson the skills and strengths of the principal and intermediary. Itrespects both parties and allows for goal alignment and cooperation.On the other hand, control strategies are less effective becausethey represent a win-lose relationship–the principal is in abetter-than position with the intermediary. Control strategiesreflect a lack of trust and a position of unequal power, which is

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one of the reasons they are not as effective as empowerment orpartnering strategies. Empowerment strategies are probably moreeffective than control strategies but less effective than partneringstrategies.


In many situations, there are huge differences when servicesare distributed over the Internet than when they aredistributed in traditional ways. Listed below are Web sitesthat you can use to explore these differences in class withstudents or that you can assign students for exercises orhomework. Distribution is a topic that can be very dull,unfortunately, and using these sites in class can make thediscussion much more lively.

Company LocationAmeritrade www.ameritrade.com Bankrate.com www.bankrate.com CompareNet www.compare.com Dell Computer www.dell.com E*Trade Securities www.etrade.com Jones International University www.jonesinternational.edu L.L. Bean www.llbean.com Mediconsult www.mediconsult.com.my Netflix www.netflix.com Priceline.com www.priceline.com Charles Schwab & Company www.schwab.com Starbucks Corporation www.starbucks.com




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http://www.starbucks.com/



http://www.netflix.com/

http://www.mediconsult.com.my/

http://www.llbean.com/

http://www.jonesinternational.edu/

http://www.etrade.com/

http://www.dell.com/

http://www.compare.com/

http://www.bankrate.com/

http://www.ameritrade.com/


Giordano – Case 8

From other sources:


Fairfield Inn (A) and (B) [Harvard Business School Case 9-689-092, 1993 (A) and 9-692-005, 1993 (B); Teaching Note 5-693-025, 1992]

First Direct: Branchless Banking [INSEAD, France; available through European Case Clearing House, Babson College, 1997]

Taco Bell 1994 [Harvard Business School Case 9-694-076, 1995] andTaco Bell (Abridged Update) [Harvard Business School Case 9-395-010, 1999]

The TV-Home Shopping Wars: QVC and Its Competitors [Harvard Business School Case 5-396-251, 1996; Teaching Note 5-396-251, 1996]

Virtual Vineyards [Harvard Business School Case 9-396-264, 1996]


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CHAPTER 14: MANAGING DEMAND AND CAPACITY

CHAPTER TOPICS

The Underlying Issue: Lack of Inventory Capability Understanding Capacity Constraints Understanding Demand Patterns Strategies for Matching Capacity and Demand Yield Management: Balancing Capacity Utilization, Pricing, Market

Segmentation, and Financial Return Waiting Line Strategies: When Demand and Capacity Cannot Be Aligned Technology Spotlight: Technology Allows Sophisticated Management of Capacity and

Demand Global Feature: Cemex Creatively Manages Chaotic Demand for Its Services

CHAPTER OBJECTIVES

1. Explain the underlying issue for capacity-constrained services: lackof inventory capability.

2. Present the implications of time, labor, equipment, and facilities constraints combined with variations in demand patterns.

3. Lay out strategies for matching supply and demand through (a) shifting demand to match capacity or (b) flexing capacity to meet demand.

4. Demonstrate the benefits and risks of yield management strategies inforging a balance among capacity utilization, pricing, market segmentation, and financial return.

5. Provide strategies for managing waiting lines for times when capacity and demand cannot be aligned.

LECTURE TIPS & AIDS

1. This chapter is very amenable to a discussion based around an inclass exercise that asks students to chart the demand patterns anddevelop strategies for a local business. This exercise is described

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in the active learning activities that follow (activity number 4).A short lecture can introduce or wrap up this activity.

A guest speaker from a capacity-constrained industry can also be anexcellent way to explore this topic. Airline, hotel or resortmanagers are good choices. They can discuss the challenges theyface as well as strategies they have used to overcome capacityissues.

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1. In a small group, discuss examples of times you have had to waitduring a service experience. Answer the following questions for theservices you discuss, using the material on pp. 429-435 as areference:

Did the wait seem long or short to you? Why?

Did the service business do anything to make your wait moretolerable? If so, what? If not, what might the company havedone?

Did other customers have to wait? How did they impact yourexperience in any way?

2. This assignment requires an on-site evaluation of “queuingbehaviors.” In an unobtrusive way, observe a queue for 20 minutes(this can also include waiting room situations). Spend some timeobserving the queue and different customers in line. Then takenotes describing where you are in relationship to the queue, theservice for which people are waiting, and the general mood of thequeue. What are people in line doing, and how are others reacting?Do you think customers expected the line? Did it enhance or detractfrom their service experience? Write a paper summarizing yourobservations, thoughts, and reactions.

3. Identify several services that can be inventoried for use at a laterdate than they are actually produced. Has technology played a rolein the ability to inventory the service? If so, how?

4. To further explore issues in managing supply and demand, askstudents to select a service (or, alternatively, the instructor mayprovide a list of services). Then, have the students work throughthe following questions:

Chart the demand pattern for this service. Is it predictable?

What is the constraint(s) on capacity?

What strategies could be used to match demand and capacity by:(a) shifting demand to meet capacity?(b) flexing capacity to meet demand?

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Is a waiting line strategy needed? If yes, what type ofapproach would you use? If no, why not?

Is yield management relevant in this context? If yes, howwould you use it? If no, why not?

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1. Why do service organizations lack the capability to inventory their services? Compare acar repair and maintenance service with an automobile manufacturer/dealer in terms ofinventory capability.

In general, service organizations lack the capability to inventorytheir services because of two basic characteristics: simultaneousproduction and consumption; and perishability. Because services areproduced and consumed simultaneously, they generally cannot beproduced prior to the customer demanding the service. Whileelements of the service may be prepared in advance (e.g., a hotelroom can be readied in advance to receive a guest), the actualservice cannot be provided until the customer arrives ready toconsume it. And, in the hotel room example, unless a guest arrives,uses, and pays for the room, the revenue-producing capacity of thatservice perishes for that particular night. This combination ofsimultaneous production and consumption and perishability results ina general lack of inventory capability for most serviceorganizations.

In comparing car repair and maintenance services with an automobilemanufacturer/dealer, it is obvious how inventory plays an entirelydifferent role in two types of firms in the same industry:

On the one hand, the car repair service has no real inventorycapability. The shop can be open, staffed, and ready toprovide service. But unless a customer and his/her car showup, no actual service can be provided. And, if the resources(time, labor, equipment) of the shop are not used on aparticular day, the revenue-producing potential of thoseresources for that day is lost forever.

On the other hand, an automobile manufacturer or dealer can holdcars in inventory if a sale is not made on a particular day.While a loss is incurred for every day an automobile is notsold, the full revenue-producing potential of the vehicle isnot lost. Further, swings in demand cycles for cars can beplanned for in the production cycle of the automobilemanufacturer. Cars can be produced and held in inventory inanticipation of a high demand period; similarly, productioncan be slowed following unexpected periods of slow demand.(It should be pointed out that most manufacturers try toavoid building up inventories, and strategies such as “just

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in time” inventory management are fully focused on avoidinglarge inventories and the costs associated with them.)

2. Discuss the four scenarios presented in Figure 14.1 and presented in the text (excessdemand, demand exceeds optimum capacity, demand and supply are balanced, excesscapacity) in the context of a basketball team selling seats for its games. What are thechallenges for management under each scenario?

This discussion should be preceded with a short lecture/discussionabout the differences in maximum capacity utilization and optimumcapacity utilization. In an excess demand situation, some people whowant tickets to the game will be turned away. All seats will befilled, and capacity will be stretched to its maximum. Servicequality may suffer unless additional staff is hired to help withfood lines, parking, seating, etc. Ticket scalping may become anissue for management, especially if it is illegal in the particularstate or location.

When demand exceeds optimum capacity, everyone who wants a ticket will getone. Capacity will be stretched beyond what is ideal and therecould be a problem with maintaining optimal levels of servicequality. Management may decide to hire additional staff to helpwith food lines, parking, seating, etc. to avoid service qualityproblems.[Note: If either of these first two scenarios occur continually,excess wear and tear on the facilities and other resources couldresult. Renewal, repair, and maintenance of the facilities wouldneed to be planned in to the schedule.]

If demand and supply are balanced, everyone who wants a ticket will getone. Seats will be filled at an optimal level. (In the case ofentertainment and sports, optimal seating capacity is frequentlyvery close to the maximum number of seats available.) Resources(labor, facilities, parking, etc.) will be used at their optimallevel so service quality should be consistent.

During situations of excess capacity everyone who wants a ticket willget one, but there will be excess seats. While service quality maybe high as a result, attendees at the game may question the value ofcoming since there is obviously not a high demand for seats. Moraleamong employees may suffer, and the organization will lose potentialrevenues from unoccupied seats forever.

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3. Discuss the four common types of constraints (time, labor, equipment, and facilities) facingservice businesses and give an example of each (real or hypothetical).

This question allows students to explore the various types ofconstraints facing service organizations in planning for optimalcapacity utilization. It also highlights the revenue-producingpotential of various types of service resources. It should bepointed out in the discussion that most organizations operate undermultiple constraints.

Time is the primary constraint for organizations that essentiallysell time, advice, counsel, personal services, etc. Examplesinclude lawyers, consultants, doctors, accountants, and others.Unless these professionals can sell their time on a given day,the revenue-producing capability of that time is lost forever.If there is excess demand for their time, more time cannot beproduced nor can time be saved in inventory from one day to thenext.

Labor is the primary constraint in labor-intensive services whereindividual workers can produce service up to some (oftendifficult to determine) maximum capacity. Examples of suchorganizations are law firms, consulting firms, and healthclinics. These organizations are constrained by the number ofpeople available to serve customers at a given point in time.

Equipment is a third common constraint for service businesses.Some services depend heavily on certain types of equipment todeliver the service, and the constraint they face is the capacityof the equipment. Examples include delivery services dependent ontrucks and aircraft, telecommunications, and/or utilities.Sometimes, as in the case of an airplane, the capital investmentin the equipment is tremendous. Unless that equipment is used tocapacity, revenue is severely affected. On the other hand,service cannot be provided above the maximum capacity of theequipment.

Facilities are a very common constraint in services like hotels,restaurants, hospitals, airlines, schools, theaters, andchurches. In all of these cases, the facility itself has acertain maximum capacity, beyond which service cannot beprovided. However, if the facility is not fully used on aparticular day, its revenue-producing capability is lost forever.

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4. How does optimal capacity utilization differ from maximal capacity utilization? Give anexample of a case where the two might be the same, and an example of where they aredifferent.

Optimal capacity utilization occurs when the organization’s resources arebeing employed at some ideal level (sometimes difficult todetermine) where service quality can be consistently delivered andresources are not taxed to the point where they wear out or burnout. Customers are happy, employees are happy, demand and supplyare balanced, and revenues are being produced at an ideal level.

Maximum capacity utilization occurs when the organization’s resources arebeing used to their absolute maximum, i.e., every seat is full,every minute and every hour are being used, and/or equipment isoperating at maximum levels continuously. In most cases,organizations cannot support maximum capacity utilization over longperiods of time (without adding capacity) since equipment, people,and facilities will wear out and burn out at some point.

Examples where optimal and maximum use of capacity might be the sameinclude entertainment, sports events, and package delivery services.Examples where optimal and maximum use of capacity are probably notthe same include university classrooms, most restaurants, and sportsactivities (like swimming pools and golf courses).

5. Choose a local restaurant or some other type of service with fluctuating demand. Whatis the likely underlying pattern of demand? What causes the pattern? Is it predictable orrandom?

This question allows students to apply the concepts of understandingdemand patterns to a situation they are familiar with. Thisquestion works very well as an in-class exercise. Students can bedivided into groups and the instructor can give them a choice ofseveral local establishments to chart demand patterns. For example,the instructor might choose a local theater, a restaurant nearcampus, an accounting firm or a “ski resort in Utah.” In groups,students then chart the likely demand patterns (by season, week,day, or whatever they believe is relevant). The exercise can alsobe combined with Question 6 to add more strategic insight.

6. Describe the two basic strategies for matching supply and demand and give at least twospecific examples of each.

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This question works very well as an in-class exercise when combinedwith the exercise described in Question 5. The two basic strategiesare: shifting demand to match capacity (pp. 419-421) and flexingcapacity to meet demand (pp. 422-424). After students have chartedthe demand patterns in Question 5, they can then develop strategiesfor addressing the patterns and their underlying causes.

7. What is yield management? Discuss the risks in adopting a yield management strategy.

Yield management is a very useful concept for students to begin tograsp. The discussion and examples provided in the book areintentionally kept simple. The important point for students is tosee the underlying logic of the concept. It can be pointed out thatorganizations (particularly transportation industries) use extremelysophisticated models to manage their yield. The risks andchallenges of yield management are great, particularly from amarketing, positioning, and image perspective. Dealing withunrealistic price expectations (when customers get a low price onetime and must pay more at a later date) is also a challenge. Theserisks and challenges are enumerated in the text.

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8. How might yield management apply in the management of the following: a Broadwaytheater? A consulting firm? A commuter train?

In each of these cases, the students should first identify theconstraint on capacity (e.g., seats, time/hours or cars/seats,respectively) and the underlying demand patterns. Then they canbegin to explore how pricing might be used to offer the service atdifferent price levels to different market segments at varioustimes. They should keep in mind the goal of yield management tomaximize revenue producing potential at any given time and to makeoptimal use of capacity. This discussion can be followed up with amore structured discussion/lecture on the risks and challenges ofyield management.

9. Describe the four basic waiting line strategies, and give an example of each one,preferably based on your own experiences as a consumer.

The four basic strategies are:

Employ operational logic - This strategy can involve a “one time fix”(see Chapter 9), where the organization observes that it has awaiting problem and focuses in on designing processes andsystems to reduce waiting as much as possible. If waiting isinevitable, then the queuing system should be designed in anoptimal way from an operational perspective. See Figure 14.6for some common options.

Establish a reservation process - This strategy involves essentially“inventorying demand” by asking customers to reserve a placeor time for service. The idea here is to avoid waiting linesby having customers arrive at predictable times geared to someoptimal use of capacity.

Differentiate waiting customers - This strategy differentiates customerson various criteria to determine who should be served first.Common criteria are: first-come, first served; segmentation byimportance of the customer; urgency of the need for service;length of the service transaction; and payment of a premiumprice.

Make waiting fun, or at least tolerable - This strategy offers a variety ofpossibilities based on “psychology of waiting lines” theoriesdiscussed in the text.

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Company LocationAmerican Airlines www.AA.comAustrian Airlines www.austrianair.comCemex www.cemex.comMarriott International www.marriotthotels.comNeoIT www.neoit.com Ritz Carlton Phoenix www.ritzcarlton.com/hotels/

phoenix/Yellow Freight Systems www.yellowfreight.com




From other sources:

Grupo IUSACELL (A) [Harvard Business School Case 9-395-028, 1994]

Marriott Rancho Las Palmas Hotel [Harvard Business School Case 9-581-084, revised 1988]

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http://www.yellowfreight.com/

www.ritzcarlton.com/hotels/phoenix/

www.ritzcarlton.com/hotels/phoenix/

http://www.neoit.com/


http://www.cemex.com/

http://www.austrianair.com/

http://www.AA.com/

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CHAPTER 15: INTEGRATED SERVICES MARKETING COMMUNICATIONS

CHAPTER TOPICS

The Need for Coordination in Marketing Communication Key Reasons for Service Communication Problems Four Categories of Strategies to Match Service Promises with

Delivery Exceeding Customer Expectations: Caveats and Strategies Technology Spotlight: Does the Banner Still Wave in Internet Advertising? Global Feature: Language as a Cultural Barrier in Services Marketing Communications

CHAPTER OBJECTIVES

1. Introduce the concept of integrated services marketing communicationand discuss the key reasons for service communication problems.

2. Present four key ways to integrate marketing communications in service organizations.

3. Present specific strategies for managing promises, managing customerexpectations, educating customers, and managing internal communications.

4. Provide perspective on the popular service objective of exceeding customer expectations.

LECTURE TIPS & AIDS

1. To assist in the discussion of integrated services marketingcommunications, the instructor might bring in to class 4-6 printadvertisements for services and have students critique them usingthe criteria suggested in the chapter. The advertisements could be(1) all from one company, (2) all for one type of service provider,or (3) a group of very good (or very poor) ads. A discussion of thepositioning strategy in each ad could serve as a review for variousservices marketing concepts discussed during the course. If theInternet is accessible in the classroom, the instructor could also“bring in” to class various Internet ads for similar discussion.

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Alternatively, this activity could be combined with Active LearningActivity 2 (see below) and the students could be responsible forleading the discussion.

2. If the classroom has access to the Internet, visit the following Websites to evaluate whether the company is using integrated servicesmarketing communications:

www.kraftfoods.com www.fedex.com www.intuit.com www.jobnavy.com

What are the strengths of each in terms of integrated externalmarketing communications? Is there evidence of integratedinteractive marketing communications?


1. Go to the Mail Boxes, Etc. (MBE) Website at www.mbe.com. Exploreeach area of the site and make a list of the types of informationyou can find based on the three categories of marketingcommunication (external, interactive, internal) discussed in thischapter. What additional information would you find useful on thesite?

2.Find five effective service advertisements in newspapers andmagazines. According to the criteria given in this chapter,identify why they are effective. Critique them using the list ofcriteria and discuss ways they could be improved.

3.Debate the issue of exceeding customer expectations with anotherperson or group in the class. One of the groups or individualsshould be for establishing a company goal of exceeding customerexpectations and one should be against establishing such a goal.What company evidence can you provide for your side of theargument?


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1. Think of another services company that provides integrated services marketing communications. Is it as comprehensive as Mail Boxes, Etc. as described in the opening vignette? Why or why not?

Students will often think about the services they know well such asMcDonald’s, IBM, AT&T, MCI, and Burger King. The selections willvary. In any case, unless they choose Federal Express or HewlettPackard, the integrated services marketing communications will notbe as good as Mail Boxes, Etc. Looking at the Web sites of theirselections will demonstrate this but, for the most part, thequestion is an opinion question and the discussion (not the exactanswer) is where the value is.

2. Which of the key reasons for provider gap 4 discussed in the beginning of this chapter is theeasiest to address in a company? Which is the hardest to address? Why?

The easiest of the four reasons for gap 4 to address is probablyinsufficient customer education. The reason this is the easieststrategy is that it can be prepared and executed by the marketingdepartment; armed with tangible information to give the customer,contact personnel can, at a minimum, distribute this information.The more involved contract personnel are in education, of course,the more effective the strategy. Probably the most difficult gap 4reason to address is inadequate management of customer promises.This reason requires coordination and cooperation across all partsof the organization that are involved with making and delivering oncustomer promises, including advertising, sales, operations andhuman resources.

3. Review the four general strategies for achieving integrated services marketingcommunications. Would all of these be relevant in goods firms? Which would be mostcritical in goods firms? Which would be most critical in services firms? Are there anydifferences between those most critical in goods firms and those most critical in servicesfirms?

The four strategies would be relevant in goods firms but to a lesserdegree. In pure goods firms, internal communication would not be asimportant as in services firms. Having internal functionscommunicate in the design or redesign of a good is, of course,critical but once the good is created a continual dialogue is notessential as it is in services firms. Probably the most criticalstrategies in goods firms are managing customer expectation andproviding sufficient customer education if the good is complex.

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4. What services do you know that advertise on the Internet? What are the most effectiveInternet advertisements you have seen? Why are they effective?

This question is completely open-ended and will be very time-sensitive. Services advertising changes quickly and, for thatreason, there is no single right answer to this question. Among thecategories where good advertising occurs are films (go to any siteadvertised on television for a particular movie), music, andtelevision shows.

5. Review Exhibit 15.2 on basic marketing communication principles. Are there any otherdifferences (besides those we discussed in the chapter) between the way these work withgoods and services?

This is an open-ended question that requires the students to thinkcritically and from their own experience. In our experience, thereare no other major differences that have been documented by researchor discussed in the literature, but the give and take from studentdiscussion on this question allows the instructor to make sure thatstudents understand goods-services differences. For the most partcommunication principles are valid with services, except for thedifferences introduced by intangibility, heterogeneity, andinseparability.

6. Using the section on managing customer expectations, put yourself in the position of yourinstructor who must reduce the amount of “service” provided to the students in your class.Give an example of each strategy in this context. Which of the strategies would work bestwith you (the student) in managing your expectations? Why?

While students will have a variety of their own ideas on thisquestion, here is an example of each strategy:

Offer choices. If students believe that the instructor has assignedtoo much work, one strategy might be to tell the students thatthey have a choice of completing all the work assigned andearning the highest possible grade in the course (assuming thatthe quality is present) or completing one less assignment for adrop in letter grade. Many instructors make this offer toexecutive MBA students who are very busy. They feel that thetradeoff between grade and work is very fair.

Create tiered-value offering. In this option, the instructor could layout different levels of requirements (in terms of rigor) forstudents. The lowest tier, for those students who simply want to

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pass the course, would have shorter papers, lower hurdles fortest marks, etc. In the upper tiers, students would be requiredto achieve higher levels on tests and complete longer papers.

Communicate criteria for service effectiveness. One of the best ways theinstructor executes this strategy is through the class syllabus.Clearly explaining the criteria for grades and requirements tellsstudents in advance what will be expected of them.

Negotiate unrealistic expectations. Students often have many unrealisticexpectations—that they will not have to come to class and stillget full participation grades, that they will be able to turn inassignments late, and/or that they will be exempted from classrequirements while they take a two-week vacation during the schoolyear. These unrealistic expectations can be addressed early ifthey are elicited at the beginning of the semester.

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7. Why is internal marketing communication so important in service firms? Is it important inproduct firms?

Internal marketing is so important in service firms because itenables interactive marketing communication. It provides the tools—training, communication, resources, support personnel, teamwork,incentives, among other factors—to motivate and prepare contactpersonnel to provide outstanding interactive service. Interactivemarketing communication is not present in goods situations unlessthere is service associated with the good (such as selling orservicing). In such situations, of course, we would be dealing withservices surrounding the goods not the goods themselves.

8. Which form of internal marketing communication—vertical or horizontal—would you investin if you had to select between them as an organization’s CEO? Why?

Vertical communication would seem to be the first priority, for ifservices employees did not know what they were supposed to do theresult would be chaos. Once a certain level of verticalcommunication has been established, horizontal communication isnecessary.

9. What other strategies can you add to the four offered in the section on customer education?What types of education do you expect from service firms? Give an example of a firm fromwhich you have received the adequate education. What firm has not provided you withadequate education?

Other strategies include: (1) educating customers throughout theservice process, perhaps after each major step; (2) developing anongoing customer education program through direct mail or theInternet; (3) provide customers incentives for being knowledgeableabout the company; and (4) encourage a dialogue between customersand the company so that the company understands what customers needto know.


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Company LocationAmerican Broadcasting Company, Inc.

www.abc.com

Best Western International www.bestwestern.com CBS Worldwide, Inc. www.cbs.com Mail Boxes, Etc. www.mbe.com Marriott International www.marriotthotels.com Web sites for fan clubs of students’ favorite musical groupsCurrent movie web sites




From other sources:

Bronner Slosberg Humphrey [Harvard Business School Case 9-598-136, 1998; Teaching Note 5-598-141, 1998]

Earle Palmer Brown (A) and (B) [Harvard Business School Cases 9-398-012, 1997 (A) and 9-398-014, 1997 (B)]

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http://www.mbe.com/

http://www.cbs.com/

http://www.bestwestern.com/

http://www.abc.com/

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CHAPTER 16:PRICING OF SERVICES

CHAPTER TOPICS

Three Key Ways Service Prices are Different for Consumers Approaches to Pricing Services Pricing Strategies That Link to the Four Value Definitions Technology Spotlight: With Dynamic Pricing, the Internet Allows Price Adjustments

Based on Supply and Demand Global Feature: Unique Pricing Around the World

CHAPTER OBJECTIVES

1. Discuss three major ways that service prices differ from goods prices for customers.

2. Demonstrate what value means to customers and the role that price plays in value.

3. Articulate the key ways that pricing of services differs from pricing of goods.

4. Delineate strategies that companies use to price services.

5. Give examples of pricing strategy in action.

LECTURE TIPS & AIDS

1. To illustrate the difficulty in pricing services, an example manystudents may have fun discussing is creative dating services. Inparticular, a company could (theoretically) help someone plan andexecute a creative date. A creative date might include a date basedupon a particular theme (e.g., a red date where the participantsdress in red, drive a red car, go to “Red Robin” restaurant, eat redmeat, drink red wine, and watch the movie “Reds”), a catered wineand cheese picnic in the park, or an ABC date (e.g., doing somethingfor each letter of the alphabet, such as Acting out your favoritemovie scenes, Bragging about a childhood accomplishment, Chugging aCoke, Driving downtown, etc.). The major discussion could center on

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what a provider should charge for assisting a client in creating acreative date. Many of the pricing issues identified in the chaptercould be discussed. For example:

What value would you (as a customer) put on such a service?

Should a provider of creative dates set the price based upon costs, competition, or demand?

If pricing is based on costs, should it be for the provider’stime in dreaming up (i.e., creating the date), the time ittakes to execute the date, and/or the amount of involvement ofthe client in the process?

Should the service fee be based on the satisfaction of thecouple experiencing the date?

Should the fee be based on the client’s ability to pay? Thatis, should students pay less for this service thanprofessionals?

If you were the customer, what references might you use indetermining whether the price being charged was appropriate?(reference pricing)

[Note: A good book for background material on the topic is CreativeDating by Doug Fields and Todd Temple (1986) Nashville, TN: OliverNelson.]


1. Consumer frustration with the price haggling and high pressuretactics associated with car sales has led to several new types ofcompetitors in the industry. Identify these new competitors anddiscuss how technology and changing consumer demands have affectedthe channels of distribution for automobiles. (You may want to usethe Internet to do some information-gathering for this exercise.)

2. Working with a small group, decide on a specific service offering(like a haircut, automobile insurance, or listing a home through arealtor) and complete the following steps:

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Discuss how consumers compare the different providers for theservice you chose. Is price an important factor? If so, docustomers know the prices of different competitors’ offerings?How do they compare them?

Collect pricing information for your service by assuming therole of a potential customer. How did you find out theinformation? Was it easy to compare the prices ofcompetitors’ services? What other cues did you use to makeinferences about the desirability of the different offerings?

Be prepared to analyze your service in class and to compare itto other groups’ services with regards to pricing issues.

3. Read “Capturing the Value of Supplementary Services” [James C.Anderson and James A. Narus (1995). “Capturing the Value ofSupplementary Services.” Harvard Business Review. January-February:75-83.]. Be prepared to identify a few points that interested youand to describe how the article material relates to the concepts onpricing presented in Chapter 16.


1. Which approach to pricing (cost-based, competition-based, or demand-based) is themost fair to customers? Why?

Cost-based pricing is likely to be the fairest approach tocustomers. Costs are based on the direct and labor costs to providethe service, which should be fairly similar across providers. Ifall service suppliers in an industry use cost-based pricing, theirprices will be similar to each other. Demand-based andcompetition-based pricing tend to result in greater pricedifferentials and can be unrelated to the costs of providing theservices, both of which may be less fair to customers.

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2. Is it possible to use all three approaches simultaneously when pricing services? If youanswer yes, describe a service that is priced this way.

Yes, it is possible to use all three pricing approachessimultaneously. In fact, most pricing decisions do involve morethan one approach either in the price strategy itself or in thetactics taken to create the final price. Pricing of a hotel room isone example where a combination of methods is used. First, thehotel room is priced according to the costs spent to create it usinga formula that is fairly widespread throughout the industry. Next,competition with other hotels in the area is factored in, typicallyby pricing the hotel rooms either at the same rates or slightlylower. Finally, rates vary based on time of year, season, andlocation of the room within the hotel, all demand-based factors.

3. For what consumer services do you have reference prices? What makes these servicesdifferent from others for which you lack reference prices?

Among the services that students may have reference prices for aredry cleaning, fast food, and parking—services which are fairlystandardized and are consumed frequently enough that students arefamiliar with the costs. The standardized and familiar aspects ofthese prices make them different from others for which students lackreference prices. Examples of services where most people lackreference prices are particular types of automobile repair, unusualvacations, or braces for a child’s teeth. In a general sense,however, any customer who purchases the services frequently willcome to have a reference price for them.

4. Name three services you purchase in which price is a signal to quality. Do you believethat there are true differences across services that are priced high and those that are pricedlow? Why or why not?

Among the services for which price is a signal to quality are spafitness vacations, some medical services, and legal services. Insome cases, there are true differences between services priced highand those priced low; sometimes the prices are established based ondemand for the services and better services are in higher demand.In other cases, however, the pricing is a strategic decision thatdoes not really represent innate differences in the services butinstead is done in an attempt to position the service in the mindsof customers. A study was conducted by researchers to examinewhether there was a significant relationship between the actual

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value of products and services and the prices set for them, and norelationship was found.

5. Describe the non-monetary costs involved in the following services: getting an automobileloan; belonging to a health club; having allergies diagnosed and treated; attending anexecutive education class; and getting braces.

Getting an automobile loan involves the psychic cost of getting acredit check, something that can be painful to many customers.Belonging to a health club has the highest costs associated with thetime it takes to work out. Having allergies diagnosed and treatedinvolves actual pain (from the needles!) and psychic costsassociated with getting the treatment. Attending an executiveeducation class involves time and energy costs. Getting braces is acomplicated, drawn-out process that involves time costs (going tothe dentist many times), psychic costs (again, no one likes visitingthe dentist!), opportunity costs (how many dates am I missingbecause of these braces?), and physical costs (the pain, the pain!).

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6. Consider the specific pricing strategies for each of the four customer value definitions.Which of these strategies could be adapted and used with another value definition?

Most of the strategies could be (and frequently are) coupled withthe low price strategies for introductory offers when services arefirst introduced. However, the low price strategies do not fit wellwith prestige pricing or skimming pricing—service marketers would beneedlessly reducing their profit margins in these cases. Oneexample of successful coupling of the strategies is marketsegmentation pricing and synchro-pricing, where the synchro-pricingis based on an underlying price-sensitive market segmentationframework.


Company LocationuBid.com www.ubid.com Ebay www.eBay.com Expedia.com www.expedia.com First Auction.com www.firstauction.com Priceline.com www.priceline.com Charles Schwab & Company www.schwab.comTravelocity www.travelocity.com







North Pittsburgh Telephone Company – Case 7

From other sources:

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http://www.firstauction.com/

http://www.expedia.com/


http://www.ubid.com/

DHL Worldwide Express [Harvard Business School Case 9-593-011, 1994; Teaching Note 5-594-094, 1994]

La Grand Alliance [Harvard Business School Case 9-175-266, 1998]

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CHAPTER 17:THE FINANCIAL AND ECONOMIC IMPACT OF SERVICE

CHAPTER TOPICS

Service Quality and Profitability: The Direct Relationship Offensive Marketing Effects of Service: Attracting More and Better

Customers Defensive Marketing Effects of Service: Customer Retention Customer Perceptions of Service and Purchase Intentions The Key Drivers of Service Quality, Customer Retention, and Profits Technology Spotlight: Enterprise Software Allows Companies to Link All Internal

Databases to Make Strategic Decisions Global Feature: Key Drivers of Banking Retention and Defection in the United Kingdom

CHAPTER OBJECTIVES

1. Examine the direct effects of service on profits.

2. Consider the impact of service on getting new customers.

3. Evaluate the role of service in keeping customers.

4. Examine the link between perceptions of service and purchase intentions.

5. Discuss what is known about the key service drivers of overall service quality, customer retention, and profitability.

6. Present a model called the balanced performance scorecard that allows for strategic focus measurements other than financials.

LECTURE TIPS & AIDS

1. Have students read the articles, “The Service-Profit Chain” and “TheEmployee-Service Profit Chain at Sears” and discuss how service,employee attitudes, and profit are related.

2. Use the Balanced Performance Scorecard for Charlotte in the back ofthe chapter as a model and develop one for the business school they

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attend. How difficult is this exercise? What might be the problemsinvolved with its implementation?

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1. On the Internet, use a search engine to locate three companies thatmake enterprise software. (Alternatively, you could find the Websites of three of the companies listed in the Technology Spotlightin Chapter 17.) Include SAP, the industry leader, as one of thecompanies. What are the software companies’ current offerings? Howcan the software firms help individual companies understand theconcepts and relationships discussed in this chapter? Which of thethree companies would you select based on the information youlocate?

2. Interview a local firm and see what they know about the key driversof financial performance for their firm. What are the key servicedrivers of the firm? Does the company know whether these relate toprofit?

3. Select a service industry (such as fast food) or company (such asMcDonald’s) you are familiar with, either as a customer or employee,and create a balanced scorecard. Describe the operational,customer, financial, and learning measures that could be used tocapture performance.


1. Why has it been difficult for executives to understand the relationship between service improvements and profitability in their companies?

One of the main reason it has been difficult for executives tounderstand the relationship between service improvements andprofitability is that expenditures on service do not have animmediate, evident impact. Service improvements are cumulative,like advertising, and take several years to be demonstrated.Furthermore, service is but one of many variables that is changingin an organization at any given time: pricing, advertising, product,distribution, and many other factors are not constant but are alsoin flux. Therefore, without a rigorous method to trace the effectsof any or all of these variables, executives could not tell what wasworking and what was not. Finally, proper execution of service (anexecution on the right service factors) is what matters rather thanspending on service. Executives who are held accountable for theirexpenditures are often looking for payback in hard financial terms

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and have not been able to factor in the qualitative aspects ofservice such as quality of execution.

2. What is the ROQ model and what is its significance to corporate America?

Return on Quality (RQQ) is a revolutionary way to examine the impactof service changes on financial variables in a firm. It offers arigorous method to track the impact of what is spent on service tothe bottom line. It can also examine the effectiveness of serviceexecution by including service quality perceptual surveys. Themethod is significant because it is the first fully comprehensiveand rigorous model to allow executives to answer the question, “Whatdo I get back in the bottom line when I spend money on service?”

3. To this day, many companies believe that service is a cost rather than a revenue producer.Why might they hold this view? How would you argue the opposite view?

Companies believe that service is a cost because they have nottraditionally had ways to track the return or payback on thestrategy. The way to argue the opposite view is to discuss all therecent evidence presented in this chapter that service quality isrelated to profits or to variables that lead to profits (word ofmouth, market share, customer retention, etc.).

4. What is the difference between offensive and defensive marketing? How does service affecteach of these?

Offensive marketing means getting new customers while defensivemarketing involves retaining the ones a company already has. Themain figure in the chapter shows how service quality affects each ofthe two types of marketing. Service quality affects offensivemarketing by increasing marketing share, allowing a company tocommand a higher price, and improving the firm’s reputation, all ofwhich lead to higher sales. Service quality affects defensivemarketing by leading to customer retention, which in turn leads tolower costs, higher purchases, price tolerance and positive word ofmouth. These lead to higher margins and then to higher profits.

5. What are the main sources of profit in defensive marketing?

The main sources of profit in defensive marketing are reduced costs(marketing, administrative and sales costs, for example, that do nothave to be expended with existing customers), higher purchasevolumes, higher price tolerance and positive word of mouth.

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6. What are the main sources of profit in offensive marketing?

The main sources of profit in offensive marketing are a positivereputation and higher price tolerance, both of which lead to highermarket share and more sales.

7. How will the balanced performance scorecard help us understand and document theinformation presented in this chapter? Which of the five sections that discuss differentaspects of the relationship between service quality and profits can it illuminate?

The Balanced Performance Scorecard will provide actual measurementsthat allow us to validate the relationships in this chapter. Ratherthan speculation, which prevailed in the 1980s, we will have data tolook at the relationships. All of the relationships, with theexception of the “servicing profitable customers” section, can beilluminated with the balanced performance scorecard.

8. How can enterprise software help companies implement the balanced performancescorecard?

Enterprise software provides the means to collect the data for themeasures in the Balanced Performance Scorecard. While traditionalfinancial software has collected data about sales and profits, ithas stopped short of documenting all the different measurementsrelevant to the successful performance of a firm. Enterprisesoftware allows a company to gather financial information,operations data, marketing data and innovation and learning data,then—and this is critical to our chapter—relate it allstatistically.

9. What is your evaluation of the balanced performance scorecard that Charlotte, NorthCarolina, developed to help it set strategic direction?

Students will have different views on this topic. One possiblecriticism is that the measurement are vague—they are at a high levelof abstraction and would be much more effective if they were moreconcrete. They serve now as an important statement of strategicdirection but could be improved in terms of becoming “measures.” Itis possible the city left the measures this way deliberately so thatthey could be interpreted differently by the various departmentsinvolved in the program.

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Company LocationBank of America Corporation www.bofa.com GE Capital Services www.gecapital.com The Limited www.limited.com Oracle Corporation www.oracle.comSAP www.sap.comSAS Institute www.sas.comQwest www.qwest.com




From other sources:

Chemical Bank: Implementing the Balanced Scorecard [Harvard Business School Case 9-195-210, 1999; Teaching Note 5-198-090, 1998]

Grupo IUSACELL (A), [Harvard Business School Case 9-395-028, 1994]


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http://www.qwest.com/

http://www.sas.com/

http://www.sap.com/

http://www.oracle.com/

http://www.limited.com/

http://www.gecapital.com/

http://www.bofa.com/

CHAPTER 18: THE INTEGRATED GAPS MODEL OF SERVICE QUALITY

CHAPTER TOPICS

Closing the Customer Gap Provider Gap 1: Not Knowing What Customers Expect Provider Gap 2: Not Having the Right Service Quality Designs and

Standards Provider Gap 3: Not Delivering to Service Standards Provider Gap 4: When Promises Do Not Match Performance Putting It All Together: Closing the Gaps

CHAPTER OBJECTIVES

1. To overview the framework of the book and the gaps model of service quality

2. To identify the factors responsible for each of the gaps.

LECTURE TIPS & AIDS

1. One way to get the class more actively involved in the discussion ofthe Gaps model is to get them to discuss the various pieces of themodel. There are two ways to split the class for such a discussion,depending on the size of the class. For relatively small classes,one way is to divide the class into five groups and have themdiscuss each of the five gaps presented in the chapter. For largerclasses, the class could be split into 15 groups to cover each ofthe 15 chapters (Chapters 2 through 16) that are further breakdownsof the Gaps model. An outline of the chapters and topics isprovided below.

The Customer GapChapter 2 – Consumer Behavior in ServicesChapter 3 – Customer Expectations of ServiceChapter 4 – Customer Perspectives of Service

Gap 1 – Not Knowing What Customers ExpectChapter 5 – Understanding Customer Expectations Through

Marketing Research

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Chapter 6 – Building Customer RelationshipsChapter 7 – Service Recovery

Gap 2 – Not Having the Right Service Quality Designs and StandardsChapter 8 – Service Development and DesignChapter 9 – Customer-Defined Service StandardsChapter 10 – Physical Evidence and the Servicescape

Gap 3 – Not Delivering to Service StandardsChapter 11 – Employees’ Roles in Service DeliveryChapter 12 – Customers’ Roles in Service DeliveryChapter 13 – Delivering Service Through Intermediaries and

Electronic ChannelsChapter 14 – Managing Demand and Capacity

Gap 4 – Not Matching Performance to PromisesChapter 15 – Integrated Services Marketing CommunicationsChapter 16 – Pricing of Services

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Each group would be given three to eight minutes (depending on thenumber of groups) and asked to discuss the following:

Provide a review/summary of the topic assigned. Provide examples (ideally new ones) to illustrate the

concepts/issues from the assigned topic. Discuss how the assigned topic relates to the Gaps model. Suggest ways (key strategies) that could be used to close a

gap in the model.


1. Choose an organization to interview and use the integrated gapsmodel of service quality as a framework. Ask the manager whetherthe organization suffers from any of the factors listed in thefigures in this chapter. Which factor in each Figure 18.3 through18.6 does the manager consider the most troublesome? What does thecompany do to try to address these problems?

2. Use the Internet to locate the Website of Walt Disney, Marriott,Ritz Carlton, or any other well-known high quality serviceorganization. Which of the provider gaps does it appear the companyhas closed? How can you tell?

3. Interview a nonprofit or public sector organization in your area (itcould be some part of your school if it is a state school). Findout if the integrated gaps model of service quality framework makessense in the context of their organizations.


1. If you were the manager of a service organization and wanted to apply the gaps model toimprove service, which gap would you start with? Why? In what order would you proceedto close the gaps?

The most efficient way to use the gaps model is to begin withprovider gap 1, determining what customer expectations are. Thisapproach allows the company to concentrate on the factors that willhave the greatest impact on improving service quality. Followingthe gap 1 with gap 2, then gap 3 is the best progression. Gap 2ideally would result in service design and service standards thatare based on gap 1’s findings about customer expectations. Then gap

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3, the most complicated gap to close, would be informed by what isfound in the first two gaps.

2. Can provider gap 4 be closed prior to closing any of the other three provider gaps? How?

Gap 4, which deals with lowering customer expectations, can beclosed at any time. While the first three gaps are concerned withraising company performance to meet expectations, gap 4 aims tolower customer expectations to meet perceptions. The two approachesto closing the customer gap operate on different principles andtherefore can occur independently. Incidentally, closing gap 4 canbe more economical than closing the other gaps.

3. Which of the four provider gaps do you believe is hardest to close? Why?

Gap 3 is the hardest to close because it requires coordination ofall of the human resources issues in a company—training, incentives,communication, hiring, teamwork, and empowerment. Changing any oneof these is difficult but changing them all, and getting themcoordinated with each other, is extremely challenging. In additionto the employee factors that must be considered in closing gap 3,the customer must be managed.

4. Using Figure 18.3, return to Chapters 5, 6, and 7 and make a chart that lists the strategies that address each of the key factors.

Inadequate Market Research Orientation

Add marketing research strategies shown in Exhibit 5-2, being certain to include ones that focus on service quality.

Make sure that marketing research is used in the organization.

Lack of Upward Communication

Increase interaction between management and customers using the strategies discussed in Chapter 5.

Remove layers between contact personnel and top management.

Insufficient Relationship Focus

Use market segmentation to identify differentgroups of customers.

Focus on relationships rather than transactions.

Focus on existing customers as well as new

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customers.Inadequate Service Recovery

Develop systems for handling service when reliability failures happen (which is inevitable).

Recognize that service recovery keeps customers, and that lack of service recovery loses customers.

5. Using Figure 18.4, return to Chapters 8, 9, and 10 and make a chart that lists the strategiesthat address each of the key factors.

Poor Service Design Use service blueprinting to create a systematic new service development process.

Refine vague service designs using the help of employees and customers.

Relate service design to service positioning.Absence of Customer-designed Standards

Replace company-designed services standards with customer-designed standards.

Create process management that focuses on customer requirements.

Develop formal processes for setting service quality goals.

Follow the process for setting customer-defined service standards developed in the chapter.

Inappropriate Physical Evidence and Servicescape

Understand the role played by the servicescape in establishing quality expectations and facilitating service delivery.

Conduct customer and employee research to understand the appropriate servicescapes.

Create servicescapes in accordance with customer and employee expectations.

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6. Using Figure 18.5, return to Chapters 11 through 14 and make a chart that lists thestrategies that address each of the key factors.

Deficiencies in Human Resource Policies

Create more effective recruitment policies that select employees with service capabilities.

Reduce role ambiguity and role conflict with clear communications.

Create evaluation and compensation systems that reward employees for service rather thanjust productivity.

Empower employees. Facilitate teamwork.

Failure to Match Supplyand Demand

Use marketing strategies to smooth peaks and valleys in demand.

Adjust the customer mix to use service capacity at non-peak times.

Customers Not Fulfilling Roles

Inform customers of their roles and responsibilities.

Be sure that customers are not negatively affecting each other.

Problems with Service Intermediaries

Use control, partnering or empowerment strategies to eliminate channel conflict overobjectives and performance.

Eliminate channel conflict over costs and rewards.

Use service standards and incentives to control quality and consistency.

Balance the tension between empowerment and control.

7. Using Figure 18.6, return to Chapters 15 and 16 and make a chart that lists the strategiesthat address each of the key factors.

Lack of Integrated Services Marketing Communications

View external communications as one part of an overall strategy that also includes interactive marketing communication and internal marketing communication.

Develop a strong internal marketing program.Ineffective Management Educate customers.

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of Customer Expectations

Make realistic promises. Negotiate unrealistic promises. Reset customer expectations when necessary.

Overpromising Assure that advertising makes accurate promises.

Assure that personal selling matches what will be delivered.

Assure that physical evidence cues match the quality of what will be provided.

Inadequate Horizontal Communications

Open he channels of communication between sales and operations.

Open the channels of communication between advertising and operations.

Assure that policies and procedures across branches or units are the same.


Company LocationThe Walt Disney Company www.disney.com Marriott International www.marriotthotels.com Intuit www.intuit.com




From other sources:


PeopleSoft (1996), available through ITSMA [Information Technology Services Marketing Association, One Militia Drive, Suite 4, Lexington, MA; (781) 862-8500]

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http://www.intuit.com/



Paul Revere Insurance [Harvard Business School Case 9-687-013, 1988]

Scott Cook and Intuit [Harvard Business School Case 9-396-282, 1997]

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Documents

SECTION 3 INSTRUCTION AIDS