McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved

McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved


Chapter

1 Introduction to Services

• What are services?• Why services marketing?• Service and Technology• Differences in Goods vs. Services Marketing • Services Marketing Mix• Staying Focused on the Customer• The Gaps Model of Service Quality


A note on the PowerPoint Slides...

• These PowerPoint slides contain selected exhibits, figures and tables from the chapters as well as objectives for the chapters. For many chapters, we include extra lecture slides and in-class exercises that we have compiled and used in our classes. The lecture slides are not intended to provide full outlines or complete lectures for the chapters, but rather may be used selectively to enhance class sessions.


Objectives for Chapter 1:Introduction to Services

• Explain what services are and identify service trends.

• Explain the need for special services marketing concepts and practices.

• Outline the basic differences between goods and services and the resulting challenges for service businesses.

• Introduce the service marketing triangle.• Introduce the expanded services marketing mix.• Introduce the gaps model of service quality.


Challenges for Services

• Defining and improving quality• Communicating and testing new services• Communicating and maintaining a consistent

image• Motivating and sustaining employee commitment• Coordinating marketing, operations and human

resource efforts• Setting prices• Standardization versus personalization


Examples of Service IndustriesExamples of Service Industries

• Health Care– hospital, medical practice, dentistry, eye care

• Professional Services– accounting, legal, architectural

• Financial Services– banking, investment advising, insurance

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

• Travel– airlines, travel agencies, theme park

• Others:– hair styling, pest control, plumbing, lawn maintenance,

counseling services, health club


Figure 1.1Tangibility Spectrum

TangibleDominant

IntangibleDominant

SaltSoft Drinks

DetergentsAutomobiles

Cosmetics

AdvertisingAgencies

AirlinesInvestment

ManagementConsulting

Teaching

Fast-foodOutlets

Fast-foodOutlets


0

10

20

30

40

50

60

70

80

1929 1948 1969 1977 1984 1999

Perc

ent o

f U

.S. L

abor

For

ce

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

Year

Services Manufacturing Mining & Agriculture

Figure 1.2 Percent of U.S. Labor Force by Industry


0

10

20

30

40

50

60

70

80

1948 1959 1967 1977 1987 1999

Perc

ent o

f G

DP

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

Services Manufacturing Mining & Agriculture

Figure 1.3 Percent of U.S. Gross Domestic

Product by Industry


Table 1.1

Industries Classified within the Service Sector


Differences Between Goods and Services

Intangibility

PerishabilitySimultaneous

Productionand

Consumption

Heterogeneity


Implications of Intangibility

• Services cannot be inventoried

• Services cannot be patented

• Services cannot be readily displayed or communicated

• Pricing is difficult


Implications of Heterogeneity

• Service delivery and customer satisfaction depend on employee actions

• Service quality depends on many uncontrollable factors

• There is no sure knowledge that the service delivered matches what was planned and promoted


Implications of Simultaneous Production and Consumption

• Customers participate in and affect the transaction

• Customers affect each other

• Employees affect the service outcome

• Decentralization may be essential

• Mass production is difficult


Implications of Perishability

• It is difficult to synchronize supply and demand with services

• Services cannot be returned or resold


Table 1.3 Services are Different

Goods Services Resulting ImplicationsTangible Intangible Services cannot be inventoried.

Services cannot be patented.Services cannot be readily displayed or communicated.Pricing is difficult.

Standardized Heterogeneous Service delivery and customer satisfaction depend onemployee actions.Service quality depends on many uncontrollable factors.There is no sure knowledge that the service deliveredmatches what was planned and promoted.

Productionseparate fromconsumption

Simultaneousproduction andconsumption

Customers participate in and affect the transaction.Customers affect each other.Employees affect the service outcome.Decentralization may be essential.Mass production is difficult.

Nonperishable Perishable It is difficult to synchronize supply and demand withservices.Services cannot be returned or resold.

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


Services Marketing Mix:7 Ps for Services

• Traditional Marketing Mix

• Expanded Mix for Services: 7 Ps

• Building Customer Relationships Through People, Processes, and Physical Evidence

• Ways to Use the 7 Ps


Traditional Marketing Mix

• All elements within the control of the firm that communicate the firm’s capabilities and image to customers or that influence customer satisfaction with the firm’s product and services:– Product– Price– Place– Promotion


Expanded Mix for Services --The 7 Ps

• Product

• Price

• Place

• Promotion

• People

• Process

• Physical Evidence


Table 1.4Expanded Marketing Mix for Services

PRODUCT PLACE PROMOTION PRICE

Physical good features

Channel type Promotion blend

Flexibility

Quality level Exposure Salespeople Price level

Accessories Intermediaries Advertising Terms

Packaging Outlet location Sales promotion

Differentiation

Warranties Transportation Publicity Allowances

Product lines Storage

Branding


Table 1.4 (Continued)Expanded Marketing Mix for Services

PEOPLE PHYSICAL EVIDENCE

PROCESS

Employees

Facility design Flow of activities

Customers Equipment Number of steps

Communicating culture and values

Signage Level of customer involvement

Employee research Employee dress

Other tangibles


Ways to Use the 7 Ps

Overall Strategic Assessment– How effective is a firm’s

services marketing mix?

– Is the mix well-aligned with overall vision and strategy?

– What are the strengths and weaknesses in terms of the 7 Ps?

Specific Service Implementation– Who is the customer?

– What is the service?

– How effectively does the services marketing mix for a service communicate its benefits and quality?

– What changes/ improvements are needed?


Part 1

FOCUS ON THE CUSTOMER


PerceivedService

Expected Service

CUSTOMER

COMPANY

CustomerGap

GAP 1

GAP 2

GAP 3

External Communications

to CustomersGAP 4Service Delivery

Customer-Driven Service Designs and Standards

Company Perceptions of Consumer Expectations

Part 1 Opener

Gaps Model of Service Quality



• Customer Gap:– difference between expectations and perceptions

• Provider Gap 1:– not knowing what customers expect

• Provider Gap 2:– not having the right service designs and standards

• Provider Gap 3:– not delivering to service standards

• Provider Gap 4:– not matching performance to promisesPart 1 Opener


ExpectedService

PerceivedService

GAP

The Customer Gap

Part 1 Opener


Chapter

2 Consumer Behavior in Services

• 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


Objectives for Chapter 2:Consumer Behavior in Services

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

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

• Understand the roles of culture and group consumer behavior in services


Consumer Evaluation Processes for Services

• Search Qualities– attributes a consumer can determine prior to purchase

of a product

• Experience Qualities– attributes a consumer can determine after purchase (or

during consumption) of a product

• Credence Qualities– characteristics that may be impossible to evaluate even

after purchase and consumption


Figure 2.2

Continuum of Evaluation for Different Types of Products

Clo

t hin

g

Jew

elry

Fur

n itu

re

Hou

ses

Aut

omob

iles

Res

tau

rant

mea

ls

Vac

a tio

ns

Ha i

r cut

s

Ch i

ld c

a re

Tel

evis

ion

repa

ir

Leg

a l s

ervi

ces

Roo

t c a

nals

Aut

o re

pair

Med

ical

dia

gno

sis

Difficult to evaluateEasy to evaluate

{High in search

qualitiesHigh in experience

qualitiesHigh in credence

qualities

{{Most

GoodsMost

Services


Figure 2.3

Stages in Consumer Decision Making and Evaluation of Services


Categories in Consumer Decision-Making and Evaluation of Services

Information Search

Evaluation of Alternatives

Purchase and Consumption

Post-Purchase Evaluation

Use of personal sources Perceived risk

Evoked set Emotion and mood

Service provision as drama Service roles and scripts Compatibility of customers

Attribution of dissatisfaction Innovation diffusion Brand loyalty


Categories in Consumer Decision-Making and Evaluation of Services

Information Search

Evaluation of Alternatives

Purchase and Consumption

Post-Purchase Evaluation

Use of personal sources Perceived risk

Evoked set Emotion and mood

Service provision as drama Service roles and scripts Compatibility of customers

Attribution of dissatisfaction Innovation diffusion Brand loyalty

Culture Values and attitudes Manners and customs Material culture Aesthetics Educational and social

institutions


Global Feature: Differences in the Service Experience in the U.S. and Japan

• Authenticity

• Caring

• Control Courtesy

• Formality

• Friendliness

• Personalization

• Promptness


Chapter

3 Customer Expectationsof Service

• Meaning and Types of Services Expectations

• Factors that Influence Customer Expectations of Service

• A Model of Customer Service Expectations

• Issues Involving Customer Service Expectations


Objectives for Chapter 3:Customer Expectations of Service

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

• Discuss controllable and uncontrollable sources of customer expectations.

• Distinguish between customers’ global expectations of their relationships and their expectations of the service encounter.

• Acknowledge that expectations are similar for many different types of customers.

• Delineate the most important current issues surrounding customer expectations.


Figure 3.2Possible Levels of Customer Expectations


Adequate Service

Desired Service

Figure 3.3Dual Customer Expectation Levels


Adequate Service

Desired Service

Zone ofTolerance

Figure 3.4 The Zone of Tolerance


Most Important Factors Least Important Factors

Level of

Expectation

Source: Berry, Parasuraman, and Zeithaml (1993)

Adequate Service

Desired Service

Zone ofTolerance

Zone of

Tolerance

Desired Service

Adequate Service

Figure 3.5

Zones of Tolerance forDifferent Service Dimensions


First-Time Service

Outcome

Process

Outcome

Process

Recovery Service

ExpectationsLOW HIGH

Source: Parasuraman, Berry and Zeithaml (1991)

Zones of Tolerance forFirst-Time and Recovery Service


Enduring ServiceIntensifiers

Personal NeedsZone

of Tolerance

Desired Service

Adequate Service

Figure 3.6

Factors That InfluenceDesired Service


Self-PerceivedService Role

Situational Factors

Perceived ServiceAlternatives

Transitory ServiceIntensifiers

Zone of

Tolerance

Desired Service

Adequate Service

Figure 3.7

Factors That InfluenceAdequate Service


Predicted Service

Explicit ServicePromises

Implicit ServicePromises

Word-of-Mouth

Past ExperienceZone

of Tolerance

Desired Service

Adequate Service

Figure 3.8

Factors That InfluenceDesired and Predicted Service


Chapter

4 Customer Perceptionsof Service

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

Satisfaction and Service Quality• Strategies for Influencing Customer

Perceptions


Objectives for Chapter 4:Customer Perceptions of Service

• Provide you with definitions and understanding of customer satisfaction and service quality.

• Show that service encounters or the “moments of truth” are the building blocks of customer perceptions.

• Highlight strategies for managing customer perceptions of service.


Figure 4.1

Customer Perceptions of Service Quality and Customer Satisfaction


Factors Influencing Customer Satisfaction

• Product/service quality

• Product/service attributes or features

• Consumer Emotions

• Attributions for product/service success or failure

• Equity or fairness evaluations


Outcomes of Customer Satisfaction

• Increased customer retention

• Positive word-of-mouth communications

• Increased revenues


Figure 4.3 ASCI and Annual Percentage Growth

in S&P 500 Earnings

Source: C. Fornell “Customer Satisfaction and Corporate Earnings,“ commentary appearing on ACSI website, May 1, 2001,http://www.bus.umich.edu/research/nqre/Q1-01c.html.


Figure 4.4 Relationship between Customer Satisfaction and

Loyalty in Competitive Industries

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


Service Quality

• The customer’s judgment of overall excellence of the service provided in relation to the quality that was expected.

• Service quality assessments are formed on judgments of:– Outcome quality– Process quality– Physical environment quality


The Five Dimensions of Service Quality

Ability to perform the promised service dependably and accurately.

Knowledge and courtesy of employees and their ability to convey trust and confidence.

Physical facilities, equipment, and appearance of personnel.

Caring, individualized attention the firm provides its customers.

Willingness to help customers and provide prompt service.

Tangibles

Reliability

Responsiveness

Assurance

Empathy


Exercise to Identify Service Attributes

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

Reliability:

Assurance:

Tangibles:

Empathy:

Responsiveness:


Providing service as promised Dependability in handling customers’

service problems Performing services right the first time Providing services at the promised time Maintaining error-free records

Keeping customers informed as to when services will be performed

Prompt service to customers Willingness to help customers Readiness to respond to customers’

requests

RELIABILITY

RESPONSIVENESS

Employees who instill confidence in customers

Making customers feel safe in their transactions

Employees who are consistently courteous Employees who have the knowledge to

answer customer questions

ASSURANCE

Giving customers individual attention Employees who deal with customers in a

caring fashion Having the customer’s best interest at heart Employees who understand the needs of

their customers Convenient business hours

EMPATHY

Modern equipment Visually appealing facilities Employees who have a

neat, professional appearance

Visually appealing materials associated with the service

TANGIBLES

SERVQUAL Attributes


The Service Encounter

• is the “moment of truth”• occurs any time the customer interacts with the firm• can potentially be critical in determining customer

satisfaction and loyalty• types of encounters:

– remote encounters, phone encounters, face-to-face encounters

• is an opportunity to:– build trust– reinforce quality– build brand identity– increase loyalty


Check-InCheck-In

Request Wake-Up CallRequest Wake-Up Call

CheckoutCheckout

Bellboy Takes to Room Bellboy Takes to Room

Restaurant MealRestaurant Meal

Figure 4.5

A Service Encounter Cascade for a Hotel Visit


Sales CallSales Call

Ordering SuppliesOrdering Supplies

BillingBilling

Delivery and Installation Delivery and Installation

ServicingServicing

A Service Encounter Cascade for an Industrial Purchase


Critical Service Encounters Research

• GOAL - understanding actual events and behaviors that cause customer dis/satisfaction in service encounters

• METHOD - Critical Incident Technique

• DATA - stories from customers and employees

• OUTPUT - identification of themes underlying satisfaction and dissatisfaction with service encounters


Sample Questions for Critical Incidents Technique Study

• Think of a time when, as a customer, you had a particularly satisfying (dissatisfying) interaction with an employee of .

• When did the incident happen?

• What specific circumstances led up to this situation?

• Exactly what was said and done?

• What resulted that made you feel the interaction was satisfying (dissatisfying)?


Common Themes in CriticalService Encounters Research

Recovery: Adaptability:

Spontaneity:Coping:

Employee Responseto Service Delivery

System Failure

Employee Responseto Customer Needs

and Requests

Employee Responseto Problem Customers

Unprompted andUnsolicited EmployeeActions and Attitudes


Recovery

• Acknowledge problem

• Explain causes• Apologize• Compensate/upgrade• Lay out options• Take responsibility

• Ignore customer• Blame customer• Leave customer to

fend for him/herself• Downgrade• Act as if nothing is

wrong

DO DON’T


Adaptability

• Recognize the seriousness of the need

• Acknowledge• Anticipate• Attempt to

accommodate• Explain rules/policies• Take responsibility• Exert effort to

accommodate

• Promise, then fail to follow through

• Ignore

• Show unwillingness to try

• Embarrass the customer

• Laugh at the customer

• Avoid responsibility

DO DON’T


Spontaneity

• Take time

• Be attentive

• Anticipate needs

• Listen

• Provide information (even if not asked)

• Treat customers fairly

• Show empathy

• Acknowledge by name

• Exhibit impatience

• Ignore

• Yell/laugh/swear

• Steal from or cheat a customer

• Discriminate

• Treat impersonally

DO DON’T


Coping

• Listen• Try to accommodate• Explain• Let go of the

customer

• Take customer’s dissatisfaction personally

• Let customer’s dissatisfaction affect others

DO DON’T


Figure 4.7

Evidence of Service from theCustomer’s Point of View

People

Process PhysicalEvidence

Contact employees Customer him/herself Other customers

Operational flow of activities

Steps in process

Flexibility vs. standard

Technology vs. human

Tangible communication

Servicescape

Guarantees

Technology

Website


Part 2

LISTENING TO CUSTOMER REQUIREMENTS


Company Perceptions of

Consumer Expectations

Expected Service

CUSTOMER

COMPANY

GAP 1

Part 2 Opener

Provider GAP 1


Chapter

5• 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

Understanding CustomerExpectations and Perceptions Through Marketing Research


Objectives for Chapter 5:Understanding Customer Expectations

and Perceptions through Marketing Research

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

• Show the ways that marketing research information can and should be used for services.

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

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


Common Research Objectives for Services

• To identify dissatisfied customers

• To discover customer requirements or expectations

• To monitor and track service performance

• To assess overall company performance compared to competition

• To assess gaps between customer expectations and perceptions

• To gauge effectiveness of changes in service

• To appraise service performance of individuals and teams for rewards

• To determine expectations for a new service

• To monitor changing expectations in an industry

• To forecast future expectations


Figure 5.1

Criteria for an EffectiveService Research Program


Portfolio of Services Research

Customer Complaint Solicitation

“Relationship” Surveys

Post-Transaction Surveys

Customer Focus Groups

“Mystery Shopping” of Service Providers

Employee Surveys

Lost Customer Research

Identify dissatisfied customers to attempt recovery; identify most common categories of service failure for remedial action

Obtain customer feedback while service experience is still fresh; act on feedback quickly if negative patterns develop

Use as input for quantitative surveys; provide a forum for customers to suggest service-improvement ideas

Assess company’s service performance compared to competitors; identify service-improvement priorities; track service improvement over time

Measure individual employee service behaviors for use in coaching, training, performance evaluation, recognition and rewards; identify systemic strengths and weaknesses in service

Measure internal service quality; identify employee-perceived obstacles to improve service; track employee morale and attitudes

Determine the reasons why customers defect

Research Objective Type of Research

Future Expectations ResearchTo forecast future expectations of customersTo develop and test new service ideas


Stages in the Research Process

• Stage 1 : Define Problem

• Stage 2 : Develop Measurement Strategy

• Stage 3 : Implement Research Program

• Stage 4 : Collect and Tabulate Data

• Stage 5 : Interpret and Analyze Findings

• Stage 6 : Report Findings


Figure 5.3

Tracking of Customer Expectations and Perceptions of Service Reliability


Retail Chain

9

8

7

6

5

4

3

2

1

0Reliability Responsiveness Assurance Empathy Tangibles

OO

= Zone of Tolerance = S.Q. PerceptionO

O

OO

Figure 5.4

Service Quality Perceptions Relative to Zones of Tolerance

(by Dimensions)


Computer Manufacturer

10

8

6

4

2

0

Reliability Responsiveness Assurance Empathy Tangibles

OO O OO

= Zone of Tolerance = S.Q. PerceptionO

Service Quality Perceptions Relative to Zones of Tolerance

(by Dimensions)


Figure 5.5 Importance/Performance Matrix

HIGH

HIGHLOW Performance

Imp

ort

ance

Attributes to Improve Attributes to Maintain

HighLeverage

Attributes to De-emphasizeAttributes to Maintain

LowLeverage


Chapter

6 Building CustomerRelationships

• Relationship Marketing• Relationship Value of Customers• Foundations for Relationship Strategies• The Customer Isn’t Always Right• Customer Profitability Segments• Levels of Relationship Strategies


Objectives for Chapter 6:Building Customer Relationships

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

• Explain why and how to estimate customer lifetime value.• Specify the foundations for successful relationship

marketing--quality core services and careful market segmentation.

• Provide you with examples of successful customer retention strategies.

• Introduce the idea that “the customer isn’t always right.”


Relationship Marketing

• is a philosophy of doing business that focuses on keeping current customers and improving relationships with them

• does not necessarily emphasize acquiring new customers• is usually cheaper (for the firm)

– keeping a current customer costs less than attracting a new one

• thus, the focus is less on attraction, and more on retention and enhancement of customer relationships


Figure 6.1

Customer Goals of Relationship Marketing


Figure 6.2

Profit Generated by a CustomerOver Time


Figure 6.3

Profit Impact of 5 Percent Increase in Retention Rate


Table 6.1

Lifetime Value of an Average Business Customer at Telecheck International, Inc.


A Loyal Customer is One Who...

• Shows Behavioral Commitment– buys from only one supplier, even though other options exist

– increasingly buys more and more from a particular supplier

– provides constructive feedback/suggestions

• Exhibits Psychological Commitment– wouldn’t consider terminating the relationship--psychological

commitment

– has a positive attitude about the provider

– says good things about the provider


Customer Loyalty Exercise

• Think of a service provider you are loyal to.

• What do you do (your behaviors, actions, feelings) that indicates you are loyal?

• Why are you loyal to this provider?


Underlying Logic of Customer Retention Benefits to the Organization

Customer Retention &Increased Profits

Employee Loyalty

QualityService

Customer Satisfaction


Benefits to the Organizationof Customer Loyalty

• loyal customers tend to spend more with the organization over time

• on average costs of relationship maintenance are lower than new customer costs

• employee retention is more likely with a stable customer base

• lifetime value of a customer can be very high


Benefits to the Customer

• inherent benefits in getting good value

• economic, social, and continuity benefits– contribution to sense of well-being and quality of life

and other psychological benefits– avoidance of change– simplified decision making – social support and friendships– special deals


“The Customer Isn’t Always Right”

• Not all customers are good relationship customers:

– wrong segment

– not profitable in the long term

– difficult customers


Figure 6.4

Steps in Market Segmentation and Targeting for Services

IdentifyBases forSegmentingthe Market

STEP 1:

DevelopProfiles ofResultingSegments

STEP 2: DevelopMeasuresof SegmentAttractive-ness

STEP 3: Select the

TargetSegments

STEP4:Ensure thatSegmentsAre Compatible

STEP 5:


Strategies for Building Relationships

• Foundations: – Excellent Quality/Value– Careful Segmentation

• Bonding Strategies:– Financial Bonds– Social & Psychological Bonds– Structural Bonds– Customization Bonds

• Relationship Strategies Wheel


Most ProfitableCustomers

Least ProfitableCustomers

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

What segment costs us intime, effort and money yetdoes not provide the returnwe want? What segment isdifficult to do business with?

OtherCustomers

BestCustomers

Figure 6.5The “80/20” Customer Pyramid


Most ProfitableCustomers

Least ProfitableCustomers

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

What segment costs us intime, effort and money yetdoes not provide the returnwe want? What segment isdifficult to do business with?

Gold

Iron

Lead

Platinum

Figure 6.6The Expanded Customer Pyramid


ExcellentQuality

andValue

I. Financial Bonds

II. Social Bonds

IV. Structural

Bonds

III. CustomizationBonds

Volume and Frequency Rewards

Bundling and Cross Selling

Stable Pricing

Social Bonds Among Customers

Personal Relationships

Continuous Relationships

Customer Intimacy

Mass Customization

Anticipation/ Innovation

SharedProcesses and Equipment

Joint Investments

Integrated Information Systems

Figure 6.7

Levels of Retention Strategies


Chapter

7 Service Recovery

• 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 vs. Staying Following Service

Recovery• Service Recovery Strategies• Service Guarantees


Objectives for Chapter 7:Service Recovery

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

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

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

• Provide strategies for effective service recovery.• Discuss service guarantees.


Figure 7.1

Unhappy Customers’ Repurchase Intentions

95%

70%

46%

37%

82%

54%

19%

9%

Complaints Resolved Quickly

Complaints Resolved

Complaints Not Resolved

Minor complaints ($1-$5 losses) Major complaints (over $100 losses)

Unhappy Customers Who Don’t Complain

Unhappy Customers Who Do Complain

Percent of Customers Who Will Buy Again

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


Figure 7.3

Customer Complaint ActionsFollowing Service Failure


Figure 7.4

Fairness and Satisfaction

Source: Reproduced from S.S. Tax and S. W. Brown, “Recovering and Learning from Service Failure, “Sloan Management Review, Fall 1998, p. 80.


Learn fromRecovery Experiences

Treat C

ustomers

Fairly

Learn

from

Lo

st Cu

stom

ers

Welcome and

Encourage ComplaintsFail S

afe the S

ervice

Act Q

uickly

Service Recovery Strategies

Figure 7.5

Service Recovery Strategies


Figure 7.6

Causes Behind Service Switching

Service Switching Behavior

• High Price• Price Increases• Unfair Pricing• Deceptive Pricing

Pricing

• Location/Hours• Wait for Appointment• Wait for Service

Inconvenience

• Service Mistakes• Billing Errors• Service Catastrophe

Core Service Failure

• Uncaring• Impolite• Unresponsive• Unknowledgeable

Service Encounter Failures

• Negative Response• No Response• Reluctant Response

Response to Service Failure

• Found Better Service

Competition

• Cheat• Hard Sell• Unsafe• Conflict of Interest

Ethical Problems

• Customer Moved• Provider Closed

Involuntary Switching

Source: Sue Keaveney, “Customer Switching Behavior in Service Industries: An Exploratory Study,” Journal of Marketing, April, 1995, pp. 71-82.


Service Guarantees

• guarantee = an assurance of the fulfillment of a condition (Webster’s Dictionary)

• for products, guarantee often done in the form of a warranty

• services are often not guaranteed– cannot return the service– service experience is intangible

(so what do you guarantee?)


Figure 7.7

Characteristics of an Effective Service Guarantee

• Unconditional• The guarantee should make its promise unconditionally - no strings

attached.

• Meaningful• It should guarantee elements of the service that are important to the

customer.• The payout should cover fully the customer's dissatisfaction.

• Easy to Understand and Communicate• For customers - they need to understand what to expect.• For employees - they need to understand what to do.

• Easy to Invoke and Collect• There should not be a lot of hoops or red tape in the way of accessing or

collecting on the guarantee.Source: Christopher W.L. Hart, “The Power of Unconditional Guarantees,” Harvard Business Review, July-August, 1988, pp. 54-62.


Figure 7.2

The Hampton Inn 100 Percent Satisfaction Guarantee


Why a Good Guarantee Works

• forces company to focus on customers

• sets clear standards

• generates feedback

• forces company to understand why it failed

• builds “marketing muscle”


Service Guarantees

• Does everyone need a guarantee?

• Reasons companies do NOT offer guarantees:– guarantee would be at odds with company’s image– too many uncontrollable external variables– fears of cheating by customers– costs of the guarantee are too high


Service Guarantees

• service guarantees work for companies who are already customer-focused

• effective guarantees can be BIG deals - they put the company at risk in the eyes of the customer

• customers should be involved in the design of service guarantees

• the guarantee should be so stunning that it comes as a surprise -- a WOW!! factor

• “it’s the icing on the cake, not the cake”


Part 3

ALIGNING STRATEGY, SERVICE DESIGN, AND STANDARDS


CUSTOMER

COMPANY

GAP 2

Customer-Driven Service Designs and

Standards

Company Perceptions of

Consumer ExpectationsPart 3 Opener

Provider GAP 2


Chapter

8 Service Development and Design

• 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


Objectives for Chapter 8:Service Development and Design

• Describe the challenges inherent in service design.

• Present steps in the new service development process.

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

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


Figure 8.1

Risks of Relying on Words Alone to Describe Services

McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights ReservedSource: Booz-Allen & Hamilton, 1982; Bowers, 1985; Cooper, 1993; Khurana & Rosenthal 1997.

Business Strategy Development or Review

New Service Strategy Development

Idea Generation

Concept Development and Evaluation

Business Analysis

Service Development and Testing

Postintroduction Evaluation

Commercialization

Market Testing

Screen ideas against new service strategy

Test concept with customers and employees

Test for profitability and feasibility

Conduct service prototype test

Test service and other marketing-mix elements

Front End Planning

Implementation

Figure 8.2

New Service Development Process


Figure 8.3

New Service Strategy Matrix for Identifying Growth Opportunities

Markets

Offerings

ExistingServices

NewServices

Current Customers New Customers

SHAREBUILDING

DIVERSIFICATION

MARKETDEVELOPMENT

SERVICEDEVELOPMENT


Figure 8.5

Service Mapping/Blueprinting

• A tool for simultaneously depicting the service process, the points of customer contact, and the evidence of service from the customer’s point of view.

ServiceMapping

Process

Points of Contact

Evidence


Service Blueprint Components

CUSTOMER ACTIONS

line of interaction

“ONSTAGE” CONTACT EMPLOYEE ACTIONS

line of visibility

“BACKSTAGE” CONTACT EMPLOYEE ACTIONS

line of internal interaction

SUPPORT PROCESSES


Figure 8.6

Service Blueprint Components


DriverPicksUp Pkg.

DispatchDriver

AirportReceives& Loads

SortPackages

Load onAirplane

Fly toDestinati

on

Unload&

Sort

LoadOn

Truck

Express Mail Delivery ServiceSU

PPO

RT

PR

OC

ESS

CO

NTA

CT

PER

SO

N(B

ack

Sta

ge)(O

n S

tage)C

USTO

ME

RPH

YSIC

AL

EV

IDEN

CE

CustomerCalls

CustomerGives

Package

TruckPackagingFormsHand-held ComputerUniform

ReceivePackage

TruckPackagingFormsHand-held ComputerUniform

DeliverPackage

CustomerServiceOrder

Fly toSort

Center


Figure 8.8

Overnight Hotel StayS

UP

PO

RT P

RO

CES

SCO

NTA

CT P

ER

SO

N

(Back

Sta

ge)(

On S

tage)C

US

TO

MER

HotelExteriorParking

Cart for Bags

DeskRegistrationPapersLobbyKey

ElevatorsHallwaysRoom

Cart for Bags

RoomAmenitiesBath

Menu DeliveryTrayFoodAppearance

Food

BillDeskLobbyHotelExteriorParking

Arriveat

Hotel

Give Bagsto

BellpersonCheck in Go to

RoomReceive

BagsSleep

Shower

CallRoom

Service

ReceiveFood

EatCheck out

andLeave

Greet andTakeBags

ProcessRegistration

DeliverBags

DeliverFood

ProcessCheck Out

Take Bagsto Room

TakeFoodOrder

RegistrationSystem

PrepareFood

RegistrationSystem

PH

YS

ICA

LEV

IDEN

CE


Step 1

Identify the process to be blue-printed.

Step 1

Identify the process to be blue-printed.

Step 2

Identify the customer or customer segment.

Step 2

Identify the customer or customer segment.

Step 3

Map the process from the customer’s point of view.

Step 3

Map the process from the customer’s point of view.

Step 4

Map contact employee actions, onstage and back-stage.

Step 4

Map contact employee actions, onstage and back-stage.

Step 5

Link customerand contact person activities to needed support functions.

Step 5

Link customerand contact person activities to needed support functions.

Step 6

Add evidence of service at each customer action step.

Step 6

Add evidence of service at each customer action step.

Figure 8.9

Building a Service Blueprint


Application of Service Blueprints

• New Service Development• concept development

• market testing

• Supporting a “Zero Defects” Culture• managing reliability

• identifying empowerment issues

• Service Recovery Strategies• identifying service problems

• conducting root cause analysis

• modifying processes


Blueprints Can Be Used By:

• Service Marketers– creating realistic customer

expectations• service system design• promotion

• Operations Management– rendering the service as

promised• managing fail points• training systems• quality control

• Human Resources– empowering the human

element• job descriptions

• selection criteria

• appraisal systems

• System Technology– providing necessary tools:

• system specifications

• personal preference databases


Figure 8.10

House of Quality for Village Volvo


Chapter

9 Customer-DefinedService Standards

• Factors Necessary For Appropriate Service Standards

• Customer-Defined Service Standards• Process for Developing Customer-defined

Standards• Service Performance Indexes


Objectives for Chapter 9:Customer-defined Service Standards

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

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

• Explain the critical role of the service encounter sequence in developing customer-defined standards.

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

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

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


Table 9.1

Examples of HardCustomer-Defined Standards


Table 9.2

Examples of SoftCustomer-Defined Standards


Figure 9.2

AT&T’s Process Map for Measurements

Reliability

(40%)

Easy To Use

(20%)

Features / Functions

(40%)

Knowledge

(30%)

Responsive

(25%)

Follow-Up

(10%)

Delivery Interval Meets Needs

(30%)

Does Not Break

(25%)

Installed When Promised

(10%)

No Repeat Trouble

(30%)

Fixed Fast

(25%)

Kept Informed

(10%)

Accuracy, No Surprise

(45%)

Resolve On First Call

(35%)

Easy To Understand

(10%)

Business Process Customer Need Internal Metric

30% Product

30% Sales

10% Installation

15% Repair

15% Billing

% Repair Call

% Calls for Help

Functional Performance Test

Supervisor Observations

% Proposal Made on Time

% Follow Up Made

Average Order Interval

% Repair Reports

% Installed On Due Date

% Repeat Reports

Average Speed Of Repair

% Customers Informed

% Billing Inquiries

% Resolved First Call

% Billing Inquiries

TotalQuality

Source: AT&T General Business Systems


Exercise for Creating Customer-Defined Service Standards

• Form a group of four people

• Use your school’s undergraduate or graduate program, or an approved alternative

• Complete the customer-driven service standards importance chart

• Establish standards for the most important and lowest-performed behaviors and actions

• Be prepared to present your findings to the class


Service Encounter Customer Requirements Measurements

ServiceQuality

Customer-Driven Standards and Measurements Exercise


Satisfaction ValueRelationship Solution Provider

Reliability EmpathyAssurance TangiblesResponsiveness Price

Delivers on TimeReturns Calls QuicklyKnows My Industry

Delivers by Weds 11/4Returns Calls in 2 HrsKnows Strengths of My Competitors

Requirements:Abstract

Concrete

Dig Deeper

Dig Deeper

Dig Deeper

Diagnosticity:Low

High

General Concepts

Dimensions

Behaviors and Actions

Attributes

Figure 9.3

Getting to Actionable Steps


1. Identify Existing or Desired Service Encounter Sequence

2. Translate Customer Expectations Into Behaviors/Actions2. Translate Customer Expectations Into Behaviors/Actions

4. Set Hard or Soft Standards

5. Develop FeedbackMechanisms

5. Develop FeedbackMechanisms

7. Track Measures Against Standards

Measure byAudits or

Operating DataHard Soft

Measure byTransaction-

Based Surveys

3. Select Behaviors/Actions for Standards 3. Select Behaviors/Actions for Standards

6. Establish Measures and Target Levels 6. Establish Measures and Target Levels

8. Update Target Levels and Measures 8. Update Target Levels and Measures

Figure 9.4

Process for Setting Customer-Defined Standards


Figure 9.5

Importance/Performance MatrixHIGH

HIGH

Performance

10.0

8.0

7.0

9.0

LOW

8.0 9.0 10.0

Importance

Improve Maintain

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

Gets project within budget, on time (9.31, 7.84)Completes projects correctly, on time (9.29, 7.68)

Does whatever it takes to correct problems (9.26, 7.96)

Provides equipment that operates as vendor said it would (9.24, 8.14)

Gets price we originally agreed upon (9.21, 8.64)

Takes responsibility for their mistakes (9.18, 8.01)Delivers or installs on promised date (9.02, 7.84)

Tells me cost ahead of time (9.06, 8.46)

Gets back to me whenpromised (9.04, 7.63)


2 4 6 8 12 16 20 24

W O R K I N G H O U R S

Large Customers

Small Customers

10

9

8

7

6

5

4

3

2

1

0

SA

TIS

FA

CT

ION

Figure 9.6

Linkage between Soft Measures and Hard Measures for Speed of Complaint Handling


Chapter

10 Physical Evidence and the Servicescape

• 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


Objectives for Chapter 10:Physical Evidence and the Servicescape

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

• Illustrate differences in types and roles of servicescapes and their implications for strategy.

• Explain why the servicescape affects employee and customer behavior.

• Analyze four different approaches for understanding the effects of physical environment.

• Present elements of an effective physical evidence strategy.


Table 10.1

Elements of Physical Evidence

Servicescape Other tangibles Facility exterior Exterior design Signage Parking Landscape Surrounding environment

Facility interior Interior design Equipment Signage Layout Air quality/temperature

Business cards Stationery Billing statements Reports Employee dress Uniforms Brochures Web pages Virtual servicescape


Table 10.2

Examples of Physical Evidence fromthe Customer’s Point of View


Table 10.3

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

Complexity of the servicescape evidenceServicescapeusage

Elaborate Lean

Self-service(customer only)

Golf LandSurf 'n' Splash

ATMTicketronPost office kioskInternet servicesExpress mail drop-off

Interpersonalservices(both customer andemployeee)

HotelRestaurantsHealth clinicHospitalBankAirlineSchool

Dry cleanerHot dog standHair salon

Remote service(employee only)

Telephone companyInsurance companyUtilityMany professional services

Telephone mail-order deskAutomated voice-messaging-based services


Figure 10.2

A Framework for Understanding Environment-User Relationships in Service Organizations


Part 4

DELIVERING AND PERFORMING SERVICE


CUSTOMER

COMPANYService Delivery

GAP 3


Standards

Part 4 Opener

Provider GAP 3


Chapter

11 Employees’ Roles in Service Delivery

• The Critical Importance of Service Employees

• Boundary Spanning Roles• Strategies for Closing Gap 3• Service Culture


Objectives for Chapter 11:Employees’ Roles in Service Delivery

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

• Demonstrate the challenges inherent in boundary-spanning roles

• Provide examples of strategies for creating customer-oriented service delivery

• Show how the strategies can support a service culture where providing excellent service is a way of life


Figure 11.2

The Services Marketing Triangle

Internal Marketing

Interactive Marketing

External Marketing

Company(Management)

CustomersEmployees

enablingpromises

keeping promises

settingpromises

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


Services Marketing Triangle Applications Exercise

• Focus on a service organization. In the context you are focusing on, who occupies each of the three points of the triangle?

• How is each type of marketing being carried out currently?

• Are the three sides of the triangle well aligned?

• Are there specific challenges or barriers in any of the three areas?


Ways to Use the Services Marketing Triangle

• Overall Strategic Assessment– How is the service

organization doing on all three sides of the triangle?

– Where are the weaknesses?

– What are the strengths?

• Specific Service Implementation– What is being promoted

and by whom?

– How will it be delivered and by whom?

– Are the supporting systems in place to deliver the promised service?


Figure 11.3

The Service Profit Chain

Source: An exhibit from J. L. Heskett, T. O. Jones, W. E. Sasser, Jr., and L. A. Schlesinger, “Putting the Service-Profit Chain to Work,” Harvard Business Review, March-April 1994, p. 166.


Service Employees

• They are the service.

• They are the organization in the customer’s eyes.

• They are the brand.

• They are marketers.

• Their importance is evident in:– The Services Marketing Mix (People)– The Service-Profit Chain– The Services Triangle


Service Employees

• Who are they?– “boundary spanners”

• What are these jobs like?– emotional labor– many sources of potential conflict

• person/role

• organization/client

• interclient

• quality/productivity


Figure 11.4

Boundary Spanners Interact with Both Internal and External Constituents

Internal Environment

External Environment


Figure 11.5

Sources of Conflict for Boundary-Spanning Workers

• Person vs. Role

• Organization vs. Client

• Client vs. Client

• Quality vs. Productivity


Customer-Oriented Service Delivery

Hire theRight People

ProvideNeeded Support

Systems

Retain theBest

People

DevelopPeople to

DeliverServiceQuality

Compete

for

the B

est

People

Hire for Service

Competencies and Service Inclination

Provide Supportive Technology

and Equipment

Tre

at

Em

plo

ye

es

a

s

Cu

sto

me

rs

Em

po

we

r E

mp

loy

ee

s

Be the Preferred

Employer Train for

Technical and

Interactive

Skills

Prom

ote

Team

wor

k

Measure

Internal

Service

Quality

Develop Service-

oriented Internal

Processes

Mea

sure

and

R

ewar

d S

tron

g S

ervi

ce

Per

form

ers

Include

Em

ployees in

the

Com

pany’s

Vision

Figure 11.6 Human Resource Strategies for Closing GAP 3


Empowerment

• Benefits:– quicker responses

– employees feel more responsible

– employees tend to interact with warmth/enthusiasm

– empowered employees are a great source of ideas

– positive word-of-mouth from customers

• Drawbacks:– greater investments in

selection and training

– higher labor costs

– slower and/or inconsistent delivery

– may violate customer perceptions of fair play

– “giving away the store” (making bad decisions)


Service Culture

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


Chapter

12 Customers’ Roles in Service Delivery

• The Importance of Customers in Service Delivery

• Customers’ Roles• Self-Service Technologies—The Ultimate in

Customer Participation• Strategies for Enhancing Customer

Participation


Objectives for Chapter 12:Customers’ Roles in Service Delivery

• Illustrate the importance of customers in successful service delivery.

• Enumerate the variety of roles that service customers play:– Productive resources.– Contributors to quality and satisfaction.– Competitors.

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


Table 12.1

Levels of Customer Participation across Different Services


Importance of Other Customers in Service Delivery

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

• Other customers can enhance satisfaction:– mere presence– socialization/friendships– roles: assistants, teachers, supporters


How Customers Widen Gap 3

• Lack of understanding of their roles

• Not being willing or able to perform their roles

• No rewards for “good performance”

• Interfering with other customers

• Incompatible market segments


Figure 12.2

Customer Roles in Service Delivery

Productive Resources

Contributors to Quality and Satisfaction

Competitors


Customers as Productive Resources

• “partial employees”– contributing effort, time, or other resources to the

production process

• customer inputs can affect organization’s productivity

• key issue:– should customers’ roles be expanded? reduced?


Customers as Contributors to Service Quality and Satisfaction

• Customers can contribute to– their own satisfaction with the service

• by performing their role effectively

• by working with the service provider

– the quality of the service they receive• by asking questions

• by taking responsibility for their own satisfaction

• by complaining when there is a service failure


Customers as Competitors

• customers may “compete” with the service provider• “internal exchange” vs. “external exchange”• internal/external decision often based on:

– expertise

– resources

– time

– economic rewards

– psychic rewards

– trust

– control


Figure 12.3

Services Production Continuum

1 2 3 4 5 6

Gas Station Illustration1. Customer pumps gas and pays at the pump with automation2. Customer pumps gas and goes inside to pay attendant3. Customer pumps gas and attendant takes payment at the pump4. Attendant pumps gas and customer pays at the pump with automation5. Attendant pumps gas and customer goes inside to pay attendant6. Attendant pumps gas and attendant takes payment at the pump

Customer Production Joint Production Firm Production


Figure 12.4

Strategies for Enhancing Customer Participation

EffectiveCustomer

Participation

Recruit, Educate,and Reward Customers

Define CustomerJobs

Manage theCustomer

Mix


Strategies for EnhancingCustomer Participation

• Define customers’ jobs– helping himself– helping others– promoting the company

• Individual differences:– not everyone wants to participate


Strategies for Recruiting,Educating, and Rewarding Customers

1. Recruit the right customers

2. Educate and train customers to perform effectively

3. Reward customers for their contribution

4. Avoid negative outcomes of inappropriate customer participation


Table 12.2

Characteristics of Service that Increase the Importance of Compatible Segments


Chapter

13 Delivering Service Through Intermediaries and Electronic

Channels• Service Intermediaries• Direct or Company-owned Channels• Common Issues Involving Intermediaries• Key Intermediaries for Service Delivery• Strategies for Effective Service Delivery

Through Intermediaries


Objectives for Chapter 13:Delivering Service through Intermediaries

and Electronic Channels• Identify the primary channels through which

services are delivered to end customers.• Provide examples of each of the key service

intermediaries.• View delivery of service from two perspectives--

the service provider and the service deliverer.• Identify the benefits and challenges of each

method of service delivery.• Outline the strategies that are used to manage

service delivery through intermediaries.


Service Provider Participants

• service principal (originator)– creates the service concept

• (like a manufacturer)

• service deliverer (intermediary)– entity that interacts with the customer in the execution

of the service• (like a distributor/wholesaler)


Key Issues Involving Intermediaries

• conflict over objectives and performance

• conflict over costs and rewards

• control of service quality

• empowerment versus control

• channel ambiguity


Services Intermediaries

• franchisees– e.g., Jiffy Lube, H&R Block, McDonald’s

• agents and brokers– e.g., travel agents, independent insurance agents

• electronic channels– e.g., ATMs, university video courses, TaxCut software


Table 13.1

Benefits and Challenges for Franchisers of Service

• Leveraged business format for greater expansion and revenues

• Consistency in outlets

• Knowledge of local markets

• Shared financial risk and more working capital

• Difficulty in maintaining and motivating franchisees

• Highly publicized disputes and conflict

• Inconsistent quality

• Control of customer relationship by intermediary

Benefits Challenges


Table 13.1 (Continued)

Benefits and Challenges for Franchisees of Service

• An established business format

• National or regional brand marketing

• Minimized risk of starting a business

• Encroachment

• Disappointing profits and revenues

• Lack of perceived control over operations

• High fees

Benefits Challenges


Table 13.2

Benefits and Challenges in Distributing Services through Agents and Brokers

• Reduced selling and distribution costs

• Intermediary’s possession of special skills and knowledge

• Wide representation

• Knowledge of local markets

• Customer choice

• Loss of control over pricing and other aspects of marketing

• Representation of multiple service principals

Benefits Challenges


Table 13.3

Benefits and Challenges in Electronic Distribution of Services

• Consistent delivery for standardized services

• Low cost

• Customer convenience

• Wide distribution

• Customer choice and ability to customize

• Quick customer feedback

• Customers are active, not passive• Lack of control of electronic

environment• Price competition• Inability to customize with highly

standardized services• Lack of consistency with customer

involvement• Requires changes in consumer

behavior• Security concerns• Competition from widening

geographies

Benefits Challenges


Strategies for Effective Service Delivery through Intermediaries

• Measurement

• Review

Control Strategies

• Alignment of goals

• Consultation and cooperation

• Help the intermediary develop customer-oriented service processes

• Provide needed support systems

• Develop intermediaries to deliver service quality

• Change to a cooperative management structure

Empowerment Strategies

Partnering Strategies


Chapter

14 Managing Demandand Capacity

• The Underlying Issue: Lack of Inventory Capability

• Understanding Capacity Constraints• Understanding Demand Patterns• Strategies for Matching Capacity and

Demand• Yield Management• Waiting Line Strategies


Objectives for Chapter 14:Managing Demand and Capacity

• Explain the underlying issue for capacity-constrained services: lack of inventory capacity.

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

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

• Demonstrate the benefits and risks of yield management strategies.

• Provide strategies for managing waiting lines.


Figure 14.1

Variations in DemandRelative to Capacity


Understanding Capacity Constraints and Demand Patterns

• Time, labor, equipment, and facilities

• Optimal versus maximal use of capacity

• Charting demand patterns• Predictable cycles• Random demand

fluctuations• Demand patterns by

market segment

Capacity Constraints Demand Patterns


Table 14.1

Demand vs. Supply


Table 14.2

Constraints on Capacity

Nature of the constraint Type of serviceTime Legal

ConsultingAccountingMedical

Labor Law firmAccounting firmConsulting firmHealth clinic

Equipment Delivery servicesTelecommunicationUtilitiesHealth club

Facilities HotelsRestaurantsHospitalsAirlinesSchoolsTheatersChurches


Figure 14.3

Strategies for Shifting Demand to Match Capacity

• Use signage to communicate busy days and times.

• Offer incentives to customers for usage during non-peak times.

• Take care of loyal or “regular” customers first.

• Advertise peak usage times and benefits of non-peak use.

• Charge full price for the service--no discounts.

• Use sales and advertising to increase business from current market segments.

• Modify the service offering to appeal to new market segments.

• Offer discounts or price reductions.

• Modify hours of operation.

• Bring the service to the customer.

Demand Too High Demand Too LowShift Demand


Figure 14.4

Strategies for Flexing Capacity to Match Demand

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

• Perform maintenance, renovations.

• Schedule vacations.

• Schedule employee training.

• Lay off employees.

Demand Too High Demand Too LowFlex Capacity


Waiting Issues

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

services• solo waits feel longer


Waiting Strategies

• Employ operational logic to reduce wait

• Establish a reservation process

• Differentiate waiting customers

• Make waiting fun, or at least tolerable


Figure 14.5

Waiting Line Strategies


Figure 14.6

Waiting Line Configurations


Part 5

MANAGING SERVICE PROMISES


CUSTOMER

COMPANYExternal

Communications to CustomersGAP 4

Provider GAP 4

Part 5 Opener

Service Delivery


Chapter

15 Integrated ServicesMarketing Communications

• 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


Objectives for Chapter 15:Integrated Services Marketing Communications

• Introduce the concept of integrated services marketing communication.

• Discuss the key reasons for service communication problems.

• Present four key ways to integrate marketing communication in service organizations.

• Present specific strategies for managing promises, managing customer expectations, educating customers, and managing internal communications.

• Provide perspective on the popular service objective of exceeding customer expectations.


Figure 15.2

Communications and the Services Marketing Triangle

Internal Marketing Vertical Communications

Horizontal Communications

Interactive Marketing Personal Selling

Customer Service Center Service Encounters

Servicescapes

External Marketing Communication

Advertising Sales Promotion Public Relations

Direct Marketing

Company

CustomersEmployees

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


Figure 15.3

Approaches for Integrating Services Marketing Communication

Goal:Delivery

greater than or equal to promises

Improve CustomerEducation

ManageService

Promises

ManageCustomer

Expectations

ManageInternal

MarketingCommunication


Goal:Delivery


OfferService

Guarantees

Create EffectiveServices

Communications

MANAGING SERVICE PROMISES

MakeRealisticPromises

Coordinate External

Communication

Figure 15.4

Approaches forManaging Service Promises


Table 15.1

Services Advertising Strategies Matched with Properties of Intangibility


Communicate Criteria for Service Effectiveness

Create Tiered-ValueOfferings

NegotiateUnrealistic

Expectations

Goal:Delivery


Offer Choices

Figure 15.7

Approaches forManaging Customer Expectations


Goal:Delivery


Prepare Customers

for the Service Process

Clarify Expectationsafter the Sale

Teach Customers to Avoid

Peak Demand Periods

andSeek Slow

Periods

Confirm Performanceto Standards

Figure 15.8

Approaches forImproving Customer Education


Goal:Delivery


Create EffectiveVertical

Communications

Align Back Office Personnel

w/ External Customers

Create EffectiveHorizontal

Communications

CreateCross-Functional

Teams

Figure 15.9

Approaches for Managing Internal Marketing Communications


Chapter

16 Pricing of Services

• Three Key Ways Service Prices are Different for Consumers

• Approaches to Pricing Services• Pricing Strategies That Link to the Four

Value Definitions


Objectives for Chapter 16:Pricing of Services

• Discuss three major ways that service prices differ from goods prices for customers.

• Demonstrate what value means to customers and the role that price plays in value.

• Articulate the key ways that pricing of services differs from pricing of goods.

• Delineate strategies that companies use to price services.

• Give examples of pricing strategy in action.


Effort

=Time

or or

Psychic Costs

Figure 16.1

Customers Will Trade Money for Other Service Costs


Figure 16.2

Three Basic Price Structures and Difficulties Associated with Usage for Services

Demand-Based

Cost-BasedC

ompe

titio

n-

Bas

ed

PROBLEMS: 1. Costs difficult to trace 2. Labor more difficult to price than materials 3. Costs may not equal value

PROBLEMS: 1. Small firms may charge too little to be viable 2. Heterogeneity of services limits comparability 3. Prices may not reflect customer value

PROBLEMS: 1. Monetary price must be adjusted to reflect the value of non-monetary costs 2. Information on service costs less available to customers, hence price may not be a central factor


Value is low price. Value is everythingI want in a service.

Value is thequality I get for the price I pay.

Value is all thatI get for all that I give.

Figure 16.3

Four Customer Definitions of Value


Value is low price.

• Discounting• Odd pricing• Synchro-pricing• Penetration Pricing

Figure 16.4

Pricing Strategies When the Customer Defines Value as Low Price


Value is everythingI want in a service.

• Prestige pricing• Skimming pricing

Figure 16.5

Pricing Strategies When the Customer Defines Value as Everything Wanted in a Service


Value is the quality I get for the price I pay.

• Value pricing• Market segmentation pricing

Figure 16.6

Pricing Strategies When the Customer Defines Value as Quality for the Price Paid


Value is all that I get for all that I give.

• Price framing• Price bundling• Complementary pricing• Results-based pricing

Figure 16.7

Pricing Strategies When the Customer Defines Value as All That Is Received for All That Is

Given


Value is low price. Value is everythingI want in a service.

Value is the quality I get for the price I pay.

Value is all that I getfor all that I give.

• Discounting• Odd pricing• Synchro-pricing• Penetration Pricing

• Prestige pricing• Skimming pricing

• Value pricing• Market segmentation pricing

• Price framing• Price bundling• Complementary pricing • Results-based pricing

Figure 16.8

Summary of Service Pricing Strategies for Four Customer Definitions of Value


Part 6

THE BIG PICTURE: CLOSING ALL THE GAPS


Chapter

17The Financial and Economic Impact of Service Quality

• Examine the direct effects of service on profits.• Consider the impact of service on getting new

customers.• Evaluate the role of service in keeping customers.• Examine the link between perceptions of service

and purchase intentions.• Discuss what is known about the key service

drivers of overall service quality, customer retention, and profitability.


Objectives for Chapter 17:The Financial and Economic Impact of Service

• Examine the direct effects of service on profits.• Consider the effect of service on getting new customers.• Evaluate the role of service in keeping customers.• Examine the link between perceptions of service and

purchase intentions. • Discuss what is known about the key service drivers of

overall service quality, customer retention, and profitability.

• Present a model called the balanced performance scorecard that allows for a strategic focus on measurements other than financials.


Figure 17.1

The Direct Relationship between Service and Profits

Profits?Service


Figure 17.2

Offensive Marketing Effects of Service on Profits

Profits

MarketShare

Reputation Sales

PricePremium

Service


Figure 17.3

Defensive Marketing Effects of Service on Profit

Margins

Profits

CustomerRetention

Costs

PricePremium

Word ofMouth

Volume ofPurchases

Service


Figure 17.4

Perceptions of Service, Behavioral Intentions, and Profits

CustomerRetention

Costs

PricePremium

Word ofMouth

Margins

Profits

Volume ofPurchases

BehavioralIntentions

Sales

Service


Figure 17.5

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

Key Drivers

ServiceEncounter

ServiceEncounter

ServiceEncounter

Customer Retention

BehavioralIntentions

Profits

ServiceEncounter

Service Encounters

ServiceQuality


Innovation andLearning Perspective

CustomerPerspective

Service Perceptions Service ExpectationsPerceived ValueBehavioral Intentions:

Operational Perspective

Right first time (% hits)Right on time (% hits)Responsiveness (% on time)Transaction time (hours, days)Throughput timeReduction in wasteProcess quality

Financial Measures

Price PremiumVolume IncreasesValue of Customer ReferralsValue of Cross SalesLong-term Value of Customer

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

Number of new productsReturn on innovationEmployee skillsTime to marketTime spent talking to customers

Figure 17.6

Sample Measurements for the Balanced Scorecard

Adapted from: R.S. Kaplan and D.P. Norton, “The Balanced Scorecard—Measures That Drive Performance,” Harvard Business Review, January-February 1992.


CustomerRetention

Costs

PricePremium

Word ofMouth

Margins

Profits

Defensive Marketing

Volume ofPurchases

MarketShare

Reputation

Sales

PricePremium

Offensive Marketing

Service Quality Spells Profits

Service


Chapter

18 The Integrated Gaps Model of Service Quality

• 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


Objectives for Chapter 18:The Integrated Gaps Model of Service Quality

• To overview the framework of the book and the gaps model of service quality

• To identify the factors responsible for each of the gaps.


PerceivedService

Expected Service

CUSTOMER

COMPANY

CustomerGap

GAP 1

GAP 2

GAP 3

External Communications

to CustomersGAP 4ServiceDelivery


Standards

Company Perceptions of Consumer Expectations

Figure 18.1



Provider Gap 1: Not knowing what customers expect

Provider Gap 2: Not selecting the right service designs and standards

Provider Gap 3: Not delivering to service standards

Provider Gap 4: Not matching performance to promises

Customer Expectations

Customer Perceptions

Figure 18.2

Key Factors Leading to the Customer Gap

CustomerGAP


Customer Expectations

Company Perceptions of Customer Expectations

Inadequate Marketing Research OrientationInsufficient marketing researchResearch not focused on service qualityInadequate use of market research

Lack of Upward CommunicationLack of interaction between management and customersInsufficient communication between contact employeesand managersToo many layers between contact personnel and topmanagement

Insufficient Relationship FocusLack of market segmentationFocus on transactions rather than relationshipsFocus on new customers rather than relationshipcustomers

Inadequate Service Recovery

Figure 18.3

Key Factors Leading to Provider Gap 1

GAP1



Management Perceptions of Customer Expectations

Poor Service Design Unsystematic new service development process Vague, undefined service designs

Failure ot connect service design to servicepositioning

Absence of Customer-Driven StandardsLack of customer-driven service standardsAbsence of process management to focus oncustomer requirementsAbsence of formal process for setting servicequality goals

Inappropriate Physical Evidence and Servicescape

Figure 18.4

Key Factors Leading to Provider Gap 2

GAP2

McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights ReservedService Delivery


Deficiencies in Human Resource PoliciesIneffective recruitmentRole ambiguity and role conflictPoor employee-technology job fitInappropriate evaluation and compensation systemsLack of empowerment, perceived control and teamwork

Failure to Match Supply and DemandFailure to smooth peaks and valleys of demandInappropriate customer mixOver-reliance on price to smooth demand

Customers Not Fulfilling RolesCustomers lack knowledge of their roles and responsibilitiesCustomers negatively impact each other

Problems with Service Intermediaries Channel conflict over objectives and performance Channel conflict over costs and rewards Difficulty controlling quality and consistency Tension between empowerment and control

Figure 18.5

Key Factors Leading to Provider GAP 3

GAP3


Service Delivery

Lack of Integrated Services Marketing Communications Tendency to view each external communication as independent Not including interactive marketing in communications plan Absence of strong internal marketing program

Ineffective Management of Customer ExpectationsNot managing customer expectations through all forms ofcommunicationNot adequately educating customers

OverpromisingOverpromising in advertisingOverpromising in personal sellingOverpromising through physical evidence cues

Inadequate Horizontal CommunicationsInsufficient communication between sales and operationsInsufficient communication between advertising and operationsDifferences in policies and procedures across branches or units

External Communications to Customers

Figure 18.6

Key Factors Leading to Provider GAP 4

GAP4

Documents

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