STUDY GUIDE

Topic 7:

BMSV5103 Service Marketing

Service and the Bottom Line

Learning Outcomes
By the end of this topic, you should be able to:
1.

Examine the direct effects of service on profits;

2.

Consider the effects of service in getting new customers;

3.

Evaluate the role of service in keeping customers; and

4.

Discuss what is known about key service drivers.

Topic Overview
This topic discusses one of the most important questions about service that
managers have been debating: Is excellent service profitable to an
organisation? Several important performance models are also discussed.

Focus Areas and Assigned Readings

Focus Areas

Assigned Readings
Zeithaml, V. A., Bitner, M. J., & Gremler,
D. D. (2013). Services marketing:
Integrating customer focus across the
firm (6th ed). Singapore: McGraw-Hill.

7.1

Offensive Marketing Effects of

Service

Chapter 16, pp 473-476.

7.2

Defensive Marketing Effects of

Service

Chapter 16, pp 476-477.

7.3

Key Drivers of Service Quality,

Customer Retention and Profits

Chapter 16, pp 483.

7.4

Balanced Performance Scorecard

Chapter 16, pp 484-491.

72

STUDY GUIDE

BMSV5103 Service Marketing

Content Summary
7.1

Offensive Marketing Effects of Service

x
x
x

7.2

Offensive effects involve market share, reputation and price

premiums.
When service is good, a company gains a positive reputation and
through that reputation, a higher market share and the ability to
charge more than its competitors for services.

Defensive Marketing Effects of Service

x
x
x
x

7.3

Service quality can help companies attract more and better

customers to the business through offensive marketing.

Defensive marketing is an approach used to keep customers a

firm already has.
Customer defection is costly to companies because new
customers must replace lost customers, and replacement comes
at a high cost.
In general, the longer a customer remains with a company, the
more profitable the relationship is for the organisation.
The money a company makes from retention comes from four
sources: costs, volume of purchases, price premium and word-ofmouth communication.

Key Drivers of Service Quality, Customer Retention and Profits

x

Understanding the relationship between overall service quality

and profitability is important but it is perhaps more useful for
managers to identify specific drivers of service quality that most
relate to profitability.
Doing so will help firms understand what aspects of service
quality to change to influence the relationship and, therefore,
where to invest resources.

73

STUDY GUIDE

7.4

BMSV5103 Service Marketing

Most evidence for this issue has come from examining the effects
of specific aspects of service (e.g. responsiveness, reliability,
assurance, tangibles, etc) on overall service quality, customer
satisfaction and purchase intentions rather than on financial
outcomes such as retention or profitability.

Balanced Performance Scorecard

x

x
x

x
x

Todays corporate strategies recognise the limitations of

evaluating corporate performance on financials alone, contending
that these income-based financial figures measure yesterdays
decisions rather than indicate future performance.
For this reason, companies began to recognise that balanced
performance scorecards strategic measurement systems that
capture other areas of performance were needed.
The developers define it as a set of measures that gives top
managers a fast but comprehensive view of the business[that]
complements the financial measures with operational measures of
customer satisfaction, internal processes and the organisations
innovation and improvement activities operational measures that
are the drivers of future financial performance.
The balanced performance scorecard captures three perspectives
in addition to the financial perspective: customer, operational and
learning.
It brings together, in a single management report, many of the
previously separated elements of a companys competitive
agenda and forces senior managers to consider all the important
measures together.
It has been facilitated by developments in enterprise-wide
software that allow companies to create, automate and integrate
measurement from all parts of the company.

74

STUDY GUIDE

BMSV5103 Service Marketing

Study Questions
1.

Today, many managers still see service and service quality as costs
rather than as contributors to profits. Do you agree with them? Why?

2.

Discuss different types of profits a service company is expected to

receive from loyal customers.

3.

Service companies that embrace a defection management philosophy

engage in customer retention tactics that should be routinely
implemented on a per-customer basis. Elaborate three effective tactics
for retaining customers.

4.

In your opinion, what are the major mistakes made by companies when
measuring their performance using non-financial measures?

5.

In addition to the financial perspective, the balanced performance

scorecard also captures three types of measure. Discuss these
measures with examples.

6.

Based on the following case study, answer the questions.

Case Study
Perodua MD to Previous and Existing Customers: Lets Have Lunch
PETALING JAYA: Perodua managing director Datuk Aminar Rashid
Salleh wants to engage all of the carmaker's previous and existing
customers over lunch. We are embarking on a programme called The
Perodua Story, where we're reaching out to all our customers, he
told StarBiz. Weve sold more than two million vehicles since our
establishment 19 years ago. Some of them (customers) we may have lost for
whatever reason, whether during sales or after sales. So were trying to
reach out to them, and tell them please come back, and tell us your story.
Aminar said he was even willing to meet these customers over a meal, a
statement that was reiterated in an advert that Perodua had placed in a local
daily yesterday. I look forward to what you have to share. More than that, I
will try my very best to respond to you personally. We could do lunch
sometime. Have a nice chat, Aminar said in the advertorial. At the interview,
Aminar said the initiative was part of the companys initiative to retain its
customers and improve on its products. Im sure there are a lot of stories to
share with us, whether from a product point of view or if there were
challenging and difficult times. We want to hear it, so that we can improve
further. We'll be reaching out through various mediums, such as through
social media. I'm committed to meet them all in person, if necessary. All this
75

STUDY GUIDE

BMSV5103 Service Marketing

is also for customer retention, in line with our philosophy of building cars,
people first, he said.
Source:
http://biz.thestar.com.my/news/story.asp?file=/2012/5/8/business/11245119&
sec=business
(a)

Engaging all of the car makers previous and existing customers over
lunch was part of Perodua's initiative to retain its customers and
improve on its products. Do you think this initiative is workable for
Perodua? Why?

(b)

By capturing the value of loyal customers, how can Perodua measure

its actual increases or decreases in revenue?

76