Fundamentals of Service Marketing

Fundamentals of Service Marketing
Unit I: Understanding Service Markets, Products and

Customers
Unit II : Building the Service Model
Unit III: Managing the Customer Interface
Unit IV: Implementing Profitable Service Strategies
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Unit I: Understanding Service Markets, Products and Customers
1) Perspectives on Marketing in the Service

Economy: Introduction to services, importance &
role in new economy, distinguishing
characteristics from physical products posing
marketing challenges, expanded marketing mix.
2) Customer Behaviour in Service Encounters:
Customer decision making: The 3 stage model of
service consumption, understanding service
encounters, defining moments of truth, Customer
expectation and perception of services
2
1) Perspectives on Marketing in the Service
Economy: Introduction to services, importance
& role in new economy, distinguishing
characteristics from physical products posing
marketing challenges, expanded marketing
mix.
3
Teaching Pedagogy
• Ppt
• Case
• Video
• Case-let on Queens Hospital- A Classic example of
services marketing.
• Oks at Ojai
4
What are services?
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BASIS FOR COMPARISON GOODS SERVICES
Goods are the material items that Services are amenities, facilities,
Meaning can be seen, touched or felt and are benefits or help provided by
ready for sale to the customers. other people.
Nature Tangible Intangible

Transfer of ownership Yes No
Evaluation Very simple and easy Complicated
Services cannot be returned back

Return Goods can be returned.
once they are provided.
Separable Yes, goods can be separated from No, services cannot be separated
the seller. from the service provider.
Variability Identical Diversified

Goods can be stored for use in future Services cannot be stored.
Storage
or multiple use.
There is a time lag between Production and Consumption of
Production and Consumption production and consumption of
services occurs simultaneously.
goods.
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a) Philip Kotler, Gary Armstrong, Veronica Wong, and John A.
Saunders in their book “Principles of Marketing” states that,
service is an activity or an assistance offered by a party to
another party that is intangible and does not result in the
ownership of a particular thing. Its production may or may not
be tied to a physical product.
b) Services dominate the economy in most Nations.
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Why Study Services?
• Understanding services offers you personal

competitive advantages….example
• Importance of service sector in economy is
growing rapidly:
– Services account for more than 60 percent of GDP
worldwide
– Almost all economies have a substantial service sector
– Most new employment is provided by services
– Strongest growth area for marketing
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Services Dominate the U.S. Economy
(Fig 1.1)
Services, 68% Agriculture, Forestry, Mining,

Fishing, 2.3%
Manufacturing and
Construction, 17.3%
Government, 12.4%
(mostly Services)
Source: Bureau of Economic Analysis, Survey of Current Business, May 2005, Table 1
INSIGHTS
 Private sector service industries account for over two-thirds of GDP
 Adding government services, total is almost four-fifths of GDP
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Estimated Size of Service Sector in
Selected Countries (Fig 1.2—updated 10/06)
Cayman Islands (95%), Jersey (93%)

Bahamas (90%), Bermuda ( 89%)
Luxembourg (83%)
Panama (80%), USA (79%)
Japan (74%), France (73%), U.K. (73%), Canada (71%)
Mexico (69%), Australia (68%), Germany (68%)
Poland (66%), South Africa (65%)

Israel (60%), Russia (58%), S. Korea (56%)
Argentina (53%), Brazil (51%)
India (48%)
China (40%)
Saudi Arabia (33%) Services as Percent of GDP

10 20 30 40 50 60 70 80 90 10
Some Newer Service Industries
Profiled by NAICS Codes But Not SIC
 Casino Hotels  Industrial Design Services
 Continuing Care Retirement
 Investment Banking and Securities
Communities
Dealing
 Diagnostic Imaging Centers
 Diet and Weight Reducing  Management Consulting Services
Centers  Satellite Telecommunications
 Environmental Consulting
 Golf Courses, Country Clubs  Telemarketing Bureaus
 Hazardous Waste Collection  Temporary Help Services
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Why Study Services? (2)
• Most new jobs are generated by services

– Fastest growth expected in knowledge-based industries….
– Significant training and educational qualifications
required, but employees will be more
highly compensated
– Will service jobs lost to lower-cost countries? Yes, some
service jobs can be exported
12
Changing Structure of Employment as Economic
Development Evolves
Share of
Employment Agriculture
Services
Industry
Time, per Capita Income Source: IMF, 1997

13
Why Study Services?
• Powerful forces(factors) are transforming

service markets
– Government policies, social changes, business trends,
advances in IT, internationalization
• These forces are reshaping
– Demand
– Supply
– The competitive landscape
– Customers’ buy and use services
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Transformation of the Service Economy
Social Business Advances in

Changes Trends IT
Government
Globalization
Policies
 New markets and product categories
 Increase in demand for services
 More intense competition
Innovation in service products & delivery systems, stimulated by better technology
Customers have more choices and exercise more power
Success hinges on:

 Understanding customers and competitors
 Viable business models
 Creation of value for customers and firm
 Increased focus on services marketing and 15
management
Factors Stimulating Transformation of the Service Economy (1)

Changes Trends IT
Government
Globalization
Policies
 Changes in regulations
 Privatization
 New rules to protect customers, employees,
and the environment
 New agreement on trade in services
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Changes Trends IT
Government
Globalization
Policies
 Rising consumer expectations
 Ubiquitous social network
 More affluence
 More people short of time
 Increased desire for buying experiences versus
things
 Rising consumer ownership of high tech equipment
 Easier access to information
 Immigration
 Growing but aging population
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Changes Trends IT
Government
Globalization
Policies
 Push to increase shareholder value

 Emphasis on productivity and cost savings
 Manufacturers add value through service and sell
services
 More strategic alliances and outsourcing
 Focus on quality and customer satisfaction
 Growth of franchising
 Marketing emphasis by nonprofits
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Changes Trends IT
Government
Globalization
Policies  Growth of the Internet
 Wireless networking and technology
 Cloud technology
 User generated content
 Location-based services
 Big data
 AI
 Improved predictive analysis
 Greater bandwidth
 Compact mobile equipment
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 Wireless networking

Changes Trends IT
Government
Globalization
Policies
 More companies operating on transnational basis

 Increased international travel
 International mergers and alliances
 “Offshoring” of customer service
 Foreign competitors invade domestic markets
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What Are Services?
• The historical view

– Goes back over 200 years to Adam Smith and Jean-Baptiste
Say
– Different from goods because they are perishable (Smith
1776)
– Consumption cannot be separated from production, services
are intangible (Say 1803)
• A fresh perspective: Services involve a form of rental,
offering benefits without transfer of ownership
– Include rental of goods
– Marketing tasks for services differ from those involved in
selling goods and transferring ownership
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What Are Services?
• Five broad categories within non-ownership framework:
1. Labor, skills and expertise rentals
2. Rented goods services
3. Defined space and place rentals
4. Access to shared facilities (physical environments)
5. Access and use of systems and networks
• Implications of renting versus owning
– Markets exist for renting durable goods rather than selling them
– Renting portions of larger physical entity (e.g., office space,
apartment) can form basis for service
– Customers more closely engaged with service suppliers
– Time plays central role in most services
– Customer choice criteria may differ between rentals and outright
purchases
– Services offer opportunities for resource sharing
22
Defining Services
• Services
– Are economic activities offered by one party to another
– Most commonly employ time-based performances to bring
about desired results in:
• recipients themselves
• objects or other assets for which purchasers have
responsibility
• In exchange for their money, time, and effort, service customers
expect to obtain value from
– Access to goods, labor, facilities, environments, professional
skills, networks, and systems
– But they do not normally take ownership of any of the physical
elements involved
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Service Products versus Customer Service and After-Sales Service
• A firm’s market offerings are divided into core

product elements and supplementary service
elements
• Is everyone in service? Need to distinguish between:
– Marketing of services
– Marketing goods through added-value service
• Good service increases the value of a core physical
good
• After-sales service is as important as pre-sales
service for many physical goods
• Manufacturing firms are reformulating and
enhancing existing added-value services to market
them as stand-alone core products
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FOUR BROAD CATEGORIES OF SERVICES-A
process perspective
• Based on differences in nature of service act (tangible/intangible) and who
or what is direct recipient of service (people/possessions), there are four
categories of services:
– People processing
– Possession processing
– Mental stimulus processing
– Information processing
Four Categories Of Services
Who or What Is the Direct Recipient of the Service?

Nature of the Service Act People Possessions
Tangible Actions People processing Possession processing
(services directed at (services directed at
people’s bodies): physical possessions):
 Barbers  Refueling
 Health care  Disposal/recycling
Intangible Actions Mental stimulus processing Information processing

(services directed at (services directed at
people’s minds): intangible assets):
 Education
 Accounting
 Advertising/PR
 Banking
Four Categories Of Services
People Processing
• Customers must:
– Physically enter the service factory
– Co-operate actively with the service
operation
• Managers should think about
process and output from
customer’s perspective
– To identify benefits created and
non-financial costs:
• Time, mental, physical effort
Possession Processing
Possession Processing
 Customers are less physically

involved compared to people
processing services
 Involvement is limited
 Production and consumption

are separable
Mental Stimulus Processing
Mental Stimulus Processing
 Ethical standards required when

customers who depend on such
services can potentially be
manipulated by suppliers
 Physical presence of recipients

not required
 Core content of services is

information-based
 Can be “inventoried”
Information Processing
Information Processing
 Information is the most

intangible form of service
output
 But may be transformed into

enduring forms of service
output
 Line between information

processing and mental stimulus
processing may be blurred.
Services Pose Distinctive Marketing Challenges
• Marketing management tasks in the service sector differ from

those in the manufacturing sector
• The eight common differences are:
1. Most service products cannot be inventoried
2. Intangible elements usually dominate value creation
3. Services are often difficult to visualize and understand
4. Customers may be involved in co-production
5. People may be part of the service experience
6. Operational inputs and outputs tend to vary more widely
7. The time factor often assumes great importance
8. Distribution may take place through nonphysical channels
• What are marketing implications?
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Differences, Implications, and
Marketing-Related Tasks (1) (Table 1.1)
Difference Implications Marketing-Related Tasks

Most service products Customers may be Use pricing, promotion, and
cannot be inventoried turned away reservations to smooth
demand; work with ops to
manage capacity
Intangible elements Harder to evaluate Emphasize physical clues,
usually dominate service and distinguish employ metaphors and vivid
value creation from competitors images in advertising
Services are often Greater risk and Educate customers on

difficult to visualize uncertainty perceived making good choices; offer
and understand guarantees
Customers may be Interaction between Develop user-friendly

involved in co- customer and provider; equipment, facilities, and
production but poor task execution systems; train customers,
could affect satisfaction provide good support
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Differences, Implications, and
Marketing-Related Tasks (2) (Table 1.1)
Difference Implications Marketing-Related Tasks
People may be part of Behavior of service Recruit, train employees to

service experience personnel and customers reinforce service concept
can affect satisfaction Shape customer behavior
Operational inputs and Hard to maintain quality,

outputs tend to vary consistency, reliability
more widely Redesign for simplicity and
Difficult to shield
customers from failures failure proofing
Time factor often Time is money; Institute good service
assumes great customers want service recovery procedures
importance at convenient times
Find ways to compete on
Distribution may take Electronic channels or speed of delivery; offer
place through voice telecommunications extended hours
nonphysical channels
Create user-friendly,
secure websites and free
access by telephone
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7 P's : Service Marketing Mix: 7 P's of Service Marketing
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The 8Ps of Services Marketing
• Product Elements
• Place and Time
• Price and Other User Outlays
• Promotion and Education
• Process
• Physical Environment
• People
• Productivity and Quality
Fig 1.9 Working in Unison:

The 8Ps of Services Marketing
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The 8Ps of Services Marketing:
(1) Product Elements
• Embrace all aspects of service performance

that create value
• Planning marketing mix begins with creating a
service concept that:
– Will offer value to target customers
– Satisfy their needs better than competing
alternatives
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1. Product:
• Service products are heart of the service marketing.

• Marketing mix begins with creating a service
concept that will offer value to target customers and
satisfy needs better than competing alternatives.
• Service product consist of a core and
supplementary service element
– Core product meet primary need
– Supplementary element help to use the core product / add
value on core product
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(2) Place and Time
2) Place:
• Geographic locations served
• Service schedules
• Customer control and convenience
• Channel partners/intermediaries
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• Delivering product element to customers involves
decisions
• Delivery decision: Where; When; How
• Delivery may involve use of physical or electronic
channel
• Speed and convenience of place and time have
become important determinants of effective service
delivery
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(3) Price and Other User Outlays
3) Price
• Marketers must recognize that customer outlays
involve more than price paid to seller
• Traditional pricing tasks:
– Selling price, discounts, premiums
– Margins for intermediaries (if any)
– Credit terms
• Identify and minimize other costs incurred by users:
– Additional monetary costs associated with service usage
(e.g., travel to service location, parking, phone, babysitting,
etc.)
– Time expenditures, especially waiting
– Unwanted mental and physical effort
– Negative sensory experiences
40
4. Promotion:
• Promotion is nothing but communication between manufacture and customer
• This component plays three vital roles
– Providing information and advice
– Persuading target customers of the merit of a specific brand or service
product
– Encourage customer to take action at specific time
• Communication is educational for new customer
• Communication can be done by individual or in wide array
– individual: salespeople, front line staff; websites
– wide array of advertising media
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(4) Promotion and Education
4) Promotion
• Informing, educating, persuading, reminding customers
• Marketing communication tools
– Media elements (print, broadcast, outdoor, retail, the Internet, etc.)
– Personal selling, customer service
– Sales promotion
– Publicity/PR
• Imagery and recognition
– Branding
– Corporate design
• Content
– Information, advice
– Persuasive messages
– Customer education/training
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Services Require
An Expanded Marketing Mix
• Marketing can be viewed as:
– A strategic and competitive thrust pursued by top
management
– A set of functional activities performed by line managers
– A customer-driven orientation for the entire organization
• Marketing is the only function to bring operating
revenues into a business; all other functions are cost
centers
• The “8Ps” of services marketing are needed to create
viable strategies for meeting customer needs
profitably in a competitive marketplace
5. Process:
•How firm does things may be as important as what
it does
• Customer are often involve in the process, especially when
acting as co-producers.
• Creating and delivering product elements requires design and
implementation of effective processes.
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(5) Process
• Process involves choices of method and sequence

in service creation and delivery
– Design of activity flows
– Number and sequence of actions for customers
– Nature of customer involvement
– Role of contact personnel
– Role of technology, degree of automation
• Badly designed processes waste time, create poor
experiences, and disappoint customers
• Difficult to make sure that front-line staff do their
job well
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6. Physical Environment
• Service firms need to mange physical evidence carefully
• Because it can have a profound impact on customers' impressions
• Physical evidence are-
– Building
– Landscaping
– Vehicles
– Interior furnishing
– Equipment
– Staff Members' Uniforms
– Signs, Printed materials , Other visible cues
• This all provide tangible evidence of a firm's service quality
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7) People
• In service, always require direct
interaction between customers
and contact personnel.
• Interactions between customers
and contact personnel strongly
influence customer perceptions of
service quality
• The right customers for firm’s mission
– Contribute positively to experience of other
customers
– Possess—or can be trained to have— needed skills
(co-production)
– Can shape customer roles and manage customer
behavior
• Service quality/customers' satisfaction depends on
front-line staff
• Therefore, successful service firm give significant
effort to recruiting, training, and motivating employees
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(8) Productivity and Quality
8. Productivity and quality must work hand in hand
• Improving productivity key to reducing costs
• Improving and maintaining quality essential for
building customer satisfaction and loyalty
• Ideally, strategies should be sought to improve both
productivity and quality simultaneously—technology
often the key
– Technology-based innovations have potential to create high
payoffs
– But, must be user friendly and deliver valued customer
benefits
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CHARACTERISTICS OF SERVICES
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1. Intangibility:
Because services are performances or actions
rather than objects, they cannot be seen, felt,
tasted, or touched in the same manner that you
can sense tangible goods.
Ex: health care services are actions performed by providers and directed
toward patients and their families
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2. Heterogeneity
Because services are performances, frequently
produced by humans, no two services will be
precisely alike.
Ex: No two customers are alike, each will have
unique demand or experience , since services are
coproduced too, there will be variability,
resulting in heterogeneity of outcomes.
Ex: Tax accountant providing differing services
to differing needs
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3. Simultaneous production and consumption:
Services are sold first and then produced and
consumed simultaneously.
EX: University, class room interaction
(simultaneously)
4. Perishability
Services cannot be stored, saved, resold or
returned.
Ex:Rock concert, hair cut
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Marketing Must Be Integrated with
Other Management Functions (Fig 1.10)
Three management functions play central and interrelated roles in
meeting needs of service customers
Operations Marketing
Management Management
Customers
Human Resources
Management
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2) Customer Behaviour in Service Encounters:
Customer decision making: The 3 stage model
of service consumption, understanding service
encounters, defining moments of truth,
Customer expectation and perception of
services
55
• Opening vignette –Susan Munro
• Three stage model of service consumption:
1. Prepurchase stage: need awareness, information
search, evaluation of alternatives, and making a
purchase decision.
2. Service encounter stage: customer initiates,
experiences, and consumes the service.
3. Post-encounter stage: evaluation of service
performance, and recommending
56
A Framework for Developing Effective Service
Marketing Strategies
Two Key Themes in Part I of the

Services Marketing Strategy Framework:
Differences among Services Affect
Customer Behavior
Three-Stage Model of Service Consumption
Prepurchase Stage: need Service Encounter Stage: Role

awareness, information search, in high-contact vs. low-contact
evaluation of alternatives, and delivery
making a purchase decision.
Post-Encounter Stage:
Evaluation against
expectations, future intentions
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The Purchase Process for Services
Prepurchase Stage
Service Encounter Stage
Post-Encounter Stage
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Prepurchase Stage: Overview
1. Need awareness
Prepurchase Stage
2. Information search: evoked set and
consideration set
3. Evaluation of alternatives:
• Multiattribute model linear
compensatory rule and conjunctive
rule.
• Service attributes: search attributes,
experience attributes and credence
attributes.
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Evaluating a Service May Be Difficult
• Search attributes help customers evaluate a

product before purchase
– Style, color, texture, taste
• Experience attributes cannot be evaluated before
purchase—must “experience” product to know it
– Vacations, sporting events, medical procedures
• Credence attributes are product characteristics
that customers find impossible to evaluate
confidently even after purchase and consumption
– Quality of repair and maintenance work
60
How Product Attributes/characteristics Affect
Ease of Evaluation
Most Goods Most Services
Easy Difficult
to evaluate to evaluate*
Clothing Restaurant meals Computer repair
Chair Lawn fertilizer Education
Motor vehicle Haircut Legal services
Foods Entertainment Complex surgery
High in search High in experience High in credence

attributes attributes attributes
*NOTE: Difficulty of evaluation tends to decrease with broad exposure Source:
to a service category and frequency of use of a specific supplier Adapted from Zeithaml
61
Prepurchase Stage: Overview
Prepurchase Stage
Perceived Risk:
• Uncertainty about outcomes increases
perceived risk
• What risk reduction strategies can
service suppliers develop?
62
Perceived Risks in Purchasing and Using
Services
• Functional—unsatisfactory performance
outcomes
• Financial—monetary loss, unexpected extra
costs
• Temporal—wasted time, delays leading to
problems
• Physical—personal injury, damage to
possessions
• Psychological—fears and negative emotions
• Social—how others may think and react
• Sensory—unwanted impact on any of five
senses
How Might Consumers Handle Perceived Risk?
• Seeking information from respected personal sources

• Relying on a firm that has a good reputation
• Looking for guarantees and warranties
• Visiting service facilities or trying aspects of service
before purchasing
• Asking knowledgeable employees about competing
services
• Examining tangible cues or other physical evidence
• Using the Internet to compare service offerings and
search for independent reviews and ratings
64
Strategic Responses to Managing Customer
Perceptions of Risk
• Offer performance warranties, guarantees to
protect against fears of monetary loss
• For products where customers worry about
performance, sensory risks:
– Offer previews, free trials (provides experience)
– Advertising (helps to visualize)
• For products where customers perceive physical or
psychological risks:
– Institute visible safety procedures
– Deliver automated messages about anticipated problems
– Websites offering FAQs and more detailed background
– Train staff members to be respectful and empathetic
65
Understanding Customers’
Service Expectations
• Customers evaluate service quality by comparing what
they expect against what they perceive
– Situational and personal factors also considered
• Expectations of good service vary from one business to

another, and among differently positioned service
providers in the same industry
• Expectations change over time
• Example:
– Parents wish to participate in decisions relating to their
children’s medical treatment for heart problems
– Media coverage, education, the Internet has made this possible
66
Factors Influencing Customer Expectations of
Service (Fig 2.8)
Explicit & Implicit

Personal Needs Service Promises
Word-of-Mouth
Desired Service Past Experience
Beliefs about
What Is Possible
ZONE
OF
TOLERANCE
Perceived Service
Alterations
Adequate Service Predicted Service
Situational Factors
Source: Adapted from Valarie A. Zeithaml, Leonard A. Berry, and A. Parasuraman, “The Nature and Determinants of Customer Expectations of
Service,” Journal of the Academy of Marketing Science 21, no. 1 (1993): pp 1–12.
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Service expectations
Prof.KG (Source:Zeitham et al and

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Types of expectations
1. Desired service
(highest level)
2. Adequate service
(threshold
level) minimum
tolerable
expectations

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Zone of Tolerance:
Services are heterogeneous,
in that performance may vary
across providers, across
employees from the same
provider, and even with the
same service employee. The
extent to which customers
recognize and are willing to
accept this variation is called
the Zone of tolerance
Ex: Service at checkout line in
a grocery store.
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Components of Customer Expectations
• Desired Service Level:
– Wished-for level of service quality that
customer believes can and should be delivered
• Adequate Service Level:
– Minimum acceptable level of service
• Predicted Service Level:
– Service level that customer believes firm will
actually deliver
• Zone of Tolerance:
– Range within which customers are willing to
accept variations in service delivery
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• Purchase decision
73
SERVICE ENCOUNTERS: The
building blocks for customer perceptions:
Service encounters are where promises are
kept or broken  real time marketing
Service encounters or moments of truth:
From customer’s point of view, the most realistic
impression of service occurs in the service encounter, or
moment of truth, when the customer interacts with the
service firm.
74
The importance of encounters:
• A service encounter occurs every time a customer
interacts with the service organization.
• Types of service encounters:
Or technology-
mediated encounter
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The importance of encounters:
• A service encounter occurs every time a customer
interacts with the service organization.
• Types of service encounters:
Or technology-
mediated encounter
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Service Encounter Stage: Overview
1. moments of truth
Prepurchase Stage
2. High or low contact service model
3. Servuction model
4. Role and script theories
 Theater as a metaphor for service

Service Encounter Stage delivery: An integrative perspective
 Implications for customer participation

in service creation and delivery
79
Service Encounters Range from
High-Contact to Low-Contact (Fig 2.9)
Figure 2.9
Levels of Customer Contact with
Service Organizations
80
Distinctions between High-Contact and Low-
Contact Services
• High-Contact Services
– Customers visit service facility and remain throughout
service delivery
– Active contact between customers and service personnel
– Includes most people-processing services
• Low-Contact Services
– Little or no physical contact with service personnel
– Contact usually at arm’s length through electronic or
physical distribution channels
– New technologies (e.g. the Web) help reduce contact levels
• Medium-Contact Services Lie in between These Two
81
• The servuction system: The servuction model
shows the interactions that together make up a
typical customer experience in a high-contact
service.
• Servuction system comprises of technical core
and services delivery system.
82
Service Marketing System for a High-Contact Service
SERVICE MARKETING SYSTEM

Service Delivery System Other Contact Points
Advertising
Service Operations System Other
Customers Sales Calls
Interior & Exterior
Market Research Surveys
Facilities
Billing/Statements
Technical The
Equipment Misc. Mail, Phone Calls,
Core Customer E-mails, Faxes, etc.
Website
Service People Random Exposure to
Facilities/Vehicles
Backstage Front Stage Other Chance Encounters with

Service Personnel
(invisible) (visible) Customers
Word of Mouth
83
The Servuction System:
Service Production and Delivery
• Service Operations (front stage and backstage)
– Where inputs are processed and service elements created
– Includes facilities, equipment, and personnel
• Service Delivery (front stage)
– Where “final assembly” of service elements takes place
and service is delivered to customers
– Includes customer interactions with operations and other
customers
• Service Marketing (front stage)
– Includes service delivery (as above) and all other contacts
between service firm and customers
84
Service Marketing System for a
Low-Contact Service
Service Operations SERVICE MARKETING SYSTEM
System
Service Delivery System Other Contact Points
Mail Advertising
Market Research
Surveys
Technical Self The
Core Service Billing/Statements
Equipment Customer
Random Exposure to
Phone, Fax, Facilities/Vehicles
Web- site,
etc. Word of Mouth
Front Stage
Backstage (visible)
(invisible)
85
Theater as a Metaphor for
Service Delivery
“All the world’s a stage and all the

men and women merely players.
They have their exits and their
entrances and each man in his time
plays many parts”
William Shakespeare
As You Like It
86
Theatrical Metaphor:
An Integrative Perspective
• Service dramas unfold on a “stage”—settings may

change as performance unfolds
• Many service dramas are tightly scripted, others
improvised
• Front-stage personnel are like members of a cast
• Like actors, employees have roles, may wear special
costumes, speak required lines, behave in specific ways
• Support comes from a backstage production team
• Customers are the audience—depending on type of
performance, may be passive or active participants
87
Implications of Customer Participation in
Service Delivery
• Greater need for

information/training to help
customers to perform well,
get desired results
• Customers should be given a
realistic service preview in
advance of service delivery,
so they have a clear picture of Figure 2.13: Tourists Appreciate Easy-to-Understand
their expected role Instructions When Traveling
88
Post-Encounter Stage: Overview
Prepurchase Stage
 Evaluation of service
performance
Customer satisfaction
Service quality
perception
Repeat purchase
Customer loyalty
 Future intentions
89
Customer satisfaction: The expectancy-
disconfirmation model of satisfaction
90
91
Customer Satisfaction Is Central to the
Marketing Concept
• Satisfaction defined as attitude-like judgment following a service purchase
or series of service interactions
• Customers have expectations prior to consumption, observe service
performance, compare it to expectations
• Satisfaction judgments are based on this comparison
– Positive disconfirmation if better than expected
– Confirmation if same as expected
– Negative disconfirmation if worse than expected
• Satisfaction reflects perceived service quality, price/quality tradeoffs,
personal and situational factors
• Research shows links between customer satisfaction and a firm’s financial
performance
92
Customer Delight:
Going Beyond Satisfaction
• Research shows that delight is a function of three
components:
– Unexpectedly high levels of performance
– Arousal (e.g., surprise, excitement)
– Positive affect (e.g., pleasure, joy, or
happiness)
• Is it possible for customers to be delighted by very
mundane services?
• Strategic links exist between customer satisfaction
and corporate performance.
• Getting feedback during service delivery help to
boost customer loyalty
93
• Service Quality: service quality is excellent when
it meets high standard of performance that
consistently meets or exceeds customer
expectations.
• Customer satisfaction and service quality are
contrasting customer expectations with their
performance perceptions. Ex: Starbucks coffee
94
• SERVQUAL Dimensions of service quality:
RATER:
Reliability
Assurance
Tangibles
Empathy
Responsivesness
95
96
websitesl)
• Understanding what customers evaluate and later
understand 5 dimensions of service that customers rely on
in forming their judgments.
• Customers evaluate- based on their perceptions of the
technical outcome provided, the process by which that
outcome was delivered, and the quality of the physical
surroundings where the service is delivered.
• Example:restaurant customer ,meal (technical outcome
quality) and on how the meal was served and how the
employees interacted with him/her (interaction quality) .
The décor and surroundings (physical environment
quality) of both the law firm and the restaurant will also
affect the customer’s perceptions of overall service
97
• These dimensions represent how consumers
organise information about service quality in
their minds.
• These 5 were found relevant for banking,
insurance, appliance repair and maintenance,
securities brokerage, long distance telephone
service, …also in retail and business services
98
• Customer loyalty
99
Customer perception of service:
• Customer perception and satisfaction
• Service quality
• Service encounters
• Relationship strategies for influencing
customer perceptions
100
• Perceptions are always considered relative to
expectations. Because expectations are dynamic,
evaluations may also shift over time– from
person to person and from culture to culture.
Satisfaction Vs service quality
Satisfaction is a broader concept while quality
focuses specifically on dimensions of service. Thus,
perceived service quality is a component of
customer satisfaction.
101
102
103
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• Activity
104
UNIT II BUILDING THE SERVICE MODEL
105
1. Developing Service Concepts: Defining the core and supplementary
elements of a service, The flower of service, Planning and branding
service products, Development of new services.
2. Distributing Services: Determining the type of contact: Options for
service delivery, Place and time decisions, the role of intermediaries,
Distributing services internationally.
3. Pricing and Revenue Management: Tripod strategy of pricing, Activity
based costing, Demand elasticity based on pricing & customer
segments, Yield management to maximize revenues.
4. Services marketing communication: Setting communication objectives,
Challenges (intangibles) and opportunities in communicating services,
Marketing communications mix using internet.

106
1. Developing Service Concepts: Defining the
core and supplementary elements of a
service, The flower of service, Planning and
branding service products, Development of
new services.
107
Developing
Service Concepts:
Core and
Supplementary Elements
1. Planning and Creating Services*
2. The Flower of Service*
3. Planning and Branding Service Products
4. Development of New Services
Service Products
• A service product: A defined and consistent “bundle of

output”
• Service firms can differentiate their products in similar
fashion to various “models” offered by manufacturers
• Providers of more intangible services also offer a “menu”
of products
– Represent an assembly of elements that are built
around the core product
– May include certain value-added supplementary
services
1. Planning and Creating Services
a) Design a Service Concept
b) Document Delivery Sequence

over Time
c) Flowchart Service Delivery

Planning and Creating Services
• A service product comprises all elements of service

performance, both tangible and intangible, that create
value for customers
• The service concept is represented by:
– A core product
– Accompanied by supplementary services
Core Products and Supplementary Services
• In mature industries, core products often

become commodities
• Supplementary services help to differentiate core
products and create competitive advantage by:
– Facilitating use of core product (a service or a
good)
– Enhancing the value and appeal of the core
product
a) Designing a Service Concept
• Core Product
– Central component that supplies the principal,
problem-solving benefits customers seek
• Supplementary Services
– Augment the core product, facilitating its use and
enhancing its value and appeal
• Delivery Processes
– Used to deliver both the core product and each of the
supplementary services
Core and Supplementary Product Design:
An Integrated Perspective
Delivery Concept
Supplementary Nature of for Core Product
services offered Scheduling
Process
and delivered
Service Level Customer

Role
Core and Supplementary Services at Luxury Hotel
(Offering Much More than Cheap Motel!)
Reservation
Parking
Receptioncheck-in/check out
Overnight stay
Room
Service Baggage
Service
Wake-up Cocktail
Call Bar
Internet Entertainment/
Sports/ Exercise Restaurant
Defining Core and Supplementary
Elements of Our Service Product
• How is our core product defined and what supplementary
elements augment it?
• What product benefits create most value for customers?
• What are current levels of service on core product and
each supplementary element?
• Can we charge more for higher service levels? For
example:
• Alternatively, should we cut service levels and charge
less?
b) Documenting Delivery Sequence
Over Time
• Must address sequence in which customers will use
each core and supplementary service
• Determine length of time for each step
• Information should reflect good understanding of
customers, especially their:
– Needs
– Habits
– Expectations
• Question: Do customers’ expectations change during
service delivery in light of perceived quality of each
sequential encounter?
What Happens, When, in What Sequence?
Time Dimension in Augmented Product
Reservation
Parking Get car
Check in Check out
Internet Internet
Use
internet
room USE GUESTROOM OVERNIGHT
Porter
Pay TV
Meal
Room service
Time Frame of An Overnight Hotel Stay

Before Visit
(Real-time service use)
c) Flowcharting Service Delivery
• Offers way to understand totality of customer’s service

experience
• Useful for distinguishing between core product itself and
service elements that supplement core
– Restaurants: Food and beverage (core)
– Reservations (supplementary services)
• Shows how nature of customer involvement with service

organizations varies by type of service:
– People processing
– Possession processing
– Mental Stimulus processing
– Information processing
Simple Flowchart for Delivery of a People-
Processing Service
People Processing – Stay at Motel

Spend
Park Car Check In Night in Breakfast Check Out
Room
Maid Makes
Breakfast
up Room
Prepared
Simple Flowchart for Delivery of a
Possession-Processing Service
Possession Processing – Repair a DVD Player
Travel to Technician Examines Return, Pick up (Later) Play DVDs

Leave Store
Store Player, Diagnoses Player and Pay at Home
Problem
Technician Repairs Player

Simple Flowchart for Delivery of Mental
Stimulus-Processing Service
Mental Stimulus Processing – Weather Forecast
Turn on TV, Select View Presentation of Confirm Plans for

Channel Weather Forecast Picnic
Collect Meteorologists Input Data to TV Weatherperson

Weather Models and Creates Forecast Prepares Local
Data from Output Forecast
Simple Flowchart for Delivery of An
Information-Processing Service
Information Processing – Health Insurance
Select Plan, Insurance Coverage Printed Policy

Learn about
Pay Begins Documents
Options Complete Forms
Arrive
University and Insurance

Customer Information
Company Agree on Terms of
Entered in Database
Coverage
Managerial Implications
• To develop product policy and pricing strategy, managers

need to determine:
– Which supplementary services should be offered as a
standard package or as options
• Firms that compete on a low-cost, no-frills basis needs
fewer supplementary elements
• Each flower petal must receive consistent care and
concern to remain fresh and appealing
How to Determine What Supplementary Services
Should Be Offered
• Nature of product helps to determine:
– Which supplementary services must be offered
– Which might usefully be added to enhance value
• People-processing and high-contact services tend to have

more supplementary services
• Market positioning strategy helps to determine which
supplementary services should be included
2. The Flower of Service
Information
Payment Consultation
Billing Core Order Taking
Exceptions Hospitality
Safekeeping
KEY:
Facilitating elements
Enhancing elements
The Flower of Service:
Facilitating Services—Information
Customers often require information

about how to obtain and use a
product or service.
Examples of elements:
Core
 Directions to service site
 Schedule/service hours
 Prices
 Conditions of sale
 Usage instructions
Facilitating Services—Order Taking
Customers need to know what is

available and may want to secure
commitment to delivery. The
process should be fast and
smooth.
Core
 Applications
 Order entry
 Reservations and check-in
Facilitating Services—Billing
“How much do I owe you?”

Bills should be clear,
Accurate, and legible.
Core Examples of elements:
 Periodic statements of
account activity
 Machine display of amount
due
Facilitating Services—Payment
Customers may pay faster

and more cheerfully if you
make transactions simple
and convenient for them.
Core
 Self service payment

 Direct to payee or intermediary
 Automatic deduction
Enhancing Services—Consultation
Value can be added to goods and

services by offering advice and
consultation tailored to
each customer’s needs and
Core situation.
 Customized advice
 Personal counseling
 Management consulting
Enhancing Services—Hospitality
Customers who invest time and effort in
visiting a business and using its services
deserve to be
treated as welcome guests—
after all, marketing invited them!
 Greeting
 Waiting facilities and amenities
 Food and beverages
 Toilets and washrooms
 Security
Enhancing Services—Safekeeping
Customers prefer not to worry about

looking after the personal possessions
that they bring with them to a service
site.
 Looking after possessions

customers bring with them
 Caring for goods purchased
(or rented) by customers
Enhancing Services—Exceptions
Customers appreciate some

flexibility when they make special
requests and expect responsiveness
when things don’t go according to
plan.
Core
 Special requests in advance

 Complaints or compliments
 Problem solving
 Restitution
3. Planning and Branding Service
Products
Product Lines and Brands
• Most service organizations offer a line of

products rather than just a single product
• They may choose among three broad
alternatives:
– Single brand to cover all products and services
– A separate, stand-alone brand for each offering
– Some combination of these two extremes
Offering a Branded Experience
• Branding can be employed at both corporate and product levels

• Corporate brand:
– Easily recognized
– Holds meaning to customers
– Stands for a particular way of doing business
• Product brand:
– Helps firm communicate distinctive experiences and benefits

associated with a specific service concept
• Moving toward branded customer experience includes:
– Create brand promise

– Shape truly differentiated customer experience
– Give employees skills, tools, and supporting processes to deliver
promise
– Measure and monitor
• Branding can be employed at both the corporate
and product levels
Branding strategies for services: Most service
organisations choose from among four branding
alternatives-
Branded house,
house of brands ,
sub-brands and
endorsed brands
139
Spectrum of Branding Alternatives
Corporate Individual Product

Branding Branding
“Branded House”
“House of Brands”
e.g., Virgin Group
e.g., P&G
Sub-brands Endorsed Brands

e.g., Raffles Class at e.g., Courtyard
Singapore Airlines by Marriott
Source: Derived from Aaker and Joachimsthaler

• Branded house:
Example:
141
• Google books
• Google videos
• Google maps
142
• Sub-brands:
Example:
144
Example: British Airways Sub-brands
• British Airways offers six distinct air travel

products
– Four intercontinental offerings:
• First (deluxe service)
• Club World (business class)
• World Traveller Plus (premier economy class)
• World Traveller (economy class)
– Two intra-European offerings:

• Club Europe
• Euro-Traveller
• Endorsed brands: Product brand dominates
but the corporate name is still featured.
• Example : Intercontinental Hotel Group is a
well known brand, it’s product brands are
dominant: Intercontinental Hotels & Resorts,
Crowne Plaza Hotels & resorts, Hotel Indigo,
Holiday Inn, Holiday Inn Club vacations, etc.
146
• House of brands:
Example: KFC, Pizza Hut and Taco Bell
147
• Tiering service products with branding:
Branding is not only used to differentiate core
service, but also to clearly differentiate service
levels.
• Example: Airline: Classes-first, business,
premium economy, economy
148
Building Brand Equity
• Brand equity is the value premium that comes with a brand
149
• Presented brands
• External brand communication
• Customer experiences with company
• Brand awareness
• Brand meaning
• Brand equity
150
151
152
153
154
Offering a Branded Experience (2)
“The brand promise or value proposition is not

a tag line, an icon, or a color or a graphic
element, although all of these may contribute.
It is, instead, the heart and soul of the
brand….”
Don Schultz
4. Developing New Services
New Service Development OR A Hierarchy of New Service
Categories:
1. Style changes: Visible changes in service design or scripts
2. Service improvements: Modest changes in the
performance of current products
3. Supplementary service innovations: Addition of new or
improved facilitating or enhancing elements
4. Process line extensions: Alternative delivery procedures
5. Product line extensions: Additions to current product
lines
6. Major process innovations: Using new processes to
deliver existing products with added benefits
7. Major service innovations 157
Achieving Success/Success Factors in New Service
development
• Market synergy
– Good fit between new product and firm’s image/resources
– Advantage versus competition in meeting customers’ needs
– Strong support from firm during/after launch
– Firm understands customer purchase decision behavior
• Organizational factors
– Strong interfunctional cooperation and coordination
– Internal marketing to educate staff on new product and its competition
– Employees understand importance of new services to firm
• Market research factors
– Scientific studies conducted early in development process
– Product concept well defined before undertaking field studies
2. Distributing Services: Determining the type of
contact: Options for service delivery, Place and
time decisions, the role of intermediaries,
Distributing services internationally.
159
• What?
• How?
• Where?
• When?
What is being distributed:
• Information and promotion flow (information and
consultation petals)
• Negotiation flow (order taking, billing and
payments)
• Product flow (core and the remaining petals)
160
1. How should a service be distributed?
• Customers visit the service site
• Service providers go to their customers
• Service transactions is conducted remotely
2. Channel preference vary among customers
3. Where should a service facility be located?
a. Strategic location consideration
b. Tactical location consideration
161
162
Information
processes
Information
Payment Consultation
Order-
Billing Core taking
Exceptions Hospitality
Safekeeping
Physical
processes
163
2. Channel preference vary among customers:
• Not all consumers prefer the same channel
• Complex and perceived high-risk….
• Convenience in time , place, higher confidence
and knowledge in technology……
• Channel integration
• Channel arbitrage
164
2. Channel preference vary among customers
a. Strategic location consideration
165
a. Strategic location consideration: consistent
with its marketing strategy and target
segments. Availability of site locations, rental
cost, contractual conditions and regulations.
166
Locational constraints:
• Multi-specialty hospitals located in single location.
• Location of Airports
Innovative location strategies:
• Mini-stores: automated kiosks, K-minus strategy of
Taco Bell, and small bank branches inside
supermarkets
• Locating in multi-purpose facilities
167
• When should service be delivered?
168
The role of intermediaries
169
Splitting Responsibilities For Supplementary
Service Elements
As created by As enhanced As experienced
originating firm by distributor by customer
Core + = Core
Core product Supplementary Total experience

services and benefits
Challenges for original supplier

 Act as guardian of overall process
 Ensure that each element offered by intermediaries fits overall service concept
• Disintermediation
Example: Easyjet
Franchising:
– Resources are limited
– Long-term commitment of store managers is crucial
– Local knowledge is important
– Fast growth is necessary to preempt competition
• Study shows significant attrition rate among
franchisors in the early years of a new franchise
system
– One-third of all systems fail within first 4 years
– Three-fourths of all franchisors cease to exist after 12 years
171
• Disadvantages of franchising
– Some loss of control over delivery system and, thereby, over
how customers experience actual service
– Effective quality control is important yet difficult
– Conflict between franchisees may arise especially as they gain
experience
• Alternative: license another supplier to act on the original
supplier’s behalf to deliver core product, for example:
– Trucking companies
– Banks selling insurance products
172
Challenge of distribution in large domestic markets:
McD-Segmentation.mp4
173
Distributing services internationally
Factors favoring:
• Market drivers- common customer needs
• Competition drivers
• Technology drivers
• Cost drivers
• Government drivers
174
• Barriers:
• Bi-lateral agreement
175
Unit II
3. Pricing and Revenue Management: Tripod
strategy of pricing, Activity based costing,
Demand elasticity based on pricing &
customer segments, Yield management to
maximize revenues.
176
• DYNAMIC PRICING
177
The Pricing Tripod
Pricing strategy
Competition
Costs Value to customer
Three Main Approaches to Pricing
• Cost-based pricing
– Set prices relative to financial costs (problem: defining
costs)
– Activity-based costing
– Pricing implications of cost analysis
• Competition-based pricing
– Monitor competitors’ pricing strategy (especially if
service lacks differentiation)
– Who is the price leader? Does one firm set the pace?
• Value-based pricing
– Relate price to value perceived by customer
1) Cost-based Pricing:
Traditional vs. Activity-based Costing
• Traditional costing approach

– Emphasizes expense categories (arbitrary overhead
allocation)
– May result in reducing value generated for customers
• ABC management systems
– Link resource expenses to variety and complexity of
goods/services produced
– Yields accurate cost information
• When looking at prices, customers care about value to
themselves, not what service production costs the firm
Value-based Pricing
Understanding Net Value
• Net value = Perceived benefits to
customer (gross value) minus all
Perceived outlays (Money, Time,
Mental/Physical effort)
• Monetary price is not only
perceived outlay in purchasing,
using a service
Effort Time
e
Perceived
benefits Perceived
outlays
Value-based Pricing:
Strategies for Enhancing Net Value
1. Enhance gross value—benefits delivered

1. Add benefits to core product
2. Enhance supplementary service
3. Manage perceptions of benefits delivered
2. Reduce outlays—costs incurred by customers
1. Reduce price and/or other monetary costs of acquisition and usage
2. Cut amount of time required to evaluate, buy, use service
3. Lower physical and mental effort associated with purchase and
use
4. Reduce perceptions of amount of cost, time, effort required
Value-based Pricing:
Enhancing Perceptions of Gross Value
• Reduce uncertainty
– Service guarantees
– Benefit-driven—pricing aspect(s) of service that create
value
– Flat rate (quoting a fixed price in advance)
• Relationship pricing
– Discounts for volume purchases
– Discounts for purchasing multiple services
• Low-cost leadership
– Convince customers not to equate price with quality
– Keep economic costs low to ensure profitability at low price
Trading Off Monetary and Nonmonetary Costs
• Which clinic would you patronize if you needed a chest x-ray (assuming all three
clinics offer good quality)?
Clinic A Clinic B Clinic C
 Price $45  Price $85  Price $125

 Located 1 hour away by  Located 15 mins away by  Located next to your
car or transit car or transit office or college
 Next available  Next available  Next appointment is in 1
appointment is in 3 weeks appointment is in 1 week day
 Hours: Mon-Fri, 9AM-  Hours: Mon-Fri, 8AM-  Hours: Mon-Fri, 8AM-
5PM 10PM 10PM
 Estimated wait at clinic is  Estimated wait at clinic is  By appointment—
about 2 hours about 30 to 45 mins estimated wait at clinic
is 0 to 15 mins
Revenue Management:
What It Is and How It Works
Key: Maximizing Revenue from
Available Capacity at a Given Time
• Price customization
– Charge different value segments different prices
• Useful in dynamic markets
– Different price buckets based on price sensitivity to
different usage times, flexibility, other factors
• RM uses mathematical models to examine historical data and real-time
information to determine price to be charged
– What prices to charge within each price bucket
– How many service units to allocate to each bucket
• Rate fences deter customers willing to pay more from trading down to
lower prices
Ethical Concerns in Pricing
• Many services have complex pricing schedules

– Hard to understand
– Difficult to calculate full costs in advance of service
• Unfairness and misrepresentation in price promotions
– Misleading advertising
– Hidden charges
• Too many rules and regulations
– Customers feel constrained, exploited
– Customers unfairly penalized when plans change
Designing Fairness into
Revenue Management
1. Design clear, logical, and fair price schedules and fences
2. Use high published prices and present fences as
opportunities for discounts rather than quoting lower
prices and using fence to impose surcharges
3. Communicate consumer benefits of revenue management
4. Take care of loyal customers
5. Use service recovery to compensate for overbooking
4. Services marketing communication: Setting
communication objectives, Challenges
(intangibles) and opportunities in
communicating services, Marketing
communications mix using internet.

189
• Target audience
• Specifying service communication objectives:
Strategic service communications objectives
(building service brand and positioning it) and
Tactical service communications ( shaping and
managing customer’s perceptions, beliefs,
attitudes and behavior)
190
Adding Value through
Communication Content
• Information and consultation represent important ways to add value to a product
• Promote the contribution of service personnel and backstage
operations….advertising
• Provide information to prospective customers
– Service options available, cost, specific features, functions,
service benefits: example-Video of dental surgery
• Persuade target customers that service offers best solution to meet their needs and
build relationship with them
• Help maintain relationships with existing customers
– Requires comprehensive, up-to-date customer database and
ability to make use of this in a personalized way
– Direct mail and contacts by telephone, e-mail, websites, text
messages
• For example, doctors sending annual checkup reminders to patients
Overcoming Problems of Intangibility
• May be difficult to communicate service
benefits to customers, especially when
intangible
• Intangibility creates four problems:
– Abstractness
• No one-to-one correspondence with physical objects, financial security etc
– Generality
• Items that comprise a class of objects, persons, or events
– Nonsearchability
• Cannot be searched or inspected before purchase
– Mental impalpability
• Customers find it hard to grasp benefits of complex, multidimensional new
offerings
Advertising Strategies for
Overcoming Intangibility
Intangibility problem Advertising strategy
 Generality
 objective claims Document physical system capacity
Cite past performance statistics
 subjective claims Present actual service delivery incident
 Nonsearchability Present customer testimonials

Cite independently audited performance
 Abstractness Display typical customers benefiting
 Impalpability Documentary of step-by-step process,
Case history of what firm did for customer
Narration of customer’s subjective experience
Source: Banwari Mittal and Julie Baker, “Advertising Strategies for Hospitality Services,” Cornell Hotel and Restaurant Administration Quarterly 43, April 2002, 53
Services Marketing Communication Mix:
194
Channel categories:
1. Personal (direct marketing and personal
communications) and non-personal (TV,
print, outdoor)
2. Traditional Vs online (online advertising,
social media, and mobile communication)
195
• Advertising: pro’s and con’s
• Direct marketing: huge database
196
197
websitesl)
UNIT III Managing the Customer Interface (9 Hrs)

1) Designing and managing service processes: Blueprinting service
operations to create valued experiences, Service process redesign, The
customer as co-producer.
2) Balancing Demand & Productive Capacity: Patterns & Determinants of

demand, managing demand levels, overcoming capacity constraint,
Inventory demand through waiting lines & reservations.
3) Crafting the Service Environment: Understanding consumer responses
to service environments, Dimensions of the service environment.
4) Managing People for Service Environment: Importance of Service
Employees, Frontline & back office, Cycles of failure, mediocrity and
success, Human resource management, Service Leadership & Culture.
198
Designing and managing service processes:
• Blueprinting service operations to create
valued experiences,
• Service process redesign,
• The customer as co-producer.
199
• Difference between a flowchart and a
blueprint
200
201
Simple Flowchart for Delivery of a People-
Processing Service
People Processing – Stay at Motel

Spend
Park Car Check In Night in Breakfast Check Out
Room
Maid Makes
Breakfast
up Room
Prepared
• Blueprint is a complex form of a flowchart,
specifies in detail how a service process is
constructed, including what is visible to the
customer and all that goes on in the back-
office.
• Service blueprints map customer, employee
and service system interactions.
• Line of interactions
203
Developing a Blueprint
1. Front stage activities

2. Physical evidence of front-stage activities
3. Line of visibility
4. Back-stage activities
5. Support processes and supplies
6. Potential fail points
7. Identifying customer waits
8. Service standards and targets
Blueprinting the restaurant experience: A three-
act performance
• Most service processes can be divided into
three main steps:
1. Pre-process stage
2. In-process stage
3. Post-process stage
Key Components of a Service Blueprint
1. Define standards for front-stage activities

2. Specify physical evidence
3. Identify principal customer actions
4. Line of interaction (customers and front-stage personnel)
5. Front-stage actions by customer-contact personnel
6. Line of visibility (between front stage and backstage)
7. Backstage actions by customer contact personnel
8. Support processes involving other service personnel
9. Support processes involving IT
- Set service standards and do failure-proofing*

-Identify fail points and risks of excessive waits*
Blueprinting the Restaurant Experience: A
Three Act Performance
• Act 1: Prologue and Introductory Scenes*
• Act 2: Delivery of Core Product
– Cocktails, seating, order food and wine, wine service
– Potential fail points: Menu information complete? Menu intelligible? Everything on
the menu actually available?
– Mistakes in transmitting information a common cause of quality failure—e.g. bad
handwriting; poor verbal communication
– Customers may not only evaluate quality of food and drink, but how promptly it is
served, serving staff attitudes, or style of service
• Act 3: The Drama Concludes
– Remaining actions should move quickly and smoothly, with no surprises at the end
– Customer expectations: Accurate, intelligible and prompt bill, payment handled
politely, guest are thanked for their patronage
Blueprinting the Restaurant Experience: Act 1 (
Timeline Act 1
Service Standards W
W W
and Scripts Make Valet Parking
Coat Room …
Physical
Reservation
Front - Stage
Evidence Line of
interaction
Greet customer, Greet, take
Accept take car keys Contact person
reservation coat, coat (visible actions)
checks
Line of visibility
Check Hang coat with Contact person

availability, Take car to visible check
Back - Stage
(invisible actions)
insert booking parking lot numbers
Line of internal
physical
Maintain Maintain (or Maintain interaction
reservation rent) facilities/
Support system facilities equipment
Processes
2. Redesigning Service Processes
Why Redesign? (1)
“Institutions are like steel beams—they tend to rust.

What was once smooth and shiny and nice
tends to become rusty.”
Mitchell T. Rabkin MD,

formerly president of
Boston’s Beth Israel Hospital
Why Redesign?
 Revitalizes process that has become outdated
 Changes in external environment make existing practices obsolete and

require redesign of underlying processes
 Creation of brand-new processes to stay relevant
 Rusting occurs internally
 Natural deterioration of internal processes; creeping bureaucracy;
evolution of spurious, unofficial standards
 Symptoms:
- Extensive information exchange
- Data redundancy
- High ratio of checking or control activities to value-adding
activities, increased exception processing
- Customer complaints about inconvenient and unnecessary
procedures
Process Redesign: Approaches and
Potential Benefits
• Eliminating non-value-adding steps
– Streamline front-end and back-end processes of services with goal of
focusing on benefit-producing part of service encounter
– Eliminate non-value-adding steps
– Improve efficiency
– More customized service
– Differentiate company
• Delivering direct service
– Bring service to customers instead of bringing customers to provider
– Improve convenience for customers
– Productivity can be improved if companies can eliminate expensive
retail locations
– Increase customer base
Process Redesign: Approaches and Potential
Benefits
• Shifting to self-service
– Increase in productivity and service quality
– Lower costs and perhaps prices
– Enhance technology reputation
– Greater convenience
• Bundling services
– Involves grouping multiple services into one offer, focusing on a
well-defined customer group
– Often has a better fit to the needs of target segment
– Increase productivity
– Add value for customers through lower transaction costs
– Customize service
– Increase per capita service use
Process Redesign: Approaches and Potential
Benefits
• Redesigning physical aspects of service processes

– Focus on tangible elements of service process;
include changes to facilities and equipment to
improve service experience
– Increase convenience
– Enhance the satisfaction and productivity of front-
line staff
– Cultivate interest in customers
– Differentiate company
3. The Customer as Co-Producer*
Levels of Customer Participation
• Three Levels
– Low—Employees and systems do all the work
- Often involves standardized service
– Medium—Customer inputs required to assist provider
- Provide needed information and instructions
- Make some personal effort; share physical possessions
– High—Customer works actively with provider to co-produce the
service
- Service cannot be created without customer’s active
participation
- Customer can jeopardize quality of service outcome (e.g.,
weight loss, marriage counseling)
Self-Service Technologies (SSTs)*
• Ultimate form of customer involvement

– Customers undertake specific activities using facilities or systems provided by
service supplier
– Customer’s time and effort replace those of employees
• e.g. Internet-based services, ATMs, self-service gasoline pumps
• Information-based services lend selves particularly well to SSTs
– Used in both supplementary services and delivery of core product
• e.g. eBay—no human auctioneer needed between sellers and buyers
• Many companies and government organizations seek to divert customers from
employee contact to Internet-based self-service
– Challenge: Getting customers to try this technology

Psychological Factors in Customer
Co-Production
• Economic rationale of self-service
– Productivity gains and cost savings result when customers take
over work previously performed by employees
• Lower prices, reflecting lower costs, induce customer to
use SSTs
• Critical to understand how consumers decide between
using an SST option and relying on a human provider
• SSTs present both advantages and disadvantages
– Benefits: Time and cost savings, flexibility, convenience of
location, greater control over service delivery, and a higher
perceived level of customization
– Disadvantages: Anxiety and stress experienced by customers
who are uncomfortable with using them
What Aspects of SSTs Please or Annoy
Customers?
• People love SSTs when…
– SST machines are conveniently located and accessible 24/7—often as

close as nearest computer!
– Obtaining detailed information and completing transactions can be
done faster than through face-to-face or telephone contact
– People in awe of what technology can do for them when it works well
• People hate SSTs when…
– SSTs fail—system is down, PIN numbers not accepted, etc
– They mess up—forgetting passwords, failing to provide information as
requested, simply hitting wrong buttons
• Key weakness of SSTs: Too few incorporate service recovery systems
– Customers still forced to make telephone calls or personal visits
– Blame service provider for not providing more user-friendly system
Putting SSTs to Test by
Asking a Few Simple Questions
 Does the SST work reliably?

 Firms must ensure that SSTs are dependable and user-
friendly
 Is the SST better than interpersonal alternatives?
 Customers will stick to conventional methods if SST doesn’t
create benefits for them
 If it fails, what systems are in place to recover?
 Always provide systems, structures, and technologies that
will enable prompt service recovery when things go wrong
Customers as Partial Employees
• Customers can influence productivity and quality of service processes and outputs
• Customers who are offered opportunities to participate at active level are more likely to be
satisfied
• However, customers cause one-third of all service problems
– Difficult to recover from instances of customer failure
– Focus on preventing customer failure by collecting data on problem
occurrence, analyzing root causes, and establishing preventive
solutions
• Managing customers as employees helps to avoid customer failures
– Conduct “job analysis” of customer’s present role in business—
compare against role that firm would like customers to play
– Educate customers on how expected to perform and skills needed
– Motivate customers by ensuring that rewarded if they perform well
– Appraise customers’ performance regularly
2) Balancing Demand & Productive Capacity:
Patterns & Determinants of demand, managing
demand levels, overcoming capacity constraint,
Inventory demand through waiting lines &
reservations.
3) Crafting the Service Environment: Understanding
consumer responses to service environments,
Dimensions of the service environment.
--------External Input----Mr.Rajeev Sunu
222
4) Managing People for Service Environment:
• Importance of Service Employees,
• Frontline & back office,
• Cycles of failure, mediocrity and success,
• Human resource management,
• Service Leadership & Culture.
223
Chapter :
Managing People for
Service Advantage
225
1. Importance of Service Employees
Service Personnel: Source of Customer Loyalty
and Competitive Advantage
• Frontline is an important driver of customer loyalty
– Anticipating customer needs
– Customizing service delivery
– Building personalized relationships
• Customer’s perspective: Encounter with service staff is
most important aspect of a service
• Firm’s perspective: Frontline is an important source of
differentiation and competitive advantage. It is…
– A core part of the product
– the service firm
– The brand
Frontline in Low-Contact Services
• Many routine transactions are now conducted
without involving frontline staff, e.g.,
– ATMs (Automated Teller Machines)
– IVR (Interactive Voice Response) systems
– Websites for reservations/ordering, payment, etc.
• Though technology and self-service interface is
becoming a key engine for service delivery,
frontline employees remain crucially important
• “Moments of truth” drive customer’s perception
of the service firm
2. Frontline Work Is
Difficult and Stressful
Boundary Spanning Roles
• Boundary spanners link inside of organization to

outside world.
• Multiplicity of roles often results in service staff
having to pursue both operational and marketing
goals
• Consider management expectations of service
staff:
– Delight customers
– Be fast and efficient in executing operational tasks
– Do selling, cross selling, and up-selling
Role Stress in Frontline Employees
Three main causes of role stress:

• Person /Role: Conflicts between what jobs require
and employee’s own personality and beliefs
– Organizations must instill “professionalism” in
frontline staff
• Organization /Client: Dilemma whether to follow
company rules or to satisfy customer demands.
Cross selling , upselling is also expected.
• Interclient/Client versus Client: Conflicts between

customers that demand service staff intervention
Emotional Labor
• “The act of expressing socially desired emotions

during service transactions” (Hochschild, The
Managed Heart)
• Performing emotional labor in response to
society’s or management’s display rules can be
stressful
• Good HR practices emphasize selective
recruitment, training, counseling, and strategies to
alleviate stress
3. Cycles of Failure,
Mediocrity, and Success
Cycle of Failure
Customer
turnover Repeat emphasis on
attracting new customers
Failure to develop
customer loyalty
Low profit
margins Narrow design of
jobs to accommodate
low skill level
High employee turnover;
poor service quality
No continuity in Use of technology Emphasis on

relationship for to control quality rules rather
customer Employee dissatisfaction; than service
poor service attitude
Payment of
low wages
Employees
become bored Minimization of
Customer selection effort
dissatisfaction Minimization
of training
Employees can’t
respond to customer
problems
Source: Schlesinger and Heskett

Cycle of Failure
• The employee cycle of failure

– Narrow job design for low skill levels
– Emphasis on rules rather than service
– Use of technology to control quality
• Question: Labor Cost and Labor Rate
• The customer cycle of failure

– Managers’ short-sighted assumptions about financial
implications of low pay/high turnover human resource
strategies
Cycle of Failure
• Costs of short-sighted policies are ignored
– Loss of expertise among departing employees*
– Disruption to service from unfilled jobs
– Constant expense of recruiting, hiring, training*
– Lower productivity of inexperienced new workers
– Loss of revenue stream from dissatisfied customers who go
elsewhere*
– Loss of potential customers who are turned off by negative word-of-
mouth
– Higher costs of winning new customers to replace those lost—more
need for advertising and promotional discounts
Cycle Of Mediocrity
Customers trade
horror stories
Other suppliers (if any)
seen as equally poor
Employees spend
working life
in environment
Employee of mediocrity
dissatisfaction
(but can’t easily quit) Emphasis
on rules
Narrow design vs. pleasing
of jobs
customers
No incentive for Complaints met by
cooperative relationship Training emphasizes
indifference or Success =
to obtain better service hostility learning rules
not making
mistakes
Service not focused
Jobs are boring and on customers’ needs
repetitive; employees
unresponsive Good wages/benefits
high job security
Resentment at inflexibility and
lack of employee initiative; Promotion
and pay
complaints to employees increases based Initiative is
discouraged
on longevity,
lack of mistakes
Source: Heskett and Schlesinger
Customer dissatisfaction
Cycle Of Mediocrity
• Most commonly found in large, bureaucratic

organizations
• Service delivery is oriented toward
– Standardized service
– Operational efficiencies
– Prevention of employee fraud and favoritism toward
specific customers
Cycle of Mediocrity
• Job responsibilities narrowly and

unimaginatively defined
• Successful performance measured by absence
of mistakes
• Training focuses on learning rules and

technical aspects of job—not on improving
interactions with customers and co-workers
Cycle of Success
Low
customer
turnover Repeat emphasis on
customer loyalty and
retention
Customer
loyalty
Higher
profit
margins
Broadened
Lowered turnover, job designs
high service quality
Continuity in
relationship with Train, empower frontline
customer Employee satisfaction, personnel to control quality
positive service attitude
Above average
Extensive wages
training
High customer Intensified
satisfaction selection effort
Source: Heskett and Schlesinger

Cycle of Success
• Longer-term view of financial performance; firm

seeks to prosper by investing in people
• Attractive compensation packages attract better
job applicants
• More focused recruitment, intensive training,
and higher wages make it more likely that
employees are:
– Happier in their work
– Provide higher quality, customer-pleasing service
Cycle of Success
• Broadened job descriptions with empowerment

practices enable frontline staff to control quality
and facilitate service recovery
• Regular customers more likely to remain loyal
because:
– Appreciate continuity in service relationships
– Have higher satisfaction due to higher quality
4. Human Resources Management—
How to Get It Right?
How to Manage People for
Service Advantage?
 Staff performance involves both ability and motivation
 How can we get able service employees who are

motivated to productively deliver service excellence?
– Hire the right people
– Enable these people
– Motivate and energize your
people
The Wheel of Successful HR in
Service Firms
Leadership that:
 Focuses the entire 1. Hire the
organization on Right People
supporting the frontline
3. Motivate and Energize  Be the preferred employer
Your People & compete for talent
 Fosters a strong service market share
 Utilize the full range
culture with passion for
of rewards
service and productivity  Intensify the
Service Excellence
selection process
& Productivity
 Drives values that
inspires, energizes
and guides service
2. Enable Your People
providers  Empower frontline
 Build high performance service
delivery teams
 Extensive training
1. Hire the Right People
“The old saying ‘People are your

most important asset’ is wrong.
The RIGHT people are your
most important asset.”
Jim Collins
Recruitment
• The right people are a firm’s most important asset: Take a focused,
marketing-like approach to recruitment
• Clarify what must be hired versus what can be taught
• Clarify nature of the working environment, corporate values and style,
in addition to job specs
• Ensure candidates have/can obtain needed qualifications
• Evaluate candidate’s fit with firm’s culture and values
• Match personalities, styles, energies to appropriate jobs
“If people come for money, they will leave for money”
- James Treybig (CEO of Tandem Computers)
Select and Hire the Right People:
(1) Be the Preferred Employer
• Create a large pool: “Compete for Talent Market Share”
• What determines a firm’s applicant pool?
– Positive image in the community as place to work
– Quality of its services
– The firm’s perceived status
• There is no perfect employee
– Different jobs are best filled by people with different skills,
styles, or personalities
– Hire candidates that fit firm’s core values and culture
– Focus on recruiting naturally warm personalities for customer-
contact jobs
(2) How to Identify Best Candidates
• Observe behavior
– Hire based on observed behavior, not words you hear
– Best predictor of future behavior is past behavior
– Consider group hiring sessions where candidates are
given group tasks
• Conduct personality tests
– Willingness to treat co-workers and customers with
courtesy, consideration, and tact
– Perceptiveness regarding customer needs
– Ability to communicate accurately and pleasantly
(3) Identifying Best Candidates
• Employ multiple, structured interviews
– Use structured interviews built around job requirements
– Use more than one interviewer to reduce “similar to me”
biases
• Give applicants a realistic preview of the job
– Chance for candidates to “try on the job”
– Assess how candidates respond to job realities
– Allow candidates to self select themselves out of the job
– Manage new employees’ expectation of job
2. Train Service Employees
Service employees need to learn:
• Organizational culture, purpose, and strategy
– Promote core values, get emotional commitment to
strategy
– Get managers to teach “why,” “what,” and “how” of job
• Interpersonal and technical skills
– Both are necessary but neither alone is sufficient for
optimal job performance
• Product/service knowledge
– Staff’s product knowledge is a key aspect of service
quality
– Staff must explain product features and position
products correctly
Is Empowerment Always Appropriate?
Empowerment is most appropriate when:
– Firm’s business strategy is based on competitive differentiation

and on personalized, customized service
– Emphasis on extended relationships versus short-term
transactions
– Use of complex and nonroutine technologies
– Business environment is unpredictable, consisting of surprises
– Managers are comfortable letting employees work
independently for benefit of firm and customers
– Employees seek to deepen skills, like working with others, and
are good at group processes
Control versus Involvement Model of
Management
Control concentrates four key features at top
organization, involvement pushes them down
1. Power to influence work procedures and organizational
direction (e.g., quality circles, self-managing teams)
2. Information about operating results and measures of
competitive performance
3. Rewards based on organizational performance (e.g.,
bonuses, profit sharing, stock ownership)
4. Knowledge/skills that enable employees to understand
and contribute to organizational performance
Levels of Employee Involvement
• Suggestion involvement
– Employee make recommendation
through formalized programs
• Job involvement
– Jobs redesigned
– Employees retrained, supervisors
reoriented to facilitate performance
• High involvement
– Information is shared
– Employees skilled in teamwork,
problem solving etc.
– Participate in management decisions
– Profit sharing and stock ownership
Build High-Performance Service Delivery
Teams
• The Power of Teamwork in Services
– Facilitate communication among team members and knowledge
sharing
– Higher performance targets
– Pressure to perform is high
• Creating Successful Service Delivery Teams
– Emphasis on cooperation, listening, coaching and encouraging
one another
– Understand how to air differences, tell hard truths, ask tough
questions
– Management needs to set up a structure to steer teams toward
success
3. Motivate and Energize the Frontline
Use full range of available rewards effectively, including:

• Job content (Job Design)
– People are motivated and satisfied knowing they are doing
a good job
• Feedback and recognition
– People derive a sense of identity and belonging to an
organization from feedback and recognition
• Goal accomplishment
– Specific, difficult but attainable and accepted goals are
strong motivators
5. Service Leadership and Culture
Service Leadership and Culture
• Service culture can be defined as:

– Shared perceptions of what is important
– Shared values and beliefs of why they are important
– Shared Accountability
• Charismatic/transformational leadership:
– Change frontline’s values, goals to be consistent with firm
– Motivate staff to perform their best
• Internal Marketing:
– Play a vital role in maintaining and nurturing a corporate culture
– Help ensure service delivery, working relationships, employee trust,
respect, and loyalty
The Inverted Organizational Pyramid
Customer Base
Top
Mgmt Frontline Staff
Middle
Mgmt
Middle Mgmt
Frontline And Top Mgmt
Staff Support Frontline
Traditional Organizational Inverted Pyramid with a

Pyramid Customer and Frontline Focus
Legend: = Service encounters, or “Moments of Truth”

UNIT IV
Implementing Profitable Service Strategies

1) Managing relationships & building loyalty: Customer
loyalty, The Wheel of loyalty, Creating loyalty bonds,
Strategies for reducing customer defections, CRM.
2) Achieving Service Recovery: Customer complaining
behaviour, Principles of effective service recovery systems,
Service guarantees, discouraging abuse and opportunistic
behavior, learning from customer feedback.
3) Improving Service Quality and Productivity: Integrating
service quality and productivity strategies, what is service
quality, The GAPS model- A conceptual tool to identify and
correct service quality problems, Measuring and improving
service quality, improving service productivity. 260
1) Managing relationships & building loyalty:
• Customer loyalty,
• The Wheel of loyalty,
• Creating loyalty bonds,
• Strategies for reducing customer defections,
• CRM.
261
Managing Customer
Relationships and
Building Loyalty
• Customer Loyalty???
263
Why Is Customer Loyalty Important to a Firm’s
Profitability?
• Customers become more profitable the longer
they remain with a firm:
– Increase purchases and/or account balances
• Customers/families purchase in greater quantities as they grow
– Reduced operating costs
• Fewer demands from suppliers and operating mistakes as customer
becomes experienced
– Referrals to other customers
• Positive word-of-mouth saves firm from investing money in sales and
advertising
– Price premiums
• Long-term customers willing to pay regular price
• Willing to pay higher price during peak periods
How Much Profit a Customer Generates Over
Time
(Year 1=100)
350 –
300
250
200
150
100
50
0
Year 1 Year 2 Year 3 Year 4 Year 5
Credit card Industrial laundry Industrial distribution Auto servicing

Source: Based on reanalysis of data from Fredrick R. Reichheld and W. Earl Sassar, Jr., “Zero Defections: Quality Comes from Services,” Harvard Business Review 68 (Sep.-
Oct. 1990), pp. 105–111.
Why Customers Are More Profitable
Over Time
Profit from price

premium
Profit from references
Profit from reduced

op. costs
Profit from increased
usage
Base Profit/Loss
Loss
1 2 3 4 5 6 7
Year
Source: Why Are Customers More Profitable Over Time from Fredrick R. Reichheld and W. Earl Sassar, Jr., “Zero Defections: Quality Comes from Services,” Harvard
Business Review 73 (Sep.–Oct. 1990): p. 108.
Assessing the Value of a Loyal Customer
• Must not assume that loyal customers are

always more profitable than those making one-
time transactions
– Costs
• Not all types of services incur heavy promotional expenditures to
attract a new customer
• Walk-in traffic more important at times
– Revenue
• Large customers may expect price discounts in return for loyalty
• Revenues don’t necessarily increase with time for all types of
customers
Assessing the Value of a Loyal Customer
• Profit impact of a customer varies according to

stage of service in product life cycle
– For example referrals and negative word-of-mouth have a higher
impact in early stages
• Tasks
– Determine costs and revenues for customers from
different market segments at different points in their
customer lifecycles
– Predict future profitability
Understanding the Customer-Firm
Relationship
Relationship Marketing (1)
• Transactional Marketing
– One transaction or a series of transactions does not
necessarily constitute a relationship
– Requires mutual recognition and knowledge between
the parties
• Database Marketing:
– Includes market transaction and information

exchange
– Technology is used to
(1) identify and build database of current and potential customers
(2) deliver differentiated messages based on customers’ characteristics
(3) track each relationship to monitor cost of acquiring that customer and lifetime
value of resulting purchases
Relationship Marketing (2)
• Interaction Marketing:
– Face-to-face interaction between customers and supplier’s
representatives
– Value is added by people and social processes
– Increasing use of technologies make maintaining meaningful
relationships with customers a marketing challenge
• For example, self-service technology, interactive websites, call centers
• Network Marketing:
– Common in b2b context where companies commit resources to
develop positions in network of relationships with stakeholders and
relevant agencies
The Wheel of Loyalty
The Wheel of Loyalty
3. Reduce Churn 1. Build a

Drivers Foundation
for Loyalty
 Conduct churn diagnostic
 Segment the market
 Address key churn drivers
 Be selective in acquisition
Enabled through:  Implement complaint
 Frontline staff handling and service  Use effective tiering of
service.
 Account managers recovery Customer
 Membership  Increase switching  Deliver quality service.
programs costs
Loyalty
 CRM
Systems
2. Create Loyalty
Bonds
 Build higher level  Deepen the
bonds relationship
 Give loyalty rewards
1. Building a Foundation for Loyalty
Customer Needs and
Company Capabilities
• Identify and target the right customers
– How do customer needs relate to operations elements?
– How well can service personnel meet expectations of
different types of customers?
– Can company match or exceed competing services
that are directed at same types of customers?
• Should result in a superior service offering in the
eyes of those customers who value what firm has
to offer
Searching for Value—Not Just Volume
• Focus on number of customers served as well as value of
each customer
– Heavy users who buy more frequently and in larger volumes are
more profitable than occasional users
– Avoid targeting customers who buy based on lowest price
• Firms that are highly focused and selective in their

acquisition of customers grow faster
• “Right customers” are not always high spenders
– Can come from a large group of people that no other supplier is
serving well
• Different segments offer different value
Effective Tiering of Service
The Customer Pyramid
Good Relationship
Customers Which segment sees high value in our
offer, spends more with us over time,
costs less to maintain, and spreads
Platinum
positive word-of-mouth?
Gold
Which segment costs us time,
Iron effort, and money, yet does not
provide return we want? Which
segment is difficult to do business
Lead with?
Poor Relationship
Customers
Source: Valarie A Zeithaml, Roland T Rust, and Katharine N. Lemon, “The Customer Pyramid: Creating and
Serving Profitable Customers,” California Management Review 43, no. 4, Summer 2001, pp.118–142.
The Customer Satisfaction
Loyalty Relationship
Apostle
100
Zone of Affection
Loyalty (Retention)
80
Zone of Indifference Near Apostle

60
40 Zone of Defection
20
Terrorist 0
1 2 3 4 5
Very Dissatisfied Neither Satisfied Very
Dissatisfied Satisfied
Source: Adapted from Thomas O. Jones and W. Earl Sasser, Jr.,
Satisfaction
“Why Satisfied Customers Defect,” Harvard Business Review,
November-December 1995, p. 91.
• True loyalty=behavioural (share-of-wallet)
+attitudinal loyalty (share-of-heart)
279
Creating Loyalty Bonds
Strategies for Developing Loyalty Bonds with
Customers (1)
• Deepening the relationship
– Bundling/cross-selling services makes switching a
major effort that customer is unwilling to undertake
unless extremely dissatisfied with service provider
– Customers benefit from consolidating their
purchasing of various services from the same provider
– See Research Insights 12.2: How do customers see
relational benefits?
• One-stop-shopping, potentially
higher service levels,
higher service tiers, etc.
Customers (2)
• Reward-based Bonds
– Incentives that offer rewards based on frequency of
purchase, value of purchase, or combination of both
– Financial bonds
• Discounts on purchases, loyalty program rewards (e.g., frequent flier miles), cash-
back programs
– Non-financial rewards
• Priority to loyalty program members for waitlists and queues in call centers: higher
baggage allowances, priority upgrading, access to airport lounges for frequent flyers
– Intangible rewards
• Special recognition and appreciation, tiered loyalty programs
– Reward-based loyalty programs are relatively easy to
copy and rarely provide a sustained competitive
advantage
Customers (3)
• Social Bonds
– Based on personal relationships between providers and customers
– Harder to build and imitate and thus, better chance of retention in
the long term
 Customization Bonds
 Customized service for loyal
customers
― e.g., Starbucks
 Customers may find it hard
to adjust to another service
provider who cannot
customize service
Source: PAL Library; Asset ID: AAFHKTO0

Customers (4)
• Structural Bonds
– Mostly seen in b2b settings
– Stimulate loyalty through structural relationships
between provider and customer
• Joint investments in projects and sharing of information, processes and
equipment
– Can be seen in b2c environment too
• Airlines—SMS check-in, SMS e-mail alerts for flight arrival and departure
times
– Difficult for competition to draw customers away
when they have integrated their way of doing things
with existing supplier
Creating Customer Bonds by Membership Relationships
and Loyalty Programs (1)
• Transform discrete transactions into relationships
– Discrete transactions: Each usage involves payment to
service supplier by an essentially "anonymous" consumer
– Membership cards: Capture transactions, communicate
customer preferences to frontline
– Loyalty reward programs increasingly used by all
businesses in response to competition
• Frequent fliers program—rewards dominated in miles
– Customers may get frustrated with reward programs

• For example: Feel excluded from rewards program because of low balances, rewards
seen as having little value, cumbersome redemption process
– Don’t lose sight of broader goals of offering high service
quality, nor allow service to other customers to deteriorate
Create Customer Bonds by Membership
Relationships and Loyalty Programs (2)
• How customers perceive reward programs

– Brand loyalty versus deal loyalty
– Buyers value rewards according to:
• Cash value of redemption award
• Range of choice among rewards
• Aspirational value of rewards
• Amount of usage required to obtain award
• Psychological benefits of belonging to reward program
– Timing
• Send customers periodic updates on account status and progress
towards particular milestones
Strategies for Reducing
Customer Defections
Analyze Customer Defections and Monitor
Declining Accounts
• Understand reasons for customer switching
• Churn diagnostics common in mobile phone
industry
– Analysis of data warehouse information on churned and
declining customers
– Exit interviews:
• Ask a short set of questions when customer cancels account; in-depth
interviews of former customers by third party agency
– Churn Alert Systems:
• Monitor activity in individual customer accounts to predict impending customer
switching
• Proactive detention efforts—send voucher, customer service representative calls
customer
Addressing Key Churn Drivers
• Delivery quality
• Minimize inconvenience and nonmonetary costs
• Fair and transparent pricing
• Industry specific drivers
– Cellular phone industry: Handset replacement a common reason for
subscribers discontinuing services—offer proactive handset replacement
programs
• Reactive measures
– Save teams: Specially trained call center staff to deal with customers
who want to cancel their accounts
– Be careful about how save teams are rewarded
Other Ways to Reduce Churn
• Implement effective complaint handling

and service recovery procedures
• Increase switching costs
– Natural switching costs
• For example, changing primary bank account—many related
services tied to account
– Can be created by instituting contractual
penalties for switching
• Must be careful not to be perceived as holding customers hostage
• High switching barriers and poor service quality likely to generate
negative attitudes and word of mouth
CRM: Customer Relationship
Management
Integrated Framework for CRM Strategy
Strategy Value Creation Multi-Channel Performance

Development Integration Assessment
Process Process
Process Process
Information Management Process
Source: Adapted from: Adrian Payne and Pennie Frow, “A Strategic Framework for Customer
Relationship Management,” Journal of Marketing 69 (October 2005): pp.167–176.
Integrated Framework for CRM Strategy
Development
• Strategy Development
– Assessment of business strategy
– Business strategy guides development of
customer strategy
Integrated Framework for CRM Strategy:
Value Creation
• Value Creation
– Translates business and customer strategies into specific value
propositions for both customers and firm
• Customers benefit from priority, tiered services, loyalty
rewards, and customization
• Company benefits from reduced customer acquisition and
retention costs, and increased share-of-wallet
– Dual creation of value: Customers need to participate in CRM to
reap value from firm’s CRM initiatives
Integrated Framework for CRM
Strategy: Multi-Channel Integration
• Multi-Channel Integration
– Serve customers well across many potential
interfaces
– Offer a unified interface that delivers
customization and personalization
Integrated Framework for CRM
Strategy: Performance Assessment
• Performance Assessment
– Is CRM system creating value for key stakeholders?
– Are marketing and service standard objectives
being achieved?
– Is CRM system meeting performance standards?
Integrated Framework for CRM Strategy:
Information Management
• Information Management
– Collect customer information from all channels
– Integrate it with other relevant information
– Make useful information available to the frontline
– Create and manage data repository, IT systems,
analytical tools, specific application packages
Common Objectives Of CRM Systems
• Data collection
– Customer data such as contact details, demographics, purchasing
history, service preferences, and the like
• Data analysis
– Data captured is analyzed and categorized
– Used to tier customer base and tailor service delivery accordingly.
• Sales force automation
– Sales leads, cross-sell, and up-sell opportunities can be effectively
identified and processed
– Entire sales cycle from lead generation to close of sales and after-
sales service can be tracked and facilitated through CRM system
Common Objectives Of CRM Systems
• Marketing automation
– Mining of customer data enables the firm to target its market
– Goal to achieve one-to-one marketing and cost savings, often in the
context of loyalty and retention programs
– Results in increasing the ROI on its marketing expenditure
– CRM systems also enable the assessment of the effectiveness of
marketing campaigns through the analysis of responses
• Call center automation
– Call center staff have customer information at their fingertips and can
improve their service levels to all customers
– Caller ID and account numbers allow call centers to identify the
customer tier the caller belongs to, and to tailor the service accordingly
• For example, platinum callers get priority in waiting loops
Common Failures in
CRM Implementation
• Service firms often equate installing CRM systems with having a
customer relationship strategy
• Challenge of getting it right with wide-ranging scope of CRM
• Common reasons for failures
– Viewing CRM as a technology initiative
– Lack of customer focus
– Insufficient appreciation of customer lifetime value
(CLV)
– Inadequate support from top management
– Failure to reengineer business processes
– Underestimating the challenges in date integration
Key Issues in Defining a
Customer Relationship Strategy
• How should our value proposition change to increase customer
loyalty?
• How much customization or one-to-one marketing and service
delivery is appropriate and profitable?
• What is incremental profit potential of increasing share-of-wallet with
current customers? How much does this vary by customer tier and/or
segment?
• How much time and resources can we allocate to CRM right now?
• If we believe in customer relationship management, why haven’t we
taken more steps in that direction in past?
• What can we do today to develop customer relationships without
spending on technology?
Summary : Managing Customer Relationships and Building Loyalty
• Customer loyalty as an important driver of profitability for service

firms so firms need to
– Assess value of loyal customer
– Narrow gap between actual and potential customer
value
• To understand the customer-firm relationship, firms should establish a
relationship with customers by creating “membership” relationships
• Four types of marketing
– Transactional marketing
– Database marketing
– Interaction marketing
– Network marketing
• Wheel of Loyalty shows how firms can:

– Build a foundation of loyalty
– Create loyalty bonds
– reduce churn drivers
• Building a foundation of loyalty involves:
– Good fit between customer needs and capabilities
– Searching for value, not just volume
– Tiering services effectively
– Obtaining customer satisfaction through service quality
• Customer loyalty bonds include:

– Reward-based bonds
– Social bonds
– Customization bonds
– Structural bonds
• Bonds can also be created through membership relationships and loyalty programs
• Strategies for reducing customer defections include:
– Analyzing customer defections and monitoring declining
accounts
– Addressing key churn drivers
– Implementing effective complaint-handling and service
recovery procedures
– Increasing switching costs
Summary : Managing Customer Relationships And Building Loyalty (4)
• Customer relationship management (CRM) is a whole process by

which relations with customers are built and maintained.
• An integrated CRM system includes
– Strategy development process
– Value creation process
– Multichannel integration process
– Performance assessment process
• Cresting a successful CRM program requires understanding
common failures in CRM implementation and knowing how to get it
right
2) Achieving Service Recovery:
a) Customer complaining behaviour,
b) Principles of effective service recovery
systems,
c) Service guarantees, discouraging abuse and
opportunistic behavior, learning from
customer feedback.
306
Customer Complaining Behavior
Customer Response Categories to
Service Failures
Complain
Complaintotothe
the
service firm
service firm
Take
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someform
formofof Complain
Public Complaintotoaathird
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Action party
party
Take
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actiontoto
Service Take
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formofof
ServiceEncounter
Encounterisis Private
seek
seekredress
redress
Dissatisfactory
Dissatisfactory PrivateAction
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Defect(switch
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oneororaacombination
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responsesisispossible
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Understanding Customer Responses to
Service Failure
• Why do customers complain? (restitution, vent anger, help improve service,
altruistic reason)
• What proportion of unhappy customers complain?
• Why don’t unhappy customers complain?
• Who is most likely to complain?
• Where do customers complain?
• What do customers expect once they have made a complaint?
310
Customer Responses to Effective Service
Recovery
Service Recovery
• Service recovery is a term for the systematic

efforts by a firm to correct a problem
following a service failure and to retain a
customer’s goodwill.
Importance of Service Recovery
• Plays a crucial role in achieving customer

satisfaction
• Tests a firm’s commitment to satisfaction and
service quality
– Employee training and motivation is highly important
• Impacts customer loyalty and future profitability
– Complaint handling should be seen as a profit center,
not a cost center
The Service Recovery Paradox
• Customers who experience a service failure that is

satisfactorily resolved may be more likely to make
future purchases than customers without problems (Note:
not all research supports this paradox)
• If second service failure occurs, the paradox disappears—
customers’ expectations have been raised and they
become disillusioned
• Severity and “recoverability” of failure (e.g., spoiled
wedding photos) may limit firm’s ability to delight
customer with recovery efforts
• Best strategy: Do it right the first time
Principles of Effective Service Recovery
Systems
Components of an Effective
Service Recovery System
Increased Satisfaction
Do the job right the Effective Complaint
first time + Handling = and Loyalty
Conduct research
Identify Service Monitor complaints
Complaints Develop “Complaints as
opportunity” culture
Resolve Complaints Develop effective system

Effectively and training in complaints
handling
Learn from the Conduct root cause analysis

Recovery Experience
Close the loop via feedback

How to Enable
Effective Service Recovery
• Be proactive—on the spot, before customers

complain
• Plan recovery procedures
• Teach recovery skills to relevant personnel
• Empower personnel to use judgment and skills
to develop recovery solutions
Service Guarantees
The Hampton Inn
100% Satisfaction Guarantee
• What are benefits of such a guarantee?

320
Learning from Customer Feedback
Key Objectives of
Effective Customer Feedback Systems
• Assessment and benchmarking of service
quality and performance
• Customer-driven learning and improvements
• Creating a customer-oriented service culture
Customer Feedback Collection Tools
• Total market surveys
• Post-transaction surveys
• Ongoing customer surveys
• Customer advisory panels
• Employee surveys/panels
• Focus groups
• Mystery shopping
• Complaint analysis
Entry Points for Unsolicited Feedback
• Frontline employees
• Intermediaries acting for original supplier
• Managers contacted by customers at head/regional office
• Complaint cards deposited in special box or mailed
• Telephone or e-mail
• Complaints passed to company by third-party recipients
– Consumer advocates
– Trade organizations
– Legislative agencies
Dysfunctional Customer Behavior
Addressing the Challenge of
Jaycustomers
• Jaycustomer: A customer who behaves in a thoughtless or
abusive fashion, causing problems for the firm, its employees,
and other customers
• More potential for mischief in service businesses, especially
when many customers are present
• Divergent views on Jaycustomers
– “The customer is king and can do no

wrong.”
– Marketplace is overpopulated with nasty
people who cannot be trusted to behave in
ways that self-respecting services firms
should expect and require
• No organization wants an ongoing relationship with an abusive
customer
Six Types of Jaycustomers:
1. The Thief
• No intention of paying—sets out to steal or pay less

• Services lend themselves to clever schemes to avoid
payment
– For example: bypassing electricity meters, circumventing TV cables,
riding free on public transportation
• Firms must take preventive actions against thieves, but

not alienate honest customers by degrading their service
experience
– Make allowances for honest but absent-minded customers
2. The Rulebreaker
• Many services need to establish rules to guide
customers safely through the service encounter
• Government agencies may impose regulations that
service suppliers must enforce
• Some rules protect other customers from dangerous
behavior
– For example: Vail and Beaver Creek, Colorado—ski patrollers issue
warnings to reckless skiers by attaching orange stickers on their lift
tickets
• Ensure company rules are necessary, not bureaucratic

3. The Belligerent
• Expresses resentment, abuses service employees
verbally or even physically
• Confrontations between customers and service
employees can easily escalate
• Firms should ensure employees have skills to deal
with difficult situations
– In a public environment, priority is

to remove person from other
customers
– May be better to make a public
stand on behalf of employees than
conceal for fear of bad publicity
ations between Customers and Service Employees Can Easily Escalate
Six Types Of Jaycustomers:
4&5: Family Feuders and Vandals
• Family Feuders: People who get into arguments with
other customers—often members of their own family
• The Vandal:
– Service vandalism includes pouring soft drinks into bank cash
machines; slashing bus seats, breaking hotel furniture
– Bored and drunk young people are a common source of vandalism
– Unhappy customers who feel mistreated by service providers take
revenge
– Prevention is the best cure
Six Types Of Jaycustomers:
6. The Deadbeat
• Customers who fail to pay (as distinct from
“thieves” who never intended to pay in the
first place)
– Preventive action is better than cure—for example:
insisting on prepayment; asking for credit card number
when order is taken
– Customers may have good reasons for not paying
- If the client's problems are only temporary ones,
consider long-term value of maintaining the relationship
Consequences of Dysfunctional Customer
Behavior
• Consequences for staff working front stage
– Abused employees may find their emotions negatively
affected and/or suffer long-term psychological damage
– Productivity and quality may suffer
• Consequences for customers can be both negative and positive
– Exposure to unpleasant incidents can spoil consumption
experience; some customers may even terminate their
use of the service
– Bad behavior can be contagious
– But customers may rally to support of abused employee
• Consequences for organization
– Unmotivated employees may work less effectively
– Abused employees may take medical leave
– Direct financial costs of restoring damaged property, legal
fees, paying fraudulent claims
Summary : Service
Recovery and Customer Feedback (1)
• When customers are dissatisfied, they can
– Take some form of public action
– Take some form of private action
– Take no action
• To understand customer responses to service failures, some questions to ask
are:
– Why do customers complain?
– What proportion of unhappy customers complain?
– Why don’t unhappy customer complain?
– Who is most likely to complain?
– Where do customers complain?
– What do customers expect once they have made a complaint?
Summary : Service
• Effective service recovery can lead to customer loyalty

• The service recovery paradox does not always hold true—better to get
it right the first time
• Components of an effective recovery system include:
– Doing it right the first time
– Effective complaint handling
– Identifying service complaints
– Resolving complaints effectively
– Learning from the recovery experience
Summary : Service
• Guiding principles for effective service recovery include:
– Make it easy for customers to give feedback
– Enable effective service recovery
– Focusing on how generous compensation should be
– Dealing with complaining customer
• Issues to consider in having services guarantees are:

– Power of service guarantees
– How to design service guarantees
– Is full satisfaction the best a firm can guarantee?
– Is it always appropriate to introduce a service guarantee?
• To discourage abuse and opportunistic behavior, we need to deal with customer

fraud
Summary : Service
• We can learn from customer feedback—key objectives:
– Assessment and benchmarking of service quality and performance
– Customer-driven learning and improvements
– Creating a customer-oriented service culture
• A mix of customer feedback collection tools can help to deliver needed

information to firms
– Total market surveys, annual survey, and transactional surveys
– Service feedback cards
– Mystery shopping
– Unsolicited customer feedback
– Focus group discussions and service reviews
– Capture unsolicited feedback
• Feedback must be analyzed, reported, disseminated, and used

Chapter 3:
Improving Service
Quality and
Productivity
Improving Service Quality and Productivity:
• Integrating service quality and productivity
strategies, what is service quality,
• The GAPS model- A conceptual tool to identify
and correct service quality problems,
• Measuring and improving service quality,
improving service productivity.
338
1. Integrating service quality and productivity strategies
2. What is service quality?
3. The Gaps Model—a conceptual tool to identify and
correct service quality problems
4. Measuring and improving service quality
5. Defining and measuring productivity
6. Improving service productivity
1. Integrating Service Quality and
Productivity Strategies
Integrating Service Quality and
Productivity Strategies
• Quality and productivity are twin paths to creating value
for both customers and companies
• Quality focuses on the benefits created for customers;
productivity addresses financial costs incurred by firm
• Importance of productivity:
– Keeps costs down to improve profits and/or reduce prices
– Enables firms to spend more on improving customer service and
supplementary services
– Secures firm’s future through increased spending on R&D
– May impact service experience—marketers must work to
minimize negative effects, promote positive effects
2. What Is Service Quality?
Components of Quality:
Manufacturing-based
Performance: Primary operating characteristics
Features: Bells and whistles
Reliability: Probability of malfunction or failure
Conformance: Ability to meet specifications
Durability: How long product continues to provide value to

customer
Serviceability: Speed, courtesy, competence
Esthetics: How product appeals to users
Perceived Quality: Associations such as brand name

Components of Quality:
Service-based
Tangibles: Appearance of physical elements
Reliability: Dependable and accurate performance
Responsiveness: Promptness; helpfulness
Assurance: Competence, courtesy, credibility,

security
Empathy: Easy access, good communication,
understanding of customer
Capturing the Customer’s Perspective of Service Quality: SERVQUAL (1)
• Survey research instrument based on premise that

customers evaluate firm’s service quality by
comparing
– Their perceptions of service actually received
– Their prior expectations of companies in a particular
industry
• Poor quality
– Perceived performance ratings < expectations
• Good quality
– Perceived performance ratings > expectations
How Customers Might Evaluate Online Businesses: Seven
Dimensions of E-S-QUAL
• Accessibility : Is site easily found?

• Navigation: How easy is it to move around the site?
• Design and presentation: Image projected from site?
• Content and purpose: Substance and richness of site
• Currency and accuracy
• Responsiveness:Firm’s propensity to respond to e-mails
• Interactivity, customization, and personalization
•
Source:Shohreh A. Kaynama (2000), “ A Conceptual Model to Measure Service Quality of Online Companies: E-qual, in Developments in Marketing Science,” Harlan E.
Reputation and security
Spotts and H. Lee Meadows, eds., Proceedings of the Academy of Marketing Science, Vol. 22, pp. 46–51. For more information pertaining to online service quality see A.
Parasuraman, Vlerie A. Zeithaml, and Arvind Malhotra (2005), “E-S-QUAL: A Multiple-Item Scale for Assessing Electronic Service Quality.” Journal of Service Research,
Vol. 7. issue 3. pp. 213–234.
Other Considerations in
Service Quality Measurement
• In uncompetitive markets or in situations where
customers do not have a free choice, researchers
should use needs or wants as comparison standards
• Services high in credence characteristics may cause

consumers to use process factors and tangible cues
as proxies to evaluate quality—halo effect
– Process factors: Customers’ feelings
3. The Gaps Model
SERVQUAL (service quality gap model) is a gap
method in service quality measurement, a tool that
can be used across all industries. The aim of this
model is to:
• Identify the gaps between customer expectation and
the actual services provided at different stages of
service delivery
• Close the gap and improve the customer service
This model developed by Parasuraman, Zeithalm and
Berry in 1985 identifies five different gaps:
349
1. The customer gap: The customer gap is the
difference between customer expectations and
customer perceptions.
2. The provider gaps:
• Listening gap
• Service design and standard gap
• Service performance gap
• Communication gap
350
351
2. Provider gap 1: Listening gap: customer
expectations of service ~ company understanding
of those expectations
Reasons for the gap:
• Unaware of what customers expect
• Listening gap due to lack of upward
communication
• Lack of retaining customers-------RM
(relationship marketing)
• Service recovery (handling complaints)
352
353
• Provider gap 2: Service design and standard
gap
• The difference between company

understanding of customer expectations and
the development of customer-driven service
designs and standards.
• Example:IKEA
354
355
• To close this gap, design services without
oversimplification, incompleteness,
subjectivity and bias, physical evidence
starting from business cards, signage, internet
presence, health club
Prof.KRG---Section MF1 356

• Provider gap 3: Service performance gap
Systems, processes and people in place to ensure
that service delivery actually matches the design
and standards.
Is the discrepancy between the development of
customer-driven service standards and actual
service performance by company employees.

• Standards must be backed by appropriate
resources( people, systems, and technology) and
must be enforced to be effective---employee
performance appraisal---for effective application
of standards, employee role clarity, conflicts,
employee selection, inadequate technology,
inappropriate compensation and recognition,
and lack of empowerment and teamwork.
• Intermediaries
• Syncronise demand and capacity

Provider gap 4: the communication gap
• Illustrates the difference between service

delivery and the service provider’s external
communications.
• Promises made through media raises customer
expectations, the standards against which
customers assess service quality.

• Interactive marketing-marketing between contact
people and customers-and it must be coordinated
with the conventional type of external marketing
used in product and service firms.
• Exaggerated promises are made when not
understood well.
• Pricing issue

• Use the internet to locate the website of
Marriott and Ritz-Carlton or any other well
known, high-quality service organisation.
Which provider gaps has the company closed?
How can you tell?

Seven Service Quality Gaps
Customer needs and CUSTOMER

expectations
1. Knowledge Gap
MANAGEMENT
Management definition of
these needs
2. Standards Gap
Translation into
design/delivery specs
4. Internal Communications
3. Delivery Gap Gap
Execution of 4. Advertising and sales

design/delivery specs promises
5. Perceptions Gap 6. Interpretation Gap

Customer perceptions of Customer interpretation of
service execution communications
7. Service Gap
Customer experience
relative to expectations
Prescriptions for Closing the
Seven Service Quality Gaps (1)
1. Knowledge gap: Learn what customers expect

– Understand customer expectations
– Improve communication between frontline staff and
management
– Turn information and insights into action
2. Standards gap: Specify SQ standards that reflect
expectations
– Set, communicate, and reinforce customer-oriented service
standards for all work units
– Measure performance and provide regular feedback
– Reward managers and employees
3. Delivery gap: Ensure service performance meets standards
– Clarify employee roles
– Train employees in priority setting and time management
– Eliminate role conflict among employees
– Develop good reward system
4. Internal communications gap: Ensure that communications
promises are realistic
– Seek comments from frontline employees and operations
personnel about proposed advertising campaigns
– Get sales staff to involve operations staff in meetings with
customers
– Ensure that communications sets realistic customer expectations
5. Perceptions gap: Educate customers to see reality of
service quality delivered
– Keep customers informed during service delivery and debrief
after delivery
– Provide physical evidence
6. Interpretation gap: Pretest communications to make sure
message is clear and unambiguous
– Present communication materials to a sample of customers in
advance of publication
7. Service gap: Close gaps 1 to 6 to meet customer
expectations consistently
Measuring and Improving
Service Quality
Soft Measures of Service Quality
• Key customer-centric SQ measures include:

– Total market surveys, annual surveys, transactional surveys
– Service feedback cards
– Mystery shopping
– Analysis of unsolicited feedback—complaints and
compliments, focus group discussions, and service reviews
• Ongoing surveys of account holders to determine satisfaction in terms of broader
relationship issues
• Customer advisory panels offer feedback/advice on performance
• Employee surveys and panels to determine:
– Perceptions of the quality of service delivered to customers
on specific dimensions
– Barriers to better service
– Suggestions for improvement
Tools to Analyze and Address
Service Quality Problems
• Fishbone diagram
– Cause-and-effect diagram to identify potential causes of
problems
• Pareto Chart
– Separating the trivial from the important. Often, a majority of
problems is caused by a minority of causes (i.e. the 80/20 rule)
• Blueprinting
– Visualization of service delivery, identifying points where
failures are most likely to occur
Cause-and-Effect Chart for
Flight Departure Delays
Facilities, Frontstage Procedures
Front-Stage Procedures
Equipment Personnel
Personnel
Aircraft late to Gate agents Delayed check-in

Arrive late gate cannot process procedure
Oversized bags Mechanical fast enough Acceptance of late
Customers Failures
Customers Late/unavailable passengers
Late pushback airline crew
Delayed
Departures
Late food Late cabin
service cleaners
Other Causes Poor announcement of
Weather Late baggage departures
Air traffic
Late fuel Weight and balance sheet
late
Materials,
Materials, Backstage Information
Supplies
Supplies Personnel
• Pareto Analysis…80/20 rule
373
Blueprinting
• Depicts sequence of front-stage interactions

experienced by customers plus supporting backstage
activities
• Used to identify potential fall points—where failures
are most likely to appear
• Shows how failures at one point may have a ripple
effect later
• Managers can identify points which need urgent
attention
– Important first step in preventing service quality problems
Tools to Analyze and Address
Service Quality Problems
• Total Quality Management (TQM)
• ISO 9000
– Comprises requirements, definitions, guidelines, and related
standards to provide an independent assessment and certification of
a firm’s quality management system
• Malcolm Baldrige Model Applied to Services
– To promote best practices in quality management, and recognizing,
and publicizing quality achievements among U.S. firms
• Six Sigma
– Has evolved from defect-reduction approach to an overall business-

improvement approach
Return On Quality (ROQ)
• Assess costs and benefits of quality initiatives

– ROQ approach is based on four assumptions:
– Quality is an investment
– Quality efforts must be financially accountable
– It’s possible to spend too much on quality
– Not all quality expenditures are equally valid
– Implication: Quality improvement efforts may benefit from being
related to productivity improvement programs
– To determine feasibility of new quality improvement efforts,
determine costs and then relate to anticipated customer response
• Determine optimal level of reliability
– Diminishing returns set in as improvements require higher
investments
– Know when improving service reliability becomes uneconomical
5. Defining and Measuring
Productivity
Productivity in a Service Context
• Productivity measures amount of output produced relative to the amount

of inputs.
• Improvement in productivity means an improvement in the ratio of
outputs to inputs.
• Intangible nature of many service elements makes it hard to measure
productivity of service firms, especially for information-based services
– Difficult in most services because both input and output are hard to
define
– Relatively simpler in possession-processing services, as compared to
information- and people-processing services
Service Efficiency, Productivity, and
Effectiveness
• Efficiency: Involves comparison to a standard, usually
time-based (for example: how long employee takes to
perform specific task)
– Problem: Focus on inputs rather than outcomes
– May ignore variations in service quality/value
• Productivity: Involves financial valuation of outputs to
inputs
– Consistent delivery of outcomes desired by customers
should command higher prices
• Effectiveness: Degree to which firm meets goals and
desired outcomes, which would typically include customer
satisfaction
Measuring Service Productivity:
Variability Is a Major Problem
• Traditional measures of service output tend to
ignore variations in quality or value of service
– Focus on outputs rather than outcomes
– Stress efficiency but not effectiveness
• Firms that consistently deliver outcomes desired
by customers can command higher prices; loyal
customers are more profitable
6. Improving Service Productivity
Questions When Developing Strategies
to Improve Service Productivity
1. How to transform inputs into outputs efficiently?

2. Will improving productivity hurt quality?
3. Will improving quality hurt productivity?
4. Are employees or technology the key to productivity?
5. Can customers contribute to higher productivity?
Generic Productivity
Improvement Strategies
• Typical strategies to improve service productivity:
– Careful control of costs at every step in process
– Efforts to reduce wasteful use of materials or labor
– Replacing workers by automated machines
– Installing expert systems that allow paraprofessionals to
take on work previously performed by professionals who
earn higher salaries
• Although improving productivity can be approached
incrementally, major gains often require redesigning entire
processes
? ? ?
Long Waiting Times May Indicate Need
for Service Process Redesign
Improving Service Productivity:
(1) Operations-driven Strategies
• Control costs, reduce waste
• Set productive capacity to match average demand
• Automate labor tasks
• Upgrade equipment and systems
• Train employees
• Broadening array of tasks that a service worker can perform
• Leverage less-skilled employees through expert systems
• Service process redesign
Improving Service Productivity:
(2) Customer-driven Strategies
• Change timing of customer demand
– By shifting demand away from peaks, managers can make
better use of firm’s productive assets and provide better
service
• Involve customers more in production
– Get customers to self-serve
– Encourage customers to obtain information and buy from
firm’s corporate websites
• Ask customers to use third parties
– Delegate delivery of supplementary service elements to
intermediary organizations
Backstage and Front-stage Productivity Changes: Implications
for Customers
• Backstage improvements can ripple to front and affect customers
– Keep abreast of proposed backstage changes, not only to
identify such ripples but also to prepare customers for
them
• For example: New printing peripherals may affect appearance of bank statements
• Front-stage productivity enhancements are especially visible in high contact
services
– Some improvements only require passive acceptance,
while others require customers to change behavior
– Must consider impacts on customers and address
customer resistance to changes
– Better to conduct market research first if changes are
substantial
A Caution on Cost Reduction Strategies
• In absence of new technology, most attempts to improve

service productivity seek to eliminate waste and reduce labor
costs
• Workers who try to do several things at once may perform
each task poorly
• Excessive pressure breeds discontent and frustration among
customer contact personnel, who are caught between:
– Meeting customer needs
– Achieving management's productivity
goals
• Better to search for service process redesign opportunities
that lead to
– Improvements in productivity
– Simultaneous improvement in service
quality
That’s it!!!
389
390

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Fundamentals of Service Marketing

Unit I: Understanding Service Markets, Products and

1) Perspectives on Marketing in the Service

Nature Tangible Intangible

Services cannot be returned back

Variability Identical Diversified

• Understanding services offers you personal

Services, 68% Agriculture, Forestry, Mining,

Cayman Islands (95%), Jersey (93%)

Japan (74%), France (73%), U.K. (73%), Canada (71%)

Mexico (69%), Australia (68%), Germany (68%)

Poland (66%), South Africa (65%)

Saudi Arabia (33%) Services as Percent of GDP

• Most new jobs are generated by services

Time, per Capita Income Source: IMF, 1997

• Powerful forces(factors) are transforming

Social Business Advances in

Innovation in service products & delivery systems, stimulated by better technology

Customers have more choices and exercise more power

Success hinges on:

Social Business Advances in

Social Business Advances in

Social Business Advances in

 Push to increase shareholder value

Social Business Advances in

Social Business Advances in

 More companies operating on transnational basis

• The historical view

• A firm’s market offerings are divided into core

Who or What Is the Direct Recipient of the Service?

 Health care  Disposal/recycling

Intangible Actions Mental stimulus processing Information processing

 Customers are less physically

 Production and consumption

Mental Stimulus Processing

 Ethical standards required when

 Physical presence of recipients

 Core content of services is

 Information is the most

 But may be transformed into

 Line between information

• Marketing management tasks in the service sector differ from

Difference Implications Marketing-Related Tasks

Services are often Greater risk and Educate customers on

Customers may be Interaction between Develop user-friendly

Difference Implications Marketing-Related Tasks

People may be part of Behavior of service Recruit, train employees to

Operational inputs and Hard to maintain quality,

Fig 1.9 Working in Unison:

• Embrace all aspects of service performance

• Service products are heart of the service marketing.

• Process involves choices of method and sequence

Two Key Themes in Part I of the

Prepurchase Stage: need Service Encounter Stage: Role

Service Encounter Stage

• Search attributes help customers evaluate a

Most Goods Most Services

High in search High in experience High in credence

• Seeking information from respected personal sources

• Expectations of good service vary from one business to

Explicit & Implicit

Prof.KG (Source:Zeitham et al and

Prof.KG (Source:Zeitham et al and