Services Marketing

SM
Chapter 1

INTRODUCTION
TO
SERVICES
 Objectives for Chapter 1:
Introduction to Services
Explain what services are and identify service trends
Explain the need for special services marketing
concepts and practices
Outline the basic differences between goods and
services and the resulting challenges for service
businesses
Introduce the service marketing triangle
Introduce the expanded services marketing mix
Introduce the gaps model of service quality
Introduction
Services are deeds,processes and performance
Intangible, but may have a tangible component
Generally produced and consumed at the same time
Need to distinguish between SERVICE and
CUSTOMER SERVICE
Challenges for Services
Defining and improving quality
Communicating and testing new services
Communicating and maintaining a consistent
image
Motivating and sustaining employee commitment
Coordinating marketing, operations and human
resource efforts
Setting prices
Standardization versus personalization
 Examples of Service Industries

 Health Care
hospital, medical practice, dentistry, eye care
 Professional Services
accounting, legal, architectural
 Financial Services
banking, investment advising, insurance
 Hospitality
restaurant, hotel/motel, bed & breakfast,
ski resort, rafting
 Travel
airlines, travel agencies, theme park
 Others:
hair styling, pest control, plumbing, lawn maintenance, counseling
services, health club
 Figure 1-1
Tangibility Spectrum
Salt
 Soft Drinks
 Detergents
 Automobiles
 Cosmetics Fast-food
 Outlets
 Intangible
Dominant

Tangible

Dominant Fast-food
Outlets 
Advertising
Agencies

Airlines 
Investment
Management 
Consulting 
Teaching
 Figure 1-2
Percent of
U.S. Labor Force by Industry
80
70
Percent of GDP

60
50
40
30
20
10
0  Services
1929 1948 1969 1977 1984 1996  Manufacturing
 Mining & Agriculture
Year

Source: Survey of Current Business, April 1998, Table B.8, July 1988, Table 6.6B, and
July 1992, Table 6.4C; Eli Ginzberg and George J. Vojta, “The Service Sector of the U.S.
Economy,” Scientific American, 244,3 (1981): 31-39.
 Figure 1-3
Percent of U.S. Gross Domestic
Product by Industry
80
Percent of GDP

70
60
50
40
30
20
10
0
1948 1959 1967 1977 1987 1996  Services
 Manufacturing
Year  Mining & Agriculture
Source: Survey of Current Business, August 1996, Table 11, April 1998, Table
B.3; Eli Ginzberg and George J. Vojta, “The Service Sector of the U.S.
Economy,” Scientific American, 244,3 (1981): 31-39.
Differences Between Goods and
Services

Intangibility Heterogeneity

Simultaneous
Production Perishability
and
Consumption
Implications of Intangibility
 Services cannot be inventoried
 Services cannot be patented
 Services cannot be readily displayed
or communicated
 Pricing is difficult
Implications of Heterogeneity
 Service delivery and customer satisfaction depend on
employee actions
 Service quality depends on many uncontrollable
factors
 There is no sure knowledge that the service delivered
matches what was planned and promoted
Implications of Simultaneous Production
and Consumption

 Customers participate in and affect the

transaction
 Customers affect each other
 Employees affect the service outcome
 Decentralization may be essential
 Mass production is difficult
Implications of Perishability

 It is difficult to synchronize supply and demand

with services
 Services cannot be returned or resold
 Table 1-2
Services are Different
Goods Services Resulting Implications
Tangible Intangible Services cannot be inventoried.
Services cannot be patented.
Services cannot be readily displayed or communicated.
Pricing is difficult.
Standardized Heterogeneous Service delivery and customer satisfaction depend on
employee actions.
Service quality depends on many uncontrollable factors.
There is no sure knowledge that the service delivered
matches what was planned and promoted.
Production Simultaneous Customers participate in and affect the transaction.
separate from production and Customers affect each other.
consumption consumption Employees affect the service outcome.
Decentralization may be essential.
Mass production is difficult.
Nonperishable Perishable It is difficult to synchronize supply and demand with
services.
Services cannot be returned or resold.

Source: Adapted from Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, “Problems and Strategies in Services Marketing,”
Journal of Marketing 49 (Spring 1985): 33-46.
 Figure 1-5
The Services Marketing Triangle
Company
(Management)

Internal External
Marketing Marketing
“enabling the “setting the
promise” promise”

Employees Interactive Marketing Customers

“delivering the promise”
Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler
 Ways to Use the
Services Marketing Triangle
Overall Strategic Specific Service
Assessment Implementation
 How is the service  What is being promoted and
organization doing on by whom?
all three sides of the  How will it be delivered
triangle? and by whom?
 Where are the  Are the supporting systems
weaknesses? in place to deliver the
 What are the strengths? promised service?
 Figure 1-6
The Services Triangle
and Technology
Company

Technology

Providers Customers

Source: Adapted from A. Parasuraman

Services Marketing Mix:
7 Ps for Services

Traditional Marketing Mix

Expanded Mix for Services: 7 Ps
Building Customer Relationships Through People,
Processes, and Physical Evidence
Ways to Use the 7 Ps
Traditional Marketing Mix

 All elements within the control of the firm that

communicate the firm’s capabilities and image to
customers or that influence customer satisfaction with
the firm’s product and services:
 Product
 Price
 Place
 Promotion
 Expanded Mix for Services --
the 7 Ps

Product
Price
Place
Promotion

People
Process
Physical Evidence
 Table 1-3
Expanded Marketing Mix for Services

PRODUCT PLACE PROMOTION PRICE

Physical good Channel type Promotion Flexibility
features blend

Quality level Exposure Salespeople Price level

Accessories Intermediaries Advertising Terms
Packaging Outlet location Sales Differentiation
promotion
Warranties Transportation Publicity Allowances
Product lines Storage
Branding
 Table 1-3 (Continued)
Expanded Marketing Mix for Services
PEOPLE PHYSICAL PROCESS
EVIDENCE
Employees Facility design Flow of activities

Customers Equipment Number of steps

Communicating Signage Level of customer

culture and values involvement

Employee research Employee dress

Other tangibles
 Ways to Use the 7 Ps

Overall Strategic Specific Service

Assessment Implementation
 How effective is a firm’s  Who is the customer?
 What is the service?
services marketing mix?
 Is the mix well-aligned  How effectively does the
services marketing mix for a
with overall vision and
service communicate its
strategy? benefits and quality?
 What are the strengths and  What changes/improvements
weaknesses in terms of the are needed?
7 Ps?
Services Marketing Triangle Applications
Exercise

Focus on a service organization. In the context you

are focusing on, who occupies each of the three
points of the triangle?
How is each type of marketing being carried out
currently?
Are the three sides of the triangle well aligned?
Are there specific challenges or barriers in any of
the three areas?
SM
Gap Models

FOCUS ON THE CUSTOMER

 Gaps Model of Service Quality

CUSTOMER Expected
Service

Customer
Gap
Perceived
Service

External
COMPANY Service Delivery Communications
GAP 4 to Customers
GAP 1 GAP 3
Customer-Driven Service
Designs and Standards

GAP 2
Company Perceptions of
Consumer Expectations
Part 1 Opener
 Gaps Model of Service Quality

Customer Gap:
difference between expectations and
perceptions
Provider Gap 1:
not knowing what customers expect
Provider Gap 2:
not having the right service designs and
standards
Provider Gap 3:
not delivering to service standards
Provider Gap 4:
not matching performance to promises
Part 1 Opener
 The Customer Gap

Expected
Service

GAP

Perceived
Service

Part 1 Opener
 Provider Gap1 : Not knowing what
customers expect:

This gap is the difference between customer expectations

of service and company understanding of these
expectations. Service firms executive may not always
understand what features connote high quality to
consumers in advance, what features a service must
have in order to meet customer needs and what levels
of performance on those features are needed to deliver
high quality service.
Provide Gap 2 : Not selecting the right
service designs and standards
A company might correctly perceive the customers’
needs but may not set a specificied performance
standard. This may occur because management
sometimes believes that customer expectations are
unreasonable or unrealistic. Also availing of other
factors like resources constraints, market
conditions and/or management indifference – may
result in discrepancy between company perception
of consumer expectation and the actual
specification established for a service.
. Provider Gap 3: Not delivering the service
standards
This is the gap between service quality specifications and
actual service delivery. Even if there are customer driven
service standards, a high quality service delivery is not a
certainty. The main reason for this gap is involvement of
human beings in the service delivery – especially the role
of contact personnel.  
The variability in employee performances makes it hard to
maintain standardized quality. Failure to match demand and
supply, customers not fulfilling their roles and problem
with service intermediaries may also result in creating this
gap.
Provider Gap 4: Not matching performance to
promises

This is essentially a gap between what you deliver

and your external communication. Media
advertising and other communication by a firm can
affect consumer expectations. Therefore, a
company must be certain not to promise more in
communication that it can deliver in reality.
Promising more than what can be delivered will
raise initial expectations but lower perception of
quality when the promises are not fulfilled.
 Myths about services:
Myth means” serves to explain the world view of a people
“Familiarity information”

Myth is a popular belief which is

over simplified that tends to
explain only part of phenomena.
There about Five Myths
Myth1-A Service Economy produces services at
the expense of other sector.
Myth2-Service jobs are Low paying and Low
level.
Myth3-Service production is labor intensive and
low in productivity
Myth4-Service is necessary evil for
Manufacturing firms.
Myth5-Managing services is just like Managing
manufacturing Business.
Myth1-A Service Economy produces services at the
expense of other sector
In manufacturing sectors there are more workers
than before, the manufacture sector itself needs
services. Therefore service sectors support
manufacturing sector and not growing at the
expense of manufacturing.
Need for services can be felt very easily modern
day consumer spend more money on services than
for manufacturing of goods.
Myth2-Service jobs are Low paying and Low level.

Many people think service jobs are of fast food

employees, hairdressers, stores, clerks etc, this is
not true
Sectors like law, accounting, banking and
medicine etc, which are not of low pay category
Service business is small in size, though it may
employ a large number of people and may
dominate GDP
Myth3-Service production is labor intensive
and low in productivity
Labor intensive; production is sluggish, creating a drag
on the economy
While hotel, travel agency may be less capital
intensive, services like
airlines,telecommunication,insurance etc, are quite
capital intensive.
Myth4-Service is necessary evil for
manufacturing firms
Manufacturers were of view that so called after
sales service was only adding to cost and in no
way it is profitable.
The traditional view was that service was equated
to repair, maintenance and handling of complaints.
Many manufacturers view services as a profit
centre and use it as a vehicle to differentiate their
product from that of competitors
Myth5-Managing services is just like Managing
Manufacturing Business
This myth will lead us to study of “service
marketing” Many felt that there was not much
difference between product and services made out to
be. It was only in 1980 that it was felt by marketers
and top management personal that there is a substantial
difference between the services and product marketing.
SM

CONSUMER BEHAVIOR
IN SERVICES
 Consumer Behavior in Services
Overview the generic differences in consumer behavior
between services and goods
Introduce the aspects of consumer behavior that a
marketer must understand in five categories of consumer
behavior:
 Information search
 Evaluation of service alternatives
 Service purchase and consumption
 Postpurchase evaluation
 Role of culture
Consumer Evaluation
Processes for Services
Search Qualities
attributes a consumer can determine prior to
purchase of a product
Experience Qualities
attributes a consumer can determine after purchase
(or during consumption) of a product
Credence Qualities
characteristics that may be impossible to evaluate
even after purchase and consumption
 Figure 2-1
Continuum of Evaluation for
Different Types of Products

Most Most
Goods Services

Easy to evaluate
Difficult to evaluate
Clothing

Jewelry

Furniture

Houses

Automobiles

Restaurant meals

Vacations

Haircuts

Child care

Television repair

Legal services

Root canals

Auto repair

Medical diagnosis
{
{
High in search
qualities
High in experience High in credence
qualities qualities
{
 Figure 2-2
Categories in Consumer
Decision-Making and Evaluation of Services
Information Evaluation of
Search Alternatives
 Use of personal sources  Evoked set
 Perceived risk  Emotion and mood

Purchase and Post-Purchase

Consumption Evaluation
 Service provision as drama  Attribution of dissatisfaction
 Service roles and scripts  Innovation diffusion
 Compatibility of customers  Brand loyalty
Figure 2-3
Categories in Consumer Decision-Making and Evaluation
of Services

Information Evaluation of
Search Alternatives
 Use of personal sources  Evoked set
 Perceived risk  Emotion and mood

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

Purchase and Post-Purchase

Consumption Evaluation
 Service provision as  Attribution of dissatisfaction
drama
 Service roles and scripts  Innovation diffusion
 Compatibility of  Brand loyalty
customers
Information search
In buying services consumers rely more on personal
sources. WHY?
Personal influence becomes pivotal as product
complexity increases
Word of mouth important in delivery of services
With service most evaluation follows purchase
Perceived Risk
More risk would appear to be involved with purchase
of services (no guarantees)
Many services so specialised and difficult to evaluate
(How do you know whether the plumber has done a
good job?)
Therefore a firm needs to develop strategies to reduce
this risk, e.g, training of employees, standardisation of
offerings
Evoked Set
The evoked set of alternatives likely to be smaller
with services than goods
If you would go to a shopping centre you may
only find one dry cleaner or “single brand”
It is also difficult to obtain adequate prepurchase
information about service
The Internet may widen this potential
Consumer may choose to do it themselves, e.g.
garden services
Emotion and Mood
Emotion and mood are feeling states that influence
people’s perception and evaluation of their experiences
Moods are transient
Emotions more intense, stable and pervasive
May have a negative or positive influence
Service Provision as Drama
Need to maintain a desirable impression
Service “actors” need to perform certain routines
Physical setting important, smell, music, use of space,
temperature, cleanliness, etc.
Global Feature:
Differences in the Service Experience in the U.S. and Japan

 Authenticity
 Caring
 Control Courtesy
 Formality
 Friendliness
 Personalization
 Promptness
SM
Chapter 2 contd..,

CUSTOMER
EXPECTATIONS OF
SERVICES
 Objectives for Chapter 3:
Customer Expectations of Service
 Recognize that customers hold different types of
expectations for service performance
 Discuss controllable and uncontrollable sources of
customer expectations
 Distinguish between customers’ global expectations of their
relationships and their expectations of the service
encounter
 Acknowledge that expectations are similar for many
different types of customers
 Delineate the most important current issues surrounding
customer expectations
DEFINITIONS
Customers have different expectations re services – or
expected service
Desired service – customer hopes to receive
Adequate service – the level of service the customer
may accept

DO YOUR EXPECTATIONS DIFFER RE SPUR and

CAPTAIN DOREGO?
 Figure 3-1
Dual Customer
Expectation Levels
(Two levels of expectations)
Desired Service

Zone of
Tolerance

Adequate Service
 Figure 3-2
The Zone of Tolerance

Desired Service

Zone of
Tolerance

Adequate Service
 Figure 3-3
Zones of Tolerance VARY for
Different Service Dimensions
Desired Service

Level
of
Expectation Zone of Desired
Tolerance Desired Service
Service
Adequate Service
Zone
of
Tolerance

Adequate
Adequate Service
Service

Most Important Factors Least Important Factors

Source: Berry, Parasuraman, and Zeithaml (1993)
 Figure 3-4
Zones of Tolerance VARY for
First-Time and Recovery Service

First-Time Service

Outcome

Process

Recovery Service

Outcome

Process

LOW HIGH
Expectations
Source: Parasuraman, Berry and Zeithaml (1991)
 Figure 3-5
Factors that Influence
Desired Service

Enduring Service
Intensifiers

Desired
Service
Personal Needs
Zone
of
Tolerance

Adequate
Service
Personal needs include physical, social,
psychological categories

Enduring service intensifiers are individual, stable

factors that lead to heightened sensitivity to service
This can further divided into Derived Service
Expectations and Personal service Philosophies
 Figure 3-6
Factors that Influence
Adequate Service
Transitory Service
Intensifiers

Desired
Perceived Service Service
Alternatives
Zone
of
Tolerance
Self-Perceived
Service Role Adequate
Service

Situational
Factors
Transitory service intensifiers – temporary – a
computer breakdown will be less tolerated at financial
year-ends
Perceived service alternatives
Perceived service role of customer
Situational factors
 Figure 3-7
Factors that Influence
Desired and Predicted Service
Explicit Service
Promises

Implicit Service
Promises

Desired Word-of-Mouth
Service

Zone
Past Experience
of
Tolerance

Adequate Predicted
Service Service
SM
Chapter 2 Contd..,

CUSTOMER
PERCEPTIONS OF
SERVICE
 Customer Perceptions of Service
Provide you with definitions and
understanding of customer satisfaction and
service quality
Show that service encounters or the
“moments of truth” are the building blocks of
customer perceptions
Highlight strategies for managing customer
perceptions of service
 Figure 4-1
Customer Perceptions of
Service Quality and
Customer Satisfaction

Reliability Situational
Factors
Responsiveness Service
Quality

Assurance
Customer
Empathy Satisfaction
Product
Quality
Tangibles

Personal
Price Factors
Factors Influencing
Customer Satisfaction

Product/service quality
Product/service attributes or features
Consumer Emotions
Attributions for product/service success or failure
Equity or fairness evaluations
Outcomes of
Customer Satisfaction

Increased customer retention

Positive word-of-mouth communications
Increased revenues
 Figure 4-3
Relationship between Customer Satisfaction
and Loyalty in Competitive Industries

100%
Loyalty (retention)

80%

60%

40%

20%

0%
Very Dissatisfied Neither Satisfied Very
dissatisfied satisfied nor satisfied
dissatisfied

Satisfaction measure

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

The customer’s judgment of overall excellence of the

service provided in relation to the quality that was
expected.
Process and outcome quality are both important.
 The Five Dimensions of
Service Quality

Reliability Ability to perform the promised

service dependably and accurately.
Knowledge and courtesy of
Assurance employees and their ability to
convey trust and confidence.
Tangibles Physical facilities, equipment, and
appearance of personnel.
Empathy Caring, individualized attention the
firm provides its customers.
Responsiveness Willingness to help customers and
provide prompt service.
 Exercise to
Identify Service Attributes
In groups of five, choose a services industry and spend 10 minutes
brainstorming specific requirements of customers in each of the five
service quality dimensions. Be certain the requirements reflect the
customer’s point of view.
Reliability:

Assurance:

Tangibles:

Empathy:

Responsiveness:
 SERVQUAL Attributes
RELIABILITY
 Providing service as promised
 Dependability in handling customers’
service problems
 Performing services right the first time
 Providing services at the promised time
 Maintaining error-free records
RESPONSIVENESS
 Keeping customers informed as to
when services will be performed
 Prompt service to customers
 Willingness to help customers
 Readiness to respond to customers’
requests
ASSURANCE
 Employees who instill confidence in
customers
 Making customers feel safe in their
transactions
 Employees who are consistently courteous
 Employees who have the knowledge to
answer customer questions
EMPATHY
 Giving customers individual attention
 Employees who deal with customers in a
caring fashion
 Having the customer’s best interest at heart
 Employees who understand the needs of
their customers
 Convenient business hours
TANGIBLES
 Modern equipment
 Visually appealing facilities
 Employees who have a
neat, professional
appearance
 Visually appealing materials
associated with the service
 The Service Encounter

 is the “moment of truth”

 occurs any time the customer interacts with the firm
 can potentially be critical in determining customer satisfaction and loyalty
 types of encounters:
remote encounters
phone encounters
face-to-face encounters
 is an opportunity to:
build trust
reinforce quality
build brand identity
increase loyalty
 Figure 4-4

A Service Encounter
Cascade for a Hotel Visit

Check-In
Check-In
Bellboy
BellboyTakes
Takesto
toRoom
Room

Restaurant
Restaurant Meal
Meal
Request
RequestWake-Up
Wake-Up Call
Call
Checkout
Checkout
 Figure 4-5
A Service Encounter
Cascade for an Industrial
Purchase

Sales
SalesCall
Call
Delivery
Deliveryand
andInstallation
Installation

Servicing
Servicing

Ordering
Ordering Supplies
Supplies
Billing
Billing
Critical Service Encounters Research

GOAL - understanding actual events and

behaviors that cause customer dis/satisfaction
in service encounters
METHOD - Critical Incident Technique
DATA - stories from customers and employees
OUTPUT - identification of themes underlying
satisfaction and dissatisfaction with service
encounters
Sample Questions for Critical Incidents
Technique Study

Think of a time when, as a customer, you had a

particularly satisfying (dissatisfying) interaction
with an employee of .
When did the incident happen?
What specific circumstances led up to this
situation?
Exactly what was said and done?
What resulted that made you feel the interaction
was satisfying (dissatisfying)?
Common Themes in Critical
Service Encounters Research

Recovery: Adaptability:
Employee Response Employee Response
to Service Delivery to Customer Needs
System Failure and Requests

Coping: Spontaneity:
Employee Response Unprompted and
to Problem Customers Unsolicited Employee
Actions and Attitudes
 Recovery

DO DON’T
Acknowledge problem Ignore customer
Explain causes Blame customer
Apologize Leave customer to fend
Compensate/upgrade for him/herself
Lay out options Downgrade
Take responsibility Act as if nothing is
wrong
 Adaptability

DO DON’T
 Recognize the  Promise, then fail to
seriousness of the need follow through
 Acknowledge  Ignore
 Anticipate  Show unwillingness to
 Attempt to accommodate try
 Explain rules/policies  Embarrass the customer
 Take responsibility  Laugh at the customer
 Exert effort to  Avoid responsibility
accommodate
 Spontaneity

DO DON’T
 Take time Exhibit impatience
 Be attentive Ignore
 Anticipate needs Yell/laugh/swear
 Listen
Steal from or cheat a
 Provide information
customer
(even if not asked) Discriminate
 Treat customers fairly
Treat impersonally
 Show empathy
 Acknowledge by name
 Coping

DO DON’T
Listen Take customer’s
Try to accommodate dissatisfaction
Explain personally
Let customer’s
Let go of the customer
dissatisfaction affect
others
 Figure 4-6
Evidence of Service from the
Customer’s Point of View

 Contact employees
 Customer
him/herself
 Operational flow of
activities
 Other customers
People
 Steps in process
 Flexibility vs.
standard
 Technology vs.
human Process Physical  Tangible
Evidence communication
 Servicescape
 Guarantees
 Technology
SM
Part 2

LISTENING TO
CUSTOMER
REQUIREMENTS
 Provider GAP 1

CUSTOMER
Expected
Service

GAP 1

Company
COMPANY Perceptions of
Consumer
Expectations

Part 2 Opener
SM
Chapter 3

UNDERSTANDING
CUSTOMER
EXPECTATIONS AND
PERCEPTIONS THROUGH
MARKETING RESEARCH
 Understanding Customer Expectations
and Perceptions through
Marketing Research
Present the types of and guidelines for marketing
research in services
Show the ways that marketing research information
can and should be used for services
Describe the strategies by which companies can
facilitate interaction and communication between
management and customers
Present ways that companies can and do facilitate
interaction between contact people and management
 Common Research Objectives
for Services
 To identify dissatisfied customers
 To discover customer requirements or expectations
 To monitor and track service performance
 To assess overall company performance compared to
competition
 To assess gaps between customer expectations and
perceptions
 To gauge effectiveness of changes in service
 To appraise service performance of individuals and teams
for rewards
 To determine expectations for a new service
 To monitor changing expectations in an industry
 To forecast future expectations
Figure 5-1
Criteria for An Effective Services Research Program

Includes
des Quantitative
lu ve
Inc litati h Research Includes
a c
Qu esear Perceptions
R and
Expectations
Occurs of
Customers
with
Appropriate Research Includes
Frequency Measures
Objectives of
Loyalty or
Behavioral
Measures Intentions
Priorities
or C ost
Importance n ces of
la e
Includes Ba Valu ion
Statistical and rmat
o
Validity Inf
When Necessary
 Portfolio of Services Research
Research Objective Type of Research
Identify dissatisfied customers to attempt recovery;
identify most common categories of service failure Customer Complaint
for remedial action
Solicitation
Assess company’s service performance compared to
competitors; identify service-improvement priorities; track “Relationship” Surveys
service improvement over time

Obtain customer feedback while service experience is still Post-Transaction Surveys

fresh; act on feedback quickly if negative patterns develop
Customer Focus Groups
Use as input for quantitative surveys; provide a
forum for customers to suggest service-improvement
ideas “Mystery Shopping” of
Measure individual employee service behaviors for use in Service Providers
coaching, training, performance evaluation, recognition and
rewards; identify systemic strengths and weaknesses in
service Employee Surveys
Measure internal service quality; identify employee-
perceived obstacles to improve service; track
employee morale and attitudes Lost Customer Research
Determine the reasons why customers defect

To forecast future expectations of customers

To develop and test new service ideas
Future Expectations Research
Stages in the Research Process

Stage 1 : Define Problem

Stage 2 : Develop Measurement Strategy
Stage 3 : Implement Research Program
Stage 4 : Collect and Tabulate Data
Stage 5 : Interpret and Analyze Findings
Stage 6 : Report Findings
 Figure 5-5
Service Quality Perceptions
Relative to Zones of Tolerance
by Dimensions
9
8
7 O
O O
6 O O
5
4
3
2
1
0

Reliability Responsiveness Assurance Empathy Tangibles

Retail Chain Zone of Tolerance O S.Q. Perception

 Service Quality Perceptions
Relative to Zones of Tolerance by
Dimensions
10

8
O O O O
O
6

Reliability Responsiveness Assurance Empathy Tangibles

Computer Zone of Tolerance O S.Q. Perception

Manufacturer
 Figure 5-6
Importance/Performance Matrix
HIGH
High  
Leverage
Attributes to Improve Attributes to Maintain

Importance

  


Low

 Leverage

Attributes to Maintain Attributes to De-emphasize

LOW
HIGH
Performance
SM
Chapter 3 contd..,

BUILDING
CUSTOMER
RELATIONSHIPS
 Objectives for Chapter 6:
Building Customer Relationships

 Explain relationship marketing, its goals, and the benefits

of long-term relationships for firms and customers
 Explain why and how to estimate customer lifetime value
 Specify the foundations for successful relationship
marketing--quality core services and careful market
segmentation
 Provide you with examples of successful customer
retention strategies
 Introduce the idea that “the customer isn’t always right”
 Relationship Marketing

 is a philosophy of doing business that focuses on keeping

and improving current customers
 does not necessarily emphasize acquiring new customers
 is usually cheaper (for the firm)--to keep a current
customer costs less than to attract a new one
 goal = to build and maintain a base of committed
customers who are profitable for the organization
 thus, the focus is on the attraction, retention, and
enhancement of customer relationships
 Lifetime Value of a Customer

 Assumptions
 Income
Expected Customer Lifetime
Average Revenue (month/year)
Other Customers convinced via WOM
Employee Loyalty??
 Expenses
Costs of Serving Customer Increase??
 A Loyal Customer is One Who...
Shows Behavioral Commitment
buys from only one supplier, even though other options
exist
increasingly buys more and more from a particular
supplier
provides constructive feedback/suggestions
Exhibits Psychological Commitment
wouldn’t consider terminating the relationship--
psychological commitment
has a positive attitude about the supplier
says good things about the supplier
Customer Loyalty Exercise

Think of a service provider you are loyal to.

What do you do (your behaviors, actions, feelings)
that indicates you are loyal?
Why are you loyal to this provider?
Benefits to the Organization of Customer
Loyalty

loyal customers tend to spend more with the

organization over time
on average costs of relationship maintenance are
lower than new customer costs
employee retention is more likely with a stable
customer base
lifetime value of a customer can be very high
Benefits to the Customer

inherent benefits in getting good value

economic, social, and continuity benefits
contribution to sense of well-being and quality of life
and other psychological benefits
avoidance of change
simplified decision making
social support and friendships
special deals
“The Customer Isn’t Always Right”

Not all customers are good relationship customers:

wrong segment

not profitable in the long term

difficult customers
Strategies for Building Relationships
Foundations:
Excellent Quality/Value
Careful Segmentation
Bonding Strategies:
Financial Bonds
Social & Psychological Bonds
Structural Bonds
Customization Bonds
Relationship Strategies Wheel
Figure 6-1
Customer Goals of
Relationship Marketing

Enhancing

Retaining

Satisfying

Getting
 Figure 6-3
Underlying Logic of Customer Retention Benefits to
the Organization

Customer Satisfaction

Customer Retention & Quality

Increased Profits Service

Employee Loyalty
 Figure 6-5
Steps in Market Segmentation and
Targeting for Services

STEP 1: STEP 2: STEP 3: STEP4: STEP 5:

Identify Develop Develop Select the Ensure that
Bases for Profiles of Measures Target Segments
Segmenting Resulting of Segment Segments Are
the Market Segments Attractive- Compatible
ness
 Figure 6-6
Levels of Retention Strategies
Stable
Volume and Pricing
Frequency Bundling and
Rewards Cross Selling

Integrated I. Financial Continuous

Information Bonds Relationships
Systems

IV.
Excellent
Quality II.
Joint Structural Personal
Investments and Social Relationships
Bonds
Value Bonds

Shared Social Bonds

Processes III. Customization Among
and Bonds Customers
Equipment

Anticipation Customer
/ Innovation Intimacy
Mass
Customization
SM
Chapter 7

SERVICE RECOVERY
 Objectives for Chapter 7:
Service Recovery

Illustrate the importance of recovery from service

failures in building loyalty
Discuss the nature of consumer complaints and
why people do and do not complain
Provide evidence of what customers expect and
the kind of responses they want when they
complain
Provide strategies for effective service recovery
Discuss service guarantees
 Figure 7-1

Unhappy Customers’
Repurchase Intentions

Unhappy Customers Who Don’t Complain

9%
Unhappy Customers Who Do Complain 37%

19%
Complaints Not Resolved
46%

54%
Complaints Resolved
70%

Complaints Resolved Quickly

82%
95%

Percent of Customers Who Will Buy Again

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

Source: Adapted from data reported by the Technical Assistance Research Program.
 Figure 7-3

Customer Response Following Service Failure

Service Failure

Take Action Do Nothing

Switch Providers Stay with Provider

Complain to Complain to Complain to

Provider Family & Friends Third Party

Switch Providers Stay with Provider

 Figure 7-5
Service Recovery Strategies
We
E n l co m
e co
vi
c ura e an
r ge d
Se Co
e mp
th l ai
e
S af nt s
i l
Fa

Act Quickly
Service
Learn from
Lost Custom

Recovery
Strategies
ers

y
air l
F
Le s
er
Re arn f om
co r o m
ve u st
ry
Ex tC
pe ea
ri en Tr
ce
s
Pricing
• High Price
• Price Increases
• Unfair Pricing
• Deceptive Pricing Figure 7-6
Causes Behind Service Switching

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

Core Service Failure

• Service Mistakes
• Billing Errors
• Service Catastrophe

Service Encounter Failures

Uncaring
Service
•
• Impolite
• Unresponsive
• Unknowledgeable Switching
Response to Service Failure
• Negative Response
Behavior
• No Response
• Reluctant Response

Competition
• Found Better Service

Ethical Problems
• Cheat
• Hard Sell
• Unsafe
• Conflict of Interest

Involuntary Switching
• Customer Moved Source: Sue Keaveney
• Provider Closed
 Service Guarantees

guarantee = an assurance of the fulfillment of a

condition (Webster’s Dictionary)

for products, guarantee often done in the form of a

warranty

services are often not guaranteed

cannot return the service
service experience is intangible
(so what do you guarantee?)
 Table 7-7
Characteristics of an Effective Service Guarantee

Unconditional
 The guarantee should make its promise unconditionally -
no strings attached.
Meaningful
 It should guarantee elements of the service that are
important to the customer.
 The payout should cover fully the customer's
dissatisfaction.
Easy to Understand and Communicate
 For customers - they need to understand what to expect.
 For employees - they need to understand what to do.
Easy to Invoke and Collect
 There should not be a lot of hoops or red tape in the way
of accessing or collecting on the guarantee.
Source: Christopher W.L. Hart, “The Power of Unconditional Guarantees,” Harvard Business Review, July-August, 1988, pp. 54-62.
Why a Good Guarantee Works

forces company to focus on customers

sets clear standards

generates feedback

forces company to understand why it failed

builds “marketing muscle”

Service Guarantees

Does everyone need a guarantee?

Reasons companies do NOT offer guarantees:

guarantee would be at odds with company’s image
too many uncontrollable external variables
fears of cheating by customers
costs of the guarantee are too high
 Service Guarantees

service guarantees work for companies who are

already customer-focused
effective guarantees can be BIG deals - they put the
company at risk in the eyes of the customer
customers should be involved in the design of service
guarantees
the guarantee should be so stunning that it comes as a
surprise -- a WOW!! factor
“it’s the icing on the cake, not the cake”
SM
Part 3

ALIGNING STRATEGY,
SERVICE DESIGN
AND STANDARDS
 Provider GAP 2
CUSTOMER

COMPANY Customer-Driven
Service Designs and
Standards
GAP 2
Company
Perceptions of
Consumer
Expectations

Part 3 Opener
SM
Chapter 8

SERVICE DEVELOPMENT
AND DESIGN
 Service Development and Design

Describe the challenges inherent in service design

Present steps in the new service development
process
Show the value of service blueprinting and quality
function deployment (QFD) in new service design
and service improvement
Present lessons learned in choosing and
implementing high-performance service
innovations
 Figure 8-1
Risks of Relying on Words Alone to
Describe Services

 Oversimplification
 Incompleteness
 Subjectivity
 Biased Interpretation
 Figure 8-2
New Service Development Process
h Business Strategy Development or Review

h New Service Strategy Development

Front End
h Idea Generation
Planning
Screen ideas against new service strategy
h Concept Development and Evaluation
Test concept with customers and employees

h Business Analysis

Test for profitability and feasibility

h Service Development and Testing

Conduct service prototype test

h Market Testing
Implementation
Test service and other marketing-mix elements
h Commercialization

h Postintroduction Evaluation
Source: Booz-Allen & Hamilton, 1982; Bowers, 1985; Cooper, 1993; Khurana & Rosenthal 1997.
 Figure 8-3

New Service Strategy Matrix for

Identifying Growth Opportunities

Markets
Offerings Current Customers New Customers

Existing
SHARE BUILDING MARKET
Services
DEVELOPMENT

New
Services SERVICE DIVERSIFICATION
DEVELOPMENT
Figure 8-4

Service Mapping/Blueprinting
A tool for simultaneously depicting the service
process, the points of customer contact, and the
evidence of service from the customer’s point of
view.
Process

Service Points of Contact

Mappin
g Evidence
Service Blueprint Components
CUSTOMER ACTIONS

line of interaction

“ONSTAGE” CONTACT EMPLOYEE ACTIONS

line of visibility

“BACKSTAGE” CONTACT EMPLOYEE ACTIONS

line of internal interaction

SUPPORT PROCESSES
 Express Mail Delivery Service
Truck Truck
Packaging Packaging
Forms Forms
EVIDENCE
CONTACT PERSON CUSTOME PHYSICAL

Hand-held Hand-held
Computer Computer
Uniform Uniform

Customer Customer Receive

Calls Gives Package
Package
(Back Stage) (On Stage) R

Driver
Picks Deliver
Up Pkg. Package

Customer
Service
Order

Airport Fly to
Dispatch
Receives Sort Unload Load
Driver Fly to
& Loads Center & On
Destinatio Sort Truck
SUPPORT

Load on
PROCESS

Airplane
n

Sort
Packages
 Overnight Hotel Stay
Bill
EVIDENCE
CUSTOMER PHYSICAL

Desk
Hotel Cart for Desk Elevators Cart for Room Menu Delivery Food Lobby
Exterior Bags Registration Hallways Bags Amenities Tray Hotel
Parking Papers Room Bath Food Exterior
Lobby Appearance Parking
Key
Arrive Give Bags Call Check out
Go to Receive Sleep Receive
at to Check in Room Eat and
Room Bags Shower Food
Hotel Bellperson Service Leave
SUPPORT PROCESS (Back Stage) (On Stage)
CONTACT PERSON

Greet and
Process Deliver Deliver Process
Take
Registration Bags Food Check Out
Bags

Take
Take Bags Food
to Room Order

Registration Prepare Registration

System Food System
 Figure 8-8
Building a Service Blueprint

Step
Step11 Step
Step22 Step
Step33 Step
Step44 Step
Step55 Step
Step66
Map Map Add
Identify
Identifythe
the Identify
Identifythe
the Mapthethe Map Link
Link Add
process to customer process contact
contact customer evidence
evidence
process to customer process customer
from employee ofofservice
be
beblue-
blue- oror fromthe
the employee and
andcontact
contact service
printed. customer customer’s actions,
actions, person atateach
each
printed. customer customer’s person
point onstage customer
segment.
segment. pointofof onstage activities
activitiestoto customer
view. and
andback-
back- needed action
action
view. needed
stage.
stage. support step.
step.
support
functions.
functions.
Application of Service Blueprints

New Service Development

 concept development
 market testing

Supporting a “Zero Defects” Culture

 managing reliability
 identifying empowerment issues

Service Recovery Strategies

 identifying service problems
 conducting root cause analysis
 modifying processes
 Blueprints Can Be Used By:

Service Marketers Human Resources

 creating realistic customer  empowering the human element
expectations job descriptions
 service system design selection criteria
 promotion appraisal systems

Operations Management
 rendering the service as
System Technology
promised
 providing necessary tools:
 managing fail points
system specifications
 training systems
 quality control personal preference databases
SM
Chapter 4

CUSTOMER-DEFINED
SERVICE STANDARDS
 Objectives for Chapter 9:
Customer-defined Service Standards

Differentiate between company-defined and

customer-defined service standards
Distinguish among one-time service fixes and
“hard” and “soft” customer-defined standards
Explain the critical role of the service encounter
sequence in developing customer-defined standards
Illustrate how to translate customer expectations
into behaviors and actions that are definable,
repeatable, and actionable
 Figure 9-1
AT&T’s Process Map for Measurements

Business Process Customer Need Internal Metric

Reliability (40%) % Repair Call
30% Product Easy To Use (20%) % Calls for Help
Features / Functions (40%) Functional Performance Test

30% Sales Knowledge (30%) Supervisor Observations

Responsive (25%) % Proposal Made on Time
Follow-Up (10%) % Follow Up Made

Total 10% Installation Delivery Interval Meets Needs (30%) Average Order Interval
Quality Does Not Break (25%) % Repair Reports
Installed When Promised (10%) % Installed On Due Date
15% Repair
No Repeat Trouble (30%) % Repeat Reports
Fixed Fast (25%) Average Speed Of Repair
15% Billing Kept Informed (10%) % Customers Informed

Accuracy, No Surprise (45%) % Billing Inquiries

Resolve On First Call (35%) % Resolved First Call
Easy To Understand (10%) % Billing Inquiries

Source: AT&T General Business Systems

Exercise for Creating Customer-Defined
Service Standards
Form a group of four people
Use your school’s undergraduate or graduate
program, or an approved alternative
Complete the customer-driven service standards
importance chart
Establish standards for the most important and
lowest-performed behaviors and actions
Be prepared to present your findings to the class
 Customer-Driven Standards and
Measurements Exercise
Service Encounter Customer Requirements Measurements

Service
Quality
 Figure 9-2
Getting to Actionable Steps
Requirements: Diagnosticity:

Satisfaction Value Abstract Low

Relationship General Concepts
Solution Provider

Dig Reliability Empathy

Deeper Assurance Tangibles Dimensions
Responsiveness Price

Dig Delivers on Time

Deeper Returns Calls Quickly Attributes
Knows My Industry

Dig Delivers by Weds 11/4 Behaviors

Deeper Returns Calls in 2 Hrs and Actions
Knows Strengths of
My Competitors

Concrete High
 Figure 9-3
Process for Setting
Customer-Defined Standards
1. Identify Existing or Desired Service Encounter Sequence

2.2.Translate
TranslateCustomer
CustomerExpectations
ExpectationsInto
IntoBehaviors/Actions
Behaviors/Actions

3.3.Select
SelectBehaviors/Actions
Behaviors/Actionsfor
forStandards
Standards

4. Set Hard or Soft Standards

Measure by Measure by
Audits or Hard 5.5.Develop Transaction-
DevelopFeedback
Feedback Soft
Operating Data Mechanisms Based Surveys
Mechanisms

6.6.Establish
EstablishMeasures
Measuresand
andTarget
TargetLevels
Levels

7. Track Measures Against Standards

8.8. Update
UpdateTarget
TargetLevels
Levelsand
andMeasures
Measures
 HIGH 10.0
Importance/Performance Matrix
Improve Maintain
Does whatever it takes to
correct problems (9.26, 7.96)
 Delivers on promises specified in proposal/contract (9.49, 8.51)

Gets project within budget, on time (9.31, 7.84)
Completes projects

correctly, on time (9.29, 7.68)
   Gets price we originally agreed upon (9.21, 8.64)
Tells me cost ahead of time (9.06, 8.46)
9.0   
Provides equipment that operates as vendor said it would (9.24, 8.14)
Gets back to me when
Takes responsibility for their mistakes (9.18, 8.01)
promised (9.04, 7.63)
Delivers or installs on
Importance promised date (9.02, 7.84)

8.0

LOW 7.0
HIGH
8.0 9.0 10.0

Performance
 Figure 9-5
Linkage between Soft Measures and
Hard Measures for Speed of
Complaint Handling
S
A 10
T 9
I 8
Large Customers
S 7
F 6 Small Customers
A 5
C 4
T 3
I 2
O 1
N 0
2 4 6 8 12 16 20 24
WORKING HOURS
 Figure 9-6
Aligning Company Processes
with Customer Expectations

Customer Expectations

48 Hours
Customer
Process
Blueprint Report Lost Receive New
Card Card
Company
Process Company Sequential Processes
Blueprint

A
A B
B C
C D
D EE FF G
G H
H
Lost Card New Card
Reported 40 Days Mailed
SM
Chapter 08

PHYSICAL EVIDENCE
AND THE SERVICESCAPE
Objectives for Chapter 10:
Physical Evidence and the Servicescape

 Explain the impact on customer perceptions of physical

evidence, particularly the servicescape
 Illustrate differences in types and roles of servicescapes
and their implications for strategy
 Explain why the servicescape affects employee and
customer behavior
 Analyze four different approaches for understanding the
effects of physical environment
 Present elements of an effective physical evidence
strategy
 Table 10-1
Elements of Physical Evidence
Servicescape Other tangibles

Facility exterior Business cards

Exterior design Stationery
Signage Billing statements
Parking Reports
Landscape Employee dress
Surrounding environment Uniforms
Brochures
Facility interior Internet/Web pages
Interior design
Equipment
Signage
Layout
Air quality/temperature
Table 10-2
Examples of Physical Evidence from the Customer’s Point of
View
Service Physical evidence
Servicescape Other tangibles
Insurance Not applicable Policy itself
Billing statements
Periodic updates
Company brochure
Letters/cards
Hospital Building exterior Uniforms
Parking Reports/stationery
Signs Billing statements
Waiting areas
Admissions office
Patient care room
Medical equipment
Recovery room
Airline Airline gate area Tickets
Airplane exterior Food
Airplane interior (décor, seats, air Uniforms
quality)
Express mail Not applicable Packaging
Trucks
Uniforms
Computers
Sporting Parking, Seating, Restrooms Signs
event Stadium exterior Tickets
Ticketing area, Concession Areas Program
Entrance, Playiing Field Uniforms
Table 10-3
Typology of Service Organizations
Based on Variations in Form
and Use of the Servicescape

Complexity of the servicescape evidence

Servicescape Elaborate Lean
usage
Self-service Golf Land ATM
(customer only) Surf 'n' Splash Ticketron
Post office kiosk
Internet services
Express mail drop-off
Interpersonal Hotel Dry cleaner
services Restaurants Hot dog stand
(both customer and Health clinic Hair salon
employeee) Hospital
Bank
Airline
School
Remote service Telephone company Telephone mail-order desk
(employee only) Insurance company Automated voice-messaging-
Utility based services
Many professional services
 Figure 10-3
A Framework for Understanding
Environment-user Relationships
in Service Organizations

PHYSICAL HOLISTIC INTERNAL BEHAVIOR

ENVIRONMENTAL ENVIRONMENT RESPONSES
DIMENSIONS Cognitive
Emotional
Physiological
Individual
Behaviors
Employee
Responses
Ambient Social
Conditions Interactions
Space/Function Perceived between and
Servicescape among
customer and
Signs, Symbols, employees
and Artifacts
Customer
Responses
Individual
Behaviors
Cognitive
Emotional
Source: Adapted from Mary Jo Bitner, “Servicescapes.”
Physiological
SM
Part 4

DELIVERING AND
PERFORMING SERVICE
 Provider GAP 3

CUSTOMER

Service Delivery
COMPANY
GAP 3
Customer-Driven
Service Designs and
Standards

Part 4 Opener
SM
Chapter 05

EMPLOYEES’ ROLES IN
SERVICE DELIVERY
 Objectives for Chapter 11:
Employees’ Roles in Service Delivery

Illustrate the critical importance of service

employees in creating customer satisfaction and
service quality
Demonstrate the challenges inherent in boundary-
spanning roles
Provide examples of strategies for creating
customer-oriented service delivery
Show how the strategies can support a service
culture where providing excellent service is a way
of life
Service Employees
They are the service
They are the firm in the customer’s eyes
They are marketers
Importance is evident in
The Services Marketing Mix (People)
The Service-Profit Chain
The Services Triangle
Service Employees

Who are they?

“boundary spanners”
What are these jobs like?
emotional labor
many sources of potential conflict
 person/role
 organization/client
 interclient
 quality/productivity
Figure 11-3
Boundary Spanners Interact
with Both Internal
and External Constituents

External Environment

Internal Environment
Figure 11-4
Sources of Conflict for
Boundary-Spanning Workers

• Person vs. Role

• Organization vs. Client

• Client vs. Client

• Quality vs. Productivity

Figure 11-5
Human Resource Strategies for Closing GAP 3

Hire for
r Service
fo Competencies B
Pr e t
te t
pe es and Service Em efer he
m B le p l re d
Co the op Inclination oy
Pe er

Str ard nd

Te nte kills
Tr nica tive
Re ure a

ch rac
Hire the

ain l
I S
Pr ervic g

fo and
ide e
Right People
n

rs
w
as

r
Me

ov
S

Develop
Customer-

Employees
Empower
Employees

Customers

Retain the People to

oriented
Treat

Deliver
Best
as

Service Service
People Delivery Quality
Em th any’

wo e
rk
Inc ee

am ot
Provide
plo e

Te rom
Co Visio

lu d s i n
y

Needed Support
mp n

P
e

De Systems
Se velo
s

re
or rvic p asu al
i
Int ente -
e
Provide Me tern e
Pr ern d In rvic y
oc Supportive Se alit
es al
se
s Technology Qu
and
Equipment
Service Culture

“A culture where an appreciation for good service

exists, and where giving good service to internal as
well as ultimate, external customers, is considered
a natural way of life and one of the most important
norms by everyone in the organization.”
SM
Chapter 05

CUSTOMERS’ ROLES IN
SERVICE DELIVERY
 Objectives for Chapter 12:
Customers’ Roles in Service Delivery

Illustrate the importance of customers in

successful service delivery
Enumerate the variety of roles that service
customers play
 Productive resources
 Contributors to quality and satisfaction
 Competitors
Explain strategies for involving service customers
effectively to increase both quality and
productivity
 Importance of Other Customers in
Service Delivery

Other customers can detract from satisfaction

 disruptive behaviors
 excessive crowding
 incompatible needs

Other customers can enhance satisfaction

 mere presence
 socialization/friendships
 roles: assistants, teachers, supporters
How Customers Widen Gap 3
Lack of understanding of their roles
Not being willing or able to perform their roles
No rewards for “good performance”
Interfering with other customers
Incompatible market segments
Figure 12-2
Customer Roles in Service Delivery

Productive Resources

Contributors to
Quality and
Satisfaction

Competitors
Customers as Productive Resources

“partial employees”
contributing effort, time, or other resources to the
production process
customer inputs can affect organization’s productivity
key issue:
should customers’ roles be expanded? reduced?
 Customers as Contributors to
Service Quality and Satisfaction

Customers can contribute to

their own satisfaction with the service
 by performing their role effectively
 by working with the service provider
the quality of the service they receive
 by asking questions
 by taking responsibility for their own satisfaction
 by complaining when there is a service failure
 Customers as Competitors

customers may “compete” with the service provider

“internal exchange” vs. “external exchange”
internal/external decision often based on:
expertise
resources
time
economic rewards
psychic rewards
trust
control
Technology Spotlight:
Services Production Continuum

Customer Production Joint Production Firm Production

1 2 3 4 5 6
Gas Station Illustration
1. Customer pumps gas and pays at the pump with automation
2. Customer pumps gas and goes inside to pay attendant
3. Customer pumps gas and attendant takes payment at the pump
4. Attendant pumps gas and customer pays at the pump with automation
5. Attendant pumps gas and customer goes inside to pay attendant
6. Attendant pumps gas and attendant takes payment at the pump
 Figure 12-3

Strategies for Enhancing Customer

Participation

Effective
Define Customer
Customer Recruit, Educate,
Participation and Reward
Jobs
Customers

Manage the
Customer
Mix
Strategies for Enhancing
Customer Participation

1. Define customers’ jobs

- helping himself
- helping others
- promoting the company

2. Individual differences: not everyone wants

to participate
Strategies for Recruiting,
Educating and Rewarding Customers

1. Recruit the right customers

2. Educate and train customers to perform
effectively
3. Reward customers for their contribution
4. Avoid negative outcomes of inappropriate
customer participation

Manage the Customer Mix

SM
Chapter 06

MANAGING DEMAND
AND CAPACITY
 Objectives for Chapter 14:
Managing Demand and Capacity
 Explain:
 the underlying issue for capacity-constrained services
 the implications of capacity constraints
 the implications of different types of demand patterns on
matching supply and demand
 Lay out strategies for matching supply and demand through:
 shifting demand to match capacity or
 flexing capacity to meet demand
 Demonstrate the benefits and risks of yield management strategies
 Provide strategies for managing waiting lines
 Understanding Capacity Constraints and
Demand Patterns

Capacity Constraints Demand Patterns

Time, labor, • Charting demand
equipment and patterns
facilities • Predictable cycles
Optimal versus • Random demand
maximal use of fluctuations
capacity • Demand patterns by
market segment
 Figure 14-3

Strategies for Shifting Demand

to Match Capacity

Demand Too High Shift Demand Demand Too Low

 Use signage to communicate busy days and
times
 Offer incentives to customers for usage during
non-peak times
 Take care of loyal or regular customers first
 Advertise peak usage times and benefits of
non-peak use
 Charge full price for the service--no discounts
• Use sales and advertising to
increase business from current
market segments
• Modify the service offering to
appeal to new market segments
• Offer discounts or price
reductions
• Modify hours of operation
• Bring the service to the
customer
 Figure 14-4

Strategies for Flexing Capacity

to Match Demand

Demand Too High Flex Capacity Demand Too Low

 Stretch time, labor, facilities and equipment
 Cross-train employees • Perform maintenance
 Hire part-time employees renovations
 Request overtime work from employees
 Rent or share facilities
• Schedule vacations
 Rent or share equipment • Schedule employee training
 Subcontract or outsource activities • Lay off employees
 Table 14-1
What is the Nature of Demand Relative to Supply?
Extent of demand fluctuations over time
Extent to which
supply is Wide Narrow
constrained
Peak demand can 1 2
usually be met Electricity Insurance
without a major Natural gas Legal services
delay Telephone Banking
Hospital maternity unit Laundry and dry cleaning
Police and fire
emergencies
Peak demand 4 3
regularly exceeds Accounting and tax Services similar to those in
capacity preparation 2 but which have
Passenger transportation insufficient capacity for
Hotels and motels their base level of business
Restaurants
Theaters

Source: Christopher H. Lovelock, “Classifying Services to Gain Strategic Marketing Insights,” Journal of Marketing, 47, 3 (Summer 1983): 17.
 Table 14-2
What is the Constraint on Capacity?

Nature of the constraint Type of service

Time Legal
Consulting
Accounting
Medical
Labor Law firm
Accounting firm
Consulting firm
Health clinic
Equipment Delivery services
Telecommunication
Utilities
Health club
Facilities Hotels
Restaurants
Hospitals
Airlines
Schools
Theaters
Churches
 Waiting Line Issues
and Strategies
unoccupied time feels longer
preprocess waits feel longer
anxiety makes waits seem longer
uncertain waits seem longer than finite waits
unexplained waits seem longer
unfair waits feel longer
longer waits are more acceptable for “valuable”
services
solo waits feel longer
SM
Part 5

MANAGING SERVICE
PROMISES
 Provider GAP 4
CUSTOMER

Service Delivery External

COMPANY Communications
GAP 4 to Customers

Part 5 Opener
SM
Chapter 07

ROLE OF MARKETING
COMMUNICATION
Objectives for :
Integrated Services
Marketing Communications

Introduce the concept of Integrated Services Marketing

Communication
Discuss the key reasons for service communication problems
Present four key ways to integrate marketing communication
in service organizations
Present specific strategies for managing promises, managing
customer expectations, educating customers, and managing
internal communications
Provide perspective on the popular service objective of
exceeding customer expectations
 Figure 15-1Communications and the
Services Marketing Triangle
Company

Internal Marketing External Marketing

Vertical Communications Communication
Horizontal Communications Advertising
Sales Promotion
Public Relations
Direct Marketing

Employees Interactive Marketing Customers

Personal Selling
Customer Service Center
Service Encounters
Servicescapes
Source: Parts of model adapted from work by Christian Gronroos and Phillip Kotler
 Figure 15-3

Approaches for
Integrating Services Marketing Communication
Manage
Customer
Expectations

Goal:
Manage Delivery Improve
Service greater than Customer
Promises or equal to Education
promises

Manage
Internal
Marketing
Communication
 Figure 15-4
Approaches for
Managing Service Promises

MANAGING SERVICE PROMISES

Goal:
Create Coordinate Offer Delivery
Effective Make
External Realistic Service greater than
Services Communication Guarantees or equal to
Communications Promises
promises
 Figure 15-8
Approaches for
Managing Customer Expectations
Offer Choices

Create Tiered-Value
Offerings

Communicate Criteria for

Service Effectiveness
Negotiate
Unrealistic
Expectations

Goal:
Delivery
greater than
or equal to
promises
 Figure 15-9
Approaches for
Improving Customer Education

Teach
Customers
Prepare Confirm Clarify to Avoid
Goal: Performance Expectations
Delivery Customers Peak
for the to Standards after the Sale Demand
greater than Service
or equal to Periods
Process and
promises
Seek Slow
Periods
 Figure 15-10
Approaches for Managing
Internal Marketing Communications
Goal:
Delivery
greater than
or equal to
promises

Create Effective
Vertical
Communications

Create Effective
Horizontal
Communications

Align Back
Office Personnel
w/ External Customers

Create
Cross-Functional
Teams
SM
Chapter 17

THE FINANCIAL AND

ECONOMIC IMPACT OF
SERVICE QUALITY
 The Financial and Economic Impact of Service

Examine the direct effects of service on profits

Consider the impact of service on getting new
customers
Evaluate the role of service in keeping customers
Examine the link between perceptions of service and
purchase intentions
Emphasize the importance of selecting profitable
customers
Discuss what is know about the key service drivers of
overall service quality, customer retention and
profitability
Discuss the balanced performance scorecard to focus
on strategic measurement other than financials
Figure 17-1
The Direct Relationship between
Service and Profits

Service
Quality
? Profits
 Figure 17-2
Offensive Marketing Effects of
Service on Profits

Service
Quality
Profits
Market
Share

Reputation Sales

Price
Premium
 Figure 17-3
Defensive Marketing Effects of
Service on Profit

Costs

Volume of Margins
Service Customer
Purchases

Quality Retention Price

Premium

Word of
Mouth
Profits
 Figure 17-5
Perceptions of Service, Behavioral
Intentions and Profits

Costs

Volume of Margins
Purchases
Customer
Retention Price
Behavioral Premium
Service Intentions
Word of
Mouth
Profits

Sales
 Figure 17-6

The “80/20” Customer Pyramid

Most Profitable
What segment spends more with
Customers us over time, costs less to maintain,
Best
Customers spreads positive word of mouth?

Other
Customers What segment costs us in
time, effort and money yet
does not provide the return
Least Profitable we want? What segment is
Customers difficult to do business with?
 Figure 17-7

The Expanded Customer Pyramid

Most Profitable
What segment spends more with
Customers Platinum us over time, costs less to maintain,
spreads positive word of mouth?
Gold

Iron

What segment costs us in

Lead time, effort and money yet
does not provide the return
Least Profitable we want? What segment is
difficult to do business with?
Customers
 Figure 17-8
The Key Drivers of Service Quality,
Customer Retention, and Profits

Key Drivers Service Encounters

Service
Encounter

Service
Encounter
Service Behavioral Customer
Quality Intentions Retention Profits
Service
Encounter

Service
Encounter
 Figure 17-9
Sample Measurements for the
Balanced Scorecard
Financial Measures

Price Premium
Volume Increases
Value of Customer
Referrals
Customer Value of Cross Sales
Perspective Long-term Value of Operational
Customer Perspective:

Service Perceptions
Service Expectations Right first time (% hits)
Right on time (% hits)
Perceived Value
Responsiveness (% on
Behavioral Intentions: time)
Innovation and
% Loyalty Learning Perspective Transaction time (hours,
% Intent to Switch days)
# Customer Number of new products Throughput time
Referrals Return on innovation Reduction in waste
# Cross Sales Process quality
Employee skills
# of Defections Time to market
Time spent talking to
customers

Adapted from Kaplan and Norton

 Figure 17-10
Service Quality Spells Profits
Costs

Defensive Volume of Margins

Marketing Purchases

Price
Premium
Service Customer
Quality Retention
Word of
Mouth Profits
Market
Share
Sales
Offensive
Marketing Reputation

Price
Premium