Services Marketing

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Contact: +923006641921 Usman Waheed Chapter 1 INTRODUCTION TO SERVICES S M

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 Tangible Dominant Intangible Dominant Salt Soft Drinks Detergents Automobiles Cosmetics Advertising Agencies Airlines Investment Management Consulting Teaching Fast-food Outlets Fast-food Outlets            

Figure 1-2 Percent of U.S. Labor Force by Industry 0 10 20 30 40 50 60 70 80 1929 1948 1969 1977 1984 1996 Percent of GDP Source: Survey of Current Business, April 1998, Table B.8, July 1988, Table 6.6B, and July 1992, Table 6.4C; Eli Ginzberg and George J. Vojta, “The Service Sector of the U.S. Economy,” Scientific American , 244,3 (1981): 31-39. Year Services Manufacturing Mining & Agriculture

0 10 20 30 40 50 60 70 80 1948 1959 1967 1977 1987 1996 Figure 1-3 Percent of U.S. Gross Domestic Product by Industry Percent of GDP Year 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. Services Manufacturing Mining & Agriculture

Differences Between Goods and Services Intangibility Perishability Simultaneous Production and Consumption Heterogeneity

Implications of Intangibility Services cannot be inventoried Services cannot be patented Services cannot be readily displayed or communicated Pricing is difficult

Implications of Heterogeneity Service delivery and customer satisfaction depend on employee actions Service quality depends on many uncontrollable factors There is no sure knowledge that the service delivered matches what was planned and promoted

Implications of Simultaneous Production and Consumption Customers participate in and affect the transaction Customers affect each other Employees affect the service outcome Decentralization may be essential Mass production is difficult

Implications of Perishability It is difficult to synchronize supply and demand with services Services cannot be returned or resold

Table 1-2 Services are Different 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 Internal Marketing Interactive Marketing External Marketing Company (Management) Customers Employees “ enabling the promise” “ delivering the promise” “ setting the promise” Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler

Ways to Use the Services Marketing Triangle Overall Strategic Assessment How is the service organization doing on all three sides of the triangle? Where are the weaknesses? What are the strengths? Specific Service Implementation What is being promoted and by whom? How will it be delivered and by whom? Are the supporting systems in place to deliver the promised service?

Source: Adapted from A. Parasuraman Company Customers Providers Technology Figure 1-6 The Services Triangle and Technology

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

Table 1-3 (Continued) Expanded Marketing Mix for Services

Ways to Use the 7 Ps Overall Strategic Assessment How effective is a firm’s services marketing mix? Is the mix well-aligned with overall vision and strategy? What are the strengths and weaknesses in terms of the 7 Ps? Specific Service Implementation Who is the customer? What is the service? How effectively does the services marketing mix for a service communicate its benefits and quality? What changes/improvements are needed?

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?

Part 1 FOCUS ON THE CUSTOMER S M

Perceived Service Expected Service CUSTOMER COMPANY Customer Gap GAP 1 GAP 2 Gaps Model of Service Quality GAP 3 External Communications to Customers GAP 4 Service Delivery Customer-Driven Service Designs and Standards Company Perceptions of Consumer Expectations Part 1 Opener

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

The Customer Gap Expected Service Perceived Service GAP Part 1 Opener

Chapter 2 CONSUMER BEHAVIOR IN SERVICES S M

Objectives for Chapter 2: Consumer Behavior in Services Overview the generic differences in consumer behavior between services and goods Introduce the aspects of consumer behavior that a marketer must understand in five categories of consumer behavior: 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 Clothing Jewelry Furniture Houses Automobiles Restaurant meals Vacations Haircuts Child care Television repair Legal services Root canals Auto repair Medical diagnosis Difficult to evaluate Easy to evaluate { High in search qualities High in experience qualities High in credence qualities { { Most Goods Most Services

Figure 2-2 Categories in Consumer Decision-Making and Evaluation of Services Information Search Evaluation of Alternatives Purchase and Consumption Post-Purchase Evaluation  Use of personal sources  Perceived risk  Evoked set  Emotion and mood  Service provision as drama  Service roles and scripts  Compatibility of customers  Attribution of dissatisfaction  Innovation diffusion  Brand loyalty

Figure 2-3 Categories in Consumer Decision-Making and Evaluation of Services Information Search Evaluation of Alternatives Purchase and Consumption Post-Purchase Evaluation  Use of personal sources  Perceived risk  Evoked set  Emotion and mood  Service provision as drama  Service roles and scripts  Compatibility of customers  Attribution of dissatisfaction  Innovation diffusion  Brand loyalty Culture Values and attitudes Manners and customs Material culture Aesthetics Educational and social institutions

Information search In buying services consumers rely more on personal sources. WHY? Refer p32 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

Chapter 3 CUSTOMER EXPECTATIONS OF SERVICES S M

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) Adequate Service Desired Service Zone of Tolerance

Figure 3-2 The Zone of Tolerance Adequate Service Desired Service Zone of Tolerance

Figure 3-3 Zones of Tolerance VARY for Different Service Dimensions Most Important Factors Least Important Factors Level of Expectation Source: Berry, Parasuraman, and Zeithaml (1993) Adequate Service Desired Service Zone of Tolerance Desired Service Adequate Service Desired Service Adequate Service Zone of Tolerance

Figure 3-4 Zones of Tolerance VARY for First-Time and Recovery Service First-Time Service Outcome Process Outcome Process Recovery Service Expectations LOW HIGH Source: Parasuraman, Berry and Zeithaml (1991)

Figure 3-5 Factors that Influence Desired Service Desired Service Adequate Service Zone of Tolerance Enduring Service Intensifiers Personal Needs

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 Desired Service Adequate Service Zone of Tolerance Self-Perceived Service Role Situational Factors Perceived Service Alternatives Transitory Service Intensifiers

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 Desired Service Adequate Service Zone of Tolerance Predicted Service Explicit Service Promises Implicit Service Promises Word-of-Mouth Past Experience

Chapter 4 CUSTOMER PERCEPTIONS OF SERVICE S M

Objectives for Chapter 4: Customer Perceptions of Service Provide you with definitions and understanding of customer satisfaction and service quality Show that service encounters or the “moments of truth” are the building blocks of customer perceptions Highlight strategies for managing customer perceptions of service

Figure 4-1 Customer Perceptions of Service Quality and Customer Satisfaction Service Quality Reliability Responsiveness Assurance Empathy Tangibles Product Quality Price Personal Factors Customer Satisfaction Situational 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 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 Ability to perform the promised service dependably and accurately. Knowledge and courtesy of employees and their ability to convey trust and confidence. Physical facilities, equipment, and appearance of personnel. Caring, individualized attention the firm provides its customers. Willingness to help customers and provide prompt service. T angibles R eliability R esponsiveness A ssurance E mpathy

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

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 Request Wake-Up Call Checkout Bellboy Takes to Room Restaurant Meal

Sales Call Ordering Supplies Billing Delivery and Installation Servicing Figure 4-5 A Service Encounter Cascade for an Industrial Purchase

Critical Service Encounters Research GOAL - understanding actual events and behaviors that cause customer dis/satisfaction in service encounters METHOD - Critical Incident Technique DATA - stories from customers and employees OUTPUT - identification of themes underlying satisfaction and dissatisfaction with service encounters

Sample Questions for Critical Incidents Technique Study Think of a time when, as a customer, you had a particularly satisfying (dissatisfying) interaction with an employee of . When did the incident happen? What specific circumstances led up to this situation? Exactly what was said and done? What resulted that made you feel the interaction was satisfying (dissatisfying) ?

Common Themes in Critical Service Encounters Research Recovery: Adaptability: Spontaneity: Coping: Employee Response to Service Delivery System Failure Employee Response to Customer Needs and Requests Employee Response to Problem Customers Unprompted and Unsolicited Employee Actions and Attitudes

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

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

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

Coping Listen Try to accommodate Explain Let go of the customer Take customer’s dissatisfaction personally Let customer’s dissatisfaction affect others DO DON’T

Figure 4-6 Evidence of Service from the Customer’s Point of View People Process Physical Evidence Contact employees Customer him/herself Other customers Operational flow of activities Steps in process Flexibility vs. standard Technology vs. human Tangible communication Servicescape Guarantees Technology

Part 2 LISTENING TO CUSTOMER REQUIREMENTS S M

Provider GAP 1 Company Perceptions of Consumer Expectations Expected Service CUSTOMER COMPANY GAP 1 Part 2 Opener

Chapter 5 UNDERSTANDING CUSTOMER EXPECTATIONS AND PERCEPTIONS THROUGH MARKETING RESEARCH S M

Objectives for Chapter 5: Understanding Customer Expectations and Perceptions through Marketing Research Present the types of and guidelines for marketing research in services Show the ways that marketing research information can and should be used for services Describe the strategies by which companies can facilitate interaction and communication between management and customers Present ways that companies can and do facilitate interaction between contact people and management

Common Research Objectives for Services To identify dissatisfied customers To discover customer requirements or expectations To monitor and track service performance To assess overall company performance compared to competition To assess gaps between customer expectations and perceptions To gauge effectiveness of changes in service To appraise service performance of individuals and teams for rewards To determine expectations for a new service To monitor changing expectations in an industry To forecast future expectations

Figure 5-1 Criteria for An Effective Services Research Program Research Objectives Includes Qualitative Research Includes Quantitative Research Includes Perceptions and Expectations of Customers Includes Measures of Loyalty or Behavioral Intentions Balances Cost and Value of Information Includes Statistical Validity When Necessary Measures Priorities or Importance Occurs with Appropriate Frequency

Portfolio of Services Research Customer Complaint Solicitation “ Relationship” Surveys Post-Transaction Surveys Customer Focus Groups “ Mystery Shopping” of Service Providers Employee Surveys Lost Customer Research Identify dissatisfied customers to attempt recovery; identify most common categories of service failure for remedial action Obtain customer feedback while service experience is still fresh; act on feedback quickly if negative patterns develop Use as input for quantitative surveys; provide a forum for customers to suggest service-improvement ideas Assess company’s service performance compared to competitors; identify service-improvement priorities; track service improvement over time Measure individual employee service behaviors for use in coaching, training, performance evaluation, recognition and rewards; identify systemic strengths and weaknesses in service Measure internal service quality; identify employee-perceived obstacles to improve service; track employee morale and attitudes Determine the reasons why customers defect Research Objective Type of Research Future Expectations Research To forecast future expectations of customers To develop and test new service ideas

Stages in the Research Process Stage 1 : Define Problem Stage 2 : Develop Measurement Strategy Stage 3 : Implement Research Program Stage 4 : Collect and Tabulate Data Stage 5 : Interpret and Analyze Findings Stage 6 : Report Findings

Figure 5-5 Service Quality Perceptions Relative to Zones of Tolerance by Dimensions Retail Chain 9 8 7 6 5 4 3 2 1 0 Reliability Responsiveness Assurance Empathy Tangibles O O O O Zone of Tolerance S.Q. Perception O O

Service Quality Perceptions Relative to Zones of Tolerance by Dimensions Computer Manufacturer 10 8 6 4 2 0 Reliability Responsiveness Assurance Empathy Tangibles O O O O O Zone of Tolerance S.Q. Perception O

Figure 5-6 Importance/Performance Matrix HIGH HIGH LOW Performance Importance           Attributes to Improve Attributes to Maintain High Leverage Attributes to De-emphasize Attributes to Maintain Low Leverage

Chapter 6 BUILDING CUSTOMER RELATIONSHIPS S M

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 Getting Satisfying Retaining Enhancing

Figure 6-3 Underlying Logic of Customer Retention Benefits to the Organization Customer Retention & Increased Profits Employee Loyalty Quality Service Customer Satisfaction

Figure 6-5 Steps in Market Segmentation and Targeting for Services Identify Bases for Segmenting the Market STEP 1: Develop Profiles of Resulting Segments STEP 2: Develop Measures of Segment Attractive- ness STEP 3: Select the Target Segments STEP4: Ensure that Segments Are Compatible STEP 5:

Excellent Quality and Value Figure 6-6 Levels of Retention Strategies I. Financial Bonds II. Social Bonds IV. Structural Bonds III. Customization Bonds Volume and Frequency Rewards Bundling and Cross Selling Stable Pricing Social Bonds Among Customers Personal Relationships Continuous Relationships Customer Intimacy Mass Customization Anticipation/ Innovation Shared Processes and Equipment Joint Investments Integrated Information Systems

Chapter 7 SERVICE RECOVERY S M

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 95% 70% 46% 37% 82% 54% 19% 9% Complaints Resolved Quickly Complaints Resolved Complaints Not Resolved Minor complaints ($1-$5 losses) Major complaints (over $100 losses) Unhappy Customers Who Don’t Complain Unhappy Customers Who Do Complain Percent of Customers Who Will Buy Again Source: Adapted from data reported by the Technical Assistance Research Program.

Figure 7-3 Customer Response Following Service Failure Service Failure Do Nothing Take Action Stay with Provider Switch Providers Complain to Provider Complain to Family & Friends Complain to Third Party Stay with Provider Switch Providers

Figure 7-5 Service Recovery Strategies Learn from Recovery Experiences Treat Customers Fairly Learn from Lost Customers Welcome and Encourage Complaints Fail Safe the Service Act Quickly Service Recovery Strategies

Figure 7-6 Causes Behind Service Switching Service Switching Behavior High Price Price Increases Unfair Pricing Deceptive Pricing Pricing Location/Hours Wait for Appointment Wait for Service Inconvenience Service Mistakes Billing Errors Service Catastrophe Core Service Failure Uncaring Impolite Unresponsive Unknowledgeable Service Encounter Failures Negative Response No Response Reluctant Response Response to Service Failure Found Better Service Competition Cheat Hard Sell Unsafe Conflict of Interest Ethical Problems Customer Moved Provider Closed Involuntary Switching Source: Sue Keaveney

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 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”

Part 3 ALIGNING STRATEGY, SERVICE DESIGN AND STANDARDS S M

CUSTOMER COMPANY GAP 2 Customer-Driven Service Designs and Standards Company Perceptions of Consumer Expectations Provider GAP 2 Part 3 Opener

Chapter 8 SERVICE DEVELOPMENT AND DESIGN S M

Objectives for Chapter 8: Service Development and Design Describe the challenges inherent in service design Present steps in the new service development process Show the value of service blueprinting and quality function deployment (QFD) in new service design and service improvement Present lessons learned in choosing and implementing high-performance service innovations

Figure 8-1 Risks of Relying on Words Alone to Describe Services Oversimplification Incompleteness Subjectivity Biased Interpretation

Figure 8-2 New Service Development Process Source : Booz-Allen & Hamilton, 1982; Bowers, 1985; Cooper, 1993; Khurana & Rosenthal 1997. Business Strategy Development or Review New Service Strategy Development Idea Generation Concept Development and Evaluation Business Analysis Service Development and Testing Postintroduction Evaluation Commercialization Market Testing Screen ideas against new service strategy Test concept with customers and employees Test for profitability and feasibility Conduct service prototype test Test service and other marketing-mix elements Front End Planning Implementation

Figure 8-3 New Service Strategy Matrix for Identifying Growth Opportunities Markets Offerings Existing Services New Services Current Customers New Customers SHARE BUILDING DIVERSIFICATION MARKET DEVELOPMENT SERVICE 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. Service Mapping Process Points of Contact Evidence

Service Blueprint Components CUSTOMER ACTIONS line of interaction “ ONSTAGE” CONTACT EMPLOYEE ACTIONS line of visibility “ BACKSTAGE” CONTACT EMPLOYEE ACTIONS line of internal interaction SUPPORT PROCESSES

Express Mail Delivery Service Driver Picks Up Pkg. Dispatch Driver Airport Receives & Loads Sort Packages Load on Airplane Fly to Destination Unload & Sort Load On Truck SUPPORT PROCESS CONTACT PERSON (Back Stage) (On Stage) CUSTOMER PHYSICAL EVIDENCE Customer Calls Customer Gives Package Truck Packaging Forms Hand-held Computer Uniform Receive Package Truck Packaging Forms Hand-held Computer Uniform Deliver Package Customer Service Order Fly to Sort Center

Overnight Hotel Stay SUPPORT PROCESS CONTACT PERSON (Back Stage) (On Stage) CUSTOMER Hotel Exterior Parking Cart for Bags Desk Registration Papers Lobby Key Elevators Hallways Room Cart for Bags Room Amenities Bath Menu Delivery Tray Food Appearance Food Bill Desk Lobby Hotel Exterior Parking Arrive at Hotel Give Bags to Bellperson Check in Go to Room Receive Bags Sleep Shower Call Room Service Receive Food Eat Check out and Leave Greet and Take Bags Process Registration Deliver Bags Deliver Food Process Check Out Take Bags to Room Take Food Order Registration System Prepare Food Registration System PHYSICAL EVIDENCE

Figure 8-8 Building a Service Blueprint Step 1 Identify the process to be blue-printed. Step 2 Identify the customer or customer segment. Step 3 Map the process from the customer’s point of view. Step 4 Map contact employee actions, onstage and back-stage. Step 5 Link customer and contact person activities to needed support functions. Step 6 Add evidence of service at each customer action step.

Application of Service Blueprints New Service Development concept development market testing Supporting a “Zero Defects” Culture managing reliability identifying empowerment issues Service Recovery Strategies identifying service problems conducting root cause analysis modifying processes

Blueprints Can Be Used By: Service Marketers creating realistic customer expectations service system design promotion Operations Management rendering the service as promised managing fail points training systems quality control Human Resources empowering the human element job descriptions selection criteria appraisal systems System Technology providing necessary tools: system specifications personal preference databases

Chapter 9 CUSTOMER-DEFINED SERVICE STANDARDS S M

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 Reliability (40%) Easy To Use (20%) Features / Functions (40%) Knowledge (30%) Responsive (25%) Follow-Up (10%) Delivery Interval Meets Needs (30%) Does Not Break (25%) Installed When Promised (10%) No Repeat Trouble (30%) Fixed Fast (25%) Kept Informed (10%) Accuracy, No Surprise (45%) Resolve On First Call (35%) Easy To Understand (10%) Business Process Customer Need Internal Metric 30% Product 30% Sales 10% Installation 15% Repair 15% Billing % Repair Call % Calls for Help Functional Performance Test Supervisor Observations % Proposal Made on Time % Follow Up Made Average Order Interval % Repair Reports % Installed On Due Date % Repeat Reports Average Speed Of Repair % Customers Informed % Billing Inquiries % Resolved First Call % Billing Inquiries Total Quality 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 Satisfaction Value Relationship Solution Provider Reliability Empathy Assurance Tangibles Responsiveness Price Delivers on Time Returns Calls Quickly Knows My Industry Delivers by Weds 11/4 Returns Calls in 2 Hrs Knows Strengths of My Competitors Requirements: Abstract Concrete Dig Deeper Dig Deeper Dig Deeper Diagnosticity: Low High General Concepts Dimensions Behaviors and Actions Attributes

Figure 9-3 Process for Setting Customer-Defined Standards 1. Identify Existing or Desired Service Encounter Sequence 2. Translate Customer Expectations Into Behaviors/Actions 4. Set Hard or Soft Standards 5. Develop Feedback Mechanisms 7. Track Measures Against Standards Measure by Audits or Operating Data Hard Soft Measure by Transaction- Based Surveys 3. Select Behaviors/Actions for Standards 6. Establish Measures and Target Levels 8. Update Target Levels and Measures

Importance/Performance Matrix HIGH HIGH Performance          10.0 8.0 7.0 9.0 LOW 8.0 9.0 10.0 Importance Improve Maintain Delivers on promises specified in proposal/contract (9.49, 8.51) Gets project within budget, on time (9.31, 7.84) Completes projects correctly, on time (9.29, 7.68) Does whatever it takes to correct problems (9.26, 7.96) Provides equipment that operates as vendor said it would (9.24, 8.14) Gets price we originally agreed upon (9.21, 8.64) Takes responsibility for their mistakes (9.18, 8.01) Delivers or installs on promised date (9.02, 7.84) Tells me cost ahead of time (9.06, 8.46)  Gets back to me when promised (9.04, 7.63)

Figure 9-5 Linkage between Soft Measures and Hard Measures for Speed of Complaint Handling S A T I S F A C T I O N 2 4 6 8 12 16 20 24 W O R K I N G H O U R S Large Customers Small Customers 10 9 8 7 6 5 4 3 2 1 0

Figure 9-6 Aligning Company Processes with Customer Expectations Customer Expectations Customer Process Blueprint Company Process Blueprint Company Sequential Processes A B C D E F G H 40 Days New Card Mailed Lost Card Reported Report Lost Card Receive New Card 48 Hours

Chapter 10 PHYSICAL EVIDENCE AND THE SERVICESCAPE S M

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

Table 10-2 Examples of Physical Evidence from the Customer’s Point of View

Table 10-3 Typology of Service Organizations Based on Variations in Form and Use of the Servicescape

Figure 10-3 A Framework for Understanding Environment-user Relationships in Service Organizations Source : Adapted from Mary Jo Bitner, “Servicescapes.” PHYSICAL ENVIRONMENTAL DIMENSIONS HOLISTIC ENVIRONMENT INTERNAL RESPONSES BEHAVIOR Ambient Conditions Space/Function Signs, Symbols, and Artifacts Perceived Servicescape Cognitive Emotional Physiological Cognitive Emotional Physiological Employee Responses Customer Responses Individual Behaviors Social Interactions between and among customer and employees Individual Behaviors

Part 4 DELIVERING AND PERFORMING SERVICE S M

CUSTOMER COMPANY Provider GAP 3 Service Delivery GAP 3 Customer-Driven Service Designs and Standards Part 4 Opener

Chapter 11 EMPLOYEES’ ROLES IN SERVICE DELIVERY S M

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 Internal Environment External 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 Customer- oriented Service Delivery Hire the Right People Provide Needed Support Systems Retain the Best People Develop People to Deliver Service Quality Compete for the Best People Hire for Service Competencies and Service Inclination Provide Supportive Technology and Equipment Treat Employees as Customers Empower Employees Be the Preferred Employer Train for Technical and Interactive Skills Promote Teamwork Measure Internal Service Quality Develop Service- oriented Internal Processes Measure and Reward Strong Service Providers Include Employees in the Company’s Vision

Empowerment Benefits: quicker responses employees feel more responsible employees tend to interact with warmth/enthusiasm empowered employees are a great source of ideas positive word-of-mouth from customers Drawbacks: greater investments in selection and training higher labor costs slower and/or inconsistent delivery may violate customer perceptions of fair play “ giving away the store” (making bad decisions)

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

Chapter 12 CUSTOMERS’ ROLES IN SERVICE DELIVERY S M

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 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 Customer Production Joint Production Firm Production

Figure 12-3 Strategies for Enhancing Customer Participation Effective Customer Participation Recruit, Educate, and Reward Customers Define Customer Jobs 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

Chapter 14 MANAGING DEMAND AND CAPACITY S M

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 Time, labor, equipment and facilities Optimal versus maximal use of capacity Charting demand patterns Predictable cycles Random demand fluctuations Demand patterns by market segment Capacity Constraints Demand Patterns

Figure 14-3 Strategies for Shifting Demand to Match Capacity Use signage to communicate busy days and times Offer incentives to customers for usage during non-peak times Take care of loyal or regular customers first Advertise peak usage times and benefits of non-peak use Charge full price for the service--no discounts Use sales and advertising to increase business from current market segments Modify the service offering to appeal to new market segments Offer discounts or price reductions Modify hours of operation Bring the service to the customer Demand Too High Demand Too Low Shift Demand

Figure 14-4 Strategies for Flexing Capacity to Match Demand Stretch time, labor, facilities and equipment Cross-train employees Hire part-time employees Request overtime work from employees Rent or share facilities Rent or share equipment Subcontract or outsource activities Perform maintenance renovations Schedule vacations Schedule employee training Lay off employees Demand Too High Demand Too Low Flex Capacity

Table 14-1 What is the Nature of Demand Relative to Supply? 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?

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

Part 5 MANAGING SERVICE PROMISES S M

CUSTOMER COMPANY External Communications to Customers GAP 4 Service Delivery Provider GAP 4 Part 5 Opener

Chapter 15 INTEGRATED MARKETING COMMUNICATION S M

Objectives for Chapter 15: Integrated Services Marketing Communications Introduce the concept of Integrated Services Marketing Communication Discuss the key reasons for service communication problems Present four key ways to integrate marketing communication in service organizations Present specific strategies for managing promises, managing customer expectations, educating customers, and managing internal communications Provide perspective on the popular service objective of exceeding customer expectations

Figure 15-1 Communications and the Services Marketing Triangle Internal Marketing Vertical Communications Horizontal Communications Interactive Marketing Personal Selling Customer Service Center Service Encounters Servicescapes External Marketing Communication Advertising Sales Promotion Public Relations Direct Marketing Company Customers Employees Source: Parts of model adapted from work by Christian Gronroos and Phillip Kotler

Approaches for Integrating Services Marketing Communication Goal: Delivery greater than or equal to promises Improve Customer Education Manage Service Promises Manage Customer Expectations Manage Internal Marketing Communication Figure 15-3

Goal: Delivery greater than or equal to promises Offer Service Guarantees Create Effective Services Communications MANAGING SERVICE PROMISES Make Realistic Promises Coordinate External Communication Figure 15-4 Approaches for Managing Service Promises

Communicate Criteria for Service Effectiveness Create Tiered-Value Offerings Figure 15-8 Approaches for Managing Customer Expectations Negotiate Unrealistic Expectations Goal: Delivery greater than or equal to promises Offer Choices

Goal: Delivery greater than or equal to promises Prepare Customers for the Service Process Clarify Expectations after the Sale Figure 15-9 Approaches for Improving Customer Education Teach Customers to Avoid Peak Demand Periods and Seek Slow Periods Confirm Performance to Standards

Goal: Delivery greater than or equal to promises Figure 15-10 Approaches for Managing Internal Marketing Communications Create Effective Vertical Communications Align Back Office Personnel w/ External Customers Create Effective Horizontal Communications Create Cross-Functional Teams

Chapter 17 THE FINANCIAL AND ECONOMIC IMPACT OF SERVICE QUALITY S M

Objectives for Chapter 17: 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 Profits ? Service Quality

Figure 17-2 Offensive Marketing Effects of Service on Profits Profits Market Share Reputation Sales Price Premium Service Quality

Figure 17-3 Defensive Marketing Effects of Service on Profit Margins Profits Customer Retention Costs Price Premium Word of Mouth Volume of Purchases Service Quality

Figure 17-5 Perceptions of Service, Behavioral Intentions and Profits Customer Retention Costs Price Premium Word of Mouth Margins Profits Volume of Purchases Service Behavioral Intentions Sales

Figure 17-6 The “80/20” Customer Pyramid Most Profitable Customers Least Profitable Customers What segment spends more with us over time, costs less to maintain, spreads positive word of mouth? What segment costs us in time, effort and money yet does not provide the return we want? What segment is difficult to do business with? Other Customers Best Customers

Figure 17-7 The Expanded Customer Pyramid Most Profitable Customers Least Profitable Customers What segment spends more with us over time, costs less to maintain, spreads positive word of mouth? What segment costs us in time, effort and money yet does not provide the return we want? What segment is difficult to do business with? Gold Iron Lead Platinum

Figure 17-8 The Key Drivers of Service Quality, Customer Retention, and Profits Key Drivers Service Quality Service Encounter Service Encounter Service Encounter Customer Retention Behavioral Intentions Profits Service Encounter Service Encounters

Figure 17-9 Sample Measurements for the Balanced Scorecard Adapted from Kaplan and Norton Innovation and Learning Perspective Customer Perspective Service Perceptions Service Expectations Perceived Value Behavioral Intentions: Operational Perspective: Right first time (% hits) Right on time (% hits) Responsiveness (% on time) Transaction time (hours, days) Throughput time Reduction in waste Process quality Financial Measures Price Premium Volume Increases Value of Customer Referrals Value of Cross Sales Long-term Value of Customer % Loyalty % Intent to Switch # Customer Referrals # Cross Sales # of Defections Number of new products Return on innovation Employee skills Time to market Time spent talking to customers

Figure 17-10 Service Quality Spells Profits Service Quality Customer Retention Costs Price Premium Word of Mouth Margins Profits Defensive Marketing Volume of Purchases Market Share Reputation Sales Price Premium Offensive Marketing

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