6-1

Part 3
UNDERSTANDING
CUSTOMER
REQUIREMENTS
6-2
Provider Gap 1
6-3
Key Factors Leading to Provider Gap 1
6-4
Listening to Customers
through Research
Using Marketing Research to Understand
Customer Expectations
Elements in an Effective Services Marketing
Research Program
Analyzing and Interpreting Marketing Research
Findings
Model Services Marketing Research Programs
Using Marketing Research Information
Upward Communication
Chapter
6
McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
6-5
Objectives of Listening to Customers
through Research
Present the types of and guidelines for marketing
research in services.

Show how 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.
6-6
Common Research Objectives for
Services
To discover customer requirements or expectations for service.
To monitor and track service performance.
To assess overall company performance compared with that of
competition.
To assess gaps between customer expectations and perceptions.
To identify dissatisfied customers, so that service recovery can be
attempted.
To gauge effectiveness of changes in service delivery.
To appraise the service performance of individuals and teams for
evaluation, recognition, and rewards.
To determine customer expectations for a new service.
To monitor changing customer expectations in an industry.
To forecast future expectations of customers.
6-7
Criteria for an Effective
Service Research Program
Includes both qualitative and quantitative research
Includes both expectations and perceptions of
customers
Balances the cost of the research and the value of
the information
Includes statistical validity when necessary
Measures priorities or importance of attributes
Occurs with appropriate frequency
Includes measures of loyalty, behavioral
intentions, or actual behavior

6-8
Stages in the (Marketing) Research
Process



Define
Problem
and Research
Objectives





Develop
Services
Measurement
Strategy






Implement
Research
Program






Interpret
and
Analyze
Findings



Report
Findings






Collect
and
Tabulate
Data


STAGE
1:
STAGE
2:
STAGE
4:
STAGE
3:
STAGE
5:
STAGE
6:
6-9
Portfolio of Services Research:
Research Is NOT Just Surveys!
Customer Complaint Solicitation
Relationship Surveys
Post-Transaction Surveys
Customer Focus Groups
Mystery Shopping of Service Providers
Employee Surveys
Lost Customer Research
Critical Service Encounters Research

6-10
10
Common means for answering questions
Ask customers directly
mail, phone, face-to-face, online
one-on-one, in groups, formal/informal
Observing customers
anthropological tools, qualitative depth
Get information from employees and front line
service providers
Database marketing research
use customer information files
capture behavior through data analysis

6-11
Portfolio of Services Research
Customer Complaint
Solicitation
Relationship Surveys
Post-Transaction Surveys
Customer Focus Groups
Mystery Shopping of
Service Providers
Employee Surveys
Identify dissatisfied customers to attempt recovery;
identify most common categories of service failure for
remedial action
Obtain customer feedback while service experience is
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 companys 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
Lost Customer Research

Future Expectations Research
Forecast future expectations of customers; develop
and test new service ideas
6-12
Importance/Performance Matrix
6-13
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
6-14
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)?
6-15
Critical Service Encounters Research
Goal:
understanding actual events and behaviors that cause
customer dissatisfaction in service encounters
Method:
Critical Incident Technique
Data:
stories from customers and employees
Output:
identification of themes underlying satisfaction and
dissatisfaction with service encounters
6-16
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)?
6-17
Build Customer Relationships
Relationship Marketing

Relationship Value of Customers

Customer Profitability Segments

Relationship Development Strategies

Relationship Challenges
McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
6-18
Relationship Marketing
A philosophy of doing business, a strategic orientation: focus
on keeping current customers and improving relationships
with them

does not necessarily emphasize acquiring new customers

It is usually cheaper (for the firm)
keeping a current customer costs less than attracting a
new one

thus, the focus is less on attraction, and more on retention
and enhancement of customer relationships
6-19
Customer Goals of Relationship Marketing

Enhancing
Retaining
Satisfying
Acquiring
6-20
Benefits of Relationship Marketing
Benefits for Customers:
Receipt of greater value
Confidence benefits:
trust
confidence in provider
reduced anxiety
Social benefits:
familiarity
social support
personal relationships
Special treatment benefits:
special deals
price breaks

Benefits for Firms:
Economic benefits:
increased revenues
reduced marketing and
administrative costs
regular revenue stream
Customer behavior benefits:
strong word-of-mouth endorsements
customer voluntary performance
social benefits to other customers
mentors to other customers
Human resource management
benefits:
easier jobs for employees
social benefits for employees
employee retention

6-21
The Customer Pyramid
6-22
The Customer Pyramid
Platinum
Tier
most profitable customers, heavy users, not overly price
sensitive, willing to invest in and try new offerings, and
committed customers of the firm

Gold Tier
Lower profitability, want price discounts, not as loyal. May be
heavy users who minimize risk by working with multiple
vendors.
Iron Tier
essential customers that provide the volume needed to utilize
the firms capacity. Spending levels, loyalty, and profitability are
not substantial enough for special treatment
Lead Tier
cost the firm money. Demand more attention than their
spending and profitability merits. sometimes problem
customerscomplaining about the firm to others and tying up
firm resources.
6-23
Strategies for Building Relationships
Leading to Customer Loyalty
Core Service Provision:
service foundations built upon delivery of excellent
service: satisfaction, perceived service quality, perceived value
Switching Barriers:
customer inertia
switching costs: set up costs, search costs, learning costs,
contractual costs
Relationship Bonds:
financial bonds
social bonds
customization bonds
structural bonds
6-24
Benefits of Customer Loyalty
Customer Benefits:
- Confidence benefits
- Social benefits
- Special treatment benefits
Firm Benefits:
- Economic benefits
- Customer behavior benefits
- Human resource management benefits

6-25
Levels of Relationship Strategies
6-26
Not all customers are good
relationship customers

Wrong segment

Not profitable in the long term

Difficult customers
6-27
Service Recovery
The Impact of Service Failure and Recovery

How Customers Respond to Service Failures

Customers Recovery Expectations

Switching versus Staying Following Service
Recovery

Service Recovery Strategies

Service Guarantees
Chapter
8
McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
6-28
Reliability is Critical in Service
but
Sooner or later, service failure is inevitable

Service failure occurs when service performance
falls below a customers expectations such that it
leads to customer dissatisfaction.

Service recovery: actions taken by a firm in
response to service failure.
6-29
Complaining customers:
The Tip of the Iceberg
1-5% complain to management or
company headquarters
45% complain to frontline employee
50% encounter a problem but
do not complain
6-30
Unhappy Customers
Repurchase Intentions
6-31
Dissatisfied Consumers Behavior
Retail Customer Dissatisfaction Study (2006 by the
Verde Group):
48% of respondents avoided a store because of
someone elses negative experience
for those who encountered problems, 33% said they
would definitely not or probably not return

The exponential power of storytelling:
as people tell the story, the negativity is embellished and
grows
6-32
How Customers Expressed Their
Displeasure
Expressions of displeasure
Respondents -
Problem
Shared the story with my friends/other people 85%
Complained to the org. that caused the problem
1
84%
Decided I'd never do business/come back again 59%
Threatened to talk with/contact management 55%
Yelled or raised my voice 24%
Threatened to report the org. that caused the
problem to a gov't regulatory agency
16%
Threatened legal action 7%
Threatened to contact the media 6%
Cursed/used profanity
6%


6-33
What Customers Wanted to Get
Wanted to get
Respondents -
Problem
Product repaired/service fixed 85%
Explanation of why problem occurred 78%
Assurance problem wouldn't be repeated 78%
Apology 59%
Chance to vent 58%
Money back 49%
Free product or service in the future 30%
Financial compensation for my lost time,
inconvenience or injury
23%
Revenge -- make them pay for the hassle
and inconvenience
11%
Other 9%






Non-
mone
tary
reme
dies
6-34
What Complainants Got:
56% of complainants felt they got:
NOTHING
6-35
Service Recovery Paradox (1 of 2)
A good recovery can turn angry, frustrated
customers into loyal ones. ..can, in fact, create more
goodwill than if things had gone smoothly in the first
place. (Hart et al.)
HOWEVER:
only a small percent of customers complain
service recovery must be SUPERLATIVE
only with responsiveness, redress, and empathy/courtesy
only with tangible rewards
even though service recovery can improve satisfaction, it
has not been found to increase purchase intentions or
perceptions of the brand
service recovery is expensive
6-36
Service Recovery Paradox (2 of 2)
The service recovery paradox is more likely to occur
when:
the failure is not considered by the customer to be severe
the customer has not experienced prior failures with the
firm
the cause of the failure is viewed as unstable by the
customer
the customer perceives that the company had little control
over the cause of the failure

Conditions must be just right in order for the
recovery paradox to be present!
6-37
Service Recovery Strategies
- Act quickly
- Provide adequate explanation
- Treat customers fairly
- Cultivate relationships with customers
- Learn from recovery experience
- Learn from lost customers
- Make service fail-safe
- Encourage & track complaints


6-38
Eight Most Common Remedies Customers
Seek with Serious Problems
Have the product repaired or service fixed
Be reimbursed for the hassle of having
experienced a problem
Receive a free product or service in the future
Explanation by the firm as to what happened
Assurance that the problem will not be repeated
A thank you for the customers business
An apology from the firm
An opportunity for the customer to vent his or her
frustrations to the firm
6-39
Service Guarantees
Guarantee: an assurance of the fulfillment of a condition
(Websters Dictionary)

in a business context, it is a pledge or assurance that a
product offered by a firm will perform as promised and, if not,
then some form of reparation will be undertaken by the firm

for tangible products, a guarantee is 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?)
6-40
Characteristics of an Effective
Service Guarantee
Unconditional
the guarantee should make its promise unconditionally no strings
attached
Meaningful
the firm should guarantee elements of the service that are important to
the customer
the payout should cover fully the customers dissatisfaction
Easy to Understand and Communicate
customers need to understand what to expect
employees need to understand what to do
Easy to Invoke and Collect
the firm should eliminate hoops or red tape in the way of accessing or
collecting on the guarantee
6-41
Benefits of Service Guarantees
A good guarantee forces the company to focus on its customers.
It sets clear standards for the organization.
It generates immediate and relevant feedback from customers.
When invoked, it provides an instant opportunity to recover, thus
satisfying the customer and helping retain loyalty.
Information generated through the guarantee can be tracked and
integrated into continuous improvement efforts.
Employee morale and loyalty can be enhanced as a result of having a
service guarantee in place.
A service guarantee reduces customers sense of risk and builds
confidence in the organization.
It forces company to understand why it failed
It builds marketing muscle

6-42
Does everyone need a service
guarantee?
Reasons companies might NOT want to offer a
service guarantee:
existing service quality is poor
guarantee does not fit the companys image
too many uncontrollable external variables
fears of cheating or abuse by customers
costs of the guarantee outweigh the benefits
customers perceive little risk in the service
customers perceive little variability in service quality
among competitors
6-43
Effective 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
its the icing on the cake, not the cake