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1

SM

Services Marketing

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2

SM Growth

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3

S M
Cause Effect Illustrations
Technological Higher complexity of Engg. Services,
advancements products maintenance services

Globalisation
Causes for growth of
Business
internationalization
Multinational
couriers

sercauses regulated of
sectorsgrowthvice sector
Deregulation policies Pvtisation of Telecom, Insurance

Competition &Higher Expert knowledge Market research,


productivity consultancy, business
process engg

Cost effectiveness Optimum manpower, Security services,


subcontract Payroll processing

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4

SM Contd..
Cause Effect Illustrations
Computer explosion Speed of work performance Multimedia, Advertising
services
Overall increase in affluency Increased spending power for Laundry services, ticketing,
comforts travel agency
Increase % of working Work performed by women Crèches, baby sitting
women is outsourced
More leisure time Shift towards pleasure & Recreation
entertainment
Greater life expectancy Special care facilities Nursing homes
Increased complexity of life Special services Consultants(law,I.T,
marriage)

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5

SM 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

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6

SM I.B.M

• International Business Machines (IBM)


United States. IBM is the
world's fourth largest technology company
and the second most valuable global brand[4]
(after Coca-Cola). offers infrastructure
services, hosting services, and
consulting services in areas ranging from
mainframe computers to nanotechnology

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7

SM 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
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8
Examples of Service
SM
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

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9
Figure 1-1
SM Tangibility Spectrum
Salt
 Soft Drinks
 Detergents
 Automobiles
 Cosmetics Fast-food
 Outlets
 Intangible
Dominant

Tangible

Dominant Fast-food
Outlets 
Advertising
Agencies

Airlines 
Investment
Management 
Consulting 
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Teaching
10

SM 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.

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11
Figure 1-5
SM 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

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12
Ways to Use the
SM
Services Marketing Triangle
Overall Strategic Assessment Specific Service Implementation
• How is the service • What is being promoted and by
organization doing on all whom?
three sides of the triangle?
• How will it be delivered and by
• Where are the weaknesses? whom?
• What are the strengths? • Are the supporting systems in
place to deliver the promised
service?

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13
Figure 1-6

SM The Services Triangle


and Technology
Company

Technology

Providers Customers

Source: Adapted from A. Parasuraman


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14

SM 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

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15

SM 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

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16

SM Expanded Mix for Services --


the 7 Ps

• Product
• Price
• Place
• Promotion
• People
• Process
• Physical Evidence

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17
Table 1-3
SM 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

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18
Table 1-3 (Continued)
SM 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

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19

SM Ways to Use the 7 Ps

Overall Strategic Specific Service


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

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20
Services Marketing Triangle
SM
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?

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21

SM
Part 1

FOCUS ON THE CUSTOMER


22

SM 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
23
Gaps Model of Service
SM
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
24

SM The Customer Gap

Expected
Service

GAP

Perceived
Service

Part 1 Opener
25

SM
Chapter 3

CUSTOMER
EXPECTATIONS OF
SERVICES

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26
Objectives for Chapter 3:
SM 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

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27

SM 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?

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28
Figure 3-1
SM Dual Customer
Expectation Levels
(Two levels of expectations)
Desired Service

Zone of
Tolerance

Adequate Service

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29

SM Figure 3-2

The Zone of Tolerance

Desired Service

Zone of
Tolerance

Adequate Service

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Figure 3-3 30

SM Zones of Tolerance VARY for


Different Service Dimensions
Desired Service

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

Adequate
Adequate Service
Service

Most Important Factors Least Important Factors


Source: Berry, Parasuraman, and Zeithaml (1993)
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Figure 3-4 31

Zones of Tolerance VARY for


SM
First-Time and Recovery Service

First-Time Service

Outcome

Process

Recovery Service

Outcome

Process

LOW HIGH
Expectations
Source: Parasuraman, Berry and Zeithaml (1991)
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Figure 3-5 32

SM Factors that Influence


Desired Service

Enduring Service
Intensifiers

Desired
Service
Personal Needs
Zone
of
Tolerance

Adequate
Service

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33

SM

• 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

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34
Figure 3-6

SM Factors that Influence


Adequate Service
Transitory Service
Intensifiers

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

Situational
Factors
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35

SM

• 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

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Figure 3-7 36

Factors that Influence


SM
Desired and Predicted Service
Explicit Service
Promises

Implicit Service
Promises

Desired Word-of-Mouth
Service

Zone
Past Experience
of
Tolerance

Adequate Predicted
Service Service
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37

SM
Chapter 4

CUSTOMER
PERCEPTIONS OF
SERVICE
38
Objectives for Chapter 4:
SM 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 39
Customer Perceptions of
SM
Service Quality and
Customer Satisfaction
Reliability Situational
Factors
Responsiveness Service
Quality

Assurance
Customer
Empathy Satisfaction
Product
Quality
Tangibles

Personal
Price Factors
40
Factors Influencing
SM
Customer Satisfaction

• Product/service quality
• Product/service attributes or features
• Consumer Emotions
• Attributions for product/service success or
failure
• Equity or fairness evaluations
41
Outcomes of
SM
Customer Satisfaction

• Increased customer retention


• Positive word-of-mouth communications
• Increased revenues
Figure 4-3 42

Relationship between Customer


SM
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.
43

SM 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.
44

SM 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.
45

SM 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:
46
SERVQUAL Attributes
SM ASSURANCE
■ Employees who instill confidence in
customers
■ Making customers feel safe in their
transactions
RELIABILITY ■ Employees who are consistently courteous
■ Employees who have the knowledge to
■ Providing service as promised answer customer questions
■ Dependability in handling customers’
service problems EMPATHY
■ Performing services right the first time ■ Giving customers individual attention
■ Providing services at the promised time ■ Employees who deal with customers in a
■ Maintaining error-free records caring fashion
■ Having the customer’s best interest at heart
RESPONSIVENESS ■ Employees who understand the needs of
their customers
■ Keeping customers informed as to
■ Convenient business hours
when services will be performed TANGIBLES
■ Prompt service to customers ■ Modern equipment
■ Willingness to help customers ■ Visually appealing facilities
■ Readiness to respond to customers’ ■ Employees who have a
requests neat, professional
appearance
■ Visually appealing materials
associated with the service
47

SM 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
48
Figure 4-4

SM A Service Encounter
Cascade for a Hotel Visit

Check-In
Check-In
Bellboy
BellboyTakes
Takes to
to Room
Room

Restaurant
RestaurantMeal
Meal
Request
RequestWake-Up
Wake-Up Call
Call
Checkout
Checkout
Figure 4-5 49
A Service Encounter
SM
Cascade for an Industrial
Purchase

Sales
SalesCall
Call
Delivery
Delivery and
and Installation
Installation

Servicing
Servicing

Ordering
OrderingSupplies
Supplies
Billing
Billing
50
Critical Service Encounters
SM
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
51
Sample Questions for Critical
SM
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)?
52

SM 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
53

SM Recovery

DO DON’T
• Acknowledge • Ignore customer
problem • Blame customer
• Explain causes • Leave customer to
• Apologize fend for him/herself
• Compensate/upgrade • Downgrade
• Lay out options • Act as if nothing is
• Take responsibility wrong
54

SM 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
55

SM Spontaneity

DO DON’T
• Take time • Exhibit impatience
• Be attentive • Ignore
• Anticipate needs
• Yell/laugh/swear
• Listen
• Provide information
• Steal from or cheat a
(even if not asked) customer
• Treat customers fairly • Discriminate
• Show empathy • Treat impersonally
• Acknowledge by name
56

SM Coping

DO DON’T
• Listen • Take customer’s
• Try to accommodate dissatisfaction
• personally
Explain
• Let customer’s
• Let go of the
customer dissatisfaction affect
others
57
Figure 4-6
SM Evidence of Service from the
Customer’s Point of View
 Contact employees
 Customer
 Operational flow of him/herself
activities  Other customers
People
 Steps in process
 Flexibility vs.
standard
 Technology vs. Physical  Tangible
human Process
Evidence communication
 Servicescape
 Guarantees
 Technology
58

SM
Part 2

LISTENING TO
CUSTOMER
REQUIREMENTS
59

SM Provider GAP 1

CUSTOMER
Expected
Service

GAP 1

Company
COMPANY Perceptions of
Consumer
Expectations

Part 2 Opener
60

SM
Chapter 5

UNDERSTANDING
CUSTOMER
EXPECTATIONS AND
PERCEPTIONS THROUGH
MARKETING RESEARCH
61
Objectives for Chapter 5:
SM 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
62

SM 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
63
Figure 5-1
SM Criteria for An Effective
Services Research Program
Includes
d es Quantitative
l u 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
64

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

To forecast future expectations of customers Lost Customer Research


To develop and test new service ideas
Future Expectations Research
65
Stages in the Research
SM
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
66
Figure 5-5

SM Service Quality Perceptions


Relative to Zones of Tolerance
by Dimensions
9
8
7 O
O O
O O
6
5
4
3
2
1
0 Reliability Responsiveness Assurance Empathy Tangibles

Retail Chain Zone of Tolerance O S.Q. Perception


67
Service Quality Perceptions
SM Relative to Zones of Tolerance by
Dimensions
10

8
O O O O
O
6

0
Reliability Responsiveness Assurance Empathy Tangibles

Computer Zone of Tolerance O S.Q. Perception


Manufacturer
68
Figure 5-6
SM 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
69

SM
Chapter 6

BUILDING
CUSTOMER
RELATIONSHIPS
70
Objectives for Chapter 6:
SM 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”
71

SM 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
72

SM 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??
73

SM
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
74

SM 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?
75
Benefits to the Organization
SM
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
76

SM 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
77
“The Customer Isn’t Always
SM
Right”

• Not all customers are good relationship


customers:
– wrong segment

– not profitable in the long term

– difficult customers
78
Strategies for Building
SM
Relationships
• Foundations:
– Excellent Quality/Value
– Careful Segmentation
• Bonding Strategies:
– Financial Bonds
– Social & Psychological Bonds
– Structural Bonds
– Customization Bonds
• Relationship Strategies Wheel
79
Figure 6-1

SM Customer Goals of
Relationship Marketing

Enhancing

Retaining

Satisfying

Getting
Figure 6-3 80

SM Underlying Logic of Customer


Retention Benefits to the
Organization
Customer Satisfaction

Customer Retention & Quality


Increased Profits Service

Employee Loyalty
81
Figure 6-5
SM Steps in Market Segmentation
and
Targeting for Services

STEP 1: STEP 2: STEP STEP4: STEP


Identify Develop 3:
Develop Select the
5: that
Ensure
Bases for Profiles of Measures Target Segments
Segmenting Resulting of Segment Segments Are
the Market Segments Attractive- Compatible
ness
Figure 6-6 82

SM 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
83

SM
Chapter 7

SERVICE RECOVERY
84
Objectives for Chapter 7:
SM 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
85
Figure 7-1

SM 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 86

SM 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


87
Figure 7-5

SM Service Recovery Strategies


We
En lcom
e co
vi
c ura e an
r ge d
Se Co
e m
th pla
f e i
Sa n ts
il
Fa

Act Quickly
Service
Learn from
Lost Custom

Recovery
Strategies
ers

y
air l
F
Le s
er
Re arn f om
co rom
ve ust
ry C
Ex e at
pe Tr
ri en
ce
s
Pricing
88


High Price
Price Increases
Figure 7-6

SM Causes Behind Service


• Unfair Pricing
• Deceptive Pricing

Inconvenience
• Location/Hours
• Wait for Appointment
• Wait for Service
Switching
Core Service Failure
• Service Mistakes
• Billing Errors
• Service Catastrophe

Service Encounter Failures


Service
• Uncaring
• 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
89

SM 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?)
90
Table 7-7
SM 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.
91
Why a Good Guarantee
SM
Works

• forces company to focus on customers

• sets clear standards

• generates feedback

• forces company to understand why it failed

• builds “marketing muscle”


92

SM 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
93

SM 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”
94

SM
Part 3

ALIGNING STRATEGY,
SERVICE DESIGN
AND STANDARDS
95

SM
Provider GAP 2
CUSTOMER

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

Part 3 Opener
96

SM
Chapter 8

SERVICE DEVELOPMENT
AND DESIGN
Objectives for Chapter 8: 97

SM 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 98

SM Risks of Relying on Words


Alone to
Describe Services

 Oversimplification
 Incompleteness
 Subjectivity
 Biased Interpretation
Figure 8-2 99
New Service Development Process
SM  Business Strategy Development or Review

 New Service Strategy Development

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

Test for profitability and feasibility

 Service Development and Testing

Conduct service prototype test


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

 Postintroduction Evaluation
Source: Booz-Allen & Hamilton, 1982; Bowers, 1985; Cooper, 1993; Khurana & Rosenthal 1997.
Figure 8-3 100

SM 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.
Proces
s
Service Points of
Mappin Contact

g Evidenc
e
102

SM 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
103
Express Mail Delivery Service
SM Truck
Packaging
Truck
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 Unload Load
Driver
Receives Sort Fly to
& Loads Center & On
Destinati Sort Truck
PROCESS
SUPPORT

Load on
Airplane
on

Sort
Packages
104

SM Overnight Hotel Stay


Bill
EVIDENCE
CUSTOMER PHYSICAL

Desk
Hotel Cart for Desk Elevators Cart for Room Menu Delivery Food Lobby
Exterior Bags RegistrationHallways 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
(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
SUPPORT PROCESS

Registration Prepare Registration


System Food System
105

SM Figure 8-8

Building a Service Blueprint

Step
Step11 Step
Step22 Step
Step33 Step
Step44 Step
Step55 Step
Step66
Map Map
Mapcontact Add
Identify
Identifythe
the Identify
Identifythe
the Mapthe
the contact Link
Linkcustomer
customer Add
process employee evidence
evidenceofof
process to
process to customer
customeroror processfrom
from employee and contact
and contact
be the actions, service
serviceatat
beblue-
blue- customer
customer the actions, person
person
printed. segment. customer’s onstage
onstageand activities each
printed. segment. customer’s and activitiestoto each
point back-stage. customer
pointofof back-stage. needed
needed customer
view. support action
actionstep.
step.
view. support
functions.
functions.
106
Application of Service
SM
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
107
Blueprints Can Be Used By:
SM

• 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 promised• System Technology
• managing fail points
– providing necessary tools:
• training systems
• quality control
• system specifications
• personal preference databases
108

SM
Chapter 9

CUSTOMER-DEFINED
SERVICE STANDARDS
Objectives for Chapter 9: 109

SM 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 9-1 110
AT&T’s Process Map for Measurements
SM
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

Knowledge (30%) Supervisor Observations


30% Sales Responsive (25%) % Proposal Made on Time
Follow-Up (10%) % Follow Up Made
Total
Delivery Interval Meets Needs (30%) Average Order Interval
Quality 10% Installation
Does Not Break (25%) % Repair Reports
Installed When Promised (10%) % Installed On Due Date

No Repeat Trouble (30%) % Repeat Reports


15% Repair Fixed Fast (25%) Average Speed Of Repair
Kept Informed (10%) % Customers Informed

Accuracy, No Surprise (45%) % Billing Inquiries


15% Billing Resolve On First Call (35%) % Resolved First Call
Easy To Understand (10%) % Billing Inquiries

Source: AT&T General Business Systems


111
Exercise for Creating
SM 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
112
Customer-Driven Standards and
SM Measurements Exercise
Service Encounter Customer Requirements Measurements

Service
Quality
Figure 9-2 113

SM 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
Knows Strengths of and Actions
My Competitors

Concrete High
Figure 9-3 114
Process for Setting
SM 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
115

SM Importance/Performance Matrix
HIGH 10.0

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
116
Figure 9-5

SM Linkage between Soft Measures and


Hard Measures for Speed of
Complaint Handling
S
A 10
T 9
I 8 Large Customers
S 7
Small Customers
F 6
A 5
C 4
T 3
I 2
O 1 2 4 6 8 12 16 20 24
N 0 WORKING HOURS
Figure 9-6 117
Aligning Company
SM 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
118

SM
Chapter 10

PHYSICAL EVIDENCE
AND THE SERVICESCAPE
119
Objectives for Chapter 10:
SM 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
120
Table 10-1

SM 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 10-2 121
Examples of Physical Evidence from the
SM Service
Customer’s Point of View
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 10-3 122
Typology of Service Organizations
SM 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 10-3 123
A Framework for Understanding
SM 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
124

SM
Part 4

DELIVERING AND
PERFORMING SERVICE
125

SM Provider GAP 3

CUSTOMER

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

Part 4 Opener
126

SM
Chapter 11

EMPLOYEES’ ROLES IN
SERVICE DELIVERY
127
Objectives for Chapter 11:
SM 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
128

SM 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
129

SM 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 11-3 130
Boundary Spanners Interact
SM with Both Internal
and External Constituents
External Environment

Internal Environment
131
Figure 11-4
SM Sources of Conflict for
Boundary-Spanning Workers

• Person vs. Role

• Organization vs. Client

• Client vs. Client

• Quality vs. Productivity


Figure 11-5 132
Human Resource Strategies for Closing GAP 3
SM
Hire for
r Service
fo Competencies B
Pr e t
e
t t
pe es and Service Em efe he
m B le pl rred
Co the op Inclination oy
Pe er

Str ard nd

Te Inte kills
Tr nica tive
Re ure a

ch rac
Hire the

ain l
Pr ervic g

fo and
ide e
Right People
n

rs
w
as

S
o

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 in
y

Needed Support
mp n

P
e

De Systems
Se v e l o
s

re
or rvic p a su 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
133

SM Empowerment

• Benefits: • Drawbacks:
– quicker responses – greater investments in
– employees feel more selection and training
responsible – higher labor costs
– employees tend to interact – slower and/or inconsistent
with warmth/enthusiasm delivery
– empowered employees are a – may violate customer
great source of ideas perceptions of fair play
– positive word-of-mouth from – “giving away the store”
customers (making bad decisions)
134

SM 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.”
135

SM
Chapter 12

CUSTOMERS’ ROLES IN
SERVICE DELIVERY
136
Objectives for Chapter 12:
SM 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
137
Importance of Other
SM 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
138

SM 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 12-2 139

SM Customer Roles in Service


Delivery

Productive Resources

Contributors to
Quality and
Satisfaction

Competitors
140

SM 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?
141
Customers as Contributors
SM 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
142

SM 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
143
Technology Spotlight:
SM 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 12-3 144

SM Strategies for Enhancing


Customer Participation

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

Manage the
Customer
Mix
145
Strategies for Enhancing
SM
Customer Participation

1. Define customers’ jobs


- helping himself
- helping others
- promoting the company

2. Individual differences: not everyone wants


to participate
146
Strategies for Recruiting,
SM 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


147

SM
Chapter 14

MANAGING DEMAND
AND CAPACITY
148
Objectives for Chapter 14:
SM 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
149
Understanding Capacity
SM Constraints and Demand
Patterns
Capacity Constraints Demand Patterns

• Time, labor, equipment and • Charting demand


facilities
patterns
• Optimal versus maximal use
of capacity • Predictable cycles
• Random demand
fluctuations
• Demand patterns by
market segment
150
Figure 14-3

SM Strategies for Shifting Demand


to Match Capacity

Demand Too High Shift Demand Demand Too Low


• Use signage to communicate busy days and times • Use sales and advertising to
• Offer incentives to customers for usage during non-peak increase business from current
times
• Take care of loyal or regular customers first market segments
• Advertise peak usage times and benefits of non-peak use
• Charge full price for the service--no discounts • 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 14-4 151
Strategies for Flexing Capacity
SM
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

• Subcontract or outsource activities • Schedule employee training
• Lay off employees
Table 14-1 152

SM 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 14-2 153
What is the Constraint on
SM 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
154

SM 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
155

SM
Part 5

MANAGING SERVICE
PROMISES
156

SM
Provider GAP 4
CUSTOMER

COMPANY
Service Delivery External
Communications
GAP 4 to Customers

Part 5 Opener
157

SM
Chapter 15

INTEGRATED
MARKETING
COMMUNICATION
158
Objectives for Chapter 15:
SM 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
159
Figure 15-1
SM Communications 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 15-3 160
Approaches for
SM 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
161
Figure 15-4

SM 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 15-8 162
Approaches for
SM 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
163
Figure 15-9

SM 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
164
Figure 15-10
SM 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
165

SM
Chapter 17

THE FINANCIAL AND


ECONOMIC IMPACT OF
SERVICE QUALITY

Contact: +923006641921 Usman Waheed


166
Objectives for Chapter 17:
SM 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

Contact: +923006641921 Usman Waheed


167
Figure 17-1
SM The Direct Relationship between
Service and Profits

Service
Quality
? Profits

Contact: +923006641921 Usman Waheed


168
Figure 17-2
SM Offensive Marketing Effects of
Service on Profits

Service
Quality
Profits
Market
Share

Reputation Sales

Price
Premium
Contact: +923006641921 Usman Waheed
169
Figure 17-3

SM Defensive Marketing Effects of


Service on Profit

Costs

Volume of Margins
Service Customer
Purchases

Quality Retention Price


Premium

Word of
Mouth Profits

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170
Figure 17-5

SM Perceptions of Service,
Behavioral
Intentions and Profits

Costs

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

Sales

Contact: +923006641921 Usman Waheed


Figure 17-6 171

SM 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?

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172
Figure 17-7
SM 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

Contact: +923006641921 Usman Waheed


173
Figure 17-8

SM 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

Contact: +923006641921 Usman Waheed


Figure 17-9 174
Sample Measurements for the
SM Balanced Scorecard
Financial Measures

Price Premium
Volume Increases
Value of Customer
Referrals
Customer
Perspective
Value of Cross Sales Operational
Long-term Value of Perspective:
Customer
Service Perceptions
Right first time (% hits)
Service Expectations
Right on time (% hits)
Perceived Value
Responsiveness (% on
Behavioral Intentions: Innovation and time)
% 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 Employee skills Process quality
# of Defections Time to market
Time spent talking to
customers

Adapted from Kaplan and Norton


Contact: +923006641921 Usman Waheed
Figure 17-10 175

SM 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
Contact: +923006641921 Usman Waheed