***Customer Service as a Strategic Function***

Proactive customer service offers an organization the following benefits:o An Information Resource – incorporating customer comments into marketing decisionso An Input for Service Design Improvements – soliciting customers and employees for

ideas for better service deliveryo An Opportunity to Enhance Customer Relationships – responding to unique

circumstances requires flexibility and creativity Customer complaints or suggestions valuable to improving customer relationships

Regaining Customer Confidence through Customer Service and Service Recovery

Customer Service refers to all customer-provider interactions beyond proactive selling and the delivery of the core product that facilitate the organization’s relationship with its customers.

Customer service is an opportunity to enhance customer relationshipso Often in the form of supplementary serviceso It’s a means to “Beat ‘Em”

Customer service affects customers’ perceptions of service quality

Developing a Service Culture

When the customer service function is elevated to a strategic level, the service organization signals its importance to all employees

o As a former CEO of American Express noted, “A dissatisfied customer is an opportunity” Senior executives at MBNA spend four hours each month listening in on customer service

telephone calls Service organizations and manufacturing organizations are realizing that customer service is a

major corporate asset One significant function of customer service is to enable the organization to recover from

failures that caused customer dissatisfaction and complaints

The Need for Service Recovery

Service Recovery is the effort an organization expends to win back customer goodwill once it has been lost due to service failure

o Service failure is a realityo Astute organizations have a plan in place to deal with service failureo A good recovery effort can reduce customer defectionso The key is to know when failure has occurredo Need to get customers to complain

***Customers Often Find Complaining Difficult and Unpleasant***

Customer Complaint Behavior

Why do customers stop doing business with an organization?o Die (1%)o Move Away (3%)o Influenced by friends opinions (5%)o Lured away by competition (9%)o Dissatisfied by product/service (14%)o Dissatisfied with the attitude of a company employee (68%)

Most customers don’t complain to the organization when failure occurso Less than 5% according to some researcho Instead they will tell 10-15 others

Customer Response to Service Failure diagram

How to Collect Complaints

Service Guarantees Contact Personnel

o Solicitationo Empowerment

Customer Comment Cards Information Technology

o E-mail addresseso 1-800 #o Website

MBWA (Management by Walking Around) Monitor Social Media

***Strategies to Reduce Customer Complaint Barriers***

Complaint Barriers for Dissatisfied Customers Strategies to Reduce These BarriersInconvenience

Hard to find right complaint procedure Effort involved in complaining

Put customer service hotline numbers, e-mail and postal addresses on all customer communications materials

Doubtful Pay Off Uncertain if action will be taken by firm to

address the problem

Have service recovery procedures in place, communicate this to customers

Feature service improvements that resulted from customer feedback

Unpleasantness Fear of being treated rudely Hassle, Embarrassment

Thank customers for their feedback Train frontline employees Allow for anonymous feedback

***How Complaint Resolution Affects Customer Retention Rates diagram***

Further Thoughts on the Need for Service Recovery

The High Cost of Lost Customerso Losing customers is expensiveo Life time value may be lost

o Costs more to find new customers than to keep existing ones Failure happens

o Service processes have many points at which failure can occur, i.e., Moments of Trutho Each moment of truth may have several OTSU’s (opportunities to screw up).

***M.O.T.’s and OTSU’s***

A moment of truth (M.O.T.) is any contact point with a service organization that the customer uses to evaluate the service delivery

o Some services have more M.O.T.’s than otherso Some M.O.T.’s are more significant than others

An OTSU is any aspect of the moment of truth that can go awry from the customer’s point of view

o Some MOT’s have more OTSU’s than otherso Some OTSU’s are more significant than others

***5 Steps to Service Recovery***

The 5 steps occur in order Apology Urgent Reinstatement try to signal that complaint is “important” Empathy understand customers’ point of view, experience method of “disarming” Symbolic Atonement make up for mistakes, symbolically

“Replace Plus One” The “Hassle Factor”

Follow-up

Not all 5 are always needed Annoyance (first 2) – customer simply upset about one specific aspect of service delivery Victimization (all 5) – the customer is exasperated by the organization’s failure

Hidden Benefits of Service Recovery

Beyond keeping customer goodwill, there are several ways systematic service recovery programs benefit an organization

o Can help improve the overall quality of service delivery as the service occurso Keeping track of the sources of dissatisfaction that create a need for recovery can help

the organizationo Service recovery can reduce the incidence of bungled moments of truth if information

regarding customers’ dissatisfaction is put to good use Beware of **Double Deviation**: failing twice

Customer Complaint Management Process Examples of Service Recovery Letters (Figure 11.4 in text)

Service Recovery in Action

Key Idea: There is often a second chance

***The Service Recovery Paradox***

Customers who experience a service failure that is satisfactorily resolved may be more likely to make future purchases than customers without problems (Note: not all research supports this paradox)

If second service failure occurs, the paradox disappears – customers’ expectations have been raised and they become disillusioned

Severity and “recoverability” of failure (e.g., spoiled wedding photos) may limit firm’s ability to delight customers with recovery efforts

Best strategy: Do it right the first time!! (Reliability)

Reading #11 – Recovering and Learning from Service Failure HANDOUT

Service Research: Why is Researching Service Necessary?

Determining success or failure is a key focus of service performance measurement It’s important for a service organization to know when it has succeeded or failed. This

information can be used to reward excellent performance, set priorities among process improvement options, and preempt customer switching behavior

In cases of extreme dissatisfaction and satisfaction, the customer is often very vocal.

Why is Service Success so difficult to Achieve?

Service success is difficult because:o Services are dynamic and experiential in natureo Services exist only when they are rendered

The same forces contributing to unpredictable service quality complicate investigating services using traditional research methodologies

It is best to measure service performance using a combination of methods, thereby offsetting the limitations of any single method

Know difference between observational and survey methods

Why Observational Research for Services?

Services are dynamic, experiential processes Survey or experimental methods are not capable of fully capturing these dynamic, experiential

processeso Thick vs. Thin Data

Surveys create “thin” data “thick” data captures emotions – more than just a number

“1” – Apostles – spread positive word-of-mouth (strongly positive) “5” – Terrorists – actively try to bring organization down (strongly

negative) Observation offers naturalistic insights into service phenomena Observation does not rely on the service participants’ recall or verbal capabilities, nor does it

require their cooperation

***Observational Research***

3 Considerationso Mode – Human or Mechanicalo When – Direct (during) or Indirect (after)o How – Concealed (unobtrusive) or Unconcealed (obtrusive)

Humans can be biased; must be trained Indirect Observation includes trace analysis and receipt analysis

o Trace analysis – studying the physical environment after a service has occurred to ascertain aspects of its delivery

o Receipt analysis – reviewing data provided on billing statements to uncover information about service customers

Unconcealed Observation can lead to the Hawthorne Effecto People produce desired behavior because they KNOW they are being observed

Concealed Observation may have ethical issues

“Rosenthal Effect” – researcher unknowingly cues participants how to respond correctly – unintended researcher bias

Mystery Shopping is an unobtrusive method of gathering data in which people pose as bona fide shoppers to observe and collect information about an organization’s service performance

o It is Direct Human Observation of a concealed type The Critical Incident Technique (CIT) is useful to study the exceptional service experiences of

customers and frontline employeeso It is Indirect Human Observation of an unconcealed type

Moment of Truth Impact Analysis – Table 12.2 in text

Listening to the Customer – The Concept of a Service Quality Information System – HANDOUT

Creating a Service Quality Information System (SQIS)

Gather information from/about External Customers, Internal Customers (employees) and Competitors’ Customers what 3 groups are researched?

Provide timely, relevant and precise information ***Every SQIS should include (among others)***

o Transactional Surveys – continuouso Customer Complaint , Comment and Inquiry Capture – continuouso Total Market Surveys – quarterlyo Employee Surveys – quarterly

what 4 methods are always included?

***Benefits of a SQIS***

Enables management to incorporate the voice of the customer into decision making Reveals customers’ service priorities Identifies service improvement priorities that guide resource allocation decisions Allows tracking of company and competition’s performance over time Discloses the impact of service quality initiatives and investments Offers performance based data to reward excellent service and correct poor service

CHAPTER 13 – HOMEWORK

***The 4 characteristics of a service that differs them from physical goods***

***Environmental scanning: the process of carefully monitoring the external environment of service organizations for changes that pose threats or opportunities to the service organization******Reactive vs. proactive strategies ; hyperactive strategy***

Reactive Strategy – a slow response to environmental changes (sometimes org. is forced to act) Proactive Strategy – a rapid response to environmental changes

Defensive – rapid response used to protect the organization from environmental threats Offensive – rapid response employed to capture opportunities

Hyperactive Strategy – A hasty response to environmental changes

***Green marketing and services aspects of environmental /green marketing –the 3 R’s(See Ch 13)

Reduce, Reuse, Recycle

***The hardest step in developing a marketing strategy for services; what are the steps?

Planning – determine service’s objective and the manner in which they will be accomplished Environmental Scanning, SWOT Analysis

Design – must carefully specify the specific market problem or opportunity it faces Benchmarking

Implementation (MOST DIFFICULT) – specifies a logical sequence of implementation steps and a detailed timetable for carrying them out – also requires itemized budget

Timetable and Budget must be closely monitored for deviations Allows little room for error

Control – success must be closely monitored and corrective action taken if required

**Characteristics of a good service name – know them and be able to apply them

A good service name should meet 4 criteria

Distinctive – should immediately identify organization & set it apart from competitors Relevant – should convey something about the nature of the service Memorable – Relatively short and easily understood Flexible – able to accommodate changes that may occur to the organization over time

SERVICE SMARTS HANDOUT

Why is Services Demand a Problem?

Demand Cycles – Services must often cope with the ebb and flow of demand that may be deeply ensconced in the behavioral patterns of the customer

o It’s often “feast or famine” Perishability – Services usually exist only for the time during which they are performed… can’t

store them for when they are needed Two bad outcomes: lost customers or wasted resources

The Nature of Service Demand

Random Fluctuation occurs without warning and is hard to accommodate

Predictable Fluctuation occurs when customer demand follows a pattern that repeats itself over time:

o Hours of the dayo Days of the weeko Days/Weeks of the montho Seasonalo Etc.

Often, several demand patterns working at same time

Chasing Demand with Service Capacity

To accommodate the demand cycle, organizations can Chase Demand with capacity Most services are Capacity Constrained Service Capacity has three forms:

o Facilities* o Equipment* o Personnel*

Can stretch (increase) or shrink (decrease) capacity to chase demand

Smoothing Demand to Fill Service Capacity

Can Smooth Demand to shift patronage to times when a service’s productive capacity is underused and deflecting or discouraging patronage when it is oversubscribed

The 4 P’s can be used to increase demand or decrease demand (i.e., Demarketing)

Smoothing Demand

Increase Demand o Lower priceso Communication, including promotional incentiveso Vary product features to increase desirabilityo More convenient delivery times and places

Reduce Demand o Higher priceso Communication prompting alternative timeso Vary product features to reduce desirability

Inventorying Demand, Etc.

Can Inventory Demand (i.e., gauge it) two ways:o Formal Queuing o Reservation System

Another strategy is to Do Nothingo Customers will learn on their own

Maximum Versus Optimum Capacity

Optimum Capacity is the number of customers that can be effectively handled under ideal conditions

Sometimes Maximum Capacity is not optimum capacityo Crowded servicescape, reduced individual attention, workers overburdened, etc.

Maximum capacity does not always mean maximum profits Creating demand greater than maximum capacity may result in negative experiences: customers

have to wait or go to competition

Waiting is a Universal Phenomenon!

An average person may spend up to 30 minutes/day waiting in line – equivalent to over a week per year

Time is almost tangible to many folks Almost nobody likes to wait It’s boring, time-wasting, and sometimes physically uncomfortable It is to be expected on occasion with services – when demand exceeds capacity

Maximum Versus Optimum Capacity (continued)

Managing Demand Fluctuations for Greater Profits -- Diagram

What is the pattern of demand fluctuations across all relevant time periods? What are the causes for customer behavior responsible for the fluctuations in demand? Which aspects of the customer behavior can be modified so that demand fluctuations can be

smoothed? Which marketing tools (7Ps) can be effective and efficient in modifying customer behavior? Objectives –

o maximize lifetime valueo maximize revenues from assetso Minimize costs of marketing actions

Chapter 15

Global Trade in Services

In the industrialized world, services represent more than half the gross domestic product (GDP) Trade in services accounts for 20% of all the world’s trade Sharp increases in trade volume and foreign investment in services in recent years, especially

o Health Careo Entertainmento Tourism

Measuring the global significance of the service sector is very difficult ***An outbound service export strategy involves sending the service provider to other countries ***An inbound service export strategy involves bringing foreign customers to the service

provider’s country ***A teleservice export strategy involves exporting services by delivering them electronically

Multilingual Service Systems

o Multilingual service systems are increasingly needed, especially when a service system simultaneously serves customers who speak various languages

o Numerous methods are available to deliver services multilingually:o Signage o Automated systems o Written communications o Multilingual staff

Entry Strategies for Global Service Markets

o Foreign Direct Investment – Organization chooses to invest its resources directly in another country

o Franchising – Organization expands service operations around the worldo Joint Ventures – Organization contracts with local organizations and thereby shares risks and

rewards

Going Multi-Lingual

o From least to most difficult, categories of communication to changeo Signage Leasto Other Written Communication o 1-Way Verbal o 2-Way Verbal o Telephone/Audio conversation Most difficult to adapt

o Euro-Disneyo Conduct a Language Audit

Multilingual Service Systems – Table 15.2

Standardization Versus Adaptation of Global Services

o Standardization means providing the same service in the same manner around the worldo Adaptation means tailoring service offering to accommodate conditions in each local market

Technology and Global Services

o Technology is rapidly becoming an essential means of expanding the global reach of serviceso Communications and transportation technology allow a service organization to operate in

multiple countries while maintaining close contact with employees and customerso Technology is the single most influential force behind the globalization of markets

Some Finishing Thoughts

Organizations make several mistakes when trying to achieve service success. They:o Misplace Prioritieso Design Quality Outo Seek Easy Solutionso Shortchange Fairnesso Under-invest in Leadership Development

***The 5 mistakes organizations make when trying to achieve success*** Which one is the most damaging?? Under-invest in Leadership Development

***Beyond avoiding these mistakes, organizations should:o Have long-range strategy (not just tactics)o Put success together piece-by-piece, like a service mosaico Work hard to bring the Holy Trinity of Service (Marketing, HRM & Operations) togethero Embrace change, innovate, look for ‘beat ‘ems’, avoid institutional rust

Institutional rust programs and policies that are no longer optimal

What does the future hold? (See Grove, Fisk and John 2003)o 10 experts provide insightso 39 suppositions dealing with the nature of services, their scope & value creationo **4 General Conclusions**

More evolvement of global service issues More fading of boundaries between services and manufacturing Increased impact of IT and E-commerce Serious rethinking of outdated concepts and terminology, including IHIP

Experience Marketing is emergingo Experiences are the new source of valueo Experiences are created by engaging the customero Its part of an evolutionary process that involves:

Why Now? o Competitiono Affluenceo Technologyo Natural Progression

Organizations can “experientialize” goods or services Remember: Good Enough Never Is!!!

***Components of the Service Encounter

1. Service workers – Those who interact with customers, and those who contribute to the service delivery out of the customer’s sight

2. Service Setting – the environment in which the service is provided to the customer and areas of the organization to which the customer normally has little access

Commodity Goods Services Experience

3. Service Customers – the persons receiving the service (e.g., the diner or the depositor) and others who share the service setting with them

4. Service Process – The sequence of activities necessary to deliver the service

***The three additional P’s of the services Marketing Mix – Importanto Participants are all people, whether customers and workers, who are involved in the

service production

o Physical Evidence means the service environment and other tangible aspects of the service that facilitate or communicate the nature of the service

o Process of Service Assembly refers to the procedures and flow of activities that contribute to the delivery of the service

***4 ‘traditional’ characteristics that distinguish services from goods + the new one—Important Intangibility – can’t see or touch (insurance) Heterogeneity (variability) – the quality can vary greatly Inseparability (simultaneity) – produced and consumed at same time

o Often interaction between customer and service producero How to make customer a more involved, more direct co-producer?

Perishability – can’t store or put in inventory (empty airplane seats)o Delivered in real-time

***The New One Rental/Access services can be rented or leased, not owned (created in real-time)

***Do-or-die, do or decline, match ‘em and beat ‘em supplemental services

Lovelock’s Product Model Diagram

Using a framework from Lovelock, it is possible to conceive of products (both goods and services) as consisting of a core (which provides the basic need satisfaction/solution that the customer desires) and supplementary elements (that 1. facilitate the use of the core, 2. represent means of conducting business, or 3. add 'extra's). The

supplementary elements are typically customer service based and it is through them that organizations compete and differentiate. That is because the core of a product becomes a commodity over time, i.e. every organization provides it. For example, competing hotels all offer the same core product--a night's abode).

• In that competition, several circumstances exist. A Do or Die circumstance exists that suggests if the organization doesn't do a good job of providing the core it will go out of business; in that case, none of the supplementary elements/services matter (e.g., if an airline doesn't get passengers from point A to point B in a timely and safe manner regularly, it will go out of business). A Do or Decline circumstance exists that suggests an organization must provide some basic supplementary elements or it will lose customers to the competition that does (e.g., the hotel must provide a telephone, air conditioning, etc.). Match 'Em and Beat "Em circumstances exist that suggest some organizations can distance themselves from the competition by offering extras that others don't to gain a temporary competitive advantage; eventually those Beat 'Ems will be copied (Match 'Ems) by the competition. It bears noting however that a Beat 'Em does not have to be a major innovation (e.g., once upon a time the chocolate on the pillow at a hotel was a Beat 'Em that was eventually matched). Nevertheless, technological improvements in facilitating the core product usage or in means of conducting business or technological innovations as an added extra are often ways to gain a competitive advantage. The upshot of all this is that it is service-related phenomena that represent means of competing. The attached file depicts key concepts discussed here.

***The 3 key dimensions of the servicescape (reading #5)

Ambient Conditions – background characteristics of the environment Spatial Layout and Functionality – the ways in which machinery, equipment and furnishings are arranged,

the size and shape of those items, and the spatial relationships among them Signs, Symbols and Artifacts – serve as explicit or implicit signals that communicate about the place to its

users

***Definition of service quality Service Quality

-From the provider’s perspective means the degree to which the services conform to the organization’s specifications and requirements-From the customer’s perspective it means how well the service meets or exceeds expectations

Service Quality = Service Perception↔ Service Expectations Customer delight occurs when customer expectations are significantly exceeded

***Service blueprint versus service script– what’s the difference? Service Blueprint – A graphic representation of the essential components of the service performance; it

identifies the customers, the service personnel, the points of interaction between customers and workers, the contact points between workers and other workers, and the frontstage evidence and the backstage processes or activities

Service Script – a chronologically ordered representation of the steps that make up the service performance from the customer’s point of view

***The people factor . . . what is it? –Important The People Factor – the people are the great differentiator… they are the service from

customers’ point of view

***The 5 dimensions of service quality - Important The people factor: 3 of the 5 directly related to employees, other 2 are indirectly related.

Components of Quality: Serviced Based

-Tangibles: Appearance of physical elements-Reliability: Dependable and accurate performance-Responsiveness: Promptness; helpfulness-Assurance: Competence, courtesy, credibility, security-Empathy: Easy access, good communication, understanding of customer