Unit 3

Service Quality Management (SQM)Quality has been the subject of many and varied definitions leading to the view that no one definition (of quality) is “best” in every situation because each definition has both strengths and weaknesses in relation to criteria such as measurement and generalizability, managerial usefulness and consumer relevance.

David Garvin is noteworthy for analyzing the range of quality definitions, classifying them into five groups.

1. The Transcendent approach2. The Product-based approach3. The User-based approach4. The Manufacturing-based approach5. The Value-based approach

Service quality can be defined as “the collective effect of service performances which determine the degree of satisfaction of a user of the service” (ITU E.800). In other words, quality is the customer’s perception of a delivered service. By service-quality management, we refer to the monitoring and maintenance of end-to-end services for specific customers or classes of customers.

Dimensions of Service Quality1. Access2. Communication3. Competence4. Courtesy5. Credibility6. Reliability7. Responsiveness8. Security9. Tangibles10. Understanding/Knowing the Customer

Definitions of Service Quality Dimensions:Reliability: Perform promised service dependably and accurately. Example: receive mail at same time each day.Responsiveness: Willingness to help customers promptly. Example: avoid keeping customers waiting for no apparent reason. Assurance: Ability to convey trust and confidence. Example: being polite and showing respect for customer.Empathy: Ability to be approachable. Example: being a good listener.Tangibles: Physical facilities and facilitating goods. Example: cleanliness.

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The GAP model

The Gaps Model is a useful framework for understanding the impact of the organization on quality. A technique for determining what to measure, and how, has been developed for service quality. It is called SERVQUAL.

Quality of service has been studied in the area of business management for years because the market is more competitive and marketing management has transferred its focus from internal performance such as production to external interests such as satisfaction and customers' perception of service quality. Based on this traditional definition of service quality, Parasuraman, Zeithaml, and Berry (1985) developed the "Gap Model" of perceived service quality. This model has five gaps:

Gap 1: Consumer expectation - Management perception gap Gap 2: Management perception - Service quality specification gap Gap 3: Service quality specifications - Service delivery gap Gap 4: Service delivery - External communication gap Gap 5: Expected service - Experienced service Gap.

The figure below shows the "GAP" model of service quality from Parasuraman et al. (Zeithaml & Bitner 1996). This model offers an integrated view of the consumer-company relationship. It is based on substantial research amongst a number of service providers. In common with the Grönroos model it shows the perception gap (Gap 5) and outlines contributory factors. In this case expected service is a function of word of mouth communication, personal need and past experience, and perceived service is a product of service delivery and external communications to consumers.

However the GAP model goes further in its analysis of these key contributory factors. It not only provides a more rigorous description of the contributory Gaps, it lists key drivers for each gap and generic breakdown of each of these drivers. These are illustrated below in summary form below.

Gap 1 Inadequate market research orientation Lack of upward communication Insufficient relationship focus

Gap 2 Absence of customer driven standards Inadequate service leadership Poor service design

Gap 3 Deficiencies of human resource policies Failure to match supply and demand Customers not fulfilling roles

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Gap 4 Ineffective management of customer expectations Overpromising Inadequate horizontal communications

This level of detail allows powerful analysis of the contributory factors to a perception gap at a practical level. The model shows the importance of marketing, business leadership quality and HR systems in the management of the expectation gap.

The model’s key features are: The identification of key attributes of service quality from a management and consumer

perspective Highlighting the gaps between consumers and service providers with particular reference to

perceptions and expectations Understanding the implications for service management of closing the gaps

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A Small Walk-through on Service Quality Audit: Service delivery system should conform to customer expectations. Customer impression of service influenced by use of all senses. Service managers lose sensitivity due to familiarity. Need detailed service audit from a customer’s perspective.

Another Form of Service Quality GAP Model:

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Service Excellence

“Excellence is an art won by training and habituation. We are what we repeatedly do- AristotleService Excellence means exceeding customers’ expectations and paying attention to detail.” - Disney Institute

Service Excellence Is End-User Thinking Always focusing on the expectations and needs of the client Asking the client what constitutes excellent service Making the client the starting point for change Building the Department from the outside-in

Service Excellence Has Many Benefits• Improved relationship between clients and the public service• Promotion of innovation and creativity in the delivery of services• Recognition of employees who deliver excellent service• Higher levels of confidence in the public service• Services that are designed and delivered with clients in mind

“Customers don’t expect you to be perfect. They do expect you to fix things when they go wrong.” - Donald Porter

“People don’t want to communicate with an organization or a computer. They want to talk to a real, live, responsive, responsible person who will listen and help them get satisfaction.” - Theo Michelson

The Service Excellence FrameworkThe Service Excellence Framework identifies ways to improve the delivery of services in the public service. The key elements of the Framework are to Build Commitment, EnhanceCapacity, Measure Effectively, and Communicate Effectively at every stage of the Service Excellence planning process. The key to Service Excellence is not only focusing on what services we provide, but how we deliver them.

Building Commitment Means…• Leadership• Accountability• End-user thinking• Pride in the work of the department• Integration of Service Excellence into organizational planning

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Enhancing Capacity Means…• Innovation• Flexibility• Training• Recognition• Consulting with stakeholders• Developing service partnerships

Measuring Effectively Means…• Client and staff involvement• Measurement tools linked to achieving goals of business plans• Evaluating Service Excellence• Developing service standards

Communicating Effectively Means…• Communicating with clients, service partners and other service-providers• Clients and providers sharing clear service expectations and knowledge about the provision of services

The Pricing of Services

Determining prices if you own a consulting or service-oriented business is not much different from determining prices for a product-driven company. The main difference is that your service or your time is your product. To get started, you must evaluate what your competition is charging for similar services, and then determine where your services fit in. Can you, for example, offer the same service at a higher quality? If so, you will probably be able to charge more. But if your competitors are offering more to the consumer than you are capable of, you may want to set your prices lower.

You will also want to look at the market itself to determine what the market will bear and what effect your geographic location has on your pricing strategy. A manicurist in New York City, for example, could probably charge more than a manicurist in Idaho simply because people in metropolitan areas are more willing and able — because of the relative higher costs of all products and services in those areas — to pay a higher price than folks living in rural areas.

Similarly, the principle of supply and demand applies to service companies. If there are several other businesses in your area performing the same or a similar service, the demand will probably be less because the supply is greater. Hence, you may have to charge less. On the other hand, if you own a dry-cleaning service, and you are the only dry cleaner in town, you can charge higher prices than you could if there were several dry cleaners located very close to you.

A final thing to consider in pricing a service is reputation. If you have a stellar reputation, people will most likely be willing to pay more for your service since their perception will be that they are getting more. If you own a printing service, and you have a reputation as someone who can take on big jobs at the last minute, perform high quality work, and deliver on schedule, you will be able to charge premium prices. If you are a consultant, you must consider all of the above and add into the mix your credentials.

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For example, if you are a financial advisor, what is your degree? Do you have an M.B.A. from Harvard? The higher your credentials, the more you will be able to charge. Remember, when consulting, a good part of what people are buying is your experience.

Buyer’s Perception of Value

Demand Considerations

Demand tends to be more inelastic Cross price elasticity considerations need to be examined Price discrimination is a viable practice to manage demand and supply challenges

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Price Sensitivity Factors

Perceived Substitute Effect Few search attributes Providers often lack resources and marketing expertise Limited product mix

Unique Value Effect Conveying “uniqueness” is difficult Provider may need to educate the market Uniqueness is often short-lived

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Switching Costs Higher levels of perceived risk Uncertainty involved in changing providers Consequences associated with a bad outcome

Difficult Comparison Effect High number of experience attributes Inherent heterogeneity

Price-Quality Effect

Price acts as a quality indicator when consumers: Believe that quality differs among providers Believe that low quality imposes greater consequences Lack other sources of objective information

Expenditure Effect

Amount of expenditure relative to consumer household income

End-benefit Effect

The more price sensitive consumers are to the cost of the end-benefit, the more sensitive they will be to purchases that contribute to the end-benefit.

Price bundling adds value to the consumer’s end-benefit

Shared-cost Effect

Consumer price sensitivity decreases as the shared-costs with third parties increase

Fairness Effect Fairness is typically assessed by comparing the price to: Previous prices paid for similar services Prices paid for similar services under similar circumstances The benefit gained Assessing “service” fairness is difficult

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Inventory Effect

Consumers are able to protect themselves from future price increases by building inventories

Criteria for Effective Price Discrimination

1. Different groups of consumers must have different responses to price.2. Different segments must be identifiable, and a mechanism must exist to price them

differently.3. No opportunity should exist for individuals in one segment who have paid a low price to

sell their tickets to those in other segments. 4. The segment should be large enough to make it worthwhile.5. Costs should not exceed the incremental revenues obtained.6. Customers should not be confused.

Cost Considerations

Price is sometimes not know until after the service has been produced Cost-oriented pricing is more difficult

Activity-based costing breaks down the organization into a set of activities, and activities into tasks, which convert materials, labor, and technology into outputs.

High fixed cost to variable cost ratio Economies of scale tend to be limited

Customer Considerations Price tends to be one of the few search clues available More likely to use price as a quality cue Consumers are less certain about reservation prices

Competitive Considerations Comparing prices is more difficult Self-service is a viable alternative

Profit Considerations Price bundling makes the determination of individual prices in the bundle of services more

complicated Price bundling is more effective in a service context

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Product Considerations Many different names for price Consumers are less able to stockpile by taking advantage of discount prices Product-line pricing is more difficult

Home sellers have three levels of service (6, 7, or 8%)

Legal Considerations Opportunity for illegal pricing practices to go undetected is greater for services than

goods. To consumers, the issue is one of fairness and dual entitlement

Emerging Service Pricing Strategies

Satisfaction-based pricing Primary goal is to reduce the amount of perceived risk Service guarantees Benefit-driven pricing: charges customers for services actually used as opposed to

overall membership fees Flat-rate pricing: customer pays a fixed price and the provider assumes the risk of price

increases and overruns

Relationship Pricing Primary objective is to enhance the firm’s relationship with its targeted consumers. Long-term contracts: offers price and non-price incentives for dealing with the same

provider over a number of years Pricing bundling: marketing two or more services as a single package for a single price

Efficiency Pricing Primary objective is to appeal to economically-minded consumers by delivering the best

and most cost-effective service for the price. Example: Southwest Airlines

The price should: Be easy for customers to understand Represent value to the customer Encourage customer retention and facilitate the customer’s relationship with the

providing firm Reinforce customer trust Reduce customer uncertainty

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