Services Marketing Christopher Lovelock ppts combined

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 1 - 1

Chapter 1

Introduction to

Services Marketing


How Important is the Service Sector in Our Economy?

� In most countries, services add more economic value than agriculture, raw materials and manufacturing combined

� In developed economies, employment is dominated by service jobs and most new job growth comes from services

� Jobs range from high-paid professionals and technicians to minimum-wage positions

� Service organizations can be any size—from huge global corporations to local small businesses

� Most activities by government agencies and nonprofit organizations involve services


Services dominate the United States Economy:GDP by Industry, 2001 (Fig. 1.1)

Source: Bureau of Economic Analysis, November 2002

Finance, Insurance, Real Estate

20%

Wholesale and Retail Trade

16%

Transport, Utilities,Communications

8% Health

6%BusinessServices

5%

Other Services 11%

Government(mostly services)

13%

Manufacturing 14%

Agriculture, Forestry,Mining, Construction 8%

SERVICES


Changing Structure of Employment as Economic Development Evolves (Fig. 1.2)

Time, per Capita Income

Industry

Services

Agriculture

Source: IMF, 1997


Some Service Industries Profiled by NAICS but Not Identified by SIC Codes

� Casino Hotels

� Continuing Care Retirement Communities

� Diagnostic Imaging Centers

� Diet and Weight Reducing Centers

� Environmental Consulting

� Gold Courses and Country Clubs

� Hazardous Waste Collection

� HMO Medical Centers

� Industrial Design Services

� Investment Banking and Securities Dealing

� Management Consulting Services

� Satellite Telecommunications

� Telemarketing Bureaus

� Temporary Help Services


Internal Services

� Service elements within an organization that facilitate creation of--or add value to--its final output

� Includes:

�accounting and payroll administration�recruitment and training� legal services�transportation�catering and food services�cleaning and landscaping

� Increasingly, these services are being outsourced


Major Trends in Service Sector (Fig. 1.3)

� Government Policies (e.g., regulations, trade agreements)

� Social Changes (e.g., affluence, lack of time, desire for experiences)

� Business Trends� Manufacturers offer service

� Growth of chains and franchising

� Pressures to improve productivity and quality

� More strategic alliances

� Marketing emphasis by nonprofits

� Innovative hiring practices

� Advances in IT (e.g., speed, digitization, wireless, Internet)

� Internationalization (travel, transnational companies)


Some Impacts of Technological Change

� Radically alter ways in which service firms do business:

� with customers (new services, more convenience) � behind the scenes (reengineering, new value chains)

� Create relational databases about customer needs and behavior, mine databanks for insights

� Leverage employee capabilities and enhance mobility

� Centralize customer service—faster and more responsive

� Develop national/global delivery systems

� Create new, Internet-based business models


Marketing Relevant Differences Between Goods and Services


Defining the Essence of a Service

� An act or performance offered by one party to another

� An economic activity that does not result in ownership

� A process that creates benefits by facilitating a desired change in:

� customers themselves

� physical possessions

� intangible assets


Distinguishing Characteristics of Services (Table 1.1)

� Customers do not obtain ownership of services

� Service products are ephemeral and cannot be inventoried

� Intangible elements dominate value creation

� Greater involvement of customers in production process

� Other people may form part of product experience

� Greater variability in operational inputs and outputs

� Many services are difficult for customers to evaluate

� Time factor is more important--speed may be key

� Delivery systems include electronic and physical channels


Marketing Implications - 1

� No ownership

� Customers obtain temporary rentals, hiring of personnel, or access to facilities and systems

� Pricing often based on time

� Customer choice criteria may differ for renting vs. purchase--may include convenience, quality of personnel

� Can’t own people (no slavery!) but can hire expertise and labor

� Services cannot be inventoried after production

� Service performances are ephemeral—transitory, perishableException: some information-based output can be recordedin electronic/printed form and re-used many times

� Balancing demand and supply may be vital marketing strategy

� Key to profits: target right segments at right times at right price

� Need to determine whether benefits are perishable or durable



� Customers may be involved in production process

� Customer involvement includes self-service and cooperation with service personnel

� Think of customers in these settings as “partial employees”

� Customer behavior and competence can help or hinder productivity, so marketers need to educate/train customers

� Changing the delivery process may affect role played by customers

� Design service facilities, equipment, and systems with customers in mind: user-friendly, convenient locations/schedules

� Intangible elements dominate value creation

� Understand value added by labor and expertise of personnel

� Effective HR management is critical to achieve service quality

� Make highly intangible services more “concrete” by creating and communicating physical images or metaphors and tangible clues


Value Added by Tangible vs Intangible Elements in Goods and Services (Fig. 1.4)

Fast food restaurantPlumbing repair

Office cleaning

Health clubAirline flight

Retail banking

Insurance

Weather forecast

Salt

Soft drinks

CD PlayerGolf clubs

New carTailored clothing

Furniture rental

Lo Hi

Hi

Intangible Elements



� Other people are often part of the service product

� Achieve competitive edge through perceived quality of employees

� Ensure job specs and standards for frontline service personnel reflect both marketing and operational criteria

� Recognize that appearance and behavior of other customers can influence service experience positively or negatively

� Avoid inappropriate mix of customer segments at same time

� Manage customer behavior (the customer is not always right!)

� Greater variability in operational inputs and outputs

� Must work hard to control quality and achieve consistency

� Seek to improve productivity through standardization, and by training both employees and customers

� Need to have effective service recovery policies in place because it is more difficult to shield customers from service failures



� Often difficult for customers to evaluate services� Educate customers to help them make good choices, avoid risk� Tell customers what to expect, what to look for� Create trusted brand with reputation for considerate, ethical behavior� Encourage positive word-of-mouth from satisfied customers

� Time factor assumes great importance� Offer convenience of extended service hours up to 24/7� Understand customers’ time constraints and priorities � Minimize waiting time� Look for ways to compete on speed

� Distribution channels take different forms� Tangible activities must be delivered through physical channels� Use electronic channels to deliver intangible, information-based

elements instantly and expand geographic reach


Important Differences Exist among Services


Four Categories of Services Employing Different Underlying Processes (Fig. 1.5)

People Processing Possession Processing

Mental Stimulus

Processing

Information Processing(directed at intangible assets)

e.g., airlines, hospitals,haircutting, restaurants hotels, fitness centers

e.g., freight, repair, cleaning, landscaping,

retailing, recycling

e.g., broadcasting, consulting,education, psychotherapy

e.g., accounting, banking, insurance, legal, research

TANGIBLE ACTS

INTANGIBLEACTS

DIRECTED AT PEOPLE DIRECTED AT POSSESSIONS

What is the Nature of the Service Act?

Who or What is the Direct Recipient of the Service?


Implications of Service Processes (1) Seeking Efficiency May Lower Satisfaction

Processes determine how services are created/delivered—process change may affect customer satisfaction

� Imposing new processes on customers, especially replacing people by machines, may cause dissatisfaction

� New processes that improve efficiency by cutting costs may hurt service quality

� Best new processes deliver benefits desired by customers� Faster

� Simpler

� More conveniently

� Customers may need to be educated about new procedures and how to use them


Implications of Service Processes: (2) Designing the Service Factory

People-processing services require customers to visit the “service factory,” so:

� Think of facility as a “stage” for service performance

� Design process around customer

� Choose convenient location

� Create pleasing appearance, avoid unwanted noises, smells

� Consider customer needs--info, parking, food, toilets, etc.


Implications of Service Processes: (3) Evaluating Alternative Delivery Channels

For possession-processing, mental-stimulus processing, or information processing services, alternatives include:

1. Customers come to the service factory

2. Customers come to a retail office

3. Service employees visit customer’s home or workplace

4. Business is conducted at arm’s length through

- physical channels (e.g., mail, courier service)- electronic channels (e.g., phone, fax, email, Web site)


Implications of Service Processes: (4) Balancing Demand and Capacity

When capacity to serve islimited and demand varieswidely, problems arise becauseservice output can’t be stored:

1. If demand is high and exceeds supply, business may be lost

2. If demand is low, productive capacity is wasted

Potential solutions:

- Manage demand - Manage capacity


Implications of Service Processes: (5) Applying Information Technology

All services can benefit from IT,but mental-stimulus processingand information-processingservices have the most to gain:

� Remote delivery of information-based services “anywhere, anytime”

� New service features through websites, email, and internet (e.g., information, reservations)

� More opportunities for self-service

� New types of services


Implications of Service Processes:(6) Including People as Part of the Product

Involvement in service delivery often entails contact with other people

� Managers should be concerned about employees’ appearance, social skills, technical skills

� Other customers may enhance or detract from service experience--need to manage customer behavior


The Services

Marketing Mix


Elements of The Services Marketing Mix:“7Ps” vs. the Traditional “4Ps”

Rethinking the original 4Ps

� Product elements

� Place and time

� Promotion and education

� Price and other user outlays

Adding Three New Elements

� Physical environment

� Process

� People


The 7Ps: (1) Product Elements

All Aspects of Service Performance that Create Value

� Core product features—both tangible and intangible elements

� Bundle of supplementary service elements

� Performance levels relative to competition

� Benefits delivered to customers (customers don’t buy a hotel room, they buy a good night’s sleep)

� Guarantees


The 7Ps:(2) Place and Time

Delivery Decisions: Where, When, and How

� Geographic locations served

� Service schedules

� Physical channels

� Electronic channels

� Customer control and convenience

� Channel partners/intermediaries


The 7Ps:(3) Promotion and Education

Informing, Educating, Persuading, and Reminding Customers

� Marketing communication tools� media elements (print, broadcast, outdoor, retail, Internet, etc.)� personal selling, customer service� sales promotion� publicity/PR

� Imagery and recognition� branding� corporate design

� Content� information, advice� persuasive messages� customer education/training


The 7Ps:(4) Price and Other User Outlays

Marketers Must Recognize that Customer Outlays Involve

More than the Price Paid to Seller

Traditional Pricing Tasks

� Selling price, discounts, premiums

� Margins for intermediaries (if any)

� Credit terms

Identify and Minimize Other Costs Incurred by Users

� Additional monetary costs associated with service usage (e.g., travel to service location, parking, phone, babysitting,etc.)

� Time expenditures, especially waiting

� Unwanted mental and physical effort

� Negative sensory experiences


The 7Ps:(5) Physical Environment

Designing the Servicescape and providing tangibleevidence of service performances

� Create and maintaining physical appearances

� buildings/landscaping

� interior design/furnishings

� vehicles/equipment

� staff grooming/clothing

� sounds and smells

� other tangibles

� Select tangible metaphors for use in marketing communications


7Ps:(6) Process

Method and Sequence in Service Creation and Delivery

� Design of activity flows

� Number and sequence of actions for customers

� Providers of value chain components

� Nature of customer involvement

� Role of contact personnel

� Role of technology, degree of automation


The 7Ps:(7) People

Managing the Human Side of the Enterprise

� The right customer-contact employees performing tasks well

� job design

� recruiting/selection

� training

� motivation

� evaluation/rewards

� empowerment/teamwork

� The right customers for the firm’s mission

� fit well with product/processes/corporate goals

� appreciate benefits and value offered

� possess (or can be educated to have) needed skills (co-production)

� firm is able to manage customer behavior


Managing the 7Ps Requires Collaboration between Marketing, Operations, and HR Functions (Fig. 1.7)

Customers

Operations Management

Marketing Management

Human Resources Management


Chapter 2

Consumer Behavior in Service Encounters


Where Does the Customer Fit in aService Organization? (Fig. 2.1)

� Consumers rarely involved in manufacture of goods but often participate in service creation and delivery

� Challenge for service marketers is to understand how customers interact with service operations

� Flowcharting clarifies how customer involvement in service encounters varies with type of process - see Fig. 2-1:� People processing (e.g., motel stay): customer is physically involved

throughout entire process

� Possession processing (e.g., DVD repair): involvement may be limited to drop off of physical item/description of problem and subsequent pick up

� Mental stimulus processing (e.g., weather forecast): involvement is mental, not physical; here customer simply receives output and acts on it

� Information processing (e.g., health insurance): involvement is mental -specify information upfront and later receive documentation of coverage


High-Contact and Low-Contact Services

High Contact Services

� Customers visit service facility and remain throughout service delivery

� Active contact between customers and service personnel

� Includes most people-processing services

Low Contact Services

� Little or no physical contact with service personnel

� Contact usually at arm’s length through electronic or physical distribution channels

� New technologies (e.g. Web) help reduce contact levels


Levels of Customer Contact with Service Organizations (Fig. 2.2)

Emphasizes encounters

with service personnel

Emphasizes encounters

with equipment

High

Low

Management Consulting

Car Repair

InsuranceMotel

Fast Food

Nursing Home

Airline Travel (Econ.)

Cable TV

Telephone Banking

HairCut

Good Restaurant

4- Star Hotel

Dry Cleaning

Retail Banking

Mail Based Repairs

Internet-basedServices

Movie Theater

• Internet Banking

Subway


Managing Service Encounters--1

� Service encounter: A period of time during which customers interact directly with a service

� Moments of truth: Defining points in service delivery where customers interact with employees or equipment

� Critical incidents: specific encounters that result in especially satisfying/dissatisfying outcomes for either customers or service employees


Managing Service Encounters--2

� Service success often rests on performance of junior contact personnel

� Must train, coach, role model desired behavior

� Thoughtless or badly behaved customers can cause problems for service personnel (and other customers)

� Must educate customers, clarify what is expected, manage behavior


The Purchase Process for Services(Adapted from Fig. 2-3)

Prepurchase Stage

� Awareness of need� Information search� Evaluation of alternative service suppliers

Service Encounter Stage

� Request service from chosen supplier� Service delivery

Postpurchase Stage

� Evaluation of service performance� Future intentions


Perceived Risks in Purchasing and Using Services (Table 2.1)

� Functional – unsatisfactory performance outcomes

� Financial – monetary loss, unexpected extra costs

� Temporal – wasted time, delays lead to problems

� Physical – personal injury, damage to possessions

� Psychological – fears and negative emotions

� Social – how others may think and react

� Sensory – unwanted impacts to any of five senses


Factors that Influence Customer Expectations of Services (Fig. 2.4)

Predicted Service

Explicit & Implicit Service Promises

Word-of-Mouth

Past ExperienceDesired Service

ZONE OF

TOLERANCE

Adequate Service

Personal Needs

Beliefs about What Is Possible

Perceived Service Alterations

Situational Factors

Source: Adapted from Zeithaml, Parasuraman & Berry


Components of Customer Expectations

� Desired Service Level: wished-for level of service quality that customer believes can and should be delivered

� Adequate Service Level: minimum acceptable level of service

� Predicted Service Level: service level that customer believes firm will actually deliver

� Zone of Tolerance: range within which customers are willing to accept variations in service delivery


Intangible Attributes, Variability, and Quality Control Problems Make Services Hard to Evaluate

� Search attributes – Tangible characteristics that allow customers to evaluate a product before purchase

� Experience attributes – Characteristics that can be experienced when actually using the service

� Credence attributes – Characteristics that are difficult to evaluate confidently even after consumption

� Goods tend to be higher in search attributes, services tend to be higher in experience and credence attributes

� Credence attributes force customers to trust that desired benefits have been delivered


How Product Attributes Affect Ease of Evaluation) (Fig. 2.5)

Source: Adapted from Zeithaml

Most Goods

High in search attributes

High in experience attributes

High in credenceattributes

Difficultto evaluate

Easy to evaluate

Most Services

Clo

thin

g

Ch

air

Mo

tor

veh

icle

Fo

od

s

Resta

ura

nt

meals

Law

n f

ert

iliz

er

Hair

cu

t

En

tert

ain

men

t

Co

mp

ute

r re

pair

Leg

al

serv

ices

Co

mp

lex s

urg

ery


Customer Satisfaction is Central to the Marketing Concept

� Satisfaction defined as attitude-like judgment following a service purchase or series of service interactions

� Customers have expectations prior to consumption, observe service performance, compare it to expectations

� Satisfaction judgments are based on this comparison

� Positive disconfirmation if better than expected

� Confirmation if same as expected

� Negative disconfirmation if worse than expected

� Satisfaction reflects perceived service quality, price/quality tradeoffs, personal and situational factors

� Research shows links between customer satisfaction and a firm’s financial performance


Customer Delight:Going Beyond Satisfaction

� Research shows that delight is a function of 3 components

�Unexpectedly high levels of performance

�Arousal (e.g., surprise, excitement)

�Positive affect (e.g., pleasure, joy, or happiness)

� Is it possible for customers to be delighted by verymundane services?

� Progressive Insurance has found ways to positively surprisecustomers with customer-friendly innovations andextraordinary customer service


A Service Business is a System Comprising Three Overlapping Subsystems

Service Operations (front stage and backstage)

�Where inputs are processed and service elements created.

� Includes facilities, equipment, and personnel

Service Delivery (front stage)

�Where “final assembly” of service elements takes place and service is delivered to customers

� Includes customer interactions with operations and other customers

Service Marketing (front stage)

� Includes service delivery (as above) and all other contacts between service firm and customers


Service Marketing System: (1) High Contact Service--e.g., Hotel (Fig. 2.7)

TheCustomer

TechnicalCore

Interior & Exterior

Facilities

Equipment

Service People

Other

Customers

Other

Customers

Advertising

Sales Calls

Market Research

Surveys

Billing / Statements

Miscellaneous Mail,

Phone Calls, Faxes, etc.

Random Exposure to

Facilities / Vehicles

Chance Encounters

with Service Personnel

Word of Mouth

Service Operations System

Backstage(invisible)

Front Stage(visible)

Service Delivery System Other Contact Points

Service Marketing System


Service Marketing System: (2) Low Contact Service--e.g., Credit Card (Fig. 2.8)

TechnicalCore

Mail

Self Service

Equipment

Phone, Fax,

Web site etc.

The

Customer

Service Operations System

Service Delivery System Other Contact Points

Backstage

(invisible)

Front Stage

(visible)

Advertising

Market ResearchSurveys

Random Exposures

Facilities, Personnel

Word of Mouth

Service Marketing System


Service as Theater

“ All the world’s a stage and all the men and women merely players. They have their exits and their entrances and each man in his time plays many parts”

William Shakespeare

As You Like It


The Dramaturgy of Service Delivery

� Service dramas unfold on a “stage”--settings may change as performance unfolds

� Many service dramas are tightly scripted, others improvised

� Front-stage personnel are like members of a cast

� Like actors, employees have roles, may wear special costumes, speak required lines, behave in specific ways

� Support comes from a backstage production team

� Customers are the audience—depending on type of performance, may be passive or active


Role and Script Theories

� Role: A set of behavior patterns learned through experience and communication

� Role congruence: In service encounters, employees and customers must act out defined roles for good outcomes

� Script: A sequence of behavior to be followed by employees and customers during service delivery

� Some scripts (e.g. teeth cleaning) are routinized, others flexible

� Technology change may require a revised script

� Managers should reexamine existing scripts to find ways to improve delivery, increase productivity, enhance experiences


Chapter 3

Positioning Services in Competitive Markets


Search for Competitive Advantage in Services Requires Differentiation and Focus

� Intensifying competition in service sector threatens firms with no distinctive competence and undifferentiated offerings

� Slowing market growth in mature service industries means that only way for a firm to grow is to take share from competitors

� Rather than attempting to compete in an entire market, firm must focus efforts on those customers it can serve best

� Must decide how many service offerings with what distinctive (and desired) characteristics


Standing Apart from the Competition

A business must set itself apart from its competition. To be successful it must identify and promote itself

as the best provider of attributes that are important to target customers

GEORGE S. DAY


Basic Focus Strategies for Services (Fig. 3.1)

BREADTH OF SERVICE OFFERINGS

NUMBER OF MARKETS

SERVED

Narrow

Many

Few

Wide

Service Focused

Unfocused (Everything

for everyone)

Market Focused

Fully Focused (Service and

market focused)

Source: Robert Johnston


Four Principles of Positioning Strategy

1. Must establish position for firm or product in minds of customers

2. Position should be distinctive, providing one simple, consistent message

3. Position must set firm/product apart from competitors

4. Firm cannot be all things to all people--must focus

Jack Trout


Uses of Positioning in Marketing Management (Table 3.1)

� Understand relationships between products and markets� compare to competition on specific attributes� evaluate product’s ability to meet consumer needs/expectations� predict demand at specific prices/performance levels

� Identify market opportunities� introduce new products� redesign existing products� eliminate non-performing products

� Make marketing mix decisions, respond to competition� distribution/service delivery� pricing� communication


Possible Dimensions for Developing Positioning Strategies

� Product attributes

� Price/quality relationships

� Reference to competitors (usually shortcomings)

� Usage occasions

� User characteristics

� Product class


Developing a Market Positioning Strategy (Fig. 3.3)

- Size- Composition- Location- Trends

MarketingAction Plan

MARKET ANALYSIS

INTERNALANALYSIS

- Resources- Reputation- Constraints - Values

COMPETITIVEANALYSIS

- Strengths- Weaknesses- Current

Positioning

Define, AnalyzeMarket Segments

Select Target Segments

To Serve

ArticulateDesired Position

in Market

Select Benefitsto Emphasize to Customers

Analyze Possibilities forDifferentiation

Source: Adapted from Michael R. Pearce


Positioning of Hotels in Belleville:Price vs. Service Level (Fig. 3.4)

Expensive

Shangri-LaHigh

ServiceModerate Service

Grand

Regency

Sheraton

Italia

CastleAlexander IV

Airport Plaza

PALACE

Atlantic

Less Expensive


Positioning of Hotels in Belleville: Location vs. Physical Luxury (Fig. 3.5)

High Luxury

Shopping District

and Convention Centre

Shangri-La

Moderate Luxury

Financial District

Inner

Suburbs

GrandRegency

Sheraton

ItaliaCastle

Alexander IV

Airport Plaza

PALACE

Atlantic


Positioning after New Hotel Construction: Price vs. Service Level (Fig. 3.6)

Expensive

Shangri-LaHigh

ServiceModerate Service

HeritageMandarin

New GrandMarriott

Continental

Regency

Sheraton

Italia

Alexander IVAirport Plaza

PALACE

Atlantic

No action?

Action?

Less Expensive

Castle


Positioning after New Hotel Construction: Location vs. Physical Luxury (Fig. 3.7)

High Luxury

Shangri-La

Financial District

Inner Suburbs

Heritage

Mandarin

New Grand

MarriottContinental

RegencySheraton

ItaliaAlexander IV

Airport Plaza

PALACE

Atlantic

No action?

Action?

Moderate Luxury

Castle

Shopping District and Convention Centre


Positioning Maps Help Managers to Visualize Strategy

� Positioning maps display relative performance of competing firms on key attributes

� Research provides inputs to development of positioning maps

� Challenge is to ensure that

�attributes employed in maps are important to target segments

�performance of individual firms on each attribute accurately reflects perceptions of customers in target segments

� Predictions can be made of how positions may change in the light of new developments in the future

� Simple graphic representations are often easier for managers to grasp than tables of data or paragraphs of prose

� Charts and maps can facilitate a “visual awakening” to threats and opportunities and suggest alternative strategic directions


Chapter 4

Creating the

Service Product


Key Steps in Service Planning:Matching Opportunities to Resources

� Must relate marketing opportunities to firm’s resources (physical, financial, technological, human)

� Identify, evaluate firm’s marketing assets� Customer portfolio/lifetime value (customer equity)� Market knowledge� Marketing implementation skill� Product line� Competitive positioning strategies� Brand reputation (brand equity)

� Identify, evaluate firm’s operating assets � Physical facilities, equipment� Technology and systems (especially IT)� Human resources (numbers, skills, productivity)� Leverage through alliances and partnerships� Potential for customer self service� Cost structure


Operating Assets(Facilities/Equipment, IT Systems, People, Op. Skills, Cost Structure)

Service Design Involves Matching Marketing Concept with Operations Concept (Fig. 4.1)

Corporate Objectivesand Resources

Service Delivery Process

Marketing Assets(Customer Base, Mkt. Knowledge,

Implementation Skills, Brand Reput.)

Service Marketing Concept

•Benefits to customer from core/supplementary elements, style, service level, accessibility

•User costs/outlays incurred•Price/other monetary costs•Time•Mental and physical effort•Neg. sensory experiences

Service Operations Concept

•Nature of processes•Geographic scope of ops•Scheduling•Facilities design/layout•HR (numbers, skills)•Leverage (partners, self-service)•Task allocation: front/backstage staff; customers as co-producers


Understanding the Components of the

Augmented Service Product


Shostack’s Molecular Model of a Total Market Entity - Passenger Airline Service (Fig. 4-2)

DistributionPrice

Marketing Positioning (Weighted toward evidence) Source: Shostack

KEY

Tangible elementsIntangible elements

Service

frequency

Vehicle

Transport

Pre- and post-flight

serviceFood and drink

In-flight service


Core Products and Supplementary Services

� Most firms offer customers a package of benefits:�core product (a good or a service)�supplementary services that add value to the core

� In mature industries, core products often become commodities

� Supplementary services help to differentiate core products and create competitive advantage by:

�facilitating use of the core service�enhancing the value and appeal of the core


Core and Supplementary Product Design: What Do We Offer and How Do We Create and Deliver It?

Core

Scheduling Process

Service Level

CustomerRole

Supplementaryservices offeredand how createdand delivered

Delivery Concept For Core Product


What Should Be the Core and Supplementary Elements of Our Service Product?

� How is our core product defined and what supplementary elements currently augment this core?

�What product benefits create the most value for customers?

� Is our service package differentiated from the competition in ways that are meaningful to target customers?

�What are current levels of service on the core product and each of the supplementary elements?

� Can we charge more for higher service levels on key attributes (e.g., faster response, better physical amenities, easier access, more staff, superior caliber personnel)?

� Alternatively, should we cut service levels and charge less?


Core and Supplementary Services in a Luxury Hotel (Offering Guests Much More than a Cheap Motel!)

Reservation

ValetParking

Reception

BaggageService

Cocktail Bar

RestaurantEntertainment/

Sports / Exercise

Telephone

Wake-upCall

RoomService

BusinessCenter

Cashier

A Bed for theNight in an

Elegant PrivateRoom with a

Bathroom


What Happens, When, and in What Sequence? The Time Dimension in the Augmented Service Product

PreVisit

Reservation

USE GUESTROOM OVERNIGHT

Parking Get car

Check in

Porter

USE ROOM

MealPay TV Room service

Phone

Check out

Time Frame of an Overnight Hotel Stay(real-time service use)


The Flower of Service:Categorizing Supplementary Services (Fig. 4-5)

Core

Information

Consultation

Order-Taking

Hospitality

Payment

Billing

Exceptions

SafekeepingFacilitating elements

Enhancing elements

KEY:


Facilitating Services - Information (Table 4.1)

Core

Customers often requireinformation about how toobtain and use a product orservice. They may alsoneed reminders anddocumentation


Facilitating Services - Order-Taking(Table 4.2)

Many goods and services must be ordered or reservedin advance. Customers need to know what is available andmay want to secure commitment to delivery

Core


Facilitating Services - Billing(Table 4.3)

“How much do I owe you?”Customers deserve clear, accurate and intelligiblebills and statements

Core


Facilitating Services - Payment(Table 4.4)

Customers may pay faster and more cheerfully if youmake transactions simpleand convenient for them

Core


Enhancing Services - Consultation(Table 4.5)

Value can be added to goods and services byoffering advice andconsultation tailored toeach customer’sneeds and situation

Core


Enhancing Services - Hospitality(Table 4.6)

Customers who invest time and effort in visiting abusiness and using itsservices deserve to betreated as welcome guests (after all, marketing invitedthem there!)

Core


Enhancing Services - Safekeeping(Table 4.7)

Customers prefer not toworry about looking afterthe personal possessions that they bring with themto a service site.

They may also want deliveryand after-sales services forgoods that they purchaseor rent

Core


Enhancing Services - Exceptions(Table 4.8)

Customers appreciate some flexibility in a businesswhen they make special requests. They expect itwhen not everything goesaccording to plan

Core


Branding

Service Products


Service Branding: Clarifying Distinctive Service Offerings

�Marriott Hotel Brands

�Marriott Hotels

�Marriott Resorts

�Courtyard by Marriott

�Fairfield Inns

�Residence Inns

�SpringHill Suites

�TownePlace Suites

�Marriott Vacation Clubs International

�British Airways Brands

Intercontinental

�First�Club World�World Traveller Plus�World Traveller

European

�Club Europe�Euro-Traveller

UK Domestic

�Shuttle


Branding a High-Tech, B2B Product Line:A Family of Brands at Sun Microsystems

� Corporate umbrella brand� Sun Microsystems

� Product line brand (system support services)� Sun Spectrum Support

� Sub-brands (4 levels of support service programs)» Platinum

» Gold

» Silver

» Bronze


Sun Spectrum Support: Sub-branding Highlights Four Service Levels

Sub-branding clarifies service levels offered at different fees

� Platinum: “Mission Critical”

On-site service 24/7, two-hour response; telephone support 24/7, onsite parts replacement; additional services available

� Gold: “Business Critical”

Onsite service Mon-Fri 8am-8pm, four-hour response; telephone support 24/7; onsite parts replacement

� Silver: “Basic Support”

Onsite service Mon-Fri 8am-5pm, four-hour response; telephone support Mon-Fri 8am-8pm; onsite parts replacement

� Bronze: “Self Support”

Phone support Mon-Fri 8am-5pm; parts replacement by courier


New Service

Development


New Service Development:A Hierarchy of New Service Categories

� Major service innovations--new core products for previously undefined markets

� Major process innovations--using new processes to deliver existing products and offer extra benefits

� Product line extensions--additions to current product lines

� Process line extensions--alternative delivery procedures

� Supplementary service innovations--adding new or improved facilitating or enhancing elements

� Style changes--visible changes in service design or scripts


New Service Development: Physical Goods as Source of Service Ideas

� Customers can rent goods—use and return for a fee—instead of purchasing them

� Customers can hire personnel to operate their own or rented equipment

� Any new durable product may create need for after-sales services (possession processing)� Shipping� Installation� Problem-solving and consulting advice� Cleaning � Maintenance� Repair� Upgrading� Disposal


Creating Services as Substitutes for Owning and/or Using Goods (Fig. 4-7)

Perform the

Work Oneself

Hire Someone

to Do the Work

Own a Physical Good Rent the Use

of a Physical Good

•• Hire a taxi or limousine

•• Send work to secretarial service

• Rent car and drive it

• Rent word processor and type

• Hire chauffeur to drive car

• Hire typist to use word processor

• Drive own car

• Type on own word processor


Service Development through Delivery Options: Alternative Meal Service Formats (Fig. 4-8)

Home

DeliveryOrder food,

give address

Driver rings

doorbell

Pay driver,

take food EatTelephone

Restaurant

Drive-InRestaurant(Take Out)

See sign Order via

microphone

Get meal at

pickup, payDrive away,

eat laterStop car at

order point

Fast-FoodRestaurant

(Eat In)

See sign Park and

enter

Order meal,

and pay

Pick up

meal

Find table

and eat

Clear table

and leave

HomeCatering

Arrange to meet caterer

Plan meal, pay deposit

Food and staff arrive

Meal ispreparedand served

EatStaff cleans

up; pay


Elements of a Hotel Offering: Trading off Room Price vs. Features/Services

� External building design and features

� Room features

� Food-related services

� Lounge facilities

� Services (e.g., reception)

� Leisure facilities

� Security—people/systems


Success Factors in New Service Development

� Market synergy� Good fit between new product and firm’s image/resources� Advantage vs. competition in meeting customers’ needs� Strong support from firm during/after launch� Firm understands customer purchase decision behavior

� Organizational factors� Strong interfunctional cooperation and coordination� Internal marketing to educate staff on new product and its

competition� Employees understand importance of new services to firm

� Market research factors� Scientific studies conducted early in development process� Product concept well defined before undertaking field studies


Chapter 5

Designing the Communications Mix

for Services


Advertising Implications for Overcoming Intangibility (Fig. 5-1)

Problem Advertising Strategy

� Generality

- objective claims Document physical system capacity Cite past performance statistics

- subjective claims Present actual service delivery incident

� Nonsearchability Present customer testimonials

Cite independently audited performance

� Abstractness Display typical customers benefiting

� Impalpability Documentary of step-by-step process,

Case history of what firm did for customer

Narration of customer’s subjective experienceSource: Mittal and Baker


Other Communications Challenges in Services Marketing

� Facilitate customer involvement in production � prepare customers for service experience and demonstrate roles

� teach customers about new technologies, new features

� Help customers to evaluate service offerings� provide tangible or statistical clues to service performance

� highlight quality of equipment and facilities

� emphasize employee qualifications, experience, professionalism

� Simulate or dampen demand to match capacity

� provide information about timing of peak, off-peak periods

� offer promotions to stimulate off-peak demand

� Promote contribution of service personnel

� help customers understand service encounter

� highlight expertise and commitment of backstage personnel


Setting Clear Objectives: Checklist for Marketing Communications Planning (“5 Ws”)

�Who is our target audience?

�What do we need to communicate and achieve?

� How should we communicate this?

�Where should we communicate this?

�When do communications need to take place?


Common Educational and Promotional Objectives in Service Settings (Table 5-2)

� Create memorable images of specific companies and their brands

� Build awareness/interest for unfamiliar service/brand

� Build preference by communicating brand strengths and benefits

� Compare service with competitors’ offerings and counter their claims

� Reposition service relative to competition

� Stimulate demand in off-peak and discourage during peak


Educational and Promotional Objectives (cont.)

� Encourage trial by offering promotional incentives

� Reduce uncertainty/perceived risk by providing useful info and advice

� Provide reassurance (e.g., promote service guarantees)

� Familiarize customers with service processes before use

� Teach customers how to use a service to best advantage

� Recognize and reward valued customers and employees


Word-of-mouth(other customers)

Marketing Communications Mix for Services(Fig. 10.4)

Personal Communications

Selling

Customer service

Training

Advertising

Broadcast

Print

Internet

Outdoor

Direct mail

Sales Promotion

Sampling

Coupons

Sign-up rebates

Gifts

Prize promotions

Publicity &Public Relations

Press releases/kits

Press conferences

Special events

Sponsorship

Instructional Materials

Web sites

Manuals

Brochures

Video-audiocassettes

Software CD-ROM

Voice mail

Signage

Interior decor

Vehicles

Equipment

Stationery

Uniforms

Corporate Design

Telemarketing

Word of mouthTrade Shows,Exhibitions

Media-initiatedcoverage

*

Key: * Denotes communications originating from outside the organization


Originating Sources of Messages Received by a Target Audience (Fig. 5-5)

Messages originating within the organization

Messages originating outside the organization

Front-line staff

Service outlets

AdvertisingSales promotionsDirect marketingPersonal sellingPublic relations

Word of mouth

Media editorial

AUDIENCE


What is Brand Equity and Why Does It Matter?(From Berry, “Cultivating Brand Equity”)

Definition: A set of assets and liabilities linked to a brand’s name and symbol that adds to (or subtracts from) the perceived value of the product

Insights

� Brand equity can be positive or negative

� Positive brand equity creates marketing advantage for firm plus value for customer

� Perceived value generates preference and loyalty

� Management of brand equity involves investment to create and enhance assets, remove liabilities


A Service Branding Model: How Communications + Experience Create Brand Equity

Firm’s Presented Brand (Sales, Advertising, PR)

What Media, Intermediaries,Word-of-Mouth Say re: Firm

Customer’s Experiencewith Firm

Awareness of Firm’s Brand

Meaning AttachedTo Firm’s Brand

Firm’sBrand Equity

Source: Adapted from L. L. Berry ( Fig. 1)

Marketer-controlled communications

Uncontrolled brand communications


Marketing Communication and the Internet (1)

� International in Scope

� Accessible from almost anywhere in the world� Simplest form of international market entry

� Internet Applications

� Promote consumer awareness and interest� Provide information and consultation� Facilitate 2-way communications through e-mail and chat rooms� Stimulate product trial� Enable customers to place orders� Measure effectiveness of specific advertising/promotional

campaigns


Marketing Communications and the Internet (2)

�Web Site design considerations � Memorable address that is actively promoted

� Relevant, up-to-date content (text, graphics, photos)

� Contain information that target users will perceive as useful/interesting

� Easy navigation

� Fast download

� Internet advertising� Banners and buttons on portals and other websites seek to draw

online traffic to own site

� Limits to effectiveness—exposure (“eyeballs”) may not lead to increases in awareness/preference/sales

� Hence, advertising contracts may tie fees to marketing relevant behavior (e.g., giving personal info or making purchase)


Chapter 6

Pricing and Revenue Management


What Makes Service Pricing Strategy Different (and Difficult)?

� No ownership of services--hard for firms to calculate financial costs of creating an intangible performance

� Variability of inputs and outputs--how can firms define a “unit of service” and establish basis for pricing?

� Many services hard for customers to evaluate--what are they getting in return for their money?

� Importance of time factor--same service may have more value to customers when delivered faster

� Delivery through physical or electronic channels--may create differences in perceived value


Objectives of Pricing Strategies

� Revenue and profit objectives

� Seek profit� Cover costs

� Patronage and user base-related objectives

� Build demand� Build a user base


The Pricing Tripod (Fig. 6.1)

Pricing Strategy

CostsCompetition

Value to customer


Three Main Approaches to Pricing

� Cost-Based Pricing

�Set prices relative to financial costs (problem: defining costs)

� Competition-Based Pricing

�Monitor competitors’ pricing strategy (especially if service lacks differentiation)

�Who is the price leader? (one firm sets the pace)

� Value-Based

�Relate price to value perceived by customer


Activity-Based Costing: Relating Activities to the Resources They Consume

� Managers need to see costs as an integral part of a firm’s effort to create value for customers

�When looking at prices, customers care about value to themselves, not what production costs the firm

� Traditional cost accounting emphasizes expense categories, with arbitrary allocation of overheads

� ABC management systems examine activities needed to create and deliver service (do they add value?)

� Must link resource expenses to:�variety of products produced�complexity of products�demands made by individual customers


Perceived

Benefits

Timee

Effort

Net Value = (Benefits – Outlays) (Fig. 6.3)

PerceivedOutlays


Enhancing Gross Value

� Pricing Strategies to Reduce Uncertainty

� service guarantees� benefit-driven (pricing that aspect of service that creates value)� flat rate (quoting a fixed price in advance)

� Relationship Pricing

� non-price incentives� discounts for volume purchases� discounts for purchasing multiple services

� Low-cost Leadership

� Convince customers not to equate price with quality� Must keep economic costs low to ensure profitability at low price


Paying for Service:The Customer’s Perspective

Customer “expenditures” on service comprise both

financial and non-financial outlays

� Financial costs:� price of purchasing service� expenses associated with search, purchase activity, usage

� Time expenditures

� Physical effort (e.g., fatigue, discomfort)

� Psychological burdens (mental effort, negative feelings)

� Negative sensory burdens (unpleasant sensations affecting any of the five senses)


Determining the Total Costs of a Service to the Consumer (Fig. 6.4)

Price

Related Monetary Costs

Time Costs

Physical Costs

Psychological Costs

Sensory Costs

Necessary follow-up

Problemsolving

Operating Costs

Incidental Expenses

Purchase andUse Costs

Search Costs

After Costs


Trading off Monetary and Non- Monetary Costs (Fig. 6.5)

Which clinic would you patronize if you needed a chest x-ray (assuming all three clinics offer good quality) ?

� Price $85� Located 15 min

away by car or transit

� Next available appointment is in 1 week

� Hours: Monday –Friday, 8am – 10pm

� Estimated wait at clinic is about 30 -45 minutes

Clinic B

� Price $125 � Located next to

your office or college

� Next appointment is in 1 day

� Hours: Mo –Sat, 8am – 10pm

� By appointment -estimated wait at clinic is about 0 to 15 minutes

Clinic CClinic A

� Price $45� Located 1 hour away

by car or transit � Next available

appointment is in 3 weeks

� Hours: Monday –Friday, 9am – 5pm

� Estimated wait at clinic is about 2 hours


Increasing Net Value by Reducing Non-financial Costs of Service

� Reduce time costs of service at each stage

� Minimize unwanted psychological costs of service

� Eliminate unwanted physical costs of service

� Decrease unpleasant sensory costs of service


Revenue Management: Maximizing Revenue from Available Capacity at a Given Time

� Based on price customization - charging different customers (value segments) different prices for same product

� Useful in dynamic markets where demand can be divided into different price buckets according to price sensitivity

� Requires rate fences to prevent customers in one value segment from purchasing more cheaply than willing to pay

� RM uses mathematical models to examine historical data and real time information to determine

�what prices to charge within each price bucket�how many service units) to allocate to each bucket


The Strategic Levers of Revenue (Yield) Management

Quadrant 4:

Continuing Care

Hospitals

Quadrant 3:

Restaurants

Golf Courses

Unpredictable

Quadrant 2:

Hotel Rooms

Airline Seats

Rental Cars

Cruise Lines

Quadrant 1:

Movies

Stadiums/Arenas

Function Space

Predictable

Du

rati

on

VariableFixed

Price


Dealing with Common Customer Conflicts Arising from Revenue Management

� Perceived Unfairness & Perceived Financial Risk Associated with Multi-Tier Pricing and Selective Inventory Availability

Customer conflict can arise from: Marketing tools to reduce customer conflicts:

� Unfulfilled Inventory Commitment

� Unfulfilled Demand of Regular Customers

� Unfulfilled Price Expectation of Group Customers

� Change in the Nature of the Service

� Fenced Pricing

� Bundling

� Categorising

� High Published Price

� Well designed Customer Recovery Programme for Oversale

� Preferred Availability Policies

� Offer Lower Displacement Cost Alternatives

� Physical Segregation & Perceptible Extra Service

� Set Optimal Capacity Utilisation Level


Price Elasticity (Fig. 6.6)

De

De

Di

Di

Price per

unit of

service

Quantity of Units Demanded

De : Demand is price elastic. Small changes in price lead to big changes in demand.

Di : Demand for service is price inelastic. Big changes have little impact on demand.


Key Categories of Rate Fences (Table 6.2)

Rate Fences Examples

Physical (Product-related) Fences

Basic Product �Class of travel (Business/Economy class) �Size and furnishing of a hotel room �Seat location in a theatre

Amenities �Free breakfast at a hotel, airport pick up etc. �Free golf cart at a golf course

Service Level �Priority wait listing�Increase in baggage allowances �Dedicated service hotlines �Dedicated account management team


Key Categories of Rate Fences (Table 6.2 cont’d)

Non Physical Fences

Transaction Characteristics

Time of booking or reservation

�Requirements for advance purchase �Must pay full fare two weeks before departure

Location of booking or reservation

� Passengers booking air tickets for an identical route in different countries are charged different prices

Flexibility of ticket usage

� Fees/penalties for canceling or changing a reservation (up to loss of entire ticket price)

�Non refundable reservation fees



Non Physical Fences (cont’d)

Consumption Characteristics

Time or duration of use

� Early bird special in restaurant before 6pm�Must stay over on Sat for airline, hotel �Must stay at least five days

Location of consumption

� Price depends on departure location, esp in international travel

� Prices vary by location (between cities, city centre versus edges of city)



Non Physical Fences (cont’d)

Buyer Characteristics

Frequency or volume of consumption

�Member of certain loyalty-tier with the firm get priority pricing, discounts or loyalty benefits

Group membership �Child, student, senior citizen discounts � Affiliation with certain groups (e.g. Alumni)

Size of customer group

�Group discounts based on size of group


Relating Price Buckets and Fences to the Demand Curve (Fig. 6.7)

First Class

Full Fare Economy (No Restrictions)

One-Week Advance Purchase

One-Week Advance Purchase, Saturday Night Stayover

3-Week Advance Purchase, Saturday Night Stayover

3-Wk Adv. Prchs, Sat. Night Stay, No changes/refunds3-Week Adv. Prchs, Sat. Night Stay., $100 for Changes

Late Sales through Consolidators/ Internet, no refunds

Capacity

of Aircraft

No. of Seats Demanded

Capacityof 1st-classCabin

Price per

Seat


Ethical Concerns in Pricing

� Customers are vulnerable when service is hard to evaluate or they don’t observe work

� Many services have complex pricing schedules� hard to understand � difficult to calculate full costs in advance of service

� Unfairness and misrepresentation in price promotions� misleading advertising� hidden charges

� Too many rules and regulations� customers feel constrained, exploited� customers unfairly penalized when plans change


Pricing Issues: Putting Strategy into Practice (Table 6.3)

� How much to charge?

� What basis for pricing?

� Who should collect payment?

� Where should payment be made?

� When should payment be made?

� How should payment be made?

� How to communicate prices?


Consumption follows the Timing of Payments (Research Insight 6.1)

Fre

qu

en

cy

of

He

alth

Clu

b V

isits Annual Payment Plan

Semiannual Payment Plan

Fre

qu

en

cy

of

He

alth

Clu

b V

isits

Time Line

Quarterly Payment Plan

Time Line

Monthly Payment Plan

Source: John Gourville and Dilip Soman, “Pricing and the Psychology of Consumption,” Harvard Business Review, September 2002, 90-96.


Chapter 7

Distributing Services


Applying the Flow Model of Distribution to Services

� Information and promotion flow

� Negotiation flow

� Product flow

Distribution embraced three interrelated elements


Information and Physical Processes of the Augmented Service Product (Fig. 7.1)

Exceptions

Billing

Payment

InformationProcesses

InformationConsultation

Safekeeping

Physical Processes

Order-Taking

Core

Hospitality


Using Websites for Service Delivery

SafekeepingTrack package movements

Check repair status

CORE: Use Web to deliver information-based core services

Core

ConsultationConduct e-mail dialogUse expert systems

Order-TakingMake/confirm reservationsSubmit applicationsOrder goods, check status

HospitalityRecord preferences

BillingReceive bill

Make auction bidCheck account status

ExceptionsMake special requests

Resolve problems

PaymentPay by bank card

Direct debit

InformationRead brochure/FAQ; get schedules/

directions; check prices


Options for Service Delivery

� Customer goes to the service provider (or intermediary)

� Service provider goes to the customer

� Interaction at arm’s length (via the Internet, telephone, fax,

mail, etc.)

There are 3 types of interactions between customers and

service firms


Method of Service Delivery (Table 7.1)

Availability of Service Outlets

Nature of Interaction between Customer and Service Organization

Single Site Multiple Sites

Customer goes to service organization

�Theater

�Barbershop

�Bus service

�Fast-food chain

Service organization goes to customer

�House painting

�Mobile car wash

�Mail delivery

�Auto club road service

Customer and service organization transact at arm’s length

�Credit card company

�Local TV station

�Broadcast network

�Telephone company


Place vs. Cyberspace

� Place - customers and suppliers meet in a physical environment

� Cyberspace - customers and suppliers do business electronically in virtual environment created by phone/internet linkages

� Required for people processing services

� Offers live experiences, social interaction, e.g., food services

� More emphasis on eye-catching servicescape, entertainment

� Ideal for info-based services

� Saves time

� Facilitates information gathering

� May use express logistics service to deliver physical core products


“24/7” - Factors Encouraging Extended Operating Hours (Mgt Memo 7.1)

�Economic pressure from consumers

�Changes in legislation

�Economic incentives to improve asset utilization

�Availability of employees to work nights, weekends

�Automated self-service


Technology Revolutionizes Service Delivery: Some Examples

� Smart mobile telephones to link users to Internet

� Voice recognition software

� Automated kiosks for self-service (e.g. bank ATMs)

�Web sites �provide information�take orders and accept payment�deliver information-based services

� Smart cards that can act as “electronic wallets”


E-Commerce:Factors that Attract Customers to Virtual Stores

� Convenience (24-hour availability, save time, effort)

� Ease of obtaining information on-line and searching for desired items

� Better prices than in bricks-and-mortar stores

� Broad selection


Splitting Responsibilities for Delivering Supplementary Services (Fig. 7.2)

As created by originating firm

As enhanced by distributor

As experienced by customer

+Core = Core


Franchising

� Resources are limited

� Long-term commitment of store managers is crucial

� Local knowledge is important

� Fast growth is necessary to pre-empt competition

Franchising is a fast growth strategy, when


Service Process and Market Entry

�People Processing Services � Export the service concept � Import customers� Transport customers to new locations

�Possession Processing Services � Most require an ongoing local presence, whether it is the

customers dropping off items or personnel visiting customer sites

� Information Based Services � Export the service to a local service factory � Import customers � Export the information via telecommunications and transform it

locally


Barriers to International Trade in Services

� Operating successfully in international markets remains difficult for certain services despite efforts of the WTO and control relaxations

� Barriers include �Refusal by immigration offices to issue work permits �Heavy taxes on foreign firms�Domestic preference policies �Legal restrictions �Lack of broadly-agreed accounting standards �Cultural differences (esp. for entertainment industry)


Forces for Internationalization

�Market drivers

�Competition drivers

�Technology drivers

�Cost drivers

�Government drivers

Impact will vary by service type (people, possessions, information)


Modes of Internationalization

� Export information-based services

� transmit via electronic channels � store in physical media, ship as merchandise

� Use third parties to market/deliver service concept

� licensing agents� brokers� franchising� alliance partners� minority joint ventures

� Control service enterprise abroad

� direct investment in new business� buyout of existing business


Impact of Globalization Drivers on Different Service Categories (Table 7.2)

Globalization Drivers

People Processing

Possession Processing

Information Based

Competition Simultaneity of production and consumption limits leverage of foreign competitive advantage, but management systems can be globalized

Technology drives globalization of competitors with technical edge.

Highly vulnerable to global dominance by competitors with monopoly or competitive advantage in information.

Market People differ economically and culturally, so needs for service and ability to pay may vary.

Level of economic developments impacts demand for services to individually owned goods

Demand for many services is derived to a significant degree from economic and educational levels.


Impact of Globalization Drivers on Different Service Categories (Table 7.2, cont’d)

Globalization Drivers

People Processing

Possession Processing

Information Based

Technology Use of IT for delivery of supplementary services may be a function of ownership and familiarity with technology.

Need for technology-based service delivery systems depends on possessions requiring service and the cost trade-offs in labor substitution

Ability to deliver core services through remote terminals may be a function of investment in computerization etc.

Cost Variable labor rates may impact on pricing in labor-sensitive services.

Variable labor rates may favor low-cost locations.

Major cost elements can be centralized & minor cost elements localized.

Government Social policies (e.g., health) vary widely and may affect labor cost etc.

Policies may decrease/increase cost & encourage/discourage certain activities

Policies may impact demand and supply and distort pricing


Chapter 8

Designing and Managing Service Processes


Developing a Blueprint – Some Basic Advice

� Identify key activities in creating and delivering the service

� Distinguish between front stage (what customers experience) and back stage

� Chart activities in sequence

� Show how interactions between customers and employees are supported by backstage activities and systems

� Establish service standards for each step

� Identify potential fail points

� Focus initially on “big picture” (later, can drill down for more detail in specific areas)


Service Blueprinting: Key Components

1. Define standards for frontstage activities

2. Specify physical evidence

3. Identify principal customer actions

4. ------------line of interaction (customers and front stage personnel)--------

5. Front stage actions by customer-contact personnel

6. ------------line of visibility (between front stage and backstage)--------------

7. Backstage actions by customer contact personnel

8. Support processes involving other service personnel

9. Support processes involving IT

Where appropriate, show fail points and risk of excessive waits


Simplified Example: Blueprinting a Hotel Visit(extract only)

Physical

Evidence

Customer Actions

Employee ActionsFace-to-faceF

ron

t

S

tag

e

Phone Contact

Backsta

ge

Makereservation

Rep.

records,

confirms

Arrive,

valet park

Check-inat reception

Doorman

greets, valet

takes car

Enter

data

Valet

Parks Car

Make up

Room

Register

guest data

Receptionist

verifies, gives

key to room

Go to

room

Hotel exterior, lobby,employees, key

Elevator, corridor,room, bellhop

Line of Interaction

Line of Visibility


Improving Reliability of Processes by Failure Proofing

� Analysis of reasons for failure often reveals opportunities for failure proofing to reduce/eliminate risk of errors

� Errors include:

� treatment errors—human failures during contact with customers

� tangible errors—failures in physical elements of service

� Fail-safe procedures include measures to prevent omission of tasks or performance of tasks

� incorrectly

� in wrong order

� too slowly

� not needed or specified

� Need fail-safe methods for both employees and customers


Process Redesign: Principal Approaches(Table 8-1)

� Eliminating non-value-adding steps

� Shifting to self-service

� Delivering direct service

� Bundling services

� Redesigning physical aspects of service processes


Customers as Co-Producers:Levels of Participation in Service Production

� Low – Employees and systems do all the work

� Medium – Customer inputs required to assist provider

� Provide needed information, instructions� Make personal effort� May share physical possessions

� High – Customer works actively with provider to co-produce the service


Self Service Technologies (SSTs)

� Self-service is ultimate form of customer involvement in service production

� Customers undertake specific activities using facilities or systems provided by service supplier

� Customer’s time and effort replace those of employees

� Concept is not new—self-serve supermarkets date from 1930s, ATMs and self-serve gas pumps from 1970s

� Today, customers face wide array of SSTs to deliver information-based services, both core and supplementary

� Many companies seek to divert customers from employee contact to Internet-based self-service


Service Firms as Teachers: Well-trained Customers Perform Better

� Firms must teach customers roles as co-producers of service

� Customers need to know how to achieve best results

� Education can be provided through:

� Brochures� Advertising� Posted instructions� Machine-based instructions� Websites, including FAQs� Service providers� Fellow customers

� Employees must be well-trained to help advise, assist customers


Managing Customers as Partial Employeesto Increase Productivity and Quality

1. Analyze customers’ present roles in the business and compare to management’s ideal

2. Determine if customers know how to perform and have necessary skills

3. Motivate customers by ensuring that will be rewarded for performing well

4. Regularly appraise customers’ performance; if unsatisfactory, consider changing roles or termination


The Problem of Customer Misbehavior –Identifying and Managing “Jaycustomers”

What is a jaycustomer?

A customer who behaves in a thoughtless or abusive

fashion, causing problems for the firm itself, employees,

other customers

Why do jaycustomers matter?

� Can disrupt processes

� Affect service quality

� May spoil experience of other customers

What should a firm do about them?

� Try to avoid attracting potential jaycustomers

� Institute preventive measures

� Control abusive behavior quickly

� Take legal action against abusers

� BUT firm must act in ways that don’t alienate other customers


Six Types of “Jaycustomer”

� Thief – seeks to avoid paying for service

� Rule breaker – ignores rules of social behavior and/or procedures for safe, efficient use of service

� Belligerent – angrily abuses service personnel (and sometimes other customers) physically and/or emotionally

� Family Feuders – fight with other customers in their party

� Vandal – deliberately damages physical facilities, furnishings, and equipment

� Deadbeat – fails to pay bills on time

Can you think of others?

How should firms deal with each of these problems?


Chapter 9

Balancing Demand

and Capacity


Relating Demand to Capacity:Four Key Concepts

� Excess demand: too much demand relative to capacity at a given time

� Excess capacity: too much capacity relative to demand at a given time

� Maximum capacity: upper limit to a firm’s ability to meet demand at a given time

� Optimum capacity: point beyond which service quality declines as more customers are serviced


Variations in Demand Relative to Capacity(Fig. 9-1)

VOLUME DEMANDED

TIME CYCLE 1 TIME CYCLE 2

Maximum Available Capacity

Optimum Capacity (Demand and Supply

Well Balanced

Low Utilization(May Send Bad Signals)

Demand exceeds capacity (business is lost)

Demand exceeds optimum capacity (quality declines)

Excess capacity (wasted resources)

CAPACITY UTILIZED


Defining Productive Capacity in Services

� Physical facilities to contain customers

� Physical facilities to store or process goods

� Physical equipment to process people, possessions, or information

� Labor used for physical or mental work

� Public/private infrastructure—e.g., highways, airports, electricity


Alternative Capacity Management Strategies

� Level capacity (fixed level at all times)

� Stretch and shrink� offer inferior extra capacity at peaks (e.g. bus/metro standees)� vary seated space per customer (e.g. elbow room, leg room)� extend/cut hours of service

� Chase demand (adjust capacity to match demand)� schedule downtime in low demand periods � use part-time employees� rent or share extra facilities and equipment� cross-train employees

� Flexible Capacity (vary mix by segment)


Predictable Demand Patterns and Their Underlying Causes (Table 9-1)

Predictable Cycles of Demand Levels

�day�week�month �year�other

Underlying Causes of Cyclical Variations

�employment

�billing or tax payments/refunds

�pay days

�school hours/holidays

�seasonal climate changes

�public/religious holidays

�natural cycles (e.g. coastal tides)


Causes of Seemingly Random Changes in Demand Levels

�Weather

� Health problems

� Accidents, Fires, Crime

� Natural disasters

Question: which of these

events can be predicted?


Alternative Demand Management Strategies (Table 9-2)

� Take no action� let customers sort it out

� Reduce demand � higher prices� communication promoting alternative times

� Increase demand� lower prices� communication, including promotional incentives� vary product features to increase desirability� more convenient delivery times and places

� Inventory demand by reservation system

� Inventory demand by formalized queueing


Hotel Room Demand Curves by Segment and by Season (Fig. 9-2)

Bh = business travelers in high season

Bl = business travelers in low season

Th = tourist in high season

Tl = tourist in low season

Bh

Bh

Bl

Bl

Th

Th

Tl

Tl

Price per Room Night

Quantity of Rooms Demanded at Each Price by Travelers in Each Segment in Each Season

Note: hypothetical example


Avoiding Burdensome Waits for Customers

� Add extra capacity so that demand can be met at most times (problem: may add too many costs)

� Rethink design of queuing system to give priority to certain customers or transactions

� Redesign processes to shorten transaction time

� Manage customer behavior and perceptions of wait

� Install a reservations system


Alternative Queuing Configurations (Fig. 9-4)

Single line, single server, single stage

Single line, single servers at sequential stages

Parallel lines to multiple servers

Designated lines to designated servers

Single line to multiple servers (“snake”)

“Take a number” (single or multiple servers)28

2921

20

24

23

30 25

3126

2732


Tailoring Queuing Systems to Market Segments: Criteria for Allocation to Designated Lines

� Urgency of job

� emergencies vs. non-emergencies

� Duration of service transaction

� number of items to transact� complexity of task

� Payment of premium price

� First class vs. economy

� Importance of customer

� frequent users/loyal customers vs. others


Ten Propositions on the Psychology of Waiting Lines (Table 9-3)

1. Unoccupied time feels longer

2. Preprocess/postprocess waiting feel longer than in-process

3. Anxiety makes waiting seem longer

4. Uncertain waiting is longer than known, finite waiting

5. Unexplained waiting seems longer

6. Unfair waiting is longer than equitable waiting

7. People will wait longer for more valuable services

8. Waiting alone feels longer than in groups

9. Physically uncomfortable waiting feels longer

10. Waiting seems longer to new or occasional usersSources: Maister; Davis & Heineke; Jones & Peppiatt


Benefits of Effective Reservations Systems

� Controls and smoothes demand

� Pre-sells service

� Informs and educates customers in advance of arrival

� Customers avoid waiting in line for service (if service times are honored)

� Data capture helps organizations prepare financial projections


Characteristics of Well-designed Reservations Systems

� Fast and user friendly for customers and staff

� Can answer customer questions

� Offers options for self service (e.g. Web)

� Accommodates preferences (e.g., room with view)

� Deflects demand from unavailable first choices to alternative times and locations

� Includes strategies for no-shows and overbooking� requiring deposits to discourage no-shows� canceling unpaid bookings after designated time� compensating victims of over-booking


Setting Capacity Allocation Sales Targets for a Hotel by Segment and Time Period (Fig. 9-5)

Out of commission for renovation

Executive service

guests

Transient guestsWeekend

package

Groups and conventions

Airline contracts

100%

50%

Week 7 (Low Season)

MNights: TuTime

W Th F S Sn

Executive service guests

Transient guests

W/Epackage

Groups (no conventions)

Airline contracts

Week 36 (High Season)

M Tu W Th F S Sn

Capacity (% rooms)


Information Needed for Demand and Capacity Management Strategies

� Historical data on demand level and composition, noting responses to marketing variables

� Demand forecasts by segment under specified conditions

� Fixed and variable cost data, profitability of incremental sales

� Site-by-site demand variations

� Customer attitudes towards queuing

� Customer evaluations of quality at different levels of capacity utilization


Chapter 10

Planning the

Service Environment


The Purpose of Service Environments

The service environment influences buyer behaviour in 3 ways

� Message-creating Medium: symbolic cues to communicate the distinctive nature and quality of the service experience.

� Attention-creating Medium: to make the servicescape stand out from other competing establishments, and to attract customers from target segments.

� Effect-creating Medium: colors, textures, sounds, scents and spatial design to enhance the desired service experience, and/or to heighten an appetite for certain goods, services or experiences

Helps the firm to create a distinctive image & positioning that is unique.


Comparison of Hotel Lobbies (Figure 10.1)

Four Seasons Hotel, New York

Orbit Hotel and Hostel, Los Angeles

The servicescape is part of the value proposition!


The Mehrabian-Russell Stimulus-Response Model (Figure 10.2)

Response Behaviors:

Approach/ Avoidance &

Cognitive Processes

Environmental Stimuli & Cognitive Processes

Dimensions of Affect:

Pleasure and Arousal


The Mehrabian-Russell Stimulus-Response Model

� Simple and fundamental model of how people respond to environments

� Peoples’ conscious and unconscious perceptions and interpretation of the environment influence how they feel in that environment

� Feelings, rather than perceptions or thoughts drive behavior

� Typical outcome variable is ‘approach’ or ‘avoidance’ of an environment, but other possible outcomes can be added to the model as well


The Russell Model of Affect

Arousing

Pleasant

Sleepy

Unpleasant

Exciting

RelaxingBoring

Distressing


The Russell Model of Affect

� Emotional responses to environments can be described along two main dimensions, pleasure and arousal.

� Pleasure is subjective depending on how much the individual likes or dislikes the environment

� Arousal quality of an environment is dependent on its “information load”, i.e., its degree of

� Novelty (unexpected, surprising, new, familiar) and

� Complexity (number of elements, extent of motion or change)


Drivers of Affect

� Affect can be caused by perceptions and cognitive processes of any degree of complexity.

� Simple Cognitive Processes, Perception of Stimuli

�tangible cues (of service quality)�consumer satisfaction

� Complex Cognitive Processes

�affective charged schemata processing�attribution processes

The more complex a cognitive process becomes, the more powerful its potential impact on affect.However, most service encounters are routine. Simple processes can determine affect.


Behavioral Consequence of Affect

� Basically, pleasant environments result in approach, and unpleasant environments result in avoidance

� Arousal acts as an amplifier of the basic effect of pleasure on behavior

� If the environment is pleasant, increasing arousal can lead to excitement and stronger positive consumer response. If the environment is unpleasant, increasing arousal level will move consumers into the Distressing region

� Feelings during the service encounter is also an important driver of customer loyalty


An Integrated Framework – Bitner’s ServiceScape Model (Figure 10.4)

Environmental Dimensions

Perceived ServiceScape

AmbientConditions

Space/Function

Signs,Symbols & Artefacts

CognitiveEmotional Psychological

Customer Response Moderator

Employee Responses

Approachor

Avoid

Approachor

Avoid

Social Interaction Between Customers & Employees

Holistic Environ-ment

Moderators Internal Responses Behaviour

Customer Responses

EmployeeResponse Moderator

CognitiveEmotional Psychological


An Integrated Framework – Bitner’s ServiceScape Model(con’t)

� Identifies the main dimensions in a service environment and views them holistically

� Customer and employee responses classified under, cognitive, emotional and psychological which would in turn lead to overt behavior towards the environment

� Key to effective design is how well each individual dimension fits together with everything else


Dimensions of the Service Environment

� Ambient Conditions

�Music (e.g, fast tempo and high volume increase arousal levels)

�Scent (strong impact on mood, affect and evaluative responses, purchase intention and in-store behavior)

�Color (e.g, warm colors associated with elated mood states and arousal but also increase anxiety, cool colors reduce arousal but can elicit peacefulness and calm)

Service environments are complex and have many design

elements. The main dimensions in the servicescape model

includes:


Dimensions of the Service Environment (con’t)

� Spatial Layout and Functionality

�Layout refers to size and shape of furnishings and the ways it is arranged

�Functionality is the ability of those items to facilitate performance

� Signs, Symbols and Artifact

�Explicit or implicit signals to communicate the firm’s image, help consumers find their way and to convey the rules of behavior


Impact of Music on Restaurant Diners (Table 10-2)

Restaurant

Patron

Behavior

Fast-beat

Music

Environment

Slow-beat

Music

Environment

Difference between

Slow and Fast-beat

Environments

Absolute

Difference

%

Difference

Consumer time spent at table

45min 56min +11min +24%

Spending on food

$55.12 $55.81 +$0.69 +1%

Spending on beverages

$21.62 $30.47 +$8.85 +41%

Total spending $76.74 $86.28 +$9.54 +12%

Estimated gross margin

$48.62 $55.82 +$7.20 +15%


The Effects of Scents on the Perceptions of Store Environments (Table 10-3)

Evaluation Unscented Environment Mean Ratings

Scented Environment Mean Ratings

Difference

Store Evaluation

Negative/positive 4.65 5.24 +0.59

Outdated/modern 3.76 4.72 +0.96

Store Environment

Unattractive/attractive

4.12 4.98 +0.86

Drab/colorful 3.63 4.72 +1.09

Boring/Stimulating 3.75 4.40 +0.65


The Effects of Scents on the Perceptions of Store Environments (Table 10-3)

Evaluation Unscented Environment Mean Ratings

Scented Environment Mean Ratings

Difference

Merchandise

Outdated/up- to-date style

4.71 5.43 +0.72

Inadequate/adequate 3.80 4.65 +0.85

Low/high quality 4.81 5.48 +0.67

Low/high price 5.20 4.93 -0.27


Aromatherapy: The Effects of Fragrance on People (Table 10-4)

Fragrance Aromatherapy

Aromatherapy Class

Traditional Use

Potential Psychological Impact on People

Orange Citrus Calming Soothing agent, astringent

Calming and relaxing effect esp. for nervous people

Lavender Herbaceous

Calming, balancing, soothing

Muscle relaxant, soothing agent

Relaxing and calming, helps create a homey and comfortable feel

Jasmine Floral Uplifting, balancing

Emollientsoothing agent

Helps makes people feel refreshed, joyful, comfortable

Peppermint Minty Energizing, stimulating

Skin cleanser

Increase attention level and boosts energy


Common Associations and Human Responses to Colors (Table 10-5)

Color Degree of Warmth

Nature Symbol

Common Association and Human Responses to Color

Red Warm Earth High energy and passion; can excite, stimulate, and increase arousal and blood pressures

Orange Warmest Sunset Emotions, expressions, and warmth

Green Cool Grass and Trees

Nurturing, healing and unconditional love

Blue Coolest Sky and Ocean

Relaxation, serenity and loyalty


Selection of Environmental Design Elements

� There is a multitude of research on the perception and impact of environmental stimuli on behaviour, including:

�People density, crowding�Lighting�Sound/noise�Scents and odours�Queues

� No standard formula to designing the perfect combination of these elements.

�Design from the customer’s perspective�Design with a holistic view!


Tools to Guide in Servicescape Design

� Keen Observation of Customers’ Behavior and Responses

to the service environment by management, supervisors, branch managers, and frontline staff

� Feedback and Ideas from Frontline Staff and Customers

using a broad array of research tools ranging from suggestion boxes to focus groups and surveys.

� Field Experiments can be used to manipulate specific dimensions in an environment and the effects observed.

� Blueprinting or Service Mapping - extended to include the physical evidence in the environment.


Chapter 11

Managing People

for Service Advantage


Frontline Service Personnel: Source of Customer Loyalty and Competitive Advantage

� Frontline is an important source of differentiation and

competitive advantage. It is:

� a core part of the product � the service firm � the brand

� Frontline also drives customer loyalty, with employees

playing key role in anticipating customer needs,

customizing service delivery and building personalized

relationships


Boundary Spanning Roles

� Boundary spanners link the inside of the organization to the outside world

� Multiplicity of roles often results in service staff having to pursue both operational and marketing goals

� Consider management expectations of restaurant servers:

� deliver a highly satisfying dining experience to their customers

� be fast and efficient at executing operational task of serving customers

� do selling and cross selling, e.g. “We have some nice desserts to follow your main course”


Role Stress in the Frontline

� Person vs. Role: Conflicts between what jobs require and employee’s own personality and beliefs

� Organization vs. Customer: Dilemma whether to follow company rules or to satisfy customer demands

� Customer vs. Customer: Conflicts between customers that demand service staff intervention

3 main causes of role stress:


Emotional Labor

� “The act of expressing socially desired emotions during service transactions” (Hochschild, The Managed Heart)

� Three approaches used by employees

� surface acting � deep acting� spontaneous response

� Performing emotional labor in response to society’s or management’s display rules can be stressful

� Good HR practice emphasizes selective recruitment, training, counseling, strategies to alleviate stress


The Cycles of Failure, Mediocrity and Success

Too many managers make short-sighted assumptions about

financial implications of:

�Low pay�Low investment (recruitment, training)�High turnover human resource strategies

Often costs of short-sighted policies are ignored:

�Costs of constant recruiting, hiring & training�Lower productivity & lower sales of new workers�Costs of disruptions to a service while a job remains unfilled�Loss of departing person’s knowledge of business and customers�Cost of dissatisfied customers


Cycle of Failure (Fig. 11.1)

Customer turnover

Failure to develop customer loyalty

No continuity inrelationship for

customer

Customer dissatisfaction

Employees can’t respond to customer

problems

Employees become bored

Employee dissatisfaction; poor service attitude

Repeat emphasis on attracting new customers

Low profit margins Narrow design of

jobs to accommodate low skill level

Use of technology

to control quality

High employee turnover; poor service quality

Payment of low wages

Minimization of selection effort

Minimization of training

Emphasis on rules rather than service

Source: Schlesinger and Heskett


Service Sabotage (Fig. 11-A)

Customary-Private Service Sabotage

Sporadic-Private Service Sabotage

Customer-Public Service Sabotage

Sporadic-Public Service Sabotage

‘Openness’ of Service Sabotage BehaviorsCovert Overt

‘No

rma

lity

’ o

f S

erv

ice

Sa

bo

tag

e B

eh

av

iors

Routiniz

ed

Inte

rmitte

nt

e.g. Waiters serving smaller servings, bad beer or sour wine

e.g. Talking to guests like young kids and putting them down

e.g. Chef occasionally purposefully slowing down orders

e.g. Waiters spilling soup onto laps, gravy onto sleeves, or hot plates into someone’s hands


Cycle of Mediocrity (Fig. 11.2)

Good wages/benefits high job

security

Other suppliers (if any) seen as equally poor

Customers trade horror stories

Service not focused on customers’ needs

Employees spendworking life

in environment of mediocrity

Narrow design of jobs

Success = not making mistakes

Complaints met by indifference or

hostility

Employee dissatisfaction

(but can’t easily quit) Emphasison rules

vs. pleasingcustomers

EPromotion and pay

increases basedon longevity,

lack of mistakes

Initiative is discouraged

Jobs are boring and repetitive; employees

unresponsive

Resentment at inflexibility andlack of employee initiative;complaints to employees

No incentive for cooperative relationship to obtain better service

Training emphasizes learning rules

Customer dissatisfaction


Cycle of Success (Fig. 11.3)

Low customer turnover

Customer loyalty

Continuity inrelationship with

customer

High customer satisfaction

Extensive training

Employee satisfaction, positive service attitude

Repeat emphasis on customer loyalty and

retention

Higher profit

marginsBroadened job designsLowered turnover,

high service quality

Above average wages

Intensified selection effort

Train, empower frontlinepersonnel to control quality

Source: Heskett and Schlesinger


How to Manage People for Service Advantage?

1. Hire the right people

2. Enable your people

3. Motivate and energize your people

Staff performance is a function of both ability and motivation. How can we get able service employees who are motivated to productively deliver service excellence?


Hire the Right People

“The old saying ‘People are your most

important asset’ is wrong.

The RIGHT people are your most

most important asset.”

Jim Collins


Recruitment

� The right people are a firm’s most important asset: take a focused, marketing-like approach to recruitment

� Clarify what must be hired versus what can be taught

� Clarify nature of the working environment, corporate values and style, in addition to job specs

� Ensure candidates have/can obtain needed qualifications

� Evaluate candidate’s fit with firm’s culture and values

� Fit personalities, styles, energies to the appropriate jobs


Select And Hire the Right People: (1) Be the Preferred Employer

Create a large pool: “Compete for Talent Market Share”

� What determines a firm’s applicant pool?

� Positive image in the community as place to work

� Quality of its services

� The firm’s perceived status

� There is no perfect employee

� Different jobs are best filled by people with different skills, styles or personalities

� Hire candidates that fit firm’s core values and culture

� Focus on recruiting naturally warm personalities


� Observe Behavior

� Hire based on observed behavior, not words you hear

� Best predictor of future behavior is past behavior

� Consider group hiring sessions where candidates given group tasks

� Personality Testing

� Willingness to treat co-workers and customers with courtesy, consideration and tact

� Perceptiveness regarding customer needs

� Ability to communicate accurately and pleasantly

Select and Hire the Right People:(2) How to Identify the Best Candidates


Select and Hire the Right People:(3) How to Identify the Best Candidates

� Employ Multiple, Structured Interviews

� Use structured interviews built around job requirements

� Use more than one interviewer to reduce similar to me effects

� Give Applicants a Realistic Preview of the Job

� Chance to have “hands-on” with the job

� Assess how the candidates respond to job realities

� Allow candidates to self select themselves out of the job


� The Organizational Culture, Purpose and Strategy

� Promote core values, get emotional commitment to strategy � Get managers to teach “why”, “what” and “how” of job.

� Interpersonal and Technical Skills

� Both are necessary but neither is sufficient for optimal job performance

� Product/Service Knowledge

� Staff’s product knowledge is a key aspect of service quality � Staff need to be able to explain product features and to position

products correctly

Train Service Employees


Factors Favoring Employee Empowerment

� Firm’s strategy is based on competitive differentiation and on personalized, customized service

� Emphasis on long-term relationships vs. one-time transactions

� Use of complex and non-routine technologies

� Environment is unpredictable, contains surprises

� Managers are comfortable letting employees work independently for benefit of firm and customers

� Employees seek to deepen skills, like working with others, and are good at group processes


Control vs. Involvement Model of Management

� Information about operating results and measures of competitive performance

� Rewards based on organizational performance (e.g. profit sharing, stock ownership)

� Knowledge/skills enabling employees to understand and contribute to organizational performance

� Power to influence work procedures and organizational direction (e.g. quality circles, self-managing teams)

Source: Bowen and Lawler

Control concentrates 4 key features at top of organization; Involvement pushes them down:


� Suggestion involvement � Employee recommendation

� Job involvement� Jobs redesigned � Employees retrained � Supervisors facilitate

� High involvement� Information is shared � Employees skilled in teamwork,

problem solving etc. � Participate in decisions � Profit sharing and stock ownership

Levels of Employee Involvement


Motivate and Energize the Frontline

� Job content

� Feedback and recognition

� Goal accomplishment

Use the full range of available rewards effectively, including:


The Inverted Organizational Pyramid (Fig. 11.5)

Frontline Staff

Top Mgmt

Middle Mgmt

Legend: = Service encounters, or ‘Moments of Truth.’

Traditional Organizational Pyramid

Inverted Pyramid with a Customer & Frontline Focus

Customer Base

Frontline Staff

Middle Mgmt & Top Mgmt

Support Frontline


The Wheel of Successful HR in Service Firms (Fig. 11.6)

Leadership that:

�Focuses the entire organization on supporting the frontline

�Fosters a strong service culture with passion for service and productivity

�Drives values that inspire, energize and guide service providers

1. Hire theRight People

3. Motivate &

Energize Your People

2. Enable Your People

�Be the preferred employer & compete

for talent market share

�Intensify the selection process

�Empower Frontline

�Build high performance service delivery teams

�Extensive Training

�Utilize the full range of rewards

Service Excellence& Productivity


Chapter 12

Managing Relationships

and Building Loyalty


Four Stages of Brand Loyalty in a Consumer

� Cognitive loyalty – perception from brand attribute information that one brand is preferable to its alternatives

� Affective loyalty – developing a liking for the brand based on cumulatively satisfying usage occasions

� Conative loyalty – commitment to rebuying the same brand

� Action loyalty – exhibiting consistent repurchase behavior


Loyalty is Important to Profitability : Index of Customer Profits over Time (Fig. 12.1)

Credit card Industrial laundry Industrial distribution Auto servicing

0

(Year 1=100)

50

250

300

350 –

100

150

200

Year 1 Year 2 Year 3 Year 4 Year 5

Based on data from Reichheld and Sasser


What Makes Loyal Customers More Profitable?

� Tend to spend more as relationship develops

�customer’s balances may grow�may consolidate purchases to one supplier

� Cost less to serve

� less need for information and assistance�make fewer mistakes

� Recommend new customers to firm (act as unpaid sales people)

� Trust leads to willingness to pay regular prices vs. shopping for discounts


Analyzing Why Customers Are More Profitable over Time (Fig. 12.2)

1 2 3 4 5 6 7

Year

Profit from price

premium

Profit from references

Profit from reduced

op. costs

Profit from increased

usage

Base Profit

Source: Reichheld and Sasser


Measuring Customer Equity:Calculating Life Time Value of Each Customer

� Value at Acquisition� revenues (application fee + initial purchase)� Less costs (marketing +credit check + account set up)

� Annual Value (project for each year of relationship)� revenues (annual fee + sales + service fees + value of referrals)� Less costs (account management + cost of sales + write-offs)

� Net Present Value � Determine anticipated customer relationship lifetime� Select appropriate discount figure� Sum anticipated annual values (future profits) at chosen discount

rate

� Customer Equity is total sum of NPVs of all current customers


Customer-Firm Relationship

� Database Marketing: Involves the use of technology by delivering differentiated service levels to consumers and subsequently tracking the relationship.

� Interaction Marketing: Usually in B2B context where people and the social process also add mutually beneficial value.

� Network Marketing: Common in B2B context where companies commit resources to develop positions in a network of relationships with the stakeholders and relevant agencies.

Today’s marketers seek to develop long-term relationships with customers. Relationship marketing includes:


Types of Relationships with Customers (Table 12.1)

Type of Relationship--Firm and Customer

Nature of Service Delivery

“Membership” No formal relationship

Continuous Cable TV Radio station

Insurance Police

College enrollment Lighthouse

Discrete transactions Subscriber phone Pay phone

Theater subscription Movie theater

Warranty repair Public transport


Basic Segmentation Issues: Building an Appropriate Customer Portfolio

� Target customers whose needs match firm’s capabilities

� Focus on value of prospective customers within each segment, not just numbers

� Avoid targeting customers who might abuse:�our employees, facilities�other customers

� Create a mix of segments to reduce risks of volatility during swings of economic cycles


Service-Relevant Segmentation Variables

� Timing of service use (e.g., by hour, day, season)

� Level of skill and experience as co-producer/self-server

� Preferred language in face-to-face contact

� Access to electronic delivery systems (e.g., Internet)

� Attitudes toward use of new service technologies


Identifying and Selecting Target Segments (Mgt Memo 12.2)

User characteristics� demographics

� psychographics

� geographic location

� benefits sought

User behavior � when, where, how services used

� quantity/value of purchases

� frequency of use

� profitability of relationship

� sensitivity to marketing variables


Portfolio of Professional Assignments (Fig. 12.4)

Analytical Work on Project Data

“Bread and Butter” Projects

Significant Projects

“Pacesetters”

Major, State-of-the-art challenges for the firm’s principals that give the firm high visibility

Demanding client assignments offering a learning experience for the firm’s most experienced associates

Routine client projects sharedamong principals and associates

Entry-level tasks for new associates or for research assistants & paraprofessionals


The Customer Pyramid (Fig. 12.5)

Lead

Iron

Gold

Which segment sees high value in our offer, spends more with us over time, costs less to maintain, and spreads positive word-of-mouth?

Which segment costs us in time, effort and money, yet does not provide the return we want? Which segment is difficult to do business with?

Platinum

Good Relationship Customers

Poor Relationship Customers


How Customers See Relational Benefits in Service Industries (Research Insights 12.1)

� Confidence benefits� less risk of something going wrong, less anxiety� ability to trust provider� know what to expect� get firm’s best service level

� Social benefits� mutual recognition, known by name� friendship, enjoyment of social aspects

� Special treatment benefits� better prices, discounts, special deals unavailable to others� extra services� higher priority with waits, faster service


The Customer Satisfaction-Loyalty Relationship (Fig. 12.6)

0

20

40

60

80

100

1 2 3 4 5

Lo

ya

lty (

Re

ten

tio

n)

Verydissatisfied Dissatisfied

Neithersatisfied

nor dissatisfiedSatisfied

VerySatisfied

Satisfaction

Near Apostle

Zone of Defection

Zone of Indifference

Zone of Affection

Terrorist

Apostle


The Wheel of Loyalty (Fig. 12.7)

1. Build aFoundationfor Loyalty

2. Create LoyaltyBonds

3. Reduce Churn Drivers

CustomerLoyalty

�Be selective in acquisition

�Conduct churn diagnostic�Segment the market

�Use effective tiering of service.

�Deliver quality service.

�Deepen the relationship

�Give loyalty rewards

�Build higher level bonds

�Implement complaint handling & service recovery

�Address key churn drivers

�Increase switching costs

Enabled through:

� Frontline staff

�Account managers

�Membership programs

�CRM

Systems


Rewarding Value of Use, Not Just Frequency at British Airways (Best Practice in Action 12.2)

� Dedicated reservations

� Reservations assurance

� Priority waitlist and standby

� Advance notification of delays exceeding 4 hours

� Upgraded check-in

� Preferred boarding

� Special services assistance

� Bonus air miles

� Upgrade for two


Drivers of Service Switching (Fig. 12.9)

Service

Switching

Service Encounter Failures• Uncaring• Impolite• Unresponsive• Unknowledgeable

Response to Service Failure• Negative Response• No Response• Reluctant Response

Pricing• High Price• Price Increases• Unfair Pricing• Deceptive Pricing

Inconvenience• Location/Hours• Wait for Appointment• Wait for Service

Competition• Found Better Service

Ethical Problems• Cheat• Hard Sell

Involuntary Switching• Customer Moved• Provider Closed

Value Proposition

Others

Service Failure / Recovery

Core Service Failure• Service Mistakes• Billing Errors• Service Catastrophe

• Unsafe• Conflict of Interest


Common CRM Applications (Mgt Memo 12.2)

� Signifies the whole process by which relationships with customers are built and maintained.

� CRM as an enabler, offering a “unified customer interface” and allow firms to better understand and segment the customers etc. Applications include:

� Data collection

� Data analysis

� Sales force automation

� Marketing automation

� Call center automation


Customer Relationship Strategies with CRM Systems: Key Questions

� How should our value proposition change to increase customer loyalty?

� How much customization or one-to-one marketing and service delivery is appropriate and profitable?

� What is the incremental profit potential of increasing share of wallet with current customers? How much does this vary by customer tier and/or segment?

� How much time and resource can we allocate to CRM right now?

� If we believe in CRM, why have we not taken steps in that direction before? What can we do today to develop customer relationship without spending on technology?


Chapter 13

Customer Feedback and Service Recovery


American Customer Satisfaction Index:Selected Industry Scores, 2002

Industry:

8579 80 79

74 71 7166

7076

65 62

0

10

20

30

40

50

60

70

80

90

100

3.7% 1.3% 0.0% 1.3% 2.8% 0.0% 0.0% 8.2% 2.9% -2.6% 4.8% 3.3%% Change 2002 vs 2001

Score

(Max = 100)


Key Questions for Managers to Ask about Customer Complaining Behavior

�Why do customers complain?

�What proportion of unhappy customers complain?

�Why don’t unhappy customers complain?

�Who is most likely to complain?

�Where do customers complain?


Courses of Action Open to a Dissatisfied Customer (Figure 13.1)

Service Encounter is Dissatisfactory

Take some form of public action

Take some form of private action

Take no action

Complain to the service firm

Complain to a third party

Take legal action to seek redress

Defect (switch provider)

Negative word-of-mouth

Any one or a combination of these responses is possible


Dimensions of Perceived Fairness in Service Recovery Process (Figure 13.2)

Procedural Justice

InteractiveJustice

OutcomeJustice

Complaint Handling & Service Recovery Process

Justice Dimensions of the Service Recovery Process

Customer Satisfaction with the

Service RecoverySource: Tax and Brown


Proportion of Unhappy Customers Who Buy Again Depending on the Complaint Process

9%

37%

19%

46%54%

70%

82%

95%

0

10

20

30

40

50

60

70

80

90

100

Customer did notcomplain

Complaint wasnot resolved

Complaintwas resolved

Complaint wasresolved quickly

Problem cost > $100 Problem cost $1 - 5

Source: TARP study


Impact of Effective Service Recovery on Retention

No

Problem

Problem

Unresolved

Customer Retention

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

84%

92%

46%

Source: IBM-Rochester study

Problem, but effectively

resolved


Components of an Effective Service Recovery System (Figure 13.3)

Learn from the Recovery Experience

Learn from the Recovery Experience

Resolve Complaints Effectively

Resolve Complaints Effectively

Identify Service Complaints

Identify Service Complaints

Effective Complaint Handling

Effective Complaint Handling

�Conduct Root CauseAnalysis

�Conduct Root CauseAnalysis

�Develop Effective System and Training in Complaints Handling

�Develop Effective System and Training in Complaints Handling

�Conduct Research

�Monitor Complaints

�Develop “Complaints as Opportunity” Culture

�Conduct Research

�Monitor Complaints

�Develop “Complaints as Opportunity” Culture

=+

Close the Loop via Feedback

Increased Satisfaction and Loyalty

Increased Satisfaction and Loyalty

Do the Job Right the First Time

Do the Job Right the First Time


Strategies to Reduce Customer Complaint Barriers (Table 13.1)

Complaint Barriers for Dissatisfied Customers

Strategies to Reduce These Barriers

Inconvenience� Difficult to find the right complaint

procedure.� Effort, e.g., writing a letter.

Make feedback easy and convenient by:� Printing Customer Service Hotline

numbers, e-mail and postal addresses on all customer communications materials.

Doubtful Pay Off� Uncertain whether any action, and

what action will be taken by the firm to address the issue the customer is unhappy with.

Reassure customers that their feedback will be taken seriously and will pay off by:

� Having service recovery procedures in place, and communicating this to customers.

� Featuring service improvements that resulted from customer feedback.

Unpleasantness� Complaining customers fear that

they may be treated rudely,� may have to hassle, or� may feel embarrassed to complain.

Make providing feedback a positive experience:

� Thank customers for their feedback. � Train the frontline not to hassle and make

customers feel comfortable.� Allow for anonymous feedback.


How to Enable Effective Service Recovery

� Be proactive—on the spot, before customers complain

� Plan recovery procedures

� Teach recovery skills to relevant personnel

� Empower personnel to use judgment and skills to develop recovery solutions


Guidelines for Effective Problem Resolution (Management Memo 13.1)

�Act fast

�Admit mistakes but don’t be defensive

�Understand problem from customer’s viewpoint

�Don’t argue

�Acknowledge customer’s feelings

�Give benefit of doubt

�Clarify steps to solve problem

�Keep customers informed of progress

�Consider compensation

�Persevere to regain goodwill


Service Guarantees Help Promote and Achieve Service Loyalty

�Force firms to focus on what customers want

�Set clear standards

�Highlights cost of service failures

�Require systems to get & act on, customer feedback

�Reduce risks of purchase and build loyalty


Types of Service Guarantees

� Single attribute-specific guarantee – one key service attribute is covered

� Multiattribute-specific guarantee – a few important service attributes are covered

� Full-satisfaction guarantee – all service aspects covered with no exceptions

� Combined guarantee – like the full-satisfaction, adding explicit minimum performance standards on important attributes


The Hampton Inn 100% Satisfaction Guarantee (Figure 13.4)

�What are the benefits of such a guarantee?

� Are there any downsides?


Key Objectives of Effective Customer Feedback Systems

�Assessment and benchmarking of service quality and performance

�Customer-driven learning and improvements

�Creating a customer-oriented service culture


Building a Customer Feedback System

� Total market surveys

� Post-transaction surveys

� Ongoing customer surveys

� Customer advisory panels

� Employee surveys/panels

� Focus groups

� Mystery shopping

� Complaint analysis

� Capture of service operating data


Strengths and Weakness of Key Customer Feedback Collection Tools (Table 13.3)

Selection of a cocktail of effective customer feedback collection tools.

Potential for Service Recovery

Collection Tools

Multi-level MeasurementAction-

able

Represen-tative,

Reliable

FirstHand

Learning

Cost EffectiveService

SatisfactionProcess

SatisfactionSpecific

Feedback

Total Market Survey (inclu. competitors)

Annual Survey on overall satisfaction

Transactional Survey (process specific)

Service Feedback Cards (process specific)

Mystery Shopping (service testers)

Unsolicited Feedback Recd(Online feedback system)

Focus Group Discussions

Service Reviews

Meets Requirements: Fully Moderate Little/Not at all


Entry Points for Unsolicited Feedback

� Employees serving customers face-to-face or by phone

� Intermediaries acting for original supplier

� Managers contacted by customers at head/regional office

� Complaint cards mailed or placed in special box

� Complaints passed to company by third-party recipients

�consumer advocates�trade organizations� legislative agencies�other customers


Chapter 14

Improving Service Quality

and Productivity


Importance of Productivity and Quality for Service Marketers

Productivity

� Helps to keep costs down� lower prices to develop market, compete better� increase margins to permit larger marketing budgets� raise profits to invest in service innovation

� May impact service experience (must avoid negatives)

� May require customer involvement, cooperation

Quality

� Gain competitive advantage, maintain loyalty

� Increase value (may permit higher margins)

� Improve profits


Perspectives on Service Quality

Transcendental: Quality = excellence. Recognized only through experience

Quality is precise and measurable

Quality lies in the eyes of the beholder

Quality is conformance to the firm’s developed specifications

Quality is a trade-off between price and value

Product-Based:

User-Based:

Manufacturing-

Based:

Value-Based:


Dimensions of Service Quality

� Tangibles

� Reliability

� Responsiveness

� Assurance� competence,� courtesy� credibility� security

� Empathy

� access� communication� understanding of customer


Seven Service Quality Gaps (Fig. 14.1)

Customer experience relative to expectations

Advertising and sales promises

Customer interpretation

of communications

1. Knowledge Gap

2. Standards Gap

3. Delivery Gap

5. Perceptions Gap

7. Service Gap

Customer needsand expectations

Management definitionof these needs

Translation into

design/delivery specs

Execution of design/delivery specs

Customer perceptions of product execution

6. Interpretation Gap

4. I.C.Gap

MANAGEMENT

CUSTOMER


Prescriptions for Closing Service Quality Gaps (Table 14.3)

� Knowledge: Learn what customers expect--conduct research, dialogue, feedback

� Standards: Specify SQ standards that reflect expectations

� Delivery: Ensure service performance matches specs--consider roles of employees, equipment, customers

� Internal communications: Ensure performance levels match marketing promises

� Perceptions: Educate customers to see reality of service delivery

� Interpretation: Pretest communications to make sure message is clear and unambiguous.


Hard and Soft Measures of Service Quality

� Hard measures refer to standards and measures that can be counted, timed or measured through audits

� typically operational processes or outcomes� e.g. how many trains arrived late?

� Soft measures refer to standards and measures that cannot easily be observed and must be collected by talking to customers, employees or others

� e.g. SERVQUAL, surveys, and customer advisory panels.

� Control charts are useful for displaying performance over time against specific quality standards.


Hard Measures of Service Quality

� Control charts to monitor a single variable

� Service quality indexes

� Root cause analysis (fishbone charts)

� Pareto analysis


Composition e of FedEx’s Service Quality Index (SQI) (Table 14.4)

Late Delivery – Right Day Late Delivery – Wrong DayTracing request unanswered Complaints reopened Missing proofs of delivery Invoice adjustments Missed pickups Lost packages Damaged packages Aircraft Delays (minutes) Overcharged (packages missing label) Abandoned calls

151511101010551

Failure Type

Total Failure Points (SQI) =

Weighting Factor

XXX,XXX

Daily Points

XNo of

Incidents=


Control Chart: Percent of Flights Leaving within 15 Minutes of Schedule (Fig. 14.2)

J F M A M J J A S O N D

60%

70%

80%

90%

100%

Month


Tools to Address Service Quality Problems

� Fishbone diagrams: A cause-and-effect diagram to identify potential causes of problems.

� Pareto charts: Separating the trivial from the important. Often, a majority of problems is caused by a minority of causes i.e. the 80/20 rule.

� Blueprinting: A visualization of service delivery. It allows one to identify fail points in both the frontstage and backstage.


Cause and Effect Chart for Airline Departure Delays (Fig. 14.3)

Aircraft late to gate

Late food service

Late fuel

Late cabin cleaners

Poor announcement of departures

Weight and balance sheet late

Delayed Departures

Delayed check-in procedure

Acceptance of late passengers

Facilities, Equipment

Front-StagePersonnel

Procedures

Materials,Supplies

Customers

Gate agents cannot process

fast enough

Late/unavailableairline crew

Arrive lateOversized bags

Weather Air traffic

Frontstage Personnel

Procedure

Materials, Supplies

BackstagePersonnel

Information

Customers

Other Causes

MechanicalFailures

Late pushback

Late baggage


Analysis of Causes of Flight Departure Delays (Fig. 14.4)

Late passengers

Waiting for pushback

Waiting for fueling

Late weight and balance sheet

Late cabin cleaning / supplies

Other

Newark

All stations, excludingChicago-Midway Hub

Washington Natl.

23.1%23.1%

23.1%15.3%

15.4%

53.3%

15%

11.3%

8.7%

11.7%

33.3%

33.3%19%

9.5%

4.9%


Return on Quality (ROQ)

� ROQ approach is based on four assumptions:

� Quality is an investment

� Quality efforts must be financially accountable

� It’s possible to spend too much on quality

� Not all quality expenditures are equally valid

� Implication: Quality improvement efforts may benefit from being related to productivity improvement programs


When Does Improving Service Reliability Become Uneconomical? (Fig. 14.5)

Se

rvic

e R

eli

ab

ilit

y

100%

A B

InvestmentSmall Cost,

Large ImprovementLarge Cost,

Small Improvement

C D

Satisfy Target Customers Through Service Delivery as

Planned

Satisfy Target Customers Through

Service Recovery

Optimal Point of Reliability: Cost of Failure = Service

Recovery

Assumption: Customers are equally (or even more) satisfied with the service recovery provided than with a service that is delivered as planned.


Productivity in a Service Context

� Productivity measures amount of output produced relative to the amount of inputs.

� Improvement in productivity means an improvement in the ratio of outputs to inputs.

� Intangible nature of many service elements makes it hard to measure the productivity of service firms, especially for information based services.


Efficiency, Effectiveness, and Productivity

� Efficiency: comparison to a standard--usually time-based (e.g., how long employee takes to perform specific task)

� Problem: focus on inputs rather than outcomes

� May ignore variations in quality or value of service

� Effectiveness: degree to which firm is meeting its goals

�Cannot divorce productivity from quality/customer satisfaction

� Productivity: financial valuation of outputs to inputs

� Consistent delivery of outcomes desired by customers should command higher prices


Measuring Service Productivity

� Traditional measures of service output tend to ignore variations in quality or value of service

� That is, they focus on outputs rather than outcomes, and stress efficiency but not effectiveness.

� Firms that are more effective in consistently delivering outcomes desired by customers can command higher prices. Furthermore, loyal customers are more profitable.

� Measures with customers as denominator include:

� profitability by customer� capital employed per customer� shareholder equity per customer


Questions to Ask When Developing Strategies to Improve Service Productivity

� How to transform inputs into outputs efficiently?

�Will improving productivity hurt quality?

�Will improving quality hurt productivity?

� Are employees or technology the key to productivity?

� Can customers contribute to higher productivity?


Operations-driven vs. Customer-driven Actions to Improve Service Productivity

Operations-driven strategies

�Control costs, reduce waste

�Set productive capacity to match average demand

�Automate labor tasks

�Upgrade equipment and systems

�Train employees

�Leverage less-skilled employees through expert systems

Customer-driven strategies

�Change timing of customer demand

�Involve customers more in production

�Ask customers to use third parties


Backstage and Frontstage Productivity Changes: Implications for Customers

� Backstage improvements can ripple to the front stage and affect customers

� e.g., new printing peripherals may affect appearance of bank statements.

� Front-stage productivity enhancements are especially visible in high contact services.

� Some may just require passive acceptance by customers

� Others require customers to change their scripts and behavior.


Overcoming Customers’ Reluctance to Accept Changes in Environment and Behavior

� Develop customer trust

� Understand customers’ habits and expectations

� Pretest new procedures and equipment

� Publicize the benefits

� Teach customers to use innovations and promote trial

� Monitor performance, continue to seek improvements


Six Sigma Methodology to Improve and Redesign Customer Service Processes

Process Improvement Process Design/Redesign

Define �Identify the problem �Define requirements �Set goals

�Identify specific or broad problems �Define goal/change vision �Clarify scope & customer requirements

Measure �Validate problem/process �Refine problem/goal�Measure key steps/inputs

�Measure performance to requirements �Gather process efficiency data

Analyze �Develop causal hypothesis �Identify root causes �Validate hypothesis

�Identify best practices �Assess process design �Refine requirements

Improve �Develop ideas to measure root causes �Test solutions �Measure results

�Design new process �Implement new process, structures and

systems

Control �Establish measures to maintain performance �Correct problems if needed

�Establish measures & reviews to maintain performance�Correct problems if needed


Chapter 15

Organizing for Service Leadership


Customer-Led versus Market-OrientedPhilosophies of Management

� Firms may lose market leader position if listen too closely to current customers

� Service leadership requires curiosity, risk taking

� Customer-led businesses focus on understanding expressed desires of customers in currently served markets

� Market-oriented businesses commit to understand current/ latent customer desires plus competitors’ plans, capabilities

� Scan market more broadly, have longer-term focus� Work closely with lead users (windows to future vs. anchors to

past)� Combine traditional research with experimentation, observation

� Conclusion: Pursue customer satisfaction, but set limits on being led by customers, especially during rapid change


The Service Profit Chain (Fig. 15.1)

Loyalty

Service Quality

Productivity& OutputQuality

EMPLOYEES

Capability

Satisfaction

ServiceValue

CUSTOMERS

Satisfaction Loyalty

RevenueGrowth

Profitability

Operating strategy andservice delivery system

Serviceconcept

Target Market

Internal External

• Workplace design• Job design• Selection and development• Rewards and recognition• Information and communication• Tools for serving customers

Quality and productivityimprovements yieldhigher service qualityand lower costs

• Lifetime value• Retention• Repeat business• Referral


Causal Links in the Service Profit Chain (Table 15.1)

� Customer loyalty drives profitability and growth

� Customer satisfaction drives customer loyalty

� Value drives customer satisfaction

� Employee productivity and retention drive value

� Employee loyalty drives productivity

� Employee satisfaction drives loyalty and productivity

� Internal quality drives employee satisfaction

� Top management leadership underlies chain’s success


Integrating Three Functional Imperatives(recap from Chapter 1)

Customers

Marketing

ImperativeHuman Resources

Imperative

Operations Imperative


Defining Three Functional Imperatives

� Marketing Imperative � Target “right” customers and build relationships

� Offer solutions that meet their needs� Define quality package with competitive advantage

� Operations Imperative� Create, deliver specified service to target customers� Adhere to consistent quality standards� Achieve high productivity to ensure acceptable costs

� Human Resource Imperative� Recruit and retain the best employees for each job � Train and motivate them to work well together� Achieve both productivity and customer satisfaction


Reducing Intra-Organizational Tension

� Transfers and cross training

� Cross functional taskforces

� New tasks and new people

� Process management teams

� Gain-sharing programs


The Search for Synergy:A Top Management Perspective

What do we want?

What can we do?

What do our

customers want?

What do our employees,

intermediaries, and

other partners want?


From Losers to Leaders: Moving Up the Service Performance Ladder

��Service LeadersService Leaders� Crème de la crème of their respective industries

� Names synonymous with outstanding service, customer delight

�Service Professionals� Clear positioning strategy

� Sustained reputation for meeting customer expectations

�Service Non-entities� Traditional operations mindset

� Rudimentary marketing, often emphasizing price discounts

� Service Losers� Only survive because of lack of viable alternatives in marketplace


Achieving Service Leadership by Focusing on Role of Each Functional Area

�Marketing: move from tactical to innovative and strategic

�Operations: move from reactive/cost oriented to focused, innovative, well coordinated with marketing and HR

�Human Resources: move from tight control of low-cost workers to quality of employees as strategic advantage


Leadership for Change Management Involves Eight Stages

� Create sense of urgency to develop impetus for change

� Put together strong team to direct process

� Create appropriate vision of where organization must go

� Communicate new vision broadly

� Empower employees to act on vision

� Produce sufficient short term results to create credibility

� Build momentum to tackle tougher problems

� Anchor new behaviors in the organizational culture

Source: John Kotter


Leadership Qualities Needed in Service Organizations

� Vision, charisma, persistence, high expectations, expertise, empathy, persuasiveness, integrity

� Ability to visualize quality of service as foundation for competing

� Believe in people who work for the firm, make good communications a priority

� Possess a natural enthusiasm for the business, teach it to others, pass on nuances, secrets, crafts of operating

� Cultivate leadership qualities of others in organization

� Use values to navigate firms through difficult times


Transformational Leadership May Require Changing Corporate Culture

� Corporate Culture:

� Shared perceptions regarding what is important� Shared values about what is right and wrong� Shared understanding about what works and what doesn’t� Shared beliefs about why these things are important

� Shared styles of working and relating to others

� Climate for Service--Tangible working environment atop underlying culture. Influential factors include:

� Shared perceptions concerning practices, procedures and types of behaviors that get rewarded

� Clarity about mission and values, level of commitment to common purpose

� Flexibility: freedom to innovate, sense of responsibility, standards

Services Marketing Christopher Lovelock ppts combined

Documents

Transcript of Services Marketing Christopher Lovelock ppts combined