Services marketing2821

1

SM

Services Marketing

Contact: +923006641921 Usman Waheed

2

SM

If You want these slides then send me at
E-mail at ch_paki@hotmail.com or call me at
+923006641921


3

SM
Chapter 1

INTRODUCTION
TO
SERVICES

Contact: +923006641921
+923006641921 Usman Waheed
Contact: Usman Waheed

4
Objectives for Chapter 1:
SM
Introduction to Services
• Explain what services are and identify service
trends
• Explain the need for special services marketing
concepts and practices
• Outline the basic differences between goods and
services and the resulting challenges for service
businesses
• Introduce the service marketing triangle
• Introduce the expanded services marketing mix
• Introduce the gaps model of service quality

5

SM Introduction

• Services are deeds,processes and
performance
• Intangible, but may have a tangible
component
• Generally produced and consumed at the
same time
• Need to distinguish between SERVICE and
CUSTOMER SERVICE


6

SM Challenges for Services

• Defining and improving quality
• Communicating and testing new services
• Communicating and maintaining a consistent
image
• Motivating and sustaining employee commitment
• Coordinating marketing, operations and human
resource efforts
• Setting prices
• Standardization versus personalization

7
Examples of Service
SM
Industries
• Health Care
– hospital, medical practice, dentistry, eye care
• Professional Services
– accounting, legal, architectural
• Financial Services
– banking, investment advising, insurance
• Hospitality
– restaurant, hotel/motel, bed & breakfast,
– ski resort, rafting
• Travel
– airlines, travel agencies, theme park
• Others:
– hair styling, pest control, plumbing, lawn
maintenance, counseling services, healthUsman Waheed
Contact: +923006641921
club

8
Figure 1-1
SM Tangibility Spectrum
Salt
 Soft Drinks
 Detergents
 Automobiles
 Cosmetics Fast-food
 Outlets
 Intangible
Dominant

Tangible

Dominant Fast-food
Outlets 
Advertising
Agencies

Airlines 
Investment
Management 
Consulting 
Teaching

Figure 1-2 9

SM Percent of
U.S. Labor Force by Industry
80
70
Percent of GDP

60
50
40
30
20
10
0  Services
1929 1948 1969 1977 1984 1996  Manufacturing
 Mining & Agriculture
Yea
r
Source: Survey of Current Business, April 1998, Table B.8, July 1988, Table 6.6B, and
July 1992, Table 6.4C; Eli Ginzberg and George J. Vojta, “The Service Sector of the U.S.
Economy,” Scientific American, 244,3 (1981): 31-39.

Figure 1-3 10

SM Percent of U.S. Gross Domestic
Product by Industry
80
Percent of GDP

70
60
50
40
30
20
10
0
 Services
1948 1959 1967 1977 1987 1996
 Manufacturing
Year  Mining & Agriculture
Source: Survey of Current Business, August 1996, Table 11, April 1998, Table
B.3; Eli Ginzberg and George J. Vojta, “The Service Sector of the U.S.
Economy,” Scientific American, 244,3 (1981): 31-39.

11
Differences Between
SM
Goods and Services

Intangibility Heterogeneity

Simultaneous
Production Perishability
and
Consumption


12

SM Implications of Intangibility

 Services cannot be inventoried
 Services cannot be patented
 Services cannot be readily displayed
or communicated
 Pricing is difficult


13

SM Implications of Heterogeneity

Service delivery and customer satisfaction
depend on employee actions
Service quality depends on many
uncontrollable factors
There is no sure knowledge that the service
delivered matches what was planned and
promoted


14
Implications of Simultaneous
SM
Production and Consumption

Customers participate in and affect the
transaction
Customers affect each other
Employees affect the service outcome
Decentralization may be essential
Mass production is difficult


15

SM Implications of Perishability

 It is difficult to synchronize supply and
demand with services
 Services cannot be returned or resold


16

SM Table 1-2
Services are Different
Goods Services Resulting Implications
Tangible Intangible Services cannot be inventoried.
Services cannot be patented.
Services cannot be readily displayed or communicated.
Pricing is difficult.
Standardized Heterogeneous Service delivery and customer satisfaction depend on
employee actions.
Service quality depends on many uncontrollable factors.
There is no sure knowledge that the service delivered
matches what was planned and promoted.
Production Simultaneous Customers participate in and affect the transaction.
separate from production and Customers affect each other.
consumption consumption Employees affect the service outcome.
Decentralization may be essential.
Mass production is difficult.
Nonperishable Perishable It is difficult to synchronize supply and demand with
services.
Services cannot be returned or resold.

Source: Adapted from Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, “Problems and Strategies in Services Marketing,”
Journal of Marketing 49 (Spring 1985): 33-46.


17
Figure 1-5
SM The Services Marketing Triangle
Company
(Management)

Internal External
Marketing Marketing
“enabling the “setting the
promise” promise”

Employees Interactive Marketing Customers
“delivering the promise”
Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler


18
Ways to Use the
SM
Services Marketing Triangle
Overall Strategic Specific Service
Assessment Implementation
• How is the service • What is being promoted
organization doing and by whom?
on all three sides of • How will it be delivered
the triangle? and by whom?
• Where are the • Are the supporting
weaknesses? systems in place to
deliver the promised
• What are the service?
strengths?

19
Figure 1-6

SM The Services Triangle
and Technology
Company

Technology

Providers Customers

Source: Adapted from A. Parasuraman

20

SM Services Marketing Mix:
7 Ps for Services

• Traditional Marketing Mix
• Expanded Mix for Services: 7 Ps
• Building Customer Relationships Through
People, Processes, and Physical Evidence
• Ways to Use the 7 Ps


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SM Traditional Marketing Mix

• All elements within the control of the firm that
communicate the firm’s capabilities and image to
customers or that influence customer satisfaction
with the firm’s product and services:
 Product
 Price
 Place
 Promotion


22

SM Expanded Mix for Services --
the 7 Ps

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

23
Table 1-3
SM Expanded Marketing Mix for
Services
PRODUCT PLACE PROMOTION PRICE
Physical good Channel type Promotion Flexibility
features blend

Quality level Exposure Salespeople Price level
Accessories Intermediaries Advertising Terms
Packaging Outlet location Sales Differentiation
promotion
Warranties Transportation Publicity Allowances
Product lines Storage
Branding


24
Table 1-3 (Continued)
SM Expanded Marketing Mix for
Services
PEOPLE PHYSICAL PROCESS
EVIDENCE
Employees Facility design Flow of activities

Customers Equipment Number of steps

Communicating Signage Level of customer
culture and values involvement

Employee research Employee dress

Other tangibles


25

SM Ways to Use the 7 Ps

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


26
Services Marketing Triangle
SM
Applications Exercise
• Focus on a service organization. In the context
you are focusing on, who occupies each of the
three points of the triangle?
• How is each type of marketing being carried out
currently?
• Are the three sides of the triangle well aligned?
• Are there specific challenges or barriers in any of
the three areas?


27

SM
Part 1

FOCUS ON THE CUSTOMER

28

SM Gaps Model of Service Quality

CUSTOMER Expected
Service

Customer
Gap
Perceived
Service

External
COMPANY Service Delivery Communications
GAP 4 to Customers
GAP 1 GAP 3
Customer-Driven Service
Designs and Standards

GAP 2
Company Perceptions of
Consumer Expectations
Part 1 Opener

29
Gaps Model of Service
SM
Quality

• Customer Gap:
• difference between expectations and
perceptions
• Provider Gap 1:
• not knowing what customers expect
• Provider Gap 2:
• not having the right service designs and
standards
• Provider Gap 3:
• not delivering to service standards
• Provider Gap 4:
Part 1 Opener
• not matching performance to promises

30

SM The Customer Gap

Expected
Service

GAP

Perceived
Service

Part 1 Opener

31

SM
Chapter 2

CONSUMER BEHAVIOR
IN SERVICES

32
SM Consumer Behavior in
Services
• Overview the generic differences in consumer behavior
between services and goods
• Introduce the aspects of consumer behavior that a
marketer must understand in five categories of consumer
behavior:
• Information search
• Evaluation of service alternatives
• Service purchase and consumption
• Postpurchase evaluation
• Role of culture

33

SM Consumer Evaluation
Processes for Services
• Search Qualities
– attributes a consumer can determine prior to
purchase of a product
• Experience Qualities
– attributes a consumer can determine after purchase
(or during consumption) of a product
• Credence Qualities
– characteristics that may be impossible to evaluate
even after purchase and consumption

34
Figure 2-1
SM Continuum of Evaluation for
Different Types of Products

Most Most
Goods Services

Easy to evaluate
Difficult to evaluate
Clothing

Jewelry

Furniture

Houses

Automobiles

Restaurant meals

Vacations

Haircuts

Child care

Television repair

Legal services

Root canals

Auto repair

Medical diagnosis
{
{
High in search
qualities
High in experience High in credence
qualities qualities
{

Figure 2-2 35
Categories in Consumer
SM Decision-Making and Evaluation of
Services
Information Evaluation of
Search Alternatives
 Use of personal sources  Evoked set
 Perceived risk  Emotion and mood

Purchase and Post-Purchase
Consumption Evaluation
 Service provision as  Attribution of dissatisfaction
drama
 Service roles and scripts  Innovation diffusion
 Compatibility of  Brand loyalty
customers

36
Figure 2-3
SM Categories in Consumer Decision-
Making and Evaluation of Services

Information Evaluation of
Search Alternatives
 Use of personal sources  Evoked set
 Perceived risk  Emotion and mood

Culture
 Values and attitudes
 Manners and customs
 Material culture
 Aesthetics
 Educational and social
institutions

Purchase and Post-Purchase
Consumption Evaluation
 Service provision as  Attribution of dissatisfaction
drama
 Service roles and scripts  Innovation diffusion
 Compatibility of  Brand loyalty
customers

37

SM Information search

• In buying services consumers rely more on
personal sources. WHY? Refer p32
• Personal influence becomes pivotal as
product complexity increases
• Word of mouth important in delivery of
services
• With service most evaluation follows
purchase

38

SM Perceived Risk

• More risk would appear to be involved with
purchase of services (no guarantees)
• Many services so specialised and difficult to
evaluate (How do you know whether the
plumber has done a good job?)
• Therefore a firm needs to develop strategies
to reduce this risk, e.g, training of
employees, standardisation of offerings

39

SM Evoked Set

• The evoked set of alternatives likely to be smaller
with services than goods
• If you would go to a shopping centre you may
only find one dry cleaner or “single brand”
• It is also difficult to obtain adequate prepurchase
information about service
• The Internet may widen this potential
• Consumer may choose to do it themselves, e.g.
garden services

40

SM Emotion and Mood

• Emotion and mood are feeling states that
influence people’s perception and
evaluation of their experiences
• Moods are transient
• Emotions more intense, stable and
pervasive
• May have a negative or positive influence

41

SM Service Provision as
Drama

• Need to maintain a desirable impression
• Service “actors” need to perform certain
routines
• Physical setting important, smell, music,
use of space, temperature, cleanliness, etc.

42
Global Feature:
SM Differences in the Service
Experience in the U.S. and Japan

 Authenticity
 Caring
 Control Courtesy
 Formality
 Friendliness
 Personalization
 Promptness

43

SM
Chapter 3

CUSTOMER
EXPECTATIONS OF
SERVICES


44
SM Customer Expectations of
Service
• Recognize that customers hold different types of
expectations for service performance
• Discuss controllable and uncontrollable sources of
customer expectations
• Distinguish between customers’ global expectations of
their relationships and their expectations of the service
encounter
• Acknowledge that expectations are similar for many
different types of customers
• Delineate the most important current issues surrounding
customer expectations


45

SM DEFINITIONS

• Customers have different expectations re
services – or expected service
• Desired service – customer hopes to receive
• Adequate service – the level of service the
customer may accept

• DO YOUR EXPECTATIONS DIFFER RE
SPUR and CAPTAIN DOREGO?


46
Figure 3-1
SM Dual Customer
Expectation Levels
(Two levels of expectations)
Desired Service

Zone of
Tolerance

Adequate Service


47

SM Figure 3-2

The Zone of Tolerance

Desired Service

Zone of
Tolerance

Adequate Service


Figure 3-3 48

SM Zones of Tolerance VARY for
Different Service Dimensions
Desired Service

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

Adequate
Adequate Service
Service

Most Important Factors Least Important Factors
Source: Berry, Parasuraman, and Zeithaml (1993)

Figure 3-4 49

Zones of Tolerance VARY for
SM
First-Time and Recovery Service

First-Time Service

Outcome

Process

Recovery Service

Outcome

Process

LOW HIGH
Expectations
Source: Parasuraman, Berry and Zeithaml (1991)

Figure 3-5 50

SM Factors that Influence
Desired Service

Enduring Service
Intensifiers

Desired
Service
Personal Needs
Zone
of
Tolerance

Adequate
Service


51

SM

• Personal needs include physical, social,
psychological categories

• Enduring service intensifiers are individual, stable
factors that lead to heightened sensitivity to
service
This can further divided into Derived Service
Expectations and Personal service Philosophies


52
Figure 3-6

SM Factors that Influence
Adequate Service
Transitory Service
Intensifiers

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

Situational
Factors

53

SM

• Transitory service intensifiers – temporary –
a computer breakdown will be less tolerated
at financial year-ends
• Perceived service alternatives
• Perceived service role of customer
• Situational factors


Figure 3-7 54

Factors that Influence
SM
Desired and Predicted Service
Explicit Service
Promises

Implicit Service
Promises

Desired Word-of-Mouth
Service

Zone
Past Experience
of
Tolerance

Adequate Predicted
Service Service

55

SM
Chapter 4

CUSTOMER
PERCEPTIONS OF
SERVICE

56
SM Customer Perceptions of
Service
• Provide you with definitions and
understanding of customer satisfaction and
service quality
• Show that service encounters or the
“moments of truth” are the building blocks of
customer perceptions
• Highlight strategies for managing customer
perceptions of service

Figure 4-1 57
Customer Perceptions of
SM
Service Quality and
Customer Satisfaction
Reliability Situational
Factors
Responsiveness Service
Quality

Assurance
Customer
Empathy Satisfaction
Product
Quality
Tangibles

Personal
Price Factors

58
Factors Influencing
SM

• Product/service quality
• Product/service attributes or features
• Consumer Emotions
• Attributions for product/service success or
failure
• Equity or fairness evaluations

59
Outcomes of
SM

• Increased customer retention
• Positive word-of-mouth communications
• Increased revenues

Figure 4-3 60

Relationship between Customer
SM
Satisfaction and Loyalty in
Competitive Industries
100%
Loyalty (retention)

80%

60%

40%

20%

0%
Very Dissatisfied Neither Satisfied Very
dissatisfied satisfied nor satisfied
dissatisfied

Satisfaction measure

Source: James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, The Service Profit Chain, (New York, NY: The Free Press, 1997), p.
83.

61

SM Service Quality

• The customer’s judgment of overall
excellence of the service provided in
relation to the quality that was expected.
• Process and outcome quality are both
important.

62

SM The Five Dimensions of
Service Quality

Reliability Ability to perform the promised
service dependably and accurately.
Knowledge and courtesy of
Assurance employees and their ability to
convey trust and confidence.
Tangibles Physical facilities, equipment, and
appearance of personnel.
Empathy Caring, individualized attention the
firm provides its customers.
Responsiveness Willingness to help customers and
provide prompt service.

63

SM Exercise to
Identify Service Attributes
In groups of five, choose a services industry and spend 10 minutes
brainstorming specific requirements of customers in each of the five
service quality dimensions. Be certain the requirements reflect the
customer’s point of view.
Reliability:

Assurance:

Tangibles:

Empathy:

Responsiveness:

64
SERVQUAL Attributes
SM ASSURANCE
Employees who instill confidence in
customers
Making customers feel safe in their
transactions
RELIABILITY Employees who are consistently courteous
Employees who have the knowledge to
Providing service as promised answer customer questions
Dependability in handling customers’
service problems EMPATHY
Performing services right the first time Giving customers individual attention
Providing services at the promised time Employees who deal with customers in a
Maintaining error-free records caring fashion
Having the customer’s best interest at heart
RESPONSIVENESS Employees who understand the needs of
their customers
Keeping customers informed as to Convenient business hours
when services will be performed TANGIBLES
Prompt service to customers Modern equipment
Willingness to help customers Visually appealing facilities
Readiness to respond to customers’ Employees who have a
requests neat, professional
appearance
Visually appealing materials
associated with the service

65

SM The Service Encounter

• is the “moment of truth”
• occurs any time the customer interacts with the firm
• can potentially be critical in determining customer satisfaction and
loyalty
• types of encounters:
– remote encounters
– phone encounters
– face-to-face encounters
• is an opportunity to:
– build trust
– reinforce quality
– build brand identity
– increase loyalty

66
Figure 4-4

SM A Service Encounter
Cascade for a Hotel Visit

Check-In
Check-In
Bellboy Takes to
Bellboy Takes to
Room
Room
Restaurant
Restaurant
Meal
Meal
Request Wake-Up
Request Wake-Up
Call
Call
Checkout
Checkout

Figure 4-5 67
A Service Encounter
SM
Cascade for an Industrial
Purchase

Sales Call
Sales Call
Delivery and Installation
Delivery and Installation

Servicing
Servicing

Ordering Supplies
Ordering Supplies
Billing
Billing

68
Critical Service Encounters
SM
Research

• GOAL - understanding actual events and
behaviors that cause customer dis/satisfaction
in service encounters
• METHOD - Critical Incident Technique
• DATA - stories from customers and employees
• OUTPUT - identification of themes underlying
satisfaction and dissatisfaction with service
encounters

69
Sample Questions for Critical
SM
Incidents Technique Study

• Think of a time when, as a customer, you had a
particularly satisfying (dissatisfying) interaction
with an employee of .
• When did the incident happen?
• What specific circumstances led up to this
situation?
• Exactly what was said and done?
• What resulted that made you feel the interaction
was satisfying (dissatisfying)?

70

SM Common Themes in Critical
Service Encounters
Research

Recovery: Adaptability:
Employee Response Employee Response
to Service Delivery to Customer Needs
System Failure and Requests

Coping: Spontaneity:
Employee Response Unprompted and
to Problem Customers Unsolicited Employee
Actions and Attitudes

71

SM Recovery

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

72

SM Adaptability

DO DON’T
• Recognize the • Promise, then fail to
seriousness of the need follow through
• Acknowledge • Ignore
• Anticipate • Show unwillingness to
• Attempt to try
accommodate • Embarrass the customer
• Explain rules/policies • Laugh at the customer
• Take responsibility • Avoid responsibility
• Exert effort to
accommodate

73

SM Spontaneity

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

74

SM Coping

DO DON’T
• Listen • Take customer’s
• Try to accommodate dissatisfaction
• personally
Explain
• Let customer’s
• Let go of the customer
dissatisfaction affect
others

75
Figure 4-6
SM Evidence of Service from the
Customer’s Point of View
 Contact employees
 Customer
 Operational flow of him/herself
activities  Other customers
People
 Steps in process
 Flexibility vs.
standard
 Technology vs. Physical  Tangible
human Process
Evidence communication
 Servicescape
 Guarantees
 Technology

76

SM
Part 2

LISTENING TO
CUSTOMER
REQUIREMENTS

77

SM Provider GAP 1

CUSTOMER
Expected
Service

GAP 1

Company
COMPANY Perceptions of
Consumer
Expectations

Part 2 Opener

78

SM
Chapter 5

UNDERSTANDING
CUSTOMER
EXPECTATIONS AND
PERCEPTIONS THROUGH
MARKETING RESEARCH

79
SM Understanding Customer Expectations
and Perceptions through
Marketing Research
• Present the types of and guidelines for marketing
research in services
• Show the ways that marketing research information
can and should be used for services
• Describe the strategies by which companies can
facilitate interaction and communication between
management and customers
• Present ways that companies can and do facilitate
interaction between contact people and management

80

SM Common Research Objectives
for Services
• To identify dissatisfied customers
• To discover customer requirements or expectations
• To monitor and track service performance
• To assess overall company performance compared to
competition
• To assess gaps between customer expectations and
perceptions
• To gauge effectiveness of changes in service
• To appraise service performance of individuals and teams
for rewards
• To determine expectations for a new service
• To monitor changing expectations in an industry
• To forecast future expectations

81
Figure 5-1
SM Criteria for An Effective
Services Research Program
Includes
es Quantitative
lud ive
Inc litat h Research Includes
a c
Qu esear Perceptions
R and
Expectations
Occurs of
Customers
with
Appropriate Research Includes
Frequency Measures
Objectives of
Loyalty or
Behavioral
Measures Intentions
Priorities st
or s Co
Importance
lance ue of
Includes Ba Val ion
Statistical and ormat
Validity Inf
When Necessary

82

SM Portfolio of Services Research
Research Objective Type of Research
Identify dissatisfied customers to attempt recovery;
identify most common categories of service failure Customer Complaint
for remedial action
Solicitation
Assess company’s service performance compared to
competitors; identify service-improvement priorities; track
service improvement over time “Relationship” Surveys
Obtain customer feedback while service experience is still
fresh; act on feedback quickly if negative patterns develop
Post-Transaction Surveys
Use as input for quantitative surveys; provide a
forum for customers to suggest service-improvement
ideas Customer Focus Groups
Measure individual employee service behaviors for use in
coaching, training, performance evaluation, recognition and
rewards; identify systemic strengths and weaknesses in “Mystery Shopping” of
service
Service Providers
Measure internal service quality; identify employee-
perceived obstacles to improve service; track
employee morale and attitudes Employee Surveys
Determine the reasons why customers defect

To forecast future expectations of customers Lost Customer Research
To develop and test new service ideas
Future Expectations Research

83
Stages in the Research
SM
Process

• Stage 1 : Define Problem
• Stage 2 : Develop Measurement Strategy
• Stage 3 : Implement Research Program
• Stage 4 : Collect and Tabulate Data
• Stage 5 : Interpret and Analyze Findings
• Stage 6 : Report Findings

84
Figure 5-5

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

Retail Chain Zone of Tolerance O S.Q. Perception

85
Service Quality Perceptions
SM Relative to Zones of Tolerance by
Dimensions
10

8
O O O O
O
6

4

2

0
Reliability Responsiveness Assurance Empathy Tangibles

Computer Zone of Tolerance O S.Q. Perception
Manufacturer

86
Figure 5-6
SM Importance/Performance Matrix
HIGH
High  
Leverage
Attributes to Improve Attributes to Maintain

Importance

  


Low

 Leverage

Attributes to Maintain Attributes to De-emphasize

LOW
HIGH
Performance

87

SM
Chapter 6

BUILDING
CUSTOMER
RELATIONSHIPS

88
SM Building Customer
Relationships

• Explain relationship marketing, its goals, and the benefits
of long-term relationships for firms and customers
• Explain why and how to estimate customer lifetime value
• Specify the foundations for successful relationship
marketing--quality core services and careful market
segmentation
• Provide you with examples of successful customer
retention strategies
• Introduce the idea that “the customer isn’t always right”

89

SM Relationship Marketing

• is a philosophy of doing business that focuses on keeping
and improving current customers
• does not necessarily emphasize acquiring new customers
• is usually cheaper (for the firm)--to keep a current
customer costs less than to attract a new one
• goal = to build and maintain a base of committed
customers who are profitable for the organization
• thus, the focus is on the attraction, retention, and
enhancement of customer relationships

90

SM Lifetime Value of a Customer

• Assumptions
• Income
– Expected Customer Lifetime
– Average Revenue (month/year)
– Other Customers convinced via WOM
– Employee Loyalty??
• Expenses
– Costs of Serving Customer Increase??

91

SM
A Loyal Customer is One Who...
• Shows Behavioral Commitment
– buys from only one supplier, even though other options
exist
– increasingly buys more and more from a particular
supplier
– provides constructive feedback/suggestions
• Exhibits Psychological Commitment
– wouldn’t consider terminating the relationship--
psychological commitment
– has a positive attitude about the supplier
– says good things about the supplier

92

SM Customer Loyalty Exercise

• Think of a service provider you are loyal to.
• What do you do (your behaviors, actions, feelings)
that indicates you are loyal?
• Why are you loyal to this provider?

93
Benefits to the Organization
SM
of Customer Loyalty

• loyal customers tend to spend more with the
organization over time
• on average costs of relationship maintenance are
lower than new customer costs
• employee retention is more likely with a stable
customer base
• lifetime value of a customer can be very high

94

SM Benefits to the Customer

• inherent benefits in getting good value
• economic, social, and continuity benefits
– contribution to sense of well-being and quality
of life and other psychological benefits
– avoidance of change
– simplified decision making
– social support and friendships
– special deals

95
“The Customer Isn’t Always
SM
Right”

• Not all customers are good relationship
customers:
– wrong segment

– not profitable in the long term

– difficult customers

96
Strategies for Building
SM
Relationships
• Foundations:
– Excellent Quality/Value
– Careful Segmentation
• Bonding Strategies:
– Financial Bonds
– Social & Psychological Bonds
– Structural Bonds
– Customization Bonds
• Relationship Strategies Wheel

97
Figure 6-1

SM Customer Goals of
Relationship Marketing

Enhancing

Retaining

Satisfying

Getting

Figure 6-3 98

SM Underlying Logic of Customer
Retention Benefits to the
Organization

Customer Retention & Quality
Increased Profits Service

Employee Loyalty

99
Figure 6-5
SM Steps in Market Segmentation
and
Targeting for Services

STEP 1: STEP 2: STEP 3: STEP4: STEP 5:
Identify Develop Develop Select the Ensure that
Bases for Profiles of Measures Target Segments
Segmenting Resulting of Segment Segments Are
the Market Segments Attractive- Compatible
ness

Figure 6-6 100

SM Levels of Retention Strategies
Stable
Volume and Pricing
Frequency Bundling and
Rewards Cross Selling

Integrated I. Financial Continuous
Information Bonds Relationships
Systems

IV.
Excellent
Quality II.
Joint Structural Personal
Investments and Social Relationships
Bonds
Value Bonds

Shared Social Bonds
Processes III. Customization Among
and Bonds Customers
Equipment

Anticipation Customer
/ Innovation Intimacy
Mass
Customization

101

SM
Chapter 7

SERVICE RECOVERY

102
SM Service Recovery

• Illustrate the importance of recovery from service
failures in building loyalty
• Discuss the nature of consumer complaints and
why people do and do not complain
• Provide evidence of what customers expect and
the kind of responses they want when they
complain
• Provide strategies for effective service recovery
• Discuss service guarantees

103
Figure 7-1

SM Unhappy Customers’
Repurchase Intentions
Unhappy Customers Who Don’t Complain
9%
Unhappy Customers Who Do Complain 37%

19%
Complaints Not Resolved
46%

54%
Complaints Resolved
70%

Complaints Resolved Quickly
82%
95%

Percent of Customers Who Will Buy Again

Minor complaints ($1-$5 losses) Major complaints (over $100 losses)
Source: Adapted from data reported by the Technical Assistance Research Program.

Figure 7-3 104

SM Customer Response
Following Service Failure
Service Failure

Take Action Do Nothing

Switch Providers Stay with Provider

Complain to Complain to Complain to
Provider Family & Friends Third Party

Switch Providers Stay with Provider

105
Figure 7-5

SM Service Recovery Strategies
We
En lcom
e co
ic ura e an
rv ge d
Se Co
e m
th pla
fe i n ts
Sa
il
Fa

Act Quickly
Service
Learn from
Lost Custom

Recovery
Strategies
ers

rl y
Fai
Le s
er
Re arn f om
co rom t
ve C us
ry
Ex e at
pe Tr
ri en
ce
s

Pricing
106
•
•
High Price
Price Increases
Figure 7-6

SM Causes Behind Service
• Unfair Pricing
• Deceptive Pricing

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

Service Encounter Failures
Service
• Uncaring
• Impolite
• Unresponsive
• Unknowledgeable Switching
Response to Service Failure
• Negative Response
Behavior
• No Response
• Reluctant Response

Competition
• Found Better Service

Ethical Problems
• Cheat
• Hard Sell
• Unsafe
• Conflict of Interest

Involuntary Switching
• Customer Moved Source: Sue Keaveney
• Provider Closed

107

SM Service Guarantees

• guarantee = an assurance of the fulfillment of a
condition (Webster’s Dictionary)

• for products, guarantee often done in the form of a
warranty

• services are often not guaranteed
– cannot return the service
– service experience is intangible
–(so what do you guarantee?)

108
Table 7-7
SM Characteristics of an
Effective Service Guarantee
Unconditional
• The guarantee should make its promise unconditionally -
no strings attached.
Meaningful
• It should guarantee elements of the service that are
important to the customer.
• The payout should cover fully the customer's
dissatisfaction.
Easy to Understand and Communicate
• For customers - they need to understand what to expect.
• For employees - they need to understand what to do.
Easy to Invoke and Collect
• There should not be a lot of hoops or red tape in the way
of accessing or collecting on the guarantee.
Source: Christopher W.L. Hart, “The Power of Unconditional Guarantees,” Harvard Business Review, July-August, 1988, pp. 54-62.

109
Why a Good Guarantee
SM
Works

• forces company to focus on customers

• sets clear standards

• generates feedback

• forces company to understand why it failed

• builds “marketing muscle”

110


• Does everyone need a guarantee?

• Reasons companies do NOT offer guarantees:
– guarantee would be at odds with company’s
image
– too many uncontrollable external variables
– fears of cheating by customers
– costs of the guarantee are too high

111


• service guarantees work for companies who are
already customer-focused
• effective guarantees can be BIG deals - they put the
company at risk in the eyes of the customer
• customers should be involved in the design of
service guarantees
• the guarantee should be so stunning that it comes as
a surprise -- a WOW!! factor
• “it’s the icing on the cake, not the cake”

112

SM
Part 3

ALIGNING STRATEGY,
SERVICE DESIGN
AND STANDARDS

113

SM
Provider GAP 2
CUSTOMER

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

Part 3 Opener

114

SM
Chapter 8

SERVICE DEVELOPMENT
AND DESIGN

Objectives for Chapter 8: 115

SM Service Development and
Design
• Describe the challenges inherent in service design
• Present steps in the new service development
process
• Show the value of service blueprinting and quality
function deployment (QFD) in new service design
and service improvement
• Present lessons learned in choosing and
implementing high-performance service
innovations

Figure 8-1 116

SM Risks of Relying on Words
Alone to
Describe Services

 Oversimplification
 Incompleteness
 Subjectivity
 Biased Interpretation

Figure 8-2 117
New Service Development Process
SM  Business Strategy Development or Review

 New Service Strategy Development

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

Test for profitability and feasibility

 Service Development and Testing

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

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

Figure 8-3 118

SM New Service Strategy Matrix
for Identifying Growth
Opportunities
Markets
Offerings Current Customers New Customers

Existing
SHARE BUILDING MARKET
Services
DEVELOPMENT

New
Services SERVICE DIVERSIFICATION
DEVELOPMENT

Figure 8-4

Service Mapping/Blueprinting

A tool for simultaneously depicting the service
process, the points of customer contact, and the
evidence of service from the customer’s point of
view.
Process

Service Points of Contact
Mappin
g Evidence

120

SM Service Blueprint Components
CUSTOMER ACTIONS

line of interaction

“ONSTAGE” CONTACT EMPLOYEE ACTIONS
line of visibility

“BACKSTAGE” CONTACT EMPLOYEE ACTIONS
line of internal interaction

SUPPORT PROCESSES

121
Express Mail Delivery Service
SM Truck
Packaging
Truck
Packaging
Forms Forms
EVIDENCE
CONTACT PERSON CUSTOME PHYSICAL

Hand-held Hand-held
Computer Computer
Uniform Uniform

Customer Customer Receive
Calls Gives Package
Package
(Back Stage) (On Stage) R

Driver
Picks Deliver
Up Pkg. Package

Customer
Service
Order

Airport Fly to
Dispatch Unload Load
Driver
Receives Sort Fly to
& Loads Center & On
Destinatio Sort Truck
SUPPORT

Load on
PROCESS

Airplane
n

Sort
Packages

122

SM Overnight Hotel Stay
Bill
EVIDENCE
CUSTOMER PHYSICAL

Desk
Hotel Cart for Desk Elevators Cart for Room Menu Delivery Food Lobby
Exterior Bags Registration Hallways Bags Amenities Tray Hotel
Parking Papers Room Bath Food Exterior
Lobby Appearance Parking
Key
Arrive Give Bags Call Check out
Go to Receive Sleep Receive
at to Check in Room Eat and
Room Bags Shower Food
Hotel Bellperson Service Leave
SUPPORT PROCESS (Back Stage) (On Stage)
CONTACT PERSON

Greet and
Process Deliver Deliver Process
Take
Registration Bags Food Check Out
Bags

Take
Take Bags Food
to Room Order

Registration Prepare Registration
System Food System

123

SM Figure 8-8

Building a Service Blueprint

Step 11
Step Step 22
Step Step 33
Step Step 44
Step Step 55
Step Step 66
Step
Identify the Identify the Map the Map contact
Map contact Link customer Add
Add
Identify the Identify the Map the Link customer
process to customer or process from employee
employee and contact evidence of
evidence of
process to customer or process from and contact
be blue- customer the actions,
actions, person service at
service at
be blue- customer the person
printed. segment. customer’s onstage and
onstage and activities to each
each
printed. segment. customer’s activities to
point of view. back-stage.
back-stage. needed customer
customer
point of view. needed
support action step.
action step.
support
functions.
functions.

124
Application of Service
SM
Blueprints

• New Service Development
• concept development
• market testing
• Supporting a “Zero Defects” Culture
• managing reliability
• identifying empowerment issues
• Service Recovery Strategies
• identifying service problems
• conducting root cause analysis
• modifying processes

125
Blueprints Can Be Used By:
SM

• Service Marketers • Human Resources
– creating realistic customer – empowering the human
expectations element
• service system design • job descriptions
• promotion • selection criteria
• appraisal systems

• Operations Management
– rendering the service as
• System Technology
promised
• managing fail points – providing necessary tools:
• training systems • system specifications
• quality control • personal preference databases

126

SM
Chapter 9

CUSTOMER-DEFINED
SERVICE STANDARDS

Objectives for Chapter 9: 127

SM Customer-defined Service
Standards
• Differentiate between company-defined and
customer-defined service standards
• Distinguish among one-time service fixes and
“hard” and “soft” customer-defined standards
• Explain the critical role of the service encounter
sequence in developing customer-defined
standards
• Illustrate how to translate customer expectations
into behaviors and actions that are definable,
repeatable, and actionable

Figure 9-1 128
AT&T’s Process Map for Measurements
SM
Business Process Customer Need Internal Metric
Reliability (40%) % Repair Call
30% Product
Easy To Use (20%) % Calls for Help
Features / Functions (40%) Functional Performance Test

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

No Repeat Trouble (30%) % Repeat Reports
15% Repair Fixed Fast (25%) Average Speed Of Repair
Kept Informed (10%) % Customers Informed

Accuracy, No Surprise (45%) % Billing Inquiries
15% Billing Resolve On First Call (35%) % Resolved First Call
Easy To Understand (10%) % Billing Inquiries

Source: AT&T General Business Systems

129
Exercise for Creating
SM Customer-Defined Service
Standards
• Form a group of four people
• Use your school’s undergraduate or graduate
program, or an approved alternative
• Complete the customer-driven service standards
importance chart
• Establish standards for the most important and
lowest-performed behaviors and actions
• Be prepared to present your findings to the class

130
Customer-Driven Standards and
SM Measurements Exercise
Service Encounter Customer Requirements Measurements

Service
Quality

Figure 9-2 131

SM Getting to Actionable Steps
Requirements: Diagnosticity:

Satisfaction Value Abstract Low
Relationship General Concepts
Solution Provider

Dig Reliability Empathy
Deeper Assurance Tangibles Dimensions
Responsiveness Price

Dig Delivers on Time
Deeper Returns Calls Quickly Attributes
Knows My Industry

Dig Delivers by Weds 11/4 Behaviors
Deeper Returns Calls in 2 Hrs
Knows Strengths of and Actions
My Competitors

Concrete High

Figure 9-3 132
Process for Setting
SM Customer-Defined Standards
1. Identify Existing or Desired Service Encounter Sequence

2. Translate Customer Expectations Into Behaviors/Actions
2. Translate Customer Expectations Into Behaviors/Actions

3. Select Behaviors/Actions for Standards
3. Select Behaviors/Actions for Standards

4. Set Hard or Soft Standards

Measure by Measure by
Audits or Hard 5. Develop Feedback Soft Transaction-
5. Develop Feedback
Operating Data Mechanisms Based Surveys
Mechanisms

6. Establish Measures and Target Levels
6. Establish Measures and Target Levels

7. Track Measures Against Standards

8. Update Target Levels and Measures
8. Update Target Levels and Measures

133

SM Importance/Performance Matrix
HIGH 10.0

Improve Maintain
Does whatever it takes to
correct problems (9.26, 7.96)
Delivers on promises specified in proposal/contract (9.49, 8.51)

Completes projects
Gets project within budget, on time (9.31, 7.84)
correctly, on time (9.29, 7.68)
  Gets price we originally agreed upon (9.21, 8.64)
9.0   Tells me cost ahead of time (9.06, 8.46)
Provides equipment that operates as vendor said it would (9.24, 8.14)
Gets back to me when
Takes responsibility for their mistakes (9.18, 8.01)
promised (9.04, 7.63)
Delivers or installs on
Importance promised date (9.02, 7.84)

8.0

LOW 7.0
HIGH
8.0 9.0 10.0

Performance

134
Figure 9-5

SM Linkage between Soft Measures and
Hard Measures for Speed of
Complaint Handling
S
A 10
T 9
I 8 Large Customers
S 7
Small Customers
F 6
A 5
C 4
T 3
I 2
O 1 2 4 6 8 12 16 20 24
N 0 WORKING HOURS

Figure 9-6 135
Aligning Company
S M Processes with Customer Expectations
Customer Expectations

48 Hours
Customer
Process
Blueprint Report Lost Receive New
Card Card
Company
Process Company Sequential Processes
Blueprint

A
A B
B C
C D
D E
E F
F G
G H
H
Lost Card New Card
Reported 40 Days Mailed

136

SM
Chapter 10

PHYSICAL EVIDENCE
AND THE SERVICESCAPE

137
SM Physical Evidence and the
Servicescape

• Explain the impact on customer perceptions of physical
evidence, particularly the servicescape
• Illustrate differences in types and roles of servicescapes
and their implications for strategy
• Explain why the servicescape affects employee and
customer behavior
• Analyze four different approaches for understanding the
effects of physical environment
• Present elements of an effective physical evidence
strategy

138
Table 10-1

SM Elements of Physical
Evidence
Servicescape Other tangibles

Facility exterior Business cards
Exterior design Stationery
Signage Billing statements
Parking Reports
Landscape Employee dress
Surrounding environment Uniforms
Brochures
Facility interior Internet/Web pages
Interior design
Equipment
Signage
Layout
Air quality/temperature

Table 10-2 139
Examples of Physical Evidence from the
SM Customer’s Point of View
Service Physical evidence
Servicescape Other tangibles
Insurance Not applicable Policy itself
Billing statements
Periodic updates
Company brochure
Letters/cards
Hospital Building exterior Uniforms
Parking Reports/stationery
Signs Billing statements
Waiting areas
Admissions office
Patient care room
Medical equipment
Recovery room
Airline Airline gate area Tickets
Airplane exterior Food
Airplane interior (décor, seats, air Uniforms
quality)
Express mail Not applicable Packaging
Trucks
Uniforms
Computers
Sporting Parking, Seating, Restrooms Signs
event Stadium exterior Tickets
Ticketing area, Concession Areas Program
Entrance, Playiing Field Uniforms

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