The University of Choice

W welcome to
Management & Science University
The University of Choice

The Best Practices for Creating
Customer Loyalty Across
Multi-Channels in Service
Industry
The University of Choice

 What are best practices for creating loyal customers in tourism and
hospitality industry?
 Wh...
The University of Choice

Managing Customer
Relationships and
Building Loyalty
The University of Choice
Contents
• The Search for Customer Loyalty
• Understanding the Customer-Firm Relationship
• The W...
The University of Choice

The Search for Customer Loyalty
The University of Choice
Why Is Customer Loyalty Important to a Firm’s Profitability?
• Customers become more profitable t...
The University of Choice
How Much Profit a Customer Generates Over Time
350 –
300
250
200
150
100
50
0

Year 1
Credit card...
The University of Choice
Assessing the Value of a Loyal Customer (1)
Must not assume that loyal customers are always more ...
The University of Choice
Assessing the Value of a Loyal Customer (2)
•

•

to stage of service in product life cycle
– For...
The University of Choice
Measuring Customer Equity: Lifetime Value of Each
Customer
• Acquisition revenues less costs
– Re...
The University of Choice
Gap Between Actual and Potential Customer Value
•

What is current purchasing behavior of custome...
The University of Choice

Understanding the Customer-Firm Relationship
The University of Choice
Relationship Marketing (1)
• Transactional Marketing
– One transaction or a series of transaction...
The University of Choice
Relationship Marketing (2)
•

Interaction Marketing:
– Face-to-face interaction between customers...
The University of Choice

The Wheel of Loyalty
The University of Choice
The Wheel of Loyalty

3. Reduce
Churn Drivers

 Conduct churn diagnostic
 Address key churn dri...
The University of Choice

Building a Foundation for Loyalty
The University of Choice
Customer Needs and Company Capabilities
•

Identify and target the right customers
– How do custo...
The University of Choice
Searching for Value—Not Just Volume
•

Focus on number of customers served as well as value of ea...
The University of Choice
Effective Tiering of Service : The Customer Pyramid
Good Relationship Customers

Which segment se...
The University of Choice

Loyalty (Retention)

The Customer Satisfaction and Loyalty Relationship
Apostle

100

Zone of Af...
The University of Choice

Creating Loyalty Bonds
The University of Choice
Strategies for Developing Loyalty Bonds with Customers (1)
• Deepening the relationship
– Bundlin...
The University of Choice
Strategies for Developing Loyalty Bonds with Customers (2)
•

Reward-based Bonds
– Incentives tha...
The University of Choice
Strategies for Developing Loyalty Bonds with Customers (3)
Social Bonds
– Based on personal relat...
The University of Choice
Strategies for Developing Loyalty Bonds with Customers (4)
•

Structural Bonds
– Mostly seen in b...
The University of Choice
Creating Customer Bonds by Membership Relationships
and Loyalty Programs (1)
•

Transform discret...
The University of Choice
Create Customer Bonds by Membership Relationships and
Loyalty Programs (2)
•

How customers perce...
The University of Choice

Strategies for Reducing Customer Defections
The University of Choice
Analyze Customer Defections and Monitor Declining Accounts
•

Understand reasons for customer swi...
The University of Choice
Addressing Key Churn Drivers
•

Delivery quality

•

Minimize inconvenience and nonmonetary costs...
The University of Choice
Other Ways to Reduce Churn
• Implement effective complaint handling and service recovery
procedur...
The University of Choice

CRM: Customer Relationship Management
The University of Choice
Integrated Framework for CRM Strategy

Strategy
Development
Process

Value Creation
Process

Mult...
The University of Choice
Integrated Framework for CRM Strategy Development

•

Strategy Development
– Assessment of busine...
The University of Choice
Integrated Framework for CRM Strategy: Value Creation

•

Value Creation
– Translates business an...
The University of Choice
Integrated Framework for CRM Strategy: Multi-Channel Integration

•

Multi-Channel Integration
– ...
The University of Choice
Integrated Framework for CRM Strategy: Performance Assessment

• Performance Assessment
– Is CRM ...
The University of Choice
Integrated Framework for CRM Strategy: Information Management

•

Information Management
– Collec...
The University of Choice
Common Objectives Of CRM Systems (1)
(Service Perspectives )
•

Data collection
– Customer data s...
The University of Choice
Common Objectives Of CRM Systems (2)
(Service Perspectives )
•

Marketing automation
– Mining of ...
The University of Choice
Common Failures in CRM Implementation
• Service firms often equate installing CRM systems with
ha...
The University of Choice
Key Issues in Defining a Customer Relationship Strategy
•

How should our value proposition chang...
The University of Choice

Improving Service Quality and Productivity
The University of Choice

What Is Service Quality?
The University of Choice
Different Perspectives of Service Quality
Quality = Excellence. Recognized only through

Transcen...
The University of Choice
Performance: Primary operatin.g characteristics
Features: Bells and whistles
Reliability: Probabi...
The University of Choice
Components of Quality: Service-based
Tangibles: Appearance of physical elements
Reliability: Depe...
The University of Choice
Capturing the Customer’s Perspective of Service Quality: SERVQUAL (1)

• Survey research instrume...
The University of Choice
How Customers Might Evaluate Online Businesses: Seven
Dimensions of E-S-QUAL
•
•

Navigation: How...
The University of Choice
Other Considerations in Service Quality Measurement
•

In uncompetitive markets or in situations ...
The University of Choice

The Gaps Model—A Conceptual Tool to Identify and Correct
Service Quality Problems
The University of Choice
Customer needs and
expectations

.

CUSTOMER

1. Knowledge Gap

MANAGEMENT

Management definition...
The University of Choice
Prescriptions for Closing the Seven Service Quality Gaps
(1)
1. Standards gap: Specify SQ standar...
The University of Choice
Prescriptions for Closing the Seven Service Quality Gaps
(2)
3. Delivery gap: Ensure service perf...
The University of Choice
Prescriptions for Closing the Seven Service Quality Gaps
(3)
5. Perceptions gap: Educate customer...
The University of Choice

Measuring and Improving Service Quality
The University of Choice
Soft and Hard Measures of Service Quality
•

•

Soft measures—not easily observed, must be collec...
The University of Choice

Defining and Measuring Productivity
The University of Choice
Productivity in a Service Context
•

Productivity measures amount of output produced relative to ...
The University of Choice
Service Efficiency, Productivity, and Effectiveness
•

•

•

Efficiency: Involves comparison to a...
The University of Choice
Measuring Service Productivity: Variability Is a Major Problem
•

•
•

Traditional measures of se...
The University of Choice

Improving Service Productivity
The University of Choice
Questions When Developing Strategies to Improve Service
Productivity


How to transform inputs i...
The University of Choice
Generic Productivity Improvement Strategies
•

Typical strategies to improve service productivity...
The University of Choice
Long Waiting Times May Indicate Need for Service
Process Redesign
The University of Choice
Improving Service Productivity: (1) Operations-driven
Strategies
•

Control costs, reduce waste

...
The University of Choice
Improving Service Productivity: (2) Customer-driven
Strategies
•

Change timing of customer deman...
The University of Choice
Backstage and Front-stage Productivity Changes: Implications
for Customers
•

•

Backstage improv...
The University of Choice

Be Better Tomorrow Than You Are
Today With
MSU Lifelong Learning workshop and
training
The University of Choice
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Life Long Learning in MSUmalaysia

  1. 1. The University of Choice W welcome to Management & Science University
  2. 2. The University of Choice The Best Practices for Creating Customer Loyalty Across Multi-Channels in Service Industry
  3. 3. The University of Choice  What are best practices for creating loyal customers in tourism and hospitality industry?  Why some loyalty programmes of tourism and hospitality business operators don’t work properly? Why others can?  How can the operators of tourism and hospitality industry use multiple channels to create a cross-channel experience with their customers?  How can segmentation and analytics help in driving loyalty?  How can in-store marketing services be used for creating customer loyalty?
  4. 4. The University of Choice Managing Customer Relationships and Building Loyalty
  5. 5. The University of Choice Contents • The Search for Customer Loyalty • Understanding the Customer-Firm Relationship • The Wheel of Loyalty • Building a Foundation for Loyalty • Creating Loyalty Bonds • Strategies for Reducing Customers Defections • CRM: Customer Relationship Management
  6. 6. The University of Choice The Search for Customer Loyalty
  7. 7. The University of Choice Why Is Customer Loyalty Important to a Firm’s Profitability? • Customers become more profitable the longer they remain with a firm: – Increase purchases and/or account balances • Customers/families purchase in greater quantities as they grow – Reduced operating costs • Fewer demands from suppliers and operating mistakes as customer becomes experienced – Referrals to other customers • Positive word-of-mouth saves firm from investing money in sales and advertising – Price premiums • Long-term customers willing to pay regular price • Willing to pay higher price during peak periods
  8. 8. The University of Choice How Much Profit a Customer Generates Over Time 350 – 300 250 200 150 100 50 0 Year 1 Credit card Year 2 Industrial laundry Year 3 Year 4 Industrial distribution Year 5 Auto servicing
  9. 9. The University of Choice Assessing the Value of a Loyal Customer (1) Must not assume that loyal customers are always more profitable than those making one-time transactions – Costs • Not all types of services incur heavy promotional expenditures to attract a new customer • Walk-in traffic more important at times – Revenue • Large customers may expect price discounts in return for loyalty • Revenues don’t necessarily increase with time for all types of customers
  10. 10. The University of Choice Assessing the Value of a Loyal Customer (2) • • to stage of service in product life cycle – For example referrals and negative word-of-mouth have a higher impact in early stages Tasks – Determine costs and revenues for customers from different market segments at different points in their customer lifecycles – Predict future profitability Profit impact of a customer varies according
  11. 11. The University of Choice Measuring Customer Equity: Lifetime Value of Each Customer • Acquisition revenues less costs – Revenues (application fee + initial purchase) – Costs (marketing + credit check + account set up) • Projected annual revenues and costs – Revenues (annual fee + sales + service fees + value of referrals) – Costs (account management + cost of sales + write-offs) • Value of referrals – Percentage of customers influenced by other customers – Other marketing activities that drew the firm to an individual’s attention • Net Present Value – Sum anticipated annual values (future profits) – Suitably discounted each year into the future
  12. 12. The University of Choice Gap Between Actual and Potential Customer Value • What is current purchasing behavior of customers in each target segment? • What would be impact on sales and profits if they exhibited ideal behavior profile of: – (1) buying all services offered by the firm, – (2) using these to the exclusion of any purchases from competitors, – (3) paying full price? • How long, on average, do customers remain with firm? • What impact would it have if they remained customers for life?
  13. 13. The University of Choice Understanding the Customer-Firm Relationship
  14. 14. The University of Choice Relationship Marketing (1) • Transactional Marketing – One transaction or a series of transactions does not necessarily constitute a relationship – Requires mutual recognition and knowledge between the parties • Database Marketing: – Includes market transaction and information exchange – Technology is used to • (1) identify and build database of current and potential customers • (2) deliver differentiated messages based on customers’ characteristics • (3) track each relationship to monitor cost of acquiring that customer and lifetime value of resulting purchases
  15. 15. The University of Choice Relationship Marketing (2) • Interaction Marketing: – Face-to-face interaction between customers and supplier’s representatives – Value is added by people and social processes – Increasing use of technologies make maintaining meaningful relationships with customers a marketing challenge • For example, self-service technology, interactive websites, call centers • Network Marketing: – Common in b2b context where companies commit resources to develop positions in network of relationships with stakeholders and relevant agencies
  16. 16. The University of Choice The Wheel of Loyalty
  17. 17. The University of Choice The Wheel of Loyalty 3. Reduce Churn Drivers  Conduct churn diagnostic  Address key churn drivers Enabled through:  Frontline staff  Account managers  Membership programs  CRM Systems  Implement complaint handling and service recovery  Increase switching costs  Build higher level bonds 1. Build a Foundation for Loyalty  Segment the market  Be selective in acquisition  Use effective tiering of Customer service.  Deliver quality Loyalty service. 2. Create Loyalty Bonds  Give loyalty rewards  Deepen the relationship
  18. 18. The University of Choice Building a Foundation for Loyalty
  19. 19. The University of Choice Customer Needs and Company Capabilities • Identify and target the right customers – How do customer needs relate to operations elements? – How well can service personnel meet expectations of different types of customers? • – Can company match or exceed competing services that are directed at same types of customers? Should result in a superior service offering in the eyes of those customers who value what firm has to offer
  20. 20. The University of Choice Searching for Value—Not Just Volume • Focus on number of customers served as well as value of each customer – Heavy users who buy more frequently and in larger volumes are more profitable than occasional users – Avoid targeting customers who buy based on lowest price • • Firms that are highly focused and selective in their acquisition of customers grow faster “Right customers” are not always high spenders – Can come from a large group of people that no other supplier is serving well • Different segments offer different value
  21. 21. The University of Choice Effective Tiering of Service : The Customer Pyramid Good Relationship Customers Which segment sees high value in our offer, spends more with us over time, costs less to maintain, and spreads positive word-ofmouth? Platinum Gold Iron Lead Poor Relationship Customers Which segment costs us time, effort, and money, yet does not provide return we want? Which segment is difficult to do business with?
  22. 22. The University of Choice Loyalty (Retention) The Customer Satisfaction and Loyalty Relationship Apostle 100 Zone of Affection 80 60 40 Near Apostle Zone of Indifference Zone of Defection 20 Terrorist 0 1 2 Very Dissatisfied Dissatisfied 3 Neither Satisfaction 4 Satisfied 5 Very Satisfied
  23. 23. The University of Choice Creating Loyalty Bonds
  24. 24. The University of Choice Strategies for Developing Loyalty Bonds with Customers (1) • Deepening the relationship – Bundling/cross-selling services makes switching a major effort that customer is unwilling to undertake unless extremely dissatisfied with service provider – Customers benefit from consolidating their purchasing of various services from the same provider – See Research Insights : How do customers see relational benefits? • One-stop-shopping, potentially higher service levels, higher service tiers, etc.
  25. 25. The University of Choice Strategies for Developing Loyalty Bonds with Customers (2) • Reward-based Bonds – Incentives that offer rewards based on frequency of purchase, value of purchase, or combination of both – Financial bonds • Discounts on purchases, loyalty program rewards (e.g., frequent flier miles), cash-back programs – Non-financial rewards • Priority to loyalty program members for waitlists and queues in call centers: higher baggage allowances, priority upgrading, access to airport lounges for frequent flyers – Intangible rewards • Special recognition and appreciation, tiered loyalty programs – Reward-based loyalty programs are relatively easy to copy and rarely provide a sustained competitive advantage
  26. 26. The University of Choice Strategies for Developing Loyalty Bonds with Customers (3) Social Bonds – Based on personal relationships between providers and customers – Harder to build and imitate and thus, better chance of retention in the long term • Customization Bonds – Customized service for loyal customers • e.g., Starbucks – Customers may find it hard to adjust to another service provider who cannot customize service Source: PAL Library; Asset ID: AAFHKTO0
  27. 27. The University of Choice Strategies for Developing Loyalty Bonds with Customers (4) • Structural Bonds – Mostly seen in b2b settings – Stimulate loyalty through structural relationships between provider and customer • Joint investments in projects and sharing of information, processes and equipment – Can be seen in b2c environment too • Airlines—SMS check-in, SMS e-mail alerts for flight arrival and departure times – Difficult for competition to draw customers away when they have integrated their way of doing things with existing supplier
  28. 28. The University of Choice Creating Customer Bonds by Membership Relationships and Loyalty Programs (1) • Transform discrete transactions into relationships – Discrete transactions: Each usage involves payment to service supplier by an essentially "anonymous" consumer – Membership cards: Capture transactions, communicate customer preferences to frontline – Loyalty reward programs increasingly used by all businesses in response to competition • Frequent fliers program—rewards dominated in miles – Customers may get frustrated with reward programs • For example: Feel excluded from rewards program because of low balances, rewards seen as having little value, cumbersome redemption process – Don’t lose sight of broader goals of offering high service quality, nor allow service to other customers to deteriorate
  29. 29. The University of Choice Create Customer Bonds by Membership Relationships and Loyalty Programs (2) • How customers perceive reward programs – Brand loyalty versus deal loyalty – Buyers value rewards according to: • Cash value of redemption award • Range of choice among rewards • Aspirational value of rewards • Amount of usage required to obtain award • Psychological benefits of belonging to reward program – Timing • Send customers periodic updates on account status and progress towards particular milestones
  30. 30. The University of Choice Strategies for Reducing Customer Defections
  31. 31. The University of Choice Analyze Customer Defections and Monitor Declining Accounts • Understand reasons for customer switching • Churn diagnostics common in mobile phone industry – Analysis of data warehouse information on churned and declining customers – Exit interviews: • Ask a short set of questions when customer cancels account; in-depth interviews of former customers by third party agency – Churn Alert Systems: • Monitor activity in individual customer accounts to predict impending customer switching • Proactive detention efforts—send voucher, customer service representative calls customer
  32. 32. The University of Choice Addressing Key Churn Drivers • Delivery quality • Minimize inconvenience and nonmonetary costs • Fair and transparent pricing • Industry specific drivers – Cellular phone industry: Handset replacement a common reason for subscribers discontinuing services—offer proactive handset replacement programs • Reactive measures – Save teams: Specially trained call center staff to deal with customers who want to cancel their accounts – Be careful about how save teams are rewarded
  33. 33. The University of Choice Other Ways to Reduce Churn • Implement effective complaint handling and service recovery procedures • Increase switching costs – Natural switching costs • For example, changing primary bank account—many related services tied to account – Can be created by instituting contractual penalties for switching • Must be careful not to be perceived as holding customers hostage • High switching barriers and poor service quality likely to generate negative attitudes and word of mouth
  34. 34. The University of Choice CRM: Customer Relationship Management
  35. 35. The University of Choice Integrated Framework for CRM Strategy Strategy Development Process Value Creation Process Multi-Channel Integration Process Information Management Process Performance Assessment Process
  36. 36. The University of Choice Integrated Framework for CRM Strategy Development • Strategy Development – Assessment of business strategy – Business strategy guides development of customer strategy
  37. 37. The University of Choice Integrated Framework for CRM Strategy: Value Creation • Value Creation – Translates business and customer strategies into specific value propositions for both customers and firm • Customers benefit from priority, tiered services, loyalty rewards, and customization • Company benefits from reduced customer acquisition and retention costs, and increased share-of-wallet – Dual creation of value: Customers need to participate in CRM to reap value from firm’s CRM initiatives
  38. 38. The University of Choice Integrated Framework for CRM Strategy: Multi-Channel Integration • Multi-Channel Integration – Serve customers well across many potential interfaces – Offer a unified interface that delivers customization and personalization
  39. 39. The University of Choice Integrated Framework for CRM Strategy: Performance Assessment • Performance Assessment – Is CRM system creating value for key stakeholders? – Are marketing and service standard objectives being achieved? – Is CRM system meeting performance standards?
  40. 40. The University of Choice Integrated Framework for CRM Strategy: Information Management • Information Management – Collect customer information from all channels – Integrate it with other relevant information – Make useful information available to the frontline – Create and manage data repository, IT systems, analytical tools, specific application packages
  41. 41. The University of Choice Common Objectives Of CRM Systems (1) (Service Perspectives ) • Data collection – Customer data such as contact details, demographics, purchasing history, service preferences, and the like • Data analysis – Data captured is analyzed and categorized – Used to tier customer base and tailor service delivery accordingly. • Sales force automation – Sales leads, cross-sell, and up-sell opportunities can be effectively identified and processed – Entire sales cycle from lead generation to close of sales and after- sales service can be tracked and facilitated through CRM system
  42. 42. The University of Choice Common Objectives Of CRM Systems (2) (Service Perspectives ) • Marketing automation – Mining of customer data enables the firm to target its market – Goal to achieve one-to-one marketing and cost savings, often in the context of loyalty and retention programs – Results in increasing the ROI on its marketing expenditure – CRM systems also enable the assessment of the effectiveness of marketing campaigns through the analysis of responses • Call center automation – Call center staff have customer information at their fingertips and can improve their service levels to all customers – Caller ID and account numbers allow call centers to identify the customer tier the caller belongs to, and to tailor the service accordingly • For example, platinum callers get priority in waiting loops
  43. 43. The University of Choice Common Failures in CRM Implementation • Service firms often equate installing CRM systems with having a customer relationship strategy • Challenge of getting it right with wide-ranging scope of CRM • Common reasons for failures – Viewing CRM as a technology initiative – Lack of customer focus – Insufficient appreciation of customer lifetime value (CLV) – Inadequate support from top management – Failure to reengineer business processes – Underestimating the challenges in date integration
  44. 44. The University of Choice Key Issues in Defining a Customer Relationship Strategy • 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 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 resources can we allocate to CRM right now? • If we believe in customer relationship management, why haven’t we taken more steps in that direction in past? • What can we do today to develop customer relationships without spending on technology?
  45. 45. The University of Choice Improving Service Quality and Productivity
  46. 46. The University of Choice What Is Service Quality?
  47. 47. The University of Choice Different Perspectives of Service Quality Quality = Excellence. Recognized only through Transcendent: experience Product-based: Quality is precise and measurable User-based: Quality lies in the eyes of the beholder Manufacturing- Quality is in conformance to the firm’s developed specifications based: Value-based: Quality is a trade-off between price and value
  48. 48. The University of Choice Performance: Primary operatin.g characteristics Features: Bells and whistles Reliability: Probability of malfunction or failure Conformance: Ability to meet specifications Durability: How long product continues to provide value to customer Serviceability: Speed, courtesy, competence Esthetics: How product appeals to users Perceived Quality: Associations such as brand name
  49. 49. The University of Choice Components of Quality: Service-based Tangibles: Appearance of physical elements Reliability: Dependable and accurate performance Responsiveness: Promptness; helpfulness Assurance: Competence, courtesy, credibility, security Empathy: Easy access, good communication, understanding of customer
  50. 50. The University of Choice Capturing the Customer’s Perspective of Service Quality: SERVQUAL (1) • Survey research instrument based on premise that customers evaluate firm’s service quality by comparing – Their perceptions of service actually received – Their prior expectations of companies in a particular industry • Poor quality – Perceived performance ratings < expectations • Good quality – Perceived performance ratings > expectations
  51. 51. The University of Choice How Customers Might Evaluate Online Businesses: Seven Dimensions of E-S-QUAL • • Navigation: How easy is it to move around the site? • Design and presentation: Image projected from site? • Content and purpose: Substance and richness of site • Currency and accuracy • Responsiveness:Firm’s propensity to respond to e-mails • . Accessibility : Is site easily found? Interactivity, customization, and personalization • Reputation and security
  52. 52. The University of Choice Other Considerations in Service Quality Measurement • In uncompetitive markets or in situations where customers do not have a free choice, researchers should use needs or wants as comparison standards – Time constraints • Services high in credence characteristics may cause consumers to use process factors and tangible cues as proxies to evaluate quality —halo effect – Process factors: Customers’ feelings
  53. 53. The University of Choice The Gaps Model—A Conceptual Tool to Identify and Correct Service Quality Problems
  54. 54. The University of Choice Customer needs and expectations . CUSTOMER 1. Knowledge Gap MANAGEMENT Management definition of these needs 2. Standards Gap Translation into design/delivery specs 4. Internal Communications Gap 3. Delivery Gap Execution of design/delivery specs 4. 5. Perceptions Gap Customer perceptions of service execution 7. Service Gap Customer experience relative to expectations Advertising and sales promises 6. Interpretation Gap Customer interpretation of communications
  55. 55. The University of Choice Prescriptions for Closing the Seven Service Quality Gaps (1) 1. Standards gap: Specify SQ standards that reflect expectations – Set, communicate, and reinforce customer-oriented service standards for all work units – Measure performance and provide regular feedback 1. Knowledge gap: Learn what customers expect – Understand customer expectations – Improve communication between frontline staff and management – Turn information and insights into action – Reward managers and employees
  56. 56. The University of Choice Prescriptions for Closing the Seven Service Quality Gaps (2) 3. Delivery gap: Ensure service performance meets standards – Clarify employee roles – Train employees in priority setting and time management – Eliminate role conflict among employees – Develop good reward system 3. Internal communications gap: Ensure that communications promises are realistic – Seek comments from frontline employees and operations personnel about proposed advertising campaigns – Get sales staff to involve operations staff in meetings with customers – Ensure that communications sets realistic customer expectations
  57. 57. The University of Choice Prescriptions for Closing the Seven Service Quality Gaps (3) 5. Perceptions gap: Educate customers to see reality of service quality delivered – Keep customers informed during service delivery and debrief after delivery – Provide physical evidence 5. Interpretation gap: Pretest communications to make sure message is clear and unambiguous – Present communication materials to a sample of customers in advance of publication 5. Service gap: Close gaps 1 to 6 to meet customer expectations consistently
  58. 58. The University of Choice Measuring and Improving Service Quality
  59. 59. The University of Choice Soft and Hard Measures of Service Quality • • Soft measures—not easily observed, must be collected by talking to customers, employees, or others – Provide direction, guidance, and feedback to employees on ways to achieve customer satisfaction – Can be quantified by measuring customer perceptions and beliefs • For example: SERVQUAL, surveys, and customer advisory panels Hard measures—can be counted, timed, or measured through audits – Typically operational processes or outcomes – Standards often set with reference to percentage of occasions on which a particular measure is achieved – Control charts are useful for displaying performance over time against specific quality standards
  60. 60. The University of Choice Defining and Measuring Productivity
  61. 61. The University of Choice 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 productivity of service firms, especially for informationbased services – Difficult in most services because both input and output are hard to define – Relatively simpler in possession-processing services, as compared to information- and people-processing services
  62. 62. The University of Choice Service Efficiency, Productivity, and Effectiveness • • • Efficiency: Involves comparison to a standard, usually time-based (for example: how long employee takes to perform specific task) – Problem: Focus on inputs rather than outcomes – May ignore variations in service quality/value Productivity: Involves financial valuation of outputs to inputs – Consistent delivery of outcomes desired by customers should command higher prices Effectiveness: Degree to which firm meets goals – Cannot divorce productivity from quality and customer satisfaction
  63. 63. The University of Choice Measuring Service Productivity: Variability Is a Major Problem • • • Traditional measures of service output tend to ignore variations in quality or value of service – Focus on outputs rather than outcomes – Stress efficiency but not effectiveness Firms that consistently deliver outcomes desired by customers can command higher prices; loyal customers are more profitable Measures with customers as denominator include: – Profitability by customer – Capital employed per customer – Shareholder equity per customer
  64. 64. The University of Choice Improving Service Productivity
  65. 65. The University of Choice Questions 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?
  66. 66. The University of Choice Generic Productivity Improvement Strategies • Typical strategies to improve service productivity: – Careful control of costs at every step in process – Efforts to reduce wasteful use of materials or labor – Replacing workers by automated machines – Installing expert systems that allow paraprofessionals to take on work previously performed by professionals who earn higher salaries • Although improving productivity can be approached incrementally, major gains often require redesigning entire processes ? ? ?
  67. 67. The University of Choice Long Waiting Times May Indicate Need for Service Process Redesign
  68. 68. The University of Choice Improving Service Productivity: (1) Operations-driven Strategies • Control costs, reduce waste • Set productive capacity to match average demand • Automate labor tasks • Upgrade equipment and systems • Train employees • Broadening array of tasks that a service worker can perform • Leverage less-skilled employees through expert systems • Service process redesign
  69. 69. The University of Choice Improving Service Productivity: (2) Customer-driven Strategies • Change timing of customer demand – By shifting demand away from peaks, managers can make better use of firm’s productive assets and provide better service • Involve customers more in production – Get customers to self-serve – Encourage customers to obtain information and buy from firm’s corporate websites • Ask customers to use third parties – Delegate delivery of supplementary service elements to intermediary organizations
  70. 70. The University of Choice Backstage and Front-stage Productivity Changes: Implications for Customers • • Backstage improvements can ripple to front and affect customers – Keep abreast of proposed backstage changes, not only to identify such ripples but also to prepare customers for them • For example: New printing peripherals may affect appearance of bank statements Front-stage productivity enhancements are especially visible in high contact services – Some improvements only require passive acceptance, while others require customers to change behavior – Must consider impacts on customers and address customer resistance to changes – Better to conduct market research first if changes are substantial
  71. 71. The University of Choice Be Better Tomorrow Than You Are Today With MSU Lifelong Learning workshop and training
  72. 72. The University of Choice
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